What is a contract?
A contract is a legal agreement between several entities (individuals or businesses). The agreement has a subject and dictates terms and conditions that apply to the entities involved.
For a contract to be enforced, it must be legally classified as “valid.” To that effect, a contract must meet a set of requirements, such as:
o each entity involved must be legally competent and consenting to enter the contract and
o the purpose or subject of the contract must be legal
o The contract must be an agreement by offer and acceptance
o Consideration must be specified in the contract (see Valid)
A contract that does not fulfill the necessary requirements of validity and/or is missing one or more of the key elements, is legally classified as “void”.
What are real estate contracts?
There are several types of contracts or agreements, depending on the real estate transaction that is their subject. On frequently encountered example is the listing agreement, which is between the property owner and a real estate representative who is to put the property listing on the market, either for sale or for lease. Listing agreements fall into four general categories:
– Exclusive listing agreement – whereby the real estate representative gets paid, no matter who closes the deal
– Exclusive agency listing agreement – whereby the real estate agent is paid only if he/she closed the deal (no commission if the seller/lessor closes the deal)
– Open listing agreement – whereby a seller can use any number of real estate representatives to advertise the property availability, but is not obligated to pay any of them is the seller closes the deal himself/herself
– Net listing agreement – (not universally legally accepted) whereby the real estate representative gets to keep whatever was offered above the seller’s desired price
Depending on other factors, contracts type of contracts can include:
Unilateral, Bilateral and Multilateral – depending on how many parties are involved. A unilateral contract is when an entity takes on responsibilities/duties, without required reciprocation from a second party. A bilateral contract dictates responsibilities/duties that two parties have to each other, and a multilateral contract involves three or more parties exchanging responsibilities through the contract.
– Contract of sale/Purchase contract – whereby the ownership of the contract’s subject property changes
– Lease agreement – whereby a property owner grants use of the property to a different party, according to certain terms and conditions (see types of lease)
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