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RE Contracts
Terms and Questions from Ch. 6 of Michigan RE Test Book
| Question | Answer |
|---|---|
| Contract | Agreement between competent legal parties to do or not do a legal act in exchange for consideration |
| Express Contract | Parties agree to all terms and conditions |
| Implied Contract | Inferred from actions of one party without express agreement |
| Bilateral Contract | A promise in exchange of a promise (Home purchase-buyer promises to purchase and seller promises to sell.) |
| Unilateral Contract | A promise in exchange for performance (Options-Optionor promises to sell land to optionee at a certain price for a certain time period.) |
| Executed Contract | Fully performed contract (signed). |
| Executory Contract | Not fully performed yet. (Mortgage-contract ends when last payment is made.) |
| Valid Contract | Binding and enforceable by law to all parties |
| Unenforceable Contract | Appears to have validity but is not enforceable by law |
| Void Contract | Essential elements may exist but is not legal. (Something illegal ie: contract to kill someone or Act of God or operation of law that take or destroy the property) |
| Voidable Contract | Failure to meet some legal requirement in negotiating agreement. (Not fully disclosing property defects). Wronged party has ability to void contract. Contracts with minors only voidable by minor. |
| Certificate of Estoppel | A document that provides for legal capacity(of age) to enter contract. If a minor who signed this later tries to claim contract is voidable this "estops" them from doing so. |
| What are the 7 essential Elements needed in a contract? | 1. Offer 2. Acceptance(meeting of the minds) 3. Consideration 4. Legal capacity 5. Reality of consent(all parties know what is being agreed upon) 6. Legality of object 7. Possibility to complete |
| Counteroffer | Acceptance that varies from the original offer. Voids the first offer. |
| What are the 6 ways in which an offer can be terminated? | 1. Expiration of offeror time limit 2. Death/Insanity of either party prior to acceptance 3. Revocation by offeror prior to notice of acceptance 4."Reasonable" time period passes 5. Offeree fails to comply with terms 6. Rejection |
| Equitable Title | Interest in Real Estate sufficient to warrant court protection of that interest |
| Legal Capacity/Competence | Mental/Emotionally capable to enter into a contract |
| Valuable consideration | Anything given in a contract to make valid and is based on dollars and cents. Can be promise of something valuable. |
| Reality of Consent | Parties have accurate knowledge of terms and conditions in contract |
| Fraud | Intentional deceit or lying about facts that someone else relies on to make a decision. Can void contract. |
| Misrepresentation | Unintentional misstatement of facts. Can void contract |
| Puffery | Exaggeration of Property benefits |
| Mutual Mistake | Mistake by both parties. Makes voidable |
| Undue Influence | Improper/wrongful control or influence by one person over another |
| Duress | Threat of violence or fear of safety |
| Legality of Object | Contract must have legal purpose |
| Condition | Act or event other than time that affects duty to render performance. ie. a contingency |
| Condition Precedent | act/event that must exist/occur BEFORE performance |
| Condition Concurrent | Performances are exchanged at same time. |
| Condition Subsequent | Discharges duty to perform if something happens to property before closing. |
| Express Condition | Condition spelled out clearly or implied by fact(gathered from terms) |
| Constructive Condition | Implied condition that is court constructed in interest of justice. |
| Statute of Frauds | Real Estate contracts must be in writing and have all essential elements to be enforceable. |
| Parole Evidence Rule | Oral explanation can support written contract but not contradict it. |
| What are the 4 ways in which a contract can be discharged/terminated? | 1. Agreement of parties 2. Full Performance 3. Impossibility to perform(act of god) 4. Operation of Law |
| Novation | substitution of new contract or new party for old in place of prior contract-only by agreement of all parties. |
| Assignment | Transfer/Sale of contract rights Assignor transfers to receiving assignee. |
| Breach of Contract | Default, does not discharge contract obligations only terminates their rights in the contract. |
| What are the 4 legal remedies against a defaulting party? | 1. Specific Performance 2. Rescission 3. Compensatory Damages 4. Liquidated damages |
| Specific Performance | Courts ordering that a contract will be completed as agreed due to the uniqueness of real property. |
| Rescission | Court action to make contract void or as if never happened. |
| Compensatory Damages | Actual amount of monies lost due to contract breach |
| Liquidated Damages | Monies set forth in contract in case of breach of contract |
| Listing Contract | Creates special agency relationship between seller of real property and a broker-to find a buyer. |
| Buyer's Contract | Creates special agency relationship between purchaser of real property and broker-to find a property for purchase. |
| What two tests determine a broker/agent's entitlement to a commission? | 1. Ready, willing, and able(buyer/seller) 2. Acceptance |
| Open Listing | Seller lists property with one or more broker but seller can sell and broker not entitled to commission fee. |
| Exclusive Agency Listing | Seller lists with one broker but seller can sell and broker not entitled to commission fee. |
| Exclusive Right-to-Sell Listing | Seller lists with one broker and even if the sellers sells the property the broker is entitled to commission fee. |
| Why is the Exclusive Right-to-Sell listing best for both broker and seller? | Broker has more opportunity to earn a commission and therefore spends more time, money, effort to sell. |
| Carryover Provision | Allows broker to earn a commission is sold by their efforts after an expired listing. |
| Besides expiration, in what instances would a listing be terminated? | Death/Incapacity of buyer or seller, property destruction, condemnation, seller or buyer bankruptcy, broker license revoked, mutual agreement, breach of terms by buyer/seller/broker. |
| What is the purpose of a Competitive Market Analysis? | Measures similar/comparable sold property against subject property to arrive at fair market value |
| What is the purpose of a purchase agreement or offer to purchase? | Bilateral express contract; buyer promises to buy under certain terms and conditions, seller promises to convey marketable title. |
| What is the purpose of Earnest Money? | Given by buyer to show sincerity, financial capability, and possible liquidated damages. Note legally required for a valid offer to purchase. |
| Time is of the Essence | Provision for timelines in a purchase agreement |
| Land Contract | Also Contract for Deed, buyer pays purchase price in installments and seller transfers legal title upon full payment. |
| Vendor | Seller in a land contract |
| Vendee | Buyer in a land contract |
| Doctrine of Equitable Conversion | Prevents vendor from doing anything to jeopardize the interest of the vendee. |
| Option | Express Unilateral contract: An owner sells right to purchase property for a particular price for a specified time. |
| Optionor | Seller in an Option |
| Optionee | Buyer in an Option |
| Right of First Refusal | Owner gives a person the First right to purchase property at whatever price is offered by another potential buyer. |
Created by:
jenkij
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