Contracts
Contracts are the backbone of every real estate transaction. This chapter reviews the elements that make a contract valid, the main types of real estate contracts, and how offers become binding agreements.
Essential Elements of a Valid Contract
A valid contract requires an offer and acceptance (mutual agreement), consideration (something of value exchanged), legally competent parties, a lawful objective, and, for real estate, a writing that satisfies the statute of frauds. A contract may be void (no legal effect), voidable (one party may cancel), or unenforceable if a required element is missing.
Types of Real Estate Contracts
Listing agreements employ a broker to market a property; an exclusive-right-to-sell listing pays the broker regardless of who finds the buyer. A purchase agreement is the contract of sale between buyer and seller. An option gives a buyer the right to purchase within a set time. A land contract (contract for deed) lets the buyer take possession while the seller keeps title until the price is paid.
Offers, Counteroffers, and Contingencies
A contract forms when one party's offer is accepted without changes. Any change in terms is a counteroffer that rejects and ends the prior offer. Contingencies are conditions, such as financing, inspection, or appraisal, that must be satisfied for the deal to proceed. If a party fails to perform, remedies may include specific performance, damages, or forfeiture of earnest money.
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