Contracts
Contracts are the backbone of every real estate transaction. This chapter explains how contracts are formed, what makes them valid and enforceable, and how they can be discharged or breached. Because this is the largest national content area, mastering offer, acceptance, and the essential elements is critical.
Essential Elements and Formation
A valid contract requires an offer and acceptance (mutual assent), consideration, legally competent parties, legal purpose, and, for real estate, a writing under the Statute of Frauds. An offer becomes a contract only when acceptance is communicated to the offeror. Before acceptance, an offer may generally be revoked, and a counteroffer terminates the original offer. Meeting of the minds means both parties agree to the same essential terms.
Types of Real Estate Contracts
Common contracts include the purchase agreement, listing agreements, option contracts, and leases. Contracts can be bilateral, where both parties promise performance, or unilateral, where only one party is bound until the other acts. An executory contract is not yet fully performed, while an executed contract is complete. Understanding which type applies clarifies the parties' rights and remedies.
Performance, Breach, and Remedies
Contracts are discharged by full performance, mutual agreement, or operation of law. A breach occurs when a party fails to perform without legal excuse, giving the other party remedies. Remedies may include damages, specific performance to compel the sale, or rescission to cancel the contract. Contingencies such as financing or inspection allow a party to cancel without breach if conditions are not met.