Unit 5: Types of Real Estate Contracts Flashcards
What are the 6 types of real estate contracts?
- Purchase Contract
- Option
- Lease-Purchase
- Right of First Refusal
- Sale-Leaseback
- Lease
What is a purchase contract?
It creates the conditions for closing.
What are the other names for a purchase contract?
- Offer to Purchase
- Contract of Sale
- Purchase and Sale Contract
What are the 4 stages of a purchase contract?
- Listed
- Offer, Acceptance, & Communication of Acceptance
- Under Contract (With or Without Earnest Money)
- Closing
T/F Acceptance must be communicated to the offeror to form a binding contract.
True
What is another name for the Under Contract stage of a purchase contract?
Executory Period
What is another name for the Closing stage of a purchase contract?
Executed
In a purchase contract, when does the offer become an executory contract?
Upon communication of acceptance.
What is communication of acceptance?
When the last party has signed and the other party has been notified either in writing or orally.
T/F A purchase contract is a unilateral contract.
False. A purchase contract is a BILATERAL contract and is binding to both parties.
Who are the 2 parties in a purchase agreement?
- Seller - Vendor
2. Buyer - Vendee
Who holds legal title in a purchase contract?
The seller, vendor.
Who holds equitable title in a purchase contract?
The buyer, vendee.
What are the essential elements in a purchase contract?
The buyer’s and seller’s signature, property description, price and terms, and in writing and signed.
What are the typical contingencies in a purchase contract?
Financing, appraisal, and inspection.
What is a “time is of the essence” clause?
It requires exact adherence to dates specified or the party will be in breach.
What is an option contract?
A potential buyer purchases the right to buy in the future from a seller who agrees to sell within a set period for a set price.
T/F An option contract is a unilateral contract.
True. It is binding for the seller but the buyer has option/choice to perform.
When does an option contract become a bilateral contract?
When the buyer/optionee exercise the contract.
Who are the parties in an option contract?
- Owner - optionor
2. Potential buyer - optionee
Is there a fee with an option contract?
Yes. There is a nonrefundable option fee to hold the option for the buyer.
In an option contract, if the buyer decides not to buy what can the seller do?
Nothing except keeps the option fee.
What is a lease-purchase contract?
When a tenant wants to purchase a property but can’t get financing for the full amount.
T/F In a lease-purchase contract, part of the rent may be applied to the purchase price.
True
What is a right to first refusal contract?
Typically used in condominiums and cooperatives where the right of a person to have the first opportunity to purchase or lease real property.
Which contract gives more flexibility to the owner than an option contract?
Right of first refusal
What is a sale-leaseback contract?
The owner sells property to investor and leases it back.
Which contract converts equity to working capital without giving up possession?
Sale-leaseback
What is the purpose of a lease contract?
I promise to give you possession and you promise to pay rent.
T/F A lease contract is bilateral.
True
Who are the parties in a lease contract?
- Landlord - lessor
2. Tenant - lessee
What are the 3 essential elements in a lease contract?
- Names of lessor and lessee (landlord and tenant)
- Description of property
- Rent terms
In a lease contract, which party has reversionary interest?
The landlord allowing them to retake possession.
What are the 2 types of lease contracts?
- Gross/fixed
2. Commercial
What is a gross/fixed lease contract?
The tenant pays fixed rent and the landlord pays all expenses.
Which type of lease contract gives the landlord a stable income and is most typical for residential?
Gross/fixed lease
What are the 4 kinds of commercial lease contracts?
- Net
- Percentage
- Variable
- Ground
What is a commercial net lease?
The tenant pays base rent and expenses.
What is a commercial percentage lease?
The rent is based on a percentage of gross income/sales.
Which kind of commercial lease is most typical in retail properties?
Percentage
What is a commercial variable lease?
The rent increases or decreases at predetermined intervals.
Which kind of variable lease has the rent increase at predetermined intervals?
Graduated variable lease
What kind of variable lease has the rent adjusted based on an economic indicator (Consumer Price Index, CPI)?
Index variable lease
What kind of commercial lease is used to rent unimproved property?
Ground
Who gets ownership of the land improvements in a commercial ground lease?
The landlord
How are lease contracts terminated?
- Expiration date
- Actual eviction
- Constructive eviction
What is the difference between an actual eviction and a constructive eviction?
An actual eviction is taken because the tenant is in breach. A constructive eviction also forces the tenant out but it is because the landlord is in breach.
