Making a counteroffer: what to know before you sign on the dotted line

When buying or selling a property, price negotiations are very common, especially in New Zealand’s currently overheated housing market.

A recent High Court case is a useful lesson in why you should never put your signature on an offer if you are not willing to follow through, even if you do not think that the offer will be accepted.

Background

In May 2020, the seller entered into an agency agreement to sell her property in Karaka which had a rateable value of $1.1million. The property was listed at $1.35million and the seller made it clear to her agent that she was not willing to accept anything less. Over two months later, her agent alerted her via WeChat message to an offer of $1.03million. The seller did not bother to respond, as the offer was too low.

Three weeks later, she met with the agent who presented her with the same offer in a sale and purchase agreement signed by the prospective buyer. The agent told her that the buyer would be willing to pay up to $1.09million but no higher. However, her agent apparently wanted her to make a counteroffer that he could show to other prospective buyers to encourage them to make offers. The vender countersigned the sale and purchase agreement at $1.14million but said that she did so based on her agent’s assurance that the prospective buyer would never accept it. A week later, the buyer accepted the counteroffer by initialing the price of $1.14million, and the agent informed the seller that her counteroffer was accepted the same day.

Was the contract binding?

The seller’s solicitor immediately contacted the buyer’s solicitor asserting that there was no binding sale and purchase agreement because the seller had never agreed to the purchase price in the contract. The buyer maintained that there was a binding agreement and sought summary judgment to force the seller to perform her obligations under the contract.

The four key requirements for a valid contract are an offer, acceptance of that offer, consideration (i.e., something of value passing between the parties), and an intention to create legal relations. In Court, the seller argued that her agent had acted outside the scope of his authority, as he had no authority to present the counteroffer if there was any possibility that the buyer would accept it. This meant that she had not had any intention to be bound by the contract or to create legal relations with the buyer.

In determining whether there was a binding contract, the Court noted that both parties had signed what appeared to be an unconditional agreement for the sale and purchase of land. The standard form sale and purchase agreement states on the cover page that the agreement is a binding contract once it is signed. The buyer had not been told by the seller or her agent that the agreement was not a genuine offer and, in presenting the counteroffer to the buyer, the agent had been acting within the scope of his agency agreement. The Court concluded that in making the counteroffer of $1.14m, the seller had made an offer that was capable of being accepted, and the buyer accepted it when she initialed the counteroffer, converting the offer into a binding agreement. The seller was ordered to perform her obligations under the sale and purchase agreement.

Buyers and sellers often enter into legally binding sale and purchase agreements without consulting a lawyer first. However, if you ever have any concerns during negotiations, or are removing or adding clauses to the standard sale and purchase agreement, it could be worth talking to a lawyer before you sign on the dotted line. It might save you from selling a property for over $200,000 less than you hoped to get.