Writing a Valid Real Estate Contract

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If you are a real estate investor, you are going to be involved with contracts. There are an array of contracts you will be faced with: contracts to purchase, contracts to sell, listing contracts, lease option contracts, repair contracts ...and that is just getting started. When you are putting your heart and soul into a deal, you certainly want the contracts you are presenting and signing to be valid.



There are four essential elements of a valid contract. They are:

1. Legally competent parties

2. Mutual assent or deliberate agreement

3. Legality of the object

4. Consideration



When considering the legal competency of the parties, the two main factors are they must be of legal age and have sufficient mental capacity. In most cases, you will probably meet the other party. You can probably tell if they are a minor, but if in doubt ask and verify. On the other end of the spectrum, advanced age may indicate the individual may be incapable of participating in a valid contract as a result of senility, or other debilities.

To further complicate matters, if an individual is intoxicated or taking drugs (legal or illegal) this may render the contract voidable. This is to say, while they would generally meet the conditions of being legally competent, their condition at the time of signing may allow them to disaffirm the contract by stating they did not know what they were doing at the time. Contracts signed by a person in duress or undue influence are voidable by that person or by a court. One should exercise extreme care when contracting with the elderly, sick, or those under great distress or the influence of alcohol/drugs. While the contract is valid, these conditions make it voidable, meaning the individual or court may void the contract before it is performed. If you have any question ask to this persons cpacity to enter a valid contact, which is not voidable, consult with their attorney.



Mutual assent basically means there is a "meeting of the minds". The terms of the agreement are spelled out, and are definitive. The terms are understandable to both parties, and both parties agree to these terms. Acceptance of the terms must be communicated to each other. If an offer is present to a seller from a buyer, and the seller accepts, but the buyer is not informed that the seller has accepted, there is not yet a valid contract.



The contract must not pursue a purchase which is illegal or against public policy. If it calls for an act that is criminal, discriminatory, or immoral, is it not a valid contract.



Consideration is something of value given in exchange for a promise or an act. This does NOT mean that an earnest money deposit must be placed, though this is a common misconception. The purchase price is viewed as consideration in exchange for the promise / act to sell.



I hope you write many, many contracts, and not one of them is ever questioned.

Comments(4)

  • DaveREI10th October, 2003

    You covered the basics... Good Job.

  • OCSupertones11th October, 2003

    Should all contracts be reviewed by a RE Lawyer prior to being used?

  • JohnMerchant10th October, 2003

    Well done article on contracts.



    It should make it obvious to the inexperienced layman (non lawyer, non RE Broker/Agent ) that he/she does need help when writing an enforceable RE contract..



    Unfortunately, all too many poorly written contracts are drafted, presented and ACCEPTED; then when the other side dishonors or defaults, the offerers are incapable of enforcing them.

  • dougschulz10th October, 2003

    Good job to alert us! PS . . . Hope that's a '64 Ford Fairlane Thunderbolt. A fellow enthusiast.

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