What Are the Essential Elements of a Valid Real Estate Contract?

Contracts on the Real Estate Exam

This is one of the foundational topics on every state's real estate exam. Questions about contract elements appear in multiple forms: you may be asked to identify the essential elements directly, identify which element is missing from a scenario, or determine whether a contract is valid based on a set of facts.

Understanding Contracts: Key Concepts

What It Means

Real estate law requires five elements for a valid contract. If any one is missing, the contract may be void or voidable depending on which element is absent.

Competent parties means that each party must have the legal capacity to enter into the agreement. This means the parties must be at least 18 years old and of sound mind. A contract signed by a minor is generally voidable at the minor's option. A contract signed by someone who has been legally declared incompetent is void.

Requirements

Mutual consent (also called mutual assent or "meeting of the minds") requires a valid offer by one party and an unconditional acceptance by the other. The acceptance must mirror the offer exactly. Any change to the terms constitutes a counteroffer, which terminates the original offer.

Additional Considerations

Lawful object means that the purpose of the contract must be legal. A contract to do something illegal is void and cannot be enforced.

Sufficient consideration is something of value exchanged between the parties. In most real estate transactions, the buyer's consideration is the purchase price (or the promise to pay it), and the seller's consideration is the transfer of the property. Consideration does not need to be adequate or fair; it simply needs to exist.

Requirements

Writing (Statute of Frauds) requires that real estate contracts be in writing and signed by the party to be charged. An oral agreement to sell real property is generally unenforceable.