The devil is in the details they say, and this is certainly true for real estate purchase contracts, especially around issues of time. REALTORS® must always concern themselves with the dates and times of different events in the purchase contract because time is of the essence! But in the back and forth of contract negotiation, when does the offer or counteroffer become a legal contract that is binding upon the parties? Let’s take a few moments to solidify this important concept in the minds of everyone involved.
When a buyer finds the perfect property and with excitement in their eyes tells their REALTOR® they want to write an offer, they rarely understand the process entirely. They usually rely upon the REALTOR® to protect them from the unseen legal hurdles of the offer to purchase itself. REALTORS® walk the buyer through the key elements of the offer, help them understand the terms and conditions, and then have them initial all pages and sign the document itself. This is now officially a written offer to purchase which will be presented to the seller for their consideration.
Although it happens where the seller accepts the offer as written, it is the exception and not the rule. The normal situation is for the seller to see a term, condition, date, or price as unacceptable and instruct their REALTOR® to make the change or changes necessary to satisfy their needs and wants in selling the property. The moment the seller changes anything on the contract at all, they have rejected the offer to purchase and created an offer to sell. Typically called a counteroffer, it is important to understand that the original offer to purchase no longer exists nor can it be accepted once the offer to sell has been created. The seller will then add their initials to the portions they changed, as well as to the bottom of each page. Once they are satisfied with their offer to sell, they sign on the acceptance line as the seller, because they (the seller) are putting the buyer on notice that these are the terms and conditions they find acceptable and agree to sell the property by.
Once the offer to sell has been presented to the buyer, negotiations can volley back and forth in a similar fashion, subsequently rejecting the offer to purchase or offer to sell, and creating a new offer in succession, until ultimately the parties agree to the final version of price and terms they find mutually acceptable. In our scenario, let’s assume the buyer thought the seller's offer was the bee's knees and decided to accept it. They (the buyer) would simply initial any changes the seller had made, verifying their understanding and acceptance of their changes. Since they already initialed all the pages and signed at the original offer to purchase stage then this is a contract, right? Wrong! The crucial final step is to communicate the acceptance to the seller by sending the true copy of the accepted contract to the seller. Similarly, the seller has the right to revoke their offer to sell right up until the point they know the contract is accepted and signed. The AREA standard purchase contract has a specific section called “Legal Obligations Begin” which states that the accepted contract must be delivered in person, or sent by email or fax, and as a best practice, a follow-up phone call to confirm receipt can save many complications.
So, let’s summarize the 4-step formula which is required for every transaction to cause an offer to become a legally binding contract.
Only at this point do legal obligations begin for the parties as outlined in the agreement itself. This beginning of legal obligations brings into full force all terms, conditions, and legal remedies for both parties, and the courts would hold the parties responsible from that moment for their good faith performance of their respective duties in the contract.
REALTORS® and clients must understand that once legal obligations begin, the contract cannot be altered except by amendment, and cannot be ended except by the expressed modes allowed for in the agreement itself. Clarifying the exact moment the parties have engaged in a contract is important to understand the requirements of the parties, and the gravity associated with the commitments they have made to each other. Devil or no devil, this detail must be respected.
Provincial Practice Advisor
Bryan has many years of experience in the real estate industry including over 10 years as a former broker in the Edmonton Region.
Email: firstname.lastname@example.orgPhone: 403-209-3619