by Steve Hyman
“Verbal offers are not worth the paper they are written on” — with apologies to Yogi Berra.
In my position of manager of professional standards for the Manitoba Real Estate Association (MREA), I frequently hear from members of the public who are concerned or confused by the concept of verbal offers for real estate purchases.
I hear two common situations. The first is that the public is unsure if verbal offers for real estate are acceptable. The second is from people who are extremely angry and cannot understand why their verbal offer was accepted and then rejected after they put their offer to paper and presented a formal offer to purchase.
Here is a little bit of law. In 1988, the Manitoba government repealed the Statute of Frauds. What that means that verbal contracts for the purchase and sale of land will be enforced by the courts if evidence is available to establish that the agreement was made. However, the public is never well protected with a verbal contract. When it comes to presenting evidence as to what the “agreement” really was between the parties, leaving it up to the courts to establish the contract, rather than the “written word,” leaves members of the public unprotected and uncertain of the outcome.
The Manitoba Securities Commission (MSC) and MREA believe that verbal offers do not protect the public. This is why transactions in real estate conducted by a real estate professional (and listing agreements, too!) must be in writing in accordance with The Real Estate Brokers Act sections 20, 21(1) and 21(2) and the REALTOR® Code, articles 5 and 6.
Verbal contracts create uncertainty, disappointment, false hope and great exposure for clients and REALTORS® alike. That the MSC has made it illegal for a real estate professional to be involved in a verbal transaction, and MREA views it as a breach of the REALTOR® Code, should show you how seriously verbal offers are viewed.
I know that sometimes it is easier for an agent to have a conversation with a buyer or vendor’s agent in advance of writing an offer if they expect that there will be a lot of back and forth, or the offer or counter-offer may be a bit different than expected. I am sure that it is not unusual, in some circumstances, for a buyer’s agent to call the vendor’s agent and ask if certain terms would be acceptable. I imagine the conversation between the agents sounding something like this: “Would you entertain an offer for $300,000 with a $10,000 deposit, August 1 possession, and include the microwave and that brass spittoon in the hallway?”
I actually don’t have a problem with a discussion in principal as long as no one thinks that they have actually come to an agreement. If you discuss things verbally, the risk always is that either party can change their mind before they put the offer into writing. If you want to create a binding contract, and you are using a REALTOR®, your REALTOR® must ensure that the terms of your offer are properly put into writing using the correct offer to purchase document.
It is okay for your agent to have a discussion, just make sure that they say something such as: “If your client would offer x amount with a possession date of x, the offer may likely be acceptable to my clients if it were put into writing, but they can always change their mind before that time.”
A verbal offer or improperly worded verbal negotiation can lead to serious problems. Suppose, for example, that you, as the seller, accept a verbal offer. After a “meeting of the minds” between both parties, you then decide to just ignore it and accept a different written offer presented by a different party. You may have just sold the property twice, and may potentially end up being sued by the first party for breach of contract. And at the same time, your agent may find themselves offside of the MSC and MREA.
Remember, some preliminary discussion is okay. But in the end, put it in writing.
On a somewhat related note, all members of the public should know that they have a right to put their offer into writing. I sometimes hear from people who say that their agent, or the agent they spoke to, has told them that they cannot or should not put their offer into writing and should instead just give a verbal offer.
If you are already in a client relationship with your agent, they may be ethically obligated to write the offer (under Article 3 and Article 6 of The REALTOR® Code). However, an agent may advise you that the offer is outrageously far from the terms set out in the listing — say a $100,000 offer for a property reasonably priced at $600,000. And may explain why they are not comfortable writing the offer, as it is likely to be rejected and may offend the vendors and hurt any further chance of negotiation, etc.
If you are a prospective client, the REALTOR® you speak to has a right to say that they are uncomfortable writing that offer for you and explain why. They should also tell you that you can certainly look for another REALTOR® who can assist you. If you cannot find an agent who is willing to help, first ensure that your offer is reasonable. After that point, your next step should then be to find another agent who is willing to put your offer into writing.
Remember, private sales or other sales that do not involve real estate professionals are subject to Manitoba contract law and can be verbal. But for the reasons mentioned above, I certainly would never advise anyone to use a verbal contract for real estate.
If a REALTOR® representing the seller tells you as a prospective buyer that they have a verbal offer already, you should ask why it is not in writing. A verbal offer may be nothing more than an expression of interest in the property as opposed to something meant to be legally binding.
Verbal offers are certainly not recommended by those who oversee and regulate the real estate industry. Know the difference between discussion/negotiation and actually making an offer. If your agent talks about a verbal offer, ask for clarification. If your agent continues to suggest that you provide a verbal offer, say that you find verbal offers off-putting and that you want everything in writing to help the process flow smoother and to protect everyone involved.