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Miami – What’s the Difference Between a Ratified Contract and an Executed Contract?

Dear Maggie,

I am in the process of buying a home and I keep hearing different terms for the contract.  Sometimes I hear it called a ratified contract and sometimes they call it an executed contract.  What is the difference and does it affect me?

Signed,

Dizzy in Doral

Dear Dizzy,

I’m so happy you asked.  Don’t let folks confuse you.  Actually, you’ve struck on a pet peeve of mine and I will explain why.  Many real estate professionals refer to a contract between a buyer and a seller as an executed contract, when in actuality, they are wrong and it is a ratified contract until it closes.

Allow me to explain.  A ratified contract is simply a contract to which the parties have agreed on all terms: price, closing date, whether you get to keep the family heirloom chandelier, how many days you have to inspect the property, how much money you are giving as earnest money, in essence all terms.  So after you made the offer, if they accepted and signed, you had a ratified contract.  If the sellers did not sign immediately because they did not accept all your terms, they likely scratched something out, initialed it and replaced it with a new term or left it out altogether (they made a counter-offer).  As long as they made a change, you still did not have a ratified contract.

After the buyers and sellers go back and forth a few times (and sometimes on the first try!) and agree on everything, then you have a ratified contract.  Think of it as an active contract.  Active because the parties are all actively working to fulfill the obligations stipulated on the contract

So then what is that executed contract you keep hearing about?  An executed contract is one in which all terms and conditions agreed to have been fulfilled already.  In other words, everyone did what they said they were going to do and the matter is behind them.  In real estate, this happens at the closing table.  At the closing, all terms have been fulfilled and the final condition of transferring the title of the property to the buyer takes place.  Then, and only then, is the contract considered an executed contract.  You’ve heard “signed, sealed, delivered?”  That’s a great way to sum up an executed contract.

However, as I said, in real estate, many, many, many professionals call a ratified contract an executed contract incorrectly.  Depending on how I am feeling when I hear it used incorrectly, I may correct the realtor, mortgage broker or title agent, or I may let it slide.  It’s not really that important that I correct them, just because they’re wrong.  As long as we’re all on the same page about things, I don’t usually care if they’re calling an apple a pear.

I hope that helps you out.

 

 

Sincerely,

 

 

 

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These articles are not intended to give legal or tax advice, and you should consult your attorney or financial advisor for additional information.

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