Iowa Real Estate Contracts: Exam Study Guide

Contracts are a major topic on both sections of the Iowa PSI exam. Understanding how Iowa purchase agreements work, what makes a contract valid, and Iowa-specific rules around buyer agency agreements and seller disclosure gives you a significant advantage.

Elements of a Valid Contract

Every valid real estate contract in Iowa must include:

1. Offer and acceptance (mutual assent)
2. Consideration (something of value from both parties)
3. Competent parties (18+, sound mind)
4. Legal purpose (lawful object)
5. In writing and signed (Statute of Frauds — real estate contracts must be written)

Types of Contracts

Bilateral — both parties exchange promises (purchase agreement) Unilateral — one party promises, the other accepts by performance (option contract) Executed — all obligations fulfilled (post-closing) Executory — obligations remain (between acceptance and closing)

Iowa Purchase Agreement

The Iowa purchase agreement is the binding contract between buyer and seller. Key elements:

• Legal description of the property
• Purchase price and earnest money amount
• Financing contingency — buyer's exit if financing falls through
• Inspection contingency — buyer's right to inspect and negotiate repairs
• Closing date and possession
• Inclusions/exclusions — what stays with the property

The Iowa Buyer Agency Agreement (Contract with Your Client)

Iowa's mandatory written buyer agency agreement is itself a contract between the agent and buyer. It must be executed before the agent begins providing services, including property showings.

Key terms in a buyer agency agreement: - Duration (how long the agreement lasts) - Property type and geographic area - Compensation (how the buyer's agent is paid) - Exclusivity (whether the buyer can work with other agents) - Termination provisions

Failing to have a signed buyer agency agreement before working with buyers is a violation of Iowa law — and a high-frequency exam topic.

Iowa Seller's Disclosure

For 1-4 unit residential properties, Iowa law requires sellers to complete a Seller's Disclosure form before or at contract signing. Key rules:

• Discloses known material defects
• Buyer has the right to rescind if disclosure is provided after contract signing
• Does not replace the need for a professional inspection

Earnest Money

Earnest money demonstrates the buyer's good faith. Iowa rules:

• Brokers must deposit earnest money into a trust account promptly
• Commingling with operating funds is prohibited
• Disputes are resolved per the purchase agreement terms or through IREC

Default and Remedies

Buyer defaults: - Seller may retain earnest money (liquidated damages) - Seller may sue for specific performance

Seller defaults: - Buyer receives earnest money refund - Buyer may sue for specific performance

Iowa Lien Theory and Mortgage Instruments

Iowa is a lien theory state — when a borrower signs a mortgage, the lender receives a lien (not title) on the property. Both deeds of trust and traditional mortgages are used in Iowa. Iowa is NOT a title theory state.

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