Consideration is a legal concept which means something of value that is given in exchange for something else. People often think of consideration as the money exchanged by the parties. Legally, however consideration is the obligation that each party makes to the other to make the contract enforceable. Each party to the contract must obligate himself/herself by placing some consideration in the agreement.
There are two types of considerations:
- Valuable consideration is the money or a promise of something that can be measured in terms of money.
- Good consideration is a promise that cannot be measured in terms of money, such as love and affection.
Either type of consideration is sufficient to enforce a contract. The law typically does not concern itself with the fairness of consideration. What is exchanged need not have the same measurable value. The law will accept that the parties thought the consideration to be fair because they freely agreed to the exchange.
A common misconception is that the good-faith deposit in a real estate contract is the consideration. The good-faith deposit is made by a buyer to assure the seller that the buyer is serious about the transaction and the buyer intends to purchase the property.