Oregon 30-Hour Real Estate Law Practice Test

Is earnest money required in a purchase offer for a binding contract?

1. Yes, it is always required

2. No, the buyer's promise is sufficient

3. It depends on the seller's preference

4. Only if specified by law

The correct answer is: No, the buyer's promise is sufficient

The correct understanding revolves around the nature of contracts and the requirements for a purchase offer to be binding. In real estate transactions, earnest money serves as a good faith deposit, indicating the buyer's intention to follow through with the purchase. However, earnest money is not universally required for a purchase offer to be valid. A purchase contract can be binding based solely on the mutual agreement between the buyer and the seller, represented through the offer and acceptance process. Therefore, if a buyer submits a purchase offer backed by a clear promise to purchase and if the seller accepts it, they have a valid contract even without the inclusion of earnest money. The absence of earnest money may affect the seller's perception of the buyer's commitment, but it does not negate the legal binding nature of the accepted offer. This distinguishes the nature of the contract from the other considerations that could influence a seller's decision regarding earnest money. It highlights the importance of mutual agreement in forming a contract over the mere existence of a deposit.