Prohibition Regarding Negotiating Offers While Under Contract

Question:

My seller is currently under contract but wants to negotiate other offers in case the contract falls through.  What do I tell my seller?

Answer/Recommendation:

It is imperative the Seller understands that negotiating two offers at the same time could result in two contracts on the same property.  In very complex legal terminology, “this would be bad.”  (Poor attempt at humor, I know).

Sellers (and buyers) sometimes don’t realize the severity of their signature on the standard Louisiana Residential Agreement to Buy or Sell.  According to lines 348 to 350 of the Louisiana Residential Agreement to Buy or Sell:

“CONTRACT: This is a legally binding contract when signed by both SELLER and BUYER. READ IT CAREFULLY. If you do not understand the effect of any part of this Agreement seek legal advice before signing this contract or attempting to enforce any obligation or remedy provided herein.”

The seriousness of contracts was discussed in the Markovich vs. Prudential Gardner Realtors, et al,  2010 CA 1886 (La. App. 1 Cir. 7/1/2011).  Although Markovich was not designated for publication, it gives us an idea of how Louisiana Courts feel about signing multiple contracts on the same piece of property.

In Markovich, Seller’s real estate broker received two offers from two, different buyers on the Seller’s property.  In response, the Seller’s real estate broker provided two counter-offers to each buyer giving each potential buyer nearly the same amount of time to respond.  Of course, both buyers accepted the counter-offers and litigation ensued.

At trial, the real estate broker testified his real estate agent should not have forwarded two counter-offers on the same property to two, different buyers.

The Trial Court held that by forwarding two counter offers to two different buyers for the same piece of property, the real estate agent breached his fiduciary duty and the Trial Court awarded damages totaling in excess of $700,000.00 adverse to the real estate broker.

Considering the above, when faced with a seller client who wants to negotiate other offers despite being under contract, I would tell the seller:

  1. Seller is currently under contract;
  2. If the seller negotiates another offer by providing a counter-offer, the seller runs the risk of having 2 contracts on the same property at the same time;
  3. If this occurs, then the seller will have to cancel one of the contracts;
  4. If the seller cancels one of the contracts, then there are very serious penalties outlined in lines 247 to 256 of the Residential Agreement to Purchase and Sell that might be enforced against the seller;
  5. If the seller has any legal questions concerning the above or wants more clarification of the penalties that the seller might face, please refer them to an attorney.

 

For any questions concerning this email, please contact me at rye@tutentitle.com.

H.L. “Rye” Tuten, III, is a Title Attorney/Real Estate Closing Attorney and Owner of Tuten Title & Escrow, LLC. Formerly assigned by RICE Insurance to defend real estate agents throughout Acadiana, much of his more than nine years’ litigation experience is with real estate concerns.