Contract
Voluntary agreement between legally and competent parties to do or refrain from doing some legal act, supported by legal consideration. All contracts begin with an offer. Most contracts are not in writing.
Forbearance Clause
When you agree not to do something.
**Elements of a Valid Contract
1.Competent Parties - Legal age and sound mind
2. Offer and Acceptance - "Meeting of the minds". Must be written and signed (statute of frauds).
3. Legality of an Object- Must be for a legal purpose. Violation of any federal or state law is on it's face V
Contract Classifications
1. Expressed
2. Implied
3.Bilateral
4. Unilateral
5. Executed
6. Executory
Expressed Contract
May be oral or written.
Implied Contract
Based on the actions of one or both of the parties.
Bilateral Contract
Mutual exchange of promises.
*The typical real estate purchase agreement.
ie. Lease Contract, Purchase Agreement
Unilateral Contract
One party performs before the other party's promise goes into affect.
Executed Contract
1. Completed contract.
2. Both parties have fulfilled their promises.
Executory Contract
Unfinished contract. Promises made that have not yet been performed.
*May be ASSIGNED unless a provision is written into the contract. Sale, Lease and Mortgage contracts are executory
Legal Effects of a Contract
1. Valid
2. Void
3. Voidable
4. Unenforceable
Valid Contract
Free from mistakes, misrepresentation, fraud, undue influence and duress. Contract must reflect the true intent of the parties otherwise the contract is void, voidable or unenforceable.
Void Contract
Legally insufficient; not in compliance with the law; Places no obligation on any of the parties; Violation of any federal or state law [is on it's face VOID]
Voidable Contract
1. Mutual Mistake -Identity, subject matter, nature of transaction
2. Misrepresentation (Innocent misstatement of fact w/o intent to deceive.
3. Fraud -Deliberate misrepresentation of the material fact. Voidable by the party the fraud is committed against
Discharge of Contract
Performance
Legally impossible
Assignment
Mutual agreement
Novation
Mental Incompetence
Expiration (time)
Casualty to property before act of sale
Completed
Death (if stated in contract)
Bankruptcy (if decided by the courts)
Assignment
Selling of a contract to someone else.
* Unless a contract of sale contains a prohibitory clause, the BUYER has the right to assign their contract interests to another person. Assignee assumes all the rights of the buyer.
Novation
Substitution of a new contract or person for a previous one.
*Departing party is released from the obligation to complete the contract.
Default / Breach of Contract
One of the parties fails without legal reason to perform as promised in a contract.
Seller defaults:Buyer's option's
1. Rescind or terminate contract and recover earnest money deposit ( as liquidated damages).
2. Sue for specific performance ; buyer does not want monetary award- the buyer only wants the contract honored.
3. May sue the seller for damages- gives the non-
Buyer defaults:Seller's option's
1. Declare the contract forfeited (buyer agrees to forfeit w/o damages allowing seller to move to another buyer.)
2. 'Partial performance'- Defaulting party accepts the contract as complete.
3. Rescind contract and keep the deposit of the buyer as liquida
Listing Agreement
An employment (personal service) contract between a property owner (seller) and a broker. The exclusive right to sell.
*Most states require listing to be in writing; Broker is hired to "market" property or "find a buyer", not "sell"; Broker may not transf
Types of Listings
Exclusive Listings
Exclusive Right to Sell
Exclusive Agency Listing
Open Listing
Net Listing
**Exclusive Agency Listing
**Only ONE broker is employed to market the property for a stipulated time period. Seller retains the right to find a buyer and not pay commission- must prove procuring cause for commission.
Most states require all Exclusive Listings to have a definite te
Exclusive Right to Sell
1. ONE broker has the listing during the listing period to the exclusion of all other brokers. Broker does not have to prove procuring cause.
*Most common form of listing used in real estate bc it gives the broker the most commission protection.
Open Listing
For Sale by Owner". Owner lists the property with ONE OR MORE BROKERS and reserves the right to list the property concurrently with as many broker's as desired. Broker must prove procuring cause.
*Does not contain a definite termination date.
*May be ter
Net Listing
Listing with a provision that the seller will receive a predetermined net amount from any sale of the property. Any amount over the net will be commission to the listing broker.
*Illegal in some states and frowned upon in most others.
Special Listing Provisions
Multiple Listings
Option Listing
Multiple Listing Service
Arrangement between a group of brokers. All broker-members of the MLS "pool" their listings in order to give maximum exposure to possible prospects.
*Commission is divided by a predetermined arrangement between the listing and selling brokers; Exclusive a
Option Listing
Allows the broker to purchase the listed property.
*Broker is required to state if intends to resale the property for a profit, if so, what is his prospective profit.
*Required to get the owners written acknowledgement of that info. or written permission
Listing Agreement Termination
1. Seller or broker breaches or terminates listing
w/o consent of the other. The violating party is liable for damages.
2. Either party dies or becomes incapacitated.
3. Mutual agreement to terminate.
4. If property ownership is transferred by law; bankru
Buyer Agency Agreement
Employment contract between a buyer and a real estate broker. Broker is the buyer's special agent in locating property. Contract can only be assigned with the buyer's permission. Contract may be oral or in writing. In Designated Agency states, working wit
**Types of Buyer Broker Agreements
Exclusive Buyer Agency Agreement
Exclusive Agency Buyer Agency Agreement
Exclusive Buyer Agency Agreement
Buyer agrees to work with and pay only one agent.
**Exclusive Agency Buyer Agency Agreement
Buyer may purchase property w/o agent assistance and not pay commission. Agent must prove procuring cause.
**Purchase Agreement
Agreement wherein the buyer agrees to buy and the seller agrees to sell on the terms and conditions set forth.
*All begin with an offer
*Requirement to buy
*Agreement must be in writing to be enforceable according to Statute of Frauds.
**offer is accepted
Equitable Title
1. Gives the buyer certain rights in the property before act of sale.
2. The right to receive the property in the condition in which the property was viewed. ie. Seller may not switch out expensive fixtures for cheaper fixtures.
Basic Facts Included in the Purchase Agreement
Name of parties, legal description, price, terms, deposit and where deposit is held or found, type of title, when and how to transfer, provisions for an abstract, requirements for buyer to transfer a marketable title.
Contingency clauses, payment of exist
Offer and Counteroffer
*The offer is written by the buyer's agent. Seller is the offeree.
*The offeree must accept the offer exactly as it is written or reject it.
*A counteroffer is legally considered a NEW OFFER and VOIDS the original offer.
*Offers may be revoked at any time
Lease
Terms in a bilateral contract between a landlord (lessor) and a tenant (lessee). May be oral or in writing.
*Leases for more than 1 yr must be in writing to be enforceable. Oral leases are enforceable to the point provable if for 1 yr or less.
*Rent payme
Types of Leases
1. Gross
2. Net
3. Percentage
4. Graduated
5. Indexed
Options
A contract in which the owner (optionor) gives the prospective buyer (optionee) the right to buy at a fixed price w/in a stated period of time. "The right".
*Optionee usually pays a fee for the option. The fee may/may not be charged to purchase price/leas
Rescission and cancellation Agreements
*Negotiable btw buyer and seller / landlord and tenant.
*Law decides who get compensation if no agreement is in the contract.
*If there is a Deposit- contract is considered a liquidated damages (unless deposit is not earnest money) default is the amount o
Cancellation Agreement
Forms used to terminate a transaction; purpose is to serve as a written release from both buyer & seller authorizing refund of the deposit.
*Illegal to return a deposit w/o signatures of both parties on the agreement.
Broker and Sales Person Agreement
A contract entered into by broker with their salespeople to establish rules under which the agent will work and be compensated. Agent is established as an EMPLOYEE or INDEPENDENT CONTRACTOR.
*Salespeople are traditionally classified as independent contrac
**Independent Contractor
IRS regulations:
*
Agent must be licensed;
must have written contract with the broker establishing independent contractor status;
*90% or more of income must be based on production, not salary.
*If regulations are not followed the licensee is considered a
Calendar and Statutory Year
1. Calendar=12 months=365 days
2. Statutory=12 months=360 days
Gross Lease
Tenant pays only the rent. Landlord assumes all expenses, commonly used in residential or small commercial spaces.
Net Lease
Tenant pays fixed sum as basic rent. Tenant pays some or all of landlords other expenses. Larger commercial spaces as long term leases.
Percentage Lease
Tenant pays a minimum fixed amount, percentage of gross over the stated minimum. Gross or net leases.
Graduated Lease
Tenant pays rent; Rent increases at periodic times- tenant knows when and by how much.
Indexed Lease
Rent payments are indexed and adjusted. Tenant knows when rent increases but by how much is based on the index.