Key Takeaways
- South Dakota 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 per contract terms or the first legal banking day after acceptance
- The South Dakota Association of Realtors provides standardized contract forms
- Contingencies (financing, inspection, appraisal) must be clearly specified in the contract
South Dakota Contract Requirements
South Dakota real estate contracts must meet specific legal requirements to be valid and enforceable.
Statute of Frauds
Under South Dakota's Statute of Frauds, contracts for the sale of real property must be:
- In writing
- Signed by the party to be charged (or their authorized agent)
Key Point: Oral agreements to sell real estate are generally unenforceable in South Dakota.
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 |
Common Contract Forms
South Dakota real estate professionals typically use:
| Form | Use |
|---|---|
| Purchase Agreement | Standard residential purchase contract |
| Commercial Contract | Business property transactions |
| Lease Agreement | Rental property |
| Listing Agreement | Seller representation |
| Buyer Agency Agreement | Buyer representation |
Note: The South Dakota Association of Realtors provides standardized forms used by most licensees.
Earnest Money
Earnest money (also called a good faith deposit) shows the buyer's serious intent:
Handling Requirements
| Requirement | Details |
|---|---|
| Deposit timeline | Per contract terms or first legal banking day after acceptance |
| Where deposited | Broker's trust account |
| Who holds | Responsible broker (not broker associate) |
| Disbursement | Per contract terms or mutual agreement |
Important Rules
- All earnest money and trust funds must be deposited the first legal banking day after acceptance of the contract (or as agreed to in writing by the parties)
- The responsible broker has authority and responsibility for proper handling
- Earnest money in co-brokerage transactions shall be held in the broker's trust account
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 |
Appraisal Contingency
| Element | Details |
|---|---|
| Purpose | Protects buyer if property appraises below price |
| Options | Seller reduce price, buyer pay difference, or cancel |
Termination of Contracts
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 South Dakota 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
Failed Transactions
If a transaction cannot be completed through no fault of the purchaser:
| Situation | Result |
|---|---|
| Broker's right to deposit | No right to any portion |
| Commission status | Commission may still be earned, but no right to deposit |
| Deposit return | Return to purchaser immediately |
Exam Tip: Understand the difference between an executory contract (not yet performed) and an executed contract (fully performed).
Under South Dakota's Statute of Frauds, which statement is TRUE about real estate contracts?
When must earnest money be deposited in South Dakota?
If a South Dakota transaction fails through no fault of the purchaser, what happens to the earnest money?