1. California Real Estate Principles, 10.1 Edition
Chapter 5
Real Estate Contracts

2. Chapter 5
Discuss types of contracts and list the legal requirements for an enforceable contract.
Distinguish between the Statute of Frauds and Statute of Limitations.
Describe how contracts are terminated or discharged.
Explain the purpose and types of listing agreement.
Explain the purpose and main provisions of a purchase contract.
Describe when a counter offer form is used.
Discuss the purpose of an option contract.
Describe the major mandated disclosures required in a real estate transaction.

3. CONTRACT
An enforceable agreement between two or more legally competent persons.
A promise or mutual promise to do or not do specified acts.
For consideration
Money
Services
Forbearance
Legal object
“Honor Thy Contract”

4. TYPES OF CONTRACTS OR OR OR EXPRESS Written or Oral
IMPLIED Acts of Parties OR
BILATERAL Both Parties Obligated
UNILATERAL One Party Obligated OR
EXECUTORY
Yet to be Performed
More action required
EXECUTED Fully Performed
Contract complete OR

5. VOID VOIDABLE UNENFORCEABLE VALID
No Contract
No legal effect
No one can enforce it
An essential element is missing: Capacity or Mutual Consent or Lawful Object
VOIDABLE
Able to be Enforced or Voided only by the Injured Party; Other side can’t cancel
Lack of Capacity, Fraud, Undue Influence, Duress, Menace
UNENFORCEABLE
Not able to be enforced
Was not put in writing
Property does not Exist
Statute of Limitations has run out
VALID
Fully Enforceable
A binding contract
All Essentials Included
No Negative Influences

6. ESSENTIAL ELEMENTS OF A VALID CONTRACT
Capable parties (Emancipated minor or Age 18+)
Mutual Consent (Offer and Acceptance)
Lawful Object
(Cannot break law)
4. Sufficient Consideration
(Anything of value)
-Money -Goods -Promises -Services
5. Must be in writing to be enforceable by a court of law as stipulated by the Statute of Frauds

7. BREACH OF CONTRACT
Anticipation of/or actual legal action constituting default remedies
Legal Remedies:
Actual Damages
Liquidated Damages
Equitable Remedies
Specific Performance
Rescission

8. TERMINATION OF CONTRACT
Mutual Agreement
Destruction of the property
Written release
Substitution -- Novation
Rejection of Contract
Impossibility of performance
Incapacity of Either Party
Completed Performance

9. STATUTE OF LIMITATIONS
Provides deadline for filing a court action
Examples:
Must file within:
1 Year
Against Bank for Forged Check
2 Years
Oral Contract
Title Insurance Matter
3 Years
Trespass
Fraud or Mistake (3 years from discovery)
4 Years
Written Contract
10 Years
Judgment

10. RESIDENTIAL LISTING AGREEMENTS
A contract between the Principal (Seller) and Agent (Broker) that:
Authorizes agent to find buyer or tenant
Establishes the commission
(Note: Commissions are negotiable)
Lists the
delegated powers to broker, as agent
terms and conditions that the seller will sell
amount of the broker’s commission and when earned
has a definite termination date

11. Open listing Owner has contract with several agents
Commission paid only to lst agent with acceptable offer
Owner may sell property without a commission
No definite termination date required

12. Exclusive Agency Listing
Only one agent is employed to represent the principal (seller)
Listing broker may share commission with subagent who finds a buyer
Seller reserves the right to sell the property without paying a commission
Must contain a definite termination date

13. Exclusive Right-to-Sell
Only one agent is employed to represent the principal (seller)
Commission to agent regardless of who sells the property
Owner liable for commission if owner withdraws or makes unmarketable
MUST have a definite termination date
Cooperating agents are often used via MLS
Most common agency used in the industry

14. Net Listing Can be an open or an exclusive listing
Seller and broker agree seller is to receive a fixed amount
Broker earns everything over the net amount guaranteed to the seller
Broker must reveal the exact selling price to buyer and seller before closing and the amount of commission earned
Not frequently used in the industry

15. MULTIPLE LISTING SERVICE (MLS)
A real estate organization.
Pools agent listings with other agents.
Shares market information on property features, price, terms of sale, availability.
Written contract with membership rules.
Commission split for cooperating broker.
Usually a computerized database of information.
Increases market exposure.
Owner must five written permission to submit their property on the MLS.
Controlled by local association members

16. THE REAL ESTATE PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS
Commonly called the deposit receipt
An agreement between principal and agent
B. Functions of a Deposit Receipt:
1. Serves as a receipt of funds broker received
2. May create a binding purchase contract
3. Requires agency confirmation
4. Reaffirms commission
5. Requires good faith consideration
6. Party must receive a copy of what
they sign at the time they sign it.

17. Other important features:
1. An enforceable legal contract
2. Buyer’s offer to purchase
3. Buyer may withdraw the offer any time before seller’s acceptance communicated back to buyer.
4. Lists all terms and conditions (CLAP)
5. Specifies the time:
A. Time buyer may disapprove
B. Disclosure defects prior to contract
6. Agent must submit all offers after received

18. THE DEPOSIT RECEIPT (Important Features)
ash
oans
greements
ossession
And
Disclosure L A P

19. THE NEGOTIATING PROCESS
When buyer (offeror) makes an offer, the offer may
Be withdrawn
Expire
Be changed
Be accepted
The seller (offeree) may
Accept
Reject
Counter
When seller counters, the buyer may
Counter the counter
ARC

20. THE PURCHASE AGREEMENT
Steps to Bind the Parties: O
Offer
Acceptance C A
Communication of acceptance

21. COUNTER OFFER
When the Seller changes terms of buyer’s offer in ANY WAY.
Counter REJECTS the original offer.
If buyer accepts the counter, this must be communicated in writing to the seller.

22. Other Contracts: Option: Right to buy in the future. Optionee = buyer
Optionor = seller
Exchange contract
1031 IRC (Internal Revenue Code)
Trade one property for another under specific tax guidelines allowable by statute.