What is the use of the rejection section in the Purchase Contract?

Rejection is the boogeyman lurking in the shadows of every new potential opportunity and a fear ingrained in all humanity. I know it’s a little dramatic but truly everyone hates to be rejected so why does the AREA purchase contract have a rejection section?

Let’s consider the reason for it and how to properly use it.

Contract process

In the typical real estate transaction, the buyer works with their REALTOR® to write an offer on a property listed on the MLS® system. Although the document they write the offer on is titled “Purchase Contract” at the point of writing the offer and during the negotiations it is only an offer, and not legally binding upon the parties. It is in this stage that the rejection section is involved.

Using the rejection section

The rejection section of the contract is designed as a way of creating certainty in the negotiation process around the intentions of the parties. Imagine a volleyball game. The game continues while the ball is being hit back and forth over the net and never touching the ground. Whereas in real estate, the buyer makes an offer, the seller counters and so on and so forth. Then imagine the players on one side of the court decided not to return the ball, but instead caught it and told the other team they were done playing the game. That would be like the use of the rejection section.

Essentially, during the negotiation phase, one of the parties can choose to simply sign back a rejection of the offer, and the game is ended.

Alternatives

The alternatives to using the rejection section, although more common, leave much to be desired. Using my volleyball analogy once again, the players on one side could just stop playing and walk away, or they could just whisper in their coach's ear that they don’t want to play anymore and have them relay the message to the other team. This would be similar to the two main alternatives:

1. Simply don’t respond to the offer or counteroffer and walk away
2. Tell the agent they won’t be making a counteroffer

These methods are not wrong, however they lack candor and transparency. It is far superior to tell the party opposite directly and in writing that the negotiations have ended and the offer or counteroffer is no longer acceptable.

Benefits

One of the main benefits of using the rejection section is solidifying in writing the fact that the party making the rejection has both seen, and summarily rejected the offer being made. This is a true benefit because it prevents allegations that the party never saw the offer and provides the party making the offer no doubt that they are clear of any obligations they offered and are free to pursue other opportunities without hesitation. Additionally, in cases of unconditional offers where the party opposite could sign the document and effect a firm transaction, the signed rejection closes that liability loophole. Where a simple phone call to inform that the offer was rejected seems easy, it leaves the offering party uneasy about moving on to other opportunities.

The moral of the story is to close the loop and be transparent to the parties. If a client rejects an offer, have them indicate that in writing on the document they have rejected. This aids in professional interaction, as well as in client-to-client interactions - where that clear signal coming from the opposite party lands like a lead balloon and sometimes prompts the offering party to re-enter the negotiation at a more serious level.

You may not change the outcome of the negotiations if the parties cannot come to a mutual agreement, but you may just take some of the barbs out of the process by adding additional transparency to the fixed end of negotiations.