Florida Real Estate Principles, Practices & Law 39th Edition Unit 11: Real Estate Contracts

Contracts in General Promises A contract defines each of the parties legal obligations and rights

Authority of Licensees to Prepare Contracts Real estate licensees are allowed to assist buyers and sellers with the preparation of four types of contracts Listing agreement Buyer brokerage agreement Sale and purchase contract Option contract

Essential Elements of a Contract Contractual capacity of the parties (competent) Voidable by the minor Offer and acceptance—mutual assent “Meeting of the minds” Offeror and offeree Legality of the object (legal purpose) Consideration Valuable Measured in terms of money Good Cannot be measured in terms of money love and affection

Statute of Frauds Requires certain contracts be written and signed by parties to be enforceable (in court) Purchase and sale contracts Option contracts Deeds and mortgages Lease agreements for more than one year Listing agreements for more than one year

Statute of Limitations Establishes time period during which a contract is enforceable (in court) Written contracts: 5 years Oral contracts (parol): 4 years

Elements of a Valid Real Estate Sale Contract Competent parties Offer and acceptance (meeting of minds) Legal purpose In writing and signed (Statute of Frauds) Consideration (valuable or good)

Void, Voidable, and Unenforceable Contracts Does not meet all of the required elements of a valid contract and, therefore, has no legal effect Voidable A contract in which one party may cause the contract to be voided Unenforceable A contract with required elements but will not be enforced in court (does not comply with Statute of Frauds or exceeds time in Statute of Limitations)

Contract Classifications Formal vs. Informal Formal Written (historically was under seal) Informal Oral (parol contract) Bilateral vs. Unilateral Bilateral Obligates both parties to perform Unilateral Obligates only one party

Contract Classifications Express vs. Implied Express All of the terms have been conveyed in words and a meeting of the minds is reached Implied Not expressed but may reasonably be implied Executory vs. Executed Executory Contract in the process of being carried out Executed Contract has been fully carried out

Contract Negotiation An offer shows intention to contract Offer Offeror Offeree Counteroffer Alters the terms of the original offer Kills original offer and substitutes new offer

Ways An Offer Is Terminated Withdrawal by offeror Insanity Lapse of time Death Counteroffer Acceptance Rejection Destruction of the property

Termination of Contracts Performance Mutual rescission (renunciation) Impossibility of performance Lapse of time Breach

Remedies for Breach of Contract Specific performance Court orders party who committed the breach to perform as stated in the contract Liquidated damages If buyer defaults, seller may retain deposits as liquidated damages

Remedies for Breach of Contract Rescission Cancellation of contract Parties restored to original position Compensatory damages Unliquidated damages Civil suit for money damages suffered because of breach

Assignment and Novation Assignment occurs when one party transfers rights and duties to another person Assignor Assignee Novation occurs when a new party is substituted for one of the original parties

Listing Contracts Agreement between owner and broker A sales associate’s authority is derived from their broker Listing contracts may be written, oral, or implied

F.S. 475 Written Listing Requirements Written listing contracts must include Definite expiration date Description of the property Listing price and terms Broker’s compensation (fee or commission) Signature(s) of owner(s) Copy to seller within 24 hours Automatic renewal clause prohibited

Types of Listings Open listing Exclusive-agency listing One or more brokers, commission to broker who sells the property, usually a unilateral contract Exclusive-agency listing One broker, commission to listing broker if not sold directly by owner, usually a bilateral contract Exclusive-right-of-sale listing One broker, commission to listing broker no matter who procures the buyer, usually a bilateral contract

Types of Listings Net listing Could be open, exclusive agency, or exclusive right of sale Broker retains proceeds in excess of seller’s net

Multiple Listing Service Cooperative service between brokers Listing information may be entered into the service (with owner’s permission) Participants in the service (even from other brokerage firms) Show listed properties If buyer buys, receive part of the commission

Buyer Brokerage Agreements Parties and term of agreement Characteristics of property desired Broker’s obligations Buyer’s obligations Compensation (including retainer) Protection period Early termination Authorized brokerage relationship

Conditions Created by Listing Contracts Find a Purchaser Broker must produce a buyer who is ready, willing, and able to purchase at the terms of the listing contract or at other terms the seller accepts Effect a Sale Broker must produce a buyer who is ready, willing, and able to purchase at the terms specified or accepted by the seller and must ensure the transaction closes

Broker’s Compensation To be paid, the broker must Hold a current, active license Be employed through a listing or buyer broker agreement Be the procuring cause Started chain of events that resulted in the sale

Option Contracts Unilateral contract Consideration Optionor (owner) has obligations Optionee (potential buyer) has right to buy Consideration Information required Options assignable Licensee requirements Substantial valuable consideration

Sale and Purchase Contracts Vendor (seller) and vendee (buyer) Bilateral contract In writing and signed (Statute of Frauds)

Information in Sale and Purchase Contracts Names of vendor and vendee Legal description Consideration Total purchase price Financing or cash terms Title evidence Type of deed Expenses and prorations Personal property to be included Closing date, time, place Date of possession of property

Signatures If property is owned by married couple (tenancy by the entireties), or If property is a homestead and owned by one spouse only (in severalty) Both spouses must sign the sale and purchase contract

Power to Bind the Seller or Buyer Broker does not have the authority to sign for or bind the buyer or the seller Power of attorney Document designating another as attorney-in-fact

Material Defects Disclosure Sellers of residential property must disclose material defects Johnson v. Davis Florida Supreme Court decision “As is” provision does not circumvent duty to disclose

Radon Gas Disclosure Required radon disclosure statement on sale and lease contracts Information regarding radon gas Does not require testing for sale or lease

Lead-Based Paint Residential Lead-based Paint Hazard Reduction Act (federal law) Applies to housing built prior to 1978

Lead-Based Paint Homes built prior to 1978 Sellers/landlords must disclose presence of any known lead-based paint Contracts/leases must include disclosure about lead-based paint Buyers and renters must be given an EPA booklet Sellers must allow buyers to conduct an inspection within 10 days (inspection is not required) Contractor requirements

Energy Efficiency Disclosure Florida Building Energy-Efficiency Rating Act Buyers, before signing sale contract, receive an information brochure stating purchaser may get an energy-efficiency rating Created uniform, statewide energy efficiency rating system

Homeowners Association Disclosure Property subject to mandatory homeowners association Provide buyers with a disclosure regarding the association, fees, restrictive covenants, and assessments 3-day right of rescission Cannot be waived Ends at closing

Property Tax Disclosure Disclosure summary concerning ad valorem taxes before or at the time of execution of a contract for sale Buyers should not rely on the amount of the seller’s property taxes as an indication of the taxes purchasers will be required to pay in the year following purchase of the property

Building Code Violation Disclosure Seller must disclose The existence and nature of the violation Copy of the pleadings, notice, etc. Buyer will be responsible for compliance with code Seller must forward name and address of new owner to code enforcement agency within 5 days

Community Development District (CDD) Independent special district Services the long-term needs of its community Constructs, operates, and maintains infrastructure and services Developer finances construction of infrastructure by issuing bonds Homeowners repay the bonds through tax assessments Written disclosure in initial contracts for sale

Time-Share Resale Listing Agreements Required disclosure not guaranteeing a sale Other requirements Commissions (fees) Terms Broker’s services Termination rights Judgments (or litigation) against the broker for consumer fraud Buyer’s right to cancel (10 days)

Misrepresentation and Fraud Misstatement, omission, or concealment of factual matter Fraud Licensee made misstatement Licensee knew statement was not accurate Party relied on the misstatement Party was damaged as a result