Can real estate be purchased and sold based on a handshake? The answer is “no”. North Carolina, along with all other states, has a statute which derives from an English law adopted in 1677 requiring that all contracts for the sale of real estate must be in writing. These statutes, known as “Statute of Frauds”, are written to discourage mistake, misunderstanding, fraud, and other causes of disputes and lawsuits in the purchase and sale of real estate. Therefore, if an important element in a contract is missing (such as the property description or a signature), the contract is void because it violates the Statute of Frauds.
No special form is required in order to satisfy the Statute of Frauds so long as the document contains the essential elements necessary for a contract. These elements include the name of the buyer and seller, a description of the property, the purchase price and the signature of the party to be charged with the contract.
Next to the signature on a contract, perhaps the most important element needed to create a valid contract is the “description” of the property. How much legal description is needed in the contract? Generally, if the description of the real estate identifies a particular tract of land as distinguished from all other land, it is adequate and evidence can be admitted at trial to fit the description on the contract to the particular piece of land. Our courts have held that a street address is actually ambiguous but will be sufficient so long as there is evidence beyond the street address which can be used to clear up the ambiguity and identify the land with particularity. Taking a little extra time to describe the real estate to be sold may prevent a dispute and lawsuit.
Is earnest money necessary for the validity of a real estate contract? The answer is “no”. Earnest money has never been a legal requirement. Mutual promises are sufficient. In other words, a promise by the seller “to sell” and a promise by the buyer “to purchase” the real estate is enough to create the contract.
While it does not take much to create a binding contract to sell real estate, it does require the “basics”. We would always advise consulting a real estate attorney to assist in preparing a contract for the purchase of real estate.
Ryan C. Hawkins is a partner at Ferguson, Hayes, Hawkins & DeMay, PLLC and a member of the Real Property Section of the North Carolina Bar Association.