Are all changes to an offer considered a rejection of that offer?
QUESTION: I have a property listed for sale. I received an offer from a buyer (we’ll call him Buyer 1) on the Offer to Purchase and Contract (form 2-T). However, in paragraph 5 (a), Buyer 1 did not fill in the blanks for the term of the loan he intended to obtain or the maximum interest rate for that loan. Before signing the offer, the seller, at my suggestion, inserted numbers on both lines because I’ve always been taught that all blank spaces need to be filled in. I then sent the signed Offer back to Buyer 1’s agent. I have yet to hear back from Buyer 1’s agent, but I have just received a higher and better offer from an agent for Buyer 2. In these circumstances, has a contract been formed with Buyer 1 that the seller must honor, or do the seller’s changes to Buyer 1’s offer constitute a rejection of that offer and a counteroffer that can then be withdrawn before it is accepted by Buyer 1?
ANSWER: This question requires a discussion of what is known as the “mirror image rule”. The rule provides guidance in determining whether a contract has been formed between two parties. The basic rule is that in order to form a contract on the offering party’s terms, the acceptance must be according to the exact terms of the offer and without substantial change. In other words, the acceptance must be the “mirror image” of the offer. As an example, differing price terms in the offer and the purported acceptance would clearly preclude contract formation.
However, agents should understand that while the mirror image rule is consistently followed by North Carolina courts, those courts have also recognized that the rule has its limits. One of those limits is the requirement that a change in the purported acceptance be “substantial” in order to constitute a rejection. We have encountered a number of situations where the party to whom an offer (or counteroffer) is made has checked a box or crossed out a word in the offer (or counteroffer) that we would not consider to be so substantial a change as to constitute a rejection and counteroffer.
For example, suppose a seller crosses out those items in the list of fixtures in paragraph 2 of the contract that are not present in the property. Such a change would not be considered substantial since the non-existent items were not intended to be included in the contract anyway and crossing them out isn’t necessary. Similarly, suppose a buyer submits an offer but neglects to complete paragraph 5(d) of the contract confirming that the buyer had received a Residential Property and Owners’ Association Disclosure Statement. The seller’s checking of the first box in paragraph 5(d) would not be deemed a substantial change.
How does an agent know when a change made by the offering party would violate the mirror image rule? In the Real Estate Commission’s Real Estate Manual, the authors urge caution whenever a seller makes changes to an offer before returning it to the prospective buyer: “Unless the seller’s changes are truly trivial, the seller has substituted his or her own terms for the deal proposed by the prospective buyer. Brokers would be well advised to assume that any change made to an offer by a seller is a material one that will result in a counteroffer.”
Under the facts described in your question, we cannot predict whether a court would regard the changes made by the seller to be trivial or substantial. Therefore, we would suggest that the seller not enter into a contract with Buyer 2 without first getting a legal opinion that no contract with Buyer 1 was ever formed.
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