REAL ESTATE TOPICS...Can a real estate contract be binding if you don't put money down?

By Benny L. Kass

Q: Please resolve a dispute I have with my real estate agent. He says I need to post a money deposit in order to have a binding real estate contract, and I don't agree. He also said the oral promise of my seller to leave the piano in the house is not binding. Is that correct?

A: There is a very ancient legal concept called the statute of frauds. In simplified terms, and as it applies to real estate, this means that in order to have a binding contract to purchase (or sell) real estate, there must be a written document. Oral contracts will usually not be enforced by the courts.

In most jurisdictions in the United States, when a potential buyer makes a written offer to purchase a house, the seller has three options:

1. The offer can be accepted, in which case there is a contract.

2. The offer can be rejected.

3. The offer can be met with a counteroffer. This means that while the seller is interested in pursuing negotiations with the potential purchaser, the seller does not find all the terms of the original offer acceptable. .

If a seller makes a counteroffer, the buyer then has the same three options.

Most real estate transactions are smooth, and work out successfully. However, once in a while, a major dispute arises between the parties, and litigation starts. The first thing any court will want to determine is whether there is a valid contract.

In order to have a binding, legal contract, three basic elements are required:

1. An offer. Typically, the buyer makes an offer. It has been determined by many courts that an advertisement in the local newspaper offering a house for sale at a particular price is not an offer, merely an invitation for the public at large to make a bid (an offer) on the property.

2. Acceptance. The second element needed to make a contract binding is acceptance. Ultimately, there will either be no deal, or someone will accept an offer (or counteroffer) and there will be a contract. Acceptance must be in writing. In recent years, with modern technology, real estate forms can be accepted via fax or by email. However, to be on the safe side, follow any fax or email with a written document containing an original signature.

3. Consideration. This is an elusive concept. Generally, it refers to money. The buyers have put down a good faith money deposit with the broker (or with their attorney), and this constitutes good consideration.

However, what happens if no money is put down with the offer? Does this mean there is no binding contract even if the seller signs the offer? Not really, since consideration also has been interpreted to be "something of value." In this case, the buyer has stopped looking for another house, in the belief there is a binding real estate contract, and the seller has taken the house off the market, based on that same belief. Thus, there would still be a valid contract, although it is always wise to put down some money when you present an offer to purchase real estate.

The lesson to be learned: Put everything in writing. If you, as buyer, want certain items to be conveyed along with the house — such as the washing machine, curtains or even the piano — make sure these items are specifically listed in the sales contract. And conversely, if you, as seller, want to take certain fixtures with you, put that in writing as well.

Don't leave anything to faith — or to oral promises. I cannot guarantee you will get the piano.