Contract law is a large share of the real estate salesperson exam, and one set of terms is easy to mix up: valid, void, voidable and unenforceable. The definitions below follow the California Department of Real Estate's Reference Book; the concepts are the same across states.
The essential elements of a contract
A contract needs four elements:
- Parties capable of contracting. Most adults are; minors and people who lack legal capacity have limits.
- Mutual consent. Usually shown by an offer and an acceptance, and the consent must be genuine.
- A lawful object. Both the purpose and the consideration must be legal.
- Sufficient consideration. Something of value exchanged, such as a promise, money or an act.
Some contracts need a fifth element: a proper writing (see the Statute of Frauds below).
Related: What to Expect on Your State’s Real Estate Salesperson Licensing Exam
The four classifications
- Valid: has all the essential elements and is binding and enforceable.
- Void: not a contract at all, with no legal effect. An agreement to commit a crime is void. In California, an attempt by a minor to make a contract about real property is void.
- Voidable: valid and enforceable on its face, but one or more parties may choose to reject it. A contract induced by fraud can be voided by the victim; certain contracts of minors are voidable at the minor's option. A voidable contract stays binding until it is rescinded.
- Unenforceable: valid, but for some reason it can't be proved or sued upon. The classic example is a contract that can no longer be enforced because the statute of limitations has run.
The easiest way to keep them straight
- Void = never a contract.
- Voidable = a contract until someone cancels it.
- Unenforceable = a contract that can't be taken to court.
What makes consent defective
Consent obtained through fraud, mistake, duress, menace or undue influence can make a contract voidable. If the fraud is so fundamental that a party didn't intend to enter a contract at all, the contract may be void instead.
The Statute of Frauds
Most contracts can be oral, but the Statute of Frauds requires certain contracts to be in writing and signed by the party to be charged. Under California's version, these include:
- an agreement for the sale of real property, or of an interest in it
- a lease for longer than one year
- an agreement employing a broker or agent to buy, sell or find a buyer or seller of real estate for a commission
- an agreement that by its terms can't be performed within a year
That's why purchase agreements and listing agreements are written. If an agent signs for a principal on a contract that must be written, the agent's authority generally must be in writing too.
Other contract terms to know
- Bilateral: a promise for a promise (most purchase contracts). Unilateral: a promise in exchange for an act.
- Executory: something remains to be done. Executed: both parties have fully performed.