Real estate contracts

Buyer-Broker Agreements

C. BUYER-BROKER AGREEMENTS (cont.). agreements, but each should clearly There are different buyer-broker specify: the services to be offered, the and how, when, and by to represent a buyer is an oral or agreement (not assignable) that may not require written, bilateral or whom the broker is to be responsibilities of the parties, compensated. An agreement executory, personal service expiration date. However, in the absence of a specific expiration be for reasonable period of time (often set by state law). date, the agreement 1.Nature of Buyer-Broker agreement is between associate subagent. the broker and the buyer, often Agreements. Like listing agreements, the buyer-broker including a broker's sales

Real Contracts: Learning Objectives

Compare buyer-broker agreements to their listing equivalents Understand the steps to form a valid purchase agreement Understand the negotiation Understand the purpose of an option contract Understand the advantages and disadvantages of an installment sales contract Understand how to terminate a contract by rescission Understand the importance of disclosing material facts Identify disclosures required by Florida law

Real Estate Contracts: Learning Objectives

Compare buyer-broker agreements to their listing equivalents Understand the steps to form a valid purchase agreement Understand the negotiation process Understand the purpose of an option contract Understand the advantages and disadvantages of an installment sales contract Understand how to terminate a contract by rescission Understand the importance of disclosing material facts Identify disclosures required by Florida law

Contract Conditions

Conditions: EXAMPLE: A homeowner condition payment for painting his house on satisfaction with the paint job. Also, an insurance claim on the claimant furnishing proof of the loss. In these examples, there company may condition payment of contract, but one or another party is not condition or conditions are satisfied obligated perform or until the

Installment Sales Contracts

Contract (cont.). Thus, the installment sales contract contains elements ofboth a sales contract and a financing instrument (like mortgage). Because the installment sales con tract acts as a sales con tract, a financing instrument, and a promise of a deed, it should be recorded to protect the buyer. Typical sales contracts are not generally recorded, unless there is an unusually long between signing the agreement and closing.

Contract Clauses

Contract Clauses -f.Notice. There are 3 types of notice (cont.): charges the public il. Constructive (Legal) Notice: Constructive notice legal concept physically inspect public records and to interests or claims on real estate. For example, courthouse provides constructive with the responsibility to examine property in order to proactively discover competing recording deed coun ty notice of ownership in the public record. notice, they are charged with properly recorded the public record. Therefore, ifone lacks actual constructive notice of anything notice when factors exist that would does inquire ill. Inquiry Notice: The law presumes make a reasonable person inquire further whether further or discover such in formation. or not a person actually

Contract Clauses

Contract Clauses 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 first signed the con tract, (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 to fire or other casualty that occurs during the executory period of the contract.

Incompetency

Contract Elements d. Defenses (cont.) . ii.Incompetency (cont.) ) Minors ( cont . ) a) Timing of Rejection: The minormust reject (disaffirm) contract within a reasonable time of becoming an adult, or the contract will be binding. b) Necessities: The contracts ofminors for certain necessities (food, clothing) are neither void nor voidable (obligates the minor, case by case detemination by a court under specific facts)

Death ofthe Parties

Contract Enforcement - c. Death of the Parties. The death of party may impact contract follows: i.Offers: The death or insanity ofeither party prior to acceptan ce will terminate an offer. This is true because subsequent formation of a contract, acceptance of an offer; and requires a meeting of the minds. A exactly what they have promised arise, contracts survive the death meeting of the minds is one way to say that the parties both understand to do ornot to do. However, once they ofeither party. In such cases, the estate of to perform on behalf does not terminate an existing that has not been accepted. of the deceased. While contract, the death deceased party is obligated the death of either party ofeither party does terminate an offer ii. Personal Service Contracts: listing agreement) do not survive perform because a personal service is unique Personal service con tracts the death of the party obligated to (such as a

Statute of Limitations

Contract Enforcement b.Statute of Limitations. State laws that establish to bring a legal action, including an action to enforce a time limits on one's ability contract. Ifa lawsuit is beyond the limitations period, courts filed to seek en forcement ofa contract will not hear the suit. These laws are limiting liability. Time periods differ by state and topic. intended to facilitate commerce by

Statute of Frauds

Contract Enforcement. Some contracts be unen forceable for reasons identified below a. Statute of Frauds. State laws based on common certain contracts be in writing order to be en forceable: law, which require that Sale of Land: The statute of frauds requires that all real estate contracts transfer any ownership interest in the sale transfer of land, enforceable. result, courts will land for longer than one (i) year: be in writing and be signed in order to be not en force oral con tracts for the sale of land even if otherwise valid (that is, even if they con tain the essential contract elemen ts) ii. must be written Long-Term Leases: and signed, As an in terest in land, a or it is un en forceable. long-tem lease (over 1 year) ili. Short-Term Leases: A short-tem rule and need notbe written (oral short lease (1 year or less) is an term leases are en forceable). exception to

Priority of Multiple Counteroffers

Counteroffers. A seller If the seller makes who gets multiple offers must multiple coun teroffers to acceptances (and would be legally bound 4. Priority of Multiple counter only one offer at a time. multiple buyers, the seller risks multiple to sell the property to more counteroffer terminate, she can respond to another offer provided the offer has not than one buyer). Ifnegotiations on the seller's chosen been withdrawn or expired pursuant to its terms.

Drafting Purchase Agreements

Drafting Purchase Agreements. Almost all states unauthorized practice of law. In the law includes drafting contracts like purchase brokers to assist and advise purchase agreemen ts (for attomey brokers who otherwise) may be prosecuted minority of states deviate may generally not charge an extra fee. assist and advise draft real example, Florida's estate-related contracts on behalf of another agreements. However most clients in completing majority of states have laws that prohibit the (national view), practicing including real estate-related states do permit standard fill-in-the-blank FR/BAR form). In most con tracts (sales con tract or states, non for engaging in the unauthorized from this general rule. Even where clients with standardized fonms so long as they do non-attomey practice of law.A prohibited, licensees

Counteroffers

E.COUNTEROFFERS/MULTIPLE COUNTEROFFERS. Counteroffers are new offers that terminate preceding offer. 1. Nature of arises when change to the offer Counteroffers. A counteroffer presented by the offeror: the old offer. However there is no sales con tract the other's offer The new offer offeree proposes any replaces and terminates until or unless one party accepts 2. Revocation. prior to acceptance Like any offer, coun teroffers may be (unless contained in an option) revoked by the offeror at any

Timing

FL-Contracts ming: EXAMPLE: Ifa sales contract provides specific closing time and date, and rther states that "time is of the essence, "then both parties must be prepared to perform t the time and datespeilfed or the contract will be breached and may terminate.

Fraud

Fraud Factum: EXAMPLE: Sara Jones is contacted by a sales associate from the Heavenly Habitat subdivision and told that she has two-bedroom house. Sara loves the house and wheri she is asked to sign a letter ofendorsement for the subdivision. she does so gladly Later Sara finds out that rather than actually winning a house, she has Furthermore the letter ofendorsement 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.

Rescission/Cancellation of Contract

H. RESCISSION/CANCELLATION termination of a contract. obligations. Instead, rescission brings the parties However the action OF CONTRACT. Rescission is the cancellation or does not only apply to one's future to their pre-contract had never existed. This will usually happen: bilaterally (as a separate agreement or included as a after a substantial breach or other valid contract of law. A contract may not be pre-contract positions. positions the agreement after a mutual agreement of the parties clause in the contract); unilaterally defense (damages may be applicable): or by operation rescinded if the parties cannot be retumed to their

Installment Sales Contracts

Installment Sales Contract. An 1. Nature of an known as an Agreement similar in some ways to the executory, and assignable for Deed. a "Land typical sales contracts that bind contract. contract for sale assignees and heirs. mortgage) and price is paid in full (usually payment ofall or a where the purchase title is tran sferred at portion of the sales price, completes all payments. The purchase closing, an installment Contract" or a installment sales contract, also "Contract for Deed." is They are written, bilateral, However; unlike a through a sales contract defers with the seller un less price is often paid in balance due at a later or until the buyer and title remains installments date (maturity). over the period of the Only after the payments must the seller (also buyer (also contract, with the final known as the known as the vendor) deliver the title vendee) completes all

Procuring Cause

Listing Agreements - a. Nature of Listing Agreements (cont.) ii. Compensation (cont.) (commission) if the 2) Procuring Cause: An agent (broker) eams compensation his subagent, sales associate) is the procuring cause of the sale. In the event of a dispute over who produced a ready, willing, and able buyer it is which broker was the procuring cause of the sale. However determining broker the procuring difficult. Under most state laws, the question "set in motion a chain of events which, without break in important to determine cause of a sale can be rests upon whether the continuity, in a sale lease."

Exclusive Listing Agreements

Listing Agreements - b.Types of Listing Agreements ii. Exclusive Listing (cont.) 2) Exclusive exclusive agency, except that opportunity for a commission) seller/client agrees to list the agent), and this listing agreement Right-to-Sell: Similar to an extends the greatest benefit (broadest to the broker This is true property with a single broker (exclusive broker her commission regardless the seller himself) written, is bilateral, executory, for a because the ofwho sells the agrees to pay that property (another broker or even exclusive right-to-sell must be personal service, and must have definite expiration

Net Listing Agreements

Listing Agreements 4 b.Types of Listing Agreements (cont.) seller/client hires the broker agreement between a seller and a real estate locate a buyer and /ii. Net Listing: Agency broker, whereby the also agrees to compensate the broker actual sales price and some set agreement, the broker and keep all monies above an amount agreements amount of money. is free to sell the house with the difference between the Under net listing for as much as he can get Net listing states (but set by the owner. not in Florida). as well as net lease agreemen include net sales are illegal in most agreements Net listings Net Listing: for the rental of an whatever he his real The owner known as a net EXAMPLE: An owner apartment he tells owns. get, keeping everything listing, which is illegal most states over $600 as his commission. age nt rent it for This a rrangement estate agent agrees to let that he the wants $600 a month

Johnson v. Davis

Mandatory Contract Disclosures Defects (cont.) rain, Mrs. Davis entered the home and discovered water "gushing" i.Johnson v. Davis (1985) (cont.). Several days later, following a heavy the window frame, the ceiling of the temporary because the roofwas "slipping," and that only roofcould found that the roofwas in herently defective, that any repairs would be glass doors, and the stove in the kitchen. Three the Davises family room, the light fixtures, the "watertight."

Bilateral Contracts

Methods of Formation Unilateral/Bilateral (cont.) performance. ii. Bilateral Contracts: Contract That is, one party makes a promise in terms of an makes a promise where both parties make promises of in terms of an offer, and the other party The typical real estate (promise to sell and promise to pay). sales contract example acceptance of that offer bilateral con tract Bilateral: EXAMPLE: contracts, where the buyer Bilateral real promises to buy estate-related contracts and the seller promises to sell property include the real estate sales

Contract Formation

Methods of Formation a.Oral. Contract arising from spoken promises. A contract does not always need to be in writing-the basic elements ofcontract formation may be event that the parties turn sale of real estate and leases for orally. However, oral contracts may be more difficult to prove in the to a court for en forcement. Further contracts for the longer than (1) one year must be written (cannot be oral) due to the statute of frauds. b. Express or Implied. Terms and conditionsmay written, implicit (source of disputes) from the nature of the contract or be either expressly stated or service

Misrepresentation

Misrepresentation: EXAMPLE: Consider the representation, "This house is really built solid."Ayear later, the house settles so badly that well and the foundation is particularly extensive repairs are needed to correct the problem. Whether someone has made misrepresentation turns on who made the original statement: (1) Ifa seller made the statement he or she would not likely be liable if at the time the statement foundation appeared to be in good shape sellers are not knowledge about construction liable for damages and could have their (2) If a sales associate expected to have special made this statement, he or she may (even if the misrepresentation was innocent) ifa court the faulty foundation, or should making the statement: (3) However have found out concludes that they should have known about about the faulty foundation before liable for misrepresentation fraud. if the builder made this statement, he would likely be

Property Disclosure Forms

Misrepresents Property Condition. If the property form contains a knowingly false or incomplete statement, seller may be liable to buyer result of that misrepresentation. Although the primary respon sibility for full disclosure seller, the disclosure forms themselves do replace licensee's facts related to the property. Therefore, responsibility to disclose known material knows of defect that the seller refuses or fails to disclose, the licensee must disclose such in formation.

Mistake

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 void or voidable contract, and is NOT an example of mistake.

Purchase Agreements

Nature the Purchase Agreement - c. Equitable Equitable Title. A purchase title is a limited ownership agreement conveys equitable interest that conveys the title to the buyer: right to receive purchase agreement received legal title after closing. legal title upon full performance. For example, transfers equitable title to the buyer: The buyer only when signed by both parties, a Closing. Point in time third person in exchange for the buyer's when the seller tenders title to the payment of the purchase price buyer or neutral

Contract Clauses

Notice: EXAMPLE: Ifa dirt road runs across the corner of empty lot, prospective purchaser is expected to inquire as to the possibility ofan existing easement because it may not show up in the through the lot, even though he may not have constructive notice ofsuch an easement publicrecord. The existence ofthe dirt road provides prospective purchaser of an "actual notice that someone may have a claim to part of property

Installment Sales Contracts

People Default. If the seller defaults on an installment sales contract, the buyermay sue for specific performance, damages, or rescission. If the buyer defaults, the seller evict buyer property. While the seller retains legal title to the property unless or until the buyer the seller to go through foreclosure proceedings completes all payments, many states require to collect money from a defaulting buyer and to regain possession of the property.

Contract Conditions

Performance Obligations b. When Parties Must Perform (cont.) A condition is an eventwhich occur before performance ii. Conditions: Contracts may contain various conditions, or contingencies. may not be certain to occur, under a contract indicated by words such as "if" is due. The presence of but which must conditions is often "provided. If a condition fails to occur; the parties "when." "unless,"or damages because conditions are merely limitations-they do not create be almost event and be left either are usually not entitl obligations. A condition party to execute. Conditions: EXAMPLE: lessee may operate the leased Conditions that parties may impose premises as a restaurant, provided he first to buy the property, contingent include the following:(1)oa obtains the necessary parking variance: or (2) a buyer agrees obtaining the necessary financing.

Illegal Restrictions

Performance Obligations b. When Parties Must Perform (cont.) iv. Restrictions (cont. ) Illegal Restrictive Covenants . Contractual provisions in deeds that violate laws (usually fair housing laws), which are void and unen forceable. Buyers who discover illegal may choose to buy, ignoring the illegal covenant, or they may choose covenants in documents to insist removal ofthe illegal Buyers are usually notwithin covenant prior to purchase. theirright to completely void the contract, but they can restriction is removed. delay the transfer of title un til the illegal

Power of Attorney

Performance Obligations c. Who May Perform (cont.) ii. Power of Attorney: Written document in which one person (principal) appoints another to be their attomey-in-fact, authorizing the attomey-in fact to act on their behalf. Authority may be general ("sell my property) or specific ( sell my property a specific person only"). The death of either automatically revokes the power of attomey because personal authorization. Thus, when an attomey-in-fact is conveying property on behalf of proof usually is alive time of the signing

Performance

Performance Obligations consideration, lack Performance. Once a contract arises (offer/acceptance, of defenses), the obligation con trolled by additional factors. These to do (or perform) what was agreed to may be additional factors may govem one's obligation to perform b. When Parties Must Perform ● i . Executory / Executed : Contracts are executorywhere the parties reach agreement, executed when they have been fulfilled transferred assigned person other perform (sales contract). Con tracts are (closing). The contract may be than the original party to the agreement.

Timing

b.When Parties Must Perform (cont.) 邕 Timing : when no time is specified , the law will imply a reasonable time to perform When a contract states that "time times are strictly enforced (closing. is of the essence." specifñed Time is of the Essence: Phrase that may appear in a contract, which means that the parties have agreed and a party will breach the upon a definite time for perfoming contract un less performance is rendered by the eact time that time is of the essence, date and time as Tiovember specißed. For ecample, if the parties specify a closing 32009, at 12-00pmm and further specif then a party who arrives to the closing at 12-05pm is h breah ofthe sales con tract not contain the phrase time is of the soene reasn able time. Reason able is what essence., the law will impose Howesver if a con tract does may be airty allowed and required considering the nature of the act to be perfomed

Listing Agreements

between a seller/principal and a agreements ("agency employment Listing Agreements. Agency (special) broker/agent (not a sales associate). Listing contract) often authorize the broker/agent to use objectives (sell property). complete the agency subagents (sales Common listing agreements associates) to include: Open Listing Agreements, Agreements (illegal in most states) Exclusive Listing Agreements and Net Listing a. Nature of Agreements . i. Expiration: State laws may reasonable one ifunstated in the agreement. require a specific tenmination date or impose il. Compensation: Real estate agents (brokers) (commission) upon one of two events: when ready, willing and able buyer and procuring cause of any sale or purchase when the agent (broker) is the generally eam payment the agent (broker) produces a

Breach of Contract

con tract without any 5. Breach of Contract. Circumstance where a party fails to perform as agreed in a recognized legal excuse. The non-breaching party may entitled to an award of damages. Such an award may consist monetary damages-or specific performance (but damages-often in the form of liquidated 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 amount the parties agree to (liquidated breach of contract that is limited to an 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)).

Consideration

li. Gift Promises: Gift promises are unen forceable because they contain no consideration (no reciprocal promise or legal detriment)

Role of the Parties

offeror and offeree 3. Role of the Parties. are reversed- the seller to the seller's counteroffer Often, the offer to Under a counteroffer, the roles the initial becomes the offeror and the buyer the offeree with respect purchase is not the only offer and the seller The seller may make a seller's counteroffer and so on. Agents MUST counterofer the exchanged between the buyer buyer may make a coun teroffer to the submit all offers/counteroffers and regardless ofwhether another offer has to their clients, regardless of the offer/coun teroffer's already been accepted.

Property Disclosure Forms

sale, or to sign a disclaimer 1. Property Condition Disclosure Forms. Many states require residential property sellers to either disclose material in formation about property offered for stating that property will transfer is." Often, these laws apply regardless ofwhether a real estate agent is involved in the transaction Such laws may also include mandated forms that the parties. Should a seller choose to disclose material in fonmation, most states must be completed and signed provide a standard disclosure fom. The standard disclosure form lists mandatory disclosures that the owner has actual knowledge condition of the property. State mandated disclosure items usually include the condition of water and sewer systems, in sulation, HVAC systems, structural defects, land use, materials such as radon, asbestos, and lead-based paint. termites, and hazardous or regulated roofing, plumbing, electrical, conceming physical

Option Contracts

1 , Option Contracts . Under an option contract buyer ( or lessee ) contracts with a obligation) ofaccepting offer a specified seller (or lessor) for the exclusive privilege (but not price for a specified period of time. Option Contract lack of any con tract elements (offer/acceptance, defenses), along with a specified Elements. Option con tracts must contain the three (3) consideration ormoney, and price, the date the option will expire, and a description option contract becomes the purchase agreement (or lease) (legal or non-legal) ofthe property. If exercised, the

Incompetency

1. Basic Contract Elements - d. Defenses (cont.) li. Incompetency (cont.) -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 andnotvoid. -3) Minors: One who is under 18 years ofage (in most states). In terns of contracting, minors have a limited capacity. As such by minors are generally voidable. This means that a minor may enter into contract, but he may escape liability for the contract if he subsequently rejects it.

Offer

1. Basic Contract Elements Offer. Offers terminate as follows (cont.): 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 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 ofan offer) terminates an by rejecting it (either explicitly or by making a counteroffer). iv. Lapse of Time: Some offers terminate automatically if they are not deadline established by the parties. Specifying a deadline for acceptance is one way to con trol an o ffer communicated .

Offer

1. Basic Contract Elements a. Offer. follows (cont.) v. Death or Insanity: The death or insanity ofeither party prior to acceptance will terminate an offer. Acceptance ofan offer and the subsequent formation of a contract require a "meeting of the minds. A meeting of the minds" occurs parties understand exactly what have promised to do or not to do. Both death and insanity preventa meeting of tlhe minds from occurring. Therefore, the death or insan ity 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 behalf of the deceased.

Incompetency

1. Basic Contract Elements d. Defenses (cont.) .ii. Incompetency (cont.) 1) Legal Insanity: However, if an otherwise legally insane is determined (by court) to have been of sound mind at the time of contracting (lucid interval), then the contract is en forceable. Lucid interval is the period of time in which a legally incompetent person is of sound mind (lucid). If judged by a court to have been temporarily an otherwise legally insane person contracts then the resulting contract remainsvalid even ifthe person during a lucid interval, subsequently returns to insanity

Incompetency

1. Basic Contract Elements d. Defenses (cont.) li. Incompetency (cont.) 1) Legal Insanity: Onewho adjudicated incompetent or insane by a court. Such persons not be a party to a contract cannot be expected to understand legally incompetent person cannot agreement requires understanding. meeting minds. The contracts capacity to contract, no meeting ofthe minds) have no capacity to contract, andmay because legally incompetent individuals the terms of a contract. Therefore, a agree to a contract because an Without agreement, there is no of the legally insane are void (no

Mistake

1. Basic Contract Elements d. Defenses (cont.) vi. Mistake: Arises from an error or a misunderstan ding about the terms or conditions of an agreement. Contracts are voidable if based mutual, inten tional, or material However, ignorance of the mistake (parties con tract law and poor judgment are notvalid for the wrong lot). claiming a mistake of fact. reasons for Mistake: EXAMPLE: A subdivision developer and a buyer sign a sales contract on a lot the subdivision. Later, it turns out that the developer contracting for Lot A and the buyer honestly thought the two can resolve their differences, because there was no mistakenly identified the property):2) meeting of the minds. Note fine. If not, the honestly thought they were they were contracting contract is voidable by either party for Lot B.If that this mistake is: 1) mutual (both unintentional and 3) material (specifying the correct piece of property is at the heart of the contract because all property is unique)

Illegality

1. Contract Elements d. Defenses (cont.) vii. Illegality: If established, called upon to enforce contracts which require results in a void contract-courts cannot be one to break the law. Illegality: EXAMPLE: services are void and unenforceable. Contracts for murder or contracts to purchase illegalgoods

Ready, Willing, and Able

1. Listing Agreements Agreements (cont.) ii. Compensation (cont.) 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 ability to perform. Such offers trigger the listing broker's right to a commission. Ifa broker hired by a seller obtains buyer that makes an offer and has sufficient financing to carry through with the transaction, that broker eams a commission regardless ofwhether the seller carries through with

Open Listing Agreements

1. Listing Agreements Agreements LOpen Listing : Agency agreement between seller and any number of brokers, wherein the seller promises to compensate the broker broker sells the property. Under an open obligated to pay a commission to broker listing contract, the owner is on ly successfully sells the property or was the procuring cause of the sale. As an altemative, the owner may sell the property himself and owe no commission to any broker written, but it is unilateral The open listing con tract may be oral or (obligating only one party-the unless or un til particular broker produces a buyer), indefinite expiration date. However, many state laws broker to act), executory (will not arise and may have an date if one is not explicitly stated. impose an expiration

Fiduciary Duties

1. Listing Agreements Listing Agreements (cont.) v. Fiduciary Duties: Regardless of the type of agency relationship or the ty pe of agent, the parties owe various rights, responsibilities, and duties to and to the relationship in general. These duties promote a relationship of confidence and trust, which essential to effective agency representation. Violating a fiduciary duty could subject the agentto 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 representation concludes. Like most other agencies, listing agreemen ts impose series of duties on the agent. In particular, note that the principal the listing price and to accept or reject any the sole discretion to select offer (special agents must submit all offers to the principal).

Oral Disclosure Requirements

1. Listing Agreements Nature of Listing Agreements (cont.) frauds does not apply); ii.Oral Listing Agreements: Listing agreements may be oral (the statute however, state lawsmay vary. In Florida, verbal listing agreements are enforceable (though such con tracts may be more parties tum to a court for enforcement). iv. Disclosures: state laws require the agent to make certain disclosures about the nature of the proposed agency relation ship before agency begins. When in doubt, disclose.

Exclusive Listing Agreements

1. Listing Agreements b.Types of Listing Agreements (cont.) ii. Exclusive Listing: An exclusive listing is a listing agreement seller and single broker (the exclusive agent) which, for a limited time, provides the listing brokerwith rights to a commission if the property 1) Exclusive Agency: listing pay the exclusive agen t 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 ownermay sell the property himself and notbe obligated to pay commission to the broker. Unlike open listing agreements, exclusive listing agreemen ts 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 agreemen ts are also executory (will not arise unless til particular broker produces a buyer)

Terminating Listing Agreements

1. Listing Agreements c. Terminating Listing Agreements. addition to full performance, listing agreements Like any other agency agreement, in following: abandonment by the broker (broker may terminate fails to take reasonable upon the sell the property): breach (a party fails to (time specified in the listing revocation; death, insanity, or bankruptcy; agreement or state steps to perform as promised): lapse of time law lapses); mutual change in ownership ofthe subject agreemen t property; and destruction of the subject property

Multiple Listing Service (MLS)

1. Listing Agreements d. Multiple Listing Service (MLS). Organization formally exchange listing listed real estate to a variety ofbrokers, who in turn information about real estate. The MLS exposes of brokers (local regional) may present the listing to a variety ofbuyers. The seller lists his home agency responsibility for selling the property. with one broker who assumes primary listing agent then adds the isting to the MLS with the least partially accessible seller's permission. the general public Today, many MLS systems are at through the Intemet. 1.Listing Agreements: under exclusive right-to-sell member broker (other member brokers Properties listed in an MLS database are usually listing between the seller and an individual treated as subagents of the seller). Commissions: Most MLS associations his or her commission with any member broker of sale. require the listing broker to split who is the procuring

Purchase Agreements

1. Nature of the Purchase Agreement process by making an offer The seller then must Offer. The buyer begins the contracting determine whether to accept contract (purchase agreement) with the buyer When only offer (offer to purchase). signed by the buyer that offer and enter into a purchase agreement is on ly an Counteroffer: Coun teroffers offer. If the seller makes another seller's second offer is known as a counteroffer offer in response new offers that revoke any preceding to the initial offer; the b.Contract. When signed by both purchase agreement (sales contract, contract for sale), terns of sale and closing the buyer. Certain contract before contract perfomance is due. parties, the offer to purchase becomes a which specifies the identifies the property, and provides conditions, or contingencies, must be performed equitable title to

Purchase Agreements

1. Nature of the Purchase Agreement seller then must - a.Offer.The buyer begins the contracting process by making an offer. The that offer and enter in to a contract (purchase determine whether to accept agreement) with the buyer: When purchase agreement only offer on ly signed by the buyer Counteroffer Counteroffers offer. Ifthe seller makes another seller's second offer is known as a counteroffer: new offers that revoke any preceding offer in response to the initial offer the purchase agreement terms of sale and closing, b. Contract. When signed by both parties, the offer purchase becomes (sales con tract, contract for sale), iden tifies the property, and provides conditions, or contingencies, must be performed equitable title specifies the the buyer. Certain con tract before contract performance is due.

Incompetency

1.Basic Contract Elements Defenses (cont.) Incompetency (cont.) Intoxication: Ifestablished, states that persons who were toxicated at the time of contracting have limited capacity contract. Such contracts may be voidable by the in toxicated person if they act promptly. If they do not act promptly to cancel the their inaction will be taken agreement, and the contract will be valid.

Duress

1.Basic Contract Elements Defenses (cont.) vill. Duress: coerced in to entering a contracts are void behavior does not contract by physical or Contract defense where one is threaten ing behavior result in a meeting from their inception of the minds. Therefore, suc and no action need be taken to Such "gun to the head render them

Defenses

1.Basic Contract Elements d. Defenses. A defense is a material defect which, if proven, either prevents a contract from forming (void) or renders an otherwise valid contract unen forceable (voidable). Even where there is an offer and acceptance that is supported by consideration, there may notbe a contract. i. Void and Voidable Distinction: Certain defenses may exist that prevent being formed first place. Other defenses permit a party to liability from though the contract is of de fenses result in either a con tract valid. In either case, these two types that is void (a theory that the contract wasnever properly fomed) or a contract that is voidable (a theory that a contract is valid, but faimess dictates that one may avoid liability to perform if they prove the defense) Common defenses which render a contract void voidable include: incompetency, misrepresentation, mistake, illegality, and duress.

Purchase Agreements

1.Nature of the Purchase Agreement. known as a sales contract or a contract for sale, that specifies the terms and Bilateral and executory contract, also conditions of sale between buyer seller of real estate. Purchase agreemen ts not only obligate a buyer to buy and seller specify 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.

Option Contracts

1.Option Contracts tracts are unilateral (single party promises b. Unilateral Contract. Option con to perform under specified in a unilateral con tract is only a unilateral conditions). Technically, promise obligation offer because there is meeting of the minds unless or until the second party decides to accept the offer by performing - c. Compared to Right of First Refusal. Cor lessee) contracts with a seller (or accepting offer when and if the right of first refusal creates no obligation seller makes one. Un like to make an offer. an option con tract That is, a lessor is Under a right of first refusal a buyer lessor) for the exclusive privilege of not obligated to lease and seller obligated sell, made.

Florida Listing Agreements

2. Florida Listing Agreement Requirements ( § 475.25 , FS ) . All listing agreemen ts must include a definite expiration date, description of the property, price and terms, fee or commission, and a proper signature of the principal(s). In addition, a listing agreement cannot contain a provision which requires the signee to notify the broker of intent to cancel the listing after its definite expiration date. Licensees must provide a legible, signed, true and correct copy to the principal(s) within 24 hours ofobtaining the written listing agreement.

Unilateral Contracts

2. Methods of Formation c. Unilateral/Bilateral (cont.) under specified conditions. unilateral tract is only provide a reward in exchange for specified performing. common example of a unilateral the minds unless or until the second party decides to accept the offer by unilateral offer because there is no meeting of Technically, the promise or obligation in a i. Unilateral Contract: Contract where a single party promises perfom conduct ("$50 reward for the con tract is the promise to returm ofmy dog) Unilateral: EXAMPLE: Jon lost his performance- that is, someone only has a contractual right to the $100 after they find anyone who finds and returns his dog.Jon's offer may only be accepted by dog. Jon posts a sign around town stating that he will dog

Contract Formation

2. Methods of Formation one or more persons to created un ilaterally or c. Unilateral/Bilateral. Contracts may also obligate perform a task, depending upon whether it was bilaterally. For example, contracts may be unilateral act) or bilateral (obligating both parties to act). A one party promises to perform from the other party (promise of a reward for specified action). (obligating only one party contract is unilateral when without first receiving a promise to perform

Parties to the Purchase Agreement

2. Parties to the Purchase the buyer and the seller, also known as the Agreement. The parties purchase agreement are vendee and vendor. The vendee is the buyer and the vendor is the seller

Open Buyer Agreements

2. Types of Buyer-Broker Agreements. State custom and law may a. Open Buyer Agreement. listing. an agency estate broker which, like an open be compensated depending An open buyer agreement counterpart relationship between a prospective listing agency, pemits any who first brings a suitable property to the of agents buyer and a real buyer's attention. In this case, the buyer is only broker who produces a property that the buyer actually purchases. obligated to sate the

Impossibility

2.Impossibility. Contract defense established, excuses a party from performing under an otherwise binding contract when the party can no longer legally perform agreed (performance must be rendered literally impossible, as in Restruction 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. there is a valid sales contract in place, the buyer is no longer required to complete closing because it impossible for the sellerto perform (produce the home).

Exclusive Buyer Agreements

2.Types of Buyer Broker Agreements b. Exclusive Buyer Agreements. two types: the exclusive agency buyer agency and the exclusive buyer agency. Exclusive buyer agencies usually appear in Buyer · i · Exclusive Agency Buyer Agency Agency is an agency relationship broker where the buyer agent if the agent locates suitable Agreement : An Exclusive Agency between a prospective buyer and a obligated to compen sate the property-the buyer is not suitable property on his own or agency is the coun agency listing agreement. terpart to obligated to compen sate the agent if the buyer finds through another agent. the listing agreement known as the exclusive Exclusive agency buyer

Elements of the Purchase Agreement

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

Private Restrictions

3. Performance Obligations -b. When Parties Must Perform (cont.) iv. Restrictions 1) Private Restrictions: Land use con trols imposed by private individuals. The principal private control ofland use is accomplished through the restrictive covenant. Private covenan ts, conditions, and restrictions (sometimes abbreviated as CCRs) may be imposed on real property by owners or developers through deeds, leases, and condominium declarations. may hance property values by promoting uniformity. Residential restrictive covenants commonly acceptable architecture or building materials, and other exterior issues

Novation

3. Performance Obligations c. Who May Perform (cont.) ii. Novation: Situation where contracting parties agree to substitute one agreement in part in full for another agreement. Through novation, the agreement replaced by the new agreement.

Assignable Non-Assignable

3. Performance Obligations c. Who May Perform i. Assignable/Non-Assignable: An assignment is the transfer of the ("assignee"). Some con tracts contractual right, title, orinterest of one person ("assignor") to another may be assigned to another person and some contract is assignable depends on may not (personal service). Whether subject con tract and whether subject t have specifically agreed to permit authorize or prohibit assignmen ts (mortgages) or not the parties, despite the assignment. Other contracts may Assignable/Non-Assignable. EXAMPLE. Contracts estate broker to sell other real estate contracts, your property contract for aspecificreal for a personal service, such as a isting agreement) are not contracts, trust assignable. However,most deeds, contracts for sale. lease contracts and agree otherwise the contract such as mortgage options are assignable unless the parties

Johnson v. Davis

4. Mandatory Contract Disclosures (cont.) i.Johnson v. Davis (1985) (cont.). The Davises filed a complaint alleging breach contract, fraud, and misrepresentation. As a result, they sought annulment of the contract and a refund of their deposit. The Florida Supreme Court found in favor of the Davises. The case is important because prior to the Johnson v. Davis decision, the courts had favored the seller under caveat emptor ("buyer beware"). This decision makes sellers disclose all

Johnson v. Davis

4. Mandatory Contract Disclosures a. Material Defects (cont.) i.Johnson Florida that set legal (1985).Johnson Davis a well-known case in precedence conceming material defects. entered in to a contract Mr and Mrs. Davis Mrs. Davis inquired water stains the ceilings Johnson stated to the about damaged plaster around a with Mr. Johnson to buy window and house. Davises that the apparent glue and the which had long been corrected, the family room and kitchen. window had a minor the stains were wallpaper the Davises vacated the hom problem paid the remainder of their result of moving the ceiling beams. Thereafter deposit and the Johnsons

Material Defects

4. Mandatory Contract Disclosures right to sell a property "as is" than that ofthe a. Material Defects. though seller must still disclose all known licensee who, whether acting material defects. This is Single Agent, No Brokerage which materially observable by the buyer affect the value of residential Relationship, must disclose separate duty under a Transaction Broker all known facts real property and readily

Terminating Purchase Agreements

4. Terminating Purchase Agreements Breach by Buyer. Like any agreement. The buyer for example, breaches a purchase contract, either party may breach a purchase agreement by failing to purchase the real estate as agreed. available remedies in the event ofa breach. Generally, purchase agreements specify The most common remedy for the buyer's breach is the forfeiture of her eamest eamest money deposit Where a remedy is not usually represents money deposit. The buyer's specified the agreed upon liquidated damages liquidated damages alone, the seller may sue the bargain" or for specific performance. Specific performance buyer for "benefit of the carry through with the sale as agreed. forces the buyer to

Terminating Purchase Agreements

4. Terminating Purchase Agreements b. Breach by Seller. If the seller defaults on the contract, the buyer can terminate the contract and force the seller to return his no provisions for liquidated damages, buyer may damages or for specific performance, which forces the seller to sell the property as agreed. While specific performance is not an available remedy fora eamest money. Ifthere estate transactions breach of personal service con tract, specific because all real estate is ique (money performance is common with real to remedy a breach). may be inadequate party to a purchase agreemen t Death of Either Party. The death of either will NOT cause it to terminate. In the event ofa death, the deceased party's estate is obligated to perform under the terms the sales contract

Breach of Contract

5. Breach of Contract b.Specific Performance. Court ordered con tract remedy that forces the breaching par ty to perform as promised in contract (for example, to sell the performance is an available remedy estate is unique, such that monetary property agreed price). Specific breach of a sales agreement because real damages in sufficient performance is not available agency agreement or other to remedy a breach. However specific for other con tracts, personal service con tracts such as the breach of an

Breach of Contract

5.Breach of Contract - a.Monetary Damages (cont.) i. Liquidated Damages: Damages specifically agreed to by contracting Liquidated damages are usually the parties in the event of a breach. exclusive damages available to a non-breaching contract (excludes other types ofmonetary damages and specific agreements, liquidated payments made under the contract. damages consist party when so indicated in performance). In most purchase eamest money or accumulated there is no Monetary Damages: EXAMPLE: A builder purchase agreement with a buyer. The buyer agrees to build a a home home for for defaults before contract. Ifthe home construction $100.000, $100000, pursuant pursuant damages in the begins and builder $90 000 to or the amount of profit he provision for liquidated construct, the builder's would have made from building the house. would have cost monetary damages would only be $10,000

Contract Clauses

6, Contract Clauses s. Contingency In a purchase (contingencles) that must be met before a party has the obligation to perform. transaction, there may be during the executory several provisions period of the contract The presence of contingencies is "provided." If the of the party that the often indicated by words such as "lf" contingency fails, the contract contingency is designed to (buyer does not have to buy If lender inspection contingency (If inspector finds a problem, buyer does not have to is voidable "when." "unless"or at the option protect/benefit. Examples: does not give him the loan). home finance con tingency buy)

Contract Clauses

6. Contract Clauses Title. provision addresses the quality of title that the seller must deliver (marketable title; insurable title), the interest being title warranties that the seller will make in the deed (general warran ty conveyed (fee simple), and special warranty). The title clause usually revealed during the specified time allows the seller to extend the period to correct (ifhe can) any title defects buyer's title search. Ifthe title defects cannot be corrected buyer Most title clauses state that easements and restrictions recorded con tract is voidable at the option of the in the land purchaser records. is willing to accept common

Contract Clauses

6. Contract Clauses j. Survival/Merger. in the contract are "merged" Under the law in many states, the promises and obligations into the deed of conveyance and do not survive with a merger clause, a seller promises to party still accepts the settlement. This means that if the other person does not fully perform, but a property at settlement, he cannot later insist on full performance. (Example: In a contract deliver the house with newly painted shutters, shutters. The buyer accepts the house at settlement attempt to get a credit/reduction in price for the cost of pain ting. After seller for the cost of doctrine through contract clause that painting the shutters.) but the seller does not paint the without objection or The parties can settlement, the buyer cannot sue the circumvent the merger allows the promises and obligations to "survive" closing.

Contract Clauses

6. Contract Clauses the event available to parties the event of a default. Damages specifically In the event of a buyer default, agreed to by con tracting parties sellers usually wan t the default and that one party fails to also address the remedies d. Default. This provision sets forth the rights and obligations of the parties in perform. It lists the events that constitute (specific performance, damages) e. Liquidated Damages. the event of a breach. option ofaccepting a certain deposit or accumulated clause states that if the buyer's breach, he cannot also sum in damages (usually the eamest money seller chooses liquidated damages sue for other damages payments made under the contract). Usually, this as a remedy for a

Contract Clauses

6.Contract Clauses a. Acceleration. Specifies borrower violates the covenants ofthe mortgage deed of trust, the entire loan balance becomes due payable shortened, or accelerated, upon demand. In other words, the life of the loan is to its end. The lender may only accelerate the note if this clause is expressly included in the loan document. Also, the lender must notice (usually prescribed by law) cure the default. May appear in a mortgage, installmen t sales con tracts (land installment contracts) and specify a time period to allow the debtor give the debtor adequate lease, deed of trust, or

Contract Clauses

6.Contract Clauses b.Assignment. Assignment is the transfer of the interest of one person (assignor) to another Cassigmee). Some contracts person and sume may not Generall contracts are contractual right title, or be assigned to another assignable by either parte unless the contract prohibits assigument. Property sellers usually want to override this rule bye inchading a clause to prohibit thee Sunetinnes they permit assignment if the buyer from assigning the contract seller agrees to the ifthe new bxyer fails to perform. assignment in writing and the eriginal bser remains liable

Contract Clauses

6.Contract Clauses k.Time is of the Essence. As a general "reasonable time" and are not strictly en forceable. Example: A closing date that rule, time limits in contracts imply set for July 15 means July 15, or a prefer the dates in a real estate contract reasonable time thereafter Most parties to be en forced strictly so they include a phrase may appear in a contract, and will breach "time is essence" provision. This means that the parties have agreed on a definite time for performance. A party unless performance is rendered by the exact time essence," then a party who specified. For example, if the parties specify closing date and "November 3, 2009, at 12:00pm," and further specify that "time is of the arrives to the closing at 12:05pm is in breach of the sales contract.

Contract Clauses

6.Contract Clauses must give each other notice of different reports, whether the loan has been f.Notice. In most contracts, the parties events during the executory period (title objections results ofinspection rejected or obtained, etc.). Notice provisions state where a party must be officially notified (home through an agent) and how (via fax, email, hand delivery, etc.). There are 3 address, work address types ofnotice: i.Actual Notice : Actual notice mean s that formation documents. When a person an individual received 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.

Contract Clauses

6.Contract Clauses. In addition to addressing matters such as identity ofthe parties, property description, purchase price, closing (settlement) date, iden tity the settlement agent, possession, a contract could have one ormore ofthe following clauses:

Contract Clauses

6.Contract j.Survival/Merger. Under the law in many states, the promises and obligations in the contract are "merged" into the deed of conveyance 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 performan ce. (Example: In contract amerger clause, a seller promises 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 sue the seller for the cost of painting the shutters.) settlement, the buyer cannot The parties can circumvent the merger doctrine allows the promises and obligations to "survive" closing. through a contract clause that

Property Disclosure Forms

Agent's Preparation. Real estate agents should never disclosure fonm for the seller. An agent's duty is to advise the sellers disclosure laws and the seller's obligations a layer of protection for all parties the transaction, thereunder: Using disclosure forms adds of the state's but the forms themselves do not replace agent's independent responsibility to disclose all known material facts. This agency responsibility is covered in more detail in the "Brokerage Relationships and Ethics" chapter

Rescission and Cancellation Agreements

Agreements. Contracts for rescission tract by mutual consent and 1. Rescission and Cancellation (cancellation agreement) operate to terminate a con without a breach, which retums contract parties to pre-contract positions. a. Mutual Agreement. Rescission parties to cancel the contract (or court order) without a breach requires the agreement (intent) of both b.State and Federal Law. Under acts, TILA). purchasers have legislatively for any reason whatsoever for a limited some state and Federal laws (condominium mandated rights to rescind a contract time. These rescission periods usually run from 3 to 10 days after commonly con tracting. referred to as "cooling off periods" Rescission: EXAMPLE: The Federal in some financial transactions, as do some state Truth-in-Lending Act guarantees time-share and condomintum a rescission period

Termination Buyer-Broker Agreemen ts

Agreements. Similar to the listing agreement, Buyer-Broker agreement could be terminated including abandonment suitable property agreement or by state law for t he buyer); under a number of by the broker (broker falls to circumstances 3. Term nination o f the buyer-broker hort of fill perfommance, take any steps to find specified in agency insanity, or bankruptcy: and revocation expires); mutual breach; lapse of time agr eement; death, (time

Buyer-Broker Agreements

BUYER-BROKER AGREEMENTS.A buyer-broker agreement (buyer agency agreement or buyer agency employment contract) is an agency relationship between broker and a buyer, often including a sales associate working under the broker as a subagent. Formal representation of the buyer creates an agency relation ship between buyer and broker, which also carries certain rights and responsibilities. Such formal assistance that a seller's agent may provide representation contrasts with the informal to a buyer creating an agency disclosure of this distinction be made to the nature of the relationship between buyer and broker should be established through relationship. Most states require that proper buyer Just like the broker and seller the written agreement.

Estoppel

Basic Contract Defenses (cont.) Estoppel (Promissory Estoppel) (cont.) 2) Estoppel Certificate: Document, also known as certificate ofno defense or estoppel letter; which clarifies the amount of debt owed by one party to another and/or the legal status between parties as ofa specified date. Lenders use estoppel certificates to establish the mortgage amount owed as of a certain date. Landlords and tenan ts use estoppel certificates establish the amount of rent owed (ornot owed) as of a certain date. All parties to valid estoppel certificate thereafter estopped (prevented) from claiming position the contrary.

Acceptance

Basic Contract Elements -b. 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 tems, an offer may be accepted by any reasonable manner-a party may accept an offer through a face to conversation, or a party may accept an offer through fonmal written documents, such as a real estate purchase 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.

Misrepresentation

Basic Contract Elements -d Defenses ( cont ) iv.Misrepresentation (False Pretense): False statement or a concealment of a material fact that is unintentionally asserted. Unlike fraud, misrepresen tations may innocent andunintentional. However depending upon the circumstances andmagnitude, even un in tentional misrepresen tation may be sufficient basis to render a contract void or voidable. A primary consideration in determining the affect of misrepresentation is a person's degree of knowledge, skill, and experience. Persons are held standards depending on their profession or experience.

Fraud

Basic Contract Elements Defenses (cont.) ii. Fraud: Contract defense which consists of any form of deceit by which one party in tentionally attempts to gain an unfair advantage over another The key determiningwhether fraudulent is whether not was intentional. If the deceit was not intentional, it is not fraud, but may be an instance ofmisrepresentation. Fraud includes inten tionally making false statemen ts and/or inten tionally concealing material facts about real estate offered for sale. Fraud may result in damage awards by a court, and either a void or voidable depending upon whether fraud the inducement or fraud in the factum.

Acceptance

Basic Contract Elements b.Acceptance (cont.) . ii. Mailbox Rule: Where acceptance is properly states that the acceptance becomes effective when it is deposited in to a submitted by mail, law mailbox, andnotwhen it is actually received by the offeror. Other forms of acceptance do not become binding they 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 withdrawing offer Jane receives Jerry's acceptance on day seven. Despite the fact that Jane called Jerry withdrew the offer before she because the mailbox rule states that Jerry's acceptance received the acceptance she is bound by the contract effective when mailed it

Incompetency

Basic Contract Elements d. Defenses (cont) ii. Incompetency: If established, results in either a void orvoidable contract depending upon whether there is a limited capacity or a lack of capacity. Generally, courts assume people are competent enough to enter to contracts with one another. However, some people are legally unable As a result, their contracts are include those that are to contract because they lack "capacity." void. People that entirely lack capacity to contract legally insane. Others have only a limited capacity These contracts are voidable, avoid responsibility for the contract. Both are examples of those with a limited capacity to contract. which means that one must take steps to minors and intoxicated persons

Estoppel

Basic Contract Elements d. Defenses (cont.) .v.Estoppel (Promissory Estoppel) (cont.) 1) Reliance: Justifiable reliance is necessary element in an estoppel defense. Reliance: EXAMPLE: Your employer tells you that he will pay a pension when you retire. at an age where obtaining new employment is Relying on this statement you retire difficult because you are expecting consideration in this example renders this a one-sided agreement-see the (arguably,only the employer that pension income. though may be no agreed to do something, which discussion on consideration above), courts to prevent an inequitable result your reliance may enforce the agreement as a contract on your employer's promise you in a worse situation)

Fraud

Basic Contract Elements d. Defenses (cont.) iil. Fraud (cont.) 1) Fraud in the Inducement: Intentional deceit (statement or concealment) about 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 one to execute a document other than the document he intended to execute. The resulting meeting of the minds, buyer sign ing document) con tract is void (no

Consideration

Basic Contract Elements today it is understood to Consideration. Consideration is a legal term that has a long history of in terpretation and discourse in contract broadly exist where parties bargain with one another to exchange promises as in real estate transactions). Without consideration, promise to act out of such charitable promises. Through the to do or not to do something like deliver goods thing that both parties agree to do or not to do is (usually involving money, there is merely a one-sided reluctant to enforce both parties agree, or promise, bargaining process charity, and courts are in exchange for payment. essence of consideration. If a person promises to give away property without any consideration (gift promise), but later promise could be unenforceable. someone to perform a charitable act, even if they promise. again, courts are changes his mind, the one- reluctant to bind

Exclusive Buyer Agreements

Buyer-Broker Agreements b. Exclusive Buyer Agreements (cont.) - i. Exclusive Buyer Agency which obligates the buyer to compensate agency relationship between a prospective Agreement: An Exclusive Buyer Agency is an buyer and real estate broker the agent if the buyer purchases that described in the contract, regardless ofwhether on her own or through another agent. property the buyer discovers the property Exclusive buyer agency is the coun terpart to the exclusive right-to sell-contract. listing agreement known