Key Takeaways
- Tennessee follows the Statute of Frauds requiring real estate contracts to be in writing and signed
- Valid contracts require offer, acceptance, consideration, legal capacity, and lawful purpose
- Earnest money should be deposited into the broker's escrow account immediately
- Tennessee REALTORS provides standardized contract forms used by most licensees
- The statute of limitations for breach of contract in Tennessee is 6 years
Tennessee Contract Requirements
Tennessee real estate contracts must meet specific legal requirements to be valid and enforceable.
Statute of Frauds
Under Tennessee'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 Tennessee.
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
Tennessee real estate professionals typically use forms provided by:
| Provider | Forms |
|---|---|
| Tennessee REALTORS | Standard purchase agreements |
| Local associations | Regional contract forms |
| Attorneys | Custom contracts |
Standard Contract Components
| Component | Description |
|---|---|
| Parties | Buyer and seller identification |
| Property | Legal description and address |
| Price | Purchase price and payment terms |
| Earnest money | Amount and handling |
| Contingencies | Conditions that must be met |
| Closing date | Target completion date |
| Signatures | All required parties |
Earnest Money
Earnest money (also called a good faith deposit) shows the buyer's serious intent:
Handling Requirements
| Requirement | Details |
|---|---|
| Deposit timeline | Immediately upon acceptance |
| Where deposited | Broker's escrow/trust account |
| Who holds | Principal broker (not affiliate broker) |
| Disbursement | Per contract terms or mutual agreement |
Critical: You cannot hold a check or cash in your office for a week or two. It must be deposited into the broker's escrow account immediately.
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 |
Statute of Limitations
| Type | Time Period |
|---|---|
| Breach of contract | 6 years |
| Record retention recommendation | 7 years (Tennessee REALTORS) |
Best Practice: Keep all transaction records for at least 7 years to protect against claims.
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 Tennessee 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
Counteroffers and Negotiations
| Situation | Result |
|---|---|
| Counteroffer made | Original offer is rejected |
| Acceptance with changes | Becomes a counteroffer |
| Expiration | Offer terminates if not accepted in time |
Required Records
Tennessee licensees must maintain records including:
| Record Type | Examples |
|---|---|
| Listings | All listing agreements |
| Offers | Even offers that did not become contracts |
| Contracts | Purchase agreements |
| Closing statements | Settlement documents |
| Correspondence | Letters, emails, notes |
Exam Tip: Understand the difference between an executory contract (not yet fully performed) and an executed contract (fully performed by all parties).
Under Tennessee's Statute of Frauds, which statement is TRUE about real estate contracts?
When should earnest money be deposited into the broker's escrow account in Tennessee?
What is the statute of limitations for breach of contract in Tennessee?