Imagine you are a real estate broker, and you receive an email like this:
From: Mystery Investment Company, LLC.
Subject: Offer To Purchase
LETTER OF INTENT TO PURCHASE
123 Elm Street [the address of one of your listings]
I am submitting this letter of intent to purchase the property you have listed below. I am making this CASH offer to you, the listing agent, with no other agent(s) involved. Please notify your client of my CASH offer. Should your client find my offer acceptable, please draft my offer on a standard contract form.
As you relay my offer, please emphasize the following:
- ALL CASH OFFER
- 21 DAY20CLOSING
- AS IS PURCHASE
- PARTIES: Mystery Investment Company, LLC as (Buyer) and Owner of Record as (Seller).
- MLS NUMBER: 1234567
- PROPERTY ADDRESS: 123 Elm Street, YourTown, Any State
- PURCHASE PRICE: $99950 CASH [less than ½ the listing price].
- PERIOD: Closing on or before 21 Days.
- PROVISIONS: Property purchased in “As Is” condition. Buyer and Seller agree to pay normal closing costs. Proof of Funds upon request. Earnest money to be deposited upon acceptance.
Buyer: ___________________________________________________ Date: _____________
[Signature line for buyer, but no signature]
Seller Acceptance: __________________________________________ Date: _____________
Seller Acceptance: __________________________________________ Date: _____________
Imagine that you receive such an email for each of your active listings and that you learn from your peers that they too have received these emails. We understand this is becoming a more common practice all the time.
What do you do? Are you bound by the REALTOR® Code of Ethics or state law to present these ‘offers’ to your seller? Should the listing broker forward every one of these emails to her sellers? Can you get your seller’s written instruction not to bother her with such ‘offers’ when they are below 50% or 60% of the listing price? The answer, not surprisingly, depends…
Is the email an offer?
Under the laws of most states, an offer to purchase is the buyer’s proposal which, if accepted by the seller, would create a binding contract between them. It is unclear whether the ‘letter of intent’ would constitute an offer under the laws of all states. Issues that jump out immediately include the following:
• The email refers to itself as a “letter of intent” before characterizing itself in any other way. Though it later, and frequently, refers to “this offer,” it is unclear whether the recipient would reasonably interpret this email as an offer to purchase (and that reasonableness is typically part of the standard for interpreting an offer in contract law).
• There is no way to accept the buyer’s offer. The email directs the recipient to “please draft my offer on a standard form contract.” It is likely that the effort by the seller’s broker to do so would legally constitute a counter-offer, as it would necessarily include terms that are not in the email. Consequently, it appears impossible to accept the ‘offer’ – and that makes it not an offer at all, but an invitation to negotiate, which is binding on no one.
• The email says “Earnest money to be deposited upon acceptance.” But of course, there is no earnest money in the email. This again suggests the email may be something other than an offer.
Nevertheless, as we shall see, just the fact that the email is a written communication may be sufficient to require the broker receiving it to forward it to the seller.
Broker’s obligation to communicate offers
This section looks at brokers’ obligations under the REALTOR® Code of Ethics (the “Code”), which is binding only on brokers and agents who are members of the National Association of REALTORS®; and under the laws of a single state, which govern only brokers and agents in that state. If you are a broker or agent, discuss this matter with local legal counsel before acting on it.
Standard of Practice 1-6 of the Code provides: “REALTORS® shall submit offers and counter-offers objectively and as quickly as possible.” Standard of Practice 1-7 goes on: “When acting as listing brokers, REALTORS® shall continue to submit to the seller/landlord all offers and counter-offers until closing or execution of a lease unless the seller/landlord has waived this obligation in writing.”
Taken together, these provisions seem to say two things:
- Brokers must submit “offers and counter-offers” promptly, but no reference is made to communications that do not legally constitute offers.
- The seller can waive this requirement in writing.
Thus, based solely on the Code, if the listing broker concluded that the email was not an offer, she could probably just delete it. If she gets a lot of these, she could ask sellers to give her written instruction (probably on a form that her lawyer creates for the purpose) not to present such offers.
All taken care of, right?
Not so fast. The listing broker may still have an obligation to present the email to the seller under state law. For example, the license law in one state provides the following:
“A seller’s agent owes the seller, other principals and the principals’ agents… the following affirmative duties: … (b) To present all written offers, written notices and other written communications to and from the parties in a timely manner without regard to whether the property is subject to a contract for sale or the buyer is already a party to a contract to purchase…. [A]n affirmative duty may not be waived.” [Emphasis added.]
The duty applies to all “written communications” and is not one the seller can waive, because the duty is to all the parties (including “other principals” – i.e., the putative buyer). At least in this state, the law appears to eliminate the wiggle room that the Code seemed to provide.
How to handle this situation?
If I were a broker, even if I were uncertain whether I had an obligation to present this ‘offer’ to my seller, I think I might take the following tack: I would draft a standard paragraph of text explaining what is going on, so that my agents and I could easily drop it into an email to my seller. Every time one of these ‘spam offers’ comes in, I would forward it to my seller with the explanatory paragraph and an email subject line of “Probable ‘spam’ offer.” The explanatory paragraph would point out the following things:
- The brokerage firm has received an unsolicited email from a company that has sent similar emails regarding other listings in MLS.
- The email contains what purports to be a ‘letter of intent’ or offer to purchase the seller’s property.
- State law and the REALTOR® Code of Ethics may require the brokerage firm to forward the communication to the seller, and the broker is doing so.
- The broker believes this not to be a serious offer, because the ‘offering price’ is a fraction of the listing price, and there is no earnest money.
- The broker will take no further action with regard to the email or the ‘offer’ unless the seller instructs otherwise.
I would probably try to phrase all this in such a way as to make sure that the seller understands my firm is looking out for her. Taking this step and making a record of it in the file is good risk management for the broker.
What do you think? If you are a broker, I’d like to hear from you whether you are receiving emails like this and whether you have a strategy for dealing with them that you think is more effective.
Paul Barrow says
Great post Brian. I agree with you that a Letter of Intent (LOI) is not a binding contract at all. I often use LOI's to communicate in writing to a seller my proposition for purchase, but only in complicated transactions. I find it helpful to outline the terms before submitting a formal offer that must be reviewed by an attorney. I also that agree that the emails you received are "
FRANK LL0SA Va Broker- BLOG.FranklyRealty.com says
I liken this to the Nigerian inheritance scam. I would not even mention the spam to my client. It in no way is a real offer that could bind anybody.
Brian N. Larson says
I got comments via email from two other brokers.
We literally do get them on every listing and just forward them along to the seller like any other offer, we don't have to tell them, they receive tons of them everyday and almost always just reject upon receipt. Keeps all of us clean and above reproach.
Whether the market is accelerating at