Michigan Real Estate Contracts: Exam Study Guide

Michigan Real Estate Contracts: Exam Study Guide

Contracts are the largest topic on the national section of the Michigan exam (approximately 17% of questions). Michigan also has state-specific contract rules — particularly the Seller's Disclosure Act and the land contract — that appear in the state section.

Elements of a Valid Real Estate Contract

1. Mutual assent — Offer and acceptance of identical terms
2. Consideration — Something of value exchanged
3. Legally competent parties — Adults of sound mind, not under duress
4. Lawful purpose — Cannot require illegal acts
5. In writing — Statute of Frauds applies to real estate contracts

Listing Agreement Types

Exclusive Right to Sell — Commission paid regardless of who sells the property. Most protection for the broker. Standard in most Michigan residential transactions.

Exclusive Agency — Commission paid unless the seller independently finds a buyer without broker involvement.

Open Listing — Multiple brokers can market; only the procuring broker earns a commission. Seller retains the right to sell independently.

Net Listing — Broker's commission is the amount above the seller's net price. Illegal in Michigan due to inherent conflict of interest.

Michigan Seller's Disclosure Act

One of the most important Michigan-specific contract topics:

• Applies to: Residential properties with 1–4 units
• Required from: Sellers (not agents, not buyers)
• Timing: Seller must provide disclosure before the buyer signs a purchase agreement, or within a reasonable time of the offer
• Buyer's right to rescind: If the disclosure is provided after the buyer makes an offer, the buyer has a right to rescind the offer within a specified time after receiving the disclosure
• Agent's role: The licensee does not fill out the disclosure — the seller does. But licensees must know it's required and ensure the process happens.

Michigan Land Contract

Michigan frequently uses land contracts (also called installment sale contracts or contracts for deed). In a land contract: - The seller retains legal title during the payment period - The buyer gets equitable title and possession - Legal title transfers to the buyer only when the purchase price is paid in full - If the buyer defaults, the seller may be able to forfeit the contract (shorter process than foreclosure)

This is a Michigan-specific financing tool that the exam tests. National courses typically cover land contracts briefly; Michigan's exam tests them in more depth.

Key Contract Terms

Contingency — Condition that must be met for the contract to proceed (financing, inspection, appraisal, sale of buyer's home).

Earnest money — Deposit held in escrow. If the buyer defaults without a valid contingency, the seller may keep the earnest money.

Counteroffer — Rejects and replaces the original offer. The original offer dies when a counteroffer is made.

Time is of the essence — Deadlines are strict; missing one may constitute breach.

Option contract — Buyer pays for the right to buy at a set price within a set time. Buyer is not obligated to buy; seller is obligated to sell if the option is exercised.

Common Exam Mistakes

• Forgetting that net listings are illegal in Michigan
• Not knowing who prepares the Seller's Disclosure (the seller, not the agent)
• Confusing land contract title transfer (legal title stays with seller until fully paid)
• Forgetting that a counteroffer terminates the original offer

Practice Michigan Contract Questions

[CARealestate.com/states/michigan](https://carealestate.com/states/michigan) has contract practice questions with Michigan-specific context. 5 free questions — no signup needed.