Chapter 6 - Real Estate Contracts: Offer and Acceptance Flashcards
Contract
An agreement to do or not to do something.
Legally enforceable agreement between competent parties.
Two common types of contracts –
- Listing Agreement
- Purchase Agreement
Contract Requirements
Four essential elements of any VALID contract–
- Competent parties/ Capacity to Contract - parties must not have been declared incompetent
- Mutual Assent - the mutuality of the agreement. Genuine offer and genuine acceptance.
- Lawful Objective - Purpose of contract must be for LEGAL purpose.
- Sufficient Consideration - Consideration is the bargained for exchange that occurs when two people contract to do or not to do something.
- In writing - ALL real estate contracts must be in writing (except leases of 1 year or less)
Incompetent
One who is mentally incompetent or incapable.
Offeror vs Offeree
Offeror - Person making an offer
Offeree - Person receiving an offer
Patently Frivolous Offer
An offer that is not to be taken seriously.
Example - an offer of $1 to purchase a $1 million home
Consideration
Bargained for exchange used in a contract.
Statute of Frauds
Federal law that requires all real estate contracts to be in writing, except leases of 1 year or less.
Also requires all contracts that cannot be performed within 1 year to be in writing.
Types of Contracts
Express / Implied Bilateral / Unilateral Executory / Executed Enforceable / Unenforceable Valid / Void / Voidable
Express Contract
A contract expressed orally or in writing.
Implied Contract
A contract that is formed by the actions of the parties.
Bilateral Contract
A promise for a promise.
Unilateral Contract
A promise for an act.
Executory Contract
A contract that is in the process of being performed and has not yet been completed.
Executed Contract
A contract that has been completed.
Unenforceable Contract
A contract that cannot be enforced.
Example - a verbal contract to buy or sell real estate.
Voidable Contract
A contact that is valid until rescinded by one of the parties to the contract. A person under duress could void the contract at their discretion.
Duress
Occurs when one party forces the other party through threat of violence to do something against their will or better judgement.
Community Property
Real property owned by a husband and wife or two spouses in CA.
Void Contract
A contract that has no force or effect.
Example - A contract to commit an illegal act
Illusory Contract
Occurs when one of the parties is not bound by the agreement.
Breach of Contract
When a party to a contract breaks the contract.
Compensatory Damages
Actual losses sustained by the plaintiff and are paid by the defendant.
Punitive Damages
Designed to punish the defendant by taking money away from the defendant and giving it to the plaintiff.
Liquidated Damages
Damages that are set ahead of time in the event of a breach of contract.
Contingency Clause
Specific conditions or actions that must occur before the buyer moves forward with the purchase of the property.
Physical Inspection Contingency
Allows a buyer adequate time to thoroughly inspect a single-family home and have experts inspect it prior to moving forward with the purchase.
Active Contingency Removal
The buyer signs a contingency removal form that removes a contingency to the contract.
Passive Contingency Removal
Buyer is not required to sign contingency removal to remove a contingency. As time passes and the buyer does nothing, this removes the contingency.
Appraisal Contingency
Contingency to the contract that allows the buyer to not remove the contingency if the property does not appraise for the purchase price.
Financing Contingency
Contingency to the contract that allows the buyer to not remove the contingency if the buyer is not able to obtain financing to purchase the property.
Novation
A substitution of a new contract for an old one.
Example - Loan assumption to replace one borrower for another
Statute of Limitations
The length of time a person has to take action in a court of law.
Option
A person pays consideration to another person for the option of purchasing a property for a specific amount and within a certain length of time.
Optionor vs Optionee
OPTIONOR (landowner) gives an option to the OPTIONEE (developer).
OPTIONEE can exercise an option to purchase real property.
Specific Performance
If seller refuses to convey property, buyer can sue seller for specific performance and ask the courts to force the seller to sell the property to the buyer.
Civil Courts
Courts that decide civil matters such as monetary disputes.
Criminal Courts
Courts that decide criminal matters such as selling real estate without a real estate license.
District Attorney
Prosecutes defendants in criminal courts.
CA Real Estate Consumer Recovery Account Fund
Fund that uses a portion of real estate license fees to pay consumers who have uncollectable judgements against CA real estate licensees.
Trust Funds
Funds held by a real estate broker on behalf of their clients.
Plaintiff vs Defendant
Plaintiff - Person bringing a lawsuit in court.
Defendant - Person being sued in court.
Mediation
A NON-BINDING process outside the courts to decide a dispute.
A mutually agreeable (non-binding) attempt by a third party to resolved a dispute between a buyer and seller.
Arbitration
A BINDING process outside the courts to decide a dispute.
Arbitration is reached when MEDIATION cannot resolve the dispute.
A private and informal (yet BINDING) means to resolve a dispute.
