Dates. The FR/BAR is chock-full of them. Inspections, loan approval, surveys, title work. There are a lot of dates to keep track of. The two most important dates that the entire transaction is predicated on are the Effective Date and the Closing Date.
The Effective Date is the beginning of the contractual relationship. But what is the Effective Date? Is it the date filled in (3)(a) of the contract? Is it the date that the last party signs? This subtle distinction can prove to be vital in the dating game of real estate transactions. Think of the Effective Date as the moment your significant other gave you the answer you longed to hear, “yes.” It is the moment the receiving party, or offeree, signs their name on the contract and delivers you and your client the good news. Finally, the contractual relationship begins. Multiple dates are set for this relationship, the first of which is the initial deposit. Being the proactive agent you are, you encourage your buyer to get the deposit in early, well within the standard three days set forth in the contract. The next two dates come and go without a hitch, title work comes in clean and the inspection is spotless. Your client calls you daily, bouncing décor ideas off of you, with questions of what would look good where. Next, the survey comes in, your buyer now wants to discuss pool contractors!
The Closing Date is circled on your calendar as the expected good news draws nearer. The days pass by without any indication that this deal will have any hiccups. The next milestone of this happy contractual relationship arrives: loan approval. It has now been thirty days since you guided your buyer into this relationship when they receive heartbreaking news. Their loan was not approved. Rushing back to the contract, you furiously read through to see if you can get your client’s deposit back. Thirty days exactly. You inform the listing agent of the bad news, hoping they will take it lightly. They don’t. The home has been the subject of this contract for a month, and in the current market, that means countless potential suitors lost for the listing agent’s client. Your fears have been realized, a split between you, the listing agent, and the parties are inevitable. Your client has already put down a substantial initial deposit you wish to recover in order to aid them in their quest for a new home! The listing agent calls you in a flurry stating that the approval date has now come and gone and that the effective date of the contract was actually the day before the one you believe it to be. Panicking, you turn to the document that started it all.
Section 3(a) of the contract states the date for the acceptance of the contract, while Section 3(b) states what is to be the Effective Date. While you read that the date filed in (a) is the date in which the seller signed, you read on, hoping for a chance to recover the initial deposit. “The effective date of this Contract shall be the date when the last one of the Buyer and Seller has signed or initialed and delivered this offer or final counteroffer (“Effective Date”). Relieved, you realize that there was a simple mistake as to the difference between the acceptance date and the effective date. You alert the listing agent to your findings and admitting their mistake, they agree to release your client’s deposit as you guide them to theirs and your ultimate goal.
While this may seem straightforward, a mistake such as this can prove the difference between keeping a deal together and potentially losing a client. The date of acceptance is the last date in which the offeree has the chance to accept the offer before it is terminated, while the Effective Date is the date in which the last party, buyer, or seller, signs the offer and delivers it to the other party. It is important that both the listing and selling agent are on the same page when understanding when the contract is effective so both may realize their ultimate goal.
In the event you have questions regarding a situation such as previously referenced, please contact your local trusted real estate attorney.
Jacob Van Duren, Esq. firstname.lastname@example.org
Berlin Patten Ebling, PLLC
This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.
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