Real Estate Contracts

An oral contract for the sale of real estate is unenforceable in court, even though it has the following requirements for a valid contract, which include:

Offer and acceptance Consideration Legally competent parties Legal purpose Made voluntarily

Other names forms (drafted by a licensed attorney) used to write a sales contract are:

Offer to purchase Sales agreement Contract of purchase and sale Purchase agreement Earnest money agreement Agreement of sale

Contracts are ________ until all of the promises in the contract have been completed. A contract for the sale of real estate is ________ until the deed is delivered and accepted.

executory; executory

All parties have the right to a transaction that's free from _____ or _______________.

fraud; misrepresentation

The parties should operate in _____ ______ to execute the contract with no deceptive practices.

good faith

___ and _____ parties to a contract send notice regarding contract terms is critical for avoiding breach of contract situations.

how; when

Consideration

is something of legal value offered by one party and accepted by another, e.g., the buyer's promise to pay the full purchase price, and the seller's promise to transfer marketable title through delivery of a deed.

Legal Purpose

means that the contract results in a legal outcome.

Most contracts include a _______ ______ that describes how contract-related notice may be made and when notice is considered to have been received. For example, a purchase or listing contract may permit contract parties to select whether notices may be delivered electronically.

notices clause

Offer and Acceptance

occurs when the parties enter into an agreement voluntarily with full understanding of contract terms.

_____ contracts may be valid but unenforceable or difficult to enforce

oral

Severability

refers to the concept that if a court deems a term in the contract to be unenforceable, the remainder of the contract remains enforceable.

Statute of Frauds

requires that certain types of contracts, such as for a property ownership transfer, be in writing to be legally enforceable and to prevent injury from fraudulent conduct.

Requirements for validity:

statute of frauds Offer and acceptance Consideration Legally competent parties Legal purpose Made voluntarily

All parties must comply with contract terms in a timely manner (____ __ __ ___ _______).

time is of the essence

The parties have a right to form and execute the contract free from _____ __________ (taking advantage of someone based on a relationship) or ______ (wrongful pressure, coercion, or force involving a threat).

undue influence; duress

A ____ _______ isn't a contract at all because it lacks one or more of the requirements for a valid contract. It has no legal force or effect; it's _____________.

void contract; unenforceable

Contracts may be valid but unenforceable. For example, a ____________ contract is valid, but may not enforceable in a court of law.

voidable

A ___________ __________ is one that appears valid, but one or both parties have a legal right to disaffirm it. This could be because one of the parties lacks legal competence, or because there was a mistake or misrepresentation, causing a failure of reality in consent. The contract is voidable by the incompetent or misled party but enforceable against the other party.

voidable contract

Common contract clauses include:

"Time is of the essence" means that both parties faithfully agree to perform responsibilities within the time limits of the contract. Choice of law specifies that any dispute arising under the contract shall be determined in accordance with the law in a particular jurisdiction. Indemnification means one or both parties commit to compensate the other for any harm, liability, or loss arising out of the contract. Contingency clauses define a condition or action that a party must meet in order to not be in breach of contract. An arbitration clause requires the parties to resolve or attempt to resolve their disputes through an arbitration process. A mediation clause requires the parties to attempt mediation prior to engaging in arbitration or a legal action. A statute of limitations clause in the contract states the time frame in which a party can file a lawsuit relative to the contract.

Tawna agrees to sell her small plot of land to Morris for $5,000 cash. They don't write up a contract, but otherwise all the necessary elements for a valid contract are in place. What's the status of this contract? A. It's void. B. It's valid and enforceable. C. It's valid but not enforceable. D. It's illegal.

C. It's valid but not enforceable

Sondra thinks the new business contract she's signed with her business partner is valid. Both parties are legally competent, the purpose is a business transaction so it's a legal purpose, an offer was made and accepted, and a fee has been negotiated and documented. Which essential element of a valid contract has Sondra not yet considered? A. Whether the contract is in writing .B. Whether the parties are over 21. C. Whether consent was voluntary. D. Whether the contract has been translated into all possible languages.

C. Whether consent was voluntary

Contracts signed under the following circumstances are unenforceable:

Contract is for an illegal purpose One or more of the contract parties was under duress or undue influence One or more of the contract parties committed misrepresentation Contract terms are patently unfair or violate public policy Contract contains errors

Ken signed a contract to purchase Debra's condo. Ken signed the contract two weeks prior to turning 18, which is the age of majority in their state. Debra found out about his age prior to the closing but honored the contract and they closed on the condo a month after Ken's birthday. What was the status of the contract when Ken and Debra entered into it? A. Executed B. Illegal C. Void D. Voidable

D. Voidable The contract COULD have been cancelled, because it was missing one of the essential elements: a legally competent party (Ken was a minor when he entered into the contract). However, parties to a voidable contract may choose to follow through with—or execute—it, which is what happened here.

An ________ _______ is one in which all parties to a contract have met all contract terms. A contract for the sale of real estate is ________ by the delivery and acceptance of the deed and the payment of the purchase price.

executed contract; executed

Legally competent parties

are those who have the legal and mental capacity to enter into a contract. Contracts entered into with legally incompetent parties are voidable at the option of the incompetent party, but may be enforced against the competent party

A contract is a legally binding agreement. All parties to a contract must perform the contract terms or be considered in ______ of contract.

breach

A voluntary

contract means the parties entered into the agreement voluntarily. Mistakes, misrepresentation, fraud, duress, or undue influence create a situation in which the consent is not real.