Offer and Acceptance: Contract Law and Real Estate

At its heart, an agreement for the purchase and sale of real estate is just a contract. As such, the agreement needs to conform to the requirements of a valid contract under state law. A key aspect of a valid contract is the "meeting of the minds" -- the parties need to agree on the actual terms of the contract. This is the law -- it's also common sense.

Let me present a (slightly altered) timeline for a transaction on which I'm currently working:

November 4: Buyers offer to purchase real estate for $210,000, with a $5,000 inspection credit (in other words, $205,000 net offer)

November 5: Sellers make a verbal counter-offer of $215,000 with $5,000 inspection credit ($210,000 net offer)

November 6: Buyers present a signed contract to Sellers offering $215,000 with $6,000 inspection credit ($209,000 net offer)

November 7: Sellers cross out the purchase price and inspection credit amount on the Buyers' contract, write in $216,000 with $5,000 inspection credit, and sign the contract ($211,000 net offer)

We now have a contract signed by both parties, but the contract isn't valid. The Sellers have agreed to a $216,000 purchase price with a $5,000 inspection credit, but the Buyers haven't. We're pretty close to an agreement ($209,000 net offer vs. $211,000 net offer), but we aren't there yet.

A separate issue arises when the parties have entered into a valid contract, one that includes an attorney review provision. (This provision, which is very typical in residential real estate contracts, allows each party's attorney to propose modifications to the contract.) Let's suppose that the buyer's attorney sends a letter to the seller's attorney, asking that certain provisions in the contract be modified. The question then becomes whether or not this modification request constitutes a rejection of the original contract and a counter-offer. As Helen W. Gunnarrson explains in this very insightful article from the Illinois Bar Journal, practitioners differ in their take on the effect of an attorney modification letter. Some attorneys do indeed view the modification request as a rejection of the original contract and a counter-offer, while others simply think of the modification request as a proposal of some kind.