Contracts, Purchase and Sale Agreements, and Disclosures
What this domain tests
This domain tests contract formation, statute of frauds, contingencies, earnest money, remedies, and required disclosures. Questions often turn on whether a contract is enforceable or whether a party may cancel.
Formation and enforceability
A contract requires offer, acceptance, consideration, capacity, and legality. Real estate sale contracts must be in writing and signed by the party to be charged under the statute of frauds, with essential terms: parties, property, price, and often closing date. A counteroffer terminates the original offer. Acceptance must be communicated. Earnest money shows intent but is not required for formation. A liquidated damages clause must be reasonable.
Contingencies and disclosures
Financing, inspection, appraisal, title, and sale-of-home contingencies allocate risk. When time is of the essence, deadlines are strict. Seller property disclosure forms vary by state. Federal lead-based paint disclosure is required for pre-1978 housing, with a 10-day inspection opportunity. Agency disclosure and material facts also apply. Equitable title passes to the buyer at contract; legal title passes at closing.
Worked example
A buyer offers $300,000 with a 21-day financing contingency. On day 25 the buyer is denied financing. If time is of the essence and the buyer did not extend, the seller may cancel and retain earnest money as liquidated damages if the contract so provides. The buyer's failure to meet the deadline is a breach.
Traps
Do not confuse an offer with a counteroffer. Do not assume a verbal real estate contract is enforceable. Do not forget lead-based paint disclosure. Do not assume earnest money is always refundable.