Real estate is rapidly growing, with properties being bought and sold daily. However, buying or selling a property involves more than exchanging money for the deed. It also requires signing a legally binding document known as a contract.

A contract is an agreement between two or more parties that outlines the terms and conditions of their transaction. In real estate, a contract establishes the buyer and seller’s legal rights and obligations in a property transaction. This article takes a closer look at the legal status of contracts in real estate and what it means for both parties involved.

We will also focus on unenforceable contracts in real estate and why it’s important to understand the concept before entering into any real estate contract.

What is Contract Legal Status in Real Estate?

Contracts play a crucial role in the real estate industry. TThey function as legally enforceable contracts between two or more parties, delineating the terms and conditions of a transaction. In real estate, contracts are used for various purposes, such as buying or selling properties, leasing agreements, construction projects, and property management.
Contracts in real estate can be classified into three main categories: valid, voidable, and void contracts.

Valid Contracts

A valid contract in real estate is an agreement that meets all the legal requirements and conditions necessary for it to be legally binding. This means that both parties involved have willingly entered the contract, are of sound mind, and have the legal capacity to enter into such a contract.

For a real estate contract to be considered valid, it must contain several key elements, including an offer and acceptance of that offer, a mutual exchange of consideration (e.g., money or services), and the intention to create legal relations. Additionally, the contract must be in writing and signed by all parties involved.

Valid contracts provide both parties with legal protection and ensure that their rights and obligations are clearly outlined. In the event of a breach of contract, a valid agreement can be upheld in a court of law. It is imperative for all parties to meticulously examine and comprehend the terms and conditions of a real estate contract prior to signing.

Example

A typical instance of a legally binding real estate contract involves a purchase agreement made between a buyer and a seller. This contract delineates the terms and conditions of the sale, encompassing aspects such as the purchase price, closing date, and contingencies that need to be fulfilled for the sale to be concluded.

Once both parties have signed the agreement and all necessary legal requirements are met, the contract becomes legally binding and enforceable. This provides both the buyer and seller with peace of mind and ensures that the transaction will be completed as agreed upon.

Voidable Contracts

A voidable contract in real estate is an agreement that appears to be valid and legally binding but has some underlying defect that allows one or both parties to cancel or void the contract. This can happen when one party was coerced into signing the contract, made a mistake in the contract terms, or lacked legal capacity at the time of signing.

Voidable contracts can also occur if one of the parties does not fulfill the obligations stated in the contract. For example, if a buyer fails to secure financing for a property purchase, the seller may have grounds to void the contract.

It is important to note that voidable contracts are considered valid until they are canceled or voided by one of the parties involved. This means that if a voidable contract is not canceled or voided within a reasonable time frame, it can become a valid and binding contract.

To avoid potential issues with voidable contracts, it is essential for all parties to carefully review and understand the terms of the agreement before signing. Seeking legal advice may also be beneficial in identifying any potential defects in the contract.

Example

A common example of a voidable contract in real estate is when one party appears to have been coerced into signing the agreement. This can happen if a seller uses pressure tactics to force a buyer to sign a purchase agreement without fully understanding the terms and conditions. In this case, the buyer may have grounds to void the contract if they were not given enough time or opportunity to review the agreement with their lawyer or agent. This highlights the importance of understanding and carefully reviewing all aspects of a real estate contract before signing.

Void Contracts

A void contract in real estate is an agreement that is not legally binding and, therefore, has no legal effect. This can occur if the contract violates any laws or public policy, such as a contract for selling illegal drugs or a contract promoting discrimination.

Unlike voidable contracts, void contracts cannot be enforced by either party involved. If a void contract is discovered, it is considered null and void from the beginning, meaning that both parties are released from their obligations under the contract.

It is important for all parties to thoroughly review a real estate contract before signing it to avoid entering into a void contract. Additionally, suppose any illegal or unethical actions are discovered during a transaction. In that case, seeking legal advice and taking appropriate measures to protect oneself and avoid entering into a void contract is crucial.

Example

A common example of a void contract in real estate is if an agreement is made to purchase an illegally acquired property. If it is later discovered that the seller did not have legal ownership of the property, the contract would be considered void, and neither party would be obligated to fulfill their obligations. This highlights the importance of conducting due diligence and ensuring all aspects of a real estate transaction are legal and ethical.

Conclusion

Understanding the legal status of contracts in real estate is crucial for all parties involved. Valid contracts provide protection and enforceability, while voidable and void contracts can lead to potential issues and complications. It is essential for all parties to carefully review and understand the terms and conditions of a contract before signing and seek legal advice if needed.

Void contract real estate transactions can be avoided by conducting due diligence and ensuring all aspects of the transaction are legal and ethical. In case of any doubts or concerns, seeking legal advice is always recommended.

Understanding the different types of contracts in real estate and their implications allows all parties to enter a transaction with confidence and peace of mind. Remember, a carefully crafted and legally binding contract is the foundation of a successful real estate transaction.