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national chp.3
Real estate
| Term | Definition |
|---|---|
| 3-1 Contract Basics contract | contract is a legally binding and enforceable agreement to do or not to do a specific thing |
| express contract | can be oral or written |
| implied contract | created by actions, not in writing (handshake) |
| statute of frauds | requires contracts transferring real estate interests to be expressed written agreements |
| conditions of a contract valid contract | contains all essential elements, is binding on both parties, and is enforceable by the courts |
| voidable contract | appears to be valid, but one party may disaffirm because the party is a minor or was subject to duress, fraud, or misrepresentation |
| void contract | not enforceable due to failure to contain all essential elements MUST BE IN WRITING |
| 3-2 performance and discharge of obligations unilateral | promise is exchanged for performance ex- alice promises to perform ("I will sell you my house"), if bill decides he wants alice to perform ("I may buy your house; let me decide") |
| bilateral | promise is exchanged for a promise ex- alice and bill make equal promises (Alice "i promise to sell you my house and deliver a deed") (Bill "I promise to buy your house and pay you money") |
| executed | duties are completed by both parties -they are fully performed |
| executory | one or both parties need to complete part of the contract -duties yet to be performed |
| assignment | transfers obligation but not liability -ex- sublease |
| novation | a NEW CONTRACT replacing an old one -transfers obligation and liability |
| legal impossibility/impossibility of performance | a duty required by the contract can't be legally performed |
| death or incapacity | contract is terminated only if no one is left to perform |
| amendments | changed or modifications to a contract must be in writing and signed by all parties -brokers can assist the parties in creating such amendments -can only amend on executory contract |
| addenda | additional material attached to and made part of the initial agreement(offer) -amendments modify contracts -attachements explain items attached to offers |
| 3-3 essential elements of a valid contract 1) competent parties/contractual capacity | -age of majority is 18; a contract with a minor is VOIDABLE |
| ...mentally sound | contract w/ someone declared incompetent by a court is VOID -that person can enter a contract only if court appoints a guardian to act on the person's behalf |
| 2) mutual agreement/meeting of the minds/OFFER AND ACCEPTANCE | offer and communication of acceptance made before offer has been withdrawn -qualified acceptance or counteroffer is rejection and terminated the original offer |
| ...if counteroffer | is initialed by both parties, it IS accepted -then becomes executory |
| ...a buyer who receives a counteroffer | is not obligated to respond and may make an offer on a new property without obligation to the seller that countered the first offer |
| ...a seller who counters | and then receives an offer from another party must withdraw the counteroffer before accepting the new offer |
| MUTUAL AGREEMENT | there must be the following -no fraud or misrepresentation -no mistake of material fact (mutual misunderstanding) -genuine and free assent |
| 3) | lawful objective/legal purpose |
| 4) consideration/ money or something of value | not earnest money (which is not required) |
| 5) in writing and signed | certain contracts, based on statue of frauds |
| 3-4 statue of frauds and statue of limitations statue of frauds requires that agreements... | be in writing -requires that certain contracts for the transfer of real estate be in writing to be enforceable -the law does NOT apply to leases of 12 months or less |
| agreement signed | certain agreements must be signed by the parties to be charged with the responsibility to perform |
| purpose of statue of frauds | -to prevent fraud by someone seeking enforcement of an executory contract that was never made -to prevent problems w/ oral real estate contracts |
| statue of limitations | sets the lengths of time parties will be given to file a claim or lawsuit |
| 3-5 types of real estate contracts purchase agreement/ offer to purchase/ contract of sale | -agreement is bilateral- promise for a promise -offer becomes a valid binding contract when acceptance is communicated -is executory until performance by parties (closing) |
| ...buyer | -vendee- has equitable title and is the equitable owner |
| ....seller | -vendor- legal title and legal owner |
| ...contingency clause | -may include one -allowing buyer to terminate under certain conditions if he cancels per the terms --ex- buyer would get earnest money back |
| ....-most typical contingency is for... | financing -if the buyer terminates the contract per a contingency, the buyers earnest money is returned -brokers are NOT PAID if a contract terminates per a contingency |
| ....earnest money | -is NOT consideration -not required to create a valid purchase agreement |
| option | -owner/seller gives buyer the right to buy for a set price and set term -option fee is paid by buyer for the right -owner/seller retains option fee if buyer decides not to buy |
| ...unilateral contract | becomes bilateral when option is exercised by buyer |
| ....bilateral, installment, or land contract | -if the buyer decided not to purchase -seller who gave the option would have no recourse against the buyer (seller keeps the money the buyer gave them) |
| lease purchase | -two contacts (a purchase and a lease) -portion of lease payments can be applied to a down payment |
| lease ...elements of a lease | 1.names of lessor (landlord) and lessee (tenant) 2. physical description of property 3. rent terms |
| ...lessor | gives right to occupy to lessee and has reversionary interest to retake possession |
| ...types of leases 1. gross lease/fixed lease | -tenant pays fixed rent -landlord pays all expenses (utilities, taxes, or special assessments) (typically used in residential properties, but can be used for commercial or industrial) |
| 2. net lease | -tenant pays fixed rent plus expenses -most common for commercial properties |
| 3. percentage lease | tentant pays percentage of income as rent |
| 4. land lease/ground lease | -tenant rents unimproved property - tenant improvements become the landlord's upon termination |
| 5. graded lease/step-up lease | rent increases or decreases at predetermined times and amounts |
| 6. index lease | rent is adjusted based on economic index |
| 7. sale-leaseback | converts equity to capital without giving up possession |
| ...constructive eviction | -lease may be terminated if lessee must vacate due to acts or failure to act of lessor -wrongful eviction |
| ...actual eviction | used by landlord to evict tenants who are in breach of their lease |
| 3-6 remedies for breach of contract/default mutual recession | mutual cancellation of obligation and return of all parties to their original condition before the contract was executed -both buyer and seller decide to walk away |
| ...would be acceptable if | there are major problems ex-the house burns down or there are many repair items |
| ...would not be acceptable if | the buyer decides she doesn't like the house or wants to buy a different property |
| ...earnest money | would be returned to the buyer -IS NOT CONSIDERATION |
| remedies for default | enforce specific performance (court action to force breaching party to perform |
| ...specific performance | the only option, per the contract, for the buyer if the seller decides to terminate |
| ...terminate the contract | and receive earnest money as liquidated damages -releasing both parties from contract |
| ...sue for | actual damages |
Created by:
kmills5
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