3.3 Purchase Contracts
Key Takeaways
- A valid Minnesota purchase agreement needs offer, acceptance, consideration, competent parties, legal purpose, and (under the statute of frauds, Minn. Stat. 513.05) a writing signed by the party to be charged
- The Minnesota Realtors Purchase Agreement is the dominant residential form and incorporates statutory disclosures by reference
- Earnest money must be deposited in the broker's trust account; under Minn. Stat. 82.75 a broker generally deposits funds promptly (by the next business day after final acceptance)
- Common contingencies - financing, inspection, appraisal, and sale-of-buyer's-property (with kick-out) - allow cancellation and return of earnest money if not satisfied
- Minnesota also uses the Contract for Deed (Minn. Stat. 559.21), where the seller retains legal title and statutory cancellation periods apply on default
Elements of a valid purchase agreement
A Minnesota purchase contract is governed by general contract law plus the statute of frauds (Minn. Stat. 513.05), which requires a writing signed by the party to be charged for any sale of land. The essential elements are:
| Element | What it means |
|---|---|
| Offer & acceptance | Mutual assent; mirror-image acceptance forms the contract |
| Consideration | Purchase price + earnest money |
| Competent parties | Legal age (18) and capacity |
| Legal purpose | Lawful object |
| Writing & signatures | Required by 513.05 statute of frauds |
| Property description | Address plus legal description |
A counteroffer rejects the original offer and becomes a new offer. Until acceptance is communicated, the offeror may revoke. "Final acceptance" is the moment all parties have signed and that signed copy is delivered - this date starts most contingency clocks.
The Minnesota Realtors forms
Most residential deals use the Minnesota Realtors (formerly MAR) Purchase Agreement, which references the statutory seller disclosure, radon, well, and methamphetamine disclosures so they are not overlooked. A separate Arbitration Disclosure and Wire-Fraud Warning are now standard add-ons. Knowing that the form incorporates rather than replaces the statutory disclosures is a common exam point.
Earnest money and the trust-account rule
Earnest money in Minnesota is typically 1%-3% of price and is held by the listing broker (or a title company) in a non-interest-bearing trust/escrow account, separate from operating funds. Under Minn. Stat. 82.75 and Commerce Department rules, a broker must deposit trust funds promptly - by the next business day after final acceptance unless the agreement says otherwise. Commingling (mixing client funds with broker funds) and conversion are serious license violations.
Earnest-money disputes
| Tool | Use |
|---|---|
| Hold pending agreement | Broker keeps funds until both parties sign a release |
| Written mutual release | Both parties direct disbursement |
| Interpleader | Broker deposits funds with the court to decide |
A broker may not unilaterally decide who gets disputed earnest money.
Common contingencies
| Contingency | Purpose / outcome |
|---|---|
| Financing | Buyer must secure a loan; if denied within the period, earnest money is returned |
| Inspection | Buyer inspects (often 5-10 days); may accept, request repairs, or cancel |
| Appraisal | Property must appraise at value; if low, renegotiate or cancel |
| Sale of buyer's property | Buyer must sell their home; seller often adds a kick-out clause to keep marketing |
"Time is of the essence" makes deadlines strict; if not satisfied on time, the contingency fails. A failed contingency the buyer properly invoked usually returns earnest money; a buyer who defaults without a valid contingency risks forfeiting it.
Contract for Deed (559.21)
Minnesota frequently uses the Contract for Deed: the buyer (vendee) takes possession and makes installment payments while the seller (vendor) retains legal title until paid in full. On default, the seller cancels via statutory cancellation (Minn. Stat. 559.21) - the buyer gets a cure period (commonly 60 days, shorter for small down payments) before forfeiture. This is a non-judicial remedy and a frequent exam contrast to a mortgage foreclosure.
Default, remedies, and seller protections
When a buyer defaults on a standard Minnesota purchase agreement, the seller's remedies depend on the contract language. The Minnesota Realtors form commonly lets the seller choose to: (1) cancel the contract and retain earnest money under the statutory cancellation process; (2) sue for specific performance (force the sale of unique real property); or (3) sue for damages. The buyer cannot be forced to forfeit more than the contract and statute allow.
Statutory cancellation of a purchase agreement (559.217)
A purchase agreement (not just a contract for deed) is cancelled in Minnesota through the statutory cancellation procedure in Minn. Stat. 559.217. The defaulting party is served a notice and gets a cure period - commonly 30 days for a standard cancellation - to perform or the contract terminates and earnest money is disbursed per the notice. Knowing that Minnesota uses a statutory notice-and-cure process, rather than automatic forfeiture, is a frequent exam distinction.
Counteroffers, options, and addenda
| Instrument | Effect |
|---|---|
| Counteroffer | Rejects the prior offer and creates a new one |
| Addendum | Adds terms agreed at the same time as the contract |
| Amendment | Changes terms after the contract is signed (needs all signatures) |
| Option contract | Buyer pays for the right (not obligation) to buy within a set time |
| Right of first refusal | Holder may match a bona-fide third-party offer |
An option must be supported by separate consideration and is enforceable even though the optionee is not yet obligated to buy.
Common contract traps on the exam
- Mailbox rule confusion: In Minnesota practice, acceptance is generally effective on delivery/communication, and the agreement specifies how acceptance is communicated; do not assume acceptance is binding the instant it is mailed.
- Wire-fraud: Closing wire instructions are a major fraud target; agents must warn buyers to verify wiring instructions by phone with a known number.
- Earnest money is not a penalty cap automatically: Unless the contract states earnest money is liquidated damages, the seller may still pursue actual damages.
- Personal property: Items not affixed (refrigerator, washer/dryer) must be listed in the agreement to convey; built-in fixtures convey by default.
Worked scenario
A buyer offers $400,000 with $8,000 earnest money and a financing contingency. The seller counters at $410,000; the buyer accepts and signs - final acceptance date set. The buyer's lender denies the loan within the financing period, so the contingency fails and the $8,000 is returned. Had the buyer simply gotten cold feet with no valid contingency, the seller could pursue the earnest money (and possibly more) through the 559.217 cancellation process.
Under Minnesota rules, when must a broker generally deposit earnest money into the trust account?
In a Minnesota Contract for Deed, who holds legal title until the buyer pays in full?
A buyer's financing contingency fails because the lender denies the loan within the contingency period. What typically happens to the earnest money?