Contracts

Question 1

The stages of a real estate contract

Answer 1

1. Listed
2. Offer, acceptance, and communication of acceptance
3. Under contract
4. Closing

Question 2

Offeror

Answer 2

Made last offer

Question 3

Offeree

Answer 3

Received last offer

Question 4

Attachments

Answer 4

Used to EXPLAIN (occurs in offer, acceptance & communication of acceptance stage)

Question 5

Addendum

Answer 5

Attached to offers

Question 6

Amendments

Answer 6

Used to MODIFY a contract (happens in the executory stage)

Question 7

Who has equitable title when under contract?

Answer 7

Buyer

Question 8

Who has legal title when under contract?

Answer 8

Seller

Question 9

Express contract

Answer 9

can be oral or written

Question 10

Implied contract

Answer 10

Created by actions, not in writing

Question 11

Valid contract

Answer 11

Contains all essential elements, is binding on both parties, and is enforceable by the courts

Question 12

Voidable contract

Answer 12

One party may disaffirm the contract if the party is a minor, or is subject to fraud, duress, or misrepresentation

Question 13

Void

Answer 13

A contract that is not enforceable because it does not have the essential elements

Question 14

Unilateral Contract

Answer 14

Promise is exchanged for performance (e.g., Alice promises to perform (“I will sell you my house”), if Bill decides he wants Alice to perform (“I may buy your house; let me decide”)

Question 15

Bilateral Contract

Answer 15

Promise for a promise (e.g., Alice & Bill make equal promises; Alice: “I promise to sell you my house & deliver a deed,” Bill: “I promise to buy your house and pay you money”

Question 16

Executed contract

Answer 16

Duties are completed by both parties; they are fully performed

Question 17

Executory contract

Answer 17

One or both parties need to complete part of the contract; duties yet to be performed

Question 18

Assignment

Answer 18

Transfers obligation but not liability (e.g., sublease)

Question 19

Novation

Answer 19

A new contract replacing an old one; transfers obligations and liability

Question 20

Legal Impossibility

Answer 20

A duty required by the contract cannot be legally performed

Question 21

Death or incapacity

Answer 21

Contract is termination ONLY if no one is left to perform

Question 22

Amendments

Answer 22

Changes or modifies the contract; must be in writing and signed by all parties

Question 23

Addenda

Answer 23

Additional material attached to and made part of the initial agreement (offer); addenda/attachments EXPLAIN the items attached to offers

Question 24

Essential elements of a valid contract

Answer 24

Competent parties, meeting of the minds, lawful objective, consideration, in writing & signed by the parties

Question 25

Competent parties

Answer 25

Age of majority (18+) (voidable if minor), mentally sound (void if declared incompetent by a court) (an incompetent person can enter a contract ONLY if court appoint guardian to act on the person's behalf)

Question 26

Meeting of the Minds (Offer & Acceptance)

Answer 26

Offer & communication of acceptance must be made before the offer has been withdrawn)

Question 27

When can an offer be withdrawn?

Answer 27

An offer maybe withdrawn by either party prior to communication of acceptance to the party who made the offer

Question 28

What does a qualified acceptance or counteroffer do to a contract?

Answer 28

It operates as a REJECTION and terminates the original offer

Question 29

When is a counteroffer accepted?

Answer 29

If it is signed/initialed by both parties

Question 30

Is a buyer who received counteroffer obligated to respond?

Answer 30

NO. A buyer who receives a counteroffer is not obligated to respond and may make an offer on a new property without obligation to the seller that countered the first offer

Question 31

Can a seller who countered sell to another party?

Answer 31

NO. The seller must withdraw the counteroffer before accepting an offer from another buyer

Question 32

Consideration

Answer 32

Money or something of value (NOT earnest money)

Question 33

Statute of Frauds

Answer 33

Requires that agreements be in writing to be enforceable; applies to ANY property type (but, DOES NOT apply to a lease of 12 months or less)

Question 34

Statute of Limitations

Answer 34

Sets the length of time parties will be given to file a claim or lawsuit

Question 35

Types of real estate contracts

Answer 35

Purchase agreement/offer to purchase/contract of sale, Option, or lease purchase

Question 36

Purchase Agreement

Answer 36

1. The agreement is bilateral - promise for a promise; 2. Offer becomes valid & binding when acceptance is communicated; 3. It is executory until performance by all parties at closing; 4. Buyer (vendee) has equitable title and is the equitable owner; seller (vendor) has legal title and is the legal owner; 5. The agreement may include a contingency clause allowing the buyer to terminate under certain conditions (e.g., buyer would het earnest money back) if cancelled per the terms; 6. Earnest money is NOT consideration and is not required to create a valid purchase agreement

Question 37

What are typical contingencies?

Answer 37

Financing, inspection, etc.

Question 38

What happens if a contingency is not satisfied?

Answer 38

If the buyer terminated the contract per a contingency, the buyer's earnest money is returned; brokers are NOT PAID if a contract terminates per a contingency

Question 39

Option Contract

Answer 39

1. Owner/seller gives buyer the right to buy for a set price & set term; 2. Option fee is paid by the buyer for the right; 3. Owner/seller retains option fee if buyer decides not to buy; 4. Unilateral contract but becomes bilateral when option is exercised by the buyer; 5. Unlike a bilateral, installment, or land contract, if the buyer decided not to purchase, the seller who gave the option would have no recourse agains the buyer

Question 40

Lease Purchase Agreement

Answer 40

1. Lease purchase agreement is two contracts: a purchase agreement & a lease; 2. Portion of lease payments ca be applied to a down payment of the proeprty

Question 41

Mutual Rescission

Answer 41

The mutual agreement of all parties to cancel all obligations; it returns all parties to their original condition before the contract was executed, the buyers money is returned (acceptable for major problems (e.g., the house burns down or there are many repair items) it is not acceptable if the buyer decides she does not like the property and wishes to buy another property)

Question 42

Remedies for Default

Answer 42

1. Enforce specific performance (court action to enforce breaching parties to perform; the ONLY option for the buyer if the seller decides to terminate); 2. Terminate the contract and receive earnest money as liquidated damages; thereby releasing both parties for the contract; 3. Sue for actual damages