What makes a real estate contract valid?

Competent parties, offer and acceptance, consideration and a legal purpose. Enforceability is a separate issue: the statute of frauds generally requires a signed writing, but New Jersey permits clear and convincing evidence as an alternative under N.J.S.A. 25:1-13(b).

What happens to an offer when the seller counters?

The counteroffer rejects the original offer. Any change at all, even a small one, counts as a counteroffer.

What is the difference between a void and a voidable contract?

A void contract never had legal effect, like one with an illegal purpose. A voidable contract is valid until the protected party, such as a minor or a fraud victim, chooses to cancel it.

Is a verbal agreement to buy a house binding?

It can be in New Jersey. N.J.S.A. 25:1-13(b) allows the property, interest transferred, agreement and parties to be proved by clear and convincing evidence without a signed writing. Do not assume a handshake is enough; written terms remain the practical safeguard.

A buyer changes the closing date in a seller's offer and signs it. Legally this is:

A counteroffer that rejects the original offer

In an option contract, the optionee:

Has the right, but not the obligation, to buy

An offer is terminated by all of the following EXCEPT:

The buyer asking whether the seller would include the appliances

The death of the offeror before acceptance

A 'time is of the essence' clause means:

Deadlines in the contract must be met exactly

The contract expires in 30 days

Closing must happen within a week

Under federal E-SIGN law, an electronic signature on a real estate sales contract is generally:

As legally effective as a handwritten signature

A buyer signs a sales contract after the seller lies about the age of the roof. Once the buyer learns the truth, the contract is:

Valid and binding on both parties

Unenforceable because it is in writing

A buyer and seller shake hands on a $400,000 sale but never sign anything. Under the general statute of frauds rule, the agreement is:

Generally unenforceable, because contracts to sell real estate must be in writing

Void because it has no legal purpose

Fully enforceable, the same as a written contract

Which of the following is NOT an essential element of a valid contract?

Recording in the county land records

At 17, Jordan signs a contract to buy a small lot from an adult seller. After turning 18, Jordan keeps making the scheduled payments for a year without objecting. The contract is now:

Binding on Jordan, because continuing after reaching adulthood ratified it

Void, because Jordan lacked capacity when signing

Voidable by the seller at any time

Unenforceable until a court approves it

A buyer and seller sign a complete sales contract, but the buyer gives no earnest money deposit. The contract is:

Valid, because the parties' mutual promises are consideration

Void, because earnest money is required consideration

Voidable by the seller until a deposit is paid

Unenforceable until the deposit is placed in escrow

A seller signs a buyer's written offer exactly as written at 2 p.m. but tells no one. At 3 p.m. the buyer's agent delivers the buyer's written withdrawal of the offer. The result is:

No contract, because acceptance was not communicated before the withdrawal

A binding contract that formed at 2 p.m. when the seller signed

A binding contract, because a buyer cannot withdraw a written offer

A breach that lets the seller keep the earnest money

A buyer's written offer says it will stay open until Friday at 5 p.m. On Wednesday, before the seller responds, the buyer withdraws it. The withdrawal is:

Effective, because an offer can be revoked any time before acceptance

Ineffective, because the buyer promised to keep it open until Friday

Effective only if the seller agrees to release the buyer

Ineffective unless the buyer pays the seller for the lost time

A buyer's offer states that it expires at 6 p.m. on May 3. The seller signs it at 9 p.m. that night. Legally, the seller's signature:

Is at most a new offer, because the buyer's offer had already lapsed

Creates a binding contract, because the seller accepted the same day

Creates a voidable contract that only the buyer can cancel

Revives the buyer's offer for a reasonable time

A buyer submits a written offer on a home and dies the next morning. That afternoon, not knowing of the death, the seller signs the offer. The result is:

No contract, because the offer ended when the buyer died

A binding contract with the buyer's estate

A binding contract, because the seller did not know of the death

A voidable contract that the buyer's heirs may enforce

A seller signs a valid sales contract and dies two weeks before closing. Generally, the contract:

Remains binding on the seller's estate

Terminates automatically on the seller's death

Becomes voidable at the buyer's option only

Must be renegotiated by the seller's heirs

Salesperson Dana takes a listing for ABC Realty, then moves to XYZ Realty a month later. The seller's listing agreement:

Stays with ABC Realty, because the listing is the broker's contract

Moves to XYZ Realty along with Dana

Ends automatically when Dana leaves

Is split between both brokerages until it expires

A buyer offers $400,000. The seller counters at $420,000. The buyer rejects the counteroffer, and the seller then says, 'Fine, I accept your $400,000 offer.' Is there a contract?

No, because the counteroffer terminated the buyer's original offer

Yes, because the seller accepted the buyer's original terms

Yes, because the original offer revived when the counter was rejected

Yes, if the seller signs within the original offer's deadline

An owner sells a buyer a 90-day option to purchase for $3,000. On day 30, another buyer offers the owner more money. The owner:

Must keep the property available to the optionee until the option expires

May sell to the other buyer after refunding the $3,000

May sell, because the optionee has not committed to buy

Must sell to whichever buyer offers the higher price

A tenant's lease gives her a right of first refusal on the building. This means the tenant:

May match a third party's offer if the owner decides to sell

May force the owner to sell at a preset price at any time

Must buy the building when the lease ends

Gets a credit for rent paid toward the purchase price

A buyer assigns her purchase contract to her brother. The seller consents to the assignment but does not release her. If the brother fails to close, the original buyer:

Can still be held liable, because assignment does not release the assignor

Has no liability, because the seller consented to the assignment

Has no liability, because her brother is now the only buyer

Is liable only for the earnest money she personally deposited

A seller accepts an offer contingent on the buyer selling her current home. The contract lets the seller keep marketing and, if a better offer arrives, gives the buyer 72 hours to remove the contingency or the contract ends. This provision is:

An escape clause, also called a kick-out clause

A time is of the essence clause

Courts are willing to order specific performance of real estate sales contracts mainly because:

Each parcel of real estate is considered unique

Money damages are not allowed in real estate cases

The statute of frauds requires it for written contracts

The buyer already holds legal title before closing

A signed sales contract lists the dining room chandelier as excluded from the sale. The buyer says that before signing, the seller orally promised it would stay. Under the parol evidence rule, generally:

The written contract controls over the earlier oral promise

The oral promise controls because it was made first

The chandelier stays because it is a fixture

The contract becomes void because the terms conflict

An owner sells a lot under a land contract (installment contract). The buyer moves in and makes monthly payments to the seller over 10 years. During the payment period:

The seller keeps legal title, and the buyer holds equitable title

The buyer holds legal title, and the seller holds a mortgage lien

Neither party holds any title until the final payment

The buyer holds legal title once the contract is recorded

A landlord sells a duplex while a tenant has 8 months left on a written 1-year lease. The tenant's lease:

Remains in effect, and the new owner takes the property subject to it

Ends at closing because the landlord no longer owns the property

Becomes month-to-month at the buyer's option

Must be renegotiated before the sale can close

Under the NAR settlement practice changes in effect since August 17, 2024, a written agreement between an MLS participant and a buyer must:

State the agent's compensation as a specific, objectively ascertainable amount or rate

Set compensation at whatever the seller offers through the MLS

Last for a minimum term of at least 90 days

Be signed before the buyer views any listing online

A sales contract includes an appraisal contingency. The appraisal comes in $15,000 below the contract price. Under a typical appraisal contingency, the buyer:

May cancel or renegotiate under the terms of the contingency

Must close at the contract price anyway

Automatically gets the price reduced to the appraised value

Forfeits the earnest money if the buyer cancels

All of the following are generally required for a valid real estate sales contract EXCEPT

recording in the county clerk's office

Contracts

The biggest national area on the PSI exam: valid vs void vs voidable, offers and counteroffers, options, contingencies and remedies.

PSI national outline: 19% of national content7 min read52-question check

Contracts in one paragraph

Contracts are 19% of the national content, more than any other area. Most questions are vocabulary in disguise. A contract with no legal purpose is void. One signed by a minor is voidable by the minor. A contract that cannot be enforced in court, often because it is not in writing, is unenforceable.

Void vs voidable contracts

Void vs voidable contracts
	Void	Voidable
What it means	No contract ever existed	Valid until the protected party chooses to cancel it
Classic examples	An agreement with an illegal purpose	A minor's contract, or one signed because of fraud, misrepresentation or duress
Who can cancel	No one needs to. It never had legal effect	Only the party the law protects, such as the minor
Can it be ratified?	No	Yes. The protected party can choose to go ahead

Contracts: 4 rules to memorize

Four essentials.

Competent parties, offer and acceptance, consideration and legal purpose.

In writing.

The statute of frauds generally requires a signed writing. New Jersey also recognizes proof by clear and convincing evidence.

Counteroffers kill offers.

Any change rejects the original offer.

Specific performance.

A court can force the sale because every property is unique.

Contracts, explained

Offers die by acceptance, rejection, counteroffer, revocation before acceptance, lapse of time, or the death of a party. An option gives the buyer a right, not an obligation. Contingencies for financing, inspection and appraisal protect buyers, and multiple-offer situations test how and when offers are presented.

Remedies for breach include specific performance, damages, liquidated damages (usually the deposit) and rescission. In New Jersey, remember that licensee-prepared residential contracts also go through attorney review.

Know the three problem labels cold. Void means there never was a contract, like an agreement with an illegal purpose. Voidable means the contract is valid until the protected party cancels it: think minors, fraud, misrepresentation and duress. That party can also choose to go ahead, which ratifies the deal. Unenforceable means the contract may be valid, but a court will not enforce it, when an applicable legal requirement cannot be satisfied.

Classify contracts two ways. Bilateral means a promise for a promise, which is how a sales contract works. Unilateral means a promise in exchange for an act, like a reward paid only when someone performs. Express contracts are stated in words, written or spoken. Implied contracts are created by the parties' conduct.

Listing agreements and buyer agreements are contracts too, and they are with the broker, not the individual salesperson. Since August 17, 2024, under the NAR settlement practice changes, a written buyer agreement must state the agent's compensation as a specific amount or rate, cannot be open-ended, and must say that fees are fully negotiable and not set by law.

How the exam tries to trip you up

The question calls a minor's contract void. It is voidable, and only the minor can cancel it. The adult on the other side is still bound.
Do not confuse the general statute-of-frauds rule with New Jersey law. An oral agreement may be enforced in New Jersey if the statutory elements are proved by clear and convincing evidence.
A buyer asking whether the seller will include the washer is an inquiry, not a counteroffer, so the original offer stays open. Any actual change to the terms is a counteroffer.
Option questions flip the roles. The optionor is the owner and is bound. The optionee is the buyer and has the choice.

Contracts practice questions

1 of 52

A contract to perform an illegal act is:

Contracts flashcards

0 of 7 known

Keyboard: Space to flip · ← → to move · 1 still learning · 2 got it

All 7 terms at a glanceShow

Void: No legal effect from the start.
Voidable: Valid until cancelled by the party with that right.
Specific performance: Court order to complete the contract as written.
Unenforceable: A contract that a court will not enforce because a legal requirement is unmet. An oral agreement is not automatically unenforceable in New Jersey.
Unilateral contract: A promise exchanged for an act. Only one party is bound, and only once the act is performed.
Statute of frauds: Law generally requiring a signed writing for a real estate sale agreement, subject to exceptions. New Jersey permits clear and convincing evidence under N.J.S.A. 25:1-13(b).
Novation: Replacing a contract or party with a new one and releasing the original obligation.

Contracts: common questions

Contracts are 19% of the national content in the PSI outline, the largest single area.

Contracts

Void vs voidable contracts

Contracts: 4 rules to memorize

Contracts, explained

How the exam tries to trip you up

Contracts practice questions

Contracts flashcards

Contracts: common questions

Sources and further reading

Contracts

Void vs voidable contracts

Contracts: 4 rules to memorize

Contracts, explained

How the exam tries to trip you up

Contracts practice questions

Contracts flashcards

Contracts: common questions

Sources and further reading

Void vs voidable contracts

Contracts: 4 rules to memorize

Contracts, explained

How the exam tries to trip you up

Contracts practice questions

Contracts flashcards

Contracts: common questions

What percentage of the NJ real estate exam is contracts?

What makes a real estate contract valid?

What happens to an offer when the seller counters?

What is the difference between a void and a voidable contract?

Is a verbal agreement to buy a house binding?

Sources and further reading

Void vs voidable contracts

Contracts: 4 rules to memorize

Contracts, explained

How the exam tries to trip you up

Contracts practice questions

Contracts flashcards

Contracts: common questions

What percentage of the NJ real estate exam is contracts?

What makes a real estate contract valid?

What happens to an offer when the seller counters?

What is the difference between a void and a voidable contract?

Is a verbal agreement to buy a house binding?

Sources and further reading