Section III: Contracts & Agency

Contract

legally enforceable agreement between two or more parties.

Valid Contract

A contract that contains ALL five essential elements.

Void Contract

It has NO legal force or binding effect

Voidable Contract

A contract that appears valid on its face but CAN be voided (cancelled) by one of the parties due to a legal defect

Consideration

Something of value that each party gives to the other as part of a contract.

Meeting of the Minds

Mutual agreement between all parties

1. A valid offer has been made

2. An unqualified acceptance communicated.

3. All parties must clearly understand and agree to the terms.

Fraud

Any form of INTENTIONAL deceit by which one party tries to gain an unfair advantage over another.

Misrepresentation

A false statement or concealment of a material fact. Can be intentional (= fraud) or innocent (unintentional).

Puffing

A harmless exaggeration or promotional statement that a reasonable person would recognize as opinion, not fact.

Statute of Frauds

State laws that require certain contracts to be IN WRITING and signed to be enforceable. In real estate: all contracts involving the sale/transfer of land must be in writing. All leases over 1 year must be in writing.

Statute of Limitations

State laws that prescribe TIME LIMITS on legal actions. Once the deadline passes, the claim is "outlawed" and a court will not hear it. Designed to protect against stale claims.

Breach of Contract

Violation of any term or condition of a contract without legal excuse. The non defaulting party can seek: (1) money damages, (2) specific performance, or (3) rescission.

Rescission

A legal remedy that CANCELS the contract and returns all parties to their original positions (as if the contract never happened).

Duress

The use of force or threatened force to compel a person to sign a contract. A contract signed under it is VOIDABLE by the party who was threatened.

Undue Influence

Taking improper advantage of another person's weak mental or emotional state to gain an unfair advantage in a contract. Courts may refuse to enforce such contracts.

Novation

The substitution of a NEW legal obligation (or party) for an old one. The old contract/party is completely RELEASED from liability. Requires new consideration.

Assignment

Transfer of a person’s rights and obligations under a contract to another party.

• Assignor = original party transferring rights

• Assignee = new party taking over

• Assignee = primarily liable

• Assignor = still secondarily liable (unless released)

Power of Attorney

A written legal document in which one person (principal) appoints another (attorney-in-fact) to act on their behalf. Can be general or specific.

Estoppel

A legal doctrine that PREVENTS a person from asserting a right or fact that is inconsistent with their previous position, when another person has relied on that position to their detriment.

Bilateral Contract

A contract in which BOTH parties make promises of performance.

Unilateral Contract

A contract where only ONE party makes a promise of performance. The other party is not required to do anything but if they perform, a contract is created.

Valuable Consideration

usually consist of money, or property, but may also be an enforceable promise

Good consideration

often used for a gift deed, frequently love and affection

Executory Contract

A contract in which one or both parties still have duties or obligations to perform.

Express Contract

A contract where ALL terms and conditions are specifically stated either in writing, orally, or both.

Implied Contract

A contract formed by the ACTIONS or conduct of the parties rather than express words. The law infers an agreement from how the parties behaved.

Covenant

A solemn, unconditional promise or agreement in a contract. Indicated by words like "agree," "promise," "undertake," "pledge." Breach of a covenant entitles the injured party to damages

Condition

A prerequisite that must occur before something else takes effect. Indicated by words like "if," "when," "unless," "provided." If it fails, parties are NOT entitled to damages.

Earnest Money

A cash deposit that accompanies an offer to purchase as evidence the buyer is serious. NOT required for a valid contract. Typically held in escrow.

Agent

A person authorized to act on behalf of another (the principal/client) in a business transaction. In real estate, the broker is the agent of the client.

Fiduciary

A person placed in a position of TRUST who must act in another's best interest. Real estate agents have fiduciary duties to their clients.

Dual Agency

When a broker REPRESENTS BOTH buyer and seller in the same transaction. Creates a conflict of interest. Requires written, informed consent from BOTH parties.

Caveat Emptor

Latin for "LET THE BUYER BEWARE." The old common law doctrine that buyers purchase at their own risk — no one represents their interests.

Subagent

agent of the agent, representing the seller

• does NOT represent the buyer

• owes fiduciary duties to the seller

• Must be disclosed and agreed to (not automatic anymore)

Universal Agent

An agent given legal power to handle ALL types of transactions for a principal. An unlimited power of attorney creates a universal agency.

Open Listing

An oral or written listing given to ANY number of brokers. Commission is owed ONLY to the broker who actually produces the ready, willing, and able buyer (procuring cause). Owner can sell on own and owe nothing. UNILATERAL contract.

Exclusive Listing (Exclusive Agency)

A written listing with ONE broker. Seller agrees to pay commission IF a licensee sells it. Owner RESERVES THE RIGHT to sell the property themselves without owing a commission. BILATERAL contract, must have definite expiration date.

Exclusive Right to Sell

A written listing with ONE broker. Seller MUST pay the commission no matter WHO sells the property — even if the owner sells it themselves. The most protective listing for the broker. BILATERAL contract — must have definite expiration date.

Net Listing

Seller agrees to receive a set amount; broker keeps everything above that amount as commission. ILLEGAL in most states (including Georgia) because it creates a conflict of interest.

Procuring Cause

The broker who is directly responsible for bringing about the sale — the one who initiated the chain of events that led to the transaction. Determines who earns the commission in an open listing.

Earnest Money / Escrow Deposit

Cash deposited at contract signing as good faith. Held in escrow. Typically represents liquidated damages if buyer defaults. Not required for a valid contract but standard practice.

Competitive Market Analysis (CMA)

A comparison of a seller's property to similar recently sold properties to help determine a listing price. NOT a formal appraisal but a pricing tool used by agents.

Gross Lease (Fixed/Flat Lease)

Tenant pays a FIXED rent. Landlord pays ALL expenses: taxes, insurance, maintenance, repairs. Most common for residential rentals.

Net Lease

Tenant pays base rent PLUS a pro-rated share of taxes, insurance, and specified operating expenses. Common in commercial real estate.

Percentage Lease

Tenant pays a fixed MINIMUM rent PLUS a percentage of gross sales income that exceeds an agreed minimum. Common for retail/shopping center tenants.

Graduated Lease

Lease with PREDETERMINED rent increases at specified times. Also called step-up lease. An INDEX LEASE adjusts rent based on a published index (like CPI) with a cap on changes.

Ground Lease (Land Lease)

Owner leases VACANT LAND to a tenant who builds their own building on it. Typically very long-term (50–99 years) to give the builder time to recoup their investment.

Proprietary Lease

A lease used in COOPERATIVES. No fixed rent — tenant (stockholder) pays a proportionate share of the corporation's carrying charges (taxes, insurance, mortgage, maintenance). Assigned with the stock certificate when a unit is sold.

Sale-Leaseback

Owner SELLS property to an investor/lender, then immediately LEASES it back. Seller gets cash; buyer gets a guaranteed tenant.

Subordination Clause

A lease provision in which the tenant agrees that the lease is subordinate to a lender’s mortgage on the property.

Escalation Clause

A lease clause that allows for rent adjustments UP or DOWN based on changes in specified costs (taxes, insurance, etc.) or an index like the Consumer Price Index (CPI)

Covenant of Quiet Enjoyment

A guarantee by the landlord that the tenant will have PEACEFUL, UNDISTURBED possession and use of the property during the lease term. Breach can lead to constructive eviction.

Eviction

Landlord files suit and obtains court order to REMOVE tenant for breach (non-payment, violations). Constructive eviction: landlord's actions (or inaction) make the premises UNINHABITABLE, forcing the tenant to leave.

Blockbusting (Panic Peddling)

The ILLEGAL practice of inducing property owners to sell by creating the impression that minorities or undesirable groups are moving into the neighborhood. Designed to exploit racial fears for profit.

Redlining

The ILLEGAL practice of denying mortgages or insurance to people SOLELY because of the geographic area (neighborhood) where a property is located, regardless of the applicant's qualifications.

Steering

The ILLEGAL practice of directing buyers or renters TOWARD or AWAY from certain neighborhoods based on race, religion, national origin, or other protected class status.

Escrow

The process where money and documents related to a real estate transaction are held by a neutral third party until ALL terms and conditions of the transaction have been met.

Commingling

The ILLEGAL act of mixing personal or business funds with funds that should be held in a separate escrow/trust account. Either direction is a violation (putting escrow money in personal account OR personal money in escrow account).

Counteroffer

an offer KILLS the original offer — it is simultaneously a rejection of the old offer AND a new offer. The roles of offeror/offeree are reversed.

Option contract

A contract in which one party pays consideration for the exclusive right, but not the obligation, to buy or lease a property within a specified time period at a set price.