Real Estate Contract Requirements
What are the legal requirements for a real estate contract?
For any contract to be valid, it is required to contain four essential elements. In other words, for a real estate contract to be legally enforceable, it must include these essential elements. You can remember the four essential contract elements with the acronym COAL.
They are as follows:
Consideration – Consideration is defined as an exchange of values. The exchange of values between the parties could be equal but is not required to be. In a real estate sales contract, the buyer exchanges money and the seller exchanges the property.
Offer – There must be an offer made. In real estate contracts, the offer is usually made by the buyer. They make an offer to purchase. Of course, if the seller doesn’t like the offer, they can decline it, or change it and make a counter-offer. If the seller makes a counteroffer, they become the offeror, and the original offer made by the buyer is null and void as if it never existed.
Acceptance – In a real estate contract, this will be done by the offeree, which could be the seller or buyer, depending on if there were any counter-offers made.
TEST TIP – The two elements mentioned directly above (offer and acceptance) are sometimes referred to as mutual agreement or a meeting of the minds.
Legal purpose and legal capacity – The real estate contract must be for a legal purpose. Additionally, both parties must be of legal age, sound mind and NOT under the influence of drugs or alcohol.
Do real estate contract have to be in writing?
YES, and this is a common real estate exam question. What is it that requires real estate contracts be in writing? The answer is the Statute of Frauds. The only exception to this rule is a lease for less than one year, which does not need to be in writing. In other words, a verbal lease for less than one year would be a legally valid real estate contract.
Are all real estate contracts two-sided, or unilateral?
No, and these are testable real estate exam terms. A bilateral real estate contract is one in which both parties are bound to act. Such as a sales contract. A unilateral contract is one where only one party is bound to perform. Such as a real estate option. Interestingly enough, if the buyer of a real estate option exercises the option, the option contract becomes bilateral.
What else can help me prepare to pass my real estate licensing exam on my first attempt?
Other tips to help you pass your real estate licensing exam on your first attempt:
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