contracts

contract

A contract is a legally enforceable agreement between two or more competent parties to do, or not do, something lawful in exchange for consideration. The essential elements are generally competent parties, offer and acceptance (mutual assent), consideration, and a legal purpose; real estate contracts must also be in writing under the statute of frauds. Contracts may be express or implied, bilateral or unilateral, and executory or executed.

Exam tip: Memorize the essential elements. A missing element makes the contract void; a defect like a minor party makes it voidable.
Example: A buyer offers $350,000 for a house in writing, the seller signs acceptance, and the buyer gives earnest money, forming a contract.

1. A buyer contracts to buy a home for $300,000, but it appraises at $290,000. The lender offers 75% LTV. What is the maximum loan?

Answer & explanation

Answer: B. LTV is applied to the LESSER of price or appraised value: $290,000 x 0.75 = $217,500. Using the $300,000 price ($225,000) is the common mistake.

Related terms & state variants

bilateral contract consideration mutual assent statute of frauds valid contract

Sources

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Last verified: 2026-10-23