Elements of a valid contract

The question Watch from 0:00

A buyer and a seller agree on a price and shake hands. Do they have a contract?

For a house, not yet. A valid contract needs five elements, and real estate adds one more rule. On Pearson VUE's national exam outline, this topic is 3 of the 80 scored questions.

Source: Pearson VUE, Real Estate National/General Content Outline for Salesperson Examinations, effective April 1, 2025 (publication #094502, 04/2025; the same national outline is printed in the Pearson VUE state handbooks), read October 17, 2026.

The five elements Watch from 0:19

Here are the five, using the outline's terms. Legally competent parties. Agreement, meaning an offer and an acceptance. Voluntary. Lawful consideration. And a legal purpose.

State contract laws list the same essentials. Without them, there is no contract.

Source: Pearson VUE, Real Estate National/General Content Outline for Salesperson Examinations, effective April 1, 2025 (publication #094502, 04/2025; the same national outline is printed in the Pearson VUE state handbooks), read October 17, 2026; North Dakota Century Code, chapter 9-01, Contracts: General Provisions (North Dakota Legislative Branch), read October 22, 2026.

Void, voidable, unenforceable Watch from 0:39

First, four words the exam uses. Valid means it has every element and binds both sides. Void means it never had any legal effect.

Voidable means it's valid, but one protected party can cancel it. Unenforceable means a court won't enforce it, often because it isn't in writing.

Source: North Dakota Century Code, chapter 9-01, Contracts: General Provisions (North Dakota Legislative Branch), read October 22, 2026; North Dakota Century Code, chapter 9-04, Object, read October 22, 2026; North Dakota Century Code, chapter 9-03, Consent, read October 22, 2026; North Dakota Century Code, chapter 9-09, Rescission, read October 22, 2026; North Carolina Real Estate Commission, course syllabus for broker license candidates (Student Version), March 2024 Edition, Amended May 2026, read October 24, 2026; Texas Business and Commerce Code, Chapter 26 (Statute of Frauds), read October 18, 2026; Florida Statutes (2026), Chapter 725, Unenforceable Contracts (Florida Legislature), read October 22, 2026; North Dakota Century Code, chapter 9-06, Form (statute of frauds), read October 22, 2026.

1. Competent parties Watch from 1:01

Element one: legally competent parties. A minor is under the age of majority: 18 in North Dakota, Florida and North Carolina, for example. A minor's contract is generally voidable by the minor, who can disaffirm, or cancel, it. Some states go further: North Dakota bars minors from contracts relating to real property.

Mental capacity depends on timing. If a court has already declared someone incompetent, their contract is void. If the person is impaired but no court has ruled, or too drunk to understand the deal, the contract is generally voidable.

Source: North Dakota Century Code, chapter 14-10, Minors, read October 22, 2026; Florida Statutes (2026), Chapter 743, Disability of Nonage of Minors Removed (Florida Legislature), read October 22, 2026; North Carolina Real Estate Commission, course syllabus for broker license candidates (Student Version), March 2024 Edition, Amended May 2026, read October 24, 2026; North Dakota Century Code, chapter 14-01, Persons of Unsound Mind, read October 22, 2026.

2. Offer and acceptance Watch from 1:35

Element two: agreement. One side makes an offer, and the other accepts it on exactly the same terms. Change any term, and it isn't an acceptance. It's a counteroffer, which is a new offer.

The acceptance has to be communicated back to the person who made the offer. Until then, the offer can be withdrawn, even if it promised to stay open until Friday. The exception is an option, where the buyer pays the seller to keep an offer to sell open.

An offer also ends if the person who made it dies before it's accepted. And the deal has to be clear enough to work out what was agreed: North Dakota's law, for example, voids a contract whose object is so vaguely expressed that it is wholly unascertainable.

Source: North Dakota Century Code, chapter 9-03, Consent, read October 22, 2026; Minnesota Statutes, section 83.20, Definitions (Minnesota Subdivided Land Sales Practices Act; Office of the Revisor of Statutes), read October 24, 2026; Pearson VUE, Real Estate National/General Content Outline for Salesperson Examinations, effective April 1, 2025 (publication #094502, 04/2025; the same national outline is printed in the Pearson VUE state handbooks), read October 17, 2026; North Dakota Century Code, chapter 9-04, Object, read October 22, 2026.

3. Voluntary Watch from 2:18

Element three: it must be voluntary. Consent obtained through duress, fraud, undue influence or a mistake is not free. That contract is voidable by the victim, not void.

Undue influence means someone in a position of trust uses it to take unfair advantage, like a caregiver pressing an elderly owner to sell cheap.

Source: North Dakota Century Code, chapter 9-03, Consent, read October 22, 2026; North Dakota Century Code, chapter 9-09, Rescission, read October 22, 2026.

4. Consideration Watch from 2:44

Element four: lawful consideration. That's something of value each side gives, and a promise counts. A purchase contract is usually two promises: the buyer's to pay, and the seller's to convey.

It doesn't have to be cash: any benefit given, or any burden taken on, can count.

Source: North Dakota Century Code, chapter 9-05, Consideration, read October 22, 2026.

5. Legal purpose Watch from 3:09

Element five: a legal purpose. A contract whose object is illegal is void. For example, showing a lender a higher price than the real one is a federal crime.

Source: North Dakota Century Code, chapter 9-04, Object, read October 22, 2026; 18 U.S.C. § 1014, Loan and credit applications generally (United States Code, 2024 edition, GPO govinfo), read October 22, 2026.

Plus: in writing Watch from 3:23

Real estate adds one more rule, the statute of frauds. A contract to sell real estate must be in writing and signed by the party it's enforced against, or by someone authorized to sign for them, like an attorney-in-fact.

Without the writing, the contract generally can't be enforced. The statutes word it differently: Texas says "not enforceable", Florida says no action shall be brought on it, and North Dakota calls it "invalid". Texas, Florida and North Dakota also require writing for a lease longer than one year. State law sets the details.

Source: North Carolina Real Estate Commission, course syllabus for broker license candidates (Student Version), March 2024 Edition, Amended May 2026, read October 24, 2026; Texas Business and Commerce Code, Chapter 26 (Statute of Frauds), read October 18, 2026; Florida Statutes (2026), Chapter 725, Unenforceable Contracts (Florida Legislature), read October 22, 2026; North Dakota Century Code, chapter 9-06, Form (statute of frauds), read October 22, 2026.

What's not required Watch from 3:53

Notice what's not on the list. Earnest money, recording, a notary and a broker are all common, but none of them is one of the elements, in the exam outline or in North Dakota's list of essentials. In a sale, the price is the consideration, not the earnest money, and most residential sales contracts are not recorded.

Source: Pearson VUE, Real Estate National/General Content Outline for Salesperson Examinations, effective April 1, 2025 (publication #094502, 04/2025; the same national outline is printed in the Pearson VUE state handbooks), read October 17, 2026; North Dakota Century Code, chapter 9-01, Contracts: General Provisions (North Dakota Legislative Branch), read October 22, 2026; North Carolina Real Estate Commission, course syllabus for broker license candidates (Student Version), March 2024 Edition, Amended May 2026, read October 24, 2026.

Recap Watch from 4:06

So: competent parties, an offer and acceptance, given freely, with consideration, for a legal purpose. And for real estate, in writing and signed. Now try the practice questions on this topic.

This lesson is exam practice, not legal advice.

Source: Pearson VUE, Real Estate National/General Content Outline for Salesperson Examinations, effective April 1, 2025 (publication #094502, 04/2025; the same national outline is printed in the Pearson VUE state handbooks), read October 17, 2026; North Carolina Real Estate Commission, course syllabus for broker license candidates (Student Version), March 2024 Edition, Amended May 2026, read October 24, 2026; Texas Business and Commerce Code, Chapter 26 (Statute of Frauds), read October 18, 2026; Florida Statutes (2026), Chapter 725, Unenforceable Contracts (Florida Legislature), read October 22, 2026; North Dakota Century Code, chapter 9-06, Form (statute of frauds), read October 22, 2026.