The irrevocable time on an offer – what does it mean? If you’re making an offer on a property, what time frame should you set? If you’re selling a property, how should you treat the irrevocable date on offers you receive? Should you state a requirement regarding irrevocable times in your listing?
The irrevocable date and time on an Agreement of Purchase and Sale is one of the simplest terms, and yet is often misunderstood, misrepresented, or used ineffectively. Clients tend to defer to their agent’s advice regarding the irrevocable time, which means this lack of understanding is unfortunately the agent’s, rather than the client’s.
The irrevocable time on an Agreement of Purchase and Sale (i.e. an “Offer”) specifies the time frame during which the party making the Offer cannot revoke it, and further states that the Offer expires at the end of this time period. The Offer stands until the stated irrevocable time elapses. Here’s an example:
Hey, I’ll give you $10 for your bike, and my offer is good and irrevocable by me until Friday at high noon, at which time I automatically withdraw it.
This means until noon on Friday, if you want my $10 for your bike, you just have to accept my offer and I cannot get out of it. The fact that my offer is irrevocable makes it a commitment from me. The fact that it expires at a specified time means that if you want to take me up on it, you have to do so by then. If you call me at 1:00 p.m. on Friday and tell me you accept my offer, it’s too late. My offer has expired.
It’s pretty simple until you think about situations that happen all the time; consider:
How do you deal with each of these scenarios? The first three are simple enough, but even these cause fits among some real estate agents, as witnessed in closed Realtor group discussions on Facebook and overheard at the office amazingly regularly. First, the simple answers:
We’ll set the more the more complex scenarios (4 and 5) aside for now.
How could these first 3 cause any grief?
The Irrevocability clause on the Ontario Real Estate Association’s Agreement of Purchase and Sale (i.e. the Offer document template that we use for writing offers on property in Ontario) states the following:
This offer shall be irrevocable by (insert buyer or seller) until (insert time of day) on the (insert date), after which time, if not accepted, this offer shall be null and void and the deposit shall be returned to the buyer in full without interest.
Point #1 is patently false. The recipient of the offer has no obligation to respond, whatsoever. Agents get confused because our code of Ethics, which does form part of the Ontario regulations under the Real Estate and Business Broker’s Act that governs us, mandates our duty to present all offers to our client, received by us on their behalf, as expediently as possible. We also have a duty to treat all parties fairly and that includes communicating the status of offers to the “other” party.
In other words, if I’m working for you as a seller, and I receive an offer from another agent for your property, I must get that to you as quickly as possible and I must keep the other agent informed. If you choose not to respond to the offer for whatever reason (the wisdom of this choice may be questionable, but that is another discussion; it is within your right to not respond) I will need to ensure that I tell the other agent I have presented the offer to you (proving it if necessary – perhaps by having you sign a form stating that you received the offer) and that you have elected not to respond.
Here’s an excerpt from a blog piece I found on a local Ottawa Realtor’s website, found easily by Googling “Irrevocable Clause Real Estate”:
It’s the time period — or deadline– to make a decision, sign the necessary papers, and get it back to the party that’s asked for the decision to be made. So, for example, if the buyer makes an offer that is “irrevocable by the buyer until 9 PM” tonight, that means the seller has to either accept the offer by 9 PM or provide the prospective buyer with their counter-offer (which will likely set a new deadline) within that same 9 PM deadline.
Not only do many agents not understand the clause, they even take the time to blog inaccurately about it! The clause is not a deadline by which the recipient must respond. It is a deadline on the current offer if the recipient wants to accept it as written. In the next section I’ll get to the real problem – certain behaviours in the marketplace caused by agents who do not understand this basic clause.
Point #2 is also false, while giving the appearance of being true. The clause does state that the offer is null and void after the time limit expires. But as we saw with the bike example, there are ways to continue working toward an agreement even though this offer, as written, has expired. We’ll assume for the balance of this topic that the initial offer is made from the buyer to the seller.
The buyer could strike out the irrevocable time and enter a new time, and send it to the seller. This effectively extends his original offer, though technically, it is a new offer because the original offer became null and void. The seller could strike out various terms of the offer, write in terms more agreeable to himself, modify the irrevocable time and send it back to the buyer. Many agents worry that this is not valid because the original offer is null and void. They get confused between the semantic offer, represented on a piece of paper, and the mechanical offer: the piece of paper itself. Yes, the original offer is null and void, but after the Seller makes his changes, we have a piece of paper with different terms on it. This new semantic offer is either writeen on the original mechnical offer (piece of paper) with the original terms stricken out and new terms inserted, or perhaps it is written from a blank version of the template – this is both a new mechanical offer (piece of paper) and a new semantic offer.
While I’m trying to explain how this is not complicated, and that dead offers are dead but can easily lead to continuing negotiations and agreement, including using modifications to the original “piece of paper”, I must point out a couple of nuances that have crossed my mind:
You now understand the irrvocability clause. The problem is that the little misunderstandings mentioned above lead to some disfunctional behaviours in the marketplace, and these behaviours can have a negative impact on your purchase or sale of real estate.
In part two we’ll look at why these behaviours are dysfuntional, the intended and unintended consequences for buyers and sellers, and how you can deal with the scenarios that arise. At the end of the day, you want the best advice in these situations to help you generate the best result, whether you are the buyer or the seller. The key capability you should hire for when interviewing or selecting an agent to represent you, is critical thinking. Not necessarily how many homes they’ve “sold”. Maybe half of their clients would have paid less or sold for more with better advice.
The main behaviours are:
1. Agents becoming aggravated when their client’s offer does not receive a response within the irrevocable time, causing their client undue stress and potentially negatively impacting their client’s negotiating position.
2. Agents advising their seller clients (primarily) to specify mandatory irrevocable times on incoming offers, not knowing what to do when other agents ignore these mandates, and jeopardizing their client’s negotiating position as a result.
3. Seller’s agents attempting to use mandatory irrevocable times on incoming offers to allow time for competing offers to arrive, rather than delaying the consideration of offers for a specified period of time. This very often leads to expedient behaviour by the seller’s agent and a lower sale price for the agent’s client (the seller).
4. Buyer’s agents (primarily) not knowing how to best serve their client making an offer on a property when the seller’s agent has advised the seller to impose a mandatory irrevocable time.
See you in part 2. I’ll edit this post and provide a link to part 2 when it is published.
Bruce graduated from the University of Western Ontario in 1986 with an Honours degree in Computer Science. After 19 years in the high technology industry building and marketing solutions to network service providers around the World, Bruce obtained his license to trade in real estate in Ontario in 2005. He's been thoroughly enjoying helping hundreds of people & families ever since.