3.1 Oregon Contract Requirements
Key Takeaways
- Oregon's Statute of Frauds (ORS 41.580) requires real estate sale contracts to be in writing and signed by the party to be charged.
- A valid contract needs five elements: offer, acceptance, consideration, legal capacity, and lawful purpose.
- Earnest money must be deposited into the principal broker's clients' trust account, not a broker's personal or operating account.
- Contingencies (financing, inspection, appraisal, home-sale) must state firm deadlines because most Oregon sale agreements are 'time is of the essence.'
- The state portion of the Oregon broker exam has 50 scored questions; you need roughly 75% (about 38 correct) to pass.
Contracts on the Oregon Exam
The Oregon broker exam is delivered by PSI in two separately timed portions: 80 national questions (120 minutes) and 50 Oregon state-law questions (75 minutes), for 195 minutes (3 hours 15 minutes) total. You must score about 75% on each portion (roughly 38 of 50 on the state side). Contract law is one of the densest state topics, so master the rules below cold.
Statute of Frauds (ORS 41.580)
Under Oregon's Statute of Frauds, an agreement for the sale of real property — or any interest in land lasting more than one year — is unenforceable unless it is:
- In writing, and
- Signed by the party to be charged (the person you are trying to hold to the deal) or that party's lawfully authorized agent.
Key Point: A purely oral promise to sell a house cannot be enforced in court. A buyer who shook hands but never signed cannot force the seller to convey.
The part-performance exception can rescue an oral contract when the buyer takes possession, pays part of the price, and makes improvements — but do not rely on it; the exam wants the written rule.
The Five Essential Elements
| Element | What it means in Oregon | Common trap |
|---|---|---|
| Offer | Definite, communicated terms (price, parties, property) | An ad is an invitation to offer, not an offer |
| Acceptance | Mirror-image, unequivocal assent | A change in terms is a counteroffer that kills the original offer |
| Consideration | Value exchanged — usually money | Earnest money is evidence of consideration, not the consideration itself |
| Legal capacity | Age 18+, mentally competent | A minor's contract is voidable by the minor |
| Lawful purpose | Legal object | An agreement to discriminate in violation of fair housing is void |
Earnest Money Handling
Earnest money is the buyer's good-faith deposit. In Oregon the handling rule is strict:
| Requirement | Detail |
|---|---|
| Where it goes | The principal broker's clients' trust account |
| Who may hold a trust account | Only a principal broker (a regular broker cannot) |
| Timing | Deposited by the next banking day after the principal broker receives it, or per written instructions |
| Commingling | Prohibited — never mix client funds with personal/operating funds |
| Disbursement | Only per the contract terms or written mutual agreement of the parties |
Important: Earnest money may also be held by a neutral escrow/title company if the agreement so directs. Watch for exam answers that put the deposit in the broker's personal account (a violation) or the seller's account (wrong).
Common Contract Contingencies
A contingency is a condition that must be satisfied or waived before a party is bound to close. If the condition fails within its deadline, the protected party may cancel and recover earnest money.
- Financing contingency — buyer must apply for the loan within a set number of days and may cancel if the lender denies financing (often requiring a written denial letter).
- Inspection contingency — buyer hires a professional inspector during a stated period and may accept the property, request repairs, or terminate.
- Appraisal contingency — if the lender's appraisal comes in below the contract price, the buyer may cancel, renegotiate, or pay the gap in cash.
- Home-sale contingency — buyer must sell a current home first; sellers frequently add a kick-out clause letting them keep marketing and bump the contingent buyer.
Worked example: A buyer offers $400,000 with a 17-day inspection contingency and a financing contingency. The appraisal lands at $385,000. With an appraisal contingency, the buyer can demand the seller drop to $385,000, bring $15,000 extra cash, or walk away with earnest money returned. Without that contingency, the buyer who cannot cover the $15,000 gap risks forfeiting the deposit.
Executory vs. Executed; Bilateral vs. Unilateral
| Term | Definition | Example |
|---|---|---|
| Executory | Not yet fully performed | A signed sale agreement before closing |
| Executed | All terms performed | The deal closed and the deed delivered |
| Bilateral | A promise for a promise | Standard purchase agreement |
| Unilateral | A promise for an act | An open listing — paid only if the broker produces a buyer |
Termination of Contracts
| Method | How it happens |
|---|---|
| Performance | Both parties complete their duties |
| Mutual rescission | Both sign to cancel and unwind |
| Contingency failure | A stated condition is not met by deadline |
| Breach / default | One party fails to perform; remedies include specific performance, damages, or liquidated damages |
| Impossibility | Subject property is destroyed before closing |
Time Is of the Essence
Oregon sale agreements typically state "time is of the essence." Deadlines then become firm and enforceable: missing a contingency or closing date can be a material breach. Any extension must be in writing and signed to be effective — an oral promise to extend conflicts with the Statute of Frauds.
Exam Tip: When a fact pattern gives you a specific number of days and a missed deadline, the testable answer almost always turns on the time-is-of-the-essence clause and the written-extension rule.
Under Oregon's Statute of Frauds, which statement is TRUE about a contract for the sale of real property?
Where must earnest money be deposited in an Oregon residential transaction handled by a brokerage?