3.1 Ohio Purchase Contracts and Agreements
Key Takeaways
- Ohio's Statute of Frauds (ORC 1335.05) requires real estate contracts to be in writing and signed by the party to be charged
- A contract becomes binding only when acceptance of all terms is communicated back to the offeror — a counteroffer is a rejection
- Earnest money must be deposited per the purchase agreement; the Ohio Division of Real Estate treats 24-48 hours after acceptance as reasonable
- Common contingencies are financing, inspection, and appraisal — each must be removed in writing or the buyer may walk with earnest money returned
- A 'time is of the essence' clause makes every dated deadline strictly enforceable, so written extensions are required to avoid breach
How Ohio Tests Contract Knowledge
The Ohio salesperson exam is delivered by PSI and splits into a national portion (general principles) and a state portion (Ohio law). General contract doctrine appears on both, but Ohio-specific timing, the Residential Property Disclosure Form, and earnest-money handling are heavily tested on the state portion. Complete the national prep first, then layer Ohio rules on top.
The Five Elements of a Valid Real Estate Contract
Every enforceable Ohio purchase agreement needs these elements. Miss one and the contract is void or voidable.
| Element | What It Means | Common Trap |
|---|---|---|
| Competent parties | 18+ and mentally capable | A contract signed by a minor is voidable by the minor |
| Mutual assent | Offer and unqualified acceptance | A counteroffer rejects the original offer |
| Consideration | Bargained-for value (price + promises) | Earnest money is evidence of consideration, not the consideration itself |
| Legal purpose | Lawful transaction | A contract to convey for an illegal use is unenforceable |
| In writing | Statute of Frauds | Oral land contracts are unenforceable in Ohio |
Ohio Statute of Frauds (ORC 1335.05)
Ohio's Statute of Frauds requires any agreement transferring an interest in land to be in writing and signed by the party to be charged (the party being sued to enforce it). The writing must contain the essential terms: identifiable parties, a legal description or address, price, and the promise to convey.
Exam tip: A verbal promise to sell a home is not enforceable in Ohio, no matter how many witnesses heard it. Part performance (buyer takes possession and makes improvements) is the narrow equity exception courts occasionally recognize.
Contract Formation: Offer to Binding Agreement
Formation moves through distinct stages, and the exam loves the moment a contract becomes binding.
| Stage | Legal Effect |
|---|---|
| Offer | A communicated, definite proposal the offeror can revoke before acceptance |
| Counteroffer | Terminates the original offer and creates a new offer the other party may accept |
| Acceptance | Unqualified agreement to every term — the mirror-image rule applies |
| Binding contract | Forms when acceptance is communicated/delivered back to the offeror |
Worked scenario: A buyer offers $250,000. The seller signs but changes the closing date and returns it. That is a counteroffer — there is no contract yet. If the buyer then signs the seller's version and the agent communicates that acceptance, a binding contract exists at the moment of communication, not at the moment of signature.
Earnest Money: Timing and Custody
Earnest money is a good-faith deposit that becomes part of the down payment at closing. The amount is fully negotiable — there is no statutory minimum in Ohio. What matters for the exam is custody and timing.
The earnest money is held in the listing or buyer's broker's trust (special) account, not in a personal account. The Ohio Division of Real Estate has not set a single rigid statutory deadline in ORC 4735.24; instead, the broker must deposit funds in accordance with the purchase agreement, and the Division treats roughly 24 to 48 hours after acceptance as a reasonable benchmark. Many Ohio purchase contracts and brokerage policy manuals specify a deposit window, and that contractual term controls.
| Item | Rule |
|---|---|
| Where held | Broker's trust/special account at an Ohio depository |
| When deposited | Per the purchase agreement; Division guidance is 24-48 hours |
| Amount | Negotiable; no statutory minimum |
| Disbursement | Only at closing, by written agreement of both parties, or by court order |
Common Contingencies
A contingency is a condition that must be satisfied or waived before the parties are obligated to close. Each is removed in writing.
- Financing contingency: Buyer must obtain a loan commitment by a stated date; failure lets the buyer terminate and recover earnest money.
- Inspection contingency: Buyer may inspect and either accept, request repairs/credits, or terminate for material defects within the inspection period.
- Appraisal contingency: Protects the buyer if the appraised value is below the contract price.
- Sale-of-buyer's-property contingency: Often paired with a 'kick-out' clause letting the seller keep marketing.
Time Is of the Essence
When a contract states 'time is of the essence,' every dated deadline is a strict, enforceable obligation. Missing the inspection deadline, financing deadline, or closing date can itself be a breach. Extensions must be in writing and signed by all parties — an agent's verbal 'no problem' does not extend a deadline.
| Change to the deal | Correct mechanism |
|---|---|
| Before acceptance | Counteroffer |
| After binding contract | Written, signed amendment |
| Price or deadline change | Amendment signed by all parties |
Trap: Students confuse 'time is of the essence' with 'close as fast as possible.' It does not accelerate anything; it makes the existing dates legally firm.
Remedies for Breach
When a party defaults, Ohio contract remedies parallel the national portion but are tested with Ohio fact patterns. Know the four main outcomes and who they favor.
| Remedy | Who pursues it | Result |
|---|---|---|
| Liquidated damages | Seller | Seller keeps earnest money as the agreed measure of damages if the buyer defaults and the contract so provides |
| Specific performance | Buyer (usually) | Court orders the seller to convey, because each parcel of land is legally unique |
| Actual (compensatory) damages | Either party | Recovery of provable money losses caused by the breach |
| Rescission | Either party | The contract is unwound and the parties are returned to their pre-contract position |
Worked scenario: A buyer with a binding contract refuses to close without legal cause. If the contract sets earnest money as liquidated damages, the seller may retain it instead of proving exact losses. If instead the seller wrongfully refuses to convey, the buyer can sue for specific performance because no two parcels of real estate are identical and money alone may not make the buyer whole.
Agency and Disclosure at Contract Time
Ohio's Agency Disclosure Statement must be provided and signed before the buyer or seller signs the purchase contract or, in the case of a buyer, before an offer is presented. The agent confirms whether they represent the buyer, the seller, both as a dual agent (with informed written consent), or neither. Tying agency disclosure to the contract-signing moment is a favorite state-portion question, so pair it mentally with the purchase agreement timeline.
A seller receives a buyer's written offer, lines through the proposed closing date, writes in a new date, signs, and returns it. What is the legal status?
Under Ohio's Statute of Frauds (ORC 1335.05), which agreement is unenforceable?