Summary:

There are dozens of different agreements used in the real estate business

Some memorialize agreements between the parties, and some are strictly drawn to document an understanding

There are distinct differences between an agreement and a contract

Some agreements are intended to become formal, binding contracts, and some are not. Some are for information only and are not to be construed as binding contractual agreements.

Both types may be recorded and become a cloud on the title of a specific property when the subject is the property. This means the property's ownership may be encumbered or disputed due to the recorded agreement.

State and federal regulations require that certain agreements and contracts be drawn up to memorialize rights, obligations, and responsibilities.

Article:

Contracts:

Contracts are specific agreements, usually in writing, executed by two or more parties that outline terms and conditions. These are enforceable in court, with the judge interpreting the contract based on the rule of law. However, it's important to note that judges may interpret contracts differently, showing subjectivity and deviating from the operation of law. Judges routinely deviate according to their ideological leanings, even ruling contrary to established law, which can introduce unpredictability in contract enforcement.

Contracts require six elements:

Offer and acceptance.

• Consideration, as in something of value.
• Legal intent must be for a legal purpose.
• Capacity- must be of age or mentally capable of understanding.
• Intention- The parties must intend to enter into a legally binding contract.
• Awareness- the parties must intend a meeting of the minds or mutuality.

Contracts may be verbal; only the enforceability and actual agreements are challenging to quantify.

Memorandum of agreement (MOA)

An MOA is a legally binding and enforceable contract describing a business relationship between parties to complete a mutual project. The agreement carries all the elements of a binding contract, creating rights, obligations, duties, and legally enforceable remedies for non-compliance. The MOA contains the agreed terms and outlines the steps to reach the desired goals.

The MOA will include:

Names of the parties involved.

• Scope of work or tasks to be completed.
• Financial obligations, if any.
• Dates of agreement and projected terms to accomplish.
• Key contacts.
• Define the roles and responsibilities of the parties.
• Length of the agreement
• Modification and termination
• Signatures of the parties.

https://www.imsa.edu/agreements-vs-contracts-what-is-the-difference/

https://legal.thomsonreuters.com/blog/agreement-vs-contract-the-differences/

Memorandum of Understanding (MOU)

An MOU is an agreement between parties that offers a flexible approach to outlining plans for mutual benefit and an action plan. This flexibility can be reassuring, allowing adjustments and modifications as the situation evolves and instilling confidence in the parties involved.

Under U.S. law, an MOU is like a letter of interest or intent. It spells out the plans but does not bind anyone. A private money lender may issue a letter of interest or intent to make a loan, subject to the approval of the credit file and completion of the underwriting process of a fully documented loan file.

https://www.investopedia.com/terms/m/mou.asp

https://en.wikipedia.org/wiki/Memorandum_of_understanding

For instance, an MOA could be used when two parties agree to develop a property together, while an MOU could be used when a buyer and seller agree on the general terms of a sale before a formal contract is drafted.

The document may be drafted according to the signatories' intent and willingness to proceed with a formal contract. An example is a real estate purchaser's desire to buy under specific pricing, terms, and conditions, subject to moving to the next step of a formal purchase agreement. The document will represent a starting point for negotiations to purchase the property.

Advantages and disadvantages of an MOA

The advantage is that the MOA functions as an enforceable, binding contract. Wiggle room, memory lapses, intentional lying, and deception are limited to a finite condition. Then, again, back to the judge's viewpoint, which is a crapshoot.

Advantages and disadvantages of an MOU

The advantage of an MOU is that the document allows all parties to state their mutual goals and objectives clearly. The completed document results in less uncertainty and prevents unexpected disputes in the future. This clarity can make all parties feel informed and confident about the agreement's direction. A well-drafted MOU is significantly less expensive than drafting a sophisticated contract designed to be executed by all parties.

The disadvantage of an MOU is that the document is not intended to be a binding contract. Either party can walk away or modify the expectations, leading to a lack of commitment and potential disputes. It's important to be aware of this potential and to consider it when choosing the right agreement for your situation.

It's always best to consult your lawyer for a more in-depth understanding of the benefits or to draft an agreement. This step can provide the necessary legal guidance and ensure your agreements are sound and enforceable, giving you a sense of security and confidence in your transactions.