Contracts

Effect of involuntary transfer

1) Foreclosure: Most states have laws that terminate leases upon foreclosure (involuntary transfer). 2) Eminent Domain: A government taking of leased land terminates the lease.

Fraud

1) Fraud in the Inducement: Intentional deceit (statement or concealment) about the nature of material facts or circumstances that causes one to enter into a contract. The resulting contract is voidable (seller misrepresents material information). 2) Fraud in the Factum: Intentional deceit (statement or concealment) that causes one to execute a document other than the document he intended to execute. The resulting contract is void (no meeting of the minds; buyer tricked into signing document). Fraud in the Factum - EXAMPLE: Sara Jones is contacted by a salesperson from the Heavenly Habitat subdivision and told that she has just won a two-bedroom house. Sara loves the house and when she is asked to sign a letter of endorsement for the subdivision, she does so gladly. Later, Sara finds out that rather than actually winning a house, she has merely won a chance to win a house. Furthermore, the letter of endorsement she signed is actually a contract to buy a house if and when she fails to win one. Because Sara never intended to enter into a contract, and because she was intentionally deceived, the contract is void.

Estoppel cont'd

1) Reliance: Justifiable reliance is a necessary element in an estoppel defense. Reliance - EXAMPLE: Your employer tells you that he will pay a pension when you retire. Relying on this statement, you retire at an age where obtaining new employment is difficult because you are expecting that pension income. Even though there may be no consideration in this example (arguably, only the employer agreed to do something, which renders this a one-sided agreement—see the discussion on consideration above), courts may enforce the agreement as a contract to prevent an inequitable result (your reliance on your employer's promise put you in a worse situation). ​2) Estoppel Certificate: Document, also known as certificate of no defense or estoppel letter, which clarifies the amount of debt owed by one party to another, and/or the legal status between parties as of a specified date. Lenders use estoppel certificates to establish the mortgage amount owed as of a certain date. Landlords and tenants use estoppel certificates to establish the amount of rent owed (or not owed) as of a certain date. All parties to a valid estoppel certificate are thereafter estopped (prevented) from claiming any position to the contrary. vi. Mistake: Arises from an error or a misunderstanding about the terms or conditions of an agreement. Contracts are voidable if based on a mutual, unintentional, material mistake (parties contract for the wrong lot). However, ignorance of the law and poor judgment are not valid reasons for claiming a mistake of fact. Mistake - EXAMPLE: A subdivision developer and a buyer sign a sales contract on a lot in the subdivision. Later, it turns out that the developer honestly thought they were contracting for Lot A and the buyer honestly thought they were contracting for Lot B. If the two can resolve their differences, fine. If not, the contract is voidable by either party because there was no meeting of the minds. Note that this mistake is: 1) mutual (both mistakenly identified the property); 2) unintentional; and 3) material (specifying the correct piece of property is at the heart of the contract because all property is unique). Mistake - EXAMPLE: Bob the Blaster runs a blasting and excavation company. Bob signs a contract to purchase property located on the main drag of Acme City. Bob intends to use his new business location to test his blasting equipment before rolling it out in the field. After signing the contract, Bob discovers that blasting activities are illegal within the city limits of Acme. Assuming no fraud or misrepresentation by the seller, Bob's ignorance of the law does NOT result in either a void or voidable contract, and is NOT an example of mistake.

When parties must perform cont'd

2) Illegal Restrictive Covenants: Contractual provisions in deeds that violate laws (usually fair housing laws), which are void and unenforceable. Buyers who discover illegal covenants in documents may choose to buy, ignoring the illegal covenant, or they may choose to insist on the removal of the illegal covenant prior to purchase. Buyers are usually not within their right to completely void the contract, but they can delay the transfer of title until the illegal restriction is removed. i. Assignable/Non-Assignable: An assignment is the transfer of the contractual right, title, or interest of one person ("assignor") to another ("assignee"). Some contracts may be assigned to another person and some may not (personal service). Whether a contract is assignable depends on the subject of the contract and whether or not the parties, despite the subject, have specifically agreed to permit assignment. Other contracts may authorize or prohibit assignments (mortgages). Assignable/Non-Assignable - EXAMPLE: Contracts for a personal service, such as a contract for a specific real estate broker to sell your property (listing agreement) are not assignable. However, most other real estate contracts, such as mortgage contracts, trust deeds, contracts for sale, lease contracts, and options are assignable unless the parties agree otherwise in the contract. ii. Novation: Situation where contracting parties agree to substitute one agreement in part or in full for another agreement. Through novation, the old agreement terminates and is replaced by the new agreement. iii. Power of Attorney: Written document in which one person (principal) appoints another to be their attorney-in-fact, authorizing the attorney-in-fact to act on their behalf. Authority may be general ("sell my property") or specific ("sell my property to a specific person only"). The death of either party automatically revokes the power of attorney because it is a personal authorization. Thus, when an attorney-in-fact is conveying property on behalf of a grantor, proof is usually required that the grantor is alive at the time of the signing.

Statute of Frauds

4. Contract Enforcement: Some contracts may be unenforceable for reasons identified below a. Statute of Frauds: State laws based on common law, which require that certain contracts be in writing in order to be enforceable: i. Sale of Land: The statute of frauds requires that all real estate contracts for the sale or transfer of land, or the transfer of any ownership interest in land for longer than one (1) year, be in writing and be signed in order to be enforceable. As a result, courts will not enforce oral contracts for the sale of land even if otherwise valid (that is, even if they contain the essential contract elements). ii. Long-Term Leases: As an interest in land, a long-term lease (over 1 year) must be written and signed, or it is unenforceable. iii. Short-Term Leases: A short-term lease (1 year or less) is an exception to the rule and need not be written (oral short term leases are enforceable). b. Statute of Limitations: State laws that establish time limits on one's ability to bring a legal action, including an action to enforce a contract. If a lawsuit is filed to seek enforcement of a contract beyond the limitations period, courts will not hear the suit. These laws are intended to facilitate commerce by limiting liability. Time periods differ by state and topic. c. Death of the Parties: The death of a party may impact a contract as follows: i. Offers: The death or insanity of either party prior to acceptance will terminate an offer. This is true because acceptance of an offer, and subsequent formation of a contract, requires a meeting of the minds. A meeting of the minds is one way to say that the parties both understand exactly what they have promised to do or not to do. However, once they arise, contracts survive the death of either party. In such cases, the estate of the deceased party is obligated to perform on behalf of the deceased. While the death of either party does not terminate an existing contract, the death of either party does terminate an offer that has not been accepted. ii. Personal Service Contracts: Personal service contracts (such as a listing agreement) do not survive the death of the party obligated to perform because a personal service is unique.

A 19 year old inherits property from his grandfather, then immediately contracts to sell it. Can he later refuse to sell the property?

A 19 year old is a legal adult with the capacity to contract. Therefore, based on the limited information provided in the question, the best answer is that the contract is valid and binding. The correct answer is: no, the contract is valid and binding on all parties

Buyer-Broker Agreements

A buyer-broker agreement (buyer agency agreement or buyer agency employment contract) is an agency relationship between a broker and a buyer, often including a salesperson working under the broker as a subagent. Formal representation of the buyer creates an agency relationship between the buyer and broker, which also carries certain rights and responsibilities. Such formal representation contrasts with the informal assistance that a seller's agent may provide to a buyer without creating an agency relationship. Most states require that proper disclosure of this distinction be made to the buyer. Just like the broker and seller, the nature of the relationship between buyer and broker should be established through a written agreement. There are different buyer-broker agreements, but each should clearly specify: the services to be offered; the responsibilities of the parties; and how, when, and by whom the broker is to be compensated. An agreement to represent a buyer is an oral or written, bilateral or executory, personal service agreement (not assignable) that may not require an expiration date. However, in the absence of a specific expiration date, the agreement will be for a reasonable period of time (often set by state law).

General Knowledge of Contract Law

A contract is a legally enforceable agreement between competent parties who agree to perform, or refrain from performing, specified acts. A legally enforceable contract represents the exact meeting of the minds (the agreement) of the parties involved. Real estate is a business of contracts—listing contracts, sales contracts, option contracts, leasing contracts, development contracts, installment sales contracts, and financing contracts to name a few. In addition to elements specific to certain real estate contracts (such as a clear description of the subject property), there are three basic elements to any enforceable contract.

Nature of Counteroffers

A counteroffer arises when the offeree proposes any change to the offer presented by the offeror. The new offer replaces and terminates the old offer. However, there is no sales contract until or unless one party accepts the other's offer.

Basic Contract Elements: Defenses

A defense is a material defect which, if proven, either prevents a contract from forming (void) or renders an otherwise valid contract unenforceable (voidable). Even where there is an offer and acceptance that is supported by consideration, there may not be a contract. ​ i. Void and Voidable Distinction: Certain defenses may exist that prevent a contract from being formed in the first place. Other defenses permit a party to escape liability from the contract, even though the contract is valid. In either case, these two types of defenses result in either a contract that is void (a theory that the contract was never properly formed) or a contract that is voidable (a theory that a contract is valid, but fairness dictates that one may avoid liability to perform if they prove the defense). Common defenses which render a contract void or voidable include: incompetency, misrepresentation, mistake, illegality, and duress. ii. Incompetency: If established, results in either a void or voidable contract depending upon whether there is a limited capacity or a lack of capacity. Generally, courts assume people are competent enough to enter into contracts with one another. However, some people are legally unable to contract because they lack "capacity." As a result, their contracts are void. People that entirely lack the capacity to contract include those that are legally insane. Others have only a limited capacity to enter into contracts. These contracts are voidable, which means that one must take steps to avoid responsibility for the contract. Both minors and intoxicated persons are examples of people with a limited capacity to contract. 1) Legal Insanity: One who has been adjudicated incompetent or insane by a court. Such persons have no capacity to contract, and may not be a party to a contract because legally incompetent individuals cannot be expected to understand the terms of a contract. Therefore, a legally incompetent person cannot agree to a contract because an agreement requires understanding. Without agreement, there is no meeting of the minds. The contracts of the legally insane are void (no capacity to contract; no meeting of the minds). However, if an otherwise legally insane person is determined (by a court) to have been of sound mind at the time of contracting (lucid interval), then the contract is enforceable.Lucid interval is the period of time in which a legally incompetent person is judged by a court to have been temporarily of sound mind (lucid). If an otherwise legally insane person contracts during a lucid interval, then the resulting contract remains valid even if the person subsequently returns to insanity. 2) Non-Legal Insanity: Person who is actually insane, but has not been declared insane by a court. Persons who are insane without a court declaration possess a limited capacity to contract. Such contracts are therefore voidable and not void. 3) Minors: One who is under 18 years of age (in most states). In terms of contracting, minors have a limited capacity. As such, contracts by minors are generally voidable. This means that a minor may enter into a contract, but he may escape liability for the contract if he subsequently rejects it. a) Timing of Rejection: The minor must reject (disaffirm) the contract within a reasonable time of becoming an adult, or the contract will be binding. b) Necessities: The contracts of minors for certain necessities (food, clothing) are neither void nor voidable (obligates the minor; case by case determination by a court under specific facts). 4) Intoxication: If established, states that persons who were intoxicated at the time of contracting have a limited capacity to contract. Such contracts may be voidable by the intoxicated person if they act promptly. If they do not act promptly to cancel the contract, their inaction will be taken as agreement, and the contract will be valid. iii. Fraud: Contract defense which consists of any form of deceit by which one party intentionally attempts to gain an unfair advantage over another. The key to determining whether an action is fraudulent is whether or not it was intentional. If the deceit was not intentional, it is not fraud, but may be an instance of misrepresentation. Fraud includes intentionally making false statements and/or intentionally concealing material facts about real estate offered for sale. Fraud may result in damage awards by a court, and either a void or voidable contract depending upon whether it is fraud in the inducement or fraud in the factum.

Nature of lease contracts

A lease is a contract (requires all contract elements) that conveys a limited interest (possession, use) in real property from the lessor (owner or landlord) to the lessee (renter or tenant). a. Lessor's Interest: The lessor retains title to the property (ownership) while transferring the right of exclusive use and possession to the lessee for a limited duration in exchange for consideration (rent). b. Lessee's Interest: The lessee's (tenant's) exclusive right of use and possession received through the lease contract is personal property (leasehold estate or non-freehold estate) because the lease only transfers a limited interest in real property (possession) without ownership. i. Effect of Voluntary Transfer (Voluntary Alienation): Voluntary sales and transfers of leased real property do not affect (or terminate) the underlying lease because the lease is a contractual personal property right. Residential leases may contain cancellation clauses, which permit landlords to cancel residential leases upon the sale of the property. This allows a new owner to take the property without the existing lease. However, without a cancellation clause, the mere sale of the property will not terminate the lease (property transfers subject to an encumbrance).

Priority of Multiple counteroffers

A seller who gets multiple offers should only counter one offer at a time. If the seller makes multiple counteroffers to multiple buyers, the seller risks multiple acceptances (and would be legally bound to sell the property to more than one buyer). If negotiations on the seller's chosen counteroffer terminate, she can respond to another offer, provided the offer has not been withdrawn or expired pursuant to its terms.

Basic Contract Elements: Acceptance

Act of declaring a desire to create a contract consistent with a specific offer (offers must be accepted as the offer specifies). Unless otherwise specified by its terms, an offer may be accepted by any reasonable manner—a party may accept an offer through a face to face conversation, or a party may accept an offer through formal written documents, such as a real estate purchase agreement. i. Oral Acceptance: Absent a specified method of acceptance, an offer may be accepted orally. ii. Written Acceptance: Absent a specified method of acceptance, an offer may be accepted by writing. iii. Mailbox Rule: Where acceptance is properly submitted by mail, the law states that the acceptance becomes effective when it is deposited into a mailbox, and not when it is actually received by the offeror. Other forms of acceptance do not become binding on the offeror until they are actually received. Mailbox Rule - EXAMPLE: Jane mails her written offer to Jerry. On day five, Jerry mails his acceptance to Jane. On day six, Jane calls Jerry and tells him that she is withdrawing the offer. Jane receives Jerry's acceptance on day seven. Despite the fact that Jane called Jerry and withdrew the offer before she received the acceptance, she is bound by the contract because the mailbox rule states that Jerry's acceptance was effective when he mailed it.

Listing Agreements

Agency (special) between a seller/principal and a broker/agent (not a salesperson). Listing agreements ("agency employment contract") often authorize the broker/agent to use subagents (salespersons) to complete the agency objectives (sell property). Common listing agreements include: Open Listing Agreements, Exclusive Listing Agreements, and Net Listing Agreements (illegal in most states).

Basic Contract Elements

All of the following must exist to create a contract: offer/acceptance, consideration, and a lack of any defenses that would otherwise cancel a contract or prevent it from being formed. These elements are intended to ensure that there is an understanding, or a "meeting of the minds," between two or more parties. a. Offer: Promise from one party to enter into a binding agreement with another party, subject to specified terms or conditions ("I will buy your house for $200,000"). Once presented, an offer becomes a contract if it is accepted, supported by consideration, and has a lack of any contractual defenses. Offers terminate as follows: i. Withdrawal: An offeror (the one making the offer) may withdraw his offer at any time prior to its acceptance by the offeree (the one receiving the offer) unless, for example, the offer is contained in a valid option contract. If the offeror withdraws the offer, the offeree no longer has the power to accept it and there can be no contract from the rejected offer. ii. Counteroffer: A new offer by the offeree (intended recipient of an offer). By making a counteroffer, the initial offer is terminated by the offeree's rejection and replaced with a new offer. The offeree then becomes the offeror. The offeree and the offeror may switch positions throughout the negotiation process. iii. Rejection: The offeree (intended recipient of an offer) terminates an offer by rejecting it (either explicitly or by making a counteroffer). iv. Lapse of Time: Some offers terminate automatically if they are not accepted by a deadline established by the parties. Specifying a deadline for acceptance is one way to control an offer after it is communicated. v. Death and Insanity: The death or insanity of either party prior to acceptance will terminate an offer. Acceptance of an offer and the subsequent formation of a contract require a "meeting of the minds". A "meeting of the minds" occurs when both parties understand exactly what they have promised to do or not to do. Both death and insanity prevent a meeting of the minds from occurring. Therefore, the death or insanity of either party terminates an offer that has not been accepted. However, once contracts arise, they survive the death of either party. In such cases, the estate of the deceased party is obligated to perform on behalf of the deceased.

Drafting purchase agreements

Almost all states have laws that prohibit the unauthorized practice of law. In the majority of states (national view), practicing law includes drafting contracts on behalf of another, including real estate-related contracts like purchase agreements. However, most states do permit non-attorney brokers to assist and advise clients in completing standard fill-in-the-blank purchase agreements. In most states, non-attorney brokers who draft real estate-related contracts (sales contract or otherwise) may be prosecuted for engaging in the unauthorized practice of law. A minority of states deviate from this general rule. Virginia, for example, has an exception that permits real estate brokers to prepare sales contracts for their clients without engaging in the unauthorized practice of law. Even where prohibited, licensees may generally assist and advise clients with standardized forms so long as they do not charge an extra fee.

If a person has contracted for the opportunity to purchase property at a specified price, within a specified time, the person has:

B. an option . Correct answer. A person who contracts for the opportunity to buy property within a specific period of time has an option contract. A right of first refusal is a contractual agreement for the right to purchase.

Nature of the purchase agreement

Bilateral and executory contract, also known as a sales contract or a contract for sale, that specifies the terms and conditions of sale between a buyer and a seller of real estate. Purchase agreements not only obligate a buyer to buy and a seller to sell, but also specify the terms, conditions, and procedures for closing. When only signed by the buyer, the purchase agreement is only referred to as an offer (offer to purchase). When signed by both parties, the offer to purchase becomes a purchase agreement. a. Offer: The buyer begins the contracting process by making an offer. The seller must then determine if he should accept that offer and enter into a contract (purchase agreement) with the buyer. When only signed by the buyer, the purchase agreement is only an offer (offer to purchase). i. Counteroffer: Counteroffers are new offers that revoke any preceding offer. If the seller makes another offer in response to the initial offer, the seller's second offer is known as a counteroffer. b. Contract: When signed by both parties, the offer to purchase becomes a purchase agreement (sales contract, contract for sale), which specifies the terms of sale and closing, identifies the property, and provides equitable title to the buyer. Certain contract conditions, or contingencies, must be performed before contract performance is due. c. Equitable Title: A purchase agreement conveys equitable title to the buyer. Equitable title is a limited ownership interest that conveys the right to receive legal title upon full performance. For example, when signed by both parties, a purchase agreement transfers equitable title to the buyer. The buyer only receives legal title after closing. d. Closing: Point in time when the seller tenders title to the buyer or a neutral third person in exchange for the buyer's payment of the purchase price.

5. Breach of Contract

Circumstance where a party fails to perform as agreed in a contract without any recognized legal excuse. The non-breaching party may be entitled to an award of damages. Such an award may consist of either monetary damages—often in the form of liquidated damages—or specific performance (but not both). Generally, the law does not allow punitive damages (damages imposed solely to punish the breaching party), or damages for "pain and suffering" (intangible harm) for breach of a contract. a. Monetary Damages: Remedy for breach of contract that is limited to an amount the parties agree to (liquidated damages), or to "benefit of the bargain" damages (the difference between contract price and Fair Market Value (seller) or the difference between FMV and contract price (buyer)). i. Liquidated Damages: Damages specifically agreed to by contracting parties in the event of a breach. Liquidated damages are usually the exclusive damages available to a non-breaching party when so indicated in a contract (excludes other types of monetary damages and specific performance). In most purchase agreements, liquidated damages consist of any earnest money or accumulated payments made under the contract. EXAMPLE: A builder agrees to build a home for $100,000, pursuant to a purchase agreement with a buyer. The buyer defaults before construction begins and there is no provision for liquidated damages in the contract. If the home would have cost the builder $90,000 to construct, the builder's monetary damages would only be $10,000, or the amount of profit he would have made from building the house. b. Specific Performance: Court ordered contract remedy that forces the breaching party to perform as promised in a contract (for example, to sell the property for the agreed price). Specific performance is an available remedy for breach of a sales agreement because real estate is unique, such that monetary damages may be insufficient to remedy a breach. However, specific performance is not available for other contracts, such as the breach of an agency agreement or other personal service contracts

Basic Contract Elements: Consideration

Consideration is a legal term that has a long history of interpretation and discourse in contract law. However, today it is understood to broadly exist where parties bargain with one another to exchange promises (usually involving money, as in real estate transactions). Without consideration, there is merely a one-sided promise to act out of charity, and courts are reluctant to enforce such charitable promises. Through the bargaining process, both parties agree, or promise, to do or not to do something like deliver goods in exchange for payment. The thing that both parties agree to do or not to do is the essence of consideration. If a person promises to give away property without any consideration (gift promise), but later changes his mind, the one-sided promise could be unenforceable. Once again, courts are reluctant to bind someone to perform a charitable act, even if they so promise. i. Nature of the Bargain: Consideration is what both parties agree to do or refrain from doing (pay and sell). ii. Gift Promises: Gift promises are unenforceable because they contain no consideration (no reciprocal promise or legal detriment). EXAMPLE: In a real estate transaction, the buyer makes an offer to buy property that the seller accepts. Dissecting this exchange of promises, we find consideration—the seller promises to do something (deliver the deed at a specified time to the buyer), and the buyer promises to do something (pay a specified sum of money for that deed). Conversely, if a seller merely promised to give his property as a gift, the seller's one-sided promise would lack consideration and could be unenforceable. This is true because there was no bargained for exchange of promises between the two parties, or no consideration (only the seller is promising to do something).

Counteroffers/multiple counteroffers

Counteroffers are new offers that terminate any preceding offer.

lease-purchase agreements

If a tenant wants to purchase the landlord's property, but cannot do so immediately (cannot qualify for loan or does not have enough down payment), the parties can enter into a lease-purchase agreement which contains both lease terms and purchase contract terms. They agree on a purchase price and purchase date to occur at an agreeable future date. In the interim, part of the tenant's rent each month is applied to the purchase price.

Current Clauses

In addition to addressing matters such as identity of the parties, property description, purchase price, closing (settlement) date, identity of the settlement agent, and date of possession, a contract could also have one or more of the following clauses: a. Acceleration: Specifies that if the borrower violates the covenants of the mortgage or DOT, the entire loan balance becomes due and payable upon demand. In other words, the life of the loan is shortened, or accelerated, to its end. The lender may only accelerate the note if this clause is expressly included in the loan document. Also, the lender must give the debtor adequate notice (usually prescribed by law) and specify a time period to allow the debtor to cure the default. May appear in a Mortgage, Lease, Deed of Trust, or Installment Sales contracts (land installment contracts). b. Assignment: Assignment is the transfer of the contractual right, title, or interest of one person ("assignor") to another ("assignee"). Some contracts may be assigned to another person and some may not. Generally, contracts are assignable by either party unless the contract prohibits assignment. Property sellers usually want to override this rule by including a clause to prohibit the buyer from assigning the contract. Sometimes, they permit assignment if the seller agrees to the assignment in writing, and the original buyer remains liable if the new buyer fails to perform. c. Contingency: In a purchase transaction, there may be several provisions (contingencies) that must be met during the executory period of the contract before a party has the obligation to perform. The presence of contingencies is often indicated by words such as "if", "when", "unless", or "provided". If the contingency fails, the contract is voidable at the option of the party that the contingency is designed to protect/benefit. Examples: finance contingency (buyer does not have to buy if lender does not give him the loan), home inspection contingency (if inspector finds a problem, buyer does not have to buy). d. Default: This provision sets forth the rights and obligations of the parties in the event that one party fails to perform. It lists the events that constitute default and may also address the remedies (specific performance, damages) available to the parties in the event of a default. e. Liquidated Damages: Damages specifically agreed to by contracting parties in the event of a breach. In the event of a buyer default, sellers usually want the option of accepting a certain sum in damages (usually the earnest money deposit or accumulated payments made under the contract). Usually, this clause states that if the seller chooses liquidated damages as a remedy for a buyer's breach, he cannot also sue for other damages. f. Notice: In most contracts, the parties must give each other notice of different events during the executory period (title objections, results of inspection reports, whether the loan has been rejected or obtained, etc.). Notice provisions state where a party must be officially notified (home address, work address, through agent) and how (via fax, email, hand delivery, etc.). There are 3 types of notice: i. Actual Notice: Actual notice means that an individual received information or documents. When a person searches the public record, inspects the property, or is shown a legal instrument evidencing title, that person has actual notice of a deed's status. ii. Constructive (Legal) Notice: Constructive notice is a legal concept that charges the public with the responsibility to examine public records and to physically inspect property in order to proactively discover competing interests or claims on real estate. For example, recording a deed at a county courthouse provides constructive notice of ownership in the public record. Therefore, even if one lacks actual notice, they are charged with constructive notice of anything properly recorded in the public record. iii. Inquiry Notice: The law presumes notice when factors exist that would make a reasonable person inquire further, whether or not a person actually does inquire further or discover such information. Notice: EXAMPLE: If a dirt road runs across the corner of an empty lot, a prospective purchaser is expected to inquire as to the possibility of an existing easement through the lot, even though he may not have constructive notice of such an easement because it may not show up in the public record. The existence of the dirt road provides a prospective purchaser of an "actual notice" that someone may have a claim to part of the property.

Elements of the purchase agreement

In addition to the three essential contract elements (offer/acceptance, consideration, no defenses), purchase agreements commonly contain the following provisions. a. Property Description: Purchase agreements must contain either a legal (metes and bounds, etc.) or a non-legal (address) description of the subject property. b. Timing: If a purchase agreement states that "time is of the essence," then specified times are strictly enforced (closing). c. Earnest Money: Purchase agreements may, but need not, include a pledge or deposit of earnest money. Earnest money is a cash deposit that commonly accompanies an offer to purchase. It is evidence that the offeror intends in good faith to purchase the property, which may enhance the value of his offer. Subject to the parties' agreement, earnest money may be used as a down payment and/or as liquidated damages (remedy for the buyer's default).

Termination of lease contracts

Leases may terminate in a variety of ways, depending on the type of leasehold and the terms of the lease agreement. a. Expiration of the Term: Leases with a definite expiration time (tenancy for years) automatically terminate on the date specified. b. Notice: Leases that specify a definite time period (tenancy for years) expire automatically on the date specified. Periodic leases (tenancy from year to year), which renew at set intervals, will not expire automatically. Rather, periodic leases require proper notice, usually written, in order to terminate. Most state laws impose a minimum amount of notice to terminate a lease. However, most periodic leases, if in writing, specify a time period for proper notice that may lawfully exceed the minimum state law requirement. Without valid and timely notice, periodic leases automatically renew. c. Destruction/Condemnation of the Property: A lease may terminate due to the destruction or condemnation of the property because possession, use, and quiet enjoyment are the basis of, and reason for, a lease. d. Agreement: The parties may terminate a lease by agreement without penalty. If a lessee offers to surrender the lease and the lessor accepts, then the lease will terminate and the lessee will no longer be liable for rent. The parties may also agree to include a cancellation clause in a lease at the time of contracting. Such clauses may be in commercial and residential leases, as well as sales contracts. In commercial or industrial leases, cancellation clauses grant either party the right to terminate the lease upon specified conditions or the payment of specified sums of money. The money paid for cancellation is usually sufficient to cover any damages or losses that would otherwise be incurred by the non-canceling party (such as brokerage fees, amortization, and loss of rental income) e. Eviction: If either party breaches the lease contract, the non-breaching party may sue for damages or to terminate the lease (eviction). i. Eviction by Landlord: Landlord (owner) seeks court order to remove the tenant for materially breaching the lease contract (failing to pay rent). The landlord may sue the tenant for rent and any other damages.

Revocation

Like any offer, counteroffers may be revoked by the offeror at any time prior to acceptance (unless contained in an option).

Nature of Buyer-Broker Agreements

Like listing agreements, the buyer-broker agreement is between the broker and the buyer, often including a broker's salesperson as subagent.

Liquidated damages from breach of a sales contract are usually available to the:

Liquidated damages are pre-negotiated damages that are due if a party breaches a contract. In real estate sales contracts, it is common for the buyer to offer an earnest money deposit with with his offer on the property. If accepted, the buyer's earnest money is deposited into an escrow account, which will serve as liquidated damages if the buyer defaults or a downpayment on the property if the sale closes. Generally, if the seller defaults and the buyer chooses to rescind the contract, the buyer is entitled to have his earnest money returned (but not as "liquidated damages"). The correct answer is: seller, in the event of the buyer's default

Termination

Management Agreements usually exist for a definite duration and include provisions for early termination due to a specific cause.

Compensation

Managers receive either a flat fee or a percentage fee (based upon rental income received).

A buyer and a seller enter into a valid sales contract. For personal reasons, the buyer asks to be released by the seller. The buyer also locates another person to buy the property. The seller then enters into a new sales contract with the new buyer and releases the first buyer. This is most likely an example of:

Novation. A primary difference between assignment and novation is whether the original party remains liable to perform under the original contract. With novation, a new person agrees to substitute the original party and relieve the original party.

Property Manager Duties and Authority

Property Managers are in the business of leasing, managing, and maintaining property for others. Some states require that property managers be licensed as real estate brokers. Property managers typically have a general agency relationship with the property owner. This contrasts with a listing agreement, which makes the broker a special agent of the owner, as the broker is hired to complete a very specific task. The broker (or other property manager licensed or authorized under state law) should enter into a written property management agreement with the owner/client that sets forth the rights and obligations of both parties. The manager cannot exceed the authority that is specifically set forth under the agreement. Such agreements may ensure that managed properties conform to applicable laws (Fair Housing Laws, Equal Credit Opportunity Act, Lead Based Paint). In addition, most property management agreements will typically address the following duties. Collect rent, handle security deposits, evict tenant, handle and pay for repairs, hire employees, screen tenants, and negotiate leases.

Rescission/cancellation of contract

Rescission is the cancellation or termination of a contract. However, the action does not only apply to one's future obligations. Instead, a rescission brings the parties back to their pre-contract positions as if the agreement had never existed. This will usually happen: bilaterally after a mutual agreement of the parties (as a separate agreement or included as a clause in the contract); unilaterally after a substantial breach or other valid contract defense (damages may be applicable); or by operation of law. A contract may not be rescinded if the parties cannot be returned to their pre-contract positions. 1. Rescission and Cancellation Agreements: Contracts for rescission (cancellation agreement) operate to terminate a contract by mutual consent and without a breach, which returns contract parties to pre-contract positions. a. Mutual Agreement: Rescission requires the agreement (intent) of both parties to cancel the contract (or court order) without a breach. b. State and Federal Law: Under some state and Federal laws (condominium acts, TILA), purchasers have legislatively mandated rights to rescind a contract for any reason whatsoever for a limited time. These rescission periods, commonly referred to as "cooling off periods," usually run from 3 to 10 days after contracting. Rescission - EXAMPLE: The Federal Truth-in-Lending Act guarantees a rescission period in some financial transactions, as do some state time-share and condominium laws. 2. Impossibility: Contract defense which, if established, excuses a party from performing under an otherwise binding contract when the party can no longer legally perform as agreed (performance must be rendered literally impossible, as in destruction of a home by fire under a purchase agreement). Impossibility - EXAMPLE: Two parties agree to close on a house within a specified period of time. However, prior to closing, the house is destroyed by fire. Even though there is a valid sales contract in place, the buyer is no longer required to complete closing because it is impossible for the seller to perform (produce the home).

Termination of Buyer-Broker agreements

Similar to the listing agreement, the buyer-broker agreement could be terminated under a number of circumstances short of full performance, including: abandonment by the broker (broker fails to take any steps to find suitable property for the buyer); breach; lapse of time (time specified in agency agreement or by state law expires); mutual agreement; death, insanity, or bankruptcy; and revocation.

If a buyer defaults on a valid sales contract, which performance remedy is available to the seller?

Specific performance, monetary damages, and liquidated damages are all potential remedies for breach of a sales contract. However, the question asks you to identify "performance" remedies.

If a buyer defaults on a valid sales contract, the seller may have which of the following performance remedies?

Specific performance, monetary damages, and liquidated damages are all potential remedies for breach of a sales contract. However, the question asks you to identify "performance" remedies. Specific performance is the only performance-related remedy in the answer choices. Specific performance requires the breaching party to perform as he agreed. The correct answer is: specific performance

Types of Buyer-Broker agreements

State custom and law may vary. a. Open Buyer Agreaement: An open buyer agreement is the counterpart to an open listing. It's an agency relationship between a prospective buyer and a real estate broker which, like an open listing agency, permits any number of agents to be compensated depending on who first brings a suitable property to the buyer's attention. In this case, the buyer is only obligated to compensate the broker who produces a property that the buyer actually purchases. b. Exclusive Buyer Agreements: Exclusive buyer agencies usually appear in two types: the exclusive agency buyer agency and the exclusive buyer agency. i. Exclusive Agency Buyer Agency Agreement: An Exclusive Agency Buyer Agency is an agency relationship between a prospective buyer and a real estate broker where the buyer is only obligated to compensate the agent if the agent locates suitable property—the buyer is not obligated to compensate the agent if the buyer finds suitable property on his own or through another agent. Exclusive agency buyer agency is the counterpart to the listing agreement known as the exclusive agency listing agreement. ii. Exclusive Buyer Agency Agreement: An Exclusive Buyer Agency is an agency relationship between a prospective buyer and a real estate broker, which obligates the buyer to compensate the agent if the buyer purchases property similar to that described in the contract, regardless of whether the buyer discovers the property on her own or through another agent. Exclusive buyer agency is the counterpart to the listing agreement known as the exclusive right-to sell-contract.

The buyer-broker agreement that is most similar to the exclusive right-to-sell contract is:

The exclusive buyer agency agreement is the counterpart to the exclusive right-to-sell listing agreement. Meanwhile, an exclusive agency buyer agency agreement is most similar to the exclusive agency listing agreement. An open buyer agreement is the counterpart to an open listing. Exclusive right-to-market is sometimes used as a synonym for exclusive right-to-sell. However, that is still a listing and not a buyer-broker agreement. The correct answer is: exclusive buyer agency agreement

Owners Duties

The owner is responsible for reimbursing the manager for any and all expenses. The owner is also responsible for indemnifying a manager against lawsuits involving the exertion of the manager's duties.

Parties to the purchase agreement

The parties to a purchase agreement are the buyer and the seller, also known as the vendee and vendor. The vendee is the buyer and the vendor is the seller.

A buyer and a seller enter into a valid sales contract. The buyer asks to be released for personal reasons, but locates another person to buy the property. The seller enters into a new sales contract with this other person and releases the first buyer. This is most likely an example of

The primary difference between assignment and novation is whether the original party remains liable to perform under the original contract. With novation, a new person agrees to substitute for the original party and relieve that person from liability (a new contract arises that replaces the old contract). With assignment, a new party agrees to receive the rights and responsibilities that the original party possessed, without relieving the original party of liability (the old contract remains intact and a new party is added). The correct answer is: novation

When a seller makes a counteroffer, which of the following statements is NOT true?

There is no such thing as a partial acceptance--you either accept the offer or make a counteroffer. The seller has, in fact, obligated herself by making a counteroffer, although she is free to withdraw prior to acceptance. This is why offers should not be taken lightly! The correct answer is: it is a partial acceptance of the original offer

Role of the Parties

Under a counteroffer, the roles the initial offeror and offeree are reversed—the seller becomes the offeror and the buyer becomes the offeree with respect to the seller's counteroffer. Often, the offer to purchase is not the only offer exchanged between the buyer and the seller. The seller may make a counteroffer, the buyer may make a counteroffer to the seller's counteroffer, and so on. Agents MUST submit all offers/counteroffers to their clients, regardless of the offer/counteroffer's terms and regardless of whether another offer has already been accepted.

Option contracts

Under an option contract, a buyer (or lessee) contracts with a seller (or lessor) for the exclusive privilege (but not obligation) of accepting an offer at a specified price for a specified period of time. a. Option Contract Elements: Option contracts must contain the three (3) essential contract elements (offer/acceptance, consideration or money, and lack of any defenses), along with a specified price, the date the option will expire, and a description (legal or non-legal) of the property. If exercised, the option contract becomes the purchase agreement (or lease). b. Unilateral Contract: Option contracts are unilateral (single party promises to perform under specified conditions). Technically, the promise or obligation in a unilateral contract is only a unilateral offer because there is no meeting of the minds unless or until the second party decides to accept the offer by performing. c. Compared to Right of First Refusal: Under a right of first refusal, a buyer (or lessee) contracts with a seller (or lessor) for the exclusive privilege of accepting an offer when and if the seller makes one. Unlike an option contract, a right of first refusal creates no obligation to make an offer. That is, a lessor is not obligated to lease and a seller is not obligated sell until or unless an offer is made. c. Compared to Right of First Refusal: Under a right of first refusal, a buyer (or lessee) contracts with a seller (or lessor) for the exclusive privilege of accepting an offer when and if the seller makes one. Unlike an option contract, a right of first refusal creates no obligation to make an offer. That is, a lessor is not obligated to lease and a seller is not obligated sell until or unless an offer is made.

Broker Sam lists a house and sells it 2 months into the listing period. After closing, Sam tries to collect his commission, but the seller refuses and correctly asserts that he has no legal obligation to pay. What type of listing did Sam have?

With a net listing (which is illegal in most states), the seller specifies the NET amount that he must receive and the broker gets anything over and above that amount. If the sold property did not give the seller his specified net, then the broker would not be entitled to a commission (even though he sold the property). In all of the other listings, a commission would be due if the broker sold the property. The correct answer is: net listing

Under the typical lease, landlords are legally obligated to provide tenants all of the following EXCEPT:

Your answer is correct. The typical lease transfers the right to possess the premises for a limited time (leasehold period) through a covenant of quiet enjoyment. Therefore, you may eliminate choices B and C. Typical leases also include the implied warranty of habitability, the breach of which could result in an action for constructive eviction. However, the tenant may not use the property for an illegal purpose, even if the landlord and tenant so negotiate (the contract would be void). Therefore, choice D is the BEST answer. The correct answer is: use of the premises as the tenant and landlord negotiate

Terminating purchase agreements

a. Breach by Buyer: Like any contract, either party may breach a purchase agreement. The buyer, for example, breaches a purchase agreement by failing to purchase the real estate as agreed. Generally, purchase agreements specify available remedies in the event of a breach. The most common remedy for the buyer's breach is the forfeiture of her earnest money deposit. The buyer's earnest money deposit usually represents agreed upon liquidated damages. Where a remedy is not specified in the contract or the remedy is not limited to liquidated damages alone, the seller may sue the buyer for "benefit of the bargain" or for specific performance. Specific performance forces the buyer to carry through with the sale as agreed. b. Breach by Seller: If the seller defaults on the contract, the buyer can terminate the contract and force the seller to return his earnest money. If there are no provisions for liquidated damages, the buyer may also sue for any actual damages or for specific performance, which forces the seller to sell the property as agreed. While specific performance is not an available remedy for a breach of personal service contract, specific performance is common with real estate transactions because all real estate is unique (money may be inadequate to remedy a breach). c. Death of Either Party: The death of either party to a purchase agreement will NOT cause it to terminate. In the event of a death, the deceased party's estate is obligated to perform under the terms of the sales contract.

Methods of Formation

a. Oral: Contract arising from spoken promises. A contract does not always need to be in writing—the basic elements of contract formation may be satisfied orally. However, oral contracts may be more difficult to prove in the event that the parties turn to a court for enforcement. Further, contracts for the sale of real estate and leases for longer than one (1) year must be written (cannot be oral) due to the statute of frauds. b. Express or Implied: Terms and conditions may be either expressly stated or written, or implicit (source of disputes) from the nature of the contract or service. c. Unilateral/Bilateral: Contracts may also obligate one or more persons to perform a task, depending upon whether it was created unilaterally or bilaterally. For example, contracts may be unilateral (obligating only one party to act) or bilateral (obligating both parties to act). A contract is unilateral when one party promises to perform without first receiving a promise to perform from the other party (promise of a reward for specified action). i. Unilateral: Contract where a single party promises to perform under specified conditions. Technically, the promise or obligation in a unilateral contract is only a unilateral offer because there is no meeting of the minds unless or until the second party decides to accept the offer by performing. A common example of a unilateral contract is the promise to provide a reward in exchange for specified conduct ("$50 reward for the return of my dog"). Unilateral - EXAMPLE: Jon lost his dog. Jon posts a sign around town stating that he will pay $100 to anyone who finds and returns his dog. Jon's offer may only be accepted by performance—that is, someone only has a contractual right to the $100 after they find and return the dog. ii. Bilateral Contracts: Contract where both parties make promises of performance. That is, one party makes a promise in terms of an offer, and the other party makes a promise in terms of an acceptance of that offer. The typical real estate sales contract is an example of a bilateral contract (promise to sell and promise to pay). ​ Bilateral - EXAMPLE: Bilateral real estate-related contracts include the real estate sales contracts, where the buyer promises to buy and the seller promises to sell property. ​

Performance Obligations

a. Performance: Once a contract arises (offer/acceptance, consideration, lack of defenses), the obligation to do (or perform) what was agreed to may be controlled by additional factors. These additional factors may govern one's obligation to perform.

A purchaser receives equitable title to real estate:

by signing a valid sales contract on the property . Correct answer. Equitable title is conveyed to the buyer when the seller signs the offer to purchase, thereby creating a sales contract. After closing and accepting the deed, the buyer receives legal title.

Nature of lease contracts

c. Statute of Frauds: Oral surrender agreements are usually valid and enforceable if the unexpired lease term is for one year or less. However, if the unexpired term is longer than one year, the agreement must be in writing in order to be enforceable and to not violate the Statute of Frauds.

the buyer-broker agreement that is most similar to the exclusive right-to-sell contract is an:

exclusive buyer agency agreement . Correct answer. The exclusive buyer agency agreement is the counterpart to the exclusive right-to-sell listing agreement. Meanwhile, an exclusive agency buyer agency agreement is most similar to the exclusive agency listing agreement.

Contract Clauses Cont'd

g. Property Condition: Most contracts provide that, at the closing date, the property will be in substantially the same condition as on the date the parties first signed the contract (normal wear and tear excepted). ​ h. Prorations: Any item that will be prorated (adjusted) between the parties at settlement date (property taxes, utilities, special assessments, HOA fees) should be set forth in a prorations clause. ​ i. Risk of Loss: This clause usually provides that the seller bears the risk of loss due to fire or other casualty that occurs during the executory period of the contract. j. Survival/Merger: Under the law in many states, the promises and obligations in the contract are "merged" into the deed of conveyance and do not survive settlement. This means that if the other person does not fully perform, but a party still accepts the property at settlement, he cannot later insist on full performance. (Example: In a contract with a merger clause, a seller promises to deliver the house with newly painted shutters, but the seller does not paint the shutters. The buyer accepts the house at settlement without objection or attempt to get a credit/reduction in price for the cost of painting. After settlement, the buyer cannot sue the seller for the cost of painting the shutters.) The parties can circumvent the merger doctrine through a contract clause that allows the promises and obligations to "survive" closing. k. Time is of the Essence: As a general rule, time limits in contracts imply "reasonable time" and are not strictly enforceable. Example: A closing date that is set for July 15 means July 15, or a reasonable time thereafter. Most parties prefer the dates in a real estate contract to be enforced strictly so they include a "time is of the essence" provision. This phrase may appear in a contract, and means that the parties have agreed on a definite time for performance. A party will breach the contract unless performance is rendered by the exact time specified. For example, if the parties specify a closing date and time as "November 3, 2009, at 12:00pm," and further specify that "time is of the essence," then a party who arrives to the closing at 12:05pm is in breach of the sales contract. l. Title: This provision addresses the quality of title that the seller must deliver (marketable title; insurable title), the interest being conveyed (fee simple), and the title warranties that the seller will make in the deed (general warranty, special warranty). The title clause usually allows the seller to extend the settlement date for a specified time period to correct (if he can) any title defects revealed during the buyer's title search. If the title defects cannot be corrected, the contract is voidable at the option of the buyer. Most title clauses state that the purchaser is willing to accept common easements and restrictions recorded in land records.

Performance obligations: When parties must perform

i. Executory/Executed: Contracts are executory when the parties reach an agreement, but have yet to perform (sales contract). Contracts are executed when they have been fulfilled (closing). The contract may be transferred or assigned to a person other than the original party to the agreement. ii. Conditions: Contracts may contain various conditions, or contingencies. A condition is an event which may not be certain to occur, but which must occur before performance under a contract is due. The presence of conditions is often indicated by words such as "if", "when", "unless", or "provided". If a condition fails to occur, the parties are usually not entitled to damages because conditions are merely limitations — they do not create obligations. A condition can be almost any event and may be left to either party to execute. Conditions - EXAMPLE: Conditions that parties may impose include the following: (1) a lessee may operate the leased premises as a restaurant, provided he first obtains the necessary parking variance; or (2) a buyer agrees to buy the property, contingent upon obtaining the necessary financing. Condition - EXAMPLE: A homeowner may condition payment for painting his house on his satisfaction with the paint job. Also, an insurance company may condition payment of a claim on the claimant furnishing proof of the loss. In these examples, there is a valid contract, but one or another party is not obligated to perform unless or until the condition or conditions are satisfied. iii. Timing: When no time is specified, the law will imply a reasonable time to perform. When a contract states that "time is of the essence," specified times are strictly enforced (closing). 1) Time is of the Essence: Phrase that may appear in a contract, which means that the parties have agreed upon a definite time for performing and a party will breach the contract unless performance is rendered by the exact time specified. For example, if the parties specify a closing date and time as "November 3, 2009, at 12:00pm," and further specify that "time is of the essence," then a party who arrives to the closing at 12:05pm is in breach of the sales contract. However, if a contract does not contain the phrase "time is of the essence," the law will impose some reasonable time. "Reasonable" is what may be fairly allowed and required considering the nature of the act to be performed. Timing - EXAMPLE: If a sales contract provides a specific closing time and date, and further states that "time is of the essence," then both parties must be prepared to perform at the time and date specified or the contract will be breached and may terminate.

Listing agreements: Nature of listing agreements

i. Expiration: State laws may require a specific termination date or impose a reasonable period of time if unstated in the agreement ii. Compensation: Real estate agents (brokers) generally earn payment (commission) upon one of two events: when the agent (broker) produces a ready, willing, and able buyer; and when the agent (broker) is the procuring cause of any sale or purchase. 1) Ready, Willing, and Able: Phrase describing a buyer who has made an offer consistent with the terms of a listing agreement, and who has the motivation and financial ability to perform. Such offers trigger the listing broker's right to a commission. If a broker hired by a seller obtains a buyer who makes an offer and has sufficient financing to carry through with the transaction, that broker earns a commission regardless of whether the seller carries through with the sale 2) Procuring Cause: An agent (broker) earns compensation (commission) if the agent (or his subagent, salesperson) is the procuring cause of the sale. In the event of a dispute over who produced a ready, willing, and able buyer, it is important to determine which broker was the procuring cause of the sale. However, determining which broker is the procuring cause of a sale can be difficult. Under most state laws, the question rests upon whether the broker "set in motion a chain of events which, without break in continuity, resulted in a sale or lease." iii. Oral Listing Agreements: Listing agreements may be oral (the statute of frauds does not apply); however, state laws may vary (must be in writing in Virginia). iv. Disclosures: Most state laws require the agent to make certain disclosures about the nature of the proposed agency relationship before the agency begins. v. Fiduciary Duties: Regardless of the type of agency relationship or the type of agent, the parties owe various rights, responsibilities, and duties to each other and to the relationship in general. These duties promote a relationship of confidence and trust, which are essential to effective agency representation. Violating a fiduciary duty could subject the agent to a legal action for damages caused by the breach of trust or, in the case of a real estate agent, disciplinary action by the State licensing authority. An agent owes certain duties while representing the client, and other duties after the representation concludes. Like most other agencies, listing agreements impose a series of duties on the agent. In particular, note that the principal has the sole discretion to select the listing price and to accept or reject any offer (special agents must submit all offers to the principal). i. Open Listing: Agency agreement between a seller and any number of brokers, wherein the seller promises to compensate the broker if the broker sells the property. Under an open listing contract, the owner is only obligated to pay a commission to a broker if she successfully sells the property or was the procuring cause of the sale. As an alternative, the owner may sell the property himself and owe no commission to any broker. The open listing contract may be oral or written, but it is unilateral (obligating only one party—the broker—to act), executory (will not arise unless or until a particular broker produces a buyer), and may have an indefinite expiration date. However, many state laws impose an expiration date if one is not explicitly stated. ii. Exclusive Listing: An exclusive listing is a listing agreement between a seller and a single broker (the exclusive agent) which, for a limited time, provides the listing broker with rights to a commission if the property is sold. 1) Exclusive Agency: A listing agreement where the seller agrees to pay the exclusive agent a commission if he or she sells the property, and if any other broker sells the property as well. However, similar to the open listing agreement, the owner may sell the property himself and not be obligated to pay a commission to the broker. Unlike open listing agreements, exclusive listing agreements must be written, are bilateral (obligating both parties), for a personal service (it cannot be assigned), and must have a definite expiration date. Exclusive listing agreements are also executory (will not arise unless or until a particular broker produces a buyer). 2) Exclusive Right-to-Sell: Similar to an exclusive agency, except this listing agreement extends the greatest benefit (broadest opportunity for a commission) to the broker. This is true because the seller/client agrees to list the property with a single broker (exclusive agent), and also agrees to pay that broker her commission regardless of who sells the property (another broker or even the seller himself). An exclusive right-to-sell must be written, is bilateral, executory, for a personal service, and must have a definite expiration date. iii. Net Listing: Agency agreement between a seller and a real estate broker, whereby the seller/client hires the broker to locate a buyer and also agrees to compensate the broker with the difference between the actual sales price and some set amount of money. Under a net listing agreement, the broker is free to sell the house for as much as he can get and keep all monies above an amount set by the owner. Net listing agreements are illegal in most states. Net listings include net sales agreements as well as net lease agreements. Net Listing - EXAMPLE: An owner tells his real estate agent that he wants $600 a month for the rental of an apartment he owns. The owner agrees to let the agent rent it for whatever he can get, keeping everything over $600 as his commission. This arrangement is known as a net listing, which is illegal in most states. c. Terminating Listing Agreements: Like any other agency agreement, in addition to full performance, listing agreements may terminate upon the following: abandonment by the broker (broker fails to take reasonable steps to sell the property); breach (a party fails to perform as promised); lapse of time (time specified in the listing agreement or state law lapses); mutual agreement; revocation; death, insanity, or bankruptcy; change in ownership of the subject property; and destruction of the subject property. d. Multiple Listing Service (MLS): Organization of brokers (local or regional) who formally exchange listing information about real estate. The MLS exposes listed real estate to a variety of brokers, who in turn may present the listing to a variety of buyers. The seller lists his home with one broker who assumes primary agency responsibility for selling the property. The listing agent then adds the listing to the MLS with the seller's permission. Today, many MLS systems are at least partially accessible to the general public through the Internet i. Listing Agreements: Properties listed in an MLS database are usually under an exclusive right-to-sell listing between the seller and an individual member broker (other member brokers treated as subagents of the seller). ii. Commissions: Most MLS associations require the listing broker to split his or her commission with any member broker who is the procuring cause of sale.

termination of lease contracts

ii. Eviction by Tenant: The tenant may sue the landlord for constructive eviction. Constructive Eviction is when a tenant vacates leased premises without liability for rental payments because the landlord's action, or lack of action, renders the leased premises uninhabitable. In order to avoid liability, the tenant must vacate the premises promptly, and must be able to prove that the premises were indeed rendered uninhabitable (such as lack of heat, electricity, water, fire, or floods). The tenant's duty to pay rent is not terminated if the tenant remains in possession of the premises, or if a court determines otherwise. f. Abandonment: If a lessee abandons the leased premises without formal surrender and acceptance, the lease terminates and the lessor regains full possession and control of the premises. However, the lessee remains liable for any past or future rent until the lease expires.

When a seller makes a counteroffer, which of the following statements is NOT true?

it is a partial acceptance of the original offer . Correct answer. There is no such thing as a partial acceptance—you either accept the offer or make a counteroffer. The seller has in fact obligated herself by making a counteroffer, although she is free to withdraw it prior to acceptance.

Defenses Cont'd

iv. Misrepresentation (False Pretense): False statement or a concealment of a material fact that is unintentionally asserted. Unlike fraud, misrepresentations may be innocent and unintentional. However, depending upon the circumstances and magnitude, even an unintentional misrepresentation may be sufficient basis to render a contract void or voidable. A primary consideration in determining the effect of a misrepresentation is a person's degree of knowledge, skill, and experience. Persons are held to various standards depending on their profession or experience. Misrepresentation: EXAMPLE: Consider the representation, "This house is really built well, and the foundation is particularly solid." A year later, the house settles so badly that extensive repairs are needed to correct the problem. Whether someone has made a misrepresentation turns on who made the original statement: (1) If a seller made the statement, he or she would not likely be liable if, at the time the statement was made, the foundation appeared to be in good shape—sellers are not expected to have special knowledge about construction; (2) If a salesperson made this statement, he or she may be liable for damages and could have their license suspended or revoked (even if the misrepresentation was innocent) if a court concludes that they should have known about the faulty foundation, or should have found out about the faulty foundation before making the statement; (3) However, if the builder made this statement, he would likely be liable for misrepresentation or even fraud. v. Estoppel (Promissory Estoppel): Legal doctrine that stops, or prevents, a person from canceling a contract, despite certain deficiencies. Estoppel relies on the judicial interpretation of fairness (Equity). As such, it can be difficult to predict whether a court will apply the doctrine of estoppel. Generally, estoppel arises where a party to a contract is aware that the other party is relying on them to perform as agreed, even though there may be deficiencies that would otherwise prevent a valid contract from being formed (such as a lack of consideration or failure to reduce the agreement to writing). Where a party so relies and suffers some harm as a result, a court may apply the doctrine of estoppel and rule that a contract exists despite deficiencies with the basic elements. ​

Broker Sam lists a house and sells it 2 months into the listing period. After closing, Sam tries to collect his commission, but the seller refuses and correctly asserts that he is not legally obligated to pay. What type of listing did Sam have?

net listing . Correct answer. With a net listing (which is illegal in most states), the seller specifies the NET amount that he must receive and the broker gets anything over and above that amount.

A 19-year-old inherits property from his grandfather and immediately enters into a contract to sell it. Can he later refuse to sell the property?

no, the contract is valid and binding on all parties . Correct answer. A 19 year old is a legal adult with the capacity to contract. Therefore, based on the limited information provided in the question, the best answer is that the contract is valid and binding.

A listing agreement will automatically terminate:

on the date specified in the listing agreement . Correct answer. The only true statement is that a listing agreement will terminate on the date specified in the agreement. There are other reasons why a listing would terminate, but they are not offered as answers.

Buyer-broker agreements could be:

oral, executory, and unassignable

Which item returns the parties to their original position?

rescission . Correct answer. A rescission or cancellation agreement is an agreed upon remedy in a contract that allows parties to terminate under specified conditions. Rescission allows the parties to return to their original positions from before contracting.

Liquidated damages from breach of a sales contract are usually available to the:

seller, in the event of the buyer's default . Correct answer. Liquidated damages are pre-negotiated damages that are due if a party breaches a contract. In real estate sales contracts, it is common for the buyer to offer an earnest money deposit along with his offer on the property.

Under the typical lease, landlords are legally obligated to provide tenants all of the following EXCEPT:

use of the premises as the tenant and landlord negotiate . Correct answer. The typical lease transfers the right to possess the premises for a limited time (leasehold period) through a covenant of quiet enjoyment. Therefore, you may eliminate choices 2 and 3.

Vernon presents an offer to a seller with the provision that it must be accepted within 72 hours. Under which of the following circumstances would the offer terminate?

vernon dies before the seller accepts the offer, the seller resubmits the offer with a minor change as to settlement date, the seller proposes to wait a week before acceptance. If Vernon dies before the seller accepts the offer, there is no contract. Both resubmitting an offer with a different settlement date, and proposing to wait a week before acceptance, are counteroffers.

Vernon presents an offer to a seller, with a provision that it must be accepted within 72 hours. Under which of the following circumstances would the offer terminate?

vernon dies before the seller accepts the offer, the seller resubmits the offer, with a minor change to the settlement date, the seller proposes to wait a week before acceptance. If Vernon dies before the seller accepts the offer, there is no contract. Re-submitting the offer with a different settlement date, and proposing to wait a week before acceptance, are both counteroffers. Counteroffers are new offers that terminate the original offer. The correct answer is: all of the above would terminate the offer

Defenses Cont'd

vii. Illegality: If established, results in a void contract—courts cannot be called upon to enforce contracts which require one to break the law. viii. Duress: Contract defense where one is coerced into entering a contract by physical or threatening behavior. Such 'gun to the head' behavior does not result in a meeting of the minds. Therefore, such contracts are void from their inception and no action need be taken to render them so. Illegality: EXAMPLE: Contracts for murder or contracts to purchase illegal goods or services are void and unenforceable.