When does a contract become binding?

QUESTION: I am a listing agent and need some guidance on how to comply with one of the rules of my MLS. That rule requires listing brokers to report any status changes to the MLS within one business day. Sometimes, my seller clients tell me, either verbally or by email, that they will accept an offer but then take several days to actually sign the Offer to Purchase and Contract. What is it that triggers my obligation to report to the MLS that a sale is pending?

ANSWER: Once there is a binding contract between your seller and a buyer, you are required to notify your MLS of a status change. The real question is: when does a contract become binding? The answer may depend on whether you are using the standard Offer to Purchase and Contract (form 2-T).

In form 2-T, immediately above the buyer’s signature line, it states “This offer shall become a binding contract on the Effective Date.” The “Effective Date” is defined in paragraph 1(g) of the contract as the date that (1)both parties have signed or initialed the offer or counteroffer (as the case may be) and (2) the party to whom the last offer or counteroffer was made has communicated that party’s acceptance to the party who made the last offer or counteroffer. In other words, both signatures and communication are required before the standard contract becomes binding.

The North Carolina Real Estate Commission has taken the position that, unless otherwise specified in the written offer, communication of the acceptance necessary to form a binding contract may be made orally, by personal delivery of the contract, by mail, by fax or by email. Since form 2-T does not specify a particular method by which acceptance must be communicated, any of the foregoing methods would suffice.

In your situation, once your client has actually signed the contract to signify his acceptance of the buyer’s offer, and the fact of that acceptance has been communicated to the buyer or the buyer’s agent, the contract is binding. At that point, you will have 24 hours to notify your MLS of the status change.

Keep in mind that if the parties use a non-standard contract, it may contain contract language which varies the definition of “Effective Date” or specifies a particular method of communicating acceptance. You should also note that even though a contract may be subject to a significant contingency, such as lender approval of a short sale or the sale and closing of the buyer’s existing home, it does NOT change the fact that the parties have entered into a binding contract, which as noted above, would trigger the obligation to timely report the status change to the MLS.