Contracts that Bind and Those that Don't
Everybody has heard the term "binding contract" but what does that mean? At what point is a contract binding?
A binding contract is one that obligates by both parties to its terms. In real estate a binding purchase agreement requires the seller to sell and the buyer to buy the specified property notwithstanding any contingencies included.
A contract becomes binding once it is accepted by both parties and the other party is notified of the contract being accepted. For example if a seller accepts a purchase agreement by signing it, it is not binding until the buyer has been informed of the seller's acceptance. Notification of acceptance can be done either by returning a copy of the contract to the seller's listing agent or by notifying the listing agent that the offer was accepted.
There are a couple of situations in which a buyer or seller may believe they have a binding contract when they do not. The first is verbal contracts. Verbal contracts are not binding even if all of the terms are agreed to. Until the terms are put in writing and signed by both parties a verbal contract for real estate cannot be enforced. In Omaha it is common to negotiate a contract verbally and then once the terms are agreed upon to put it into writing. However until signed by both parties, either one can change their mind. If a seller were to receive a second offer, even after verbally accepting one, the seller is still free to accept the new offer.
The second area of possible confusion is counter offers. Any change to an offer needs to be accepted by the other party. Even the smallest of changes constitutes a counter offer and requires the other party's acceptance of the change before the contract is binding.
When selling real estate be sure that the purchase agreement is signed, without changes, and both parties are aware of the acceptance of the contract.