Dangerous Words: Real Estate Agents Beware
You’re the listing agent on a luxury home, 711 Prosperity Path, and you received a pretty good offer on the property, but not quite the list price of $2.5 million. It’s a seller’s market, and you and your seller feel confident that the house will sell for list price, if not more.
So, you’ve been going back and forth on the purchase price with a buyer’s agent. The agent says her buyer is willing to pay $2.3 million, but you tell her your client will need at least list price. Finally, the buyer’s agent emails you and says that the buyer really loves the house and is willing to pay list price. Delighted, you respond right back with “You’ve got a deal.”
Oops. Ten minutes later an offer for $2.8 million from another buyer hits your email account. You forward the offer to your client, who is thrilled and immediately accepts the offer on DotLoop. You then follow up with the agent for Buyer 1 to let her know that a contract with another buyer has been executed, so sorry. You’re thinking, without a wet or electronic signature on the offer by Buyer 1, there is no binding contract. Everyone knows that an actual signature is required to legally accept an offer, right? The Statute of Frauds requires a writing and a signature. When you sent the message “You’ve got a deal” to the buyer’s agent, what you really meant was “I’m pretty sure my client will accept this offer, and you’ll have a deal when the seller countersigns your amended offer – please stand by.” Buyer 2 signed the contract first, so he wins. More money for both you and your happy seller. Pop the Prosecco!
Don’t Celebrate Too Soon
But a couple hours later, the hangover hits. You get an email from, not Buyer 1’s agent, but his attorney, who definitely does not come across as a nice person. Before your vision blurs up, you read: “Please be advised that my client has a binding contract to purchase 711 Prosperity Path, based on your written acceptance of the contract on behalf of your client, and demands that the sale be closed as per the contract. Please find attached a Lis Pendens which has been filed with the Court ….” Then comes the painful task of informing your seller, Buyer 2, and your broker that the deal has blown up into a lawsuit.
This is not a hypothetical. Variations of this nightmare have in fact befallen a number of real estate agents and brokers. Here are some legal concepts you need to understand in order to recognize and avoid this pitfall.
Texas and other states have long recognized that real estate agents are not “general agents” clothed with the authority to buy and sell property for their clients. Instead, they are “special agents” whose authority is limited to showing property, finding a buyer, and in the case of a buyer’s agent, finding a property to buy. Loma Vista Dev. Co. v. Johnson, 180 S.W.2d 922, 924 (Tex. 1944); Mushtaha v. Kidd, 2010 Tex. App. LEXIS 10277 (Houston [1st Dist.] Dec. 30, 2010, no pet.); Joseph v. James, 2009 Tex. App. LEXIS 8583 (Austin, Nov. 6, 2009, no pet.).
The client is the person with authority to make or accept an offer—and the real estate agent is simply the conduit through which the client communicates his decisions. As a real estate agent, you negotiate price and other terms for clients all day long, but at the end of the day there is no deal until the client signs off on it.
The Texas Statute of Frauds says that a contract for the sale of real estate (or a lease longer than a year) must be in writing and “signed by the person to be charged with the promise or agreement or by someone lawfully authorized to sign for him.” Tex. Bus. & Com. Code § 26.01. Absent special circumstances, a real estate agent is not lawfully authorized to sign a real estate contract for his client, and the agent’s signature on an offer does not bind the client.
Real Estate Agent = Special Agent
Unfortunately, many attorneys do not understand that a real estate agent is a special agent with limited authority. Attorneys learn about general agency principles in law school, where an agent can bind a principal through apparent or ostensible agency, which refers to situations where a principal has, through words or deeds, led a party to reasonably believe that the principal’s agent has authority to bind him to a contract. To many attorneys, “agent” is a loaded term that invokes all the traditional rules about general agents.
So, when a real estate agent seems to sign off on making or accepting an offer—such as writing “you have a deal” or similar words in an email or text—she is inviting the opportunity to meet an attorney who knows a lot more about scaring and threatening people than the special agency rules applicable to real estate agents. And remember, all a person needs to file a lawsuit is a paper with a few factual allegations and a filing fee. The mediation or trial that will end the dispute will likely not occur until after many months, thousands of dollars, and sleepless nights (although you may get your attorney’s fees back if you ultimately prevail—or at least a judgment for fees you may or may not be able to collect).
But what about the signature requirement?, you ask. Don’t you need a party’s actual signature—ink or electronic—to bind the party to a real estate contract?
Yes, but …. If a name appears after the body of an email, whether it is typed in manually or is automatically generated when the email is created, the name probably constitutes a valid electronic signature under the Texas Uniform Electronic Transaction Act, Chapter 322 of the Texas Business & Commerce Code, which became effective in Texas less than ten years ago (April 1, 2009). TUETA generally provides that anytime a signature is required, an electronic signature will suffice. “Electronic signature” is broadly defined as any “electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record.” Tex. Bus. Com. Code § 322.002(8).
The federal district court in the Northern District of Texas has held that a signature block in an email, whether typed manually or generated automatically, can function as an electronic signature—disagreeing with the Texas court of appeals in Fort Worth, which previously suggested an automatically-generated name did not constitute a signature since it was not manually typed. Williamson v. Bank of New York Mellon, 947 F. Supp. 2d 704, 710-11 (N.D. Tex. 2013), disagreeing with Cunningham v. Zurich American Ins. Co., 352 S.W.3d 519, 529-30 (Tex. App.—Fort Worth 2011, pet. denied). More recently, the Houston Court of Appeals (First District) has ruled that the name in the “From” line of the email satisfies the identity-authenticating function of a signature. Khoury v. Tomlinson, 518 S.W.3d 568, 578 (Tex. App.—Houston [1st Dist.] 2017).
Let’s Make a Deal…But Carefully
Thus, if a person with authority to buy or sell real property says “we have a deal” in an email responding to an offer, chances are very good—assuming there is an adequate property description and all other material terms of the deal have been addressed—the email will be legally binding. If the person writing the email is a real estate agent representing a client, then the courts will tend to rule that the agent did not have authority to bind the client to the contract. But that ruling may not come until the agent has been through hell and back.
Finally, there may be special circumstances where there is heightened risk. When the real estate agent is a co-owner of listed property, or is the trustee or legal representative of the client, there is a greater chance the agent will be found to have general authority to bind the client. Or if the client is cc:’d on the “we have a deal” email and does not promptly protest, that could be construed as ratification.
This is a bubbling tar pit you do not want to wander into. Always remember your client is the decision-maker. Never use words that make it sound like you are the decision-maker, have the client’s consent to act with general authority, or that it’s a done deal. And it wouldn’t hurt to put a disclaimer in your email signature block that states: “Real estate brokers and agents are special agents who do not have authority to make or accept offers, or bind their clients to other agreements. There is not a binding agreement unless and until the parties sign a writing that states all material terms and complies with the Statute of Frauds.”