Real Estate Contracts: From Offer to Enforceable Agreement

Why contracts matter on the Florida exam

A real-estate transaction is built from contracts: listing agreements, buyer-broker agreements, purchase contracts, leases, and options. The official Florida Sales Associate examination outline assigns 12% of the exam to Real Estate Contracts—about 12 questions on a 100-question examination.

The exam usually tests whether an agreement was formed, whether it can be enforced, and what event ended an offer or contract. Read each fact carefully and separate an offer from a completed contract.

• Offer: a proposal made by the offeror
• Acceptance: agreement by the offeree to the offer's exact terms
• Counteroffer: rejection of the original offer plus creation of a new offer
• Contract: a legally enforceable promise or set of promises

The four essentials of a valid contract

A valid contract requires competent parties, a legal purpose, offer and acceptance, and consideration. Competent parties generally must have legal capacity to contract. The agreement's purpose cannot require illegal conduct.

Offer and acceptance create mutual agreement, often called a meeting of the minds. Acceptance must match the offer and be communicated before the offer terminates. If the offeree changes a material term—such as price, closing date, or financing—the response is normally a counteroffer, not acceptance.

Consideration is something of legal value exchanged for a promise. It can be money, property, a service, or another promise. Consideration does not have to be equal in economic value, but it must be legally sufficient.

• Competent parties
• Legal purpose
• Offer and acceptance
• Consideration

Florida's Statute of Frauds

The Statute of Frauds does not say that every oral agreement is automatically void. Instead, it requires certain agreements to be evidenced by a writing signed by the party against whom enforcement is sought.

Under Florida Statutes section 725.01, a contract for the sale of land or an interest in land must be in writing and signed to be enforceable. A lease for a period longer than one year also falls within the statute. An agreement that cannot be performed within one year from the date it is made must likewise be in writing.

A key exam distinction is validity versus enforceability. An oral agreement covered by the Statute of Frauds is generally described as unenforceable—not automatically void.

• Sale of land or an interest in land: writing and signature required for enforcement
• Lease longer than one year: writing and signature required
• Agreement not performable within one year: writing and signature required
• The relevant signature is that of the party to be charged

Classifying contracts

A valid contract contains all required elements. A void contract has no legal effect from the beginning, such as an agreement for an illegal purpose. A voidable contract is valid unless the protected party chooses to cancel it, as may occur when a party lacked full capacity or entered because of duress or certain misrepresentations.

An unenforceable contract may otherwise appear valid, but a court will not enforce it because of a legal defense such as the Statute of Frauds or the expiration of the applicable limitation period.

A bilateral contract exchanges a promise for a promise; most purchase contracts are bilateral. A unilateral contract exchanges a promise for an act, and an option is commonly tested as unilateral because the optionee is not obligated to buy. An executory contract still has obligations remaining, while an executed contract has been fully performed. Do not confuse a fully executed document with a fully performed contract.

• Valid: all required elements are present
• Void: never had legal effect
• Voidable: valid unless the protected party rescinds
• Unenforceable: a legal defense prevents court enforcement
• Bilateral: promise for promise; unilateral: promise for performance
• Executory: performance remains; executed: fully performed

How offers and contracts end

An offer may terminate through acceptance, rejection, a counteroffer, revocation communicated before acceptance, expiration of its stated time, or death or incapacity of a party before acceptance. An option is different: valid consideration can make the promise to keep the offer open binding for the option period.

After a contract is formed, it may terminate through full performance, mutual agreement such as rescission, breach, impossibility of performance, expiration, or operation of law. Assignment transfers contractual rights; novation substitutes a new party or obligation and releases the original party when everyone required agrees.

A breach does not erase the fact that a contract existed. It gives the nonbreaching party possible remedies, which may include damages, rescission, or specific performance depending on the agreement and law. Florida's current limitations statute generally provides five years for an action founded on a written instrument, four years for an action not founded on a written instrument, and one year for an action seeking specific performance.

• Rescission: cancellation that seeks to return parties to their precontract positions
• Assignment: transfer of contractual rights
• Novation: substitution with release of the original obligation or party
• Specific performance: court order requiring performance of the promised act
• Silence generally is not acceptance; changed material terms create a counteroffer
• Use authorized forms and refer legal questions to a Florida attorney

Worked deposit calculation

A buyer offers $360,000 and agrees to a total earnest-money deposit equal to 3% of the purchase price. The buyer submits $5,000 with the offer. How much additional deposit is due if the offer is accepted?

First calculate the total deposit: $360,000 × 0.03 = $10,800. Then subtract the amount already submitted: $10,800 − $5,000 = $5,800.

The additional deposit is $5,800. The deposit supports the transaction, but remember that consideration for the contract is the parties' exchanged promises; an earnest-money deposit is not always required for a valid purchase contract.

• Purchase price: $360,000
• Total deposit: 3% × $360,000 = $10,800
• Initial deposit: $5,000
• Additional deposit: $10,800 − $5,000 = $5,800