A contract’s effective date

This crucial piece of information determines performance periods

by Ron Walker  

Q How important is it for the effective date of the contract to be filled in?

A The effective date is the most crucial date in the contract. It is the date from which most, if not all, performance periods are measured. One of the most significant complaints that many escrow agents make about real estate licensees is that, many times, licensees fail to insert the effective date in the contract.

Q Who determines the effective date?

A The promulgated contract forms instruct, in large conspicuous print, the broker to fill in the final date of acceptance as the effective date. The broker may be either the listing broker or buyer’s broker. It may be prudent for both brokers to confirm the effective date between themselves when communicating final acceptance.

Q How does a broker determine the effective date?

A The final date of acceptance is the date on which the contract becomes binding between the parties. It is the date that both buyer and seller have agreed to all terms of the contract and have executed the contract. Four elements must be satisfied for final acceptance to take place. First, the final contract must be in writing (typically satisfied when negotiations are made using promulgated forms). Second, both buyer and seller must sign the final contract (including the initialing of any handwritten changes to the initially drafted offer, if applicable). Third, acceptance must be unequivocal. Fourth, the party who is the last party to accept must communicate acceptance back to the other party (or the other party’s agent, if applicable). The effective date is the date when the last element (communication back) is made after the other three elements are satisfied.

Q Under the following example, what is the effective date? The buyer makes a written offer through his agent to the seller on January 1. The listing agent delivers the offer to the seller on January 2. The seller signs the offer on January 3 (making no changes) and delivers the offer back to the listing agent on January 4. The listing agent faxes the executed contract to the buyer’s agent on January 5. The buyer’s agent calls the buyer on January 6 and informs the buyer that the seller has accepted the offer.

A The effective date is January 5, the date the listing agent communicated to the buyer’s agent that the seller signed and unequivocally accepted the buyer’s offer. Note that it might be prudent for the listing agent to confirm with the buyer’s agent the exact effective date at the time the listing agent communicates acceptance to the buyer’s agent.

Q Would the answer have been the same if there had been no buyer’s agent and, instead, the buyer was working directly with the listing agent?

A No. In this case, the effective date is the date the buyer is informed that the seller accepted the offer.

Q If the effective date is not filled in, does that mean that there is no contract?

A No. By signing the promulgated forms, the parties have mutually instructed the broker to fill in the final date of acceptance as the effective date. If the broker failed to timely fill in the effective date, the broker may be placed in the precarious position of later having to determine the effective date of the contract. The final date of acceptance is a fact issue that must be resolved either by the parties with the assistance of the brokers or, ultimately, a court of law.

Q When calculating the time for performance, is the effective date included as the first day?

A No. Here is an example. The buyer has the right to terminate the contract within five days after the effective date, and the effective date is January 1. The buyer may terminate the contract at any time until 11:59 p.m. on January 6. Note that January 2 is the first day after the effective date.

Q On Saturday evening, the listing agent notifies the buyer’s agent that the seller accepted the offer from the buyer. The seller accepted the offer unequivocally and signed the contract. The buyer’s agent informs the listing agent that he will not be able to notify the buyer of the acceptance until Monday. Should the brokers insert Monday as the effective date?

A No. Under these facts, the elements of final acceptance are satisfied on Saturday.

Ron Walker is director of legal affairs for TAR.

Photos © PhotoDisc.

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The final date of acceptance is a fact issue that must be resolved either by the parties with the assistance of the brokers or, ultimately, a court of law.