Contract Law Basics
Real Estate Purchase Contract Explained
The purchase contract is the binding agreement to buy and sell property. The exam heavily tests contract essentials, offer and acceptance, void vs. voidable, and when a contract becomes binding.
Essential Elements of a Valid Real Estate Contract
Offer and Acceptance (Mutual Assent): A definite offer accepted unconditionally by the other party. A counteroffer rejects the original offer and creates a new offer.
Consideration: Something of value exchanged by both parties. In real estate, this is the purchase price and the seller's agreement to convey title.
Legal Capacity: Both parties must be of legal age (typically 18+) and of sound mind. Contracts with minors are voidable.
Legal Purpose: The contract cannot require illegal acts. A contract to purchase property for an illegal use is void.
Mutual Consent: Both parties must freely agree without misrepresentation, fraud, duress, or undue influence.
In Writing (Statute of Frauds): Real estate contracts must be written and signed. Verbal real estate agreements are generally unenforceable.
Property description: A sufficient legal or street description to identify the specific property.
Contract FAQ for the Exam
What is the difference between a void and a voidable contract?
A void contract has no legal effect from the beginning — it cannot be enforced by either party (e.g., a contract for an illegal purpose). A voidable contract is valid and binding until one party chooses to rescind it — for example, a contract signed by a minor (the minor can void it, but the adult cannot).
When does a counteroffer kill the original offer?
A counteroffer rejects the original offer and substitutes a new one. Once a counteroffer is made, the original offer is dead and cannot be accepted. If the counteroffer is rejected, the original offer cannot be revived unless restated.
What is earnest money and is it required for a valid contract?
Earnest money is a good-faith deposit submitted by the buyer to show serious intent. It is NOT legally required for a contract to be valid — consideration can take any form. However, earnest money is practically required in most transactions.