Kass July 1, Q We signed a contract to sell our house and gave the buyers certain time limits. From the date of "contract ratification" they had seven business days to have the house inspected and 30 days to obtain financing.
Exactly what constitutes ratification? A real estate agent friend told us that a contract is ratified when all parties sign off on the contract document, but a lawyer friend said it starts when all contingencies have been removed.
A Depending on the language in your real estate sales contract, it is possible that either of your friends could be right. Let's look at how a contract is formed. The potential buyer likes your house and submits a written offer to you. This is often done through any real estate agents involved in the transaction.
When a seller receives an offer, he has three options: Price is not the only important element in a contract. For instance, the offer may propose that settlement will take place in three months, while the seller wants it to occur earlier or later and thus counteroffers with a different date.
If there is a counteroffer, the process starts again. The recipient of the counter has the same three options. Once the parties agree on all issues, some people would take the position that there is a ratified contract.
Others would argue that because the buyer can get out of the contract under various contingencies, the contract is really not final i. This problem is solved if you use the Regional Sales Contract, which is the most commonly used contract document in the Washington metropolitan area.
Paragraph 28, titled "Definitions," states, "Date of Ratification means the date of final acceptance in writing of all the terms of this Contract not the date of expiration of removal of any contingencies. Because so many conditions depend on this date, every real estate sales contract must identify it clearly.
However, if you are not using the Regional Sales Contract, your lawyer may be correct. Your buyer has a contingency for getting a home inspection as well as for obtaining mortgage financing. In law, these are referred to as "conditions subsequent. For instance, if the inspection report is unsatisfactory to your buyer, he may be able to get out from the contract and receive a refund of his good-faith deposit.
In fact, many buyers will not allow the deposit to be cashed until after the home has been inspected. So if the contract can be voided after it has been signed by all parties, many people take the position that the contract is not fully ratified until all contingencies have been satisfied and removed.
Why is determining the ratification date so important? In a typical real estate transaction, the sellers are relying on the buyer going to settlement within the time spelled out in the contract. The sellers need the money with which to purchase their next house. If they cannot meet their deadlines, they may be in default on that house and could forfeit their own deposit.
So sellers will often include in the contract the language, "time is of the essence. It also means that all time limits are carved in stone, unless the parties mutually agree to any extensions. If the home inspection contingency says seven business days and the buyer does not act within that time, he cannot use the home inspector's report to get out of the contract. There are many time-related issues involved in a real estate contract, including: Whether you are a buyer or a seller, you must understand these time constraints.
I recommend that both parties prepare and agree on a calendar of events relating to the contract. If both buyer and seller agree on these deadlines, there should be less confusion. Kass is a Washington lawyer. Kass, Suite , 17th St. Readers may also send questions to him at that address.