Arizona law requires real estate licensees to have an understanding of the general purpose and legal effect of real estate contracts. However, every year, contract questions are by far the most common questions received by the Arizona REALTORS® Legal Hotline. Many of these questions can be answered by applying the basic contract law.
A Valid Contract Requires Certain Elements
For a valid contract to exist there needs to be an offer, acceptance, consideration, and sufficient specificity so that the obligations involved can be ascertained. The Arizona REALTORS® contracts are designed to address these requirements in a uniform manner.
Real Property Contracts Must Satisfy the Statute of Frauds
The Statute of Frauds requires a contract for the sale of real property to be in writing and signed by the party to be charged. The party to be charged is the party against whom enforcement of the contract is sought. A signature can be a mark, if a person cannot write, with the person’s name written near it and witnessed by a person who writes the person’s own name as witness. And, of course, electronic signatures are legal.
An offer is a willingness to enter into a contract expressed in such way that the other person understands that agreement to the offer is invited and will result in a binding contract.
An Offer (or Counteroffer) Generally Can Be Withdrawn Prior to Acceptance
When an offer (or counteroffer) is not supported by independent consideration, it may be withdrawn at any time prior to acceptance. Although the Statute of Frauds requires that an offer or counteroffer be in writing, a written offer (or counteroffer) can be verbally withdrawn. However, when withdrawing an offer, do so in writing if at all possible, to avoid disputes.
Acceptance Must Be Conveyed as Required by the Offer
Acceptance is agreement to the terms of an offer in the manner required by offer. Acceptance of an offer must be conveyed to be effective; silence does not ordinarily establish acceptance.
A Counteroffer Rejects the Offer
Acceptance of an offer must be on the exact terms as the offer. Any attempt to accept an offer on terms materially different from the offer constitutes a counteroffer, which rejects the offer. Once rejected, the offer can only be revived by the original offeror.
Consideration Need Not Be Money
Consideration need not be money but may involve a promise for a promise. Consideration may be a benefit to a promisor or a detriment to a promisee. By Arizona statute, “[e]very contract in writing imports a consideration.” A.R.S. §44-121.
Personal Property Can Become Real Property Fixtures
A fixture is an item that was once personal property but is affixed to the real estate in such a manner as to become a part of the real property. Arizona employs a three-part test for determining when personal property has become a fixture: (1) it is attached to the real estate; (2) it has adaptability or application to the use of the real estate; and (3) the party intended to make it a permanent part of the real estate. To avoid ambiguity, the Arizona REALTORS® contracts contain a list of fixtures and personal property to be conveyed. Any additional personal property to be conveyed should be specifically written into to the contract.
The Parties to The Contract Should be Set Forth with Specificity
The parties to be bound to the contract should be set forth with specificity. If either party is a corporation, limited liability company, or partnership, all pertinent information about the entity should be included, such as the entity’s exact name, address, and state of formation. If either party is an entity, the signer’s authority to bind the entity should also be ascertained.
Both Spouses Must Sign The Contract
In any real estate transaction both husband and wife must sign the contract for the community property to be obligated. A.R.S. §25-214 (C)(1); A.R.S.§33-452. Therefore, both husband and wife must sign all real estate contracts, including contract modifications. In the alternative, “either husband or wife may authorize the other by power of attorney to sign the contract on his or her behalf.” A.R.S. §33-454.
The Parties Must Be Competent to Contract
The parties must also be competent. Generally, to invalidate a contract based on incompetency, the owner must have been incompetent at the time of the execution of the contract. Further, be aware that the incompetency of an individual will invalidate a general or special power of attorney, (i.e., for specific property) unless the power of attorney is a durable power of attorney that specifically states that the power of attorney will not be affected by the incompetency of the principal. A.R.S. §14-5501.
Written Provisions Prevail Over Boilerplate
The Arizona REALTORS® contract contains pre-printed or “boilerplate” language. However, the form may be revised or supplemented to address issues unique to the particular transaction. Where written provisions of the contract are inconsistent with the printed or “boilerplate” provisions, the written provisions will prevail.
K. Michelle Lind is an attorney and the Chief Executive Officer for the Arizona Association of REALTORS®, representing more than 55,000 members.
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This article reflects only the opinion of the author and is not intended as definitive legal advice.