3.1 North Dakota Contract Requirements
Key Takeaways
- North Dakota's Statute of Frauds (NDCC 9-06-04) requires real estate sale contracts to be in writing and signed by the party to be charged
- A valid contract needs offer, acceptance, consideration, capacity, lawful purpose, and a definite property description
- Earnest money held by a broker must be deposited in the trust account within 24 hours unless the contract says otherwise
- A counteroffer rejects and terminates the original offer and becomes a new offer
- Financing, inspection, appraisal, and sale-of-buyer's-property contingencies must be stated clearly with deadlines
North Dakota real estate contracts must meet specific legal requirements to be valid and enforceable. The state portion tests both general contract law and ND-specific handling rules such as earnest-money timing.
The Statute of Frauds
Under North Dakota's Statute of Frauds (NDCC 9-06-04), a contract for the sale of real property must be:
- In writing, and
- Signed by the party to be charged (the party against whom enforcement is sought) or their authorized agent.
Key point: An oral agreement to sell real estate is generally unenforceable in North Dakota. A handshake deal on a house cannot be enforced in court even if both parties remember the terms. This is the single most-tested contract principle on the state exam.
The Statute of Frauds protects against fraudulent claims of property agreements by requiring durable, signed evidence of the deal.
Essential Elements of a Valid Contract
| Element | Description |
|---|---|
| Offer | A clear, definite proposal of terms |
| Acceptance | Unqualified agreement to those terms |
| Consideration | Something of value exchanged (usually money) |
| Legal capacity | Parties competent (of age, sound mind) |
| Lawful purpose | Not for an illegal objective |
| In writing | Required for real estate by the Statute of Frauds |
| Definite terms | Identifiable property, price, and parties |
If any essential element is missing, the agreement may be void (no legal effect) or voidable (one party may cancel — e.g., a contract signed by a minor). Distinguish an executory contract (signed but not yet fully performed — between signing and closing) from an executed contract (fully performed after closing).
Common North Dakota Contract Forms
North Dakota practitioners typically use forms published by the North Dakota Realtors Association:
| Form | Use |
|---|---|
| Purchase Agreement | Standard residential purchase contract |
| Listing Agreement | Seller representation authorization |
| Buyer Agency Agreement | Buyer representation authorization |
| Lease Agreement | Rental of property |
| Commercial Contract | Business/commercial transactions |
Using standardized, attorney-reviewed forms reduces the risk that an essential term is omitted or that an unenforceable clause is included. Licensees fill in the blanks; they do not draft custom contract language, which would risk the unauthorized practice of law.
Earnest Money
Earnest money (a good-faith deposit) shows the buyer's serious intent and is applied to the purchase at closing.
| Requirement | Detail |
|---|---|
| Deposit timeline | Per the contract, or within 24 hours of receipt by the broker |
| Where held | Broker's trust account or a title company |
| Disbursement | Per contract terms or the parties' mutual written agreement |
| Disputes | Broker holds the funds until the parties agree or a court orders release |
Critical ND rule: If the broker holds earnest money, it must be deposited into the broker's trust account within 24 hours of receipt unless the contract specifies otherwise. A salesperson may not hold earnest money personally — all client funds flow through the broker.
This 24-hour rule reappears in the trust-account chapter; it is one of North Dakota's most frequently tested numbers.
Contingencies
A contingency lets a party exit (or renegotiate) if a stated condition is not met.
| Contingency | Purpose | Key Deadline |
|---|---|---|
| Financing | Buyer may cancel if a loan is not obtained | Must apply within stated days |
| Inspection | Buyer may inspect and negotiate repairs or cancel | Inspection period in contract |
| Appraisal | Protects buyer if value comes in below price | Tied to lender's appraisal |
| Sale of buyer's property | Buyer must sell an existing home first | Often paired with a kick-out clause |
A kick-out clause lets the seller keep marketing the property and accept a better offer while a sale-of-buyer's-property contingency is pending, giving the first buyer a short window to remove the contingency.
Counteroffers and Termination
| Counteroffer Principle | Effect |
|---|---|
| A counteroffer | Rejects the original offer and creates a new offer |
| The original offer | Is terminated and can no longer be accepted |
| Multiple counters | Each new counter terminates the previous one |
| Acceptance | Must be communicated to be effective |
Exam trap: Once a seller counters, the buyer's original offer is dead — the seller cannot later "go back" and accept it unless the buyer re-offers it.
Termination of a contract can occur by performance (both parties perform), mutual rescission, failure of a contingency, breach, impossibility, or expiration of a deadline.
Time Is of the Essence
Many North Dakota contracts include a "time is of the essence" clause, making deadlines strict and legally binding. Missing such a deadline can be a breach, and extensions require the written agreement of all parties.
Exam tip: Anchor three facts here — the Statute of Frauds (writing + signature), the 24-hour earnest-money rule, and the counteroffer-terminates-the-original rule.
Worked Example: Offer, Counter, and Earnest Money
A buyer offers $315,000 with a $5,000 earnest-money check, a 30-day financing contingency, and an inspection contingency. The seller counters at $325,000. The buyer's original $315,000 offer is now terminated — the seller cannot revive it. If the buyer accepts the $325,000 counter and delivers the check to the listing broker, the broker must deposit the $5,000 into the trust account within 24 hours unless the contract directs otherwise. If the buyer's loan is denied within the financing-contingency window and the buyer delivers the required documentation, the earnest money is returned per the contract.
Exam tip: Watch for fact patterns where a party tries to "accept" an offer that a prior counter already killed — that acceptance is ineffective and creates, at most, a new offer.
Under North Dakota's Statute of Frauds, which statement is TRUE about real estate contracts?
When must earnest money be deposited in North Dakota if not otherwise specified in the contract?