Key Takeaways
- New Mexico follows the Statute of Frauds requiring real estate contracts to be in writing
- Valid contracts require offer, acceptance, consideration, legal capacity, and lawful purpose
- Earnest money should be deposited into the qualifying broker's trust account promptly
- The New Mexico Association of Realtors provides standard purchase agreement forms
- Time is of the essence clauses make deadlines strictly enforceable
New Mexico Contract Requirements
New Mexico real estate contracts must meet specific legal requirements to be valid and enforceable.
Statute of Frauds
Under New Mexico's Statute of Frauds, contracts for the sale of real property must be:
- In writing
- Signed by the party to be charged (the party against whom enforcement is sought)
Key Point: Oral agreements to sell real estate are generally unenforceable in New Mexico.
Essential Elements of a Valid Contract
| Element | Description |
|---|---|
| Offer | Clear proposal with definite terms |
| Acceptance | Unequivocal agreement to the offer's terms |
| Consideration | Something of value exchanged (usually money) |
| Legal capacity | Parties must be competent to contract |
| Lawful purpose | Contract cannot be for illegal purposes |
| In writing | Required for real estate contracts |
| Mutual assent | Meeting of the minds |
Common Contract Forms
New Mexico real estate professionals typically use forms from the New Mexico Association of Realtors (NMAR):
| Form | Use |
|---|---|
| NMAR Purchase Agreement | Standard residential purchase |
| Commercial Contract | Business property transactions |
| Lease Agreement | Rental property |
| Listing Agreement | Seller representation |
| Buyer Representation Agreement | Buyer agency |
Note: The NMAR provides standardized forms used by most New Mexico licensees.
Earnest Money
Earnest money (also called a good faith deposit) shows the buyer's serious intent:
Handling Requirements
| Requirement | Details |
|---|---|
| Deposit | Into qualifying broker's trust account |
| Timeline | Per contract terms (promptly after acceptance) |
| Who holds | Qualifying broker (not associate broker) |
| Disbursement | Per contract terms or mutual agreement |
Important: Associate brokers cannot hold earnest money. All funds must be turned over to the qualifying broker.
Common Contract Contingencies
Contingencies allow parties to exit the contract if certain conditions aren't met:
Financing Contingency
| Element | Details |
|---|---|
| Purpose | Buyer can cancel if financing not obtained |
| Deadline | Must apply for loan within specified days |
| Documentation | May require denial letter from lender |
Inspection Contingency
| Element | Details |
|---|---|
| Purpose | Buyer can inspect property and negotiate repairs |
| Timeline | Inspection period specified in contract |
| Options | Accept, negotiate repairs, or cancel |
| Types | General inspection, pest, radon, well, septic |
Appraisal Contingency
| Element | Details |
|---|---|
| Purpose | Protects buyer if property appraises below price |
| Options | Seller reduce price, buyer pay difference, or cancel |
Title Contingency
| Element | Details |
|---|---|
| Purpose | Ensures seller can convey clear title |
| Review period | Buyer reviews title commitment |
| Resolution | Seller must cure title defects |
Contract Termination
Contracts may be terminated by:
| Method | Description |
|---|---|
| Performance | Both parties fulfill obligations |
| Mutual agreement | Both parties agree to cancel |
| Contingency not met | Condition specified in contract fails |
| Breach | One party fails to perform |
| Impossibility | Performance becomes impossible |
Time is of the Essence
Many New Mexico real estate contracts include a "time is of the essence" clause:
- Deadlines are strict and legally binding
- Missing a deadline may constitute breach
- Extensions require written agreement from all parties
Exam Tip: Understand the difference between an executory contract (not yet performed) and an executed contract (fully performed).
Under New Mexico's Statute of Frauds, which statement is TRUE about real estate contracts?
Where should earnest money be deposited in a New Mexico real estate transaction?