Real Estate Alphabet Soup: C is for Contract
In my last post, “Real Estate Alphabet Soup: B is for Buyer” I continued my primer on the “alphabet soup” of real estate. This post continues to stir the “alphabet soup” with the letter “C.”
C is for “contract.” As part of any agreement for the transfer of real estate there must be a contract of sale between the seller and buyer. For a contract to be valid there must be an offer and an acceptance of the offer, or a “meeting of the minds.” The essential elements of a valid contract include: (1) parties who are competent to enter into a contract; (2) a proper subject matter forming the basis of the contract; (3) consideration; (4) mutuality of the agreement; and (5) mutuality of the obligation. The “consideration” in the contract is something of value that is given in return for performance or the promise of a performance by another.
And in real estate transactions there is also usually “cash” and “collateral” involved. Cash, or its equivalent, is the “consideration” paid by the buyer to the seller to purchase the property. And if the buyer has a loan from a lender to finance part of the purchase price, the lender will want to have “collateral” generally in the form of a deed of trust or mortgage, to secure its interest in the property until it is repaid in full.
C is also for “covenant,” which is an agreement by either the buyer or seller to do, or not to do, a particular thing and to bind oneself to that obligation. A contract may contain certain covenants of each party as to certain obligations and duties they bind themselves to in order to comply with the terms of the contract.
Covenants may also include declarations made by the property owner restricting certain uses of the property or placing certain obligations upon the owner and future owners of the property.
And, in conclusion, a “caveat” or warning. For the buyer it is “caveat emptor,” meaning literally, to “let the buyer beware” such that the buyer purchases at his own risk. This warning makes it essential to have a valid “contract” and to make clear each parties’ respective rights and obligations under the contract.
In my next post, I will move on to the letter “D”, the next letter in this real estate “alphabet soup.”
This blog was written by Anne-Herbert Rollins at Miles & Stockbridge.
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