Key Takeaways
- Rhode Island 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 principal broker's escrow account promptly
- Purchase and sales agreements must include essential terms: parties, property, price, and signatures
- Contingencies for financing, inspection, and appraisal protect buyers in the transaction
Rhode Island Contract Requirements
Rhode Island real estate contracts must meet specific legal requirements to be valid and enforceable.
Statute of Frauds
Under Rhode Island'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 Rhode Island.
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 |
Essential Contract Terms
A Rhode Island real estate purchase and sales agreement should include:
| Term | Description |
|---|---|
| Parties | Full legal names of buyer(s) and seller(s) |
| Property description | Legal description or adequate identification |
| Purchase price | Amount and payment terms |
| Earnest money | Amount and who holds it |
| Closing date | When title will transfer |
| Contingencies | Conditions that must be met |
| Signatures | All parties must sign |
Earnest Money (Deposit)
Earnest money shows the buyer's serious intent to purchase:
Handling Requirements
| Requirement | Details |
|---|---|
| Who receives | Principal broker's escrow account |
| Timing | Promptly after execution of agreement |
| Documentation | Written acknowledgment in contract |
| Disbursement | Per contract terms or mutual agreement |
Important: Funds must be deposited promptly after the execution of the purchase and sales agreement.
Common Contract Contingencies
Contingencies protect parties by allowing exit 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 |
| Expiration | Typically 30-45 days |
Inspection Contingency
| Element | Details |
|---|---|
| Purpose | Buyer can inspect property and negotiate repairs |
| Timeline | Inspection period specified in contract |
| Options | Accept, negotiate repairs, request credit, or cancel |
| Professional | Buyer typically hires licensed inspector |
Appraisal Contingency
| Element | Details |
|---|---|
| Purpose | Protects buyer if property appraises below price |
| Trigger | Appraisal comes in below purchase price |
| Options | Seller reduce price, buyer pay difference, or cancel |
Sale of Buyer's Property Contingency
| Element | Details |
|---|---|
| Purpose | Buyer must sell current home first |
| Risk to seller | Property tied up while buyer sells |
| Kick-out clause | May allow seller to continue marketing |
Termination of Contracts
Contracts may be terminated by:
| Method | Description |
|---|---|
| Performance | Both parties fulfill all obligations |
| Mutual agreement | Both parties agree to cancel (mutual release) |
| Contingency not met | Condition in contract fails |
| Breach | One party fails to perform |
| Impossibility | Performance becomes legally impossible |
Time is of the Essence
Many Rhode Island 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 from all parties
Exam Tip: Understand that "time is of the essence" makes contract dates firm deadlines with legal consequences for non-compliance.
Under Rhode Island's Statute of Frauds, which statement is TRUE about real estate contracts?
Where should earnest money be deposited in a Rhode Island real estate transaction?