What Is the Effective Date of a Real Estate Contract and Why Is It So Important?

Many people would assume that a contract becomes enforceable the day that it is signed. However, this is not always the case. That’s because the effective date and execution date of a contract are not the same. 

The execution date of a real estate contract is the day that all parties sign the contract. The effective date of a real estate contract can be considered “day zero” of the contract. That’s because it is the date from which the performance period is measured. 

In this article, I am going to go through all the important dates considered in a real estate contract. I will also answer some of the common questions people have about the dates on a real estate contract. 

Whatever contract you are drawing up with your clients, SignTime has you covered with this recent article detailing everything you need to know to draft your own real estate contracts as well as links to helpful templates for use in every state.

 

What is the execution date of a real estate contract?

The execution date of a real estate contract is simply the date that all parties sign the contract. This date must precede the effective date.

 

What is the effective date of a real estate contract?

The effective date is the point at which the obligations in the contract become enforceable. This date cannot come before the execution date. That makes sense—you can’t be made responsible for a contract that you haven’t signed yet, right? 

The effective date, which appears in the contract and is agreed upon by all parties, is when all parties to a contract are expected to carry out their responsibilities. 

In an ideal world, the effective date of a real estate contract would mark the date that all paperwork is complete. In reality, there is always going to be some paperwork that takes extra time to complete. As such, the effective date is when a substantial part of the work is completed. 

Let’s take a look at how this is determined.

 

How is the effective date of a real estate contract determined?

The following four elements must be completed for final acceptance to take place. The effective date can be considered the day on which the final element is completed.

  • There is a final contract in writing.
  • The buyer and seller must have signed the contract. Note that initialing minor changes in a draft can be considered acceptable.
  •  It must be clear that both parties have accepted the contract.
  •  The acceptance of the last party to sign must be clearly communicated to the other party and/or their agent.

 

Why is the effective date of a real estate contract so important? 

The effective date is when a contract becomes enforceable. In addition, it is the date used to benchmark all future performance measurements. Sometimes it is called “day zero.” 

As an example, most homes have a closing date benchmarked from the effective date of the contract. That means that the contract will stipulate that the home will close some number of days, usually 30, 45, or 60 days (but possibly as short as 14 days), after the effective date of the contract. 

 

What is the difference between the effective date and commencement date of a real estate contract? 

The commencement date is basically another term for the effective date of a contract. Since the effective date of a contract is the day on which activities commence, it is sometimes called the commencement date. 

 

Effective date FAQ 

The effective date of a real estate contract can be confusing. Here are some common questions asked by clients regarding the effective date. 

 

Who fills in the effective date on a real estate contract? 

The effective date is the day on which all parties have signed and agreed upon the contract. This can be done by either the buyer’s agent or the seller’s agent. 

If the seller is the second party to sign and agree to the contract, then upon communication with the buyer, it is the buyer’s agent who will fill in the effective date on the contract. 

Conversely, if the buyer is the second party to sign and agree to the contract, then upon communication with the seller, it is the seller’s agent who will fill in the effective date on the contract. 

 

Is it OK to backdate a contract? 

This is definitely not OK. Depending on your jurisdiction and the nature of the contract, it could even be a crime. You should never backdate a contract, or any other legally binding agreement—not even a check! 

 

Who executes a real estate contract first? 

It does not matter from a legal standpoint which party signs a contract first. Since amendments could be made after the first party signs a contract, there might be advantages to signing second. 

However, for boilerplate real estate contracts, there is no difference in being the first or second party to sign the contract. There’s also no practical difference between having the buyer’s agent or seller’s agent fill in the effective date of the contract. 

 

Does a contract have to have a start and end date? 

The effective date of a real estate contract is the start date. While there can be indeterminate period contracts, most have an end date. Most real estate contracts have an activity period benchmarked to the effective date. For example, the closing date of the sale will be 30, 45, or 60 days from the effective date of the contract. 

 

Keep track of the effective date of all your real estate contracts 

The execution date is the date that the contract is signed. The effective date is the date that the contract becomes enforceable. These are extremely important dates, and you should be careful to keep them organized for your clients. 

This is why a digital contract repository is so important. 

When it comes time to get a client to sign a real estate contract, or any other contract, SignTime is there to help. With convenient e-signature capabilities, you’ll get signed contracts back from your clients in record time. 

With an easy-to-access and organized online contract repository, never search for important paperwork again. 

Sign up for our free trial now, and improve your sales game.

 

 

 

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