Consideration is one of the essential elements required for a valid contract. In real estate, the most common form of consideration is the promise to pay a purchase price in exchange for the promise to convey property. Consideration does not need to be adequate or fair — courts generally do not evaluate whether the price was reasonable. What matters is that something of value was exchanged. A contract without consideration is generally unenforceable, as it would be considered a gratuitous promise or gift.
In a typical home sale, the buyer's consideration is the promise to pay $250,000, and the seller's consideration is the promise to deliver the deed and transfer ownership. Even $1 can serve as legally sufficient consideration if both parties agree to it.
Know the difference between valuable consideration (money or something measurable) and good consideration (love and affection, which is generally not sufficient for an enforceable contract). Exam questions may ask what happens if there is no consideration — the contract is void. Remember: consideration must be legal and flow both ways.
Related Terms
Related Concepts
A purchase agreement is a legally binding contract between a buyer and seller that outlines the terms and conditions for the sale of real property. It is also commonly called a sales contract, purchase and sale agreement, or earnest money agreement.
Offer and acceptance is the process by which one party proposes specific terms for a contract and the other party agrees to those exact terms, creating mutual assent. This mutual agreement, also called a meeting of the minds, is an essential element of every valid contract.
A counteroffer is a response to an original offer that changes one or more terms of the offer, effectively rejecting the original offer and creating a new offer. The party who makes the counteroffer becomes the new offeror.
Earnest money is a deposit made by the buyer at the time of the offer or shortly after to demonstrate good faith and serious intent to purchase the property. It is also called a good faith deposit.
Contingencies are conditions written into a real estate contract that must be met before the transaction can close. If a contingency is not satisfied, the buyer can typically cancel the contract without penalty.
Frequently Asked Questions
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