Modern Real Estate Practice in
Pennsylvania 12th Edition
Chapter 11: Principles of Real
Estate Contracts
11
Real 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
©2012 Kaplan, Inc.
2
11
Real Estate Contracts
• Contract law
– A contract is a voluntary agreement or promise
between legally competent parties supported by
legal consideration for a legal act.
©2012 Kaplan, Inc.
3
11
Real Estate Contracts
• Types of contracts
– Express or implied
– Bilateral or unilateral
– Executed or executory
©2012 Kaplan, Inc.
4
11
Real 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rescinded or disaffirmed by one or both parties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
©2012 Kaplan, Inc.
5
11
Real 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
©2012 Kaplan, Inc.
6
11
Real 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
©2012 Kaplan, Inc.
7
11
Real 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
©2012 Kaplan, Inc.
8
11
Real Estate Contracts
• Termination
–
–
–
–
–
–
–
–
Breach
Statute of limitations
Partial performance
Substantial performance
Impossibility of performance
Mutual agreement
Operation of law
Rescission
©2012 Kaplan, Inc.
9
11
Real 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
©2012 Kaplan, Inc.
10
11
Real 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
©2012 Kaplan, Inc.
11
11
Real 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
©2012 Kaplan, Inc.
12
11
Real 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
©2012 Kaplan, Inc.
13