1. Contracts

2. 1. Agency Relationships & Contracts
B. General Legal Principles, Theory,
and Concept about Contracts
1. Unilateral / Bilateral
2. Validity
3. Void and Voidable
4. Notice of Delivery / Acceptance
5. Executory / Executed
6. Enforceability
7. Addenda to Contracts
8. Electronic Signatures / Paperless Transactions

3. 1. B. 1.General Legal Principles, Theory, and Concept about Contracts
Unilateral / Bilateral
Uni = one, like unicycle , one-sided
One party has made an offer (promise) to commit
Listing (Seller is offering compensation if buyer is procured)
Offer to purchase contract (Buyer is offering price and terms)
Option contract – allows buyer to buy in future
Once an offer is accepted, it becomes a bilateral contract
If other party makes a mark, besides their signature,
it becomes a new unilateral offer, if not
Acceptance must be communicated (important), then:
Bi = two, like bicycle
Two parties have agreed with two promises
May be more parties or promises
Both have signed contract (now executory)
“Meeting of the minds”
Now there is a contract

4. 1. B. 2.General Legal Principles, Theory, and Concept about Contracts
Validity - All contracts must have: Legal legal purpose legal age of parties (19 or 18 and married) legally competent legally authorized to perform Consideration Good (love & affection) Valuable (Cash, or its equivalent) something for something promise is more valuable than money generally, courts will not determine fairness of consideration “Meeting of the Minds” voluntary consent no duress Offer and Acceptance Offeror – person giving offer Offeree- person getting offer Roles reverse with counter offers Be in writing to be enforceable Signed by both parties

5. 1.B. 2.General Legal Principles, Theory, and Concept about Contracts
A valid contract is a voluntary, legally sufficient, binding, enforceable promise between two or more competent parties to perform (or not perform) some legal act in exchange for consideration
Express - Intentions are stated – may be oral
Statute of Frauds
Any interest in real estate, other than a lease for less than
one year must be in writing to be enforceable
Implied - Intentions are demonstrated by actions
Governed by Contract Law

6. 1.B. 3.General Legal Principles, Theory, and Concept about Contracts
Void, Voidable & Unenforceable
Void – having no legal force
Lacks one or more elements of a valid contract
Voidable – appears to be valid, subject to rescission
May be voided if:
Signed by a minor, exclusions apply to services received
May affirm when coming of legal age
Signed under duress, or under influence of alcohol or drugs
Unenforceable
Oral agreement to sell real estate
but both parties may show up for closing on Friday

7. 1.B. 4.General Legal Principles, Theory, and Concept about Contracts Notice of Delivery and Acceptance
Agent must present all written offers, unless instructed otherwise
Earnest money not required for a valid contract
Buyer’s agent has right to present offer to seller, not negotiate
Delivery of offer or acceptance should be in writing
Contract may state method , FAX, Letter
May have time limit for acceptance; 24 hours, By 5 on Friday.
A late acceptance is a counter offer
May be revoked at anytime before acceptance

8. 1.B. 4.General Legal Principles, Theory, and Concept about Contracts Notice of Delivery and Acceptance
Continued
If one party makes a change, it becomes a counter offer
Is unilateral offer until accepted
Mirror Image Rule - Other party may sign as is, and it becomes bilateral once acceptance is communicated back to other party
Imputed Knowledge –
If agent learns of acceptance, it is same as if their principal knows
When you call your client, don’t start with pleasantries; Immediately say:
“Congratulations, you just bought or sold the property”

9. 1.B. 4.General Legal Principles, Theory, and Concept about Contracts Notice of Delivery and Acceptance
Delivery and acceptance of deed
Must be delivered and accepted to become valid
Delivery
Grantor must intend to deliver
Must be delivered in Grantor’s lifetime
May be delivered to a trust (third party)
Grantor must be competent at time of delivery
Acceptance
Expression of intent to accept by grantee
Taking possession of property implies acceptance

10. 1.B. 5. General Legal Principles, Theory, and Concept about Contracts
Executory & Executed
Executory:
One or both parties have yet to perform
Period between contract and closing
Executed:
All parties have fully performed promises
Seller delivered marketable title at closing
Buyer paid purchase price
Don’t confuse with “Execute”
This means signing to make contract valid

11. 1.B. 6. General Legal Principles, Theory, and Concept about Contracts
Enforceability:
Has all elements of a valid contract
Court may order “specific performance”
Orders seller or buyer to perform
Statute of Limitations
Limits time to bring legal action to enforce rights
Estoppel – prevented from exercising rights
“Time is of the Essence”
All times noted “TiotE” in contract are “carved in stone”
If a time is missed the party is either in breach or missed the deadline for acceptance, inspection

12. 1.B. 7. General Legal Principles, Theory, and Concept about Contracts
Addenda to Contracts:
ADDenda means “add” to the contract at time of contract
Personal Property Addenda
Lead Based Paint Addenda
Anything parties want to add
Amendment means to “mend” the contract
Change the closing date
Change type of financing

13. Contract Clauses
Don’t write your own

14. 1.B. 8. General Legal Principles, Theory, and Concept about Contracts Electronic Signature
Electronic Signatures / Paperless Transactions

15. Breach?

16. What are two types of listings?

17. Must a seller accept an offer?

18. Is consideration required for a valid contract?

19. What does “meeting of the minds” mean?

20. Statute of Frauds?

21. Statute of limitations?

22. What would make a contract void?

23. Contract that appears to be valid, but subject to rescission is?

24. Is earnest money required for a valid contract?

25. What does acceptance mean?

26. If the party getting the offer makes a change on the offer, what it will become?

27. Executory?

28. Addenda?

29. Vendor?

30. Vendee?

31. Option?

32. Contingency?

33. Novation?

34. Breach?

35. Name two contingencies?

36. 10 Minute Break

37. Types of Listing Services:
1.Agency Relationships & Contracts D. Services / Listing & Buyer Contracts 6. Types of Service / Listing Contracts
Types of Listing Services:
Exclusive right to sell – This is the one you want
Agency will be paid regardless of who sell property
Exclusive Agency
Agency will be paid only if it sells property
Either of above may exclude a buyer, who seller may be working with a potential buyer
(reservation; listed by name; include short time limit)
Open - MLS will not accept open listing
Seller offers to pay first agency that sells property
Net ( Illegal )
Seller says agent can have all money above set price
MLS ( Multiple Listing Service)
Is not a listing, but a marketplace where listings are posted
Pocket – you know about a property where owner told you they would be willing to sell at a good price, but not currently listed

38. 1. Agency Relationships & Contracts
C. Purchase Contracts
(contracts between seller and buyer)
1. General Principles and Legal Concepts
2. Purchase Contract
(contract of sale, purchase and sale agreement)
3. Options (contractual right to buy)
4. Basic Provisions / Purpose / Elements
5. Conditions for Termination / Breach of Contract
6. Offer and Acceptance (counter offers,
multiple offers, negotiations, earnest money)
7. Contingencies
8. Duties and Obligations of the Parties
9. Handling Funds of Others

39. 1.C.1. Agency Relationships & Contracts
Purchase Contracts (between buyer and seller)
General Principles and Legal Concepts
Legally enforceable promises in written contract plus addenda clearly state the expressed intentions of the parties
Use pre-printed forms, provided by Broker, written by attorney
Has fill in blanks
Writing your own contract is illegal practice of law
Use clauses approved by MLS/Board
KISS – keep it simple silly, I may not understand
You do not want a contract that may or can be understood
You want a contract that cannot be misunderstood
Seller to replace carpet -- Do you think seller will get right carpet?
Seller to give $2500 carpet allowance can not be misunderstood
Even this should be negotiated as simply a price reduction

40. 1.C.1. Agency Relationships & Contracts
Purchase Contracts (between buyer and seller)
General Principles and Legal Concepts
Same rules apply to all contracts
Contract is enforceable promises to do or not to do something
Between Principals:
Seller (Vendor)
Buyer (Vendee)
Contracts will list everything about transaction:
Parties legal names
Legal Description (street address is not sufficient)
Purchase Price (starts with an offer) (then likely a counter offer)
Terms, Conditions (negotiate)

41. May be called many names:
Sales Contract
Purchase Contract
Contract of Sale
Purchase and Sale Agreement
Starts as a:
Unilateral offer to purchase
Buyer’s Agent will send this to Seller’s Agent ----
Confusing, but this is the
Listing Agent who represents Seller
Use blue ink on black printed contracts
Some agents will use another color for changes
Hand written overrides printed

42. Offer returned to buyer after changes
Is now a counter offer
If acceptable to buyer,
It will be initialed by the price change and anywhere else there is a change
If unacceptable, buyer does not have to do anything Or
They may counter the counter
(more likely)

43. 1.C.3 Agency Relationships & Contracts
Options (contractual right to buy)
Optionor Seller gives option
Optionee Buyer gets option
Option gives right to buy property in the future
Under terms negotiated in present
Does not obligate buyer
Does obligate seller if option is exercised
Option Premium is money paid up front for option right to buy
Non-refundable
May apply to purchase price if negotiated into option agreement
Seller may not sell property during option period
Time is negotiable, just like everything else
Either party may assign option unless not allowed in contract
Florida condos in boom times
May not use options to get around real estate laws

44. Basic Provisions / Purpose / Elements
Same rules apply to all contracts
Purchase Agreement is most important document
Determines legal rights and obligations of parties
Sets times and conditions for closing
List contingencies
After last person signs off on changes (called finalized date)
Unilateral becomes Bilateral ( 2 sided executory contract)
If either party dies, it is still a contract
Different from listing agreement, which dies with principal
Purchaser obtains Equitable Rights in property

45. 1. C. 4. Agency Relationships & Contracts Basic Provisions / Purpose / Elements
Assignment
Rights and obligations are transferred to another
Assignor will still be liable if assignee can’t perform
Novation
Substitute new contract for old one
Buyer in new home community decides to get bigger home, same builder
Contingencies
Conditions that must be met to close the deal
Financing, Inspections, Replace roof, Sell another house
Equitable Title
Buyer gets rights in property due to contract
Must get a Mutual Release if contract falls through
Forfeiture of Earnest Money
Sometimes buyer will walk away
Must get a Mutual Release to disperse money, release equitable rights

46. 1. C. 5. Agency Relationships & Contracts
Conditions for Termination / Breach of Contract
Completely Performed
Assignment - doesn’t terminate contract, but transfers rights
Novation (substitute new contract for old one)
Impossibility of performance (house burned)
Operation of Law (foreclosure)
Rescission – returns parties to original position
Falls apart due to contingency (financing)
This can happen right up to closing
If new construction, builder will want money or a promissory note to pay for upgrades. Note survives rescission

47. 1. C. 5. Agency Relationships & Contracts
Conditions for Termination / Breach of Contract
Breach
Cancellation – Parties are in different position
Forfeit earnest money if buyer’s breech
Violation of terms
Seller can not deliver marketable title
Marketable title means it can be easily transferred again
Buyer takes on a lot of new debt to keep from qualifying for loan
Quits job
Buyer backs out (will forfeit earnest money)
As seller’s agent you should ask for as much EM as you can get
Seller may back out (can sue for specific performance) (rare)

48. 1. C. 6. Agency Relationships & Contracts
Offer and Acceptance (counter offers, multiple offers, negotiations, earnest money)
Counter offer is a new offer from the other party if any term is changed
It is a unilateral offer until there is a “meeting of the minds”
Counter offers can be countered with another offer until both sides come to an agreement
There may be a point where nothing is happening
Make something happen, by calling the other agent and see what could be done. (Can we split the difference?)
It is the agents that make negotiations work
Negotiate away all the little things first, then adjust price

49. 1. C. 6. Agency Relationships & Contracts
Offer and Acceptance (counter offers, multiple offers, negotiations, earnest money)
Negotiations usually start with a offer lower than the seller will accept
Don’t let emotions get involved
Don’t get mad about a low offer
Determine what buyer is really after
Do they need for seller to pay closing cost?
OK, then the price will need to cover this
Do they need to sell their home first?
This doesn’t give them much leverage to get a lower price
If there is a contingency for the buyer to sell their home,
Put a 48 hour break clause in to allow your client to keep marketing
Buyer is testing the bottom to see what seller will do
This can go on several times, even days, until both sides get together
Whatever the other agent says;
Always say: “Let me check with my client”

50. 1. C. 6. Agency Relationships & Contracts
Multiple Offers
Highly desirable property, more common on newly listed foreclosures
When you get a written offer, you must submit it to seller immediately
Do not hold an offer back for any reason
Selling agent has right to present their offer to seller, but not negotiate then
Seller does not have to accept any offer
May want to inform buyers of multiple offers, and to submit their “highest and best”
Seller may be considering one, when another offer comes in
Seller may withdraw acceptance if it has not been communicated to buyer
Keep open communications with seller, let them know if you expect another offer
Discuss with seller what they want to do
Never assume you know what anyone is going to do
Buyer may withdraw offer before acceptance
Keep your Broker informed

51. 1. C. 7. Agency Relationships & Contracts Contingencies
Contingencies protect buyer, but
Also gives seller an out if the contract is not good
gets property back on market if financing bad
Normally two big ones:
Financing
Inspections
May have others:
Sale of another home
Subject to parent’s approval
Suitable for buyer’s purpose (common in commercial)

52. Financing
Contingency

53. 1. C. 8. Agency Relationships & Contracts Duties and Obligations of the Parties
Buyer to use best efforts to obtain financing
Have financing ready before making offer
Provide documents to lender
Close transaction on time
Seller to provide marketable title
Clear any issues with title; do before listing
Complete conditions in contract (replace roof)
Buyer found other items when inspected and wanted repaired
These could be minor items that may be negotiated away
Agent must keep communications going
There are a lot of people involved; don’t assume they will perform
Someone may drop the ball, and you will need to be aware

54. 1. C. 9. Agency Relationships & Contracts
Offer and Acceptance (counter offers, multiple offers, negotiations, earnest money)
Earnest Money
Not required for a valid contract
Ask for as much as possible to lessen chance of buyer walking away
It happens more often than you would think ( buyer’s remorse )
If representing buyer, offer as little as possible
If breach, EM will become liquidated damages
If post dated check, seller must approve
Must be held in an FDIC insured bank in Alabama with Broker on account
May be held by either broker, or closing attorney
Must be labeled as a “trust or escrow” account
AREC audits these accounts, must reconcile every month
If sale falls apart, must get Mutual Release to disperse funds
If disputed, may end up in court unless parties can negotiate
Get parties to move forward, get guidance from AREC if needed
Trust money may not be mixed with brokerage funds (co-mingled)
Trust money may not be used to pay brokerage bills (conversion)
Lose License &
Go to Jail

55. What are some of the elements a contract must have to be valid?

56. What are some of the elements a contract must have to be valid?
What if some of these are missing?

57. What if the seller changes the price on your offer and sends it back?

58. What is an option?

59. What is novation?

60. What is rescission?

61. What is breach?

62. Can you initial the contract for your seller?

63. What is earnest money?

64. Comingle?

65. What are the two big contingencies?

66. 1. Agency Relationships & Contracts
D. Services / Listing & Buyer Contracts
(contracts between licensee and seller or buyer)
1. General Principles and Legal Concepts
2. Basic Provisions / Purpose / Elements
3. Duties and Obligations of the Parties
4. Conditions for Termination / Breach of Contract
5. Remuneration / Consideration / Fees
6. Types of Service / Listing Contracts

67. 1. Agency Relationships & Contracts
D. Services / Listing & Buyer Contracts (contracts between licensee and seller or buyer) General Principles and Legal Concepts apply to all contracts Listings agreements were covered earlier Buyer agreements are fairly new to the real estate industry Came about because buyers thought, incorrectly, they were being represented by the listing agent Buyer Agency gives buyers representation as client

68. 1. Agency Relationships & Contracts
D. Services / Listing & Buyer Contracts
(contracts between licensee and seller or buyer)
2. Basic Provisions / Purpose / Elements
Both agreements are contracts to provide agency services to clients, outlining what services are to be performed, time & compensation
These provisions must be followed or damages may result
“time is of the essence”
inspections

69. 1. Agency Relationships & Contracts
D. Services / Listing & Buyer Contracts
(contracts between licensee and seller or buyer)
Duties and obligations of the parties
Agent has agency duties
Seller / buyer may have agency or non
Non agency has duties
Seller should participate in presenting property

70. 1. Agency Relationships & Contracts
D. Services / Listing & Buyer Contracts
(contracts between licensee and seller or buyer)
4. Conditions for Termination / Breach of Contract
Termination of Agency - Easy as ABCDEF
Agreement
Breach
Completion
Death of principal, Destruction of property
Expiration
Flaw Law (Bankruptcy)

71. 1. Agency Relationships & Contracts
D. Services / Listing & Buyer Contracts
(contracts between licensee and seller or buyer)
5. Remuneration / Consideration / Fees
Agent may be paid by:
Commission – percent of sale
Flat fee – an amount set per sale, consulting fee
Hourly – may have other benefits
Always negotiable- never set by collusion between brokers
Anti-trust
Agent may only be paid by their Broker
May not pay referrals or kickbacks to anyone, for any reason
Only Broker to Broker referral splits are allowed
Brokers normally co-op sales with other Brokers
No requirement to split commission equally
Broker may set a minimum office rate

72. 1. Agency Relationships & Contracts
D. 6. Services / Listing & Buyer Contracts
(contracts between licensee and seller or buyer)
Buyer’s Agency creates agency
Agreement between licensee and buyer to find a property,
and get paid, even if a for-sale-by-owner
Buyer agrees to exclusively use agent to find property
Works like an exclusive right to sell listing
Set pay as a commission, accept what seller is offering,
Accept seller’s offer plus a percentage or flat fee, or any combination
Anything buyer and agent agree to

73. IMPORTANT 1. Agency Relationships & Contracts
D. Services / Listing & Buyer Contracts
6. Types of Service / Listing Contracts
Listing Agreement – Contract
(Listing Agreement may be agency or non-agency)
Minimum Service Law applies even if non-agency
Owner will sell at price and terms
Broker will be paid for being procuring cause of ready, willing, able buyer
Must be signed by all owners
Must be in writing to be enforceable
Must have expiration
No automatic renewal
Must leave copy with owner.
Is unilateral personal service (employment) agreement
Commission is always negotiable (anti-trust) (must be paid by broker)
Owner is under no obligation to sell, if they change their mind
IMPORTANT