3.1 Michigan Purchase Agreements
Key Takeaways
- Michigan's Statute of Frauds (MCL 566.108) makes real estate contracts unenforceable unless in writing and signed by the party to be charged
- An offer becomes a binding agreement only when acceptance is signed AND communicated back to the offeror; until then either party can withdraw
- A 'time is of the essence' clause converts every contract deadline into a strict deadline whose breach can terminate the deal
- Financing, inspection, appraisal, and sale-of-buyer's-home contingencies allocate risk; failure of a contingency lets the protected party exit without forfeiting earnest money
- Counter-offers reject and extinguish the original offer; any post-binding change requires a written amendment signed by all parties
How a Michigan Purchase Agreement Forms
A purchase agreement (also called an offer to purchase) is the central contract on the Michigan salesperson exam. To be valid and enforceable it needs the six contract elements PLUS a writing. Michigan's Statute of Frauds (MCL 566.108) provides that no contract for the sale of land is enforceable unless it is in writing and signed by the party against whom enforcement is sought.
| Element | What it means in a sale | Exam trap |
|---|---|---|
| Competent parties | Both parties 18+ and mentally competent | A contract signed by a minor is voidable by the minor |
| Mutual assent | Genuine offer and acceptance ('meeting of the minds') | A counter-offer is NOT acceptance |
| Legal purpose | Lawful transaction | An agreement to violate fair-housing law is void |
| Consideration | Price + promise to convey | Earnest money is evidence of consideration, not the consideration itself |
| In writing | Statute of Frauds | A verbal land contract is unenforceable even if both admit to it |
| Legal description | Property identifiable | A street address alone may be insufficient on the deed |
When the Offer Becomes Binding
This sequence is tested almost every form of the exam:
- Buyer signs and submits an offer.
- Seller signs acceptance of the exact terms.
- Acceptance is communicated back to the buyer (or buyer's agent).
A binding agreement exists only after step 3. Worked example: A seller signs a buyer's offer Friday night but tells no one. Saturday morning the buyer revokes in writing. There is NO contract — acceptance was never communicated, so the buyer's revocation is effective. If the seller changes any term (price, closing date, even who pays for the survey), that is a counter-offer, which legally rejects and destroys the original offer; the original buyer is then free to walk.
Time Is of the Essence
Michigan agreements typically include a 'time is of the essence' clause. This makes every stated deadline a hard deadline: a party who closes one day late, or delivers an inspection objection one hour after the cutoff, is technically in breach. Without the clause, courts allow a 'reasonable time' for performance. Because the clause is so consequential, extensions must always be in writing and signed by all parties.
Contingencies — Built-In Escape Hatches
A contingency is a condition that must be satisfied or waived before a party is obligated to close. If the condition fails, the protected party may terminate and recover earnest money.
| Contingency | Protects | Failure result |
|---|---|---|
| Financing | Buyer | Loan denied or terms change materially → buyer exits with deposit |
| Inspection | Buyer | Defects found within inspection window → renegotiate or terminate |
| Appraisal | Buyer / lender | Property appraises below price → buyer may cancel or renegotiate |
| Sale of buyer's home | Buyer | Buyer's current home doesn't sell by the date → buyer terminates |
| Marketable title | Buyer | Seller cannot deliver clear title → buyer cancels |
Worked scenario: A buyer has a financing contingency requiring loan approval by day 30 and a 'time is of the essence' clause. On day 31 the lender issues a denial. Because the buyer failed to obtain approval by the deadline through no bad faith and the contingency was not met, the buyer is entitled to a refund of earnest money — but the buyer must have diligently pursued financing (applied promptly, supplied documents). A buyer who never applied has acted in bad faith and may forfeit the deposit.
Amendments vs. Counter-Offers
| Change occurs | Correct instrument |
|---|---|
| Before any binding acceptance | Counter-offer (new offer) |
| After binding agreement, by mutual consent | Written amendment / addendum, signed by ALL parties |
| Extending a deadline | Written amendment |
Common trap: Students confuse an addendum (attached at the time of the offer to add terms) with an amendment (changes terms after the contract is already binding). Both must be written and signed; neither can be a verbal side agreement under the Statute of Frauds.
Earnest Money and Remedies for Breach
Earnest money is the buyer's good-faith deposit accompanying the offer. Its amount is fully negotiable — there is no statutory minimum in Michigan. Once a binding agreement exists, the deposit is delivered to the broker and placed in the firm's trust account (covered in section 3.3). Earnest money is evidence of the buyer's serious intent; it is not the legal consideration, and a contract is not invalid merely because earnest money is small or symbolic.
What happens to the deposit, and what the seller can recover, depends on who breaches and why:
| Situation | Earnest money result |
|---|---|
| A contingency fails (buyer acted in good faith) | Returned to buyer |
| Buyer defaults with no valid contingency | Often forfeited to seller per the contract's default clause |
| Seller defaults (refuses to convey marketable title) | Returned to buyer; buyer may pursue further remedies |
| Mutual rescission | Released per the parties' written agreement |
Seller's and buyer's remedies
When a buyer breaches, a Michigan seller's typical contract remedies include keeping the earnest money as liquidated damages, suing for actual damages, or seeking specific performance (a court order compelling the buyer to complete the purchase). When the seller breaches, the buyer may demand return of the deposit, sue for damages, or — because each parcel of land is legally unique — seek specific performance forcing the seller to convey. A buyer who wishes to preserve a specific-performance claim should be cautious about accepting a refund that 'settles' the matter.
Scenario: A buyer with a clean financing approval simply changes their mind and walks away two days before closing. There is no failed contingency, so the buyer has breached. Under a typical default clause, the seller may retain the earnest money as liquidated damages. The buyer cannot recover the deposit by claiming 'cold feet' — that is not a contractual escape hatch.
Assignment
Unless the agreement prohibits it, a Michigan purchase contract is generally assignable — the buyer can transfer their rights to another buyer. Many forms restrict assignment, and a financing contingency tied to a specific buyer effectively limits it. The original buyer usually remains liable unless the seller agrees to a novation that substitutes the new party and releases the old one.
A seller signs a buyer's written offer at 9 p.m. but does not tell the buyer or the buyer's agent. The next morning the buyer delivers a written revocation. What is the status of the deal?
Under Michigan's Statute of Frauds (MCL 566.108), what is required for a contract for the sale of real estate to be enforceable?