4.1 Contract Types and Required Elements

Almost every step of a real estate transaction is governed by a contract: the listing agreement, the buyer-representation agreement, the purchase contract, and the addenda attached to it. The national portion expects you to classify contracts correctly and to confirm that the elements required for validity are present.

Most contract questions are really classification or element-identification questions in disguise. If you memorize the vocabulary precisely and can spot the one missing element in a fact pattern, you will recover the large block of points this topic carries on the exam.

Core Contract Classifications

Contracts are described along several independent axes, and one agreement can carry a label from each axis at once. Do not treat these as mutually exclusive categories.

• Express contract - terms are stated outright, in words, either oral or written.
• Implied contract - terms are inferred from conduct, not words. A buyer who lets a broker show homes for weeks may imply agreement to compensate.
• Bilateral contract - a promise exchanged for a promise; both parties are obligated. A purchase agreement is bilateral.
• Unilateral contract - a promise exchanged for an act; only one side is bound until the act is done. An option is unilateral.
• Executory vs executed - whether performance is still pending or already complete (developed in 4.2).

A useful test: ask whether both parties made promises (bilateral) or whether one party only promised to pay if the other performs a specific act (unilateral). In an option, the seller promises to hold the price open, but the buyer is never obligated to buy until the optionee chooses to exercise the option.

The Five Required Elements

A contract is valid only if every element below is present. Examiners love to remove one element and ask why the contract fails, so learn both the element and the consequence of its absence.

Note carefully that "in writing" is required for enforceability of a real estate sale, not for validity of every contract. A handshake landscaping deal can be valid and enforceable; a handshake to sell land usually cannot be enforced in court. Examiners exploit this distinction by asking whether an oral land deal is "void" (it is not) versus "unenforceable" (it is).

Offer, Counteroffer, and Acceptance

Mutual consent is built through offer and acceptance. An offer is a definite proposal communicated with intent to be bound. Under the common-law mirror-image rule, acceptance must match the offer exactly. Any change in price, dates, or terms is a counteroffer, which legally terminates the original offer.

Worked example: a buyer offers $300,000 with a 30-day close. The seller responds at $310,000. That counteroffer kills the $300,000 offer and flips the roles, so the buyer is now the offeree. If the buyer then says, "never mind, I'll pay $300,000," the seller may refuse, because the $300,000 offer no longer exists. An offer can also be revoked any time before acceptance is communicated.

Capacity, Consent, and Legality

Capacity means the parties are legally able to contract. Minors, intoxicated persons, and the legally incompetent can enter contracts, but those agreements are usually voidable by the protected party. The competent party generally cannot escape; only the protected party may.

Genuine consent must be free of fraud, misrepresentation, mistake, duress, menace, and undue influence; if any of these tainted the agreement, the contract is voidable by the injured party. Businesses, trusts, and estates act only through authorized representatives, so an agent should confirm signing authority (a power of attorney, corporate resolution, or letters of administration) before treating a signature as binding the entity.