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Session 5

Real Estate Contracts

QuestionAnswer
Real Estate Contract A legally enforceable agreement between competent parties regarding "acts of consideration".
Competent Parties Viewed by law as being capable of making a binding promise.
Consideration In contract law, something of "legal value" about which two parties can come to an agreement.
Meeting of the minds When acceptance of an offer is made, the offeree is agreeing to the exact "mirror image of" terms made by the offeror.
Acts of Consideration In a Real Estate Contract,the terms that specify what each party will perform or refrain from performing that must be agreed upon.
Bilateral Contract An agreement where BOTH parties agree to do something.
Unilateral Contract An agreement where only ONE party is bound by the agreement.
Option Contract An good example of a "unilateral agreement" where the seller is bound or obligated to sell if the buyer decides to exercise his/her "option" to buy.
Express Contract When the terms of an agreement are expressed either in writing or verbally.
Implied Contract Agreement created by the ACTIONS of BOTH parties.
Executed Contract When the agreement has been fulfilled, or the transaction closed.
Executory State The condition created when the offer has been made and accepted, but is not yet fulfilled (or closed).
Counteroffer A new offer that NEGATES the original offer. Necessary if the offeree wants to change any of the terms of the offeror.
Valid Contract A contract the contains all required elements(Competent Parties,Legal Purpose, Meeting of the Minds, & Considerations) and is binding on all parties.
Voidable Contract A contract that, due to certain conditions, can be rescinded by one of the parties.
Void Contract A contract that is missing one or more of the requirements for a valid contract.
Unenforceable Contract A contract, such as a verbal contract, that has all requirements but is not "legally enforceable" by either party.
Land Contract A private "contract for deed", "installment contract" or "agreement for sale" where the buyer will make a down payment and monthly payments directly to the seller until the loan is satisfied and the seller relinquishes the legal title to the property.
Equitable Title The offeror (buyer) is legally entitled to the equity on the property at the time the an agreement is entered (when the offer is accepted)
Legal Title Received by the buyer when the deed is delivered and accepted. (While in the executory state, the buyer only has equitable title on the property.)
Equitable title ensures The sale price of the property cannot go up at the time of closing if the value of the property improves during the executory period because the buyer is already entitled to the equity on the property at the time of agreement.
Trust Accouts A neutral account where a broker, attorney or property manager will "hold" money that belongs to others.
Commingling mixing trust money with operating funds
Conversion the spending of trust money
Addendum An additional term or agreement that is ADDED TO the EXISTING contract. This needs to be signed and dated by ALL parties.
Amendment CHANGES TO the EXISTING agreed to terms. This needs to be signed and dated by ALL parties.
Assignment The transferring of legal rights from one party to another. Residential contracts are assignable unless the language "not assignable" is expressly written in the contract.
Binder A good faith agreement that includes terms that keep the agreement together until the final, longer contract is drafted in writing.
Earnest Money Good faith money put up by the buyer. This can be forfeited to the seller in the case of a breach of contract on the buyers part.
Nominee Party added to an existing contract or one who is going to act on behalf of another party, ie naming a Power of Attorney.
Novation The substitution of a new obligation for the old one or obligating a new party to an agreement and releasing the old party.
Statute of Limitations Time frame set by state law in which a party has the right to take legal action against another party. (In AZ, 5 years to act against an RE agent)
Time is of the Essence The necessity or obligation of parties to live up to the time frames specified and agreed upon in the contract.
Reality of Consent Wherein a contract must be entered into by a FREE and VOLUNTARY ACT. Depriving a person of this right, through mistake, fraud, misrepresentation or undue influence, results in a void or voidable contract.
Contingencies When the agreement is pending based on certain conditions being met. Ex: When it is necessary for the buyer to sell their house before they can buy the one they are making an offer on.
Liquidated Damages Loss, due to breach of agreement, of whatever interest a party has in an agreement such as earnest money.
Breach of Contract Breaking of the agreement or promise. Remedies include Mutual Recission, Specific Performances, or Damages (Compensatory, Punitive or Liquidated)
Damages Possible and likely result of Breaching a contract and include Compensatory (reimbursement), Punitive (punishment) and Liquidated (loss of earnest money or investment)
Termination of a contract Applicable due to complete performance, partial or substantial performance, impossibility of performance, mutual agreement, or operation of the law
Created by: REstudent