Modern Real Estate Practice in Pennsylvania 12th Edition Chapter 11: Principles of Real Estate Contracts

2 ©2012 Kaplan, Inc. 11Real Estate Contracts Learning objectives –Identify the requirements for a valid contract –Describe the various types of contracts used in the real estate business –Explain how contracts may be discharged –Distinguish among express and implied, bilateral and unilateral; executed and executory; and valid, void, and voidable contracts –Define key terms

11Real Estate Contracts Contract law –A contract is a voluntary agreement or promise between legally competent parties supported by legal consideration for a legal act. 3 ©2012 Kaplan, Inc.

11Real Estate Contracts Types of contracts –Express or implied –Bilateral or unilateral –Executed or executory 4 ©2012 Kaplan, Inc.

5 11Real Estate Contracts Validity of contracts –Valid: meets all the essential legal elements –Void: lacks some or all of the essential legal elements –Voidable: appears to be valid, but may be rescinded or disaffirmed by one or both parties based on some legal principle –Unenforceable: appears to be valid but neither party can sue the other for performance

11Real Estate Contracts Essentials of a valid contract –Offer and acceptance Offeror and offeree Mutual assent; meeting of the minds –Consideration –Legally competent parties Legal age Mentally competent –Legal purpose 6 ©2012 Kaplan, Inc.

11Real Estate Contracts Essentials of a valid contract –Consent No mistake or misrepresentation No fraud, undue influence, or duress If present, voidable contract –Statute of frauds Written contract takes precedence over oral agreements Real estate commission rules require that real estate brokers must ensure that all contracts are in writing 7 ©2012 Kaplan, Inc.

8 11Real Estate Contracts Discharge of contracts –Performance: “time is of the essence” –Assignment: transfer of existing contractual rights or duties –Novation: substitution of a new contract in place of the original

11Real Estate Contracts Termination –Breach –Statute of limitations –Partial performance –Substantial performance –Impossibility of performance –Mutual agreement –Operation of law –Rescission 9 ©2012 Kaplan, Inc.

11Real Estate Contracts Contracts used in the real estate business –Listing agreements –Buyer agency agreements –Real estate sales contracts –Option agreements –Land contracts or contracts for deed –Leases –Escrow agreements 10 ©2012 Kaplan, Inc.

11Real Estate Contracts In Pennsylvania –Licensees may not provide legal advice –Consequences of unauthorized practice of law Criminal offense $2,500 fine Up to one-year imprisonment Commission disciplinary action –Licensees are permitted to fill in blanks at the direction of the client –May not charge a separate fee 11 ©2012 Kaplan, Inc.

11Real Estate Contracts Plain Language Consumer Contract Act –Promotes use of plain language to protect consumers –Exempt documents –Use short words, sentences, and active verbs Pennsylvania’s Electronic Transaction Act –Consumer must consent –Electronic signature is recognized as valid –Acknowledgment, notarization permitted electronically 12 ©2012 Kaplan, Inc.

11Real Estate Contracts Sales contract issues –Offer –Counteroffer –Acceptance –Binder –Earnest money deposit –Equitable title –Destruction of the premises –Liquidated damages –Contingencies –Amendments and addendums –Disclosures 13 ©2012 Kaplan, Inc.