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When Is a Contract Really a Contract?

by Craig Davitian

When Is a Contract Really a Contract?: Figure 1

This article was originally published in March 2011.

When a contract for a home purchase actually becomes official is a reasonable concern for both buyers and sellers, as the date of the contract is the starting point for calculating the contract's contingencies and deadlines.

A prior client who was selling his home in Georgetown recently reached out to ask my opinion as to whether his house was actually under contract. He explained that he had accepted the buyer's initial offer, accepted all of the offered terms and had initialed and signed the paperwork in all the appropriate places. Upon signing the last page, his agent told him that the house was under contract, and she canceled plans for the next open house.

A few hours later, the agent called to say that the buyer's offer had not included a couple of legally necessary disclosures (soil and lead-paint) and the buyer had missed two initials. The client asked if the house was still under contract and the agent said yes.

But in fact, it wasn’t. Real estate contracts are not binding until all terms are accepted (even the seemingly unimportant ones) and the last party to sign delivers the contract to the offeror.

In the case above, the contract was not binding for two reasons: (1) the offer the seller thought he was accepting was not valid because it lacked certain legal disclosures, and (2) his acceptance was not official because the buyer's missing initials created outstanding terms.

Further confusion can arise by thinking a ratified contract is a binding contract. The term "ratification" is used with real estate contracts, but not generally used in business contracts. A "ratified" contract is one where the parties have agreed in writing to all of the offered terms, however it is not binding until it is delivered to the offeror. It's a technical point (a gap in time, so to speak) but a period ripe for one party to mistakenly think there is a binding contract when one does not exist.

A good way to avoid any confusion on this point is to make the contract as clear as possible. A contract that is vague, confusing, has open terms, is based on verbal exchanges, or has misleading terms, is not a contract at all. If language is added to a contract form, aim for simple, easy-to-understand terms. If it's confusing when written, it's only going to become more confusing when read later by others.

Buyers or sellers who will be traveling during contract negotiations should know that most pre-printed real estate contract forms allow for delivery (and thereby acceptance) by either the buyer/seller or their agent. If you will be traveling during negotiations, strike any language that allows delivery to your agent to be considered the same as delivery to you. This allows for additional time to respond to counter-offers while you are traveling.

Why is all this important? Assume the seller in the example above believes the contract is binding when it is not. The agent cancels the open house and the seller, relying on having a contract, plans on getting out and looking for his next home. The buyer, realizing there is not a contract in place, continues his search for a home, finds one he likes better, and instructs his agent to pursue the new listing. The seller is then left without a buyer and greatly disappointed.

Craig Davitian is an attorney with the Davitian Law Firm and is licensed in the District of Columbia and Maryland. This information is not legal advice and is offered for educational purposes only. Feel free to Craig at .(JavaScript must be enabled to view this email address).

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This article originally published at https://dc.urbanturf.com/articles/blog/when_is_a_contract_really_a_contract/3201

2 Comments

  1. anonymous said at 6:32 am on Thursday March 24, 2011:
    Minor point, but to avoid confusion I believe it is more accurate to say that a ratified contract is not not binding until it is delivered to the "other party by the last party to sign/initial the offer." That last party could be the purchaser or the seller, depending on whether counter-offer(s)are involved. Although a counteroffer is technically an offer, the term "offeror" is generally considered by the parties to refer to the purchaser of the property. To the point about a contract with vague and confusing terms being not a contract at all, the Regional Sales Contract is just such an animal. This mishmash of a document-by-committee is a mess. For example, speaking of the ratification date, this term is defined in the RSC on one page, then but also appears on the signature page with the blank date to be filed in, presumably by the last party to sign/initial (i.e., to ratify) the contract. In the first place, these 2 provisions should be combined as one, but more importantly the "date of ratification" filled in on the signature page is a critical contract term and should be initialed by both parties to indicate agreement. This would of course require additional delivery by the last party to initial the date back to the party who entered the date so as to make the contract legally binding. I'd be willing to bet my next $million sale commission that hardly more than 1 in 100 contracts comply with this little nicety.
  1. scntv said at 8:16 pm on Tuesday June 18, 2013:
    this is an important issue. we lost the first house we bid on bc another buyer bullied the seller into thinking they were under contract when they in fact were not. (the other buyer put in an offer before us, and the seller countered their offer, then our offer came in, and since it was stronger, the seller withdrew their counter (bc the other buyer hadn't responded yet). So they were about to accept our offer when the other buyers claimed that bc the changes to the contract in the counter were "nonsubstantive," they essentially were under contract. even though our offer was stronger, the seller caved to avoid a lawsuit by the aggressive (and in the wrong!) buyers. our agent was flabbergasted.

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