Real Estate Purchase Contract - 5 Basic Elements
Legally Competent Parties: The parties entering into a contract must all have the legal capacity to enter into that contract. Lack of legal competence will render the contract either voidable or immediately void. Legal competence usually refers to three requirements:
- Mental capacity - This requirement restricts any party suffering from a mental handicap. It also extends to persons under the influence of drugs or alcohol.
- Legal age - Although states vary, the usual "age of majority by a minor" is 18.
- Authority to act - All parties entering into and signing a contract must have the authority to do so.
Offer and Acceptance: Typically, this contract requires one party to make an offer and the other party to accept. This requirement assumes and requires all parties to have accurate and complete knowledge of the contract's terms and conditions. The minimum terms required for a valid contract are identities of the parties, description of the subject property, time for performance of contract provisions and the price to be paid. The offer typically must meet three basic requirements:
- Intent - The person making the offer must intend for the offer to be legally binding.
- Communicated - The offer must be delivered to the receiving party.
- Definite terms - The terms of the offer must be clearly defined so as to establish the intention of the parties.
Once the offer is made but not yet accepted, the offer itself will terminate under any of the following circumstances:
- Rejection of the offer - by the receiving party
- Withdrawal of the offer - before it is formally accepted
- Death, incapacity or insanity - of either party
- Destruction of the subject property
- Expiration of the time period indicated in the offer or a reasonable period of time, if no time period is stated
- Counteroffer with a change of terms - which terminates the original offer
Reality of Consent: This term refers to the contract requirement that all parties entering into the contract must do so freely. If not, the reality of consent requirement makes the contract voidable, at the option of the innocent party. The court recognizes three instances when reality of consent is compromised:
- Duress - The use of force, threat of force or mental stress creates duress or an atmosphere of coercion that makes the contract voidable.
- Undue influence - When a relationship of trust is abused by the trusted person, the party involved may not be taking action under his own free will - even if he thought so at the time the contract is made.
- Fraud or misrepresentation - If a person relies on information or terms that were misrepresented by the other party, then the aggrieved person may void the contract. This category also makes contracts voidable for fraud, tricks and mutual mistakes.
Consideration: Consideration is the legal catch-all term for anything of value that the parties agree to give to each other. It usually entails money, property or service. The buyer's offered consideration is usually money, while the seller's offered consideration is title to real property.
Legality of Object: If the purpose, consideration or content of the contract is illegal, the courts may find it unenforceable. For example, real estate agent promises the homeowner a kickback if he hires her to sell his house. When the agent refuses to pay the homeowner, he cannot sue her for an illegal kickback.
