Is a Contract a Contract?

The term contract is used by many to describe any document that references purchase and sale. Realtors frequently talk about a contract, when they are really talking about an offer. The term contract is also used as shorthand for contract form document. To create a contract, something more than a form or an offer is required.

Textbook definition of a contract is an offer and an acceptance supported by consideration. That definition is the bare bones of a contract. It omits other important aspects, such as the offer and acceptance must be a meeting of the minds on all essential terms.

Courts can easily recite the textbook definition of a contract when asked to settle a dispute. It is harder to find what are essential terms. Florida court cases frequently explain circumstances and facts affect what is an essential term. There is no judicially adopted list that can be applied in all cases. Let’s see how these concepts are applied in residential real estate sales.

First step in creating a real estate sale contract is an offer. An offer must include identity of the parties, description of the property in sufficient detail so there is no question about it and sale price. Sale price can be a set figure or be based on a formula that is subject to definite calculation at time required by the contract. Any additional terms deemed essential would be based on the facts and circumstances.

What might not be essential? Believe it or not, closing date is not usually an essential term. The contract impliedly includes reasonableness and good faith obligations under Florida law which means closing will take place in a reasonable time and reasonable manner. What closing costs are paid by each party is likely not an essential term and would be decided by local custom and practice. That can vary by location. In Lee County, sellers pay both title insurance and documentary stamps on the deed. In Collier County, buyers pay title insurance.

Other non-essential terms not included in a real estate sale contract can leave much to fight about. Those terms can include who pays which closing costs, who insures the property to closing, and what type of deed will be provided.

Custom and practice for most real estate closings is for the seller to convey by general warranty deed, but that is not required by law. Some sellers will want to convey with less liability for title problems than would come with a warranty deed; buyers usually want the protection of seller warranty of title in the deed.

Unless the contract states otherwise, once contract is signed, the buyer assumes all risk of loss or damage to the property. That means a buyer will have to buy even if the property is damaged. That can affect decision to insure. More importantly, it will mean most buyers will want a contract clause that says the seller assumes risk of loss or damage until closing. To a buyer, that term seems essential. To a Florida court, likely not.

We know these items are often considered non-essential because judges have told us so when deciding disputes involving contracts. It is the potential for dispute that pushes drafters to include a variety of non-essential terms in contracts to try and avoid argument. If the offer and acceptance agree on those terms, potential for disagreement dissipates.

Our elected officials also worry about real estate contract terms. Most of that worry is focused on protecting a buyer. As a result, statutes require disclosures and warnings in Florida real estate sale contracts.

If a condominium is involved, Florida requires specific language in conspicuous type advising a buyer that the buyer is entitled to a list of condominium documents and financials and that the buyer can terminate the contract and get back any deposit within three days of receiving the documents. Similar warning is required when the property is within a homeowners’ association telling the buyer that the buyer has three days to terminate a contract after receipt of a form listing assessment by the association. Failure to include the mandated warning allows the buyer to terminate and get back any deposit any time prior to closing.

Florida also requires warnings about radon, energy efficiency and property taxes in all residential real estate sale contracts. The federal government mandates warning about lead based paint. Even more disclosures are required along with completion commitments when developers are involved

All of these statutes add to what starts as a rather short list of essential terms in a real estate sale contract. Drafting a real estate sales contract is not for the faint of heart!

Perhaps the most important statutory requirement is the Statute of Frauds at section 725.01 Florida Statutes. That statute requires all real estate sale contracts be in writing and signed by the party to be charged with performance. Failure to meet either requirement is the kiss of death and what a party thinks is a deal can vanish. 

Adding complexity is the definition of signature. Signature has historically been defined as any mark made by a person or at that person’s direction with the intent that it serves as the person’s signature. The electronic age brought with it a need to validate electronic signatures and that spawned Florida’s Electronic Transactions Act. That Act expands definition of signature to include an electronic sound, symbol or process “attached or logically associated with the contract, and executed or adopted with the intent to sign…” That statute only applies if the parties agree to create a contract electronically. Court decisions have confirmed electronic signature cannot be created by text, even though texting is the preferred method of communication for Gen Z!

It should not be surprising that the form residential real estate sale contracts used in Florida are more than 10 pages long. The forms do a pretty good job of including provisions addressing matters that are usually present in real estate sales. What the forms do not do is make sure they are properly completed or that those signing understand the terms. Is it any wonder that many contract disputes start with misunderstanding or failure to include important contract terms?