Contracts Flashcards
The stages of a real estate contract
- Listed
- Offer, acceptance, and communication of acceptance
- Under contract
- Closing
Offeror
Made last offer
Offeree
Received last offer
Attachments
Used to EXPLAIN (occurs in offer, acceptance & communication of acceptance stage)
Addendum
Attached to offers
Amendments
Used to MODIFY a contract (happens in the executory stage)
Who has equitable title when under contract?
Buyer
Who has legal title when under contract?
Seller
Express contract
can be oral or written
Implied contract
Created by actions, not in writing
Valid contract
Contains all essential elements, is binding on both parties, and is enforceable by the courts
Voidable contract
One party may disaffirm the contract if the party is a minor, or is subject to fraud, duress, or misrepresentation
Void
A contract that is not enforceable because it does not have the essential elements
Unilateral Contract
Promise is exchanged for performance (e.g., Alice promises to perform (“I will sell you my house”), if Bill decides he wants Alice to perform (“I may buy your house; let me decide”)
Bilateral Contract
Promise for a promise (e.g., Alice & Bill make equal promises; Alice: “I promise to sell you my house & deliver a deed,” Bill: “I promise to buy your house and pay you money”
Executed contract
Duties are completed by both parties; they are fully performed
Executory contract
One or both parties need to complete part of the contract; duties yet to be performed
Assignment
Transfers obligation but not liability (e.g., sublease)
Novation
A new contract replacing an old one; transfers obligations and liability
Legal Impossibility
A duty required by the contract cannot be legally performed
Death or incapacity
Contract is termination ONLY if no one is left to perform
Amendments
Changes or modifies the contract; must be in writing and signed by all parties
Addenda
Additional material attached to and made part of the initial agreement (offer); addenda/attachments EXPLAIN the items attached to offers
Essential elements of a valid contract
Competent parties, meeting of the minds, lawful objective, consideration, in writing & signed by the parties
Competent parties
Age of majority (18+) (voidable if minor), mentally sound (void if declared incompetent by a court) (an incompetent person can enter a contract ONLY if court appoint guardian to act on the person’s behalf)
Meeting of the Minds (Offer & Acceptance)
Offer & communication of acceptance must be made before the offer has been withdrawn)
When can an offer be withdrawn?
An offer maybe withdrawn by either party prior to communication of acceptance to the party who made the offer
What does a qualified acceptance or counteroffer do to a contract?
It operates as a REJECTION and terminates the original offer
When is a counteroffer accepted?
If it is signed/initialed by both parties
Is a buyer who received counteroffer obligated to respond?
NO. A buyer who receives a counteroffer is not obligated to respond and may make an offer on a new property without obligation to the seller that countered the first offer
Can a seller who countered sell to another party?
NO. The seller must withdraw the counteroffer before accepting an offer from another buyer
Consideration
Money or something of value (NOT earnest money)
Statute of Frauds
Requires that agreements be in writing to be enforceable; applies to ANY property type (but, DOES NOT apply to a lease of 12 months or less)
Statute of Limitations
Sets the length of time parties will be given to file a claim or lawsuit
Types of real estate contracts
Purchase agreement/offer to purchase/contract of sale, Option, or lease purchase
Purchase Agreement
- The agreement is bilateral - promise for a promise;
- Offer becomes valid & binding when acceptance is communicated;
- It is executory until performance by all parties at closing;
- Buyer (vendee) has equitable title and is the equitable owner; seller (vendor) has legal title and is the legal owner;
- The agreement may include a contingency clause allowing the buyer to terminate under certain conditions (e.g., buyer would het earnest money back) if cancelled per the terms;
- Earnest money is NOT consideration and is not required to create a valid purchase agreement
What are typical contingencies?
Financing, inspection, etc.
What happens if a contingency is not satisfied?
If the buyer terminated the contract per a contingency, the buyer’s earnest money is returned; brokers are NOT PAID if a contract terminates per a contingency
Option Contract
- Owner/seller gives buyer the right to buy for a set price & set term;
- Option fee is paid by the buyer for the right;
- Owner/seller retains option fee if buyer decides not to buy;
- Unilateral contract but becomes bilateral when option is exercised by the buyer;
- Unlike a bilateral, installment, or land contract, if the buyer decided not to purchase, the seller who gave the option would have no recourse agains the buyer
Lease Purchase Agreement
- Lease purchase agreement is two contracts: a purchase agreement & a lease;
- Portion of lease payments ca be applied to a down payment of the proeprty
Mutual Rescission
The mutual agreement of all parties to cancel all obligations; it returns all parties to their original condition before the contract was executed, the buyers money is returned (acceptable for major problems (e.g., the house burns down or there are many repair items) it is not acceptable if the buyer decides she does not like the property and wishes to buy another property)
Remedies for Default
- Enforce specific performance (court action to enforce breaching parties to perform; the ONLY option for the buyer if the seller decides to terminate);
- Terminate the contract and receive earnest money as liquidated damages; thereby releasing both parties for the contract;
- Sue for actual damages
