Key Takeaways
- Iowa follows the Statute of Frauds requiring real estate contracts to be in writing
- Valid contracts require offer, acceptance, consideration, legal capacity, and lawful purpose
- Earnest money should be deposited into the broker's trust account within specified timeframes
- Iowa uses standardized contract forms approved by the Iowa Association of Realtors
- Contingencies (financing, inspection, appraisal) must be clearly specified in the contract
Iowa Contract Requirements
Iowa real estate contracts must meet specific legal requirements to be valid and enforceable.
Statute of Frauds
Under Iowa's Statute of Frauds, contracts for the sale of real property must be:
- In writing
- Signed by the party to be charged (or their authorized agent)
Key Point: Oral agreements to sell real estate are generally unenforceable in Iowa.
Essential Elements of a Valid Contract
| Element | Description |
|---|---|
| Offer | Clear proposal with definite terms |
| Acceptance | Unequivocal agreement to the offer's terms |
| Consideration | Something of value exchanged (usually money) |
| Legal capacity | Parties must be competent to contract |
| Lawful purpose | Contract cannot be for illegal purposes |
| In writing | Required for real estate contracts |
Common Contract Forms
Iowa real estate professionals typically use:
| Form | Use |
|---|---|
| Purchase Agreement | Standard residential sale |
| Commercial Contract | Business property transactions |
| Lease Agreement | Rental property |
| Listing Agreement | Seller representation |
| Buyer Agency Agreement | Buyer representation |
Note: The Iowa Association of Realtors provides standardized forms used by most licensees. Using approved forms helps ensure compliance.
Earnest Money
Earnest money (also called a good faith deposit) shows the buyer's serious intent:
Handling Requirements
| Requirement | Details |
|---|---|
| Deposit timeline | As specified in contract (typically within 3 business days) |
| Where deposited | Broker's trust account |
| Who holds | Broker (not salesperson) |
| Disbursement | Per contract terms or mutual agreement |
Earnest Money Disputes
If parties disagree about earnest money disbursement:
| Situation | Action |
|---|---|
| Mutual agreement | Disburse per agreement |
| Dispute | Hold in trust until resolved |
| Legal action | May require court order |
| Interpleader | Broker may deposit with court |
Common Contract Contingencies
Contingencies allow parties to exit the contract if certain conditions aren't met:
Financing Contingency
| Element | Details |
|---|---|
| Purpose | Buyer can cancel if financing not obtained |
| Deadline | Must apply for loan within specified days |
| Documentation | May require denial letter from lender |
| Rates/Terms | Specify acceptable interest rate and terms |
Inspection Contingency
| Element | Details |
|---|---|
| Purpose | Buyer can inspect property and negotiate repairs |
| Timeline | Inspection period specified in contract |
| Options | Accept, negotiate repairs, or cancel |
| Scope | Can include specialized inspections (radon, mold, etc.) |
Appraisal Contingency
| Element | Details |
|---|---|
| Purpose | Protects buyer if property appraises below price |
| Options | Seller reduce price, buyer pay difference, or cancel |
| FHA/VA loans | Required appraisal must meet minimum |
Sale of Buyer's Property Contingency
| Element | Details |
|---|---|
| Purpose | Buyer must sell existing home first |
| Kick-out clause | Seller can accept other offers |
| Timeline | Buyer has specified time to remove contingency |
Termination of Contracts
Contracts may be terminated by:
| Method | Description |
|---|---|
| Performance | Both parties fulfill obligations |
| Mutual agreement | Both parties agree to cancel |
| Contingency not met | Condition specified in contract fails |
| Breach | One party fails to perform |
| Impossibility | Performance becomes impossible |
Time is of the Essence
Iowa real estate contracts typically include a "time is of the essence" clause:
- Deadlines are strict and legally binding
- Missing a deadline may constitute breach
- Extensions require written agreement
Exam Tip: Understand the difference between an executory contract (not yet performed) and an executed contract (fully performed).
Under Iowa's Statute of Frauds, which statement is TRUE about real estate contracts?
Where should earnest money be deposited in an Iowa real estate transaction?
What does "time is of the essence" mean in an Iowa real estate contract?