S8 Unit 1: The Legal Requirements of the Purchase Agreement in Washington Flashcards
Section 8: Purchase and Sales Agreements in Washington
Purchase and Sales Agreement
also known as a purchase contract, a sales agreement, an earnest money agreement, a sales contract, or simply “the offer”—is a detailed document that outlines how a piece of real estate will transfer from the seller to the buyer. It establishes the sale terms and conditions, as well as both parties’ legal rights and obligations.
Required Elements of a Purchase Agreement
In Washington, a purchase and sales agreement contract must contain, at a minimum, the following:
Parties to the transaction
Brokers to the parties to the transaction (when used), and who they represent
Legal description of the property
Offering price
Financing terms, including whether the property is subject to a financing contingency
Earnest money deposit amount
Title policy, title insurance
Applicable addenda
Closing costs and closing date
Legal notices
Cancellation option(s)
Depending on the specifics of the transaction, the purchase and sales agreement may also include appraisal and inspection contingencies, personal property that will transfer with the sale, surveys, and other terms.
Recordkeeping
In Washington, the broker must maintain all real estate transaction records—including real estate sales contracts—for at least three years.
Communicating the Offer and Acceptance
Communication of the parties’ intentions and agreements is essential during a transaction. The buyer’s offer must be submitted on time. The seller must respond by the buyer’s deadline. If all goes well with the buyer’s offer, the seller accepts. However, prior to the seller’s acceptance, the buyer can withdraw the offer. Therefore, notification of seller’s acceptance to the buyer must be provided to form a binding contract.
Which Form Do You Use to Write the Offer?
Licensees don’t draft purchase and sales agreements. They merely complete a form provided by their brokerage that has already been through legal review. Drafting contracts and non-standard language in legal paperwork is unauthorized practice of law. If you run into a situation that isn’t covered in the standard form used by your brokerage, ask your broker how to handle it. Always recommend that your clients consult an attorney if they have any legal questions.
Forms change periodically, so be certain to use the most updated version, and always review the contents of the forms with your clients prior to their signatures.
Essential Contract Elements
A valid contract is one that is enforceable by law. Because the statute of frauds states that real property transfers of ownership must be in writing to be enforceable, one of the essential elements of a valid real estate contract is that it be in writing.
There are five additional essential elements to a valid real estate contract. These are:
Legally competent parties Offer and acceptance Consent Legal purpose Consideration
(LLCOC)
Legally Competent Parties
A legally competent party has the capacity (legal and mental) to enter into a contract. If the party does not have legal capacity and enters into a contract anyway, the contract is voidable (not automatically void) by the party lacking the capacity.
In the case of a minor entering into a contract to purchase real estate, the minor doesn’t have contractual ability due to his age. The minor may hold the adult to the contract, but the adult cannot legally hold the minor to a contract.
Ex. Lincoln, 16, offered to purchase his adult aunt’s condo. The two parties signed a sales agreement. Lincoln’s aunt knew he had money in a trust and could likely get access to it through his parents. When his parents learned of the transaction, however, they refused to grant Lincoln that access. Lincoln’s aunt cannot sue Lincoln or his parents to enforce the terms of the contract. However, if Lincoln could have accessed the funds, his aunt couldn’t terminate the contract based on Lincoln’s minority status.
Offer and Acceptance
This is also called mutual agreement, or just acceptance. Offer and acceptance occurs only when there is a meeting of the minds, or when the parties are in complete agreement about the purpose and terms of the contract. Most states require that the terms and conditions of the contract be in writing; the wording must express the agreed-upon terms and must be clearly understood by the parties.
An offer is a promise made by one party, requesting something in exchange for that promise. The party who makes it is the offeror.
An acceptance is a promise to be bound by the exact terms made in the offer. The party who receives an offer is the offeree.
An offer to purchase and sell real estate can go back and forth between seller and buyer, with the parties trading positions of offeree and offeror with each counter-offer, until one of the parties accepts the offer exactly as the other party sent it.
The offer is said to be a contract when the offeree accepts the exact terms of the offeror and notifies the offeror of that acceptance. This is called notice and delivery. Notice means that all parties are aware of the terms of the contract, and delivery simply means that both parties have copies of the signed contracts.
Ex. Rob offered to purchase Laura’s house, and Laura agreed to sell it. They were both fully aware of the terms, and although Laura initially countered the offer on price, they eventually reached agreement on all terms and signed a contract. However, if Rob had rejected Laura’s counter-offer, there would’ve been no offer and acceptance, and therefore there would be no contract.
Consent
This is also called voluntary agreement. A contract must be entered into as a free and voluntary act, without undue influence or duress. Other circumstances that would deprive a party of the ability to consent to a contract include fraud, misrepresentation, and mutual mistake.
Misrepresentation may be unintentional, but fraud occurs when misrepresentation of a material fact is intentional.
And mutual mistake occurs when both contract parties are mistaken about a material fact. This is why it’s so important to document all of the terms and conditions as explicitly as possible when writing in the contract
Undue influence exists when an act of persuasion overcomes another individual’s free will and judgment. This can include trickery and deception, and usually means that the person doing the influencing is in a position of trust and abuses that trust, such as a guardian and a ward, where the ward relies on, trusts, and obeys the guardian.
Duress includes the use or threat of force, such as blackmail or bodily harm. For example, a woman’s ex-husband threatened to harm her if she didn’t sell her house to him at a steep discount. If she signed the agreement under duress, there was no real offer and acceptance, and the ex-wife could revoke the contract.
Ex. In Gheeta’s culture, wives are expected to respect and obey their husband’s parents. Gheeta didn’t want to sell the lakeside home that had been in her family for years, but her in-laws told her that she needed to sell it so that she could invest the money in her husband’s business. Gheeta reluctantly entered into a listing contract to sell the home. This listing contract doesn’t demonstrate consent or voluntary agreement.
Legal Purpose
All contracts must be written for a legal purpose; that is, they must have a lawful objective. A contract for an illegal purpose is void.
Ex. Sheena and her neighbor Rita signed an agreement to not sell their properties to minorities. This agreement would be unenforceable because it’s discriminatory and violates fair housing laws. The contract is not for a lawful objective, so it’s void.
Consideration
For a contract to be legally binding, an offer and an acceptance must be supported by consideration, which is defined as something of value offered by both parties. Consideration can include:
Money (or promises of funds in the future)
Property (real estate or other personal property)
Labor, love, good wishes, or physical actions (non-monetary)
Through this bargaining process, the parties agree (or promise) to fulfill a designated role, i.e., deliver goods in exchange for payment. Those actions that the individual parties have agreed upon constitute the essence of consideration.
Earnest money demonstrates the buyer’s willingness to enter into a purchase agreement. Earnest money is not required to have a valid contract. The full consideration of a purchase agreement is the full price for the home in exchange for the ownership title on the property.
