Can Listing Agent Bind Seller to Purchase Contract?

Question: In a recent column a buyer made a $480,000 offer to purchase a Casa Grande home. The listing agent emailed the buyer’s agent, “Sounds good. Let’s open escrow. Seller signing the purchase contract.”  The seller then sold the house to another buyer for $510,000. Your answer was that the email of the listing agent was binding on the seller to sell the Casa Grande home for $480,000. At our Tuesday brokerage office meeting, almost everybody in the office disagreed with you. Please explain your answer.

Answer:  First, the answer to the question was “probably.” This area of the law regarding “only negotiations” versus an “actual purchase contract” is fact-intensive and requires analysis of legal principles such as apparent authority and promissory estoppel. Second, and most importantly, what was the reason for the listing agent’s email? The court would probably rule that the buyer had the right to rely on the listing agent’s email and stop looking at other homes, and start focusing on financing and inspections (which the buyer did!). In addition, the listing agent’s email gave the seller more time to find a buyer for a higher purchase price than the $480,000 full listing price (which the seller did for $510,000!).

Words have consequences. The seller of the Casa Grande home hired the listing agent to represent the seller, and a listing agent generally has apparent authority to act on behalf of the seller. In other words, legally there should be no difference whether the seller or the listing agent sent the “open escrow” email to the buyer’s real estate agent. Although the buyer could be entitled to specific performance of the $480,000 purchase contract, the court could simply award damages to the buyer, i.e., $30,000 damages for the difference between the $480,000 purchase price and the $510,000 purchase price. Finally, the Arizona Supreme Court has ruled that, despite a specific Court Rule requiring any settlement agreement to have the approval in writing of the client, an attorney has the apparent authority to bind the client to the settlement agreement. 237 Ariz. 345. Similarly, the Arizona Supreme Court would probably rule that a listing agent has the apparent authority to bind a seller to a purchase contract, despite the Statute of Frauds requiring the seller to sign the purchase contract.