Contracts and Contract Law
What the exam tests
Contracts and Contract Law tests formation, enforceability, performance, breach, and remedies in real estate transactions. Expect questions about the Agreement of Sale, contingencies, and the statute of frauds.
Core rules
- A contract requires offer, acceptance, consideration, capacity, and legality; acceptance must mirror the offer.
- A counteroffer rejects the original offer and creates a new offer; the mailbox rule may govern acceptance timing unless the contract states otherwise.
- The statute of frauds requires a signed writing for land sale contracts, leases over one year, and agency agreements.
- Contingencies-financing, inspection, appraisal, sale of buyer’s home-must be satisfied or waived; failure can allow termination and deposit return.
- Remedies include damages, specific performance, rescission, and liquidated damages; “time is of the essence” makes deadlines enforceable.
Worked example
Buyer offers $400,000 with a 30-day financing contingency. Seller counters at $410,000. Buyer does not respond. Seller then accepts the original $400,000 offer. There is no contract: the counteroffer terminated the original offer, and the seller’s later “acceptance” was a new offer that the buyer never accepted.
Traps that cost marks
Do not treat a counteroffer as an acceptance. Do not ignore contingency deadlines. Do not assume an oral modification of a land contract is enforceable. Do not confuse liquidated damages with a penalty.