Contracts
Contracts are the backbone of every transaction, and this is the most heavily weighted national topic. You must know what makes a contract valid, the main types of real estate contracts, and what happens when a party breaches.
Elements of a Valid Contract
A valid contract requires competent parties, mutual assent (a clear offer and acceptance), consideration (something of value exchanged), a lawful object, and, for real estate, a writing that satisfies the statute of frauds. A contract may be valid, void (no legal effect), voidable (one party may cancel), or unenforceable. An offer becomes a binding contract only when accepted without changes; a counteroffer terminates the original offer.
Types of Contracts and Breach
Common real estate contracts include listing agreements, buyer-representation agreements, purchase agreements, and leases. Earnest money accompanies a purchase offer as evidence of good faith. If a buyer defaults, the seller may keep the earnest money as liquidated damages or pursue other remedies; if a seller defaults, the buyer may sue for specific performance to compel the sale or for damages. Contingencies (financing, inspection, appraisal) let a party cancel without penalty if a condition is not met.