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What is a Ratified Real Estate Contract?

Real estate transactions can be quite complicated for all parties involved. There is a lot that goes into a house purchase, from searching for homes to making a written offer to a due diligence period and home inspection. And all of those steps come before the parties sign the final contract terms that completes the home purchase.

Along the way, many real estate agents will suggest their clients enter what's known as a ratified contract, but is that necessary? Isn't a purchase agreement legally binding? Doesn't it do enough to satisfy both the buyer and the seller?

As mentioned, a real estate transaction is a very complex and in-depth process, and having a signed contract that's considered a ratified contract makes the process more secure. In fact, real estate agents involved in a typical real estate transaction will know that in order for their potential buyer clients to obtain financing, they may need a real estate contract ratification.

Let's take a more in-depth look at what a ratified contract is, why it's necessary as part of the mortgage loan application and what the steps are from ratified contract to a fully executed contract of sale.

Why Do I Need a Ratified Contract to Buy a House?

A real estate contract will set out the specific terms of a purchase contract for a home. When you get a ratified contract, it serves as a binding contract that begins the process of your home purchase.

The home-buying process starts when a prospective buyer and seller enter into this real estate sales contract. In addition to legally binding the real estate sales contract, a ratified contract may be required if you are obtaining mortgage financing. While not every mortgage company will require you to get your contract ratified, it is a requirement as part of the loan application process for an FHA loan and other types of government-backed loans.

In many states, a ratified contract must be in writing to be valid. It's always advisable to have the entire contract in writing so that there are no questions on either end. Once both parties agree to the terms of a contract, it becomes harder to void contracts unless in extreme circumstances. 

What is the Process from Contract Ratification to Closing?

There are a few main steps that will occur between when the seller accepts a buyer's offer and when the parties prepare to sign the final form of the contract. While these steps in the sales contract may vary slightly from one contract to another, the general steps are similar.

Acceptance of Offer

First, a prospective buyer will make an offer to a seller through their real estate agent, if they have one. Once this is done, a written sales contract will be drafted. This contract document will state that the parties mutually agree on a sales price. It will include the back-and-forth negotiation terms between the parties, including whether the house had a reduced price and finally what the final acceptance number was.

It will also list out all time related issues involved in the events relating to the closing of the home. This could include the amount of the good faith deposit that the potential buyer will be making, the terms of the appraisal contingency and the home inspection contingency, as well as a closing date.

The written offer will also include an expiration date by which the contract must be finalized by.

Conditional Offer to Purchase

The conditional offer will list out all the details of the actual sales agreement. It basically writes all the terms and conditions that both parties are agreeing to, and makes them non voidable contracts. 

Property Inspection

The property inspection is the big home-related contingency that can hold up a real estate transaction. The inspection typically must occur within two weeks of the contract being signed, but can occur earlier than that as well.

Once the potential buyer has the inspection report in hand, they can review it and request the seller make any repairs needed and/or make concessions as a result of items found during the inspection. All those contingencies will then be written into the contract if the other party agrees to what the buyer is requesting.

Mortgage and Financing

In addition to the property-related contingencies, the buyer must finalize the financing aspect of the purchase, assuming they are doing so through a mortgage. Most agents won't even show prospective buyers homes if they don't have a pre approval letter from their mortgage company. This is just an initial declaration of what the buyer is approved for financially.

Once the sales contract has been entered into, the lender is going to want other documents. This will include an appraisal of the home to make sure that it is independently valued at the agreed-to sales price. This helps protect the lender's investment.

In addition, they'll want to verify official financial documents from the buyer, which could include bank statements, pay stubs and other documents.

Verification of Property Documents

Once the mortgage has been fully underwritten, the contract process proceeds to a title company. This company will be responsible for executing the final contract for the parties. Before they do that, though, they'll verify all property documents for the seller. This could include any liens on the property, zoning and inspections.

Verification of Property Title

The title company will also verify that the seller has proper title to the property and that there are no other parties with a valid interest in the property that could prevent it from being transferred to the ratified contract buyer at closing.

Ratification of Contract

Once the parties agree on all the terms of the sale, the real estate contract will be finalized. They will then be prepared by a title company, typically, for all the contract documents to be signed.

Closing of Real Estate Transaction

Finally, the closing will be held at the title company's offices most of the time. This is where the final contract will be signed. There will be a lot of paperwork for the buyer to sign, and some for the seller to sign as well.

The buyer will bring the down payment check with them, as well as funds for any other closing costs. Once the last page of the contract has been signed, the title company will provide all final closing documents to the buyer and seller, as well as a check for the outstanding equity to the buyer, if there is any.

Can a Voidable Contract Be Ratified?

A voidable contract can be ratified if both buyer and seller agree to do it. If they do, new terms for the contract will be drawn up so that they can be signed. This ratified contract will essentially replace the voidable one, making it permanent.

 

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