contract

Overview of Contracts in Real Estate

• Contract

  • Definition: An agreement between two or more parties to do or not do something.

  • Legally enforceable promises with law providing remedies for breach.

• Listing

  • Definition: A written agency contract between a seller and a real estate broker.

  • Stipulation of broker's payment of commission for finding or attempting to find a buyer for the seller's real property.

• Implied Contract

  • Definition: A contract that has not been put into words but is implied by the actions of the parties involved.

• Exclusive Right to Sell

  • Definition: A listing agreement that entitles the broker to a commission if anyone, including the seller, finds a buyer for the property during the listing term.

Types of Listing Agreements

• Open Listing

  • Definition: A non-exclusive listing given by a seller to multiple brokers.

  • Broker entitled to commission only if they are the procuring cause of the sale.

Key Contract Terms

• Acceptance

  • Definition:

  1. Agreeing to the terms of an offer to enter into a contract, thus creating a binding contract.

  2. Taking delivery of a deed.

• Consideration

  • Definition: Anything of value (money, services, goods, or promises) given to induce another to enter into a contract.

• Contingency Clause

  • Definition: A provision in a contract, deed, law, or regulation that makes the rights and obligations of the parties depend on the occurrence or nonoccurrence of a specified event.

  • Also called: Condition, Escape Clause, Subject to Clause, or Kick-Out Clause.

• Counteroffer

  • Definition: A response to an offer that alters some of the terms of the original offer.

  • Constitutes a rejection of the original offer and does not create a binding contract unless accepted by the original offeror.

Financial Aspects of Contracts

• Earnest Money

  • Definition: Money offered as an indication of good faith regarding future performance of a purchase agreement.

• Equitable Title

  • Definition: Any present right to acquire legal title to property.

• Express Contract

  • Definition: A contract explicitly put into words, either spoken or written.

• Legal Title

  • Definition: The interest in property held by the rightful owner; vendor's interest in property under a land contract.

• Purchase Agreement

  • Definition: A contract where a seller promises to convey title to real property to a buyer in exchange for the purchase price.

Legal Remedies and Contract Types

• Specific Performance

  • Definition: A legal remedy where a court orders the breaching party to perform as agreed under the contract instead of just paying monetary damages.

• Statute of Frauds

  • Definition: A law requiring certain contracts to be in writing and signed to be enforceable.

• Unilateral Contract

  • Definition: A contract where only one party makes a legally binding promise, becoming binding if the other party chooses to accept it.

• Voidable Contract

  • Definition: A contract that one party can disaffirm without liability due to lack of legal capacity or a negative factor such as fraud or duress.

Roles and Definitions in Real Estate Contracts

• Optionee

  • Definition: The person to whom an option is given.

• Optionor

  • Definition: The person who gives an option.

• Vendee

  • Definition: The buyer in a land contract.

• Vendor

  • Definition: The seller in a land contract.

Legal Consequences in Contracts

• Compensatory Damages

  • Definition: Damages awarded, typically monetary, intended to compensate the plaintiff for harm caused by the defendant's actions, including physical and mental injuries, property damage, and financial losses.

• Fraud

  • Definition: An intentional or negligent misrepresentation or concealment of a material fact, involving statements known or should be recognized as false or misleading.

Transfer and Termination of Contracts

• Assignment

  • Definition: The transfer of the terms of a contract from one party to another.

  • Example: A tenant transferring their right of possession in leased property to another for the entire lease term.

  • Comparison: Sublease.

• Duress

  • Definition: The use of force or improper actions against a person or property to induce a party to enter into a contract.

• Liquidated Damages

  • Definition: A pre-agreed sum of money intended as compensation in the event of breach, often involving forfeiture of the earnest money deposit in purchase contracts.

• Novation

  • Definition: Creation of a new contract that replaces the original contract, requiring consent from both parties involved.

• Rescission

  • Definition: The termination of a contract where each party returns anything acquired under the contract to the other party.

  • Verb form: To rescind.

Contractual Conditions and Validity

• Time is of the Essence

  • Definition: A clause that voids the contract when a deadline is not met, resulting in material breach by the party failing to perform by the deadline.

• Undue Influence

  • Definition: Exerting excessive pressure on someone that impairs their free will and ability to make rational or prudent decisions.

• Unenforceable Contract

  • Definition: A contract that a court would refuse to enforce, often due to oral agreements or vague wording.

• Void Contract

  • Definition: A contract that is unenforceable because it lacks essential requirements for contract formation or is otherwise defective.

• Mutual Consent

  • Definition: The agreement of both parties to the contract terms, demonstrated by offer and acceptance.

• Tender

  • Definition: An unconditional offer made by one party to perform their part of the agreement when it appears the other party may default.

• Option Agreement

  • Definition: An agreement granting one party the right to buy or lease property at a fixed price within a specified period of time.