What is a ratification contract in real estate?

Ratified contracts are legally binding agreements often used in real estate transactions.

But is any agreement the same as a ratified contract?

In this blog, we will clearly define the difference between a general agreement and a ratified contract. We will also cover related aspects, including when ratified contracts are used, the process for contract ratification, and how you can use Docupilot to accelerate the generation of ratified contracts.

Let’s dive in! 

What is a Ratified Contract?

Real estate transactions go through different stages, from initial negotiations to the final contract to ownership transfer.

If parties involved in a real estate transaction agree to the terms of a contract, they can create a preliminary agreement with relevant terms and conditions. At this stage, the terms are open to renegotiation, and the contract can even be cancelled without much ado. This is an example of a general agreement that is not ratified and is therefore not legally binding. 

The agreement will become ratified and legally enforceable only after the contracting parties agree to all conditions and approve the contract. After ratification, any breach of contract by a party can lead to legal action by the other party.

When Do You Need to Ratify Contracts?

The following are common scenarios where you might need to ratify contracts:

• Real estate: A purchase agreement, for example, becomes ratified once the buyer and seller agree to the terms and conditions and approve it. 
• Employment agreements: An employment contract becomes ratified when the employer and employee agree to the terms and conditions - job description, salary, benefits, etc. - and sign the contract
• Business agreements: A partnership agreement becomes ratified when the parties involved reach an agreement regarding roles and responsibilities, profit sharing, dispute resolution, partnership dissolution, etc.  
• Government contracts: A procurement agreement, for example, is ratified after both the buyer (the government) and seller (a vendor) agree to the terms and conditions
• Financial services: A loan agreement is ratified when the loaner and loanee agree to terms and conditions, including the loan amount, interest rate, collateral, and repayment schedule. 
  

In general, go through a contract ratification process, as described below, in any scenario where you need clarity, security, and legal enforceability  via a formal and legally binding agreement. 

How to Ratify a Contract?

Follow this process to ratify a contract:

• Review: A comprehensive review will enable you to decide if the contract serves and protects your interests and if any modifications are necessary.
• Comprehension: After the review, you will be able to comprehend the contract's legal implications once it is ratified. 
• Acceptance Method: It is critical to decide the method of contract acceptance — will you formally sign the contract or will the actions of the parties involved imply acceptance? 
• Legal Obligations: Understand the legal obligations of entering into the contract and the risks of non-compliance. 
• Effective Date: The contracting parties must understand that the ratification date can differ from the contract signing date.  If the contract was signed before ratification, it will retroactively become valid from the signing date.
• Authorization: Only employees with proper authorization can ratify a contract, otherwise it will be invalid.
• Voluntary Action: Parties should enter a contract voluntarily and not under duress.  
• Right of Refusal: If the contract terms and conditions are not agreeable, you can refuse to ratify it, in which case you can renegotiate the terms or end the contract.

When is a Contract Considered Ratified?

A contract is considered ratified when the contracting parties agree to its terms and conditions. 

In a real estate purchase transaction, for example, once the buyer and seller come to an agreement, they can ratify the contract via a verbal agreement, formally signing the contract, exchanging emails to communicate their approval, or through implied acceptance by taking actions per the contract. 

For legal enforceability, the contract must be ratified by personnel with proper authorization. Furthermore, it must also comply with relevant local laws and regulations. 

Understanding The Ratification Of Voidable and Void Contracts

Can you ratify void and voidable contracts? 

To answer this question, and make informed decisions, it’s important to understand the difference between void and voidable contracts.

A void contract is not legally valid and therefore not enforceable. As an example, consider an agreement between parties for the performance of an illegal activity, such as the sale or purchase of black market drugs. Even though the parties involved act accordingly, the contract is void as it contravenes laws and regulations. 

Voidable contracts, on the other hand, are legally valid. However, they can be invalidated if either party rejects the terms for reasons allowed by law or as per terms contained in the contract. 

Can You Ratify a Voidable Contract?

A voidable contract can be ratified if a party with the right to void it chooses, instead, to accept it.

As an example, consider a real estate transaction where the seller misrepresents the conditions of the property: the seller claims there are no structural issues, when in fact, the foundation is damaged.  

After signing the contract, the buyer discovers the foundation damage, which the seller did not initially disclose.

This contract is voidable due to the seller's misrepresentation of the property's condition. The buyer has the right to rescind (void) the contract upon discovering the misrepresentation.

Despite the right to rescind the contract, suppose the buyer agrees to proceed with the transaction after renegotiating the price or asking the seller to perform repairs. The contract will be ratified after both parties agree to the new terms. 

Therefore, to avoid legal pitfalls, pursue ratification of voidable contracts when and if required.

The following table further elaborates on the differences between void and voidable contracts.

Void vs. voidable contracts

What Happens After a Contract is Ratified in Real Estate?

If the buyer and seller in a real estate transaction ratify a contract, it means they have agreed to the contract’s terms and conditions. However, the transaction will not be finalized until the following steps are completed:

• Earnest money deposit: The buyer will make an earnest money deposit to demonstrate commitment to the deal. In the US, the earnest money ranges from 1 to 10% of the property’s sale price. The deposit is kept in an escrow account for safekeeping.
• Inspections: Property inspections are essential for due diligence and allow the buyer to verify the condition of the property
• Appraisals: Professional appraisals are necessary to determine the true market value of the property. This is especially important if financing is involved. 
• Title search: A title company conducts a search to ensure there are no liens or legal issues with the property's ownership history. 
• Closing: The buyer, seller and other stakeholders such as estate agents meet to sign documents related to the ownership transfer
• Deed recording: To officially transfer ownership, the property deed and related documents are recorded with the relevant government authority 
• Possession: The buyer takes possession of the property on the agreed-upon date.

Suggested read:

Essential Elements of Valid Contracts

Uncover the key components that make a contract legally binding, ensuring your agreements are enforceable and protect your interest

Accelerate the Generation of Contracts with Docupilot

Manual contract generation is time-consuming and prone to human error. Delays caused by manual contract processing can lead to lost opportunities and dissatisfied clients. Errors and inaccuracies can lead to misunderstandings, disputes, and non-compliance.

Contract automation can streamline the contract generation process, minimize errors, ensure compliance, and help you close more deals. 

Follow this step-by-step process to generate ratified contracts with Docupilot.

Step #1: Log in to Docupilot

Log in to Docupilot with your credentials.

Step #2: Create or Upload a Template

Click on the ‘Create Template’ button. 

Now, you have three options:

• Click on ‘Online Builder’ to create a contract template from scratch
• Click on ‘PDF’ or ‘DOCX’ to upload an existing template in the respective file format
• Click on ‘Pick From Gallery’ to use a template from the Docupilot library

Once your template is loaded, you can add static and dynamic content, and apply formatting. 

Static content includes text, images, and tables. 

Use merge fields to add dynamic content, which is content that is always changing in your document. The format for merge fields is {{company_name}}, {{client.name}}. To fill these fields, you must connect your template to the relevant data source(s). 

Step #3: Generate the Ratified Contract

Once a template is ready, you can test it by clicking the ‘Test’ button.

Docupilot will render a preview of your template, which you can review and edit if required. 

Once satisfied with the template, you can generate the contract, deliver it to the client, or store it online

Conclusion 

Using manual processes to create these contracts is  inefficient: it not only leads to unnecessary delays, but it can also lead to inaccurate or missed clauses, loss of client trust, and reputation damage. And the problems multiply when you have to manage a large volume of contracts in a limited amount of time.

Contract automation is THE solution to the complications caused by manual contract creation. Docupilot is a comprehensive  platform for contract automation: you can create contract templates, generate bulk contracts with the click of a button, integrate with third-party apps for workflow automation and signing, deliver contracts to clients, and store them securely. 

‍Sign up today for a 30-day free trial, and experience the power of this innovative contract automation platform first-hand.