Welcome to module six of the Real Estate License Exam Prep course. Today we are walking through contracts and the purchase transaction — from the very first offer all the way to signing documents at the closing table. Contracts are the engine of every real estate deal, and the national exam tests them relentlessly, so let us build from the ground up.

Start with the definition of a contract: an agreement between parties to do or not do something, which is legally enforceable if the elements are met. The elements of an enforceable contract are offer, acceptance, consideration, capacity, legality, and genuine assent. Six elements — memorize them, because the exam loves asking which one is missing in a fact pattern to make a contract void or voidable.

The offer is a promise to buy or sell on stated terms, creating the power of acceptance. An offer must be definite and communicated — a buyer submits an offer at three hundred fifty thousand dollars with a thirty-day closing. Acceptance is the unqualified agreement to the offer's terms. Here is the rule that catches people: acceptance must mirror the offer exactly. That is the mirror image rule — any change to the terms is not an acceptance. And that leads to the counteroffer: a response that changes the offer's terms. The critical rule: a counteroffer rejects the original offer. The moment the seller counters at three hundred sixty thousand, the original three-fifty offer is dead, and the buyer is free to accept, counter again, or walk away. Do not miss that — counteroffer kills the original offer.

Consideration is something of value exchanged between parties — money, a promise, or an act. Both parties must give consideration for a contract to be enforceable. The buyer's earnest money is consideration for the purchase agreement. Capacity is the legal ability to enter a contract, meaning age and mental competence. Contracts with minors or with someone who lacks mental capacity may be voidable — a seventeen-year-old's purchase contract can be disaffirmed. Legality of purpose means the contract's subject matter must be lawful — illegal subject matter makes a contract void, like a contract requiring an illegal kickback. And genuine assent means the agreement was given freely, without fraud, duress, undue influence, or mistake. Where assent was not genuine, the party may be able to rescind — a buyer rescinds after proving the seller misrepresented the age of the roof.

Two more contract-law fundamentals. The Statute of Frauds is a law requiring certain contracts to be in writing — and real estate contracts are on that list. Real estate sales contracts and leases longer than one year must be in writing to be enforceable. An oral agreement to sell land is unenforceable, period. And executed versus executory: an executed contract is fully performed, while an executory contract has future obligations remaining. A purchase agreement is executory before closing — after the deed is delivered and the money is paid, the contract becomes executed. There is also bilateral versus unilateral. A bilateral contract is both parties exchanging promises, which is what real estate sales are. A unilateral contract is one party's promise in exchange for an act — the offer of I will pay you one hundred dollars if you walk my dog is unilateral until the act is performed.

And when things go wrong, that is a breach — failure to perform a contractual duty without legal excuse. The remedies are damages, specific performance, rescission, or forfeiture of the deposit. Specific performance is the one real estate students need to remember, because it is unique: the court orders the party to actually complete the sale, not just pay money, because land is considered unique. A buyer who fails to close on the agreed date breaches the contract, and the seller may seek the remedy.

Now we move to the purchase transaction itself. The central document is the purchase agreement, also called the contract of sale — the contract between buyer and seller covering price, financing, closing, and contingencies. It is the backbone of the transaction, and everything else hangs off it.

Earnest money is a deposit demonstrating the buyer's good faith. It is held in escrow and credited toward the purchase price at closing. A buyer deposits ten thousand dollars earnest money with the closing agent, and that money sits in a trust account until closing. Why earnest money matters: it is the buyer's tangible commitment, and it gives the seller a remedy if the buyer backs out without a valid contingency.

Contingencies are conditions that must be met for the contract to proceed. Common ones are financing, inspection, appraisal, and sale of a prior home. Let us take the big three. A financing contingency allows the buyer to back out if financing cannot be obtained — it protects the buyer's deposit if the loan is denied, and the buyer cancels and retrieves the earnest money. An inspection contingency allows the buyer to have the property inspected and then negotiate repairs — the buyer can request repairs, credits, or withdraw based on the findings. If the inspection reveals termites, the parties renegotiate. An appraisal contingency ties the contract to the property appraising at or above the contract price — it protects buyers from overpaying and lenders from over-lending. If the appraisal comes in low, the seller may agree to reduce the price.

Now the title side. Title is legal ownership of real property, evidenced by the deed. Title must be marketable — free of unacceptable liens and defects. A title search is an examination of public records to verify the seller's ownership and uncover liens or defects. The title search covers recorded deeds, mortgages, judgments, and easements — the title company finds an old unsatisfied mortgage in the search. And title insurance protects against title defects, as either a lender's policy or an owner's policy. The owner's policy protects the buyer; the lender's policy protects the mortgagee. If a defect surfaces later — a forged deed in the chain or a missed lien — the title policy covers the loss.

Closing, also called settlement, is the final step where title transfers, funds are paid, and documents are signed and recorded. The closing statement itemizes all the debits and credits. Understand the two words precisely. A debit is a charge owed by a party — the buyer is debited for the purchase price. A credit is an amount owed to a party — the buyer is credited for the earnest money already deposited. On the closing statement, a debit reduces what a party receives or must pay, and a credit increases it.

Finally, proration — the division of ongoing expenses between buyer and seller at closing. Property taxes, HOA fees, and interest are prorated so each party pays for the portion of the year they owned the property. If the seller owned the home for nine months and the buyer for three, the property taxes are split in that proportion. Proration math shows up on the exam, and the rule is always the same: allocate the annual expense by the days each party owned it.

Let us recap module six. A contract needs offer, acceptance, consideration, capacity, legality, and genuine assent. Counteroffers reject the original offer. The Statute of Frauds requires real estate contracts in writing. Breach remedies include specific performance. The purchase agreement is the central document, backed by earnest money in escrow. Financing, inspection, and appraisal contingencies protect the buyer. Title must be marketable, verified by a title search, and insured by title insurance. Closing transfers title and the closing statement itemizes debits and credits. And proration splits ongoing expenses by the time each party owned the property.

That is the whole transaction, from offer to keys. Next up, module seven: finance and valuation, where we cover mortgages, loan types, and how property gets appraised. This is heavy on numbers, so have your calculator ready. The full guide with every contract and closing term in writing is linked in the description. See you in module seven.