Real Estate Contracts Flashcards
An agreement between 2 or more parties in which 1 party will receive consideration & the other will either perform an act or refrain from performing an act
Contract
Legally binding agreements to do or not to do something
Contracts
What are the 2 types of agreements?
1.) Performance
2.) Forbearance
Requires the contracting parties either to perform certain actions or to uphold certain contractual promises
Performance
Requires 1 or more of the contracting parties to refrain from actions they are otherwise legally entitled to perform
Forbearance
Drafts & edits the promulgated contract forms
13-member Broker-Lawyer Committee
The number of forms promulgated by TREC is…
6
What are the 6 contracts promulgated by TREC?
1.) One to Four Family Residential Contract (Resale)
2.) Unimproved Property Contract
3.) New Home Contract (Incomplete Contract)
4.) Farm & Ranch Contract
5.) New Home Contract (Completed Construction)
6.) Residential Condominium Contract
TREC promulgated forms aren’t required for:
An agent:
1.) buying/selling property on their own behalf
2.) using a form created by the property owner
3.) representing the seller of a sports stadium
If the broker receives a deposit/earnest money, the broker must deposit the money by…
close of business on 2nd working day after execution of contract.
Contrast in which the buyer can lease a property for a period of time & then have an option to buy the property at the end of the lease
Lease w/option to buy
Someone may make an agreement w/an owner in which they would have the opportunity to buy the property before any other buyer’s offers are considered
Right of first refusal
Documents containing additional terms, info, or obligations that are attached to a contract
Addenda
A legal concept that states that the court can only consider what appears w/in the 4 corners of the documents
4 Corners doctrine
Addenda may be added up until…
the sale is consummated
Changes/makes modifications to an already agreed upon contract
Amendment
An agreement in which both parties make a promise to perform the actions specified in the contract
Bilateral contracts
A contract in which 1 party makes a promise in exchange for a reciprocal act on the part of the 2nd party
Unilateral contracts
There are 2 parties but 1 promise
Unilateral contracts
Once 2nd party accepts & activates their agreement to the terms of the contract, the 1st party is BOUND & obligated to fulfill their side of the contract
Unilateral contracts
B/c one party is obligated from the start while the other party has the option to accept the terms of the agreement, this 1-sided contract is said to lack mutuality.
Unilateral contract
Reward offers, contests, & commissions are common types of…
unilateral contracts.
A contract in which all terms have been fulfilled by all parties
Executed contract
A contract that hasn’t been fully performed
Executory contract
What 2 elements must be present for a contract to be considered executory?
1.) A binding contract on multiple parties
2.) 1 or more of the parties hasn’t performed their contractual duties
What are the 5 Essential Elements of a Valid Contract?
1.) Mutual Assent
2.) Legally competent parties
3.) Consideration
4.) Lawful Objective
5.) Adherence to the statute of frauds
Requires the contracting parties to agree to all of the contract’s provisions & conditions
Mutual Assent
Mutual Assent requires:
- An offer & acceptance
- The absence of fraud, misrepresentation, or duress
- The absence of mistakes
An offer remains open until it is:
- Accepted
- Rejected
- Retracted prior to acceptance
- Countered
- Expired
What are the 3 types of acceptance?
1.) Express Acceptance
2.) Implied Acceptance
3.) conditional Acceptance
A candid & unqualified outward manifestation of an agreement
Express Acceptance
- When the parties bound by the contact act in a manner implying acceptance of the offer
- When all parties involved act all the contract’s obligations instead of openly stating an agreement/acceptance
Implied Acceptance
- Requires a specific condition to be satisfied or an event to take place before acceptance of the contract
- Can be viewed as a counteroffer
Conditional Response
After what point in the negotiation of the contract is it no longer possible for a buyer to rescind the offer?
When the buyer or buyer’s agent receives the notice of acceptance
Attempts to find mutually acceptable contract terms
Counteroffers
Considered a new offer
Counteroffers
Legal competency implies:
1.) Individuals involved are 18 years or older or have parental consent
2.) Individuals don’t have impaired mental capacity
No one may obtain anything of value w/o providing some form of compensation
Consideration
A contract cannot explicitly or implicitly call for any illegal activities
Lawful Objective
A valid contract must adhere to the_____ __ _____.
statute of frauds
A law that requires certain types of contracts to be in writing & to be signed by all parties who are bound by the contract
Statute of frauds
In order for a real estate contract to be valid it must be signed by the seller.
Adherence to the Statue of Frauds
Requires all contracts related to the conveyance of real estate to be in writing in order to be enforceable, except for leases of 1 year of less
Statue of Frauds
Means “word of mouth”
Parol
Holds that when important details of an agreement discussed between 2 or more parties fail to make it into the written contract, the written, signed contract is given authority over any parol evidence\
Parol Evidence Rule
If 1 or more of the contracting parties either partially or completely fails to fulfill contractual obligations
Breach of Contract
The terms & conditions of the contract are either canceled or satisfied
Discharge of Contract
Occurs when 1 or more of the contracting parties perform only a portion of the agreed-upon contractual duties
Partial Performance
Occurs when a party performs the majority of a contract’s requirements but doesn’t perform according to the contract’s stipulations
Substantial Performance
Permissable when that performance would require 1 or all parties involved to act illegally
Non-Performance Due to Legal Issues
Occurs when all parties mutually agree to cancel the contract
Mutual Agreement
Occurs when a contract isn’t legally valid or becomes unenforceable due to existing legal laws or principals like the statute of frauds, statute of limitations, wetlands designation, eminent domain, or other legal doctrines
Operation of Law
Occurs when terms/conditions of a contract are violated
Breach of Contract
When 1 party violates a contract’s terms, they…
assume the consequences of default & the who honored the contractual obligations has the right to seek compensation for any damages.
What 4 options does the non-breaching party have as potential consequences for the breaching party?
1.) Forfeiture
2.) Rescission
3.) Sue for Specific Performance
4.) Sue for Compensatory Damages
No contractual relationship - seller is entitled to keep the earnest money & other payments collected
Forfeiture
Non-breaching party can cancel the contract entirely & seller must return all payments received from the buyer
Rescission
- Results in court order requiring all parties to carry out promises stipulated in a contract
- Court enforcement of original contract
Sue for Specific Performance
- Non-breaching party can take breaching party to court to recover damages suffered due to breach
- Forces breaching party to compensate non-breaching party
Sue for Compensatory Damages
When all parties mutually agree to cancel the contract
Mutual Agreement
A party cannot be compelled to perform an illegal act to meet the terms of the contract
Non-performance due to legal issues
Discharge can be for any reason if all parties agree
Mutual Agreement
The party injured by the other party’s failure to fully perform can seek legal restitution or discharge the contract
Partial Performance
When a party performs the majority of the contract’s requirements, but not all
Substantial Performance
When at least one party performs only a portion of the agreed-upon contractual duties
Partial Performance
Permissible discharge of a contract to avoid the violation of law
Non-performance due to legal issues
The under-performing party has usually fulfilled enough of the contract’s obligations to gain legal enforcement of the contract
Substantial Performance
Stipulations/conditions that must be satisfied before contract terms can be performed
Contingencies
Most real estate contracts will have at least these 2 common contingencies
1.) Financing contingency
2.) Inspection contingency
Makes the purchase contract conditional upon the buyer’s ability to obtain financing
Financing contingency
Makes the purchase contract conditional upon the outcome of the home inspection report or appraisal report
Inspection contingency
When 1 or more of the parties involved in a contract wants to withdraw from it w/o actually terminating the contract the contracting parties may have the option of transferring their rights & duties to a 3rd party
Assignment
- Person/entity that puts the property under contract isn’t the same one that will close
- Contract could be assigned to a new buyer w/a fee paid to the original buyer
Wholesaling
- The act of replacing an existing contract w/a new modified one w/different obligations
- Legally understood to be the exchange of 1 contract for another
Novation
