Question

Real estate contracts can be exceptionally complex documents that may require the use of an attorney in preparation. Identify the basic requirements for a binding contract; after identifying the basic requirements supplement your answer with the requirements for a legal real estate contract. Identify the concept known as “statue of frauds” and discuss its importance in the real estate transaction.  

Answer 1

To be enforceable by a court, every contract (whether written or oral) must meet several requirements. These are:-

• Consideration. Each party has to promise or provide something of value to the other. Without this exchange, there is no contract.
• Offer and acceptance. There must be a clear or definite offer to contract ("Do you want to buy this?") and an unqualified acceptance ("Yes!").
• Legal purpose. The purpose of the agreement must not violate the law. For example, you won't be able to enforce a loan agreement that charges interest in excess of what is allowed by usury laws or a service agreement to hire someone to rob a bank or kill your mother-in-law.
• Capable parties. To be "capable" of making a contract, the parties must understand what they're doing. For example, there is a presumption that minors and insane people usually don't know what they're doing and, for that reason, contracts they enter into won't be enforced under certain circumstances.
• Mutual assent. This is also sometimes referred to as a "meeting of the minds." The contracting parties must intend to be bound by their agreement and must agree on the essential terms.

In addition to these general rules, federal and state laws may impose more requirements on particular types of contracts. For example, certain consumer contracts must meet additional requirements, and some contracts must be in writing.

Statute of Frauds & Real Estate Sales:-

The statute of frauds is a law in each state that mandates that, in order to be enforceable, certain contracts must be in writing and be signed by the person against whom enforcement of the contract will be sought. Nearly all transfers of an interest in real estate fall under the statute of frauds.

Keep in mind that a transfer of an interest in real estate isn't restricted to a sale that transfers all ownership in the property to someone else. For example, deeding mineral rights to real estate requires a signed writing. Also, giving a mortgage to a lender is a transfer of an interest in real estate and must be in a signed writing. Likewise, giving your neighbor an easement, such as the right to build a driveway on part of your land, also requires a signed writing.

A real estate contract can be between a buyer and seller, an agent and broker or an investor and seller, or it can involve any number of parties. Generally, two elements must be present in order for a real estate contract to be legally binding. A legally binding real estate contract must be signed by all parties involved and something of value must be exchanged. A handshake alone is not sufficient to legally seal an agreement. In addition to signatures, a contract must be sealed with a tangible commodity—such as cash, goods or services.

When a real estate contract is legally binding, all parties have accepted the terms of the contract. First one party makes an offer. The real estate contract becomes legally binding only after the remaining party or parties accepts the first party’s offer. If the second party does not agree to all the terms, the contract is not legally valid. The second party has the option to counteroffer (make a different offer to the first party or request a change to the contract terms). However, if the first party does not agree to the counteroffer, the real estate contract is still not legally binding. Both (or all) parties must reach an agreement regarding all the terms to make the real estate contract legit.