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Modern Real Estate Practices > Real Estate Contracts > Flashcards

Real Estate Contracts Flashcards

1
Q

How is an Implied Contract created?

A
  • actions indicate intent
  • NO implied contracts in transfer of interest in real estate
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2
Q

How is an Express Contract created?

A
  • a.k.a “declared” contract can be
    • oral (less than a year lease) or
      • written, but must be written to be enforceable
  • bilateral agreement (promise** in exchange for a **promise)
    • “I promise to sell and you promise to buy.”
  • unilateral agreement (promise** in exchange for **performance)
    • “I promise to sell if you decide to buy.”
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3
Q

Contract Classifications

A
  • Valid
    • has all essential elements & meets all legal requirements
    • binding and enforceable
  • Void
    • no legal effect; not enforceable by either party
    • lacks one or more essental elements
  • Voidable
    • appers valid, but a party can disaffirm b/c other party is a minor or was subject to duress, fraud, or misrepresentation.
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4
Q

Stage 1 of a Contract

A
  • LISTED - it is on the market
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5
Q

Stage 2 of a Contract

A
  • OFFER - negotiation period; no contract exists yet
    • Offeror - made last offer
    • Offeree - received last offer
    • Attachment(s) - explain
    • Addenda(ums) - attached to offers
  • Acceptance must be communicated through offeror to form binding contract
  • Earnest $ attached to offer & in broker’s safekeeping
  • Termination can occur through:
    • counteroffer
    • revocation of offer
    • rejection by offeree (seller)
    • lapse of unreasonable time
    • property destroying event
    • death of either party (only during offer stage, NOT contract stage)
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6
Q

Stage 3 of a Contract

A
  • under CONTRACT (with or w/o earnest $)
    • Buyer/Vendee has equitable title
    • Seller/Vendor retains legal title
    • Amendments modify contracts
    • Executory period
  • default/in-breach if any terms of contract violated
  • typically earnest $ deposited based on state laws (upon execution of contract in TEXAS)
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7
Q

Stage 4 of a Contract

A
  • CLOSING - transfering of legal title to buyer
    • Deed:
      • Grantor = Seller
      • Grantee = Buyer
    • Executed
    • Buyer receives credit for earnest money at closing
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8
Q

Termination of a Contract

A
  • TERMINATION - determined by contract terms
    • lease - on exp. date or as determined by contract
    • option - on exp. date unless option exercised (then contract needed to close)
    • purchase contract - by partying exervising contingency or at closing w/conveyance of the deed
    • breah - nonbreaching party has remedies per the contract terms
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9
Q

Essential Elements of a Contract

A
  1. Competent Parties
  2. Meeting of the Minds (MOTM)
    1. NOTE: a counteroffer terminated current offer and creates a new one by it’s nature; offeree becomes the offeror.
  3. Lawful objective
  4. Consideration
    1. NOTE: earnest money is NOT consideration for the sale but a remedy for default.
  5. In writing & signed
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10
Q

Statute of Frauds

A
  • requires that, in order to be enforceable, certain contracts must be in writing & signed by all parties
  • includes all contracts for the transfer of interest in real estate
    • EXCEPTION: leases under 12-months
  • purpose is to prevent problems with oral contracts
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11
Q

Statute of Limitations

A
  • sets the amount of time given to file a claim or lawsuit
    • WRITTEN: 4 years
    • ORAL: 2 years
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12
Q

Executory vs. Executed

A
  • EXECUTORY: not fully performed (one or more parties remaining to sign document, but executed by at least one party)
  • EXECUTED: duties fully performed

executed once deed has been delivered and accepted​

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13
Q

Addendum (regarding an Offer)

A
  • additional material attached to and made part of the offer like disclosures and contengencies
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14
Q

Amendments/Modifications (regarding a Contract)

A
  • any mods must be by mutual agreement, written, and signed by all parties
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15
Q

Assignments (regarding Contracts)

A
  • transfers contract rights, but not liability (sublet)
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16
Q

Novation

A
  • N in Novation = NEW Contract
  • trasnfers contract rights and liability
  • NEW contract replaces original contract
17
Q

Legal Impossibility/Impossibility of Performance

A
  • a duty required by the contract that cannot be legally performed
18
Q

Death (regarding a Contract)

A
  • most are not terminated by death
    • deceased’s estate would have to honor the contract
  • certain contracts can be terminated upon death
    • personal service contracts (listing contracts)
  • OFFERS (NOT CONTRACTS) terminate upon death of the parties
19
Q

Mutual Recission - Contracts

A
  • return of all parties to their original condition before contract was executed (earnest money typically returned)
    • refer to paragraph 18
20
Q

How does a Breach of Contract occur?

A
  • when one party is in default w/o legal excuse
    • seller takes fixture after closing, did not exclude from purchase agreement
    • buyer’s earnest $ check returned for NSF
    • statute of liability sets amount of time the nonbreaching party has to take legal action
21
Q

What remedies are there for the nonbreaching party?

A
  1. Acceptance of partial performance
  2. Specific performance
    1. Sue to force performance - completion of contract
    2. Available to both buyer and seller
    3. Buyer’s only remedy if seller decides not to sell
  3. Liquidated Damages, only if specified in agreement
    1. retaining breacher’s deposit
    2. keeping earnest money (remedy for default)
    3. Available only to seller
  4. Actual damages - sue for actual money lost
22
Q

Types of Real Estate Contracts

A
  • Purchase Agreement
  • Option
  • Lease-Purchase
  • Right of First Refusal
  • Sale-Leaseback
  • Lease
23
Q

Purchase Agreement

A
  • creates conditions for closing; aka offer to purchase, contract of sale, or purchase and sale agreement
  1. Offer becomes executory** upon **communication of acceptance
    • communication = when last party signed and other party has been notified
    • oral or written notice is adequate
  2. Bilateral Agreement
    • Purpose (promise for promise)
  3. Parties are:
    • Seller = Vendor, holds title
    • Buyer = vendee, holds equitable title
  4. Essential elements (B&S signatures, prop description, price & terms, in writing, & signed)
  5. Typically includes one or more contingency clauses
    • typically for financing, appraisal, and inspection
    • if buyer terminates during, the earnest $ returned and contract is terminated
    • broker is not entitled to a commission if terminated per contingency
  6. Often has “time is of the essence clause”, requiring exact adherence to specified dates or in breach
    • refer to paragraph 23
  7. Risk of Loss statement - by law/contract provision
24
Q

Option - Definition & Purpose

A
  • purchasing the right to buy in the future from seller who agrees to sell w/in a set period for a set price (promise for a promise)
  • purpose: “I promise** to sell if you **decide to buy.”
  • Unilateral agreement - binding on seller, buyer has option to perform
    • original contract = all terms binding if option exercised
    • becomes bilateral when option exercised
    • if option not exercised, expires at end of option period
  • Parties
    • Owner = optionor
    • Potential Buyer = optionee
  • Option Fee
    • nonrefundable fee to hold option for buyer
    • if buyer decides “no”, seller has no recourse to keep money
25
Q

Lease-Purchase

A
  • used when tenant wants to purchase, can’t get financing for full amount
  • part of rent may be applied to purchase price; contract terms determine
26
Q

Right of First Refusal

A
  • the right of a person to have first opportunity to purchase/lease real property
  • sometimes part of condo/COOP rules & regs or part of a lease
  • gives owner more flexibility than an option b/c typically no set price & sellers can sell to others if right not exercised
27
Q

Sale-Leaseback

A
  • owner seller property then leases it back
  • equity converts to working captial w/o giving up possessions
28
Q

Lease

A
  • Purpose: Promise to let occupy and you promise to pay rent.
  • Bilateral
    • landlord = lessor
    • tenant = lessee
  • Essential Elements
    • Names of landlord & tenant(s)
    • Description of property - address is acceptable
    • Rent terms
  • Lessor has reversionary interest - allows lessor to retake possession
  • Termination set by date/notice in lease
    • sale of property does not terminate
    • buyer takes title “subject to” the lease
29
Q

Types of Leases

A
  • Gross/Fixed Lease
    • tenant pays fixed rent - landlord pays all expenses
  • Commercial Lease
    • Net Lease: tenant pays base rent plus expenses (prop tax, ins, maintenance)
    • Percentage Lease: rent amount based on percentage of gross income/sales (mall kiosks)
    • Variable Lease: rent goes up/down at predetermined intervals (graduated or economic index)
    • Ground Lease: (land lease) renting unimproved property
30
Q

When will these leases expire?

Estate for Years, Periodic Estate, Estate at Will, Actual Eviction, & Constructive Eviction

A
  1. Estate for Years = Expiration Date (not death)
  2. Periodic Estate = Notice (not death)
  3. Estate at Will = Notice or Death
  4. Actual Eviction = Court action/determined
  5. Constructive Eviction = if lessee must vacate due to lessor’s act/failure to act; lessor cancels lease & tenant obligation to pay rent, but the tenant must move

Modern Real Estate Practices (11 decks)

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