Does a real estate agent have the authority to bind a client in a real estate transaction via text message or email? Since mid-2016 the matter of St. John’s Holdings, LLC v. Two Electronics, LLC has been working its way through the Massachusetts court system in an attempt to get a clear answer to this very question.
The case involves a dispute between two businesses over the purchase of a commercial property. Over the course of several weeks the parties negotiated an unsigned “Binding Letter of Intent” through their respective brokers via email and text messages. Included in an email exchange, which included the brokers’ respective email signatures, was an email from the listing broker stating that the seller was “ready to do this.” The listing broker then followed up with a text message to the buyer’s broker, telling the buyer to sign the Letter of Intent, as prepared by the seller, and submit a deposit, which the buyer did. Some of the text messages included signatures on a first name basis, but not all of them did.
During these negotiations, however, the seller received and accepted a higher offer from a different buyer and refused to sign the Letter of Intent with the initial buyer. Immediately, the initial buyer sought to enforce the Letter of Intent in a Massachusetts Land Court.
The court addressed the question of whether the text messages between the brokers were sufficient to bind their clients to the transaction. In order for those messages to be binding, they must satisfy the Statute of Frauds, which requires that all agreements to transfer real estate to be in writing and signed by the party against whom enforcement is sought. The buyer argued that the Letter of Intent was binding based on the exchange of emails and text messages between the real estate brokers and included all material terms of the contract.
The seller, on the other hand, argued that the text messages were merely negotiations and further, did not include the required signature from the seller. The judge sided with the buyer, ruling that the text messages, in addition to the emails, satisfied the Statute of Frauds and amounted to a binding contract.
The second critical question to be addressed in this case was whether the brokers had the authority to bind their clients to a deal. The agent may have acted with actual authority, which means that the client has explicitly indicated through words and or actions that the agent may act to bind the client. Alternatively, the agent could have acted with apparent authority, which is determined by analyzing the actions of the client and whether those actions would cause a third party to reasonably believe that the client intended to be bound by the actions of the agent.
Here, because the seller never explicitly gave his real estate broker permission to accept or reject or even negotiate an offer, no actual authority existed. The understanding of the broker was that he was not authorized to make decisions regarding the pending transaction. There was nothing to indicate that the relationship between the seller and his broker was more than “that of a typical real estate broker and their client.”
Furthermore, because it was clear that the buyer was aware that the buyer (and not the broker) was the ultimate decision-maker based on the communications and meeting between the parties, there was no apparent authority either.
Despite the court’s ruling that there was no authority to bind the client in this case, the takeaway remains the same: electronic communications may satisfy the Statute of Frauds and create binding agreements.
Reduce Your Risk
It is important for you to know what steps can be taken to avoid inadvertently binding a client to a deal. Take caution whenever negotiating a deal through email and/or text messaging. Include a disclaimer at the bottom of each email stating that nothing in the email should be construed to create a binding contract and that the agent does not have the authority to bind a client to an agreement. It would also be wise to preface text message negotiations with a similar disclaimer. The easiest way to avoid this potential pitfall is to conduct all negotiations verbally on the telephone or face-to-face.