Section Review

Offers to purchase the American dream: The effect of McCarthy v. Tobin

Jeffrey Morneau is a member of the MBA Young Lawyers Section Council. He and Karen Pincince practice real estate law at Donohue, Hyland & Donohue, P.C. in Holyoke.

The American dream: to own a home. Buying a house is usually the largest investment decision of a person's life. However, most people are reluctant to consult an attorney regarding the transaction until it is too late. Instead, people look to their real estate agent to advise them on the transaction up until the time that they sign a purchase-and-sale agreement. They believe that their agent is looking out for their best interest and because of his or her experience in real estate that he or she has the knowledge, skill and expertise to advise them. The fact is that most real estate agents are not lawyers and they have a significant financial incentive to make the deal happen. They do not always stay abreast of new laws or new cases interpreting old laws and they may not be aware of all of the legal consequences involved in buying and selling real estate, especially in the area of making an offer to purchase real estate.

In a typical scenario, a person finds a house that he or she wants to look at. The person then contacts a real estate agent. The agent researches the property, seller, neighborhood, town and sales of comparable houses to arrive at an opinion of value for the house and set up an appointment to view the house. If the person wants to make an offer on the house, the agent counsels the person and drafts the offer to purchase on a standard offer-to-purchase form. The buyer signs the form and the agent sends it to the seller or the seller's real estate agent. The offer to purchase usually contains the terms, conditions and contingencies relating to the purchase. This process is often seen as a casual step in the process especially in the area of residential real estate and rarely is an attorney consulted prior to sending the offer to the seller.

One of the most common misconceptions among real estate agents and buyers occurs when it comes time to make an "offer" or a "bid" on a home. Many believe that even though they have tendered an offer to the sellers, that their options are still open. This may or may not be true. If the seller accepts the offer, then a binding contract may be formed on the terms and conditions contained in the offer. This may be true despite language in the offer to purchase, which states that the offer is contingent upon the execution of a purchase-and-sale agreement.

The Massachusetts Supreme Judicial Court ruled that an offer to purchase real estate once signed by both the buyer and the seller is a binding contract between the parties, despite language stating that the offer to purchase is contingent on the execution of a purchase-and-sale agreement sometime in the future. See McCarthy v. Tobin, 429 Mass. 84 (1999). However, the Supreme Judicial Court suggested that language could be included in the offer to purchase that will increase the likelihood that the offer to purchase will impose limited obligations on buyers and sellers. To ensure an offer to purchase is not viewed as a binding contract, language explicitly stating the parties' intention to not be bound by the offer is necessary. An example of such language is as follows: The Buyer and Seller do not intend to be presently bound or create binding legal obligations by this Offer. The Buyer and Seller intend to be bound only by the execution of a more detailed agreement setting forth all the terms and conditions and not by this preliminary document.

Unfortunately, many real estate agents and individuals are not aware of the McCarthy decision and they continue to use a standard offer-to-purchase form that does not contain any language that limits the legal obligations of buyers and sellers. Unless the buyer, seller or real estate agent inserts the "safe harbor" language into the standard offer-to-purchase form, the offer to purchase may be binding on the parties even though the buyer intended to make the offer contingent upon the execution of a purchase-and-sale agreement.

The question remains: Whose job is it to inform the public of the binding nature of an offer to purchase and the need for early legal intervention in real estate transactions? While it would make sense for real estate agents to encourage their clients to seek legal advice from the very beginning of the process, many real estate agents are unaware of the legal ramifications of making an offer to purchase or are reluctant to involve attorneys until necessary because they believe that attorneys will slow up the process. Thus, it is our job as attorneys to educate real estate agents and others about the importance of seeking legal advice at the earliest possible point in a real estate transaction to better ensure the legal protection of individuals at each and every stage of the purchase of real estate. This will enable the transaction to result in a dream and not a nightmare.

©2014 Massachusetts Bar Association