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Real Estate Course (FL) - Sales Associate - Week 3 > Chapter 11 - Contracts (12%) > Flashcards

Chapter 11 - Contracts (12%) Flashcards

1
Q

Section 11.1: CONTRACTS

:::STATE EXAM CONTENT AREA: XI.A: PREPARATION OF CONTRACTS:::

**Creation of a Contract

A

** One party accepts an offer
** Acceptance is communicated
** Acceptance indicates meeting of the
minds
** Not a contract until communication
takes place
** Actual delivery of contract to all
parties - proof

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2
Q

Section 11.1: CONTRACTS

:::STATE EXAM CONTENT AREA: XI.B: ESSENTIALS OF A CONTRACT:::

**Essential of a Valid Contract

A

MEMORY DEVICE: “COLIC”
1) Lawful subject
 Must have a legal purpose to be
enforceable

2) Agreement
     Offeror gives an offer
     Offeree receives an offer
     Meeting of the minds
         Parties must reach agreement on all
           terms of a contract
     An offer becomes a contract when
      accepted and acceptance is
      communicated to all parties

** 3) Consideration
** Each party must be obligated by
including sufficient consideration
** Two types
** Valuable consideration - money or
something equivalent
** Good consideration - love and
affection
** THE PROMISE OF FUTURE MONEY IN A
CONTRACT
** An executory contract must be accompanied
by a sufficient consideration
** However, once the contract is executed, the
sufficiency of the consideration will not
come into question

4) Two or more competent parties
 Legal age
 Sane and sober
 Voidable contract
 Contract between an adult and a minor
 At the option of the minor
 The adult is bound by the agreement
 Minor is incompetent under the law

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3
Q

Section 11.1: CONTRACTS

:::STATE EXAM CONTENT AREA: XI.C: STATUTE OF FRAUDS:::

**Statute of Frauds

A

** Enacted in England in 1677 to provide protection against fraud in the sale of real property
** Transfer of a right or interest in land
Must be in writing to be enforceable
** Purchase and sale contract
** Lease over a year
** Deeds
** Mortgages
** Option contract
** An executed oral real estate sales agreement that reaches a successful conclusion is perfectly legal. The courts will not overturn an executed oral real estate sales contract (i.e. NOT ILLEGAL TO VIOLATE THIS STATUTE. AN ORAL CONTRACT IS LEGAL BUT MAY BE UNENFORCEABLE)
** TWO EXCEPTIONS to the Statute of Frauds exists when:
** 1) Title has transferred to Buyer
** 2) Buyer has paid part of the purchase price,
and
a. Taken possession
or
b. Made improvements

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4
Q

Section 11.1: CONTRACTS

:::STATE EXAM CONTENT AREA: XI.D: STATUTE OF LIMITATIONS:::

**Statute of Limitations

A
    • Time periods for contract enforcement
        • Parol (oral) contract – 4 years
        • Written contracts – 5 years
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5
Q

Section 11.2: CLASSIFICATION OF CONTRACTS

:::STATE EXAM CONTENT AREA: XI.F: CONTRACT CATEGORIES:::

** Express vs. Implied Contracts

A 
 Express (expressed)
     100% of terms and conditions are agreed    
       either:
         Orally
         In writing
    • Implied Contract
      • All of the terms are not stated
      • May be implied from the actions of the parties
        • either:
          • Orally
          • In writing
          • Implied provision of another contract
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6
Q

Section 11.2: CLASSIFICATION OF CONTRACTS

:::STATE EXAM CONTENT AREA: XI.F: CONTRACT CATEGORIES:::

Bilateral vs. Unilateral Contract

A

 Bilateral - A promise is given in exchange for a promise
 Two parties are obligated to perform
 e.g. sales contract

 Unilateral - A promise is given in exchange for an act
 Two parties
 Only One is obligated to perform
 e.g. option contract

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7
Q

Section 11.2: CLASSIFICATION OF CONTRACTS

:::STATE EXAM CONTENT AREA: XI.F: CONTRACT CATEGORIES:::

Executory vs. Executed Contract

A

 Executory Contract - remains to be performed
 An agreement has been reached
 Obligations have not been met or
performed

 Executed Contract - fully performed
 Parties have kept all promises and
performed all obligations

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8
Q

Section 11.2: CLASSIFICATION OF CONTRACTS

:::STATE EXAM CONTENT AREA: XI.F: CONTRACT CATEGORIES:::

Formal vs Informal (Parol) Contracts

A

 Formal Contract - valid and legal, AND enforceable under the Statute of Frauds
 Written
 Under seal
 The initials L.S. or the word seal

 Informal Contract - valid and legal, BUT NOT
enforceable under the Statute of Frauds
 Oral
 Parol

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9
Q

Section 11.2: CLASSIFICATION OF CONTRACTS

:::STATE EXAM CONTENT AREA: XI.F: CONTRACT CATEGORIES:::

** Void vs. Voidable Contracts

A

** Void Contract
** Not legal – unenforceable
** Reasons
** requires an impossible or illegal act
** becomes legal due to changes in the
law or government policy
** was legal, but was declared null by the
courts b/c it violated a fundamental
principle such as fairness, or is against
public policy

 Voidable Contract
     Valid – may be enforceable
     One party may void contract
     Reasons
         Material fact not disclosed
         Minor & adult are parties to contract
         Incompetent party
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10
Q

Section 11.3: CONTRACT NEGOTIATION

:::STATE EXAM CONTENT AREA: XI.G: CONTRACT NEGOTIAITON:::

Offer and Counteroffer

A

1) Offer is made by offeror
2) Received by offeree
3) Offeree changes offer and becomes offeror
(counteroffer) This in effect “kills” the previous offer
4) New offeree can accept, reject or present
counteroffer – becomes offeror

Applied

1) Seller offers home for sale
2) Buyer sees sign
3) Buyer makes offer less than full price
4) Seller counters with different price

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11
Q

Section 11.3: CONTRACT NEGOTIATION

:::STATE EXAM CONTENT AREA: XI.G: CONTRACT NEGOTIAITON:::

** Termination of Offers

A

MEMORY DEVICE: “WILD CARD”

** ACCEPTANCE - offer becomes a
contract when communicated (BEST WAY)
** WITHDRAWAL - offeror may end an offer
at will
** REJECTION - offeree says “no” or makes
a COUNTEROFFER
** LAPSE OF TIME - offer usually has an
expiration date
** DEATH or INSANITY – terminates an offer
** DESTRUCTION OF PROPERTY - if house burns
down, offer is ended

** Answer of test is: NOT NOVATION

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12
Q

Section 11.4: CONTRACT TERMINATION

:::STATE EXAM CONTENT AREA: XI.G: TERMINATION OF CONTRACTS:::

Contract Termination

A

MEMORY DEVICE: “BRRLAP”

 BREACH – fail to meet obligations
 REVOCATION - party terminates the
contract
 RENUNCIATION– mutual consent
 LAPSE OF TIME – “time is of the
essence”
 ABANDONMENT – “walk away”
 PERFORMANCE – all obligations met (BEST WAY)
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13
Q

Section 11.4: CONTRACT TERMINATION

:::STATE EXAM CONTENT AREA: XI.G: TERMINATION OF CONTRACTS:::

** Legal Remedies for Breach of Contract

A

** 1) Suit for Cancellation
** wronged party may sue for cancellation
of contract

** 2) Suit for Specific Performance
** sue in court to enforce performance
** usually available in connection w/ the sale
of real estate, and usually taken by a buyer

** 3) Suit for Damages
** a) Liquidated Damages - amount of money
noted in contract
** usually involves seller retaining the
deposit in the event of a buyer default
b) Unliquidated damages – not specified in
contract – decided in court

** Answer of test is: NOT A CLAIM FROM
REAL ESTATE RECOVERY FUND

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14
Q

Section 11.4: CONTRACT TERMINATION

:::STATE EXAM CONTENT AREA: XI.G: TERMINATION OF CONTRACTS:::

** Assignment of Contracts

A

** Transfer of rights and obligations
** Assignor - person transferring the
rights to another
** Assignee - person receiving the
rights from another
** Assignor remains ultimately responsible
for performance

** NOVATION - a substitution of the parties

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15
Q

Section 11.5: REAL ESTATE SALES CONTRACTS

:::STATE EXAM CONTENT AREA: XI.I.4: CONTRACTS IMPORTANT TO REAL ESTATE - SALES AND PURCHASE CONTRACTS:::

Parties and Essential Elements of a Sales Contract

A

 Parties
 Vendor – seller
 Vendee – buyer

MEMORY DEVICE: COLC
 Essential elements
     Meeting of the minds (offer and
       acceptance)
     Consideration
     Competent parties
     Legal subject matter
  • Witnesses are NOT REQUIRED, although most standard forms have spaces for them
  • Sales contracts are BILATERAL
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16
Q

Section 11.5: REAL ESTATE SALES CONTRACTS

:::STATE EXAM CONTENT AREA: XI.I.4: CONTRACTS IMPORTANT TO REAL ESTATE - SALES AND PURCHASE CONTRACTS:::

Right to Prepare Contracts

A 
 The preparation of contracts for
another is practicing law
 Real Estate licensee may prepare
     Listing Agreement
     Sale Contract
     Standardized Option Contract
     Buyer Representation Agreement
 Leases
     May fill in the blanks only
     Approved by the Florida Supreme Court
     Not to exceed 1 year
17
Q

Section 11.5: REAL ESTATE SALES CONTRACTS

:::STATE EXAM CONTENT AREA: XI.I.4: CONTRACTS IMPORTANT TO REAL ESTATE - SALES AND PURCHASE CONTRACTS:::

** AS Is Contract

A

** Sellers must disclose material defects
not readily observable to buyers
** Standard sales contract – seller agrees
to expend a percentage of funds to
effect repairs
** As is contract – seller does not agree
to a stated percentage of repairs.
Buyers can cancel for any reason.
** Johnson vs. Davis - “We hold that where the seller of a home knows of facts materially affecting the value of the property which are not readily observable and are not known to the buyer, the seller is under duty to disclose them to the buyer

18
Q

Section 11.6: DISCLOSURES REQUIRED IN SALES CONTRACTS

:::STATE EXAM CONTENT AREA: XI.I.5.a-g: CONTRACTS IMPORTANT TO REAL ESTATE - MANDATORY DISCLOSURES:::

A

*** SEE FULL DISCLOSURES on pages 193-196

  • ** a. Material Defects
  • ** b. Radon Gas
  • ** c. Lead-based Paint
  • ** d. Energy Efficiency Brochure
  • ** e. Home Owners Association
  • ** f. Property Tax
  • ** g. Building Code
19
Q

Section 11.7: LISTING CONTRACTS

:::STATE EXAM CONTENT AREA: XI.I.1: CONTRACTS IMPORTANT TO REAL ESTATE - LISTING CONTRACTS:::

A 
 Employment contract between an Owner
and a Broker
 Does not need to be in writing
     If written must have:
         A definite termination Date
         Legal description
         Price and terms
         Fee or commission
         Signatures
         Not be automatically renewed
         Provide Seller with Copy Within 24 Hours
  • The broker who successfully performs by locating a willing, ready, and able buyer is said to be PROCURING A CAUSE of the sale and is the only broker entitled to the commission
20
Q

Section 11.7: LISTING CONTRACTS

:::STATE EXAM CONTENT AREA: XI.I.1: CONTRACTS IMPORTANT TO REAL ESTATE - LISTING CONTRACTS:::

** Types of Listing Contracts

A

1) Open Listing
 Unilateral Contract
 Oral or written
 Owner agrees to pay commission to any
successful broker (PROCURING CAUSE)
 Reserves the right to sell without
paying a commission
 Only listing that can be given to more
than one broker
 May not be placed into Multiple-Listing
Service (MLS)

2) Exclusive Agency Listing
 Unilateral contract
 Oral or written
 Owner agrees to pay commission to one
broker
 Reserves the right to sell without
paying a commission
 Listing broker may cooperate with other
offices and share commission
 May be placed into Multiple-Listing
Service (MLS) (but why would you want to??)

** 3) Exclusive Right of Sale Listing
** Bilateral
** Must be in writing
** Owner agrees to pay commission to one
broker
** Regardless of who sells the property
including the owner
** Listing broker may cooperate with other
offices and share commission
** May be placed into Multiple-Listing
Service (MLS)

21
Q

Section 11.7: LISTING CONTRACTS

:::STATE EXAM CONTENT AREA: XI.I.1: CONTRACTS IMPORTANT TO REAL ESTATE - LISTING CONTRACTS:::

** Net Listing

A 
 Seller states an acceptable minimum
   amount
     Commissions and closing costs are
       added to arrive at the Listing Price
     Legal in Florida - should be
       Avoided
         Broker can not keep more than
           Customary Commission for that
           Office
             May be considered Unjust
               Enrichment

** CALCULATION ON TEST - SEE pg 199

22
Q

Section 11.7: LISTING CONTRACTS

:::STATE EXAM CONTENT AREA: XI.I.1.a: CONTRACTS IMPORTANT TO REAL ESTATE - LISTING CONTRACTS - BROKER’S COMMISSION:::

** Calculating a Brokerage Commission

A

** 1) Single percentage commission
** Calculated as a % of the full sale price
** Sale Price x % = commission
** E.g. w/ a sale price of $250,000 and a 6%
commission, the commission would be
** $250,000 X 6% = $ 15,000

2) Sliding scale commission
 Charge one % for up to a certain amount
of the sale price and a different % for the
remainder
 E.g. With a sale price of $250,000 and a
commission of 5% on the first $200,000
and 6% on the remainder, the commission
would be
$200,000 X 5% = $ 10,000
$50,000 X 6% = $ 3,000
$ 13,000

23
Q

Section 11.7: LISTING CONTRACTS

:::STATE EXAM CONTENT AREA: XI.I.1.a: CONTRACTS IMPORTANT TO REAL ESTATE - LISTING CONTRACTS - BROKER’S COMMISSION:::

*** Broker’s Right to Receive Compensation

A

** Based on performance
** “Find a Purchaser” (Florida) - broker is
entitled to commission WHETHER OR NOT
A SALE IS FINALIZED
*** “Effect a Sale” - broker is entitled to
commission WHEN SALE IS FINALIZED

 Protection period –
 Listing expires
 Seller contracts to sell to someone who was
introduced to the property during the listing
period
 Set period of time
 Does not apply if relisted with another broker

  • Implied listing -
    • If an owner knowingly allows a broker to
      show property to prospective purchasers
      in the absence of a written listing, and the
      property is sold to one of them, the broker
      is entitled to commission
24
Q

Section 11.7: LISTING CONTRACTS

:::STATE EXAM CONTENT AREA: XI.I.1: CONTRACTS IMPORTANT TO REAL ESTATE - LISTING CONTRACTS:::

Termination of a Listing

A 
MEMORY DEVICE: "BRRLAPDDB"
 Breach
 Renunciation
 Revocation
 Lapse of time
 Abandonment
 Performance
 Destruction of Property
 Death or Insanity
 Bankruptcy
25
Q

Section 11.8: BUYER BROKER AGREEMENTS

:::STATE EXAM CONTENT AREA: XI.I.2: CONTRACTS IMPORTANT TO REAL ESTATE - BUYER-BROKER AGREEMENTS:::

Showing Agreement and Exclusive Buyer Broker Agreement

A

1) Showing Agreement - In this agreement, the buyer agrees that if they a purchase a home shown to them by the licensee, they will make that purchase through the licensee
2) Exclusive Buyer Broker Agreement - This agreement establishes an exclusive representation with the buyer, provides for a retainer fee, and contains a limitation of the licensee’s liability w.r.t. tax, legal, environmental, engineering, or other specialized advice. This agreement also includes a protection period whereby the buyer still owes compensation w/i a certain # of days after the agreement terminates if they purchase a property that the licensee introduced to them during the agreement term.

26
Q

Section 11.9: OPTION CONTRACTS

:::STATE EXAM CONTENT AREA: XI.I.3: CONTRACTS IMPORTANT TO REAL ESTATE - OPTION CONTRACTS:::

** Option Contracts

A

** Option Contract - a right to buy a property during a specified period-of-time, at a specified price
** Unilateral
** To acquire this right, a party must pay a
definite valuable consideration - given to
the owner in lieu of a promise (i.e. option
money)
** Optionor - owner is bound to keep
property available
** Optionee - has the right, but not the
obligation to buy or lease the property

REQUIREMENTS:
 In writing to be enforceable
 Price and terms stated
 Length of time
 Legal description
 Consideration
27
Q

Section 11.10: CONTRACT FOR DEED (INSTALLMENT SALE CONTRACT)

** Contract for Deed

A 
 Also called
     Agreement for Deed
     Land Contract
    ** Conditional Sales Contract
    ** Installment Sales Contract
    ** Deed will be delivered when paid in
       full or stipulated portion
** Seller has legal title
** Buyer has equitable title
** Financing Device
  • NOTE: FL is a lien theory state and GA is a title theory state. In a contract for deed, seller plays bank and finances the house to the buyer under title theory

Real Estate Course (FL) - Sales Associate - Week 3 (3 decks)

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