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Contracts

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Cheatsheet: Contracts

5 Elements of a Valid Contract

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Contract Status

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Breach Remedies

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Listing Agreement Types

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Safety/carryover clause: Protects broker if property sells after expiration to a buyer introduced during the listing period. Typically 30–90 days.

Antitrust: Commissions are negotiable — no fixed rates among competing brokers (Sherman Act).

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CA RPA Contingency Default Timeframes

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Passive removal: In CA RPA, contingencies lapse at deadline unless buyer cancels or requests extension.

Notice to Perform (NTP): Seller demands buyer act within 2 business days or seller can cancel.

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Earnest Money and Liquidated Damages

  • Initial deposit: typically 1–3% of purchase price; due within 3 business days of acceptance
  • Held in escrow trust account
  • If liquidated damages clause initialed: seller keeps max 3% of purchase price if buyer defaults
  • If NOT initialed: seller can sue for actual damages (no cap)
  • Example: $900K purchase, 3% cap = $27,000 max

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Listing Agreement Required Elements (CA)

  • Written and signed
  • Listing price
  • Broker's compensation
  • Expiration date (required by B&P Code §10176 — no open-ended listings)
  • Property description

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    Counteroffer Rules

    • Any change to offer terms = counteroffer
    • Counteroffer terminates the original offer
    • Seller can send identical counteroffers to multiple buyers simultaneously
    • Can only accept one

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    Key Statutory References

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    ElementNotes
    Offer + AcceptanceMutual assent; mirror image rule; counteroffer terminates original offer
    ConsiderationSomething of value from both sides; adequacy not required
    Competent partiesAge 18+, mentally competent; minors = voidable (not void)
    Legal purposeIllegal objective = void
    Written agreementStatute of Frauds: real estate contracts must be in writing
    StatusMeaningExamples
    ValidFully enforceableProperly executed RPA
    VoidNo legal effect; cannot be ratifiedIllegal purpose; no consideration
    VoidableOne party can rescindMinor, fraud, duress, misrepresentation, undue influence
    UnenforceableFormed but court won't enforceOral real estate contract
    RemedyWhen Used
    Compensatory damagesMoney to compensate for actual losses
    Specific performanceBuyer wants the property; real property is unique
    RescissionCancel contract; restore parties to original position
    Liquidated damagesPre-agreed penalty; CA residential = max 3% of purchase price if buyer defaults; must be initialed
    TypeWho Gets CommissionLegal in CA?
    Exclusive right to sellBroker, regardless of who finds buyerYes — most common
    Exclusive agencyBroker (unless seller finds buyer independently)Yes
    Open listingProcuring broker only; seller can sell without commissionYes
    Net listingBroker keeps all above seller's netILLEGAL in CA
    ContingencyDefault Timeframe
    Inspection / property investigation17 days
    Appraisal17 days
    Title review17 days
    Financing / loan21 days
    LawRule
    Civil Code §1624Statute of Frauds — real estate contracts must be in writing
    B&P Code §10176(g)Net listings illegal in California
    B&P Code §10176Expiration date required in CA listing agreements
    CA RPA liquidated damages3% cap on seller's recovery from buyer deposit if buyer defaults

    Aligned to the California DRE salesperson exam content outline.

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    Sections in this topic

    Contract EssentialsListing AgreementsPurchase ContractsContingencies