Modern Real Estate Practice in Illinois Eighth Edition Chapter 11: Real Estate Contracts ©2014 Kaplan, Inc.

Contract Law A contract must be: –Voluntary –Made by legally competent parties –Supported by legal consideration –Having to do with a legal act

Contract Law Express Contracts –Parties state terms and intentions in words –May be oral or written Implied Contracts –Agreement of parties demonstrated by conduct

Contract Law Bilateral Contracts –both parties promise to do something; one promise is given in exchange for another –example: a real estate sales contract Unilateral Contracts –one-sided agreement; one party makes a promise to induce a second party to do something, and the second is not legally obligated to act Executed and Executory Contracts

Essential Elements of a Valid Contract Offer and acceptance (mutual assent) Consideration Reality of consent Legally competent parties Legal purpose Statute of Frauds requires some contracts to be in writing

Validity of Contracts A contract is valid when it meets all the essential elements that make it legally sufficient or enforceable A contract is void when it has no legal force or effect because it lacks some or all of the essential elements of a character

Validity of Contracts A contract is voidable when it appears to be valid but may be rescinded or disaffirmed by one or both parties based on some legal principle A contract is unenforceable when it seems on the surface to be valid; however, neither party can sue the other to force performance

Discharge of Contracts Performance of a Contract Assignment –the transfer of rights or duties under a contract Novation –substitution of a new contract in place of the original

Discharge of Contracts Breach of Contract –violation of any of the terms or conditions of a contract without legal excuse –Seller’s remedies –Buyer’s remedies –Statute of Limitations

Discharge of Contracts Termination can occur when any of the following take place: –Partial performance –Substantial performance –Impossibility of performance –Mutual agreement –Operation of law –Rescission

Contracts Used in the Real Estate Business Contract forms Listing and Buyer Agency Agreements Leases Real Estate Sales Contracts Escrow Agreements

Contracts Used in the Real Estate Business In Illinois –Chicago Bar Association, et al. versus Quinlan and Tyson, Inc. –Ruled that real estate licensees are authorized only to fill in blanks on printed form contracts that are customarily used in the real estate community

Customary Terms of Real Estate Sales Contracts Offer, counteroffer, and acceptance Earnest money agreement Equitable title Destruction of premises Liquidated damages Contingencies Amendments and addendums

Contracts Use in the Real Estate Business Options –contract in which optioner gives optionee the right to buy or lease property at a fixed price within a certain period of time –Optionee pays a fee for option right Land of Contracts –also known as Contract for Deed, Installment Contract, or Articles of Agreement for Warranty Deed –seller retains legal right to property; buyer gains equitable title to property