Real estate contracts - Essential terms

Learning Outcomes

After reading this article, you will be able to identify and explain the essential terms required for a valid real estate contract under the MBE syllabus. You will understand what must be included for enforceability, how courts treat missing or vague terms, and how these issues are tested on the MBE. You will also be able to apply these principles to MBE-style questions.

MBE Syllabus

For the MBE, you are required to understand the requirements for a valid and enforceable real estate contract. This includes the essential terms that must be present, the effect of missing or vague terms, and the application of the Statute of Frauds. You should be prepared to:

• Identify the essential terms required for a real estate contract to be enforceable.
• Explain the consequences of omitting or inadequately describing essential terms.
• Apply the Statute of Frauds to real estate contracts.
• Analyze the effect of part performance and other exceptions to the writing requirement.
• Distinguish between enforceable and unenforceable agreements based on their terms.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following is NOT an essential term that must be included in a real estate contract for it to be enforceable?
   1. Identification of the parties
   2. Legal description of the property
   3. Method of payment
   4. Purchase price
2. If a real estate contract omits the price term but the parties intended to contract, what is the most likely result?
   1. The contract is automatically void.
   2. The court may supply a reasonable price if the parties intended to be bound.
   3. The contract is enforceable only if the buyer is a merchant.
   4. The contract is enforceable only if the seller is a merchant.
3. Under the Statute of Frauds, a real estate contract must:
   1. Be in writing and signed by the party to be charged.
   2. Be in writing and signed by both parties.
   3. Be oral if witnessed by a notary.
   4. Be enforceable if performed within one year.

Introduction

A contract for the sale of real estate must meet certain requirements to be valid and enforceable. The MBE frequently tests whether a real estate contract contains the essential terms and whether it satisfies the Statute of Frauds. Understanding what must be included—and the consequences of missing or vague terms—is critical for MBE success.

Essential Terms of a Real Estate Contract

A contract for the sale of land must include certain key terms to be enforceable. These are sometimes called the "essential terms" or "material terms." If any are missing or too vague, the contract may be unenforceable.

The essential terms are:

• Identification of the parties (buyer and seller)
• Description of the property
• Purchase price (or a method to determine it)
• Signature of the party to be charged (the party against whom enforcement is sought)

Key Term: Essential Terms The minimum contract terms required for a real estate contract to be enforceable: parties, property description, price, and signature.

Identification of the Parties

The contract must clearly identify the buyer and seller. Ambiguity about the parties can render the contract unenforceable.

Description of the Property

The contract must contain a description of the land sufficient to identify it with reasonable certainty. This does not require a full legal description, but it must be clear enough that the property can be located.

Key Term: Reasonable Certainty The standard requiring that the property description is clear enough to identify the land being sold.

Purchase Price

The price must be stated or there must be a clear method for determining it (such as "market value" or "to be determined by appraisal"). If the price is missing but the parties intended to contract, some courts may supply a reasonable price, but this is not guaranteed.

Signature Requirement

Under the Statute of Frauds, the contract must be signed by the party to be charged (the party against whom enforcement is sought).

Key Term: Statute of Frauds The legal rule requiring certain contracts, including those for the sale of land, to be in writing and signed by the party to be charged.

Effect of Missing or Vague Terms

If an essential term is missing or too vague, the contract is generally unenforceable. Courts may sometimes supply missing terms if there is clear evidence of intent to contract, but this is not automatic.

Statute of Frauds and Enforceability

A contract for the sale of land must be in writing and signed by the party to be charged. Oral agreements are unenforceable unless an exception applies (such as part performance).

Key Term: Part Performance An exception to the Statute of Frauds allowing enforcement of an oral real estate contract if the buyer has taken significant steps in reliance on the agreement (such as payment, possession, or improvements).

Worked Example 1.1

Seller and Buyer agree orally that Seller will sell Buyer a specific parcel of land for $300,000. Buyer pays$50,000 as a deposit, takes possession, and starts building a fence. Seller then refuses to complete the sale, arguing the contract is unenforceable because it was not in writing. Can Buyer enforce the contract?

Answer: Yes, if Buyer can show part performance (payment, possession, and improvements), the court may enforce the oral contract despite the Statute of Frauds.

Worked Example 1.2

A written contract for the sale of land identifies the parties and is signed by the seller, but describes the property only as "Seller's farm in County X." Seller owns two farms in County X. Is the contract enforceable?

Answer: No. The property description is too vague to identify which farm is being sold, so the contract is unenforceable.

Exam Warning

The MBE may test whether a contract is enforceable if the price or property description is missing or unclear. Always check if the essential terms are present and definite.

Revision Tip

On MBE questions, if you see a real estate contract that is oral, unsigned, or missing a key term, consider whether the Statute of Frauds or lack of essential terms makes it unenforceable.

Key Point Checklist

This article has covered the following key knowledge points:

• A valid real estate contract must include the parties, property description, price, and signature.
• The property must be described with reasonable certainty.
• The price must be stated or clearly determinable.
• The Statute of Frauds requires a written, signed contract for land sales.
• Missing or vague essential terms usually make the contract unenforceable.
• Part performance may allow enforcement of an oral contract in limited circumstances.

Key Terms and Concepts

• Essential Terms
• Reasonable Certainty
• Statute of Frauds
• Part Performance