With the tight real estate market that we have seen over the past several years, buyers and the real estate agents who work with them have had to be nimble and ready to respond quickly. Sometimes negotiations take place between real estate brokers by text messaging. On at least three recent occasions, Massachusetts courts have been called upon to decide whether text messages sent by real estate brokers created enforceable contract that bound their clients to sell their properties.
by Stephen M. Perry, Esq., Casner & Edwards, LLP
St. John’s Holdings, LLC v. Two Electronics LLC
In St. John’s Holdings, LLC v. Two Electronics LLC, the plaintiff wanted to buy the defendant’s property for purposes of a medical marijuana facility. The principals of each company had engaged real estate brokers through whom most of the communications flowed. The proposed buyer’s broker sent a number of Letters of Intent (“LOIs”) to the owner’s broker. In response to the first two of these LOIs, which were unsigned by either party, the owner, through its broker, specified terms that needed to be changed. Finally, after the buyer submitted a third LOI, also unsigned, the owner’s manager complained to his broker in a text message that the offer was not signed. The owner directed his broker to have the buyer send a check and a signed final offer “to review.”
The owner’s broker passed along this request for a signed offer in a text message to the buyer’s broker that said that the owner “wants you to sign first, with a check, and then he will sign. . . . Normally the sellers signs last or second.” The owner’s manager had not in fact told his broker that he would accept and sign the LOI after it was signed by the buyer, but only that he would review the offer. This nuance was obviously lost in the text message.
In reliance on the text message, the buyer proceeded to send the owner’s broker executed copies of the latest version of the LOI, together with a check, expecting that the LOI would be countersigned by the owner. But meanwhile the owner had received and opted to accept a competing offer for the property. This led the buyer to sue, and to tie up the property with a lis pendens. The buyer claimed that the text message (“you . . . sign first, . . .then he will sign”), together with the unsigned LOI, were sufficient to form a binding contract.
The lower court agreed that the text message together with the unsigned LOI were potentially enough to constitute a binding written contract. The court tied the property up with both a lis pendens and an injunction while the case went to trial on the issue of whether the broker who sent the “he will sign” text was acting within the scope of his authority. At trial, the lower court determined that the broker was acting outside of his actual or apparent authority, and that the owner was not bound to sell. The appeals court later affirmed this decision. But by this time, the property appears to have been tied up for over a year and a half—all as a result of what you might consider to be a poorly worded text message.
Cabral v. Drouin
Two other cases decided in November 2017 similarly dealt with whether text messages sent among brokers formed a contract. In Cabral v. Drouin, a 2017 Land Court case, the buyer attempted to tie up property with a lis pendens based on text messages he had exchanged about a property with a broker who had not even been formally retained yet by the seller. The Court dismissed the case both because the owner’s broker clearly lacked authority to bind the owner, and because the text messages that the plaintiff relied upon did not cover all material terms of the contract. But the seller still had to deal with the stress of being sued and having the property temporarily frozen.
Fiore v. Lindsey
In the third case, Fiore v. Lindsey, the broker, on behalf of her husband as principal, sent the owner’s broker a signed offer to purchase a residential property, which was being marketed as a lawful two-family dwelling for $520,000. The brokers proceeded to negotiate the price via text message. The seller’s broker rejected an offer of $540,000 and said the sellers wanted $560,000 (and that they would not take $550,000, so don’t even try). The buyer’s wife/broker responded that “$560,000 it is.” And to this the owner’s broker replied that she would “let the sellers know later tonight that they are all set!”
In all likelihood, this would have led to a formal signed agreement being executed, except that the buyer subsequently learned that the property was not a lawful two-family. Rather than walking away from the deal, the buyer demanded that the sellers obtain lawful two-family status for the property and then convey the property for the price of $560,000 that had been agreed upon in the combination of the written offer and the text messages. As is the common thread in all of these cases, the buyer filed a lawsuit in which he sought to tie up the property with a lis pendens.
Ultimately, the court determined that the text messages were insufficient to form a contract because they did not cover all of the material terms, such as the size of the deposit once the offer price had increased. The court also concluded that the selling broker lacked authority to bind her clients—a finding based on sworn affidavits that claimed the broker had not been given such authority. The lis pendens that had been in effect for a few months was dissolved, and the defendants were thus allowed to proceed with the marketing of the property.
What This Means for Realtors®
At least two lessons can be learned from these cases. First, text messages, like any other writings, can create binding contracts, especially when they are taken together with other documents such as an offer to purchase. Even if an owner is ultimately able to wriggle out of a claimed contract that is based on the broker’s text messages, it may be at the cost of having the property tied up for months or years in court. If the owner’s defense to the text messages is that the communication was unauthorized, the broker could end up being sued by either party or both of them for their losses.
Second, these cases serve as reminders that you should be careful about relying on a text message if it comes from the other side’s broker and not the broker’s client. In all three of the cases, the courts concluded that the buyer could not rely on a text message sent by the owners’ broker because it had not been authorized by the owner. This underscores the point that if you want to bind the other side in a real estate matter, it is best to obtain a binding written contract from the actual party and not to rely on communications from just the broker that the broker’s client may later disavow.