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A contract in which each party promises to perform an act in exchange for the other party’s promise to perform.

The usual real estate sales contract is an example of a bilateral contract in which the buyer and seller exchange reciprocal promises respectively to buy and sell the property. If one party refuses to honor his or her promise and the other party is ready to perform, the nonperforming party is said to be in default. Neither party is liable to the other until there is first a performance, or tender of performance, by the nondefaulting party. Thus, when the buyer refuses to pay the purchase price, the seller usually must tender the deed into escrow to show that he or she is ready to perform. In some cases, however, tender is not necessary.

Depending on its wording, a listing form may be considered to be a bilateral contract, with the broker agreeing to use his or her best efforts to locate a ready, willing, and able purchaser for the property, and the seller promising to pay the broker a commission if the broker produces such a buyer or if the property is sold. Once signed by the broker and seller, such a listing contract becomes binding on both.
Dearborn Real Estate Education
This "Word of the day" is excerpted from The Language of Real Estate, 6th Edition by John Reilly (published by Dearborn Real Estate Education, 2006 copyright). To purchase the complete book, with over 2800 key terms and definitions, or to browse through Dearborn's hundreds of other professional real estate titles, including Real Estate Technology Guide by Klein, Barnett, Reilly, click here.