Real Estate Contracts

Offer

Details: Must include: property identification, price, terms, and conditions

Example: Buyer submits a written offer to purchase 123 Main St for $350,000 with a 30-day close

Tip: An offer is not a contract until it is accepted — it can be revoked at any time before acceptance

Acceptance

Details: Must be communicated to the offeror; any change = counter-offer, not acceptance

Example: Seller signs the purchase agreement exactly as presented by the buyer

Tip: The "mailbox rule" means acceptance is effective when sent, not when received

Consideration

Details: Can be money, services, promises, or anything of legal value

Example: Buyer deposits $5,000 earnest money to show good faith

Tip: Consideration must be "valuable" (money/goods) or "good" (love/affection for gift deeds)

Legal Capacity

Details: Must be of legal age (18+), mentally competent, and not under duress or undue influence

Tip: Contracts with minors are generally voidable (minor can void), not void

Lawful Purpose

Details: Cannot involve illegal activity, fraud, or violation of public policy

Tip: A contract to sell property for use as an illegal operation is void from inception

Bilateral vs Unilateral

Details: Bilateral: purchase agreement. Unilateral: option contract, open listing

Example: Purchase contract = bilateral (buyer promises to buy, seller promises to sell). Option = unilateral (seller promises to sell, buyer may or may not buy)

Tip: Most real estate contracts are bilateral — remember "bi" = two promises

Express vs Implied

Details: Express: written listing agreement. Implied: implied agency through conduct

Tip: Real estate contracts should always be express and written to be enforceable

Executory vs Executed

Details: Executory: signed but not yet closed. Executed: closed and title transferred

Example: A signed purchase contract is executory until closing, then becomes executed

Void vs Voidable

Details: Void: illegal purpose, missing essential element. Voidable: minor, fraud, duress, mistake

Tip: Void contracts CANNOT be ratified. Voidable contracts CAN be ratified by the injured party

Financing Contingency

Details: Loan type (conventional, FHA, VA), amount, interest rate cap, approval deadline

Example: Buyer has 21 days to obtain a conventional loan for $280,000 at no more than 7% interest

Tip: If buyer cannot obtain financing, they can cancel and receive earnest money back

Inspection Contingency

Details: Inspection period (typically 7-14 days), types of inspections, repair limits

Example: Buyer has 10 days for a home inspection; can request repairs up to $5,000 or cancel

Appraisal Contingency

Details: If appraisal is low: renegotiate price, buyer pays difference, or cancel

Tip: Waiving the appraisal contingency means buyer must cover any gap between appraised value and price

Title Contingency

Details: Title search, title insurance, resolution of liens or clouds on title

Example: Title search reveals an old mechanic's lien that seller must satisfy before closing

Sale of Existing Home

Details: Timeframe for sale, kick-out clause (seller can accept backup offers)

Tip: Sellers often include a "kick-out" clause allowing them to continue marketing the property

Valid Offer Requirements

Details: Property description, price, terms, contingencies, closing date, expiration date

Tip: An offer with vague terms ("reasonable price") is not enforceable

Revocation of Offer

Details: Revocation must be communicated to the offeree to be effective

Example: Buyer calls to revoke offer on Monday; seller had not yet accepted — revocation is valid

Counter-Offer Kills Original

Details: Original offeree becomes new offeror; original offeror becomes new offeree

Example: Seller changes price from $350,000 to $360,000 — original $350K offer is dead and cannot be accepted later

Tip: This is the most tested concept: a counter-offer DESTROYS the original offer permanently

Offer Expiration

Details: If no deadline is stated, offer expires after a "reasonable time" (determined by court)

Tip: Death or insanity of either party automatically terminates an offer (but NOT a contract)

Specific Performance

Details: Most common remedy for real estate because each property is considered unique

Example: Seller refuses to sell after signing contract; court orders seller to complete the sale

Tip: Specific performance is the preferred buyer remedy because land is unique — money cannot replace it

Liquidated Damages

Details: Must be a reasonable estimate of damages, agreed upon at contract formation

Example: Buyer defaults; seller retains $10,000 earnest money as liquidated damages per the contract

Tip: If the liquidated damages clause is unreasonable, a court may strike it as a "penalty"

Rescission

Details: Both parties return what they received; used for mutual mistake, fraud, or misrepresentation

Example: Both parties agree to rescind the contract; earnest money is returned to the buyer

Compensatory Damages

Details: Lost profits, additional costs incurred, difference between contract and market price

Example: Buyer breaches; seller re-sells for $20,000 less and sues buyer for the $20,000 difference

Assignment

Details: Assignor = original party, Assignee = new party receiving rights

Example: Buyer assigns purchase contract to an investor; original buyer is still liable if investor defaults

Tip: Assignment transfers RIGHTS but the assignor retains LIABILITY unless released

Novation

Details: Requires agreement of ALL parties (original parties + new party)

Example: Seller agrees to release original buyer and accept new buyer as the contracting party

Tip: Key difference: Novation = original party is FREE. Assignment = original party is still LIABLE

Delegation

Details: Delegator remains liable for performance; delegatee performs the duties

Example: Contractor delegates painting work to a subcontractor but remains responsible for quality

Contracts That Must Be in Writing

Details: Includes: sales contracts, leases over 1 year, listing agreements, options, deed of trust/mortgage

Tip: Remember: ALL transfers of real property interest must be in writing to be enforceable

Required Written Elements

Details: Only the party to be charged (sued) must sign; does not require both signatures to be enforceable against the signer

Example: A listing agreement signed only by the seller is enforceable against the seller

Parol Evidence Rule

Details: Exceptions: fraud, mistake, ambiguity, subsequent modifications

Tip: Once a contract is in writing, oral promises made before or during signing generally cannot change it

Exceptions to Statute of Frauds

Details: Part performance requires: payment, possession, and/or improvements to the property

Example: Buyer paid, moved in, and built an addition based on an oral agreement — court may enforce it

Escrow Process

Details: Escrow agent/officer, escrow instructions, title search, document preparation

Example: Escrow agent holds deed and purchase funds; releases both when all conditions are satisfied

Tip: Escrow agent has a fiduciary duty to ALL parties in the transaction

Prorations at Closing

Details: Property taxes, HOA dues, insurance, rent (if applicable). Use 360 or 365-day year as specified

Example: Seller owned property for 200 days of the tax year; seller pays 200/365 of annual taxes

Tip: The closing date is typically charged to the buyer (buyer's day of ownership)

Deed Delivery & Acceptance

Details: Delivery requires intent to transfer; acceptance is usually presumed

Tip: A deed placed in a safe deposit box with instructions is NOT delivery — it requires present intent

Recording

Details: Constructive notice (recording) vs actual notice (direct knowledge)

Example: Buyer records deed at county courthouse; all future buyers are on notice of the ownership

Tip: Recording is NOT required for a valid transfer, but it protects against later claims