Nearly every real estate transaction runs on contracts. You don't draft them from scratch, but you must understand what makes them enforceable and what the standard clauses mean.
Essential elements of a valid contract
- Offer and acceptance (mutual assent / 'meeting of the minds').
- Consideration — something of value exchanged.
- Legal capacity — parties must be of legal age and sound mind.
- Legal purpose — the objective must be lawful.
- Genuine assent — free of fraud, duress, or misrepresentation.
Contract status & clauses
- Executory vs. executed
- Executory = not yet fully performed; executed = fully performed.
- Contingency
- A condition that must be met (e.g., financing, inspection) for the contract to proceed.
- Earnest money
- A good-faith deposit held in escrow, applied at closing.
- Statute of Frauds
- Requires real estate contracts to be in writing to be enforceable.
Contract classifications
- Valid / void / voidable / unenforceable
- Valid = fully binding; void = no legal effect ever; voidable = one party may cancel; unenforceable = valid but a court won't enforce it (e.g., not in writing or past the statute of limitations).
- Bilateral vs. unilateral
- Bilateral = a promise for a promise (most purchase contracts); unilateral = a promise accepted only by performance (e.g., an option).
- Express vs. implied
- Express = stated in words; implied = created by the parties' conduct.
Listing agreement types
- Exclusive right to sell
- The listing broker earns a commission no matter who sells — the most protective for the broker.
- Exclusive agency
- Broker earns a commission unless the owner sells it themselves (then no commission).
- Open listing
- Non-exclusive; only the broker who procures the buyer is paid, and the owner may sell on their own.
- Net listing
- Broker keeps anything above a set 'net' to the seller — prohibited or discouraged in most states because of the conflict of interest.
Other contract concepts
- Option contract
- For consideration, an optionee gets the right (not the obligation) to buy within a set time at a set price.
- Right of first refusal
- A right to match a bona fide offer before the owner sells to someone else.
- Assignment vs. novation
- Assignment transfers contract rights to a new party (original party may stay liable); novation substitutes a new party/contract and releases the original.
- Equitable title
- The buyer's interest after a contract is signed but before closing — the right to obtain legal title.
- Counteroffer
- A response that changes terms — it rejects and terminates the original offer.
- Time is of the essence
- Makes stated deadlines strictly binding; missing one is a breach.
Breach & remedies
- Specific performance — a court orders the party to complete the sale (real estate is 'unique').
- Liquidated damages — a pre-agreed amount (often the earnest money) kept on default.
- Compensatory damages — money for actual losses.
- Rescission — cancel the contract and return the parties to their pre-contract positions.
A contract signed by a minor is generally voidable by the minor. Know void (no legal effect ever) vs. voidable (valid until canceled) vs. unenforceable (valid but not court-enforceable). A counteroffer kills the original offer.