The Meaning of "Acceptance" in Real Estate Transactions
For some strange reason, the meaning of “acceptance” in real estate transactions is not well understood.
Since you can’t have a contract without it, you would think that there would be a common or universal understanding.
So, let’s go back to basics!
Bob wants to submit an offer to Bill to buy his car. Bob needs to make that offer, and Bill needs to accept it. By accepting the offer, Bill needs to let Bob know that he has agreed to Bob’s offer. Now, we have a deal. That was simple enough!
Well, for some strange reason when it comes to real estate, the entire matter seems to get out of hand.
At the outset, there is a requirement that a contract for the sale of land must be set out in writing. That is contained in the Statute of Frauds, which goes back to 1677. And, yes they had fraudulent schemers then, too. I know, you thought that all this mortgage fraud was recent.
You would think that a contract in writing would make the transactions easier. Apparently not!
Bob now wants to buy Bill’s house. He retains Joyce as his agent and Bill has Martha as his agent.
A signed Offer is drawn up by Joyce, signed by Bill in her presence and then delivered to Martha. The Offer is open for acceptance until 6:00 pm on Wednesday.
In the standard form Agreement of Purchase and Sale drawn up for use in Ontario by the Ontario Real Estate Association (OREA) this is the “irrevocable period”, set out in the “irrevocable clause”.
What is the time limit?
You should know this; I haven’t mentioned any other times. It’s 6:00 pm.
When I say 6:00 pm, I mean 6:00 pm, not 6:01 pm or 6:02 pm; I mean 6:00 pm exactly.
There is another provision in the agreement, and that states that “time is of the essence”, so that clause confirms and reinforces the 6:00 pm deadline. The time is "important".
So, what do you think happens? Martha meets with Bill, and they agree that the Offer is a good one, and it should be accepted. Oftentimes, they sit around talking and drinking coffee. They sign the Offer and date the document as of the correct date. They then confirm that it was accepted by inserting the proper time. Rarely, would they choose 6:00 pm since that looks to close too the wire. They choose 5:59 pm, a full minute to go, to be on the safe side.
Martha then calls Joyce to give her the good news. The call is placed about 6:15 pm. Martha states that she will fax over the signed documents as soon as she gets into her office.
Martha faxes over the Agreement including the Confirmation of Acceptance at 9.10 am, the following morning.
What’s wrong with this picture?
Do we have a deal?
Remember that car deal? Bill had to “let Bob know that he has agreed to Bob’s offer”. That’s not what took place here.
Martha on behalf of Bill advised Bob through Joyce of the acceptance of the Offer. That took place at 6:15 pm, clearly 15 minutes too late.
Now, if it’s clear enough in the car deal, why does it often become so complicated (and many forget the rules) in the real estate deal?
The law is straightforward. There are two steps to acceptance:
1) agreeing to accept the Offer, (the decision)
2) communicating acceptance of the Offer (the communication).
These two steps go hand in hand. There is no acceptance without both steps. And, it is the latter, namely the “communication” of the acceptance that CREATES the contract between the two parties.
Brian Madigan LL.B., Broker is a Manager at RE/MAX West Realty Inc., Brokerage 416-745-2300.