Reading Time: 4 minutes

 

 

Statute of Frauds

Everything in real estate has to be in writing, according to the Statute of Frauds.

 
 
 
 
 

Essential Elements of a Contract

Review of Contracts

Mutual Assent or Agreement

An essential element of a contract. 

Legal Purpose

An essential element of a valid contract. A contract for an illegal purpose is voi

Consideration

Anything of value that induces one to enter into a contract.

Factors affecting the enforceability of contracts 

A meeting of the minds.

The parties agree to all provisions of the contract 

Acceptance

  • Communication to an offeror that the recipient (offeree) finds the terms and conditions of an offer acceptable. Turns an offer into a binding contract. 
  • Any language or action that indicates an agreement forming a contract has been reached. An offer is just an offer until acceptance.
 
 
 

The Offer

SELLER

BUYER

 

Earnest Money

Earnest Money is not mandatory.  But, “Money Talks”.

 

Withdrawal of Offer or Counteroffer

If a buyer makes an offer on a home and gives his agent a earnest money deposit, but on his way home he saw an open house sign and stopped by.  He loved that house even better than the one he put the earnest money deposit on.  Can he withdraw his first offer and get his earnest money deposit back?

YES. As long as the offer was not accepted.

If a buyer makes an offer on a home and gives his agent a earnest money deposit, but on his way home he saw an open house sign and stopped by.  He loved that house even better than the one he put the earnest money deposit on. He made an offer on the second home and put a earnest money deposit down.  Both offers were accepted.  What is the Buyer responsible for?

He is responsible for both offers.

(He bought two properties.)

 

Purchase Agreement

Once there has been a Meeting of the Minds, the Purchase Agreement gets filled out with all the terms and conditions the seller and buyer agreed upon. 

The Purchase Agreement defines the legal rights of the Buyer and Seller.

The Purchase Agreement is the contract between the seller and buyer.

 

Transactional Agent

The Purchase Agreement is delivered to the Transactional Agent. (Closing Attorney)

The job of the Transactional Agent to make sure the legal rights of the seller and buyer have been completed before the property transfers ownership.

 

Legal and Equitable Title

During escrow, the seller still has the legal title of the property until it transfers ownership.  The buyer has “equitable title”.  Equitable title is an insurable interest in the property.

Both can be inherited.

 

Time is of the Essence

In every Purchase Agreement there is a statement “Time is of the Essence”.  It means punctual performance.  In other words, if one party holds up the transaction, that party may be responsible to the other party for damages.

 

When Agent’s Money is Earned

The Listing/Seller’s Agent has earned their money when they bring a

READY, WILLING and ABLE buyer

to meet the terms of the listing agreement or the seller’s accepted a different offer.

The Buyer’s/Selling Agent earns their commission when the transaction closes.

 
 
 
 

The Transactional Contracts

Listing Agreement (an expressed contract)

Between the seller/client/principle and the seller’s agent/listing agent.

Bilateral or Unilateral depends on the type of listing.

SELLER → Listing Agent

Unilateral or Bilateral depends upon the type of listing agreement.

Purchase Agreement

Is between the seller and buyer.

SELLER → BUYER

SELLER ← BUYER

It is a promise for a promise.

BILATERAL Contract

We know a purchase agreement is a bilateral contract.

What is a UNILATERAL Contract.

Example: A newspaper notice offering a reward for the return of a lost dog.

Both agents are not parties to the listing agreement.  It is solely between the seller and buyer.

If a buyer feels that the seller’s agent lied to him, the buyer will have to sue the seller.

Purchase Agreement 

The buyer does not have a contract with the listing/seller’s agent.

If the seller gets sued by the buyer and the seller believes it was his/her agents mistake, the seller can sue his agent.  The contract is the Listing Agreement

 
 
 

 Multiple offers

An agent should advise the seller to respond to one offer at a time.

 
 
 

Counteroffers

  • Legally, a rejection of the original offer; a new offer. In form, a counter usually states that the first offer is accepted “except for the following changes…” thus incorporating (merging) the first contract. 
  • Not binding on the buyer (who is now the offeree) until accepted.
  • A counteroffer voids the original offer.
 
 
 

Earnest Money Deposit vs. Liquidated Damages

The earnest money deposit is a Buyer’s deposit that will get submitted with an offer.  Although an earnest money deposit is not a mandatory condition of the sale, buyers will supply one to show their true intentions.

Liquidated Damages are money set aside to be paid to the party that has been injured.  Some agents will include liquidated damages into the offer to purchase.  The liquidated damages would be paid to the seller if the buyer backs out after a meeting of the minds.

Those damages are specified by contract in advance (usually loss of earnest money) if the buyer defaults. If specified, liquidated damages are the seller’s only remedy against the buyer.

 
 
 

Notice, delivery, and acceptance of contracts

Actual Notice

That truly seen, heard, or read or observed and not presumed. Contrasts with constructive (legal) notice.

Acceptance

Any language or action that indicates an agreement forming a contract has been reached. An offer is just an offer until acceptance.

Acknowledgment

Written declaration by a person who signs a document that he or she is actually who they claim to be. Acknowledgments are witnessed by a notary public or other authorized official.

If your buyer wants to get a divorce before she and her husband complete a transaction to purchase a home, you should tell her to see an attorney.

A prospective buyer has the right to demand his deposit money back before the offer is accepted.  Counter Offers can be rescinded also before it is accepted.

 
 

Specific Performance and or Damages

A contract remedy permitting either party to force the other to perform the contract and sue for damages. Buy-Sell contracts are often “specific performance” against the seller—opposite of liquidated damages

 

The Counteroffer Challenge

Who keeps the Purchase Agreement?

ANSWER: Both Seller and Buyer and Both Agents