Contracts
Contracts are the legal backbone of every real estate transaction. Licensees must recognize the elements of a valid contract and how offers, acceptance, and contingencies work.
Elements of a Valid Contract
A valid contract requires offer and acceptance (mutual assent), consideration, legal capacity of the parties, and a lawful object. Real estate sales contracts must also satisfy the Statute of Frauds by being in writing and signed. A contract missing an essential element may be void or voidable.
Offer, Acceptance, and Contingencies
An offer can be revoked before acceptance, and a counteroffer terminates the original offer. Once accepted and communicated, a binding contract is formed and the buyer holds equitable title. Contingencies, such as financing or inspection, allow a party to cancel if conditions are not met.
Discharge and Breach
Contracts are usually discharged by performance at closing. Breach occurs when a party fails to perform; remedies include damages, specific performance, or forfeiture of earnest money. Novation substitutes a new contract or party for the original with all parties' consent.