Who The Hell Cares About Contract Law, Anyways?

Business | November 22, 2021


When I get home late at night after a long day, and look to join my wife in front of the television, there’s one thing, and one thing only that I don’t want to watch.

Any guesses?

It should be fairly obvious, no?

If it’s Saturday night, and I’ve just put the kids down, poured myself a drink, and want to relax on the couch, there is one type of show that I simply can’t stomach watching.

Any ideas?

Shows about real estate.

It’s a by-product of my occupation, no doubt, since these shows are so damn popular, I seem to be in the minority.  Whether it’s shows about moronic first-time buyers that don’t like the paint colour on the kitchen wall, or shows about real estate agents themselves, I simply can’t stand them.

The main reason actually isn’t because I do this for a living and want to escape it at night, but rather because I know how fake the shows are.

There’s another reality television show that I don’t love, but I can tolerate it: Shark Tank.

It’s fun to watch, even though it’s fake too.

Oh, what’s that, you don’t believe me?  You love this show, and you know that Kevin Hart or Maria Sharapova actually did invest in that environmentally-friendly soap company?

It’s a television show.  It’s “reality television,” and we all know that very little is real when it comes to reality television.

Back in 2016, Forbes conducted a survey and interviewed 237 business owners who had accepted on-air deals in the first seven seasons of Shark Tank and found that 73% did not get the exact deal they made on TV.  Furthermore, 43% of these business owners said that the deals they made on the show were not ratified thereafter, mainly because the sharks wanted to change the agreed-upon terms, or simply pulled out of the deal entirely!

Why would this come as a surprise?

Did Robert Herjavec or Kevin O’Leary get to where they are today by investing millions of dollars in companies after a three-minute pitch, without vetting any of the information therein, or looking at companies’ finances or contracts?

I think, not.

On Saturday night, I watched an episode of Shark Tank that taught viewers a very, very good lesson!

A young entrepreneur pitched a food product that was gaining traction, having been accepted into forty Whole Foods locations already.  She was an impressive young woman, so said all the Sharks.  But they all bowed out one-by-one, for various reasons, namely none of them could see themselves in that product market.

Robert, however, was so impressed with the young woman that he came back, and made her an offer.

She wanted $300,000 for 10% of her company.

Robert offered her $300,000 for 15%, and said very candidly, and very politely, “I”m not negotiating here.  This is the deal.”

She thanked him, smiled, and thought about it.

“Would you do $300,000 for 12.5%?” she asked.

He smiled back, told her that he had already said it was his best and final offer, and that there was no negotiation.  He was firm on this.

“How about $300,000 for 10% of the company, and 5% in managing shares?” she asked.

Again, he said “No.”

Amazingly, she then burst into joy and said, “Okay, let’s do it!  I’ll take your original offer!  $300,000 for 15%!”

Cue the music?  Drop the balloons and streamers?

Nope.

“Sorry,” he said.  “But I’m out.  I gave you my best offer, and you gave me not one but two counter-offers.  I’m out.”

It was incredible.

I felt bad for her, but she didn’t actually need the money.  She had already raised $1,000,000, and the Sharks even said, “You’ll be fine.”  I felt bad because she embarrassed herself.  She failed to read the room.  She failed to read Robert, or trust him, for that matter.  She didn’t know when to stop pushing, and she ultimately failed to realize the value of getting a Shark on board would massively outweigh that extra 5% of the shares she’d be giving up.

She also failed to understand basic contract law, notably “offer and acceptance.”

I know that it’s a television show, but in theory, the moment that she provided a counter-offer to Robert, his original offer was null and void, therefore she couldn’t accept it two minutes later.  So when she said, “I’ll accept your original offer,” she actually couldn’t do so, legally, unless Robert put it back on the table.

This week, I encountered this same situation with two agents who were completely out of their league, and who, sadly, demonstrate the lack of knowledge of what real estate agents “do for a living,” beyond opening doors to properties.

I’m currently liquidating a portfolio for a client with 24 properties.  We have been successful thus far and now find ourselves in the home stretch.  We have yet to sell a single property for under the list price, even the ones that sit on the market for a month, or two, or three.  I simply tell agents who call, or who submit offers, “We’re not coming down a penny,” and those who balk, may walk.

One of our listings has been on the market now for over one month, and I get a call on it every other day.  I tell all the agents that we won’t take less than the list price, however, if they wanted a parking space, we could probably sell one for $15,000 and they’re “worth” more; maybe double.

Most of these condos are small, entry-level units, so buyers don’t want parking.  As a result, we now have about five or six units left but double the parking!  So if my client doesn’t want to get stuck holding one condo and eight parking spaces, I’ve got to get creative.

Our property is listed for $565,000 and last week, an agent called me to ask about price flexibility.

“Zero,” I told him.  “We won’t sell for less than list,” I added, after he began to grovel and cite comparable sales, average prices in the building, et al.

All of the units he was referencing were ones I had sold.  I had all the leverage, and considering these clients truly didn’t “need” to sell, I could stand atop a mountain and shout down at him, without the risk of blowing up a deal.

“What I can do for you,” I explained, “Is sell you a parking space for $15,000.  Bring me an offer for $580,000, including parking, and I’ll get that done.”

The agent thought this was a big win.  Parking is “worth” $30,000 here, right?  Or is it?

These spaces aren’t worth much to us, but if we can get rid of one, and sell this condo, and sell it for over the list price (or so it would appear on MLS), then we’re ahead of the game.

I told the agent, “Listen, I’m giving you something that’s not available over the counter.  I’m offering you a parking space that’s not listed, and doesn’t come with the unit.  I’m a straight-shooter, okay?  I’m sure you’ve heard that before, but I don’t have time to bullshit, so when I tell you that $580,000 is the price, I mean that’s the price at which we’ll do a deal here.  We’ve already had four offers on this condo, so I’m telling you how we can make a deal.  Just don’t come in at a lower price or we simply won’t respond.”

He said that he understood and that he would talk to his client.

Two days later, his partner sent me an offer for $560,000, including parking.

Let’s call her “Jane” and him “Jim.”

I called Jane and said, “I had a lengthy discussion with Jim about this property last week, and I gave him very specific instructions on the price.”

“Instructions?” she asked.  “My client is negotiating,” she said.  “My client isn’t just going to do what you said.  She needs to see for herself.”

I told her that I wasn’t going to sign back the offer simply because I had already explained this to Jim, and because the clients are quite specific about their price.  And before you accuse me of being lazy, or cavalier, or unhelpful, let me add that I was hired by this seller for specifically this reason: because they want me to represent them.  I have carte blanche here.  Not only that, this form of negotiation works, trust me.  We’ve sold almost twenty of these, after all.

As the day went on, she began to realize I was serious.  She begged me to sign the offer back at the “agreed upon” price of $580,000, saying that her client simply needed to see for herself that we wouldn’t take less, and then she would accept our counter-offer.

So I did.

I had my client provide a counter-offer of $580,000, and I called the agent to say, “I need you to understand that the only way this deal gets done is if your client accepts this offer.  No sign-backs, no negotiating, is that clear?”

She confirmed.

“Also, the offer is good until 11:00am tomorrow, after which I will not be reachable, nor will the sellers.”

She said that she understood.

So is this where the story ends?

Not even close.

The next morning around 10:40am, she sent me a sign-back for $570,000.

I called her and said, directly but politely, “I appreciate the efforts, but the seller is not going to work with this offer, nor provide a sign-back.  I wish you guys the best of luck out there, I hope you find something!”

She then launched into a rehearsed argument about the buyer’s perspective on price, and the buyer’s father’s involvement, and I interrupted her and said, “Listen, respectfully, I don’t care.”

She continued talking, and again I said, “I don’t care.  Seriously, I’m sorry, that’s so rude of me, but you’re not listening, and we’ve been at this for three days.  This deal is dead.  You signed back our offer, the seller has rejected, it’s over.  I don’t need to know the what, when, why of your buyer.”

“But our closing date is so good, and the buyer is pre-approved….”

She went on, and on.

And I know what some of you are thinking: that she’s doing her job, and that I’m not playing ball.  But this deal was so simple, or at least, it could have been.  There’s a point at which you’re not doing your job, but rather getting in your own way – and the way of your buyer.  We’ll see how that worked out shortly…

I finished the call by saying, “I told you I would not be available after 11:00am, and it’s just before eleven now.  Your counter-offer has been rejected.  We no longer have an offer in play.  We don’t have anything else to discuss, however, if your buyer wants to re-submit an offer of $580,000 at a later date, I am happy to present that to my seller.”

That was that.

I then called Jim back and explained the call I just had with Jane.  I told him that I appreciated his efforts, I reiterated what I said to Jane, and while he attempted to grovel a little, he understood.  He said, “It’s the buyer, it’s their fault.  They want to play games.”  I told him I understood, but that I would sell this condo to somebody, either tomorrow or a month from now, for either $565,000, or $580,000 with parking.  My job is simple, as is my process from here.

And that was that.

So is this where the story ends?

Not even close.  In fact, that’s barely even the warm-up…

Around 1:00pm, I took my phone out of my pocket, and here’s what I found:

5 Missed Calls
7 Text Messages
3 Voicemails
3 Emails
1 Office Page

All from Jane and Jim.

Even though I told them, and had been telling them for twenty-four hours, that neither myself nor the sellers would be available after 11:00am, they called me at 11:05am, 11:25am, and on, and on, over the next ninety minutes.

People just don’t listen.

The messages started out with, “Please call us back,” and escalated to, “We think we have a solution here,” and then eventually to, “Our clients are willing to work on this,” and finally it culminated with, “Our buyers will accept the deal!”

The problem was: there’s no deal to accept.

They offered $560,000.

We countered at $580,000, rendering the $560,000 offer null and void.

They countered at $570,000, rendering the $580,000 offer null and void.

What in the world were they going to accept?

The last email I had received was around 12:30pm and the subject line, all caps, said, “ACCEPTED AGREEMENT.”

These rocket scientists had taken the $580,000 counter-offer and had their clients “accept” it, even though that offer was null and void.

Not only that, the offer expired at 11:00am, and they signed at 12:30pm, but back-dated the time.

That latter point is moot, to be honest.  It’s illegal, but not as illegal as the previous point.

Do they not teach basic contract law over there at Humber Real Estate College or whatever the hell it’s called?

When you take out a proverbial pen, cross out the terms and conditions of an offer, and then counter with an offer of your own, that original offer is void.

How can an agent not know this?

You may ask, “David, what’s the problem?  Don’t you want to sell this condo?  You won!  They caved!  They took your price!”

But there’s a right way and wrong way to do things.

I need to follow the letter of the law.  I can’t risk the buyer saying later on, “This contract isn’t valid,” or having a lawyer question the timing, the offer/counter/offer, etc.

The end can’t justify the means, especially if the means can put an end, to the end.  You follow?

I emailed Jane that afternoon and explained that, as I had instructed earlier, I would be happy to present a new, valid offer from the buyer, to my sellers, but she vehemently disagreed with my stance.

She questioned my “view” on contract law, and told me that she had already congratulated her buyer on the purchase.

She sent me a timeline of events, explaining that when I rejected her sign-back, she had her client “sign back” the offer to us………….and accept it.

It was bizarre.  And disappointing.  And kind of depressing because this is who’s out there, folks.  These are the agents representing buyers and sellers in the largest transactions of their lives.

I spoke to Jim as well, and he was lost too.

“How do we explain this to the buyer?  We already had them sign this morning!”

Umm, I think that sounds like a you problem, Jim.  Like the agent who called me on the weekend to say, “My buyers thought they could re-finish the floors in this condo, and now they’re upset.”

Why is that my problem?

Does anybody take responsibility for their actions and decisions anymore?

I sent Jane a link to Investopedia, hoping she would read it and understand basic contract law, and while she did email back to say they would prepare a new offer, she couldn’t help but add “to make you feel comfortable.”

So the buyer will get the condo, the seller will secure a sale.  All will be well in the world once again, but the process to get here was frightening.

At least one person is reading this, shaking his or her head, saying, “David took the more difficult road here, this is stupid.”  And that’s what scares me the most.

The pace of real estate in this city is maddening, and in the process, corners are cut.  Some are worse than others, of course.  But basic contract law cannot be ignored, or chaos will ensue.

Basic contract law is also not being taught at Humber, by the way, just to answer my own rhetorical question from earlier, which is obviously not rhetorical anymore.

If real estate agents, buyers, and sellers, are going to start making their own rules with what constitutes an offer and acceptance, then we’re going to see a lot of disputes out there!

As much as I want to think this situation was a one-off, it can’t be.  These agents, both of them, thinking what they did was legal and valid, can only mean they have done this before, with other agents, and likely have had the support of colleagues, or managers, or even a broker.

Rome wasn’t built in a day, but it burned in one…

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15 Comments

  1. Mike

    at 9:37 am

    David, maybe a good idea for a blog post: how real estate education and training has changed since the move from OREA to Humber? It sounds like it’s actually gotten worse.

  2. Appraiser

    at 9:57 am

    Every investor has their own personal agenda or vision on what to do with their assets based on risk profile, age and a host of other reasons.

    Having said that, as an investor myself I am a little curious as to why your client is liquidating everything. Not that I have an issue with the timing of their divestiture, given recent market prices.

    I also recall reading somewhere that no one ever went broke taking money off the table.

    P. S. Its none of my business – so no reply is cool too.

  3. Edwin

    at 12:07 pm

    Liquidating 24 properties is some serious business. I assume these are all the Lisgar/Abell units you have been listing recently?

    I wonder what the seller’s motivations are for clearing out.

    1. Condodweller

      at 1:49 pm

      Urbancorp. Just google 36 Lisgar and you’ll get your reasons. It seems there are many.

  4. Condodweller

    at 2:09 pm

    I used to like sharktank until I realized how much these entrepreneurs were being exploited by the sharks. At least now they’re only taking 10-25% of the companies where before they used to take 51%.

    I saw this episode and the situation is a bit different with sharks than a real estate contract. The sharks are making an investment in the person and if that person doesn’t understand basic directions, or chooses to ignore them, that speaks to their characters. They are looking for partners whereas with a re contract there is no long term relationship after the sale.

    I like negotiations but it’s an art and there are no rules. Until one of the parties leaves the table anything goes. Even when people make ultimatums, that’s how bluffs are called.

  5. Sirgruper

    at 9:03 pm

    You were 100% right to require a new offer. If not and the buyer’s lawyer has instructions to try and get out of the deal, the seller has an issue and the agents will be calling their insurance. Shark
    Tank is a bit different apart from the fake part. If you receive an offer x and you ask would you consider y that is not a rejection and technically the offer is still there. Just like when you have a signback and the agent discuses alternate prices or solutions but not on the offer. The signback is still open to accept.

    IF 36 Lisgar, there were a few big buyers there. Wonder if they bought many by assignment. Just a guess.

    No updates on your running? Also try to work in Beth Dutton’s real estate moves into a future blog 😉

    1. David Fleming

      at 9:30 am

      @ Sigruper

      I’ve topped out at 16 KM. I’ve run that distance every Sunday for five weeks and I’m ready to move up to 18 KM, but now my shins are killing me. I only run on Wednesday (6-8KM) and Sunday (16KM). I wish I could run more but kids/work make it impossible. I bought new shoes and I’m hoping that helps. I’ve put about 500 KM on these shoes and a friend of mine, who is a big downtown condo agent and avid runner, told me you need to get new shoes every 300-500 KM. So I’m optimistic that a week off, plus new shoes, will cure what ails me! I wanted to get to 21.1 KM by the end of 2021.

      I’m loving it though! Never saw myself as a runner but I’m really into it, and happy to take any tips you’ve got!

      1. R

        at 11:44 am

        Keep at it. It gets easier. It’s all about making the time and enjoying the process, not just finding the time or forcing it.

        Work up to increasing your distance. You shouldn’t increase more than 20% a week and no single run should be more than 20% of your weekly mileage. 80/20 rule it’s called.

        New shoes will help, but won’t cure you over night. Best to also use a few different pairs at once vs. one pair until it’s worn out (500km+). Finding the right pair of shoes for you is just as important as having new ones. Try a specialty run shop that can fit you.

        Also, stretching before and after a run is probably the best way to prevent soreness and stiffness. Especially as we age. It’s not sexy but really helps.

        7 years ago I couldn’t run 1km. Now I do 100-120km/week, am 11 marathons in…

        -44 year old father of a 2 year old, running Boston Marathon in April.

        1. David Fleming

          at 8:56 pm

          @ R

          Much appreciated!

          I definitely enjoy the runs, the longer the better, and the further I am, the more I’m enjoying. It’s those slogging runs when the shins hurt where I say, “I don’t want to be here right now,” that I don’t like, and then I don’t get my running high…

          I’ve been doing yoga twice per week since January of 2020 – another thing I never thought I’d do, say, or admit. Lots of stretching and working muscles I didn’t know I had. All the supporting muscles that gym rats and meatheads (ie. me back in the day…) didn’t bother with. Stretching the tibialis and soleus is these days is like self-torture.

          Congrats on the marathons – that’s 1.5 per year, unreal! I’ve heard Boston is hard to get into so congrats due there as well!

      2. Sirgruper

        at 12:24 am

        Take your time on building mileage. There is no rush. Your weekend long run should generally be no more than 50% of your total mileage for the week. Don’t increase mileage more than 10% a week. And drop back your mileage every 3rd or 4th week as an easy week. Lastly don’t run your long run too fast. You can’t add speed and distance without a breakdown.

        I’ll send you a subscription to Canadian Running Magazine for Chanukah / Christmas.

  6. Zach M

    at 10:25 am

    You’re kind of embarrassing your whole profession when you tell these stories.

  7. Libertarian

    at 11:51 am

    My favourite movie reference of the “my problem vs. your problem” is Boogie Nights.

    Thanks for the funny story, David. The reality TV references and the “your problem” make this post one of my highlights.

  8. Derek

    at 12:02 pm

    The only thing better would have been if a second offer would have come in for David’s client to accept instead.

  9. mike stevenson

    at 3:03 am

    Dragon’s Den/Shark Tank has a built in formula for turning down any pitch. It’s either “This will never work” or “If it’s such a good idea, what do you need us for?”

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