Real Estate Contract Law: The Significance of “The Statute of Frauds”

Author: G. Russell Donaldson, Esq.

After 40 years as a real estate licensee, real estate broker and real estate attorney representing hundreds of agents and brokers the one thing I have found that trips up agents more than anything else is failing to place all of the terms of an agreement in a writing. Even if the parties verbally agree to a contract, and everyone is ok with not adding a writing to memorialize an agreement, the agents can still be severally disciplined as they have breached their fiduciary responsibility to their clients.

This slip-up, more than any other mistake, causes agents to find themselves standing before the Real Estate Commission disciplinary board. The reason is because of the most fundamental rule of real estate contracts—The Statute of Frauds. Found in no other type of contract, the Statute of Frauds says that all terms of a real estate contract—no matter how small—must be in writing and signed by the parties to be enforceable. So, even if the parties all agree to a term, if that term is not added to the contract in a writing and signed by buyer and seller then it is unenforceable.

Indeed, if the parties were to litigate over the orally agreed term the court cannot even allow testimony as to what was orally agreed upon. The court will only read what is in the contract and not look at or listen to any other argument about an orally agreed term.

Example of a verbal real estate contract agreement gone wrong

A contract has a settlement date of December 26. On December 24th, the seller calls his agent and tells him that he needs a few extra days because of the holidays, and he is having trouble getting the movers coordinated. Mind you it is Christmas Eve, but the listing agent calls the selling agent and the selling agent contacts the buyers. Everyone agrees that it is no problem to give the sellers a few extra days until after the New Year and they all agree to go back to their respective holiday celebrations and take care getting an addendum circulated and signed after the Christmas holiday.

On December 26—the original date of closing in the contract—the buyers appear at the title company ready to close and are refusing to sign an extension because their interest rate lock-in will expire if they don’t close on that day. In this example, if the sellers do not appear at closing, then they are in breach of contract and the buyers may seek damages even though there was an agreement by all parties, and everyone could testify to that fact. The problem is that the agreement was oral and not memorialized in writing then and there on December 24th. Because of this, and that there was a written agreement already in place providing for a December 26th settlement date, a court would not even allow testimony that all parties had an oral agreement to extend the settlement date from just a couple days earlier.

Avoid Legal Repercussions in Real Estate Contracts

As you can see, it’s extremely important for all parties involved in a real estate contract to put every everything in writing. Nothing verbally agreed to can truly withstand legal repercussions should an issue arise. Avoid this common mistake to keep yourself out of trouble with the Real Estate Commission or a court of law.

If you have real estate contract law questions, be sure to call Velocity’s new Real Estate Contract Questions Hotline at 1-800-MY-RE-LAW, or 1-800-697-3529.

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