Contracts and Agency

Four classes of contract by enforceability

Valid, void, voidable, and unenforceable [P1-U6]

Time for performance

All contracts must be performed within a reasonable time, even if no time is specified [P1-U6]

Ways a contract may be discharged

Performance, partial performance (if both parties agree), substantial performance, impossibility of performance, assignment, novation, breach without legal cause, failure to enforce within the statute of limitations, mutual agreement, operation of law (e.g., void from inception), or rescission [P1-U6, P4-U5]

Five essentials of a valid real estate contract

(1) Legally competent parties, (2) offer and acceptance, (3) consideration, (4) legality of object, (5) agreement in writing and signed by the parties [P1-U6]

Remedies when a party defaults on a sales contract

Rescission, suit for money damages, suit for specific performance, mediation, or liquidated damages (a clause may specify the amount the seller receives if the buyer defaults, such as the earnest money) [P1-U6, P4-U6]

Contracts frequently used in real estate

Listings, buyer representation agreements, sales contracts, options, contracts for deed, leases, and escrow agreements [P1-U6, P4-U5]

Obligations under a real estate sales contract

Buyer must purchase for the stated amount; seller must deliver good and indefeasible title free from liens and encumbrances (except those allowed by a subject-to clause) [P1-U6]

When is a broker a party to the contract?

Only if the broker has a power of attorney or is acting under a property management agreement [P1-U6]

Statute of frauds

Requires that instruments affecting interests in real estate be in writing to be enforceable [P1-U7, P4-U6]

Agent classifications

General agent, universal agent, or special agent, based on the authority delegated; each category has its own duties, responsibilities, and liabilities for principal and agent [P2-U7, P3-U2]

Broker as special agent

Hired by the seller or buyer to sell or find a particular parcel of real estate; the person who hires the broker is the principal [P2-U7]

Fiduciary duties owed to the client (OLD CAR)

Obedience, loyalty, disclosure, confidentiality, accounting, and reasonable care and diligence (OLD CAR) [P2-U7, P3-U2]

Agent duties to third parties/customers

Not fiduciary duties, but strong: reasonable care and skill, honest and fair dealing, and disclosure of any material facts that might affect the buyer's decision or the price the buyer would pay; a fiduciary for one party still owes fairness and honesty to the other party [P2-U7, P3-U2, P3-U3]

Where general agency is common

Between a broker and sponsored sales agents and affiliated broker associates, and in property management; uncommon between a broker and a client in a typical sales transaction [P3-U2]

Where special agency is common

Between seller and broker for the sale of property, and between buyer and broker for the purchase of property [P3-U2]

Express vs. implied listing agreements

Express listing agreements can be written or oral (should be in writing); implied listing agreements are created by the words or conduct of the parties [P3-U4, P3-U12]

Buyer representation agreements

A one-time agreement applies to a specific buyer for a specific property; written agreements are preferable to oral ones [P3-U5]

How buyer agency can arise by implication

When an agent negotiates on behalf of a buyer [P3-U5]

Seller liability for a buyer's agent

A seller is generally not liable for misrepresentations of the buyer's agent [P3-U5]

Does payment of a fee determine agency?

Not necessarily, but in court it could if no other evidence shows whose agent the license holder represented [P3-U7]

Ways an agency can be created

Expressly, by implication, by estoppel, or by ratification, with or without a written agreement [P3-U7]

Gratuitous agency

Any form of agency without a written agreement for compensation can result in a gratuitous agency [P3-U7]

Ways an agency may be terminated

Mutual agreement (rescission), unilaterally (renunciation or revocation), expiration of time, abandonment by the agent, or operation of law [P3-U7]

How courts establish agency liability

Look not only at the documents creating the agency but also at the acts of the agent and the parties [P3-U7]

Presenting offers

Present offers in a timely manner; present multiple offers together so the seller can choose the best one; the seller decides whether to accept backup offers [P3-U12]

Earnest money default

There should be an understanding of how retained earnest money will be divided if the buyer defaults [P3-U12]

Mutual assent and counteroffers

Mutual assent (meeting of the minds) arises from an offer by the offeror that the offeree accepts; a counteroffer terminates the original offer and initiates a new one [P4-U3]

Competent parties and consideration

Parties must be of legal age and able to understand the nature and consequences of their actions; consideration is something of legal value (could be love and affection), free of undue influence or fraud; it need not be earnest money because an exchange of promises is sufficient [P4-U3]

Who can enforce an option

Only the optionee, who has the right to buy or lease the property within a certain time [P4-U5]

What a sales contract includes

The complete agreement between buyer and seller: sales price and terms, legal description, evidence of title, and all terms and conditions plus any contingencies; the process is offer, possible counteroffers, and final acceptance [P4-U6]

Conveyance terms in a sales contract

Type of deed, date and place of closing, name of closing agent, results of title search, possible destruction of premises, contingencies to be satisfied, signatures of all parties, and addenda or amendments [P4-U6]

Five elements of a contingency

The actions needed to satisfy it, the time frame, how it may be removed, who pays any associated cost, and what happens if it is not satisfied [P4-U7]

Common contingencies

Financing (protects the buyer's earnest money), appraisal (substantiates the purchase price), title (ensures clear title), approval of HOA/condo documents (mandated by state regulations), inspection (home, regulatory, or hazard), and sale of the buyer's home [P4-U7]

Amendment vs. addendum

Amendment: a change to the original contract. Addendum: additional information that is part of the original contract [P4-U7]