Real Estate Contracts Flashcards
A ________ is a legally enforceable promise or set of promises between competent parties, upon legal consideration, to do or abstain from doing some legal act, for which, if breached, a remedy is
provided by law.
contract
Contracts can be classified in four different ways:
A. Method of Creation
B. Parties Involved
C. By Status
D. By Validity
_______ ________: In contracts this one method of creation is formed by the suggestion of the parties’ acts and conduct. The conduct of the parties is a demonstration of their agreement. The terms do not need to be written or even spoken to be effective and legally binding.
For example, if Mr. Baker eats
breakfast every day at a certain restaurant and every day the waitress routinely brings him toast and coffee, then just by sitting down, he enters into an implied contract with the waitress. That is, if she brings him the food, he agrees to pay for it.
Implied Contract
_______ ________: In this method of creation the terms are communicated in words. The words can be either written or spoken. Each party is clearly aware of exactly what is being contracted and exactly what is expected at exactly what time. If Mr. Baker had actually told the waitress to bring him toast and coffee, an _______ ________would have been formed. Under the statute of frauds, some types of contract must be in writing to be enforceable.
Express contract
____ _________ are valid but unenforceable.
Oral contracts
Contracts for the sale of real estate are required to be in writing to be enforceable.
Written Contracts
If there is a discrepancy as to the intent of the parties to the contract, the intent will be interpreted _______ the person who wrote the contract, and __ _____ __ the other party. If a pre-printed form was used, it will be interpreted against the party who provided the form.
against
in favor of
If there is a discrepancy as to the intent of the parties to the contract, the intent will be interpreted _______ the person who wrote the contract, and __ _____ __ the other party.
against
in favor of
__________ ________: with parties involved, one party makes a promise with the hope that it will motivate another party to do something. The second party is not legally obligated to comply, but if he does, the first party is obligated to keep the promise. This contract must be signed by only one party. An example of this type of contract is an “option.”
Unilateral contract
An ______ is a right extended to purchase real property for a specified amount within a specified period of time. If the second party accepts the ______ to purchase, the party offering the ______ is obligated to sell to him.
option
_________ ________: both parties promise to perform as stated in the contract. An example is a real estate sales contract. The seller promises to sell a parcel of real estate and the buyer promises to pay a certain sum of money for it. This contract must be signed by both parties to be legally binding.
Bilateral contract
__________ ________: By status this contract is one which has not been completed or fulfilled. All of the terms of the contract have yet to be met
Executory contract
________ ________: By status this contract is one in which all the parties have met all the terms and conditions of the contract. The contract is completed.
Executed contract
_____ ________is one that is binding and enforceable. It contains all the essentials of
a legal contract. Each party may be required to perform, as stated in the contract, by
any of the other parties.
Valid contract
____ ________ is actually no contract at all. It has no legal effect and is not binding on
either party. It is often created when the subject of the agreement does not conform with the law. (* Null in Louisiana).
Void contract
__________ ________ is a contract that is still binding, but is flawed. These contracts arise from threats or fraud and can be void by the wronged party. If the wronged party chooses not to void the contract, the guilty party remains bound to it. This contract is considered to be valid unless voided by the wronged party within a prescribed period of time.
(* Relatively Null in Louisiana).
Voidable contract
____________ ________a contract is whose terms cannot be enforced by the courts. This contract has all of the essential elements of a valid contract, however, for some reason,
neither party can sue the other for specific performance. An example would be an oral contract.
Unenforceable contract
A contract may also be classified as legal or illegal. A _____ contract is one that is required or permitted
by law. An _______ contract is one that is in violation of local, state, or federal law.
legal
illegal
_____ ___ __________ All parties must enter into a contract with a clear understanding of the contract’s terms and agreements. There must be a “meeting of the minds”.
Offer and acceptance
An offer may be revoked by the offeror at any time prior to acceptance. (*In Louisiana, an offer is irrevocable.) After acceptance, the offer is irrevocable. If any change is made by the offeree to the original offer this constitutes a rejection of the original offer and is known as a ____________.
counteroffer
After receiving an offer, the offeree has three choices.
Agree to the contract exactly as submitted
Reject the offer
Make a counteroffer
Communication of acceptance may be viewed as either ____________ or ______.
Constructive
actual
____________ _____________
occurs when an offeror specifies the means by which he wants his offer accepted. It is legally binding as soon as the offeree follows the offeror’s directions.
Constructive communication
______ _____________ is said to occur when the offeror receives written or oral communication
of acceptance, or when there is a meeting of the minds.
Actual communication
_____________: A contract is not valid unless each party has pledged to exchange something of value with the other party. Whatever is exchanged may be tangible or intangible and may include granting the legal right to do something, or making a promise not to do something.
Consideration
________ is the first type of consideration that refers to items of material value, such as real property, money, etc.
Valuable
____ this second type of consideration refers to things of abstract value such as the promise for love, affection, friendship or loyalty.
Good
(* In Louisiana, we must have “_____” for a contract to be considered valid, even if money is involved. Promise is considered to be a sufficient cause.
cause
Also, in Louisiana, we have what is called “______ ______ ______”. This means that if a property is sold for less than half of the market value at the time of sale, the seller can sue to rescind the sale for up to one year from the time of the sale.)
lesion beyond moiety
_____ ________ All parties to a contract must be legally competent and authorized. Generally, minors may not enter into a legal agreement without the protection of a legal guardian.
Legal Capacity
Intoxication and insanity
are also grounds for _____ __________. If a party to a contract is considered to be incompetent, the contract
may be voidable.
legal incapacity
_____ _________: Contracts that are in violation of the law lack legality of purpose and are therefore not valid. Contracts are also invalid if they infringe on the rights of others or are formed with the intent of harming another person or his property. An illegal contract is unenforceable in court because it is not valid.
Legal Objective
__________: For a real estate contract to be valid, an accurate legal description of the subject property must be disclosed. The street address of the property should be mentioned as well.
Disclosure
_____ is the deliberate or intentional misrepresentation of pertinent facts which allow one party to gain undue advantage over another party.
Fraud
______ _____: is committed when there is intend to deceive-for example, lying or withholding pertinent information.
Actual fraud
____________ _____ is committed with no intent to harm, mislead or misrepresent. Examples would be breach of trust, responsibility, or duty.
Constructive fraud
________ in the preparation or interpretation of a contract may also remove genuine assent (expression of approval or agreement)
Mistakes
________-__-____: errors regarding the facts of a contract, for example, a
misunderstanding as to the location of a parcel of land being conveyed.
Mistakes-of-fact
________-__-___: These occur when a party, in full knowledge of the facts, comes to an
erroneous conclusion as to their legal ramifications.
Mistakes-of-law
_____ _________ is the use of one’s power or authority to force another person to enter into an agreement against his will.
Undue influence
______ is unlawful influence exerted upon a person to force him to act against his own will. This includes physical force, property damage and confinement.
Duress
______ is the actual threat to commit duress.
Example: Someone threatens to kill you unless you sign a contract to sell your property to him.
Menace
A contract may either be completely performed with all of its terms carried out, or a contract may be broken or breached if one of the parties to it defaults. A contract is said to be __________ when the obligation of all parties to perform or not to perform is terminated.
discharged
__ ___________: one way a contract can be discharged when all the terms of the contract are satisfactorily carried out.
By performance
By _______ ___________ with _______ __________: the contract is discharged when the person to whom acts have not
been done or to whom money has not been paid accepts in writing partial performance of the terms of the contract.
By partial performance with written acceptance
___________ ___________: when one party has substantially performed to the terms of the contract but has not completed every detail exactly as the contract requires. The contract may be discharged or specific adjustments may be made.
Substantial performance
_____________ __ ___________: If an act required by a contract is not within legal limitations, the contract may be discharged.
Impossibility of performance
_____: With the exception of listing agreements, most contracts are NOT terminated by the death of either party. The heirs are required to abide by the terms of the contract.
Death
______ _________ of the _______ to ______: when both parties to a contract decide to cancel it.
Mutual agreement of the parties to cancel
_________ of ___: discharge by law of contracts, for example, because of one party being a minor, or fraud.
Operation of law
By ______ and ____________: this type of contract discharge allows one party to the contract to substitute a new contractual obligation for his original one.
By accord and satisfaction
______ is the agreement between contracting parties to substitute the new obligation.
Accord
____________ occurs when the new terms have been fulfilled.
Satisfaction
__ ________: this contract discharge type allows the substitution of one party to the contract with a new party, or
the replacement of a new obligation for an old one.
By novation
By ___________ of ________: When the property is destroyed, the contract is considered to be discharged.
By destruction of property
__ __________: Under certain conditions, bankruptcy may cause a contract to be discharged. However, in cases of fraud, bankruptcy will not relieve you of a fraudulent debt.
By bankruptcy
__ ________ __ ___________: Failure to perform within the allotted time may cause discharge of a
contract.
By statute of limitations
___ to _____ or __________________: A contract entered into through fraud or misrepresentation may provide grounds for the contract’s discharge. The guilty party may also be liable for criminal prosecution.
Due to fraud or misrepresentation
______ of ________: occurs when a party fails to meet contractual obligations. It may be caused by a party’s failure to perform, his inability to perform or his acting in such a way as to make performance impossible.
Breach of contract
If a seller breaches a real estate contract, the buyer may sue for ________ __________. If the buyer defaults, the seller can sue for damages or sue for the purchase price. Sue to have sale completed.
specific performance
*Louisiana: A deposit is not required. If no money accompanies the contract it is specific performance.
_________: Under certain conditions, one party may cancel or terminate the contract as if it had never been made.
Recission
This concept holds that one may lose his legal rights if he inexcusably fails to exercise them within a reasonable time.
Laches
This originated in English Law. It was adopted because of confusion over oral contracts. It holds that real estate contracts must be in writing if they are to be enforceable by the courts. Typically, the following contracts must be in writing:
1. All contracts for sale, purchase or exchange of ownership or interest in real
property.
2. All contracts for the leasing of real estate for a period of time longer than one year.
The Statute of Frauds
The Statute of Frauds also specifies that
certain information must be contained in the real estate contracts:
a.
b.
c.
d.
The date
A description of the property
The terms of payment
The signature of the party incurring the debt of obligation
_______ ________: the way in which the sellers of property furnish the real estate brokers and salespeople with their inventory. It is also an employment contract, that is, employment of the broker by the principal to find a ready, willing and able buyer for his property.
Listing Agreement
The listing agreement forms a _______ ______ relationship between the broker and seller in that it authorizes the broker to represent the principal’s property for sale, solicit offers and submit the offers to the principal.
special agency
____ _______: The seller retains the right to employ as many brokers as he wants to try to sell his property, but is only obligated to pay a commission to the one who actually finds a ready, willing and able buyer. If the seller sells his property himself, he is not obligated to pay a commission.
Open listing
_________ _____: Only one broker is hired to act as the exclusive agent of the principal. The seller, however, can still sell his property himself and not pay a commission to the broker.
Exclusive agency
_________ _____ to ____: Only one broker is hired as the agent in this type of listing agreement and he is given exclusivity to sell the property. Regardless of who actually sells the property, the seller must pay the broker a commission. This is the most common and popular type of listing agreement for brokers and sellers alike.
Exclusive right to sell
________ _______ ______: means that the broker is a member of a multiple listing service and must share the listing with all other members of MLS.
Multiple listing clause
___ _______ ______: This means that the broker may legally accept as his commission all proceeds of the sale in excess of the net price specified by the principal. These listings are illegal in some states.
Net listing clause
_____ ________: Two agencies can list the same property for sale and work together to find a buyer.
Joint listings
_____ _______ with an ________: The agent is given an interest in the property being sold.
Agency coupled with an interest
_______ ______: seller reserves right to sell to certain parties and not pay a commission to the broker.
Reserve clause
__________ or ______ ______: Exclusive Right to Sell Listing Agreements contain a clause that entitles the real estate broker to a commission after the listing expires or is canceled. This applies only in the event a buyer who was introduced to the property by the listing broker purchases the property after the listing has been withdrawn or expired. The broker, to comply with the terms of the listing agreement typically needs to send notice with each buyer’s name within a certain number of days to the seller.The clause “protects” the broker from collusion between sellers and buyers.
Protection or safety clause
- The listing agreement must be in writing.
- There must be a legal description of the property.
- The listing agreement must have a definite termination date.
- The lot size.
- The square footage of all buildings and improvements on the property.
- The listing agreement must show the broker’s fee.
- The type of deed that the seller will deliver.
- All personal property (movables) listed.
Requirements of Listing Agreements
- When the property is sold. Listing terminates at closing.
- Mutual agreement between the broker and owner.
- Death of broker or seller.
- The listed property is destroyed.
- Bankruptcy of seller.
Ways to terminate a listing
A _____ _____ _________ is an agreement between the broker and the buyer. The buyer contracts with a broker to find property for the buyer. In this type of representation, the buyer is the client. The agreement should describe the type of property that the buyer is looking for and should state how the commission is to be paid.
Buyer Agency Agreement
_________ _____ _____ _________: The buyer engages a single licensee to search for a suitable property, and the licensee is entitled to compensation no matter who finds the property, including the buyer.
Exclusive buyer agency agreement
_________-______ _____ ______ _________: The buyer engages the licensee to search for a suitable property and that licensee is entitled to compensation if anyone other than the buyer finds a
suitable property.
Exclusive-agency buyer agency agreement
____ _____ ______ _________: This agreement is nonexclusive and allows the buyer to employ an unlimited number of brokers. The buyer compensates only the broker who actually locates the property purchased.
Open buyer agency agreement
The ________ _______ is a special type of Exclusive Right to Sell Listing that has become increasingly popular in recent years.
Multiple Listing MLS
When the commission is shared between the listing broker and
the selling broker, this is known as ______ ___________.
broker cooperation
_____ _________ ________ __________: The real estate sales contract is basically an
agreement between a buyer and a seller to convey real estate. It spells out the precise terms of the agreement and specifies the kind of title conveyed, type of deed, liens and encumbrances, manner of payment, and amount of commission. The sales contract requires at least two parties.
SALES CONTRACTS
(PURCHASE AGREEMENTS)
________ ___________ ________: A monetary deposit is required which accompanies the offer to purchase. If either party fails to meet contractual obligations, he has several choices for recourse.
Specific performance contract
_______ _____ ________: Earnest money is required along with the offer to purchase. The buyer customarily puts down a cash deposit with his offer to prove his intent to carry out the terms of the contract.
Earnest money contract
If the buyer should default, the seller may retain the earnest money deposit as __________ _______. In the case of default by the seller, the buyer must receive his earnest money back plus an equal amount from the seller.
liquidated damages
___________ _______: clauses specifying provisions and conditions which must be met before an agreement is binding. If they are not met, the contract will not be valid. An example would be ability to obtain financing.
Contingency Clauses
_______ ______: states that the seller has inspected the property for termite damages and has remedied any damage found.
Termite Clause
______: Any other added clauses.
Riders
__________ ______: insures that the broker will receive a commission if his client buys the house within a
certain time period after the listing agreement has expired.
Protection Clause
______ ______: When selling contingent upon buyer selling his house, this clause protects the seller from having to keep his house off the market for an extended period of time.
Escape Clause
An ______ is a contract in which the owner, or optioner, gives a prospective purchaser, the optionee, the future right to buy he owner’s property at a fixed price within a specific period of time.
Option
______ ___________: While verbal negotiations are common, it is important to put all negotiations in
writing as soon as possible.
Verbal Negotiations
_____ ____________: Many purchase agreements are negotiated by fax. It is the responsibility of the agent to ensure that faxed copies are legible.
Faxed Negotiations
__________ ____________: A contract may not be denied legal effect or enforceability solely because an electronic record was used. Electronic records satisfy the legal requirement for a contract to be in writing. Both parties must agree to the use of electronic signatures.
Electronic Negotiations
_______ __________ ____________ ___: UETA was the first attempt at uniformity in the use of technology in business and commerce.
Uniform Electronic Transactions ACT
_____ ___: The Electronic Signatures in Global and National Commerce Act, or ESIGN Act, is a federal law enacted in 2000 legalizing the use of electronic signatures and records. While individual
states have laws pertaining to digital or electronic signatures, this law legalized the use of electronic signatures in interstate commerce.
ESIGN Act
(*Louisiana adopted UETA with a few modifications. The Louisiana law is known as LUETA.)
LUETA :Louisiana Uniform Electronic Transactions Act
The owner gives a prospective buyer the right to buy the property at a certain price for a certain period of time
Option
The _____-________ ______ is a variation of the option in which the renter, or lessee, of a piece of property is given the option of purchasing the leased property at a later date. If he buys the property, part of his previous rental payments may be applied to the purchase price, if so agreed.
lease-purchase option
___________ ____, ____ ________, or ________ ___ ____: type of owner financing in which the seller retains title until the full sales price is paid.
Installment sale, Land Contract or Contract for Deed
- In Louisiana, this type of contract is called “Bond for Deed”.
the buyer promises to make regular payments on the balance of the purchase price. These payments usually include interest, taxes, and insurance. In return, the buyer receives _________ _____ to the property. Legal title is received when tell is contractual obligations have been met.
equitable title
Owner financing in which title transfer to the buyer at closing. Other terms for owner financing include Seller financing, Vendor take-back mortgage and Carry-back financing.
Purchase Money Mortgage
______ are both a contract and a conveyance. The lessee contracts to pay rent to the lessor. The lessor conveys an interest In the property to the lessee. Like any other contract, it must meet certain legal requirements.
Leases
______ of _____ and __________: If a prospective buyer finds a piece of property that he wants, a contract of sale, or purchase agreement, is drawn up and signed by the prospective buyer. It is then
presented to the seller by the agent. If the seller agrees to the terms of the offer exactly as it was made, he then signs the offer. By signing the purchase agreement, he is accepting the offer and the contract is valid.
Notice of offer and acceptance
_________: An offer can be rejected. However, if the seller wants to reject the offer, but would like to continue negotiations, he may make a ___________. It is essentially a new offer and is a written offer to sell the property at a price closer to the price that the prospective buyer offered on the original agreement. It may be drawn up on a new purchase agreement, or on the original purchase agreement. The seller must date and sign it before it is presented to the prospective buyer. The buyer is given a time limit in which to respond. He may reject it, or he may make another ____________. When a final agreement is reached the contract is signed and dated.
Rejection
counteroffer
counteroffer
__________: In most states, an offer to purchase may be revoked at any time prior to acceptance by the seller.
* However, in Louisiana, once an offer is presented to the seller, it cannot be revoked if it contains the clause “This offer is binding and irrevocable”. In this case the offer must run its course.
Revocation
__________: To “rescind” a contract is to cancel or annul the contract. It is the revocation or repealing of a contract by the mutual consent of the parties to the contract or for cause by either party to
the contract. Cause, other than mutual consent, for rescinding a contract can be a party’s failure to perform, his inability to perform, or his acting in such a way as to make performance impossible. When a contract is rescinded, all parties are relieved of their original obligations, and valuable considerations are returned to the owners.
Rescission
A ________ _________ contract is voluntarily revoked by all parties.
mutually rescinded
A ____________ _________contract is revoked by the wronged party in the face of fraud, duress, or failure to perform.
unilaterally rescinded
___________ __________: is actually a rejection. The buyer states that he will accept the terms of the purchase agreement contingent on certain conditions. This is essentially a counteroffer which must be accepted or rejected by the seller.
Conditional acceptance
_____________: Conditions that must be satisfied before a sales contract is fully enforceable. These may be things such as obtaining financing, inspections, etc.
Contingencies
____________ of ________ _____: Once an offer is accepted, any changes must be in writing and must be signed and initialed by all parties.
Modification of contract terms
________: A monetary _______ must accompany the purchase agreement. The type of _______ made is identified by either the earnest money contract or the specific performance contract.
Deposits
_______ _____: When the deposit given is _______ _____, either party may rescind the contract but must pay the sum designated as _______ _____ to the other party. It is also known as liquidated damages.
Earnest Money
________ ___________ _______: If the deposit given with the contract is not earnetst money, then it requires “________ ___________ “ of the contract. This means that if either party withdraws from the contract, the other party can sue to have the terms of the contract performed.
Specific Performance Deposit
________ _________ __________: Most states require the seller to disclose any known defects in the property to prospective buyers. The disclosure statement is NOT a warranty by the seller.
Property Condition Disclosure
_________ ____________: It is the broker’s responsibility to provide his or her salespeople with the basic information on financing, and the agent should assist the buyer in obtaining financing.
Financing requirements
___________ of the ________ takes place at the sale closing. The time and place of the final transfer of property are to be included in the sales contract.
Performance of the contract
________ of __________: If no other date is specified, possession of the property takes place at the act of sale. If the buyer
occupies the property before the specified date, he must pay rent to the seller.
Delivery of possession
The contract must be performed within the time limit specified.
Time is of the essence
The buyer’s interest in the property after the contract to purchase is signed, but before title is actually transferred.
Equitable title
A ____ __ ____ is used only if personal property is included in the conveyance of the property.
bill of sale
The sale is closed at the ___ __ ____.
Act of Sale
The _______ ________: Once the purchase agreement is accepted and signed by all parties a date is set to close the sale. The purchase agreement should be the basis for the ______ _________. The
_______ _________ shows:
Names of buyers and sellers
Marital status of buyers
Legal description of property
Covenants, Conditions, Restrictions and Servitudes that affect the property
Purchase price and financial arrangements
Warranties
Contingencies
Date and signature of parties
It lists all amounts to be debited or credited to the buyer and seller.
Closing Statement
Debits and Credits:
Sale Price
Debit to Buyer
Credit to Seller
Debits and Credits:
New Loan
Credit to Buyer
Debits and Credits:
Mortgage Payoff
Debit to Seller
Debits and Credits: Interest on Assumed Mortgage
Credit to Buyer
Debit to Seller
Debits and Credits:
Assumption
Credit to Buyer
Debit to Seller
Debits and Credits:
Closing Costs
Debit to Buyer
Debits and Credits:
Deposit/Earnest Money
Credit to Buyer
Debits and Credits:
Purchase Money Mortgage
Credit to Buyer
Debit to Seller
Debits and Credits:
Taxes, Not Paid
Credit to Buyer
Debit to Seller
Debits and Credits:
Pre-Paid Taxes
Debit to Buyer
Credit to Seller
Debits and Credits:
Tenants’ Security Deposit
Credit to Buyer
Debit to Seller
If a property is sold for an illegal purpose, that contract is:
a. void b. voidable
c. unenforceable d. valid
a. void
An example of a service contract is:
a. purchase agreement
b. option
c. listing agreement
d. executed sales contract
c. listing agreement
A buyer becomes obligated when:
a. he signs the purchase agreement
b. the seller accepts the purchase agreement
c. agent presents him with the accepted contract
d. the offer is presented.
c. agent presents him with the accepted contract
In the closing statement, new loan proceeds are listed as:
a. credit to the buyer
b. credit to the seller.
c. debit to the buyer
d. debit to the seller.
a. credit to buyer
Which of the following is an example of a unilateral contract?
a. open listing
b. option
c. exclusive listing
d. exclusive agency
a. open listing
An owner sells her house telling the buyer the patio furniture goes with it. The furniture is not mentioned in
the contract. If the seller does not leave the furniture, the buyer can:
a. sue for the furniture
b. not sue because it is not in writing
c. cancel the contract
d. sue to rescind the sale
b. not sue because it is not in writing
A contract signed under duress is:
a. void b. voidable
c. null d. unenforceable
b. voidable
A contract is signed between buyer and seller. The contract would become impossible to perform if:
a. the seller dies
b. the buyer is under age.
c. the buyer does not have the money
d. the house burns down.
d. the house burns down
Mr. Jones sold his $200,000 home for $60,000. Mr. Jones’ daughter may rescind the sale under what Louisiana law?
a. dation en paiment
b. lesion beyond moiety
c. redhibition d. lemon law
b. lesion beyond moiety
A listing contract may be terminated if:
a. the seller feels the broker is not doing a good job.
b. the seller decides to list with a different broker.
c. the broker thinks the house is overpriced.
d. both parties agree.
d. both parties agree
A broker in listing a house, wanted an exclusive right to sell the property for 90 days. The seller wanted to retain the right to sell the property himself. What type of listing would be best?
a. open listing b. multiple listing
c. exclusive agency
d. exclusive right to sell
c. exclusive agency
