North Dakota Real Estate Contracts Guide for the Exam

# North Dakota Real Estate Contracts Guide for the Exam

Contracts are one of the most heavily tested topics on the national portion of the North Dakota real estate exam. Understanding the elements of a valid contract, the types of contracts used in real estate, and what happens when contracts are breached is essential.

Elements of a Valid Contract

Every valid real estate contract must have these five elements:

1. Offer and acceptance (mutual assent): A clear offer by one party and an unambiguous acceptance by the other. A counteroffer terminates the original offer.
2. Consideration: Something of value exchanged by both parties. In real estate, the purchase price and the promise to convey title are consideration.
3. Capacity: Both parties must be legally competent — generally meaning they are adults (18+) and mentally competent.
4. Legality: The contract's purpose must be legal.
5. In writing (Statute of Frauds): Real estate contracts must be in writing to be enforceable. Oral agreements to buy and sell real property are not enforceable in North Dakota.

Types of Contracts in Real Estate

Purchase Agreement (Sales Contract): The primary document in a residential sale. Sets out price, terms, contingencies, and closing date.

Listing Agreement: A contract between a seller and a brokerage authorizing the broker to market the property. North Dakota uses exclusive right-to-sell listings most commonly.

Buyer Representation Agreement: A contract between a buyer and a brokerage establishing the buyer's agency relationship.

Option Contract: Gives the buyer the right (but not the obligation) to purchase property within a specified time. The seller cannot withdraw during the option period. This is a unilateral contract.

Land Contract (Contract for Deed): The buyer pays in installments and receives equitable title but not legal title until the final payment. Still used in North Dakota agricultural land transactions.

Contract Status Terms

• Executory: Both parties still have obligations to perform (a signed purchase agreement before closing)
• Executed: All obligations have been fulfilled (after closing)
• Void: Never legally valid — lacks one of the five required elements
• Voidable: Valid but can be rescinded by one party (e.g., a contract signed by a minor)

Contingencies Common in North Dakota

• Financing contingency: Buyer's obligation depends on obtaining a mortgage
• Inspection contingency: Buyer may withdraw based on inspection results
• Sale of existing home contingency: Buyer's purchase conditioned on selling their current home

Breach of Contract

If a buyer breaches, the seller may keep the earnest money as liquidated damages (if so stated in the contract), or sue for specific performance.

If a seller breaches, the buyer may sue for specific performance (compelling the sale) or seek money damages.

Specific performance is available in real estate because each parcel of land is considered unique.