Chapter 3 of 520% of exam

Real Estate Contracts

This chapter explains the contracts that drive real estate transactions, from listing agreements to purchase contracts. You will learn the elements that make a contract valid, how offers and counteroffers work, common contingencies, and remedies for breach. New York's attorney-centered custom means contracts are often reviewed by lawyers, and practices vary by region.

Elements of a Valid Contract

A contract is a legally enforceable agreement. To be valid, it must contain certain essential elements, and real estate sales contracts carry an added writing requirement under the Statute of Frauds.

Offer and acceptance create mutual assent
A clear offer must be accepted on its exact terms to form agreement.
Consideration must be exchanged
Each party gives something of legal value, such as money for property.
Parties must have legal capacity
They must be of legal age and sound mind; a minor's contract is voidable.
The purpose must be lawful
A contract for an illegal purpose is void and unenforceable.
Real estate contracts must be in writing
The Statute of Frauds requires a signed writing for enforceability.

Offers, Counteroffers, and Contract Status

Negotiation moves through offers and counteroffers until the parties agree. Contracts are also classified by how much has been performed and by whether they can be enforced.

A counteroffer rejects the original offer
It terminates the prior offer and creates a new one to consider.
Acceptance must mirror the offer
Any change makes it a counteroffer rather than an acceptance.
Executory vs. executed
An executory contract has duties remaining; an executed one is fully performed.
Void, voidable, and unenforceable differ
Void has no effect; voidable can be disaffirmed; unenforceable cannot be enforced in court.

Deposits and Contingencies

Purchase contracts commonly include earnest money and conditions that must be satisfied before closing. These protect the parties and shape the timeline of the transaction.

Earnest money shows good faith
The deposit is held in escrow and typically credited to the buyer at closing.
Contingencies are conditions to performance
Financing and inspection contingencies let a party cancel if the condition fails.
Time is of the essence binds deadlines
When included, missing a stated date is a material breach.
Escrow funds are released per the contract
Disbursement follows the agreement or proper written authorization.

Listing Agreements

A listing agreement is a contract between a seller and a broker that authorizes the broker to market the property. The type of listing determines when the broker earns a commission.

Exclusive right to sell pays the broker regardless
The listed broker earns commission no matter who finds the buyer.
Exclusive agency lets the owner sell commission-free
The owner owes nothing if they personally find the buyer without a broker.
Open listing pays only the procuring broker
Multiple brokers may compete, and only the one who sells is paid.
Net listings are discouraged or restricted
Paying the broker everything above a set net price creates a conflict of interest.

Discharge, Breach, and Remedies

Contracts end when performed, but they can also be terminated or breached. The law provides remedies when a party fails to perform, and real estate's uniqueness allows some special remedies.

Novation substitutes a new contract or party
It releases the original obligation with all parties' agreement.
Assignment transfers rights and duties
The original party may remain secondarily liable after an assignment.
Liquidated damages set an agreed remedy
The seller may keep the earnest money if the buyer defaults.
Specific performance compels the sale
Because each parcel is unique, a court may order the contract carried out.
Rescission unwinds the contract
It restores the parties to their pre-contract positions, often refunding deposits.
Test your knowledge
Practice questions on Real Estate Contracts
Practice now →
← Previous
New York License Law and Agency
Next →
Real Estate Finance

Last updated: July 2026

Report