The lawyers among you will read today’s blog title and feel like you’re back in class. “Offer vs. invitation to treat” is to law school what “RNA vs. DNA” is for medical scholars.
A client of mine, to whom I believe I was bemoaning a real estate practice that I don’t like, told me to read up on the part of contract law known as invitation to treat.
When a seller lists a property for $999,000, and turns down an offer for $1,100,000, is there an issue from a contract law standpoint?
Maybe, maybe not. And the answer could be rooted in case law from the 1840’s…
“Statement of price is not an offer. It is an invitation to treat.”
Well how does that apply to our crazy real estate market?
Of all the stories I’ve ever told on my blog, and all the practices in the real estate industry that I’ve called out, one that I was most surprised to see readers disagree with pertains to sellers who refuse offers above their advertised list price.
I wrote about this in the summer of 2017; I believe there was a seller who listed at $999,900, with no offer date, and was telling people he wanted $1.3M.
I took issue with this, because I considered it false advertising.
I believe that if you’re listed at $999,900 with an “offer date” scheduled, then you’re essentially signalling that your list price represents a starting price, and you have a hidden reserve price.
A lot of my readers said they don’t care whether there’s a set offer date or not, and that a seller should be free to set prices and accept or decline offers as he or she sees fit.
I was surprised, to say the least. The feedback that I’ve solicited from participants of this market suggests that “pricing games” is near the top of everybody’s pet peeves.
A few weeks ago, a property was listed on the east side for $999,900, and there was no offer date.
You all know where this is going, right? Same story, again and again. But it just goes to show you – we haven’t really obtained any clarity on this subject.
My clients and I viewed the house, and loved it. Who wouldn’t? It was probably worth over $1.1M.
We made an offer for $999,900, and submitted it to the listing agent.
The agent, as luck would have it, admitted she is a regular reader of my blog. And when she told me that the seller wouldn’t entertain any offers near the list price, she said, “I’ve read about this topic on your blog before, so I already know how you feel.”
She was quite pleasant, and so I politely asked her, “If you’re listed at $999,900 with no offer date, and you have no intention of accepting the list price, isn’t this blatant false advertising?”
She didn’t seem to want to say yes or no, so she just said, “I’m doing what my seller wants me to do! It’s his idea!”
We increased our bid to $1,050,000, but the seller didn’t accept.
Now we’re in a situation where I think there’s a case to be made for false advertising, since the listing remained on the market for $999,900 for weeks.
The list price says $999,900, but there’s no chance of the seller accepting an offer at that price. How this isn’t false advertising, I don’t know.
I went on showings with another client that evening, who happened to be a lawyer. And he too disagreed with me!
“The list price isn’t an offer; it’s an invitiation to treat,” he told me.
And before I go any further here, one note needs to be made. In the real estate world, we use the word “offer” incorrectly, every single day. When we say “offer” we really mean “bid.” In contract law, the “offer” would refer to the property for sale, which is being offered for sale. The listing is an offering.
In any event, my client further explained that the list price of the property doesn’t represent a true “offer” but merely an invitation to treat, as contract law goes.
Contract case law suggests that an advertisement, or an advertised list price, doesn’t constitute a true offer.
And this reminds me of my third-year university “Business Law” class, in which the professor would always use the same example:
“I’ll buy your textbook for ten dollars.”
Is that a true offer? Or is he merely making a statement?
Is he saying:
a) I would buy your textbook for ten dollars, theoretically. I would. It’s something I’d do.
b) Here is ten dollars, which I would like to give to you in exchange for the textbook.
Such an elementary example provides context on the complications of the concept of an offer and acceptance.
There are a slew of legal websites out there that explain the difference between an “offer” and an “invitiation to treat,” but I like this summary the most:
“An invitation to treat is a mere declaration of willingness to enter into negotiations; is is not an offer, and cannot be accepted so as to form a binding contract.”
“An offer must be a clear, unequivocal and direct approach to another party to contract. For this reason, advertisements, catalogues or store flyers are not offers. Nor is a FOR SALE sign on a used car.
“The law calls these invitations to treat; essentially invitations to the general public to make an offer on a particular item. But, even here, there have been exceptions. For example, in a 1856 case, an advertisement of train rates was held to be a valid offer. Much depends on the wording of the invitation.”
“As a general rule, a display of goods at a fixed price in a shop window or on a shelf in a self-service store is an invitation to treat and not an offer. An offer may be made by a prospective buyer. At this stage, the retailer may accept or reject that offer.
“Similar principles would seem to apply where a supplier of goods or services indicates their availability on a website: that is, the offer would seem to come from the customer (eg. when he clicks the appropriate button) and it is then open to the supplier to accept or reject that offer.”
Where things get complicated is with respect to the actual “offer,” when it’s made, how it’s made, and how it’s accepted.
I was told law schools teach “the Kodak case,” so I was able to find this summary online:
In December 2001 Kodak’s Web site offered a digital camera package for £100. It was advertised as a “special deal” and within days thousands of customers placed orders online and provided their credit card details for payment. They received an automated online confirmation that urged them to keep the message both as proof of purchase and for claiming under warranty.
Then Kodak discovered that the price of £100 was an error – the price should have been £329.
Kodak initially claimed that the orders for cameras had not been accepted so no contract was formed. It said the confirmatory e-mail was only sent to follow industry practice and was not an acceptance of an offer.
A contract is formed where there is an offer, an acceptance, consideration and an intention to create legal relations. An offer is distinguished from an “invitation to treat” because the latter lacks that intention to be legally bound.
Although Kodak’s Web site did not make it clear, the relevant pages were probably an invitation to treat. By filling out the order form and giving credit card information, the customer responded by making an offer to buy the package.
The difficulty for Kodak, however, was that the automated response suggested that the orders had been accepted. It not only acknowledged the order but also talked about “this contract”. Although the response was no doubt designed to enhance the user experience, it gave customers the impression that their orders had been accepted.
So to avoid difficulties it is essential to ensure that your Web site is structured to reflect the way you want to do business. If Kodak wants to be certain that an automated e-mail in response to an order does not amount to acceptance of the order, this should be made clear so that the customer is in no doubt about the position. The Web site should also specify when acceptance does occur. This will be necessary in any case to comply with the latest EU laws on e-commerce.
Kodak argued that the customers must have realised the £100 price tag was a mistake. The courts have long accepted that a contract is unenforceable where the offer does not express the true intention of the seller, if the purchaser must have realised that a mistake has occurred.
The Internet, however, is seen as a medium for great bargains so online customers might have difficulty distinguishing between a price error and a promotion. A product advertised online as a “special deal” during post-Christmas sales had obviously been taken seriously enough by Kodak’s customers.
An e-tailer looking to protect itself should set up systems to ensure that mistakes are picked up before product details and prices are loaded on to a live Web site.
Kodak may also have been accused of committing the offence of giving a misleading price indication. To defend this allegation Kodak would have had to show that it acted diligently and took all reasonable steps to avoid misleading the consumer.
In the event Kodak agreed to honour the orders, whether as a public relations consideration or after a reassessment of the legal position is not clear. However, it undoubtedly has proved an expensive experience for the company.
I think it’s fair to say that after reading the definition of “invitation to treat” as well as the Kodak case summary, we can conclude that the seller of a Toronto home is free to list the property at any price, regardless of whether or not there’s intent to accept that price.
The “why” isn’t my issue, however.
That seller can list his or her home at any price, because he or she isn’t making an offering, so there’s no fear of a buyer accepting to form a binding contract.
But what about the advertisement itself?
Let’s look at the Competition Act, for just a moment.
Directly from the Government of Canada website:
Section 52 of the Act is a criminal provision. It prohibits knowingly or recklessly making, or permitting the making of, a representation to the public, in any form whatever, that is false or misleading in a material respect. Under this provision, it is not necessary to demonstrate that any person was deceived or misled; that any member of the public to whom the representation was made was within Canada; or that the representation was made in a place to which the public had access. Subsection 52(4) directs that the general impression conveyed by a representation, as well as its literal meaning, be taken into account when determining whether or not the representation is false or misleading in a material respect.
Aren’t there two parts to the discussion here?
1) Can a buyer “accept” the offering the seller is making, when he or she lists a property at $999,900?
2) Can a seller make a representation on price that is knowingly false?
I accept that an offer and an invitiation to treat are two different things, and in that regard, there’s nothing wrong with under-pricing.
But as far as the Competition Act goes, I see a problem.
A sub-section of “False & Misleading Representations” provides us with this:
Section 74.05 of the Competition Act is a civil provision. It prohibits the sale or rent of a product at a price higher than its advertised price. The provision does not apply if the advertised price was a mistake and the error was immediately corrected.
Real estate is a very unique animal, I’ll give you that.
And the “product” is one-of-one. We’re not talking about Winners selling jeans for $80 when they were advertised at $60.
We have one house for sale.
Is the conversation regarding false advertising different?
I’m interested to know what you all think…