Contracts, Listing Agreements and Purchase and Sale Practice
Contracts
Contract essentials and real estate contract traps
A valid contract requires offer, acceptance, consideration, capacity, legality, and mutual assent. Real estate contracts for the sale of land must satisfy the statute of frauds: they must be in writing and signed by the party to be charged. A counteroffer is a rejection of the original offer and creates a new offer; the original offer cannot later be accepted unless revived. Contingencies-financing, inspection, appraisal, title-are conditions that must be satisfied or waived. Remedies for breach include damages, specific performance, and forfeiture or return of earnest money, depending on the contract language. Contract interpretation can be affected by parol evidence rules, merger clauses, time-is-of-the-essence clauses, and assignment or novation provisions. Traps: treating a counteroffer as an acceptance; ignoring that oral modifications may be unenforceable; assuming earnest money is automatically returned to the buyer; and missing deadlines that make a contingency waive automatically. Worked example: Buyer offers $400,000; seller responds in writing with $410,000. The buyer's original offer is dead, and the buyer cannot accept it later-only the counteroffer can be accepted or further countered. Rule of thumb: a counteroffer is a new offer; the old one is gone.
Listing Agreements and Purchase and Sale Practice
Listing agreements and purchase-and-sale practice
Listing agreements define the broker's authority and compensation. Common types are the exclusive right to sell, exclusive agency, and open listing. Under an exclusive right to sell, the broker earns a commission no matter who finds the buyer, including the seller; under exclusive agency, the seller retains the right to sell without paying the broker; under an open listing, the seller can use multiple brokers and pays only the one who produces a ready, willing, and able buyer. Net listings, where the broker's commission is whatever exceeds a seller's minimum, are disfavored and regulated because they create conflicts. A purchase-and-sale agreement should address price, financing, inspection, title, closing date, possession, inclusions and exclusions, disclosures, and remedies. In Rhode Island, residential sellers complete a real estate sales disclosure, and pre-1978 properties require lead-paint disclosure. Traps: confusing exclusive right to sell with exclusive agency; assuming a listing can be oral; missing that a buyer's agent agreement controls compensation; and overlooking contingency deadlines. Worked example: Seller signs an exclusive right to sell for 6%. Seller later finds a buyer through a neighbor. The listing broker is still entitled to the commission. Rule of thumb: read the listing type before promising the seller no commission if the seller finds the buyer.