The Counteroffer That Arrived at 4:41 p.m.
A $389,000 listing. On February 3, Buyer A submits a written offer of $375,000 with a 10-day inspection contingency, a 21-day financing contingency, a March 30 closing, and $7,500 earnest money to be held in the listing brokerage's trust account. On February 4 the seller counters at $382,000 with a response deadline of "February 6 at 5:00 p.m.; time is of the essence." On February 6 at 4:40 p.m., Buyer A signs the counter, scans it, and emails it to the listing agent, who is out on showings and does not open the message until 9:00 a.m. on February 7. At 6:00 p.m. on February 6 the seller signs a full-price offer from Buyer B. Buyer A learns of Buyer B on February 8 and demands "their" house; Buyer B demands the seller perform.
1. Was a binding contract formed with Buyer A, with Buyer B, or with neither? Walk through the sequence.
Read the worked answer
A contract was formed with Buyer A, at approximately 4:41 p.m. on February 6.
The sequence:
- Buyer A's $375,000 offer was rejected when the seller made a counteroffer. A counteroffer terminates the original offer; the parties are now negotiating on the seller's $382,000 terms.
- The seller's counter was open only until 5:00 p.m. February 6. A late acceptance would operate as a new counteroffer, not an acceptance.
- Buyer A's acceptance was dispatched and received before the deadline. Under electronic-transaction rules (and standard mailbox/dispatch principles for acceptances), an acceptance is effective when sent/dispatched - and an email is generally received when it enters the recipient's information system, not when a human reads it. Delivery to the listing agent is delivery to the seller, because the agent was authorized to receive it in the transaction.
- Therefore the listing agent's failure to check email until the next morning did not undo an already-formed contract.
Consequence: the seller was already bound to Buyer A when the seller signed Buyer B's offer at 6:00 p.m. The seller cannot perform for Buyer B, and Buyer B's remedy is generally return of earnest money plus any independent claims - not specific performance of a contract the seller had no capacity to make.
Practice lesson: the listing agent's inattention created the problem. Confirm receipt in writing on deadline days, and never assume a deadline passed because your inbox was unread.
2. On day 12 after acceptance, Buyer A wants out because a $4,000 foundation issue appeared. What are Buyer A's rights?
Read the worked answer
Buyer A has likely lost the contractual right to terminate on inspection grounds. The inspection contingency ran 10 days; day 12 is past expiration. Termination rights under a contingency are strictly construed, particularly where the contract says time is of the essence.
Analysis:
- Whether the 10 days run from acceptance, from receipt of a seller's disclosure, or from some other trigger must be read from the contract itself - the count date matters and should be confirmed from the signed document, not assumed.
- If the deadline genuinely passed without written extension or written objection, Buyer A accepted the property in its disclosed condition and the earnest money is at risk if Buyer A refuses to close.
- The $4,000 item may still be a material adverse change or a lender-appraisal issue argument, and the financing contingency may still be open at day 12 (it was 21 days). If financing ultimately fails for a bona fide reason within that window, Buyer A may still terminate under that clause.
What Buyer A should do now: request a written extension or repair credit from the seller rather than announce termination. The seller - now exposed to Buyer B - has leverage and may refuse. If the seller refuses and Buyer A walks, expect a dispute over the $7,500, resolved by written release or by the broker's interpleader, not by the broker picking a winner.
3. The listing brokerage holds Buyer A's $7,500 earnest money and both Buyer A and the seller now claim it. What is the broker's proper course?
Read the worked answer
The broker holds the funds as a stakeholder and must not adjudicate the dispute. The correct course:
- Freeze the funds in the trust account. Do not disburse to the seller, to the buyer, or to the brokerage's own commission.
- Notify both parties in writing that the funds are being held and that the broker will disburse only on (a) a written release signed by all parties with an interest, (b) a court order or interpleader, or (c) an arbitration/award decision as the contract provides.
- Follow the contract's dispute clause. Most SD purchase agreements specify the mechanism and often permit the broker to interplead the funds and recover reasonable costs.
- Keep complete records - ledger entries, the release attempts, correspondence - because the Commission can examine trust-account handling.
Common exam trap: the broker "returns it to be nice" or hands it to the seller because the buyer breached. Neither is permitted on the broker's own judgment. A broker who disburses on a unilateral decision exposes the trust account and the license. Also note the commission question is separate: the brokerage's entitlement to compensation is determined by the listing agreement and the contract, and does not authorize self-help against the earnest money.