Ch.11 Contracts Flashcards
A policy manual within the brokerage is directing actions of the sales associates
Safe Harbor
States that all contracts must be in writing, to be enforceable and that all leases for more than one year must be in writing, to be enforceable.
Statute of Frauds
Provides a time frame that court cases must be filed regarding certain offenses.
Statute of Limitations
What are the essentials of a valid contract
- Legally Competent Parties
- Offer & Acceptance
- Consideration
- Legality of Object
Those individuals who are making the contract are of sound mind, are legally allowed to dispose of the property, and working without menace, duress or undue influence.
Legally Competent parties
There must be a genuine “meeting of the minds” in the contract by both parties to the contract. There must be a bona-fide offer and a full acceptance on both sides of what is to be performed. The individuals must make promises “I will sell if you will pay.” A contract does not exist until all parties have accepted and been notified of the acceptance.
Offer and Acceptance
is something legally sufficient for that which is being exchanged. It can be money, love and affection or other valuable goods that the parties equate to the same level as that being bargained for. Generally in real estate, it is either monetary or love and affection in family cases.
Consideration
The purpose of the contract is to sell, list or rent in a legal fashion. A contract between parties for an illegal drug buy would not be valid. A contract for the sale of a property between competent parties, for consideration with offer and acceptance would be valid.
Legality of Object
The interest that a buyer receives for a property between the time of acceptance (notification) of the contract and the actual closing. When the transaction closes, the buyer receives legal or actual title to the property.
Equitable Title
Is the time when the title actually changes hands- after the delivery and acceptance phase of the deed. All the property rights are now in the hands of the buyer unless otherwise stated in the deed.
Actual Title
What are the type of Contracts
- Bilateral
- Unilateral
- Expressed
- Implied
- Executory
- Executed
- Formal
- Informal
This is a “two-way” contract where each party to the contract promises to do something. A good example of the bilateral contract is a sales contract. The seller promises to sell and the buyer promises to buy.
Bilateral
This is a “one way” contract in which as in the case of an option, the seller promises to sell if the buyer wants to buy the property at a later date. The buyer does not promise he will buy but he pays the seller option money for the right to make that decision when the time comes.
Unilateral
This is a contract, either oral or written, which contains specific terms and conditions. The purchase price or the date of loan approval, are examples. Almost all real estate contracts are expressed and put into writing to be enforceable
Expressed
This is a contract that occurs by the actions of the parties (in other words, by the way people behave). When the passenger gets in a taxi, he implies by his actions, he will pay the taxi driver when he gets to his location. Many times, this type of contract is less than desirable in real estate since it will be a case of an agent implying by his behavior that he represents a seller when he legally represents a buyer in the transaction. If the injured person can prove the case, the broker will not be entitled to his commission.
Implied
This is a contract in process. Something remains to be completed such as the issuance of the deed, or a contingency has not been met
Executory
This is a completed contract. It is finished and all terms have been met and satisfied
Executed
This was originally written under seal, meaning the wax seal of the parties. This has evolved into the written, signed contract by the parties, valid and enforceable.
Formal Contract
This is an oral or Parol contract, usually not enforceable
Informal Contract
What ways can a contract be terminated
- Performance
- Mutual Recession
- Impossibility of Performance
- Operation of Law
- Breach
If a breach occurs, what are the three types of remedys?
- Suit for Cancellation
- Suit for Specific Performance
- Suit for Damages
(A claim to Rescind the contract) the court restores the parties to their original position before the contract.
Suit for Cancellation
Because no two pieces of property are alike, the buyer wants this house, at this time and asks the court to enforce the contract.
Suit for Specific Performance
Because a party may have expenses to the contract (such as an appraisal or moving) the injured party asks the court to make the other party pay damages.
Suit for Damages
Out of pocket expenses such as appraisals and moving are called
compensatory damages (Suit for damages)
Punishment for wrong doing damages are called
punitive damages (Suit for damages)
When a third person takes the place of one of the original parties to the contract. All the rights and responsibilities remain with the original party to the contract, unless both parties agree to the assignment in writing.
Assignment of a contract
Occurs when the person in a contract, to whom the duty was owed, expressly agrees to substitute the delegate, or new obligor, for a consideration, and agrees to discharge the old obligor from the obligations under the contract. For example, loan assumptions
Novation
Anything in writing (like the contract) takes precedence over oral or verbal agreements
Parol Evidence Rule
What are the types of Listing Agreements
- Open Listing
- Exclusive or Exclusive Agency Listing
- Exclusive Right to Sell
The seller retains the right to hire any number of brokers to sell his property. Whoever provides the seller with a ready, willing and able purchaser is entitled to a commission. If the seller sells the property without the broker, he pays no commission. This is considered a unilateral contract because the broker is the only one who must perform and the seller has no responsibility other than to pay the broker after performance. This type of listing benefits the seller only.
Open Listing
Only one broker is allowed to act on behalf of the seller but if the owner sells the property himself, no commission is paid to the broker. If the broker sells the property, he will be entitled to a commission. The seller must make the house available for the broker to show, provide entry, and inform the broker if there is a change in the property’s availability, and conversely, the broker must work to advertise and sell the property. This type of listing agreement benefits the seller as the broker could lose money in marketing a property should a buyer walk up to the seller’s house and make an offer.
Exclusive or Exclusive Agency Listing
In this type of listing, the listing broker is always entitled to a commission regardless of who procures the buyer. It provides the most protection to the broker. If the owner of the property procures the buyer, the owner will be required to pay the listing broker. Both parties must perform in this type of listing – the seller has specific requirements that he must perform; such as having the property available for viewing by potential buyers, allowing a lockbox, informing the broker of any changes in the property’s status. The broker is responsible to advertise and sell. Because this type of listing is a bilateral agreement, it should be in writing.
Exclusive Right to Sell Contract
This type of listing states that the seller will receive a certain amount of money from the sale. Any amount over the predetermined sales price guaranteed to the seller will be paid as commission to the broker. This can lead to inaccurate pricing and price gouging by brokers. Be sure to note that this listing specifies the money over a set sales price is given to the broker. It is not the same as seller’s net, which is a math problem showing how much the seller makes from a sale. There is an important difference.
Illegal in most states
Net Listings
The following will terminate a listing agreement:
Fulfillment of the purpose of the listing - “The property sold!”
Expiration of the time as stated in the agreement - “Too late!”
Renunciation by the broker - “I quit!”
Revocation by the seller - “You’re fired!”
Transfer of title by operation of law - Foreclosure
Mutual Consent - “Let’s quit, this was a bad idea!”
Death or incapacity of either the seller or the broker*
Destruction of the property or a change in uses by outside forces - “The property has been rezoned commercial, now!”
the Buyer Brokerage Contract must be in writing and contain certain elements to be enforceable. The required elements include:
- The names of the parties
- A definite beginning and expiration date
- The terms and conditions of employment
- The general description of the property sought
- A retainer or compensation
- The type of broker-buyer relationship
- The signatures of the parties
A sales contract is what type of contract
Bilateral (contains promises from both buyer/seller)
In a sales contract, the seller is called the (1) and the buyer is called the (2)
- Vendor
2. Vendee
The Installment Land contract can also be called a
Contract for Deed
Installment Land Contract is what type of contract
Bilateral
Disclosure to Buyer (Johnson v. Davis)
The “as is” provision in a contract does not release the seller from giving important information to the buyer.
The purchaser buys the property but does not receive complete title until the end of a time period. The purchaser pays a certain amount of money each year and the seller retains the title until the final payment is made.
Installment Land Contracts
A sale contract is __________: the signatories have yet to perform their respective obligations and promises. Upon closing, the sale contract is fully performed and no longer exists as a binding agreement.
Executory
The buyer’s earnest money deposit fulfills the _________ requirements for a valid sale contract. In addition, it provides potential compensation for damages to the seller if the buyer fails to perform.
Consideration
The usual remedy is forfeiture of the buyer’s deposit as liquidated damages, provided the deposit is not grossly in excess of the seller’s actual damages.
Liquidated Damages
When is a purchaser said to have “equitable title?”
Between the time of delivery and acceptance (notification) of the contract and actual closing
An arrangement in which brokers pool their listings and all commissions are divided between the listing broker and the selling broker is
a multiple listing.
What is an important legal feature of a contract?
It represents a “meeting of the minds.”
Which would be the best description of “culpable negligence?”
When the sales associate knew or should have known of a defect
The term “procuring cause” refers to
the party who put the sale into effect.
An informal contract is enforceable for up to ______ years
4 years
Parol Contract is also called
Informal Contract
A Formal or written contract is enforceable for ___ years
5 years
Qualified Acceptance is also called _______
Counteroffer
A seller agrees to an offer exactly as written. No changes are made, and signs it as written
Mirror Image
Novation
“New” - substitution of something
Other words for “Offer & Acceptance”
Mutual Consent, Meeting of the Minds
A __________ contract is binding and enforceable on all parties. All the essentials of a contract are in place
Valid
A _______ contract has no legal effect. One of the essential elements is missing or is corrupted. For example, a contract for buying illegal drugs is void since one of the elements in the contract has an illegal purpose.
Void
A _____contract rejected by one of the parties due to an error or misinformation. A ______ contract requires court action on the part of the injured party to correct the problem.
Voidable
An _________contract meets all of the essentials of a contract and that the contract is in writing. This is a contract that can be heard by the court.
Enforceable
An _________ contract may be valid between the parties (such as a handshake agreement) and that all the essential elements are in place but the contract is not in writing. The courts will not hear the case. As such, the courts cannot force performance of the contract by either side.
Unenforceable
When a counter offer is made:
The offereree become the offeror
A counter offer is what:
A brand new offer (it is not a modification of the original offer)
Whoever is making the offer _______
Offeror
Whoever is receiving the offer _______
Offereree
Bankruptcy of either party or eminent domain of the property is considered what type of contract termination?
Operation of Law
both parties agree to cancel the contract.
Mutual Rescission
an earthquake hits the property and both parties agree to rescind the contract.
Impossibility of Performance
Which of the following is created when possession and title do not occur at the same time?
Interim Occupancy Agreement
