What you say on email can be a binding contract

Last week, the New York Times reported on a court appeal regarding email communications. I sent the link to one of my clients, who was in a transaction with a seller, and a seller’s agent, and a seller’s attorney who did not understand the importance of email communication.

Here’s what happened:

The seller and the buyer had email communications through their agents regarding chattel (personal items) and some built-in items that could stay or go after closing. In the course of that conversation, the seller offered two small mounted TVs. The TVs were a distraction from the negotiation at hand. My client, the buyer, frankly didn’t care if they stayed or went. A deal was reached regarding some other, more expensive, items; the more expensive items were included, specifically, in the Purchase and Sales Agreement.  

However, the fur started to fly when -- several weeks later -- those same TVs were offered, for a fee, along with some items that were clearly built-in and part of the property. When I explained to the seller’s agent that these TVs had already been offered, agent said that offer was not binding because it was not in the Purchase and Sales Agreement. My client was annoyed that the seller was going back on his word. My client was also annoyed that the seller was attempting to sell built-in items at the last minute. 

“Not in the Purchase and Sales Agreement” does negate the written offer, by email, to my client. As of last week -- at least in New York State -- email promises are confirmed as binding. “As much as communication originally written or typed on paper, an e-mail retrievable from computer storage” is proof of a deal, according to the court’s opinion, which was written by Associate Justice David Friedman.

The Times, quotes an attorney who is using a disclaimer to avoid email backfires:

In most cases a disclaimer can inoculate senders from having e-mail backfire, real estate lawyers said. Mario J. Suarez, a lawyer at Thompson Hine who handles many commercial transactions, suggested that the wording might say the communications “shall not be deemed an offer, as no documents are binding unless and until executed.”

Should real estate agents have a disclaimer on all their emails? I vote, “no.” I like the idea of saying or writing what I mean and I don’t mind being held to my word.

Does the hot water heater have to be working, by law, in Massachusetts?

I got a call from an agent who had a question. He asked, “Does the hot water heater have to be working, by law, in Massachusetts?” The guy was quite frantic, because the hot water heater was leaking at the walk-through and the closing was in a couple of hours.

I agreed to answer questions, when I can, on this blog. But, this situation was wrong in every direction.

When I called him back, I asked how he came to call me about this, and not his supervisor. (Remember that any real estate salesperson is working under the license of a broker, who is supposed to be supervising.) He tells me that his broker is out of state. So, he says, he went on line and found my editorial [a Boston.com blog post] about closings. It said that everything should be working on closing day. So, don’t I agree that the hot water heater should be working?

I tell him that it is not a law. Most Purchase and Sales Agreements hold the seller to deliver the house in the same condition as the inspection, except that the house has been emptied of personal items and broom-clean. The hot water heater should be working now because at home inspection it was working. Was the hot water heater working at home inspection?

He tells me they didn’t have a home inspection. Then he tells me that the house was winterized, so none of the plumbing was on when the Purchase and Sales Agreement was signed. “Oh,” I say, “Did the Purchase and Sales Agreement reserve the right to inspect the plumbing after the water is turned with the requirement that it be in working order?” He doesn’t know.

He says again, that I wrote that the water heater should be working. (He’s annoyed that I don’t agree with him.) I remind him that his client never confirmed that the hot water heater was working. It could have failed before the house was winterized. In a typical sale, there is a home inspection that establishes the condition of the house. Then the Purchase and Sales Agreement hold the seller to that baseline.

I tell him to look at the Purchase and Sales Agreement. See if there is a clause about the plumbing. Your client is protected if the seller agreed that the plumbing would work after winterization. If you have a clause like that, there is something you can do.

What bothers me about this call is that a licensed agent went to Google or Bing for an answer that his supervising broker should have answered. He called me before looking at the Purchase and Sales Agreement. He called me before calling the buyer’s attorney.

There are basic protections that the buyer in this situation seems to have given up. He or she has been working with an agent who has no idea about the possible problems that can ensue. The agent has absent supervision. The agent does not know what protections are in the Purchase and Sales Agreement.

My agents knew more than this guy months before I let them work 1:1 with one of our clients.

Takeaways:

1.      Home inspections are important for protecting your rights to a functioning house.

2.      Your Purchase and Sales Agreement is the binding document that describes the agreement about your purchase. Understand it before signing it.

3.      When interviewing agents, ask them about home inspections, what they see in a typical Purchase and Sales Agreement, and ask who they call when they run into something they have not seen before. I suggest that you avoid agents who think home inspections are not important. I suggest that you avoid agents who don’t know what protections are typically in a Purchase and Sales Agreement. I suggest that you avoid an agent who would look for an answer on line before asking a more experienced agent or the broker in his or her office.

In case of disaster

The coming and going of Hurricane Sandy brought questions from my buyers about what happens if a disaster damages a house in the middle of the process them buying it. The rules are the same whether the damage to the house is minimal or huge. In short, the contracts govern what happens if the sale does not go through because of damage to the house. The penalties for failure to buy or sell are laid out there, in writing.

The disaster I am using as an example is that a twister comes through and takes the house to Oz.

A buyer and seller agree to price and terms in an Offer to Purchase. That Offer is contingent on a home inspection, a specific mortgage being approved for the purchase, and the signing of a Purchase and Sales Agreement that governs the transaction until closing. All of these conditions have a deadline attached to them.

If the house is taken to Oz before the home inspection, the house will fail home inspection because it came off its foundation. The buyer gets their deposit back. 

If there has been a home inspection, but no Purchase and Sales Agreement, the Offer is still the governing document. The buyer’s deposit could be in jeopardy if the seller wants to continue and the buyer doesn’t. However, practically speaking, the seller would need to be able to get the house back from Oz and into the same condition it was in at inspection in order to close. If the problem were tree damage or a need to repair the basement floor, the transaction could go on. 

Once there is a the Purchase and Sales Agreement, there will be a clause that states that the house will be in the same condition at closing as it was at the home inspection, except that the house will be empty and --most commonly—the term “broom clean” is used. Since Hurricane Katrina, some attorneys have gotten a lot more specific about how much damage a house can sustain and still close. 

Lenders also come into the act. The Purchase and Sales Agreement includes the same mortgage contingency that was in the Offer to Purchase. In order to get a mortgage, the lender will need to appraise the house. If the house is in Oz, the appraiser will not consider it adequate equity for the loan. (If the house is damaged, that could also cause appraisal problems.) If the appraisal fails before the mortgage contingency date, the buyer doesn’t get their mortgage, so the buyer cannot buy the house. The buyer can notify the seller; the sale does not go through; the buyer gets his or her deposit back.

What happens if the mortgage contingency date has passed, and then the house goes to Oz? If the lender requires a re-inspection by the appraiser, the buyer’s deposits are in jeopardy if they cannot get the mortgage to buy the house. What happens to the deposits will depend on the language in the Purchase and Sales Agreement. 

I got notification from some of the lenders about Sandy-damaged areas. The lenders will require re-inspection by appraisers and a “hold harmless” letter from the seller, stating that the property was not damaged. Because of the volume of re-inspections, some transactions will be delayed, even if the property was not damaged.

With Sandy on everyone’s mind, do you know what’s in your Purchase and Sales Agreement? If not, ask your attorney.