Chapter 6 - Real Estate Contracts: Offer and Acceptance

Question 1

Contract

Answer 1

An agreement to do or not to do something.

Legally enforceable agreement between competent parties.

Two common types of contracts –

1. Listing Agreement
2. Purchase Agreement

Question 2

Contract Requirements

Answer 2

Four essential elements of any VALID contract–

1. Competent parties/ Capacity to Contract - parties must not have been declared incompetent
2. Mutual Assent - the mutuality of the agreement. Genuine offer and genuine acceptance.
3. Lawful Objective - Purpose of contract must be for LEGAL purpose.
4. Sufficient Consideration - Consideration is the bargained for exchange that occurs when two people contract to do or not to do something.
5. In writing - ALL real estate contracts must be in writing (except leases of 1 year or less)

Question 3

Incompetent

Answer 3

One who is mentally incompetent or incapable.

Question 4

Offeror vs Offeree

Answer 4

Offeror - Person making an offer

Offeree - Person receiving an offer

Question 5

Patently Frivolous Offer

Answer 5

An offer that is not to be taken seriously.

Example - an offer of $1 to purchase a $1 million home

Question 6

Consideration

Answer 6

Bargained for exchange used in a contract.

Question 7

Statute of Frauds

Answer 7

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.

Question 8

Types of Contracts

Answer 8

Express / Implied
Bilateral / Unilateral
Executory / Executed
Enforceable / Unenforceable
Valid / Void / Voidable

Question 9

Express Contract

Answer 9

A contract expressed orally or in writing.

Question 10

Implied Contract

Answer 10

A contract that is formed by the actions of the parties.

Question 11

Bilateral Contract

Answer 11

A promise for a promise.

Question 12

Unilateral Contract

Answer 12

A promise for an act.

Question 13

Executory Contract

Answer 13

A contract that is in the process of being performed and has not yet been completed.

Question 14

Executed Contract

Answer 14

A contract that has been completed.

Question 15

Unenforceable Contract

Answer 15

A contract that cannot be enforced.

Example - a verbal contract to buy or sell real estate.

Question 16

Voidable Contract

Answer 16

A contact that is valid until rescinded by one of the parties to the contract.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.

Question 17

Duress

Answer 17

Occurs when one party forces the other party through threat of violence to do something against their will or better judgement.

Question 18

Community Property

Answer 18

Real property owned by a husband and wife or two spouses in CA.

Question 19

Void Contract

Answer 19

A contract that has no force or effect.

Example - A contract to commit an illegal act

Question 20

Illusory Contract

Answer 20

Occurs when one of the parties is not bound by the agreement.

Question 21

Breach of Contract

Answer 21

When a party to a contract breaks the contract.

Question 22

Compensatory Damages

Answer 22

Actual losses sustained by the plaintiff and are paid by the defendant.

Question 23

Punitive Damages

Answer 23

Designed to punish the defendant by taking money away from the defendant and giving it to the plaintiff.

Question 24

Liquidated Damages

Answer 24

Damages that are set ahead of time in the event of a breach of contract.

Question 25

Contingency Clause

Answer 25

Specific conditions or actions that must occur before the buyer moves forward with the purchase of the property.

Question 26

Physical Inspection Contingency

Answer 26

Allows a buyer adequate time to thoroughly inspect a single-family home and have experts inspect it prior to moving forward with the purchase.

Question 27

Active Contingency Removal

Answer 27

The buyer signs a contingency removal form that removes a contingency to the contract.

Question 28

Passive Contingency Removal

Answer 28

Buyer is not required to sign contingency removal to remove a contingency. As time passes and the buyer does nothing, this removes the contingency.

Question 29

Appraisal Contingency

Answer 29

Contingency to the contract that allows the buyer to not remove the contingency if the property does not appraise for the purchase price.

Question 30

Financing Contingency

Answer 30

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.

Question 31

Novation

Answer 31

A substitution of a new contract for an old one. Example - Loan assumption to replace one borrower for another

Question 32

Statute of Limitations

Answer 32

The length of time a person has to take action in a court of law.

Question 33

Option

Answer 33

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.

Question 34

Optionor vs Optionee

Answer 34

OPTIONOR (landowner) gives an option to the OPTIONEE (developer). OPTIONEE can exercise an option to purchase real property.

Question 35

Specific Performance

Answer 35

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.

Question 36

Civil Courts

Answer 36

Courts that decide civil matters such as monetary disputes.

Question 37

Criminal Courts

Answer 37

Courts that decide criminal matters such as selling real estate without a real estate license.

Question 38

District Attorney

Answer 38

Prosecutes defendants in criminal courts.

Question 39

CA Real Estate Consumer Recovery Account Fund

Answer 39

Fund that uses a portion of real estate license fees to pay consumers who have uncollectable judgements against CA real estate licensees.

Question 40

Trust Funds

Answer 40

Funds held by a real estate broker on behalf of their clients.

Question 41

Plaintiff vs Defendant

Answer 41

Plaintiff - Person bringing a lawsuit in court. Defendant - Person being sued in court.

Question 42

Mediation

Answer 42

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.

Question 43

Arbitration

Answer 43

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.