The problem, I fear, is that you've named your character "Avatar." You're supposed to tell him your name when he asks, but if your name is "Avatar" the game can't tell the difference between your name and the "Avatar" branch in his dialogue tree, which unfolds as you've seen. Eventually this can even freeze the game.

Sorry to say, the easiest solution if you want to recruit Tseramed is to start a new game and name your character something other than "Avatar." You can hex-edit some files to change the internal references to "the Avatar" to something else, but as you might expect that's not a task for the squeamish.

(Source: Ultima wiki)

Well i managed to recruit him by apologizing. Thanks for bringing this "Avatar-ish" issue to my attention.

I've never had this happen, but I think I read somewhere that if you're wearing the Fellowship Medallion, he won't join. Not sure if your issue is quite that simple, though.

It's a bug that happens if your named "Avatar" as Tsermied's conversation has these two checks in it that can cause this issue one for the answer "Avatar" and one for the person's name so if you have the name Avatar the game will then register that you choose "The Avatar" option instead of your actual character's name this can lead to a crash if you keep at it as the game will eventually run out options and crash.