Offers, Counteroffers and Multiple Offers

The Formation of an Offer and the Mechanics of Acceptance

In real estate transactions, contract negotiations begin with an offer. An offer is a proposal expressing a willingness to enter into a contract on stated terms if the other party accepts. The party making this proposal is designated the offeror, while the party receiving it is the offeree. When an offeror delivers a proposal, that action creates the power of acceptance in the offeree. However, an offer alone conveys no title to real property. For a binding real estate purchase contract to emerge, general legal principles require proper acceptance, any required notice, and full compliance with applicable writing and signature requirements. Working under the supervision of their broker, real estate salespersons must understand that a valid contract requires mutual assent, which is commonly referred to as a meeting of the minds.

Under the common law mirror image rule, acceptance must be an absolute and unqualified agreement to every single term set forth in the offer. If an offeree attempts to provide an acceptance that is conditioned on changed terms, the law does not view that response as an acceptance; rather, the mirror image rule treats it as a counteroffer. For acceptance to finalize a contract, it generally must be communicated to the offeror or to an agent authorized to receive it. Notice of acceptance given to a real estate agent authorized to receive it for a principal is generally treated as notice to the principal, though this is always subject to the specific contract terms and state law. Delivery of acceptance may take place in person, by mail, or electronically, depending on the terms of the agreement and governing state law. Under the common law mailbox rule, an acceptance sent by mail may become effective upon dispatch rather than upon receipt, although the precise effective time of any acceptance depends on the offer's explicit terms and applicable legal rules.

When an offer to purchase real estate is properly accepted and all applicable notice, writing, and signature requirements are fulfilled, the agreement generally forms an executory contract. Under the equitable-conversion doctrine, an enforceable purchase contract may grant the buyer equitable title while the seller retains legal title until closing, though the exact application of this doctrine varies according to state law and the contract's provisions. Candidates often wonder about the role of a deposit during this formation stage. Earnest money is customary in real estate transactions, but it is not legally required to form a binding contract. The mutual exchange of promises by the buyer and seller provides sufficient legal consideration to support the purchase contract.