3.1 DC Contract Requirements
Key Takeaways
- DC's Statute of Frauds requires real estate sales contracts (and leases over one year) to be in writing and signed by the party to be charged
- A valid contract needs offer, acceptance, consideration, legal capacity, lawful purpose, mutual assent, and a writing
- Earnest money must be deposited within 7 days into a separate escrow account at a DC-located, FDIC/FSLIC-insured institution
- Most DC deals use the GCAAR Regional Sales Contract with a DC Jurisdictional Addendum for state-specific disclosures
- A 'time is of the essence' clause makes deadlines strictly binding; remedies on default include liquidated damages, actual damages, and specific performance
DC Contract Requirements
A real estate contract is a legally enforceable promise to convey an interest in land in exchange for consideration. Because the District of Columbia adopts general common-law contract principles plus its own consumer-protection overlays, the state portion of the PSI exam (17% of the salesperson general outline is devoted to Contracts) expects you to apply formation rules to DC fact patterns rather than recite definitions.
Statute of Frauds
Under the Statute of Frauds, any contract for the sale of real property — or any lease for a term longer than one year — must be:
- In writing, and
- Signed by the party to be charged (the party against whom enforcement is sought) or that party's lawfully authorized agent.
Key Point: An oral promise to sell DC real estate is generally unenforceable. A handshake deal, a text agreeing on price, or a verbal listing cannot be enforced in court absent a sufficient writing.
A limited equitable exception is part performance: where a buyer takes possession, makes payments, and improves the property in reliance on an oral agreement, a court may enforce it to prevent injustice. Treat this as a narrow exception on the exam, not the rule.
Essential Elements of a Valid Contract
| Element | What It Means | DC Exam Trap |
|---|---|---|
| Offer | Definite, communicated proposal | A "for sale" ad is an invitation to offer, not an offer |
| Acceptance | Unequivocal assent to exact terms | A change in any term is a counteroffer, killing the original |
| Consideration | Bargained-for value (usually money) | Earnest money is evidence of consideration, not the consideration itself |
| Legal capacity | Competent adults (18+, sound mind) | Minor's contract is voidable by the minor |
| Lawful purpose | Legal object | A contract to evade fair-housing law is void |
| In writing | Required for real property | Statute of Frauds |
| Mutual assent | "Meeting of the minds" | Mistake or fraud can defeat assent |
A contract missing an essential element is void (no legal effect). A contract a party may cancel — such as one signed under duress or by a minor — is voidable. One that exists but cannot be enforced in court, such as an unsigned land contract, is unenforceable.
Common DC Contract Forms
Most District transactions use standardized regional forms so that agents licensed across DC, Maryland, and Virginia can work seamlessly.
| Form | Use |
|---|---|
| GCAAR Regional Sales Contract | Standard residential purchase agreement (DC/MD/VA) |
| Commercial Contract | Business and investment property |
| Listing Agreement | Seller (or landlord) representation |
| Buyer Agency Agreement | Buyer (or tenant) representation |
| DC Jurisdictional Addendum | Adds DC-specific disclosures (lead, TOPA, etc.) |
Note: The Greater Capital Area Association of REALTORS (GCAAR) publishes the forms most DC licensees use. The DC Jurisdictional Addendum is where District-specific consumer disclosures attach — expect a question linking it to lead-paint and TOPA notices.
Earnest Money and Escrow
Earnest money (a good-faith deposit) signals the buyer's serious intent and is later credited toward the purchase price.
| Rule | Detail |
|---|---|
| Deposit deadline | Within 7 days of receipt, absent contrary written instructions (D.C. Code § 42-1704) |
| Where held | Separate escrow/trust account at a DC-located, FDIC/FSLIC-insured institution |
| Commission timing | Broker may not take any part of the deposit as commission until the deal is consummated or terminated |
Earnest-money handling is tested jointly with the trust-account rules in Chapter 4 — a contract question often hides an escrow-compliance issue.
Contingencies
A contingency is a condition that must be satisfied (or waived) before a party is obligated to close.
| Contingency | Protects | If Unmet |
|---|---|---|
| Financing | Buyer | Buyer may cancel; lender denial letter often required |
| Inspection | Buyer | Accept, renegotiate repairs, or void |
| Appraisal | Buyer/lender | Seller cuts price, buyer pays the gap, or cancels |
| Home-sale | Buyer | Buyer must sell current home; seller keeps a kick-out clause to accept backups |
Time Is of the Essence, Default, and E-Signatures
A "time is of the essence" clause makes every stated deadline strictly binding; missing one can itself be a breach. Extensions must be in writing.
Worked scenario: A buyer's financing contingency expires Friday at 5:00 p.m. The lender issues a denial at 6:00 p.m. Friday. With a time-is-of-the-essence clause, the buyer missed the window and the seller may treat the buyer as in default and retain the earnest money as liquidated damages (if the contract so provides).
Remedies on default:
- Buyer defaults → seller may keep earnest money as liquidated damages, sue for actual damages, or sue for specific performance.
- Seller defaults → buyer may demand return of the deposit, sue for damages, or sue for specific performance to compel conveyance.
Electronic signatures are valid in the District under the Uniform Electronic Transactions Act (UETA) and federal E-SIGN, so a properly executed digital contract satisfies the Statute of Frauds. Distinguish an executory contract (signed, not yet closed) from an executed contract (fully performed).
Under DC law, within how many days must earnest money be deposited into escrow (absent contrary written instructions)?
Under DC's Statute of Frauds, which statement is TRUE about real estate contracts?
A buyer's financing contingency expires at 5:00 p.m. under a 'time is of the essence' contract, and the lender's denial arrives an hour late. What is the most likely consequence?