What is a contract anyway?

What is a contract anyway?

Sometimes parties get wrapped up in the formalities of contracts, especially real estate deals. Realtors throughout the country often use templates to draft the contracts and clauses are nearly all built in to the templates. In other deals, parties may have various form contracts they build off of. In reality, a contract is super simple and only needs three items.

A contract is a legally binding agreement between at least two people. In order to create a contract, only 3 things are required: an offer, an acceptance of that offer, and consideration. Consideration is defined as exchanging something of value. Typically, consideration is a sum of money but it doesn’t have to be.

Offer: If we’re talking about real estate, practically speaking, an offer is made when the first party offers to purchase a home for a sum of money. The realtor would then send the offer over to the listing agent in order to present to the seller. The seller then has the option to either accept the offer in full, reject the offer in full, or reject the offer in part. If the seller rejects the offer in part, this is not considered acceptance but rather a counter-offer.

Acceptance: In order for a contract to be accepted, all parties must agree on all terms. Agreeing on 99% of the contract and countering on 1% is not an acceptance. In the legal world we say there has to be a “meeting of the minds.” Once a contract is fully agreed upon, there should be no ambiguity or confusion. All parties are on the same page and ready to move forward.

Consideration: To complete the requirements for any contract, the parties have to agree that something of value is exchanged. With real estate, it’s the purchase price for the home. With a service contract, some person or business will perform some service in exchange for a fee. However, “something of value” does not always mean money. It can be some other type of personal property that has value. Again, this should be spelled out in the agreement.

In sum, every contract requires offer, acceptance, and consideration. NOT every contract has to be in writing. However, one of the applications of the Virginia Statute of Frauds requires that contracts involving the sale or transfer of land must be in writing to be enforceable. Be sure the parties are agreeing on all terms and truly have a meeting of the minds. Get everything in writing for extra protection.

  • Posted by Hanger Law