Real estate contracts

Contracts tie with brokerage activities for the heaviest weighting on the exam, roughly 12% of your questions. Every deal you ever do runs on a contract, so this is worth real study time.

The four essential elements of a valid contract

For a contract to be legally valid, four elements have to be present. Miss one and you don't have an enforceable agreement. Memorize all four:

• Competent parties — the people entering the contract must have legal capacity. That generally means of legal age and of sound mind. A contract with someone who lacks capacity has problems.
• Mutual assent — a true meeting of the minds, created through offer and acceptance. One party offers, the other accepts the same terms. Both sides have to genuinely agree to the deal.
• Lawful object — the purpose of the contract must be legal. You can't make an enforceable contract to do something illegal.
• Consideration — something of value exchanged by each side. Usually it's money for property, but consideration is broader than just cash.

A memory trick I use: picture two competent people reaching mutual agreement on a lawful deal backed by consideration. Run those four words every time a question asks whether a contract is valid.

The statute of frauds: get it in writing

Here's a rule that's nearly guaranteed to show up. Under the statute of frauds, contracts for the sale of real estate (land) must be in writing to be enforceable. A spoken promise to sell a house generally won't hold up in court.

This is why our entire industry runs on signed paper, and why "handshake deals" on real property are a trap. If an exam scenario describes an oral agreement to buy or sell land, the statute of frauds is almost certainly the issue.

Classifying contracts

The exam tests several ways of categorizing contracts. Learn the pairs.

Bilateral vs. unilateral. A bilateral contract is a promise for a promise, both parties are obligated to perform. A typical sale contract is bilateral: buyer promises to pay, seller promises to convey. A unilateral contract is a promise in exchange for an act; only one party is obligated, and the other performs only if they choose to. An open listing leans unilateral in flavor, the owner pays only if a particular broker produces the buyer.

Express vs. implied. An express contract has its terms stated, in words, written or spoken. An implied contract is created by the parties' conduct rather than stated terms.

Valid, void, voidable, unenforceable. This four-way split is a frequent test target, so be precise:

• Valid — meets all requirements and is fully enforceable.
• Void — has no legal effect at all, as if it never existed (for example, a contract for an illegal purpose).
• Voidable — valid and enforceable, but one party has the right to cancel (rescind) it. Contracts involving a minor or made under duress often fall here.
• Unenforceable — may have been valid but can't be enforced in court for some reason, such as failing the statute of frauds or running past a time limit.

The void/voidable distinction is a classic trap. Void = dead on arrival. Voidable = one party can choose to kill it.

Listing agreements: the three main types

A listing agreement is the employment contract between a seller and a broker. Three types dominate the exam.

• Exclusive right of sale — the broker earns a commission no matter who sells the property during the listing period, even the owner. This is the most protective listing for the broker and the most common in practice.
• Exclusive agency — the broker is the only authorized agent, but the owner can sell it themselves commission-free. If the owner finds the buyer, no commission is owed; if any agent does, the listing broker is paid.
• Open listing — the owner can give the same open listing to multiple brokers, and only the broker who actually produces the buyer earns a commission. The owner can also sell it themselves with no commission.

One more to know about: a net listing, where the broker keeps everything above a net price the seller sets. Net listings are discouraged and restricted because they create a clear conflict of interest between the broker and the seller. Treat "net listing" as a flag for a problem on the exam.

Florida sale contracts and contingencies

In Florida residential resale, you'll work mostly from standardized forms. The exam may reference the FAR/BAR contract and the "AS IS" version. You don't need to memorize every paragraph for this course; just know these are the standard residential sale contracts used in the state and that the "AS IS" form shifts how the property's condition is handled.

What you should know are common contingencies, conditions that must be satisfied or the deal can be canceled, typically without penalty. The big three:

• Financing contingency — the deal depends on the buyer obtaining a loan.
• Inspection contingency — the deal depends on a satisfactory property inspection.
• Appraisal contingency — the deal depends on the property appraising at or above an agreed value.

Contingencies protect the buyer, and understanding them is bread-and-butter agent work, not just an exam topic.

Offers, counteroffers, and acceptance

Here's a rule that catches people: a counteroffer rejects the original offer. The moment a party changes any material term, price, closing date, what's included, they've made a counteroffer, and the original offer is dead. It can't be "accepted" later unless the other side re-extends it.

That matters in practice. If your seller counters and the buyer then walks, the seller can't suddenly turn around and accept the buyer's first offer, because that offer no longer exists. Acceptance has to mirror the offer exactly to form a contract; anything else is a new offer going back the other direction.

Breach and remedies

When a party fails to perform without legal excuse, that's a breach of contract. The exam expects you to know the main remedies available to the injured party.

• Specific performance — a court order forcing the breaching party to actually go through with the deal as agreed. Because every parcel of real estate is considered unique, specific performance comes up often in property cases; a buyer may be able to compel a seller to convey rather than just take money.
• Liquidated damages — an amount the parties agreed in advance would be paid if one side breaches. In many residential deals, the buyer's deposit (earnest money) functions as liquidated damages if the buyer defaults.

Other remedies exist, such as suing for actual money damages or rescinding (canceling) the contract, but specific performance and liquidated damages are the two terms the exam tests most. Connect specific performance to the idea that land is unique, and liquidated damages to a pre-agreed sum like the deposit.

How to study this section

Because this area is so heavily weighted, give it extra reps. Drill the four essential elements until they're reflexive. Practice sorting contracts into valid/void/voidable/unenforceable, since that's a favorite trap. Pin down the listing-type differences (who gets paid when the owner sells?), and remember two firm rules: real estate sales must be in writing, and a counteroffer kills the original offer. Mixed contract questions on the Florida real estate practice exam are the fastest way to find the gaps. As always, this is free supplemental study, not the state-required course, and it's no guarantee of a passing score.

Up next: Residential mortgages and financing, notes vs. mortgages, loan types, the clauses that govern them, and the primary and secondary markets that move the money.