Key Takeaways
- Montana 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 the timeframe specified in the contract
- Montana uses standardized contract forms prepared by the Montana Association of Realtors
- Contingencies (financing, inspection, appraisal) must be clearly specified in the contract
Montana Contract Requirements
Montana real estate contracts must meet specific legal requirements to be valid and enforceable.
Statute of Frauds
Under Montana's Statute of Frauds (MCA 28-2-903), 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 Montana.
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
Montana 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 Montana Association of Realtors provides standardized forms used by most licensees.
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 3-5 business days) |
| Where deposited | Broker's trust account |
| Who holds | Broker (not salesperson) |
| Disbursement | Per contract terms or mutual agreement |
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 |
Inspection Contingency
| Element | Details |
|---|---|
| Purpose | Buyer can inspect property and negotiate repairs |
| Timeline | Inspection period specified in contract |
| Options | Accept, negotiate repairs, or cancel |
Appraisal Contingency
| Element | Details |
|---|---|
| Purpose | Protects buyer if property appraises below price |
| Options | Seller reduce price, buyer pay difference, or cancel |
Water Rights Contingency
Montana contracts often include a water rights contingency:
| Element | Details |
|---|---|
| Purpose | Verify water rights exist and will transfer |
| Investigation | Buyer investigates water rights through DNRC |
| Options | Accept, negotiate, or cancel based on findings |
Montana-Specific: Due to the importance of water in Montana, water rights contingencies are common in rural property transactions.
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
Many Montana real estate contracts 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 Montana's Statute of Frauds, which statement is TRUE about real estate contracts?
Which contingency is particularly common in Montana rural property transactions?