Indiana Real Estate Contracts: Exam Study Guide

Contract law is a major topic on both the national and Indiana state sections of the PSI exam. Understanding how contracts are formed, what makes them valid, and Indiana-specific rules around purchase agreements and disclosures is essential.

Elements of a Valid Real Estate Contract

Every valid real estate contract requires:

1. Offer and acceptance (mutual assent / meeting of the minds)
2. Consideration (something of value exchanged)
3. Competent parties (legal age, sound mind)
4. Legal purpose (lawful object)
5. In writing and signed (under the Statute of Frauds, real estate contracts must be written)

Types of Contracts

Bilateral contract — both parties make promises (purchase agreement: buyer promises to pay, seller promises to convey title)

Unilateral contract — one party makes a promise; the other can accept only by performing (option contract: seller promises to keep an offer open; buyer has no obligation to buy)

Executed contract — all obligations fulfilled (after closing)

Executory contract — obligations remain outstanding (between acceptance and closing)

Indiana Purchase Agreements

In Indiana, the purchase agreement is the primary contract used to buy and sell real property. Key elements include:

• Legal description of the property
• Purchase price and earnest money amount
• Financing contingency — if the buyer cannot obtain financing, they can exit without penalty
• Inspection contingency — buyer's right to inspect and request repairs
• Closing date and possession date
• Inclusions and exclusions — fixtures vs. personal property

Indiana Seller's Residential Real Estate Sales Disclosure

For most 1–4 unit residential properties, Indiana law requires the seller to complete a Seller's Residential Real Estate Sales Disclosure form. Key rules:

• The disclosure must be provided to buyers before or at the time of the purchase agreement
• If provided after contract signing, the buyer has 2 business days to rescind
• Sellers must disclose known material defects — not cosmetic issues
• New construction sold by builders has a separate disclosure process

Earnest Money and Trust Accounts

Earnest money is a deposit showing the buyer's good faith. Under Indiana law:

• The broker must deposit earnest money into a trust account within 24 hours of broker receipt (not contract acceptance)
• Funds cannot be commingled with the broker's operating account
• Disputes about earnest money disbursement follow the purchase agreement terms or IREC resolution

Contingencies

Contingencies are conditions that must be met for the contract to proceed:

• Financing contingency — most common; protects buyer if loan is denied
• Inspection contingency — buyer's right to inspect property
• Appraisal contingency — protects buyer if property appraises below purchase price
• Sale contingency — buyer's current home must sell first

Default and Remedies

If a buyer defaults: - Seller may keep earnest money as liquidated damages - Seller may sue for specific performance (court order to complete the sale)

If a seller defaults: - Buyer may get earnest money refunded - Buyer may sue for specific performance

Indiana Deed of Trust

Indiana uses a deed of trust (not a traditional mortgage) as the primary real estate security instrument. The trustee holds title on behalf of the lender until the loan is paid off. This allows for non-judicial foreclosure in some circumstances.

Practice contract law questions at [CARealestate.com/states/indiana](https://carealestate.com/states/indiana).