The magic of the full-priced offer
Does the seller have to sell?

by Dennis R. Schmidt   Every profession or business has its own catchwords or phrases that have developed through custom and usage. Sometimes those words or phrases take on a life of their own. Often, through misuse or lack of understanding, those words or phrases can lead to erroneous conclusions as to their legal impact.

One of the phrases often talked about on the TAR Legal Hotline is "the full-priced offer." Listing brokers want to know whether they can sue their client for their commissions when the client refuses to accept a full-priced offer, or whether they have to pay a cooperating broker when a seller turns down a full-priced offer. Selling agents want to know whether their buyers have a right to sue the seller who turns down a full-priced offer.

Commission issues

In a recent Texas case, a listing broker sued the owner for a commission due under a listing agreement between the parties. During contract negotiations, a potential buyer offered "full-price" for the house but added several terms to the offer that did not appear in the listing agreement. Continued negotiations between the seller and the buyer-adding and rejecting different conditions- failed to produce a completed and executed contract. The listing agreement provided that the broker's fee was earned and payable if the broker procured "a Buyer ready, willing and able to buy said Property (1) at the price and terms stated herein, or (2) at any other price and terms acceptable to Owner…"

The broker argued that by agreeing to the buyer's offer of the full listing price and some of the buyer's additional terms in an effort to negotiate a contract, the owner found the buyer's terms acceptable, thereby satisfying the second condition of the listing agreement. The court rejected the broker's arguments, pointing out that a counter-offer constitutes a rejection of the other party's offer. The court held that the phrase "at any other price and terms acceptable to Owner" did not include proposed terms conditionally "agreed" to by the owner during negotiations, but that the phrase referred to modifications of the listing agreement that might be made with the consent of the owner and the broker. The court noted that this holding was consistent with commercial necessity required to permit free negotiations of offers and counteroffers in the purchase and sale of real estate.

NAR arbitration guidelines

New changes to the National Association of Realtors® Arbitration Guidelines clarify that an arbitrable issue involving procuring cause requires a "successful transaction." "Successful transaction" is defined as "a sale that closes or a lease that is executed." This arbitration provision makes it clear that the listing broker is not obligated to pay a cooperating broker when a seller turns down a full-priced offer, but only if and when the sale closes. It should also be noted that the real estate contracts promulgated by the Texas Real Estate Commission and the commercial contracts developed by TAR have provisions that state that the cooperating fee shall be paid when the listing broker's fee is received.

Buyer's rights

Questions about a buyer's right to force a seller to accept a full-priced offer during contract negotiations seem to be founded in wishful thinking. The statute of frauds is clear in requiring the signature of the seller and a written contract as a predicate to compelling a seller to convey real estate in Texas. The listing or advertising of real estate for sale does not constitute an enforceable offer to sell the property. Only when the sales agreement is reduced to writing and signed by both the seller and the buyer is that agreement enforceable under the Texas statute of frauds. This is true even if the potential buyer has made an offer that fully satisfies all of the seller's listing or advertised terms, including the sales price.

Dennis R. Schmidt is associate counsel for TAR.

home   current issue    top 10    resources 

discussions   contact us   search

Buyers & sellers, visit www.texasrealestate.com.
REALTORS®, visit www.tar.org.