A contract is an agreement between the parties to do or not to do something. If it is in writing and contains all the valid essentials, it is
enforceable
In real estate there are a number of contracts including
the listing contract, buyer's agency contract, sales contract, Option contract, leases and property management contracts
Because of the complexity of legal words, a real estate broker should only fill in the blanks on the contracts of listing agreements, buyer's agency agreements, sale and purchase contracts, and option contracts. Generally, these are prepared in advance by
the broker's own attorney or by the Board of Realtors attorney
The Statute of Frauds is based on an old English law, which was written to protect consumers from
fraud
The Statue of Frauds encourages that all contracts
be in writing to be enforceable
All leases for more than one year must be
in writing to be enforceable
Enforceable means that
the courts will hear the case
The Statute of Limitation provides
a time frame, which in court cases, must be filed on certain offenses. If the Statute of Limitations runs out, the case cannot be heard
What are the certain essentials that must be present to make a contract valid?
legally competent parties, consideration. legality of Object
When individuals who are making a contract are of sound mind, of legal age, and working without menace, duress, or undue influence, this is referred to as
legally Competent parties
There must be a genuine "meeting of the minds" in the contract by both parties to the contract. This refers to
offer and acceptance of a contract
A contract does not exist until
all parties have accepted and been notified of the acceptance
Consideration is something that is legally sufficient for which is being exchanged. It can be
money, love and affection, or other valuable goods, which the parties equate to the same level as that being bargained for. Generally in real estate, it is either dollars or love and affection in family cases
The purpose of a contract is to sell, list, or rent in a legal fashion. A contract between parties, for dealing in stolen properties, would not be valid. A contract for the sale of a property between competent parties, for consideration with offer and acc
Legality of Object
An offer to purchase is not a contract. When an offer or counter offer is accepted and the seller and or buyer is notified of the acceptance, the offer becomes a
valid contract
Some contracts may have legal effect, others do not. The difference lies in
whether a contract is valid, void, voidable, enforceable, or unenforceable
Binding and enforceable on all parties. All the essentials of a contract are in place. This refers to being
valid
When one of the essential elements is missing or is
corrupted, having no legal effect, it is referred to as
voidable
Valid on the surface but may be rejected by one of the parties due to an error or misinformation. This refers to being
voidable
A voidable contract requires court action on the part of the injured party to
correct the problem
When property is sold by a person under duress who comes back later and claims duress. The court may void the contract if the person can prove that he was under duress. This refers to being a
voidable contract
With regard to an avoidable contract. The contract appears valid and enforceable on its face but is subject to rescission by one of the parties who acted under a
disability
When all of the essentials of a contract are present and the contract is in writing. This is a contract that can be heard by the court, and is referred to as an
enforceable contract
A contract may be valid between two parties, such as a handshake agreement, that all the essential elements are in place but the contract is not in writing. The courts will not hear the case and the courts cannot force performance of the contract by eithe
unenforceable
To be valid and enforceable, a contract must contain
the 4 essentials
Part of the consideration for a parcel of land is paid in an earnest money deposit. It is not all of the consideration, it is only a good faith deposit to insure the seller that
the buyer will honor his promises and complete the sale
What is a good faith deposit to insure the seller that the buyer will honor his promises and complete the sale of a property?
earnest money
Equitable Title becomes very important if
the house were to burn in between the time the house was contracted for and when it actually closed. Most real estate contracts call for the seller to either rebuild the home the way it was with the insurance money or rescind the contract and give the buy
When a title actually changes hands, after the delivery and acceptance phase of the deed, the title is referred to as
Actual title. All the property rights are now in the hands of the buyer unless otherwise stated in the deed
Types of Contracts include
Bilateral, Unilateral, Expressed, Implied, Executory, Executed, Formal Contract and Informal Contract
A Bilateral is a
two way" contract where each party to the contract promises to do something
A Unilateral is a
one way contract in the case of an Option, the seller promises to sell if the buyer wants to buy the property at a later date. The buyer does not promise he will buy the property but he pays the seller Option money for the right to make that decision when
An oral contract, which contains specific terms and conditions refers to an
Expressed Contract. The purchase price or the date of loan approval, are examples. Almost all real estate contracts are expressed and put into writing to be enforceable
A contract which occurs by the actions of the parties, in other words, by the way people behave, is an
Implied Contract
Executory is when
a contract is in process and something remains to be completed such as the issuing of the deed, or an contingency that has not been met
When a contract is finished and all terms have been met and satisfied, it is referred to as an
Executed Contract
A Formal Contract was originally written under seal, meaning the wax seal of the parties. This has evolved into
the written, signed contract by the parties, valid and enforceable
An oral contract is usually not enforceable and is referred to as an
informal Contract
In the process of obtaining a contract, certain negotiations must take place. In an offer to purchase contract, the buyer offers his best price for the property and the seller agrees to the price or
sends the offer back to the buyer with a counter offer
Whoever is making the offer is the
Offeror
Whoever is receiving the offer is the
Offeree
The buyer, which is the Offeror gives an offer to the
seller, which is the Offeree
An offer is not a contract until it has been accepted by
both parties
An offer on a property can be terminated if
an offer is withdrawn by the offeror
One way that a contract can be terminated is by
performance
Performance is when the contract is
completed
Mutual rescission is when both parties agree to
cancel the contract
An example of Impossibility of Performance is when
an earthquake hits the property and both parties agree to rescind the contract
Bankruptcy of either party or Eminent Domain of the property refers to
operation of law
A breach of the contract is when
one or the other or both of the parties have broken the promises made. If one has breached and the other has not, the injured party may sue the other. If both have breached the contract, a new contract may be written or both parties may rescind the contra
A breach of contract means
a failure to perform the promises as agreed
A Suit for Cancellation is done to
rescind the contract. The court restores the parties to their original position before the contract
Because no two pieces of property are alike, the buyer wants this house, at this time and asks a court to enforce the contract. This refers to
suit for specific performance
With regard to contracts, because a party may have expenses to the contract, such as an appraisal or moving, the injured party asks the court to make the other party pay for damages. This refers to a
suit for damages
With regard to enforcing a contract, out of pocket expenses such as appraisals and moving are called
compensatory damages
With regard to enforcing a contract, the seller, if he is the wronged party, may wish to accept liquidated damages, which are an amount of monies, usually the earnest money, in payment. If he accepts liquidated damages, he may not sue for
specific performance
When a third person takes the place of one of the original people in the contract. All the rights and responsibilities become his. This refers to an
assignment of a contract
The giver of an assignment is the Assignor, the receiver is the
assignee
Novation is a
change in the original terms, such as an extension of time for closing or loan commitment. All other terms of the contract remain the same
Contingency means
conditions or terms yet to be performed. A financing contingency means the buyer will buy the house on the condition that he receives the loan applied for. All contingencies must be met before a contract can be executed
A seller agrees to an offer exactly as it was written. No changes are made to the offer, and it is signed by the seller as it was written. It becomes a contract after the buyer is notified of the acceptance. This refers to
Mirror Image
Counter offer, also called qualified acceptance, is an attempt by the seller to
change the terms proposed by the buyer on the initial offer. Usually it is the price that is changed or the date of possession. The buyer can also counter offer a seller's counter offer
Time is of the Essence means
the promises must be performed with a certain time frame or the party will be in breach of contract. Typical time frames to be used are for closing date, possession of the property, or loan approval
Anything in writing, like a contract, takes precedence over oral or verbal agreements. This refers to the
Parol Evidence Rule
A listing contract is
the employment contract between the broker and the seller
The listing agreement sets forth
the terms under which a broker is employed as an agent to find a buyer for the owner's real estate. It outlines the terms under which the seller will owe the broker a commission for his services. Generally, commissions are paid on the sale price, not on t
In Florida, a listing agreement is allowed to be written or oral, but the majority of contracts are
in writing
Florida law also provides that a copy of a listing contract be given to the seller within
24 hours of execution
One item that must be included in any written listing agreement include
a definite expiration date
An automatic renewal clause for extension of the listing is
forbidden under Florida Law
If a broker is a single agent to the seller, he owes the seller
fiduciary responsibility
If the broker is employed as a transaction broker, the seller is a
customer and the broker has no fiduciary responsibilities
An Open listing is when
the seller retains the right to hire any number of brokers to sell his property. Whoever provides the seller with a ready, willing, and able purchaser is entitled to a commission. If the seller sells the property without the broker, he pays no commission.
An Exclusive or Exclusive Agency listing is when
only one broker is allowed to act on behalf of the principal but if the owner sells the property himself, no commission is paid to the broker. If the broker sells the property, he will be entitled to a commission. This is a Unilateral Contract
In a Exclusive Right to Sell Contract listing, the listing broker is always entitled to a
commission regardless of who procures the buyer
Most brokers belong to a
Multiple Listing Service, also called MLS
The Multiple Listing Service (MLS) is a database of
all the listings of brokers who belong to the service. The brokers have agreed to split the commission with a Selling Broker. The listing broker must make the commission split or compensation that will be paid to the selling broker
A Net listing is
a type of listing that is illegal in most states and strongly discouraged in Florida by regulatory agencies
A Net listing states that
the seller will receive a certain amount of money from the sale. Any amount over the predetermined sales price guaranteed to the seller will be paid as commission to the broker
A Net listing can lead to
inaccurate pricing and price gouging by brokers. This type of listing specifies that the money over a set sales price is given to the broker
When a buyer agrees to purchase, and is able to pay, the buyer meets the criteria known as a
ready, willing, and able purchaser
Ready, Willing, and Able Buyer =
a Commission
With regard to terminating a listing agreement because of death, all the sellers would have to die or the broker. If this is a business entity, the business Never
dies
A Buyer's Agency agreement is
an employment contract between the broker and the buyer. It spells out the terms of employment, of how a broker will find a home for the buyer and exactly who will pay the commission
Like all contracts, the Buyer's Agency Contract must be
in writing and contain certain elements to be enforceable
A sales contract is always a
Bilateral because it contains promises from both the seller and buyer
Vendor gives to the Vendee a
sales contract
Items that must be contained in a sales contract is the
names of the parties
An offer is given by the offeror to the offeree. An offer becomes a contract when there is
offer and acceptance and notification
Earnest Money is
part of the consideration and is given by the purchaser to the seller as an indication of the purchaser's good faith
One of the disclosures that State and Federal laws require to be made to the buyer prior to closing is the
Radon Gas disclosure
The seller of any home built before 1978 is required to sign a "Lead disclosure form" and the seller must disclose the presence of any known lead based paint in the home. This refers to the
Lead Based Paint disclosure
If the property is in a flood plain, this must be disclosed to the buyer and if flood insurance will be required.
This refers to the
Flood Insurance disclosure
Any seller who has been cited for building code violations must disclose this to the buyer. This refers to the
Building Code Violation disclosure
An Option is
a contract that gives the Optionee the right to purchase or lease real estate in the future
An Option is sometimes used when large discount chains buy the right to purchase a property in the future, for example,
on a busy corner, but want time to do research to see if the property meets the needs of that type of business
The seller of the Option is the Optionor. The buyer of the Option is the Optionee. This type of contract is a
Unilateral Contract in that the seller must sell the property if requested by the buyer, but the buyer need not buy the property
Like all contracts, an Option must contain a
legal description of the property
Optionor gives to the Optionee
an Option
An Installment Land Contract is a
Bilateral Contract, with both parties performing, but the time frame is different than a regular sales contract
In an installment land contract, the purchaser buys the property but does not receive
complete title until the end of a time period. (For example, 5 to 10 years). The purchaser pays a certain amount of money each year and the seller retains the title until the final payment is made
In an installment land contract, the advantage to the sale for the seller is that
he does not receive a large sum of money at one time, for which he may be taxed. Especially in large pieces of ground the amount can be very large and the seller may wish to spread the payment over 5 - 10 years in order to reduce the tax burden. The buyer
In an installment land contract, the disadvantages are easy to see. The buyer does not get
complete title until the final payment is paid so the seller is free to burden the property with a number of items until that time. A buyer may find that the property has been burdened with a mechanic's lien or that the oil rights have been sold while the
In regard to land contracts, the seller has to count on the buyer being able to complete the sale at the time agreed upon. Unless the seller specifically requires that no assignment can be made, the buyer could
sell his interest in the property to another without the seller's consent
A Installment Land Contract is also called a
Contract for Deed
When using a Contract for Deed, also called Installment Contract, it is best to
use the services of an attorney to make sure that all the needs of the buyer and seller are met
The rule of Caveat Emptor, meaning,
Let the Buyer Beware, still holds some value in Florida as it does in most states
The "as is" provision does not release the seller from
giving important information to the buyer relating to real property
All licensees should check the property carefully and make every effort to disclose
material defects to the buyer
An offer on a property can be terminated if
the time for an offer has passed and the offer is dead
An offer on a property can be terminated by
the death or insanity of either party
An offer on a property can be terminated if
a counter offer is given, making the first offer dead
An offer on a property can be terminated if
the offer is accepted, making it a contract instead of an offer
An offer on a property can be terminated if
the offer is rejected completely
An offer on a property can be terminated if
the property in question is destroyed
One way to terminate a listing agreement is by
destruction of the property or a change in use by outside forces, meaning, the property has been zoned commercial
The giver of an assignment is the
assignor
The receiver of an assignment is the
assignee
One way to terminate a listing agreement is by
fulfillment of the purpose of the listing, meaning the property sold
One way to terminate a listing agreement is by
transfer of title by operation of law, for instance, the seller is bankrupt
One way to terminate a listing agreement is by the
expiration of the time as stated in the agreement, meaning too late
One way to terminate a listing agreement is by
mutual consent, meaning, let's quit, this was a bad idea!
One way to terminate a listing agreement is by
renunciation by the broker, meaning, I quit!
One way to terminate a listing agreement is by
death or incapacity of either the seller or the broker
One way to terminate a listing agreement is by
revocation by the seller, meaning, You're fired
In most listing contracts, the broker, or his cooperating broker, must set into play a series of events leading to the
procuring of a buyer
A buyer must agree to purchase a property, and be able to pay. A buyer that meets this criteria is known as a
ready, willing, and able purchaser
If a buyer cannot obtain a loan, cannot complete the purchase, or refuses to close, then the buyer is not willing to make the purchase, therefore, the buyer is Not a
ready, willing, and able purchaser
Under the situation where the buyer is not a ready, willing, and able purchaser, the broker is Not entitled to a
real estate commission, If, on the other hand, the seller refuses to close and the buyer is ready to close, the broker is probably entitled to a commission
Voidable Contract disabilities include such disabilities as being a
minor
If a minor contracts to buy a property, the contract can be voided by the minor because of lack of sufficient age. If, however, the minor elects to enforce the contract, the contract is
valid and the other party cannot assert the minor's lack of age as a defense
Example of an Implied Contract
When a passenger gets in a taxi, he implies by his actions, he will pay the driver of the taxi when he gets to his location. Many times, this type of contract is less than desirable in real estate since it will be a case of an agent implying by his behavi
Equitable Title is
the interest a buyer has in a property between the time of acceptance (notification) of the contract and the actual closing
Legal or Actual title is
the interest a buyer has in a property when the transaction closes
It is very hard to prove in a court that a seller hired a broker if the listing is not
in writing
One of the elements that a Buyer's Agency contract must contain is the
names of the parties
One of the elements that a Buyer's Agency contract must contain is the
definite beginning and expiration date
One of the elements that a Buyer's Agency contract must contain is the
terms and conditions of employment
One of the elements that a Buyer's Agency contract must contain is the
general description of the property sought
One of the elements that a Buyer's Agency contract must contain is the
retainer or compensation
One of the elements that a Buyer's Agency contract must contain is the
type of broker buyer relationship
One of the elements that a Buyer's Agency Contract must contain is the
signatures of the parties
A contract for dealing in stolen properties is voidable, since
one of the elements in contracts is a for a valid legal purpose
Example of Statue of Limitations
If a homeowner builds a fence and no one complains about the violation of the building restrictions, the court may rule that the time has passed for a case to be brought and will instruct that the fence will stay in place
One of the disclosures that State and Federal laws require to be made to the buyer prior to closing is the
Energy Efficiency brochure
One of the disclosures that State and Federal laws require to be made to the buyer prior to closing is the
Lead based Paint disclosure
One of the disclosures that State and Federal laws require to be made to the buyer prior to closing is the
Homeowner Association disclosure
One of the disclosures that State and Federal laws require to be made to the buyer prior to closing is the
Flood Insurance disclosure
One of the disclosures that State and Federal laws require to be made to the buyer prior to closing is the
Building Code Violation disclosure
One of the disclosures that State and Federal laws require to be made to the buyer prior to closing is the
Radon Gas Law in Florida
One of the disclosures that State and Federal laws require to be made to the buyer prior to closing is the
Energy Efficiency brochure in Florida
One of the disclosures that State and Federal laws require to be made to the buyer prior to closing is the
Lead Based Paint Disclosure law
One of the disclosures that State and Federal laws require to be made to the buyer prior to closing include
questions and answers about Flood Insurance for real estate agents
One of the disclosures that State and Federal laws require to be made to the buyer prior to closing is the
Florida Building Code
One of the disclosures that State and Federal laws require to be made to the buyer prior to closing is the
Homeowner Association Disclosure
Items that must be contained in a sales contract is the
seller and buyer
Items that must be contained in a sales contract is the
legal description of the property or street address or both
Items that must be contained in a sales contract is the
consideration given
Items that must be contained in a sales contract is the
purchase price
Items that must be contained in a sales contract is the
financing or cash terms
Items that must be contained in a sales contract is the
type of deed to be used. A General Warranty deed is presumed unless otherwise stated
Items that must be contained in a sales contract is the
estate to be acquired, fee simple unless otherwise noted
Items that must be contained in a sales contract is the
terms of expenses and statement of prorations
Items that must be contained in a sales contract include
any personal property to be included in the sale
Items that must be contained in a sales contract is the
date, time, and place of closing
Items that must be contained in a sales contract is the
when possession will occur
Items that must be contained in a sales contract is the
signatures of the parties
One way that a contract can be terminated is by
mutual rescission
One way that a contract can be terminated is by the
impossibility of performance
One way that a contract can be terminated is by
operation of law
One way that a contract can be terminated is by
breach
One item that must be included in any written listing agreement is the
proper identification of the property
One item that must be included in any written listing agreement is the
price, terms, and conditions
One item that must be included in any written listing agreement is the
fee or commission to be paid
One item that must be included in any written listing agreement is the
signature of the owner
Real estate contracts are the legal agreements that
underlie the transfer and financing of real estate, as well as the real estate brokerage business
Sales contract, lease contracts, and Option agreements are used to
transfer real estate interests from one party to another
Mortgage contracts and promissory agreements are part of
financing real estate
Mortgage contracts and promissory agreements are part of
financing real estate
Listing and representation contracts establish
client relationships and provide for compensation
A contract is
an agreement between two or more parties who, in a "meeting of the minds," have pledged to perform or refrain from performing some act
A valid contract is one that is
legally enforceable by virtue of meeting certain requirements of contract law. If a contract does not meet the requirements, it is not valid and the parties to it cannot resort to a court of law to enforce its provisions
Note that a contract is not a legal form or a prescribed set of words in a document, but rather the intangible agreement that was made by
the meeting of the minds of the parties to the contract
In terms of validity and enforceability, one way a court may construe the legal status of a contract is
valid
In terms of validity and enforceability, one way a court may construe the legal status of a contract is
valid but unenforceable
In terms of validity and enforceability, one way a court may construe the legal status of a contract is
void
In terms of validity and enforceability, one way a court may construe the legal status of a contract is
voidable
A valid contract is one which meets
the legal requirements for validity
A valid contract that is in writing is enforceable within a
statutory time period
A valid contract that is made orally is also generally enforceable within a statutory period, with
certain exceptions
Valid but unenforceable
State laws declare that some contracts are enforceable only if they are in writing. These laws apply in particular to the transfer of interests in real estate. Thus, while an oral contract may meet the tests for validity, if it falls under the laws requir
An oral long term lease and an oral real estate sales contract are examples of contracts that may be valid but not enforceable. Note that such contracts, if valid, remain so even though not enforceable. This means that
if the parties fully execute and perform the contract, the outcome may
not be altered
A Void Contract is an agreement that
does not meet the tests for validity, and therefore is no contract at all. If a contract is void, neither party can enforce it
A contract that does not include consideration is
void
A contract to extort money from a business is
void
Void Contracts and instruments are also described as
null and void
A voidable contract is one which initially appears to be valid, but is subject to rescission by a party to the contract who
is deemed to have acted under some kind of disability. Only the party who claims the disability may rescind the legal effect of the contract
A party who was the victim of duress, coercion, or fraud in creation of a contract, and can prove it, may
disaffirm the contract. However, the disaffirmation must occur within a legal time frame for the act of rescission to be valid. Similarly, if the party who has cause to disaffirm the contract elects instead to perform it, the contract is no longer voidabl
A voidable contract differs from a Void Contract in that
the Void Contract does not require an act of disaffirmation to render it unenforceable
The parties to a contract must have
the capacity to contract, and there must be at least two such parties
With regard to capacity, the owner of a tenancy for life cannot deed his interest to himself in the form of a fee simple, as this would involve only
one party
Capacity to contract is determined by three factors, they are
legal age, mental competency, and legitimate authority
Depending on state law, a contract involving a minor as a party may be either
void or voidable
Depending on state law, a contract involving a minor as a party may be either
void or voidable
If the law allows a minor to contract, the contract will generally be
voidable and the minor can disaffirm the contract
To be mentally competent, a party must have sufficient understanding of
the import and consequences of a contract
Competency is separate and distinct from
sanity
Incompetent parties, or parties of unsound mind may not enter into
enforceable contracts
The incompetency of a party may be ruled by
a court of law. In some areas, convicted felons may be deemed incompetent, depending on the nature of the crime
During a period of one's incompetency, a court may
appoint a guardian who may act on the incompetent party's behalf with court approval
If a contracting party is representing another person or business entity, the representative must have
the legal authority to contract
If representing another person, the party must have a
bona fide power of attorney
If a contracting party is representing a Corporation, the person must have the appropriate power and approval to act, such as would be conferred in a
duly executed resolution of the Board of Directors
If a contracting entity is a General Partnership, any partner may validly contract for
the partnership
Mutual consent, also known as offer and acceptance and meeting of the minds, requires that
a contract involve a clear and definite offer and an intentional, unqualified acceptance of the offer. In effect, the parties must agree to the terms without equivocation. A court may nullify a contract where the acceptance of terms by either party was pa
A contract must contain a two way exchange of valuable consideration as compensation for performance by the other party. The exchange of considerations must be two way. The contract is not valid or enforceable if
just one party provides consideration
Valuable consideration can be something of tangible value, such as money or something a party promises to do or not do. For example,
a home builder may promise to build a house for a party as consideration for receiving money from the home buyer
Valuable consideration can be something of tangible value, such as money or something a party promises to do or not do. For example,
a landowner may agree not to sell a property as consideration for a developer's Option money
Valuable consideration can be something intangible that a party must give up, such as a
homeowner's occupancy of the house in exchange for rent. In effect, consideration is the price one party must pay to obtain performance from the other party
Valuable consideration may be contrasted with good consideration or love and affection which does not qualify as
consideration in a valid contract
Good consideration is something of questionable value, such as
a child's love for her mother
Good consideration disqualifies a contract because
while one's love or affection is certainly valuable to the other party, it is not something that is specifically offered in exchange for something else
Good consideration can serve as a nominal consideration in transferring a real property interest as a
gift
Good consideration can serve as a nominal consideration in
transferring a real property interest as a gift. In some cases, what is promised as valuable consideration must also be deemed to be sufficient consideration
Good consideration can serve as a nominal consideration in transferring a real property interest as a gift. However, grossly insufficient consideration, such as $50,000 for a $2 million property, may invalidate a contract on the grounds that the agreement
violation of good faith bargaining
The content, promise, or intent of a contract must be lawful. A contract that proposes an illegal act is
void
The parties must create the contract in good faith as a
free and voluntary act
A contract is thus voidable if one party acted under
duress, coercion, fraud, or misrepresentation
If a property seller induces a buyer to purchase a house based on assurances that the roof is new, the buyer may rescind the agreement if
the roof turns out to be twenty years old and leaky
A contract that conveys an interest in real estate must
contain a legal description of the property
A contract that conveys an interest in real estate must
be signed by one or more of the parties
A contract that conveys an interest in real estate must be
signed by one or more of the parties. However, a lease contract that has a term of one year or less is an exception. Such leases do not have to be in writing to be enforceable
Certain contracts that fail to meet the validity requirements are voidable if
a damaged party takes appropriate action
The statute of limitations restricts the time period for which an injured party in a contract has the right to
rescind or disaffirm the contract. A party to a voidable contract must act within the statutory period
The statute of frauds requires that
certain contracts must be in writing to be enforceable
Real estate contracts that convey an interest in real property fall in the category of the statute of frauds, with the exception that
a lease of one year's duration or less may be oral
All contracts, except a lease of one year's duration or less, to buy, sell, lease interest, and exchange in real property must be
in writing to be enforceable
Listing agreements in most states must be
in writing
The statute of frauds concerns
the enforceability of a contract, not its validity
The statute of frauds concerns the enforceability of a contract, not its
validity
Once the parties to a valid oral contract have executed and performed it, even if the contract was unenforceable, a party cannot use the Statute of Frauds to
rescind the contract
A broker and a seller have an oral agreement. Following the terms of the agreement, the broker finds a buyer, and the seller pays the commission. They have now executed the contract, and the seller can not later force the broker to return the commission b
the statute of frauds
The mutual consent required for a valid contract is reached through the process of
offer and acceptance
The offeror proposes contract terms in an offer to the
offeree
The offeror proposes contract terms in an offer to the
offeree
If an offeree accepts all terms of a contract without amendment, the offer becomes a
contract
The exact point at which the offer becomes a contract is when the offeree gives the offeror
notice of the acceptance
An offer expresses the offeror's intention to enter into a contract with an offeree to
perform the terms of the agreement in exchange for the offeree's performance
In a real estate sale or lease contract, the offer must clearly contain all intended terms of the contract in writing and be
communicated to the offeree
If an offer contains an expiration date and the phrase "time is of the essence," the offer expires at
exactly the time specified
In the absence of a stated time period, the offeree has
a reasonable time to accept an offer
An offer gives the offeree the power of accepting. For an acceptance to be valid, the offeree must manifestly and unequivocally accept all terms of the offer without change, and so indicate by signing the offer, preferably with a date of signing. The acce
communicated to the offeror
If communication of acceptance of a contract is by mail, the offer is considered to be communicated as soon as
it is placed in the mail
By changing any of the terms of an offer, the offeree creates a
counteroffer, and the original offer is void. At this point, the offeree becomes the offeror, and the new offeree gains the right of acceptance. If accepted, the counteroffer becomes a valid contract provided all other requirements are met
A seller changes the expiration date of a buyer's offer by one day, signs the offer and returns it to the buyer. The single amendment extinguishes the buyer's offer, and the buyer is no longer bound by any agreement. The seller's amended offer is a
counteroffer which now gives the buyer the right of acceptance. If the buyer accepts the counteroffer, the counteroffer becomes a binding contract
An offer may be revoked, or withdrawn, at any time before the offeree has communicated acceptance. The revocation extinguishes the
offer and the offeree's right to accept it
A buyer has offered to purchase a house for the listed price. Three hours later, a family death radically changes the buyer's plans. She immediately calls the seller and revokes the offer, stating she is no longer interested in the house. Since the seller
revoke the offer over the period of the Option
One action or circumstance that can terminate an offer is
acceptance. The offeree accepts the offer, converting it to a contract
One action or circumstance that can terminate an offer is
rejection. The offeree rejects the offer
One action or circumstance that can terminate an offer is
revocation. The offeror withdraws the offer before acceptance
One action or circumstance that can terminate an offer is
lapse of time. The offer expires
One action or circumstance that can terminate an offer is a
counteroffer. The offeree changes the offer
One action or circumstance that can terminate an offer is
death or insanity of either party
A real estate contract, that is not a personal contract for services, can be assigned to another party unless
the terms of the agreement specifically prohibit assignment
Listing agreements are not assignable, since they are
personal service agreements between agent and principal
Listing agreements are not assignable, since they are
personal service agreements between agent and principal
State laws define the extent to which real estate brokers and agents may legally prepare real estate contracts. Such laws, referred to as Broker Lawyer Accords, also define
what types of contracts brokers and agents may prepare
In some states, brokers and agents may not draft contracts, but they may use
standard promulgated forms and complete the blanks in the form
As a rule, a broker or agent who completes real estate contracts is engaging in the unauthorized practice of law unless
the broker is a party to the agreement, such as in a listing agreement or sales contract
Brokers and agents may not complete leases, mortgages, contracts for deed, or promissory notes to which
they are not a party
Agents must be fully aware of what they are legally allowed to do and not do in preparing and interpreting
contracts for clients
In addition to practicing law without a license, agents expose themselves to lawsuits from clients who relied on a contract as being
legally acceptable
A contract may be in writing or it may be an
oral (parol) contract
An oral contract is also called a
parol contract
Certain oral contracts are valid and enforceable, others are not enforceable, even if valid, because
most states require listing agreements, sales contracts, and leases exceeding one year to be in writing to be enforceable
An express contract is one in which
all the terms and covenants of the agreement have been manifestly stated and agreed to by all parties, whether verbally or in writing
An Implied Contract is
an unstated or unintentional agreement that may be deemed to exist when the actions of any of the parties suggest the existence of an agreement
A common example of an Implied Contract is an
implied agency agreement
In implied agency, an agent who does not have a contract with a buyer performs acts on the buyer's behalf, such as
negotiating a price that is less than the listing price. In so doing, the agent has possibly created an Implied Contract with the buyer, albeit unintended. If the buyer compensates the agent for the negotiating efforts, the existence of an implied agency
A Bilateral Contract is one in which
both parties promise to perform their respective parts of an agreement in exchange for performance by the other party
An example of a Bilateral Contract in an exclusive listing
the broker promises to exercise due diligence in the efforts to sell a property, and the seller promises to compensate the broker when and if the property sells
In a Unilateral Contract, only one party promises to
do something, provided the other party does something. The latter party is not obligated to perform any act, but the promising party must fulfill the promise if the other party chooses to perform
An Option is
an example of a Unilateral Contract. In an Option to Buy, the party offering the Option (Optionor) promises to sell a property. if the Optionee decides to exercise the Option. While the potential buyer does not have to buy, the owner must sell if the Opti
An Executed Contract is one that
has been fully performed and fulfilled, neither party bears any further obligation
A completed and expired lease contract is
an Executed Contract, the landlord may re-possess the premises and the tenant has no further obligation to pay rent
An Executory Contract is one in which
performance is yet to be completed
A sales contract prior to closing is
executory. While the parties have agreed to buy and sell, the buyer has yet to pay the seller and the seller has yet to deed the property to the buyer
Termination of a contract is also called
cancellation and discharge
Termination of a contract, also called cancellation and discharge, may occur by
performance. A contract terminates when fully performed by the parties. It may also terminate for partial performance, if the parties agree
Termination of a contract, also called cancellation and discharge, may occur by
sufficient performance. If a court determines a party has sufficiently performed the contract, even though not to the full extent of every provision
Infeasibility refers to when
an otherwise valid contract can be canceled if it is not possible to perform. Certain personal services contracts, for example, depend on the unique capabilities of one person which cannot be substituted by someone else. If such a person dies or is suffic
Termination of a contract, also called cancellation and discharge, may occur by
mutual agreement. Parties to a contract can agree to terminate, or renounce, the contract. If the parties wish to create a new contract to replace the cancelled contract, they must comply with the validity requirements for the new contract. Such substitut
Parties to a contract can agree to terminate or renounce the contract. If the parties wish to create a new contract to replace the cancelled contract, they must comply with the validity requirements for the new contract. Such substitution is called
novation
Termination of a contract, also called cancellation and discharge, may occur by a
cooling period rescission. Cooling Period rescission is the act of nullifying a contract. In many states, parties to certain contracts are allowed a statutory amount of time after entering into a contract, or Cooling Period, to rescind the contract withou
Example of Termination of a contract by Cooling Period Rescission
Consider the unsuspecting buyer of a lot in a new resort development. Such buyers are often the targets of hard sell tactics which lead to a completed sales contract and a deposit. The statutory Cooling Period gives the buyer an opportunity to reconsider
Termination of a contract, also called cancellation and discharge, may occur by
revocation. revocation is cancellation of the contract by one party without the consent of the other
Termination of a contract by Revocation A seller may revoke a listing to take the property off the market. While all parties have the power to revoke, they may not have a defensible right. In the absence of justifiable grounds, a revocation may not reliev
a seller who revokes a listing without grounds may be required to pay a commission if the broker found a buyer, or reimburse the broker's marketing expenses if no buyer was found
Abandonment occurs when
parties fail to perform contract obligations. This situation may allow the parties to cancel the contract
If a contract contains an expiration provision and date, the contract automatically expires on
the deadline
If a contract is void, it terminates without the need for
disaffirmation
A breach of contract is
a failure to perform according to the terms of the agreement
A breach of contract is also called
default. A breach of contract gives the damaged party the right to take legal action
A damaged party from a breached contract may elect to take an action of
rescission
A damaged party from a breached contract may elect to take an action of
forfeiture
A damaged party from a breached contract may elect to file a
suit for damages
A damaged party from a breached contract may elect to file a
suit for specific performance
A damaged party may rescind the contract. This cancels the
contract and returns the parties to their pre-contract condition, including the refunding of any monies already transferred
A forfeiture requires the breaching party to give up something, according to the terms of the contract. For example,
a buyer who defaults on a sales contract may have to forfeit the earnest money deposit
A damaged party of a breached contract may sue for money damages in civil court. The suit must be initiated within the time period allowed by the statute of limitations. When a contract states the total amount due to a damaged party in the event of a brea
liquidated damages
If a contract does not specify the amount, a damaged party of a breached contract may sue in court for
unliquidated damages
A Suit for Specific Performance is an attempt to
force the defaulting party to comply with the terms of the contract
Specific Performance suits occur when
it is difficult to identify damages because of the unique circumstances of the real property in question. The most common instance is a defaulted sale or lease contract where the buyer or seller wants the court to compel the defaulting party to go through
A real estate sales contract is a
binding and enforceable agreement wherein a buyer, the vendee, agrees to buy an identified parcel of real estate, and a seller, the vendor, agrees to sell it under certain terms and conditions. It is the document that is at the center of the transaction
In a real estate sales contract, the seller is called the
vendor
In a real estate sales contract, the buyer is called the
vendee
The conventional transfer of real estate ownership takes place in three stages. They are as follows
first, there is the negotiating period where buyers and sellers exchange offers in an effort to agree to all transfer terms that will appear in the sales contract.
second, when both parties have accepted all terms, the offer becomes a binding sales contra
Other names for a sales contract are
agreement of sale, contract for purchase, contract of purchase and sale, and earnest money contract
A sale contract is executory when
the signatories have yet to perform their respective obligations and promises. Upon closing, the sale contract is fully performed and no longer exists as a binding agreement
All owners of the property should sign the sale contract. If the sellers are married, both spouses should sign to ensure that both spouses release homestead, dower, and curtesy rights to the buyer at closing. Failure to do so does not invalidate the contr
encumbered title and legal disputes
To be enforceable, a sale contract must
be validly created (mutual consent, consideration, legal purpose, competent parties, voluntary act)
To be enforceable, a sale contract must
identify the principal parties
To be enforceable, a sale contract must
clearly identify the property, preferably by a legal description
To be enforceable, a sale contract must
contain a purchase price
To be enforceable, a sale contract must
be signed by the principal parties
Written verses oral form of contract
A contract for the sale of real estate is enforceable only if it is in writing. A buyer or seller cannot sue to force the other to comply with an oral contract for sale, even if the contract is valid
Either party to a sale transaction can assign the sale contract to another party, subject to the
provisions and conditions contained in the agreement
A broker or agent may assist a buyer and seller in completing an offer to purchase, provided the broker
represents the client faithfully and does not charge a separate fee for the assistance
A contract of sale is created by
full and unequivocal acceptance of an offer
A sale contract gives the buyer an interest in the property that is called
Equitable Title, or ownership in equity. If the seller defaults and the buyer can show good faith performance, the buyer can sue for specific performance, that is, to compel the seller to transfer legal title upon payment of the contract price
The buyer's earnest money deposit fulfills the consideration requirements for a
valid sale contract
A sale contract often contains contingencies. A contingency is a
condition that must be met before the contract is enforceable
To avoid problems in a sales contract, the statement of a contingency should be
explicit and clear
To avoid problems in a sales contract, the statement of a contingency should have
an expiration date
To avoid problems in a sales contract, the statement of a contingency should
expressly require diligence in the effort to fulfill the requirement
A contingency that is too broad, vague, or excessive in duration may invalidate the entire contract on the grounds of
insufficiency of mutual agreement
A sales contract is
bilateral, since both parties promise to perform. As a result, either party may default by failing to perform
If a buyer fails to perform under the terms of a sales contract, the breach entitles the seller to
legal recourse for damages. In most cases, the contract itself stipulates the seller's remedies
If a seller defaults in a contract, the buyer may sue for
specific performance, damages, or cancellation
Sale contracts can vary. One of the varieties is
Residential Contract of Sale
Sale contracts can vary. One of the varieties is
Commercial Contract of Sale
Sale contracts can vary. One of the varieties is
Foreclosure Contract of Sale
Sale contracts can vary. One of the varieties is
Contract of Sale for New Construction
Sale contracts can vary. One of the varieties is
Contract of Sale for Land
Sale contracts can vary. One of the varieties is
Exchange Agreement
A Residential Contract of Sale is the type with which
a licensee should first become familiar
A typical residential sale contract contains provisions of
parties, consideration, and property. One or more clauses will identify the parties, the property, and the basic consideration, which is the sale of the property in return for a purchase price
There must be at least two parties to a sales contract. One cannot
convey property to oneself
All parties in a sale contract must be
identified, be of legal age, and have the capacity to contract
A property clause also identifies
fixtures and personal property included in the sale, unless expressly excluded. Items commonly construed as fixtures are included in the sale. Similarly, items commonly considered personal property are not included unless expressly stated in the contract
A typical residential sale contract contains provisions of a
legal description. A legal description must be sufficient for a competent surveyor to identify the property
A typical residential sale contract contains provisions of
price and terms. A clause states the final price and details how the purchase will occur. Of particular interest to the seller is the buyer's down payment, since the greater the buyer's equity, the more likely the buyer will be able to secure financing. I
It is important for all parties to verify that the buyer's earnest money deposit, down payment, loan proceeds, and other promised funds together equal the
purchase price stated in the contract
A typical residential sale contract contains provisions of
loan approval. A financing contingency clause states under what conditions the buyer can cancel the contract without default and receive a refund of the earnest money. If the buyer cannot secure the stated financing by the deadline, the parties may agree
A typical residential sale contract contains provisions of earnest money deposit. A clause specifies how the buyer will pay the earnest money. It may allow the buyer to pay it in installments. Such an Option enables a buyer to hold on to the property brie
a buyer who wants to buy a house makes an initial deposit of $200, to be followed in twenty four hours with an additional $2,000. The sale contract includes the seller's acknowledgment of receipt of the deposit
A typical residential sale contract contains provisions of
escrow. An escrow clause provides for the custody and disbursement of the earnest money deposit, and releases the escrow agent from certain liabilities in the performance of escrow duties
A typical residential sale contract contains provisions of
closing and possession dates. The contract states when title will transfer, as well as when the buyer will take physical possession. Customarily, possession occurs on the date when the deed is recorded, unless the buyer has agreed to other arrangements
The closing clause in a contract generally describes
what must take place at closing to avoid default. A seller must provide clear and marketable title. A buyer must produce purchase funds. Failure to complete any pre-closing requirements stated in the sale contract is default and grounds for the aggrieved
A typical residential sale contract contains provisions of
conveyed interest type of deed. One or more provisions will state what type of deed the seller will use to convey the property, and what conditions the deed will be subject to. Among common "subject to" conditions are easements, association memberships, e
A typical residential sale contract contains provisions of
title evidence. The seller covenants to produce the best possible evidence of property ownership. This is commonly in the form of title insurance
A typical residential sale contract contains provisions of
closing costs. The contract identifies which closing costs each party will pay. Customarily, the seller pays title and property related costs, and the buyer pays financing related costs. Annual costs such as taxes and insurance are prorated between the pa
A typical residential sale contract contains provisions of
damage and destruction. A clause stipulates the obligations of the parties in case the property is damaged or destroyed. The parties may negotiate alternatives, including seller's obligation to repair, buyer's obligation to buy if repairs are made, and th
A typical residential sale contract contains provisions of
default. A default clause identifies remedies for default. Generally, a buyer may sue for damages, specific performance, or cancellation. A seller may do likewise or claim the earnest money as liquidated damages
A typical residential sale contract contains provisions of
broker's representation and commission. The broker discloses the applicable agency relationships in the transaction and names the party who must pay the brokerage commission
A typical residential sale contract contains provisions of
seller's representations. The seller warrants that there will be no liens on the property that cannot be settled and extinguished at closing. In addition, the seller warrants that all representations are true, and if found otherwise, the buyer may cancel
The residential property condition disclosure is
the seller's written summary of the property's condition at the time of contracting for sale. The disclosure is entered on state approved forms
State legislation requires owners of previously occupied single family homes and buildings containing 1 to 4 dwelling units to provide
the disclosure to prospective buyers if they are selling, exchanging, or Optioning their property. Some exceptions and exemptions apply. When required, the disclosure must be transmitted to the prospective buyer no later than when the buyer makes an offer
A typical residential sale contract contains the provision of
right of rescission. Sellers who fail to complete and deliver the property condition disclosure statement to buyers in a timely fashion effectively give the buyer a subsequent right under certain conditions to rescind the sale contract and re-claim their
A typical residential sale contract contains provisions of
agent's responsibility. The residential property re-seller must comply with the property condition disclosure requirement whether an agent is employed in the transaction or not. If an agent is involved in the transaction, the agent must disclose any and a
A typical form requires the seller to affirm whether or not problems exist in any of the listed features and systems of the property. In denying that a problem exists, the seller claims to have no knowledge of a defect. If a defect does in fact exist, the
intentional misrepresentation
A third possible response to a property condition question is that of No Representation. Here, the seller makes no claim of knowledge as to whether a problem exists. With this answer, the seller is no longer held liable for a disclosure of any kind relati
acknowledge receipt and knowledge of the property condition disclosures, along with other provisions set forth on the form
A sales contract may contain numerous clauses. One of the common provisions is
inspections. The parties agree to inspections and remedial action based on findings
A sales contract may contain numerous clauses. One of the common provisions is
owner's association disclosure. The seller discloses existence of an association and the obligations it imposes
A sales contract may contain numerous clauses. One of the common provisions is a
survey provision. The parties agree to a survey to satisfy financing requirements
A sales contract may contain numerous clauses. One of the common provisions is
environmental hazards. The seller notifies the buyer that there may be hazards that could affect the use and value of the property
A sales contract may contain numerous clauses. One of the common provisions is
compliance with laws. The seller warrants that there are no undisclosed building code or zoning violations
A sales contract may contain numerous clauses. One of the common provisions is
Due on Sale clause. The parties state their understanding that loans that survive the closing may be called due by the lender. Both parties agree to hold the other party harmless for the consequences of an acceleration
A sales contract may contain numerous clauses. One of the common provisions is
seller financing disclosure. The parties agree to comply with applicable state and local disclosure laws concerning seller financing
A sale contract may contain numerous additional clauses. One of the common provisions is
rental property and or tenants rights. The buyer acknowledges the rights of tenants following closing
A sale contract may contain numerous additional clauses. One of the common provisions is
FHA or VA financing condition. A contingency allows the buyer to cancel the contract if the price exceeds FHA or VA estimates of the property's value
A sale contract may contain numerous additional clauses. One of the common provisions is
flood plain (flood insurance). Seller discloses that the property is in a flood plain and that it must carry flood insurance if the buyer uses certain lenders for financing
A sale contract may contain numerous additional clauses. One of the common provisions is
condominium assessments. Seller discloses assessments the owner must pay
A sales contract may contain numerous clauses. One of the common provisions is
foreign seller withholding. The seller acknowledges that the buyer must withhold 10% of the purchase price at closing if the seller is a foreign person or entity and forward the withheld amount to the Internal Revenue Service. Certain limitations and exem
A sale contract may contain numerous additional clauses. One of the common provisions is
tax deferred exchange. For income properties only, buyer and seller disclose their intentions to participate in an exchange and agree to cooperate in completing necessary procedures
A sale contract may contain numerous additional clauses. One of the common provisions is
merger of agreements. Buyer and seller state that there are no other agreements between the parties that are not expressed in the contract
A sale contract may contain numerous additional clauses. One of the common provisions is
notices. The parties agree on how they will give notice to each other and what they will consider to be delivery of notice
A sale contract may contain numerous additional clauses. One of the common provisions is
time is of the essence. The parties agree that they can amend dates and deadlines only if they both give written approval
A sale contract may contain numerous additional clauses. One of the common provisions is
fax transmission. The parties agree to accept facsimile transmission of the offer, provided receipt is acknowledged and original copies of the contract are subsequently delivered
A sale contract may contain numerous additional clauses. One of the common provisions is
survival. The parties continue to be liable for the truthfulness of representations and warranties after the closing
A sale contract may contain numerous additional clauses. One of the common provisions is
dispute resolution. The parties agree to resolve disputes through arbitration as opposed to court proceedings
A sale contract may contain numerous additional clauses. One of the common provisions is
addenda to the sale contract. Addenda to the sale contract become binding components of the overall agreement. The most common addendum is the seller's property condition disclosure
Examples of some addenda are
agency disclosure, asbestos and or hazardous materials, liquidated damages, radon disclosure, flood plain disclosure, and tenant's lease
An Option to Buy is an enforceable contract in which
a potential seller, the Optionor, grants a potential buyer, the Optionee, the right to purchase a property before a stated time for a stated price and terms. In exchange for the right of Option, the Optionee pays the Optionor valuable consideration
An Option to Buy is an enforceable contract in which
a potential seller, the Optionor, grants a potential buyer, the Optionee, the right to purchase a property before a stated time for a stated price and terms. In exchange for the right of Option, the Optionee pays the Optionor valuable consideration
An Option to Buy is an enforceable contract in which a potential seller, the Optionor, grants a potential buyer, the Optionee, the right to
purchase a property before a stated time for a stated price and terms. In exchange for the right of Option, the Optionee pays the Optionor valuable consideration
Example of Option to Buy
A buyer wants to purchase a property for $150,000, but needs to sell a boat to raise the down payment. The boat will take two or three months to sell. To accommodate the buyer, the seller offers the buyer an Option to purchase the property at any time bef
An Option to Buy places the Optionee under no obligation to
purchase the property. However, the seller must perform under the terms of the contract if the buyer exercises the Option
An Option is a
unilateral agreement
Exercise of an Option to Buy creates a
bilateral sale contract where both parties are bound to perform
An unused Option terminates at the
expiration date
An Optionee can use an Option to
prevent the sale of a property to another party while seeking to raise funds for the purchase
A renter with a lease Option to Buy can accumulate down payment funds while paying rent to the landlord. For example,
an owner may lease a condominium to a tenant with an Option to Buy. If the tenant takes the Option, the landlord agrees to apply $100 of the monthly rent paid prior to the Option date toward the purchase price. The tenant pays the landlord the nominal sum
Options can facilitate commercial property acquisition. The Option period gives a buyer
time to investigate zoning, space planning, building permits, environmental impacts, and other feasibility issues prior to the purchase without losing the property to another party in the meantime
To be valid and enforceable, an Option to Buy must
include actual, non-refundable consideration
To be valid and enforceable, an Option to Buy must
require the Optionee to pay a specific consideration that is separate from the purchase price. The consideration cannot be refunded if the Option is not exercised. If the Option is exercised, the consideration may be applied to the purchase price. If the
To be valid and enforceable, an Option to Buy must
include price and terms of the sale. The price and terms of the potential transaction must be clearly expressed and cannot change over the Option period. It is customary practice for the parties to complete and attach a sale contract to the Option as sati
To be valid and enforceable, an Option to Buy must have an
expiration date
To be valid and enforceable, an Option to Buy must
be in writing
Since a potential transfer of real estate is involved, most states Statutes of Fraud require an option to be
in writing
To be valid and enforceable, an Option to Buy must
include a legal description
To be valid and enforceable, an Option to Buy must
meet general contract validity requirements
The basics of an Option to Buy include
competent parties, the Optionor's promise to perform, and the Optionor's signature. Note that it is not necessary for the Optionee to sign the Option
It is common for an Option to Buy contract to include provisions covering
forfeiture terms. A clause provides that the Optionor is entitled to the consideration if the Option term expires
It is common for an Option to Buy contract to include provisions covering
property and title condition warranties. The Optionor warrants that the property will be maintained in a certain condition, and that title will be marketable and insurable
It is common for an Option to Buy contract to include provisions covering
how Option consideration will be credited. A clause states how the Optionor will apply the Option consideration toward the purchase price
With regard to Equitable interest
In an Option, the Optionee enjoys an equitable interest in the property because the Option creates the right to obtain legal title. However, the Option does not in itself convey an interest in real property, only a right to do something governed by contra
An Option should be recorded, because
the equitable interest it creates can affect the marketability of title
An Option to Buy is assignable unless
the contract expressly prohibits assignment
A Contract for Deed is also called a
land contract
A Contract for Deed is also called a
installment sale
A Contract for Deed is also called a
Conditional Sales Contract
A Contract for Deed is also called a
agreement for deed
A Contract for Deed is a bilateral agreement between retains legal title and the vendee acquires Equitable Title. The vendee takes possession of the property, makes stipulated payments of principal and interest to the vendor, and otherwise fulfills obliga
a seller, the vendor, and a buyer, the vendee, in which the vendor defers receipt of some or all of the purchase price of a property over a specified period of time. During the period, the vendor
Like an Option, a Contract for Deed offers a means for a marginally qualified buyer to acquire property. In essence, the seller acts as a lender, allowing the buyer to
take possession and pay off the purchase price over time. A buyer may thus avoid conventional down payment and income requirements imposed by institutional lenders. During the contract period, the buyer can work to raise the necessary cash to complete the
A Contract for Deed serves two primary purposes for a seller, they are
first, it facilitates a sale that might otherwise be impossible.
second, it may give the seller certain tax benefits. Since the seller is not liable for capital gains tax until the purchase price is received, the installment sale lowers the seller's tax l
Vendor's rights and obligations regarding a Contract for Deed. During the contract period, the seller may
mortgage the property
Vendor's rights and obligations regarding a Contract for Deed. During the contract period, the seller may
sell or assign whatever interests he or she owns in the property to another party
Vendor's rights and obligations regarding a Contract for Deed. During the contract period, the seller may
incur judgment liens against the property
In a Contract for Deed, the vendor is bound to
the obligations imposed by the Contract for Deed. In particular, the vendor may not breach the obligation to convey legal title to the vendee upon receipt of the total purchase price. In addition, the vendor remains liable for underlying mortgage loans
During a Contract for Deed contract period, the buyer (vendee) may
occupy, use, enjoy, and profit from the property, subject to the provisions of the written agreement. The vendee must make periodic payments of principal and interest and maintain the property. In addition, a vendee may have to pay property taxes and haza
Like other conveyance contracts, a Contract for Deed instrument identifies
the principal parties
Like other conveyance contracts, a Contract for Deed instrument identifies
the property's legal description
Like other conveyance contracts, a Contract for Deed instrument identifies
consideration, specifically what the parties promise to do
Like other conveyance contracts, a Contract for Deed instrument identifies
the terms of the sale
Like other conveyance contracts, a Contract for Deed instrument identifies
obligations for property maintenance
Like other conveyance contracts, a Contract for Deed instrument identifies
default and remedies
Like other conveyance contracts, a Contract for Deed instrument identifies
signatures and acknowledgment
A Contract for Deed specifies
the vendee's payments, payment deadlines, when the balance of the purchase price is due, and how the property may be used
In a Contract for Deed, if the seller defaults, such as by failing to deliver the deed, the buyer may sue for
specific performance or for cancellation of the agreement and damages
States differ in the remedies they prescribe for the seller in case of buyer default. Some states consider the default a breach of contract that may be remedied by
cancellation, retention of monies received, and eviction. Others provide foreclosure proceedings as a remedy
Many areas have no standardized Contract for Deed or any form sanctioned by associations and agencies. Therefore, this kind of conveyance presents certain
pitfalls for buyer and seller
In some states, a breach of the Contract for Deed is remedied under local contract law rather than
foreclosure law
In a Contract for Deed the buyer may not have the protections of a
redemption period or other buyer protection laws which accompany formal foreclosure proceedings. The vendor might sue the vendee for breach of contract for the slightest infraction of the contract terms
In a Contract for Deed, a danger for the vendee is that the vendor has the power and the right to
encumber the property in ways that may not be desirable for the buyer
Contract for deed
The seller could place a home equity loan on the property, then fail to make periodic payments. The bank could then foreclose on the vendor, thus jeopardizing the vendee's eventual purchase. For the seller, the principal danger is that the buyer acquires
To minimize risk, principal parties in a Contract for Deed should
use an attorney to draft the agreement
To minimize risk, principal parties in a Contract for Deed should
adopt the standard forms, if available
To minimize risk, principal parties in a Contract for Deed should
become familiar with how the contract will be enforced
To minimize risk, principal parties in a Contract for Deed should
utilize professional escrow and title services
To minimize risk, principal parties in a Contract for Deed should
record the transaction properly
To minimize risk, principal parties in a Contract for Deed should
be prepared for the possible effect on existing financing
An Exclusive Right to Sell contract provides
the most protection to the broker
An Exclusive Right to Sell listing is a
bilateral agreement
The enforcement of voidable contracts is limited by
statutes of limitation. Certain other contracts which are valid may not be enforceable due to the statute of frauds
A good example of the Bilateral Contract is a sales contract because
the seller promises to sell and the buyer promises to buy
Punitive damages are
damages that are punishment for wrong doing
In a Multiple Listing Service (MLS), the relationship that the selling broker has with the seller must be identified, for example,
single agent, transaction broker, etc.
Reasonable Time is
the time the court believes is sufficient to complete the contract
If a contracting entity is a Limited Partnership, only general partners may be
parties to a contract
A voidable contract can be cancelled by
operation of law or by rescission
It is advisable, and legally required in most states, for a broker to use a standard contract form promulgated by state agencies or real estate boards, as such forms contain generally accepted language. This relieves the broker of
the dangers of creating new contract language, which can be construed as a practice of law for which the broker is not licensed
An earnest money escrow provides
potential compensation for damages to the seller if the buyer fails to perform. The amount of the deposit varies according to local custom
A sales contract provides the escrow instructions for
handling and disbursing escrow funds
Earnest money is placed in a
third party trust account or escrow
A licensed escrow agent employed by a title company, financial institution, or brokerage company usually manages the
earnest money escrow
An individual broker may serve as the
escrow agent
An escrow holder acts as an
impartial fiduciary for buyer and seller
If a buyer performs under the sale contract, the earnest money escrow deposit is applied to the
purchase price
Strict rules govern the handling of earnest money deposits, particularly if
a broker is the escrow agent
State laws direct brokers when to
deposit earnest money escrow, how to account for them, and how to keep them separate from the broker's own funds
A party's failure to meet a contingency does not constitute default, but rather entitles the parties to
cancel the contract
Sales contracts, however, are assignable, because they involve
the purchase of real property rather than a personal service
Like all contracts, an Option must contain the
name of the Optionor (seller)
Like all contracts, an Option must have a
recitation of consideration, the purchase price, and must have some reference to dates, either specific times or Reasonable Time
Like all contracts,the Optionor must
sell the property if desired by the Optionee, but if the Optionee does not wish to purchase the property, he may release the Optionor from the sale. Usually, a least part of the consideration goes to the seller, whether the Option is exercised or not, wit
The most common contingency concerns financing. A buyer makes an offer contingent upon securing financing for the property under certain terms on or before a certain date. If unable to secure the specified loan commitment by the deadline, the buyer may
cancel the contract and recover the deposit
In a contract, an appropriate and timely loan commitment eliminates a
contingency, and the buyer must proceed with the purchase
It is possible for both buyers and sellers to abuse contingencies in order to
leave themselves a convenient way to cancel without defaulting
Offer and acceptance of a contract may come from either buyer or seller. The offeree must accept the offer without
making any changes whatsoever
A change in a offer of a contract terminates the offer and creates a
new offer or counteroffer
An offeror of a contract may revoke an offer for
any reason prior to communication of acceptance by the offeree
If a buyer fails to perform under the terms of a sales contract, the usual remedy is
forfeiture of the buyer's deposit as liquidated damages, provided the deposit is not grossly in excess of the seller's actual damages
If a buyer fails to perform under the terms of a sales contract, it is customary to provide for
the seller and broker to share the liquidated damages. The broker may not, however, receive liquidated damages in excess of what the commission would have been on the full listing price
If a contract does not provide for liquidated damages, the seller may sue for
damages, cancellation, or specific performance
A contract that is Void cannot
be enforced by either party., The law treats a Void Contract as if it had never been formed. A contract will be considered void, for example, when it requires one party to perform an act that is impossible or illegal
A Voidable Contract is a
valid contract and can be enforced. Usually only one party is bound to the contract terms in a voidable contract. The unbound party is allowed to cancel the contract, which makes the contract void
The main difference between a Void and Voidable Contract is that
a void contract cannot be performed under the law, while a voidable contract can still be performed, although the unbound party to the contract can choose to void it before the other party performs
Competency is
the ability to do something successfully or efficiently
Sanity refers to
the soundness, rationality, and healthiness of the human mind, as opposed to
Insanity is
the state of being seriously mentally ill