Sample section of this chapter for your review.
Chapter 19 - Write the Offer and Contracts
Contracts are a fundamental fact of life for real estate licensees. In some agreements, such as the independent contractor agreement, listing agreement, buyer representation agreement, transaction brokerage agreement, you, as a licensee, are a party to the contract. You will be negotiating for rights and responsibilities for your personal benefit. In other cases, such as purchase and sale agreements, leases, construction agreements, rights of first refusal, and options, you will be representing a buyer or seller and will need to explain the terms of the agreement and understand when an agreement is created or terminated.
This chapter begins with a discussion of the elements of a valid agreement and how contracts are created. Although the elements are explained where a buyer and seller are negotiating a purchase and sale agreement, the same elements are present in the negotiation of all contracts, whether it is an independent contractor agreement, agency agreement, option, etc. The same principles apply to all contracts.
Let’s set the stage with the following example:
Example
Mr. and Mrs. Rick Shaw are your buyers. After three weeks of looking at homes, they have found one and want to make an offer. When this moment arises, you want to be prepared with your knowledge of general principles of contract law because, during the negotiations, you need to:
1. Understand the offer and acceptance process;
2. Know when the negotiations have matured into a binding contract; and
3. Explain each clause in the contract used by your agency and how it affects your clients.
First, we look at general contract principles and in the next class, we will do a line-by-line review of a sample purchase and sale agreement.
Express and Implied Contracts
An express contract may be created by the written word or by an oral agreement to show the intentions of the parties. For example, a lease may be in writing or there may be an oral agreement stating the terms between the landlord and tenant. An implied contract is created through the actions of the parties. Restaurants don’t make you sign a contract and many don’t even require payment upfront to serve you. The bill is only given after the tempting dessert tray has been elegantly presented to you!
ESSENTIAL ELEMENTS OF A CONTRACT
A contract is a legal, voluntary agreement between legally competent parties that is supported by consideration and creates legally enforceable obligations.
The essential elements of any contract are: * Parties * Acceptance * Legality of Purpose * Consideration * Offer * Communication
An agreement can be found in the simplest of words or conduct. The contract for the construction of the Queen Elizabeth, one of the largest ocean liners in its days, was contained in a letter from the builder containing words to the effect ... "We agree to build the Queen Elizabeth for 5 million pounds".
Source – http://www.e-law.bc.ca/art_essential.html
“Enforceable” means that either party could get a lawyer and go to court to force the other party to:
To have a legally enforceable agreement certain criteria must be met.
Competent Parties
The law requires that the parties to a contract have “contractual capacity,” by which we mean that the parties must have the mental ability to understand the consequences of entering into an enforceable agreement. An elderly seller who has serious dementia does not have contractual capacity so a buyer would not be able to enforce a purchase and sale agreement against such a seller.
Al Sheimer, an elderly widower, is suffering from increasing memory loss. At one moment, he decides to sell his home thinking he will move to a warmer climate. He signs an agreement to sell his home for well below market value. When Al’s children learn what he has done, they tell the buyer that Al will not be selling his property on account of his dementia. Assuming that the children can prove Al’s memory loss, the buyer will not be able to force Al to sell his property.
This example is a situation you might actually encounter, especially as a growing percentage of the population reaches old age. The most practical solution is for sellers, when they are lucid, to give a power of attorney to a trusted family member, someone who can conduct business on their behalf when they can no longer legally enter contracts for themselves.
Power of Attorney
A power of attorney (POA) is a legal document authorizing someone else to represent you. The person accepting duties outlined in the power of attorney is the attorney in fact. These are two most common requirements for reviewing a power of attorney (POA).
First, if a seller says he has a power of attorney to sell the property, the agent should read it. Does it specifically say that the person has the “authority to sell real property” or the “authority to sell real estate”? If it reads, “authority to sell property” what does it mean? Did the person mean real property or personal property or both? The clear authority to sell the property should be determined at the time of the listing.
Second, has it been notarized? This means a public official has certified the signing of the document. If it hasn’t been notarized many recording offices will not accept it as a valid document. So, an agent should read it and if there are questions, take it to the broker for the next step.
Other examples of people who lack contractual capacity:
Duress is any act or threat of harm which coerces a person to do something against his will.
A seller who enters into an agreement with a 17-year-old to sell a motorcycle and finds that the young man changed his mind will not be able to enforce the agreement in court because the 17-year-old does not have contractual capacity. There are some exceptions to this rule where the minor has contracted for life’s necessities like food, clothing, shelter, and medical services.
Representative Situations
As a real estate agent you may find yourself entering into listing or lease agreements with a business, corporation, partnership, religious institution or non-profit organization. Each of these organizations will have a governing document authorizing someone to enter into legally binding agreements for the organization. Agents should ask for a copy of the governing document and review it to make sure they have the signature of the authorized person to perform on the listing agreement.
If listing a property in an estate settlement, find out the name of the attorney who is handling the estate and follow their guidance. If the person died testate, meaning with a will, the executor responsible for settling the estate, may or may not have the authority to sell the property. If the person died intestate, meaning without a will, an administrator will be appointed by the court to settle the estate. An administrator may also be appointed when someone dies with an invalid will. The administrator does NOT have the authority to sell. The transaction would have to be approved through the courts. These cases are usually very complicated and you want sure that you are following the proper legal steps for your state.
Legality of Purpose
To be enforceable, a contract must have a legal purpose. Judges do not enforce contracts whose purposes are illegal.
Imagine two friends, Brad and Angelina, sign an agreement to rob a bank. When Angelina changes her mind about the heist, Brad cannot go to court to ask a judge to enforce the agreement. Obviously, agreements for an illegal purpose will not be enforced by a judge.
A tenant enters into a contract to sell the leased property. It is illegal to sell a property where you have no ownership rights.
This concludes this section of the course.
This is a picture of the sections of this chapter which are divided into "learning chunks" of 5 to 9 minutes. The time for the end of the chapter tests, varies depending on the length of the chapter. Each chapter includes the audio files, videos and links of interest which are scattered throughout the class.
When you click the Add to Cart button, you will be asked to create an account and make your payment. You will have immediate access to the first section of your course. The remaining sections will be added long before you need them.
$359 - Includes a physical book being mailed to you.
Questions - Call or text Joyce - 859-380-0900 --- Email: Joyce@2MyClasses.com
Tuition includes the book, From the Ground Up, the Review and the Kentucky Real Estate Law Review.
