CONTRACTS

A contract is said to be bilateral if A) only one party to the contract is bound to act. B) the contract has yet to be fully performed. C) all parties to the contract exchange binding promises. D) if there is a contingency that has not been met.

The answer is all parties to the contract exchange binding promises. When all parties to a contract are bound by its provisions, the contract is said to be bilateral. A contract yet to be performed is executory. A contract that binds only one party to act is unilateral. A contingency can be in both bilateral and unilateral contracts.

In order for a purchase agreement to be binding on all parties, it must contain certain essential elements. Of these, which is essential for a purchase agreement to be valid?

The answer is lawful objective. The essential elements of a contract are competent parties, mutual agreement, lawful objective, consideration, and the document in writing. To be valid, a contract does not need to be recorded or notarized. Competent grantor is a requirement of a valid deed.

One contract was substituted for another contract, and there was a release of liability from the original contract. The term that defines the release is

The answer is novation. Novation is a new contract replacing the old with the full release of liability. The transfer of rights duties, but not the liabilities, from one person to another person, is an assignment. Alienation is the process of transferring ownership via a deed.

A buyer and a seller sign a contract for the sale of real property. A few days later, they decide to change many terms of the contract, while retaining the basic intent to buy and sell. The process by which the new contract replaces the old one is called

The answer is novation. When a new contract replaces an old one, the process is novation. The new contract may be between the same parties or between one of the original parties and a new party. In any event, the parties' obligations under the old contract are terminated.

In an executory purchase contract, the buyer's interest is described as A) ownership in equity. B) free and clear title. C) legal title. D) possessionary interest.

The answer is ownership in equity. Once an executory contract is created, the buyer's interest is called ownership in equity, the seller retains legal ownership until the deed is passed. Free and clear title is free from liens. A possessionary interest gives the holder the right to possess the property, which is not part of a purchase contract.

If, upon the receipt of an offer to purchase a property, the seller makes a counteroffer, the prospective buyer is A) bound by the original offer, which is still active. B) relieved of the original offer, which has terminated. C) relieved of the offer which is now void. D) bound to accept the counteroffer.

The answer is relieved of the original offer, which has terminated. Countering an offer terminates the original offer and creates a new offer. The original offer is terminated, not void.

Upon acceptance and communication of acceptance, an offer is considered

The answer is a contract. An offer lacks acceptance, once acceptance is communicated to all parties the offer, if a purchase contract becomes an executory contract. A unilateral contract exchanges a promise for performance. Valid contracts are binding and enforceable. Counteroffers terminate the original offer.

An example of specific performance for breaching a real property purchase contract would be A) the forfeiture of the earnest money deposit. B) recovery of money lost as a result of the breach. C) a court action to force compliance with the contract. D) damages for the taking of private land for public use.

The answer is a court action to force compliance with the contract. Specific performance means that if one breaks the promise, the other party has the legal right to sue in court to make the defaulting party perform.

A new contract that transfers all rights and liabilities is

The answer is a novation. In a novation, a new contract is used to replace the original contract. Subordination is used in recording to keep liens in place. An assignment is the transfer of contract duties but not liabilities. An option is a contract that exchanges a promise for performance.

Which statement BEST identifies the meaning of the term novation? A) Substitution of a new contract for an existing one B) A rejection of a contract by all parties C) A recorded notice of lis pendens D) A return of all parties to their condition before the contract was executed

The answer is a substitution of a new contract for an existing one. Novation is a new contract that replaces the original. Rescission is the return of all parties to their condition before the contract, and lis pendens is a notice of a pending lawsuit.

The buyer's offer stipulates that the closing must take place by April 15 or the contract is null and void. The buyer may refuse to purchase on April 16 if the contract contained A) a transfer clause. B) a settlement clause. C) a time is of the essence clause. D) a contingency clause.

The answer is a time is of the essence clause. Time is of the essence means that if the requirement is not met, the contract has been breached.

The status of a contract that meets all the essential elements and is enforceable is called

The answer is a valid contract. When a contract meets all the essential elements and is enforceable, it is a valid contract. Duress, fraud, misrepresentation, and minors always make contracts voidable. Void or unenforceable real estate contracts lack an essential element and do not exist in the eyes of the court for enforcement.

A contract that may be rescinded by one party due to duress, fraud, misrepresentation, or because one party is a minor, is also known as

The answer is a voidable contract. A contract is voidable if only one party may enforce or rescind it against the other party. Valid contracts contain all the essential elements and are binding and enforceable. Void contracts lack an essential element and are not binding. Novation is a new contact replacing an old one.

The amount of earnest money deposit is determined by

The answer is agreement between the parties. The amount of earnest money deposit is determined by agreement of the parties. Under the terms of most listing agreements, a real estate broker is required to accept a "reasonable amount" as earnest money. Brokerage firms and license law may not set the amount of earnest money required. The amount is set by the seller and negotiated by the buyer.

When determining whether an electronic signature is compliant under the Electronic Signatures in Global and National Commerce Act (E-Sign), the law requires that

The answer is all parties to an agreement agree to conduct the transaction using electronic means. The E-Sign makes certain requirements to support the validity of electronic signatures. The intent to sign and the consent to do electronic business is a key requirement of the act.

The essential elements of a contract include all of these EXCEPT A) offer and acceptance. B) competent grantor. C) consideration. D) lawful purpose.

The answer is competent grantor. Competent grantor is a requirement of a deed but not an essential element of a contract. Offer and acceptance, lawful purpose, consideration, voluntary consent, and legally competent parties are the essential elements of a contract.

A purchase agreement would likely be voidable under all of these circumstances EXCEPT A) the seller signed under duress. B) the buyer didn't read or understand the contract. C) the purchaser is a minor. D) the seller made a material misrepresentation to the buyer.

The answer is the buyer didn't read or understand the contract. Part of due diligence on the part of a buyer and a seller is to fully read and understand all legal documents they are signing or consult an attorney or other advisor for help. Duress, fraud, misrepresentation, and minors always make contracts voidable.

A person approaches an owner and says, "I'd like to buy your house." The owner says, "Sure," and they agree on a price and write it down on a piece of note paper and sign it. What kind of contract is this?

The answer is valid. Anytime a buyer and a seller agree in writing with notice and acceptance, a valid contract is formed. If the offer is missing an essential element, it is void and unenforceable. Duress, fraud, misrepresentation, and minors always make contracts voidable.

A broker took a listing and later discovered that the client had been declared legally incompetent before signing the listing. The listing is now

The answer is void. A contract made by a person who has been adjudicated incompetent is void because the judgment of sanity is a matter of public record. The contract is not valid or voidable because it is missing the essential element of competency or competent parties.

A contract for the sale of real estate that does NOT state the consideration and provides no basis on which the consideration could be determined is considered

The answer is void. Consideration is an essential element of a real estate contract, along with competent parties, meeting of the minds, lawful objective, and in writing. Without all the elements, a contract is void and cannot be voidable, executory, or enforceable.

All of these are true about contingencies EXCEPT A) they must identify who will pay for any costs involved. B) they must be met within the time given in the contract. C) they must be worded loosely to allow reasonable satisfaction. D) common contingencies include finance and inspection contingencies.

The answer is they must be worded loosely to allow reasonable satisfaction. Contingencies create a voidable contract; if the contingencies are rejected or not satisfied, the contract is void. A loosely worded contingency that is not specific and detailed may create an unenforceable contract.

Which of these would automatically terminate a residential lease? A) Failure of the tenant to pay rent B) Total destruction of the property C) Death of the tenant D) Sale of the property

The answer is total destruction of the property. Neither death of the tenant, failure to pay rent, nor sale of the rented premises would end a residential lease. Destruction of the property terminates the residential lease.

A buyer and a seller sign a contract to purchase. The seller backs out, and the buyer sues for specific performance. What is the buyer seeking in this lawsuit?

The answer is transfer of the property. Specific performance means sue to perform. The seller, if suing, would be suing the buyer to buy the property. The buyer is suing the seller to sell the property.

To assign a contract for the sale of real estate means to

The answer is transfer one's rights under the contract. An assignment is a transfer of the interest of one person to another. In an assignment, rights are assigned to a third party, but the original party remains primarily liable unless specifically released. Assignment of a contract does not change the broker/agent relationship.

A person approaches an owner and says, "I'd like to buy your house." The owner says, "Sure," and they agree on a price. What kind of contract is this?

The answer is unenforceable. Until the parties put the agreement into writing, it is unenforceable, because under the statute of frauds, all transfers of real estate must be in writing.

When neither party can sue the other to force performance, the real estate contract is said to be

The answer is unenforceable. When neither party can sue the other to force performance, the contract is said to be unenforceable. When a contract meets all the essential elements and is enforceable, it is a valid contract. Duress, fraud, misrepresentation, and minors always make contracts voidable. Void real estate contracts lack an essential element and are unenforceable.

A contract that exchanges a promise for performance is

The answer is unilateral. In a unilateral contract, such as an option, the seller promises to sell if the buyer decides to buy (perform). Bilateral contracts have both parties promising to each other. An implied contract is created by actions and an executory contract is yet to be performed

Mutual rescission is BEST defined as A) the agreement of both sides to allow one party to prevail and keep any funds. B) the dissolution of a contract with the return of all funds or things of value to both sides. C) the ability of one party to sue a defaulting party. D) the agreement that the party in default will make payment to the nondefaulting party.

The answer is the dissolution of a contract with the return of all funds or things of value to both sides. Mutual rescission is when both parties agree to terminate any agreement and return all funds, property, or things of value to the respective parties.

To create an executory contract, the offeree must accept the offer

The answer is without any changes to the offer. An offer must be accepted without any changes. Time frames for acceptance are created in the offer and can vary. Contracts do not have to be written or approved by an attorney to be valid.

All of these are essential elements of a contract EXCEPT A) lawful objective. B) words of conveyance. C) mutual agreement. D) consideration.

The answer is words of conveyance. The essential elements of a valid contract are the following: competent parties, mutual agreement, lawful objective, consideration, and in writing. Words of conveyance are required in deeds.

A legally enforceable agreement under which both parties promise to do something for each other is called

The answer is a bilateral contract. Bilateral contracts are created by the parties both making promises. Escrow agreements set the terms for closing. An option is a unilateral contract.

A broker has found a buyer for a seller's home. The buyer has indicated in writing a willingness to buy the property by signing a written agreement. The seller is out of town for the weekend, and the broker has been unable to inform the seller of the signed document. At this point, the buyer has signed

The answer is an offer. A form that offers to buy property but has not been seen or acted on by the property owner is simply an offer. Even if the offer had been for full price, no contract or agreement would yet exist, and the offeror (buyer) would have no claim on the offeree (seller).

A real estate professional has found a buyer for a seller's home. The buyer has indicated in writing a willingness to buy the property for $1,000 less than the asking price and has deposited $5,000 in earnest money with the real estate professional. The seller is out of town for the weekend, and the real estate professional has been unable to inform the seller of the signed document. At this point, the buyer has

The answer is an offer. Until the seller accepts the offer and the buyer is notified of the acceptance, there is no contract, only an offer.

A contract in which one party purchases the right to buy at a fixed price within a specified period is

The answer is an option contract. An option is a unilateral contract binding on the seller with an obligation to sell for a set price if the buyer decides to buy. Typically, if the buyer does not buy, the seller will keep the option fee, the amount of which was set by the option contract. A listing, lease, and purchase contract are all bilateral contracts.

The seller has accepted monetary consideration and has agreed to sell his property for an agreed-upon amount within a specified time frame, if the buyer then chooses to purchase. This contract is called

The answer is an option contract. In an option contract, the seller accepts option money and agrees to sell his property for a specified amount within a specified time frame, if the buyer chooses to purchase in the future.

When a party is in default in a contract due to missing a payment deadline, the contract is considered

The answer is breached. Anytime one of the parties misses a deadline or payment, that party is in breach of the contract.

An amendment to a contract is created

The answer is by adding provisions to an accepted contract. An addendum is a change to an original contract. An amendment is created to make changes or to add provisions after the original contract is created.

Which of these is an essential element of a contract? A) Signature of the grantee B) Competent parties C) Words of conveyance D) Competent grantor

The answer is competent parties. One of the five essential elements of a contract is competent parties. Words of conveyance and competent grantor are elements of a deed. The grantor, not grantee, signs the deed.

A seller accepts the buyer's offer to purchase his property. Before closing, the seller changes his mind, and the buyer sues for specific performance. What is the buyer seeking in this lawsuit?

The answer is conveyance of the property. A suit for specific performance is a lawsuit to require the breaching party to perform as promised, in this case for the seller to sell the home. A suit for specific performance will not result in a new contract, deficiency judgment, or money damages for the buyer.

A contract entered into without duress, menace, misrepresentation, or fraud means that it meets the legal requirement of

The answer is full consent. Full consent means a contract was entered into without duress, menace, misrepresentation, or fraud.

A void contract is one that A) can be terminated by one party but not the other. B) is unenforceable. C) does not have earnest money listed as consideration. D) has all the essential elements of a contract.

The answer is is unenforceable. A void contract lacks some or all of the essential elements of a valid contract and so was never a contract in the eyes of the law. Earnest money is not a requirement of a valid contract, so not having earnest money in a contract does not make the contract void. A valid contract can be rescinded by agreement of all parties but is not voidable by an action of only one of the parties.

When the buyer is in default and the seller keeps the earnest money, the contract MOST likely provided for A) liquidated damages. B) actual damages. C) specific performance. D) executed damages.

The answer is liquidated damages. Earnest money is not consideration; it is the seller's remedy in a liquated damages contract if the buyer defaults.

What action returns a contract's parties to their positions before the contract, including return of any deposit?

The answer is rescission. A rescission occurs when one party cancels or terminates the contract as if it had never been made. Cancellation terminates the contract without a return to the original position. Substitution is an appraisal principle of value. Subordination is used as a place holder and indicates a mortgage or other interest will not move in front of a newer recording.

An option to purchase binds which of these parties? A) Both buyer and seller B) Seller only C) Buyer only D) Neither buyer nor seller

The answer is seller only. An option contract is a unilateral contract in which the seller agrees to sell the property at a set price in the future if the buyer decides to buy.

A buyer signs a contract under which he is given the right to purchase a property for $130,000 anytime in the next six months. The buyer pays the current owner $500 at the time that contract is signed. Which of these BEST describes this agreement? A) A bilateral executory sales contract B) An installment land contract binding both parties C) A bilateral contingency contract D) A unilateral option contract binding the seller

The answer is a unilateral option contract binding the seller. The buyer has the right to buy in the future but is not bound to buy, which creates an option contract.

An executed contract means A) contingencies do not have to be met. B) only one party to the contract must perform. C) a party has the right to sue for specific performance. D) all the parties have fully performed their duties.

The answer is all the parties have fully performed their duties. An executed contract means all the parties have fully performed their duties, and if a purchase contract, title was passed via a deed. The remedies for default, specific performance, or liquidated damages are created in the contract and exist until the contract is executed.

To insert additional terms into the offer, the real estate professional would use A) an adaptation clause. B) a contingency clause. C) an amendment form. D) an addendum.

The answer is an addendum. The purpose of an addendum is to legally change any of the provisions of the offer or to insert new terms. Amendments modify executory contracts.

An optionee has communicated to the optionor that the optionee will purchase the property. This option contract is now exercised and is BEST described as A) an executed bilateral purchase contract. B) an executory bilateral purchase contract. C) an executory unilateral purchase contract. D) an executed unilateral purchase contract.

The answer is an executory bilateral purchase contract. When the buyer informs the seller that he is going to purchase the property, the option is exercised, and an executory bilateral purchase contract exists.

The buyer has made an offer that the seller has accepted and proper notice has been given to the buyer of the seller's acceptance. The offer is now considered A) an executory contract. B) an assignment. C) a unilateral contract. D) an executed contract.

The answer is an executory contract. The period from when the contract is agreed to and signed by both parties until it is executed (closed) is called the executory period. Executed contracts have been closed. Unilateral contracts bind only one party, such as an option. Assignments transfer the contract duties but not liabilities.

If an owner takes his property off the market for a definite period of time in exchange for some consideration, but he grants an individual the right to purchase the property within that period for a stated price, the contract is called

The answer is an option. An option is granted when an owner (optionor) gives the potential purchaser (optionee) the right to purchase the property at a fixed price within a certain period. A contract of sale occurs when a seller and a buyer come to an agreement on the sale of a property. A right of first refusal is an agreement in which the holder of the right has the first opportunity to either purchase or lease real property once the owner offers the property for sale or lease. An installment agreement, also known as a contract for deed, is an agreement in which the seller becomes the lender and the buyer takes possession of the property, retaining equitable title to the property until the final payment to the seller is made.

A buyer agrees to buy a property, and then changes his mind. The seller in this agreement has no recourse against the buyer. The contract was

The answer is an option. In an option contract, the seller's only recourse is to retain the option money. A seller may sue a buyer for specific performance if a buyer does not perform according to the provisions of a purchase agreement. A lease is a contract to rent a property, not to buy that property. A voidable contract appears to be valid but may be rescinded on some legal principle, as in the case of a contract entered into by a minor.

Consideration could be all of these EXCEPT A) earnest money. B) something of value. C) a promise. D) money.

The answer is earnest money. Consideration is defined as a promise, money, or something of value. Earnest money is not consideration; it is the seller's remedy in a liquated damages contract.

All of these are essential elements of a contract EXCEPT A) mutual agreement. B) earnest money. C) consideration. D) a lawful objective.

The answer is earnest money. The five essential elements of real estate contracts are lawful objective, consideration, mutual agreement, competent parties, and in writing.

A contract that has been fully performed is

The answer is executed. Prior to execution, the contract is executory. Once the parties have performed, it is called executed.

During the period of time after a real estate sales contract is signed, but before title actually passes, the status of the contract is

The answer is executory. A contract is in executory status when its terms of agreement have not yet been carried out. When it has been carried out, it is said to be executed. A unilateral contract binds only one party to act. A voidable contract is one that is able to be voided because of duress, fraud, misrepresentation, or because one party to the contract is a minor.

In a standard sales contract, several words were crossed out or inserted by the parties. To eliminate future controversy as to whether the changes were made before or after the contract was signed, the usual procedure is to A) redraw the entire contract. B) have each party write a letter to the other approving the changes. C) write a letter to each party listing the changes. D) have both parties initial or sign in the margin near each change.

The answer is have both parties initial or sign in the margin near each change. All parties must initial or sign the changes. If negotiations had gone back and forth a number of times, it might merit redrawing the contract for clarity; in this case, initialing is sufficient. Letters approving all changes might be treated as part of the contract but such a cumbersome procedure is seldom seen. More often, changes are done with preprinted standard or approved addendum forms.

In a preprinted sales contract, several words were crossed out or inserted by the parties. To eliminate future controversy as to whether the changes were made before or after the contract was signed, the usual procedure is to A) have both parties initial or sign in the margin near each change. B) redraw the entire contract. C) write a letter to each party listing the changes. D) have each party write a letter to the other approving the changes.

The answer is have both parties initial or sign in the margin near each change. If there are minor changes in a contract, the initialing or signature at the changes notes that the party saw and agreed to the change. The best course of action if there are many or major changes to a contract is to draft a new one with all the agreed changes.

Under the statute of frauds, all contracts for the sale of real estate must be

The answer is in writing to be enforceable. A statute of frauds calls for real estate sales contracts to be in writing. The law does not address who writes the agreements or on what forms they are written. Earnest money is not consideration and is not an essential element of a contract of sale, although it is often mistakenly said to be.

In the purchase agreement, the buyer and the seller agreed to liquidated damages as a remedy for default. If the buyer defaults, this means that the seller A) needs to notify the buyer of the intent to sue for liquidated damages. B) sues the buyer to buy the property. C) sues the buyer and keeps the earnest money. D) keeps only the buyer's earnest money.

The answer is keeps only the buyer's earnest money. Liquidated damages as a remedy allows the seller to keep the earnest money and nothing more. Specific performance is a lawsuit to have the buyer perform the terms of the contract.

A promise, or something of value, made by one party to induce another party to enter into a contract is

The answer is legal consideration. Legal consideration is a promise, or something of value, made by one party to induce another party to enter into a contract. In a purchase contract, consideration is the promise of the seller to sell and the buyer to buy. Words of conveyance are used in deeds to create the estate being transferred.

The remedy available only to the seller as compensation if a buyer is in default is known as A) actual damages. B) consideration. C) liquidated damages. D) rescission.

The answer is liquidated damages. When parties agree that a certain amount of money will compensate the nonbreaching party in the event one party defaults on a contract, that money is called liquidated damages. Earnest money typically serves as liquidated damages in a purchase contract in case the buyer defaults. Actual damages refer to monies awarded by a court to a plaintiff for a wrong committed against the plaintiff. Rescission is the mutual agreement of the parties to return to their original state. Consideration is an essential element of a contract, something of value offered by one party and accepted by the other.

Which of these requires that real estate sales contracts be in writing? A) Statute of frauds B) Truth in Lending Act C) Statute of limitations D) Caveat emptor law

The answer is statute of frauds. The statute of frauds requires that all transfers of interests in real estate be in writing, the exception is a lease of three years or less. The statute of limitations sets the amount of time lawsuits can be filed. The Truth in Lending Act sets disclosure requirements for lender fees. Caveat emptor means buyer beware.

Breach of contract is refusal or failure to comply with the terms of a contract. If the seller breaches the purchase contract, the buyer may do all of these EXCEPT A) sue the seller for damages. B) sue the broker for nonperformance. C) rescind the contract and recover the earnest money. D) sue the seller for specific performance.

The answer is sue the broker for nonperformance. The broker is not a party to a real estate purchase contract and could not be sued for nonperformance in the event of a seller breach. The buyer may take any of the other actions stated in the remaining answers.

Legal action that may be taken to enforce the terms of the contract is A) suit to quiet the title. B) suit for possession. C) suit for specific performance. D) suit for money damages.

The answer is suit for specific performance. Legal action that may be taken to enforce the terms of the contract is a suit for specific performance. A suit to quiet title is used if there is cloud on title.

A seller may keep the buyer's earnest money as liquidated damages if A) the seller failed to perform an essential element of the contract. B) that is stated in the listing agreement as a remedy for the seller. C) the buyer defaults and the purchase agreement stipulates liquidated damages as a remedy. D) the seller and the broker agree that the buyer defaulted and the contract calls for specific performance.

The answer is the buyer defaults and the purchase agreement stipulates liquidated damages as a remedy. A liquidated damages purchase contract allows the seller to keep the earnest money if the buyer defaults. Typically, the buyer will have specific performance remedies if the seller is in default.

In an executory contract, A) the buyer receives legal title to the property. B) the buyer receives equitable title to the property. C) the buyer may take possession of the real estate. D) the seller grants the buyer possessory rights.

The answer is the buyer receives equitable title to the property. Equitable title occurs when the buyer and the seller have an accepted offer, which creates an executory contract, at which time the buyer acquires equitable title without yet holding legal title. Legal title will not pass until the deed is passed at closing. The buyer has no right to take possession of the property until all requirements of the contract have been met, usually at the day of closing.

In an offer, a buyer requested the freestanding bookcase and the installed hot tub with the property. Negotiations went back and forth, and the buyer's agent finally wrote a new offer that failed to mention either item. At closing, the buyer should expect to have A) .both items left with the property because they were mentioned in the first offer. B) the hot tub remain and the bookcase removed by the seller. C) the bookcase left and the hot tub removed by the seller. D) the seller remove both items because they were not in the final contract.

The answer is the hot tub remain and the bookcase removed by the seller. The hot tub, which is a fixture, would have to be excluded from the contract if the seller was going to keep it. However, the bookcase is personal property and can be removed by the seller because it was not included in the contract.

A bilateral contract is one in which A) only one of the parties is obligated to act. B) the promise of one party is given in exchange for the promise of the other party. C) a restriction is placed in the contract by one party to limit the performance by the other. D) something is to be done by one party only.

The answer is the promise of one party is given in exchange for the promise of the other party. In a bilateral contract, both parties agree to do something, and promises are exchanged. A unilateral contract is a one-sided agreement that does not obligate a second party.

A contract for the sale of real estate that does not state the consideration and is not signed by the parties is considered

The answer is void. A contract is void when no consideration is stated; consideration is an essential element of a contract. An executory contract is one that has been signed by both parties but all the requirements of the contract have not yet been performed. A contract that lacks all the essential elements is not valid but void and unenforceable.

An agent forgot to get the buyer to sign the offer. What is the status of the offer? A) Voidable B) Voluntary C) Void D) Valid

The answer is void. The offer is missing an essential element and is void. Duress, fraud, misrepresentation, and minors always make contracts voidable. A contract that is binding and enforceable is valid.

A contract that has no legal force or effect is

The answer is void. When a contract has no legal force or effect, it is void and unenforceable. When a contract meets all the essential elements and is enforceable, it is a valid contract. Duress, fraud, misrepresentation, and minors always make contracts voidable.

A minor entered into a contract to sell the house she had inherited to a buyer. This contract is MOST likely A) voidable by the minor. B) valid. C) void. D) voidable by the buyer.

The answer is voidable by the minor. Contracts with minors are always voidable. In this case, the contract is not voidable by the buyer because the buyer is the adult.

A minor signed a sales contract to purchase a home. Which of these describes this contract?

The answer is voidable by the minor. Minors who are parties to a contract always make the contract voidable. It is incumbent upon the seller to not allow a minor to enter into a contract. The seller will have to wait for the minor to cancel or move forward.

A real estate contract with a minor is A) unilateral. B) voidable. C) void. D) illegal.

The answer is voidable. Duress, fraud, misrepresentation, and minors always make contracts voidable. A promise exchanged for performance is a unilateral contract. A void contract lacks an essential element an illegal contract lacks a lawful purpose so is also void.

A contract between two parties that legally binds one party to perform but allows the other party to disaffirm it is

The answer is voidable. Voidable contracts have one side obligated, but the other party is able to rescind the contract if they wish. A contract with a minor is always voidable—for example, if an adult agrees to buy a property owned by a minor, the contract is voidable by the minor. Executed contracts are closed and completed. Void contracts lack an essential element, and bilateral contracts exchange promises.

Contracts that transfer interests in real estate should be express A) bilateral contracts. B) implied contracts. C) written contracts. D) oral or written contracts.

The answer is written contracts. Documents transferring an interest in real estate, per the statute of frauds, must be in an express written form. The contract could be unilateral or bilateral, but it cannot be implied or oral.

A legally enforceable contract in which two parties exchange promises to do something for each other is known as

The answer is a bilateral contract. A bilateral contract is one in which both parties make a promise to each other. A unilateral contract is a one-sided contract in which one party makes a promise to induce a second party to do something. A void contract lacks one or all the essential elements of a contract. An option contract is a unilateral contract in which only one party makes a promise to perform, in this case, to hold open the right for a buyer to purchase a property in the future.

A contract between two or more parties, each making a promise to perform certain acts, is called

The answer is a bilateral contract. Promises exchanged for promises define bilateral contracts. A promise exchanged for performance is a unilateral contract. Implied contracts are created by actions.

The sales contract says the buyer will purchase the property only if an attorney approves the sale by the following Saturday. The attorney's approval is

The answer is a contingency. A contingency requires something to happen or the contract can be terminated and the earnest money returned. A lis pendens is notice of a pending lawsuit. A warranty promises that certain stated facts are true. Consideration is one of the essential elements of the contract to make it valid and is something of value offered in exchange for something from another.

A minor inherited a commercial real estate property and has entered into a sales contract with a buyer to purchase the property. In this situation, the sales contract is considered

The answer is voidable by the minor. A contract with a minor is always voidable, in this case by the minor.

Whose signature is necessary for a signed offer to purchase real estate to become a contract?

The answer is buyer's and seller's. A signed offer already has the buyer's signature, but to be a ratified contract, both the buyer's and the seller's signatures are necessary.

A purchase contract contains several personal property items and fixtures that will be transferred upon sale of the property. Which of these is TRUE? A) All fixtures must be listed in the deed to convey to the buyer. B) There is no need to list the personal property in the contract because it will automatically convey unless it is excluded by the seller. C) The fixtures and personal property will need to be itemized in the bill of sale. D) All personal property must be listed in the bill of sale to convey to the buyer.

The answer is all personal property must be listed in the bill of sale to convey to the buyer. Fixtures are appurtenant, attached to the property, and automatically conveyed with the deed without being listed. Personal property must be listed in the bill of sale in order to be included in the sale.

After a long period of negotiation, the seller and the buyer are under contract. The buyer's lender has some issues with getting the final numbers, so the buyer asks to postpone the closing by three days. The seller agrees to the change. To make the change binding and enforceable, the seller and the buyer should sign

The answer is an amendment. The document that modifies a contract is an amendment. Attachments are items that explain and are added to offers, such as an addendum for a long legal description. Ad valorem is used in property taxes.

A sales contract or land contract would give the buyer

The answer is an equitable title. The sales contract, land contract, or trust deed would give the buyer an equitable title. Legal title is transferred from the seller to the buyer via deed at closing of a sales contract and upon last payment to the seller from the buyer in a land contract.

A buyer who owns the property in equity has

The answer is an executory contract. During any point in the executory contract (time period between signed offer to title transfer), the buyer has equitable title (also called the owner in equity). An executory purchase contract can be liquidated damages or specific performance. In an option contract, only one party is bound and there is no equity of title.

An investor does not want to be obligated to purchase a property but would like to have the right to purchase a property within 60 days for $300,000. The investor should try to negotiate

The answer is an option. An option contract would allow the investor the time to determine if she wants to buy and has the advantage of locking the seller into selling at a price agreed to at the beginning of the process. Contract for deed and purchase money mortgages are forms of seller financing and would not give this type of flexibility. Both require a purchase agreement to create the terms of the financing.

A couple offers to purchase a house for $120,000, including its draperies, with the offer to expire on Saturday at noon. The sellers reply in writing on Thursday accepting the $120,000 offer but excluding the draperies. On Friday, while the buyers consider this counteroffer, the sellers decide to accept the original offer; draperies included, and state that in writing. At this point, the buyers A) must buy the house but may deduct the value of the draperies from the $120,000. B) are legally bound to buy the house, although they have the right to insist that the draperies be included. C) must buy the house and are not entitled to the draperies. D) are not bound to buy.

The answer is are not bound to buy. The sellers' counteroffer is regarded in law as a new offer. They have rejected or terminated the buyers' original offer by changing something in it and thereby releasing the buyers from the original offer. At this point, the sellers can keep both their draperies and their house, and the buyers are not bound by any agreement to buy the property.

The transfer of rights and duties, but not liabilities, from one contract to another contract or from one person to another person is an

The answer is assignment. The transfer of rights and duties, but not the liabilities, from one person to another person is an assignment. Acknowledgment is a notarized signature. Addendums are items added to offers and an amendment modifies an executory contract.

The multiple listing service (MLS) lists a number of personal property items the seller was willing to include in the sale, including the commercial stove and refrigerator, along with all other appliances. The buyer and the seller have gone back and forth over a number of items, including price and the appliances, which were included in the first offer. The final contract did not included any appliances. In this case, the appliances

The answer is belong to the seller, who may take them upon closing the property. The final contract is what is used to determine what is to be conveyed, and because no mention of the appliances was made, they belong to the seller who may take them.

An option A) gives the optionee an easement on the property. B) requires the optionee to complete the purchase. C) makes the seller liable for a commission. D) binds the optionor for a specified time.

The answer is binds the optionor for a specified time. An option obligates an owner (the optionor) to sell at a fixed price within a certain period of time but does not obligate the optionee (the proposed buyer) to exercise the option. The option gives the optionee no rights to the property and does not require the optionee to complete the purchase. The seller is only liable for a commission to a broker when the option is exercised, that is, when the buyer actually purchases the property from the seller.

In a bilateral contract, A) both parties to the contract have duties to be performed. B) consideration is not an essential element. C) only one of the parties is bound to the contract. D) a restriction is placed in the contract.

The answer is both parties to the contract have duties to be performed. In a bilateral contract, both parties are obligated to perform what they have promised to do. Only one party is bound in a unilateral contract. Consideration is an essential element of all contracts.

In order for contracts transferring real property to be valid, they must include all of these EXCEPT A) the parties must come to a mutual agreement as to all terms and conditions. B) all parties must meet the legal definition of competency. C) earnest money must be given from the buyer to the seller as consideration for selling. D) the objective of the offer/contract must have legal purpose with the ability to transfer title.

The answer is earnest money must be given from the buyer to the seller as consideration for selling. Consideration is a required element of a valid contract, but earnest money is not. The parties must be competent; they must come to a meeting of the minds; the contract must have a lawful objective or purpose; and if for the transfer of real estate (except for certain leases), it must be in writing and signed.

Which of these is NOT required to create a valid sales contract? A) Consideration B) Offer and acceptance C) Signatures D) Earnest money

The answer is earnest money. Earnest money is not consideration and is not necessary to create a binding contract.

A buyer makes an offer on a house, and the seller accepts the offer. At this point, the buyer has what type of title to the property?

The answer is equitable. On formation of the contract between both parties, the contract is now an executory contract, with the buyer having equitable title. Voidable is a term used to describe a contract that is able to be voided because of duress, fraud, misrepresentation, or because one party to the contract is a minor. In the executory stage, the seller holds legal title and possession until closing, unless a different time of possession is negotiated.

A buyer and a seller have entered into a binding contract for the sale of real estate. During this phase and until closing, the buyer has which type of title?

The answer is equitable. The buyer has equitable title, which recognizes that he has an interest but has not received legal title. Legal title will pass at closing when the seller gives the buyer the deed.

A buyer makes an offer on a seller's house and the seller accepts. Both parties sign the sales contract. At this point, the buyer has what type of title to the property?

The answer is equitable. The seller holds legal title until closing, and the buyer's interest in the property is recognized in the buyer's holding equitable title

During the period of time after a real estate sales contract is signed, but before title actually passes, the status of the contract is

The answer is executory. An offer becomes an executory contract upon acceptance and executed upon completion of the duties. Duress, fraud, misrepresentation, and minors always make contracts voidable. Only one party is bound in a unilateral contract.

A contract that has NOT yet been fully performed is

The answer is executory. The phase from offer to a closed and executed/closed contract is called the executory period. Voidable contracts are binding on one party and not the other. An unenforceable contract is also void due to lack of an essential element.

The MOST typical contingency in a real estate contract is for A) inspections. B) financing. C) the buyer to sell a current home. D) appraisal.

The answer is financing. Most buyers must use some form of financing, and typically the contract is contingent on the buyer receiving the financing. Other common contingencies include sale of a property, inspections, and appraisals.

The electrical wiring in a house is defective. The broker who listed the house is aware of this and intentionally deceives a potential buyer about it. The buyer purchases the home and later suffers a financial loss due to the faulty wiring. This is an example of A) mistake of fact. B) novation. C) fraud. D) mistake of law.

The answer is fraud. Fraud is lying or covering up a known fact. Mistake of law or fact would be when a party does not have knowledge of a situation or material fact. Novations are new contracts.

The purpose of the Uniform Electronic Transactions Act (UETA) is to A) penalize the use of electronic signatures and enforce the sole use of paper records with signatures. B) prosecute real estate licensees and sellers who utilize electronic signatures in their real estate transactions. C) harmonize state laws concerning retention of paper records and the validity of electronic signatures. D) prevent the practice of obtaining electronic signatures and paperless transactions.

The answer is harmonize state laws concerning retention of paper records and the validity of electronic signatures. The UETA's purpose is to give electronic signatures the validity of paper-based signatures.

One of the key provisions of the Uniform Electronic Transactions Act (UETA) is

The answer is if a state law requires a written record, an electronic record is sufficient. One of the key provisions of the UETA is to give electronic signatures the validity of paper-based signatures.

A buyer and a seller agree on a purchase price of $200,000 for a house. The contract contains a clause stating that "time is of the essence." Which statement is TRUE? A) The closing must take place within a reasonable period before the stated date. B) The closing date must be stated as a particular calendar date and not simply as a formula, such as "two weeks after loan approval." C) A "time is of the essence" clause is not binding on either party. D) If the closing date passes and no closing takes place, the party who failed to close is considered to be in default.

The answer is if the closing date passes and no closing takes place, the party who failed to close is considered to in default. The nondefaulting party may have remedies to retain the earnest money (liquidated damages) or to sue the defaulting party to perform the contract terms (specific performance).

In regard to an offer and acceptance, all the following are true EXCEPT A) an offer can be revoked at any time before acceptance. B) a counteroffer reverses the legal positions of the offeror and offeree. C) to offer means to put forward for acceptance or rejection. D) in real estate, an oral acceptance creates a binding contract.

The answer is in real estate, an oral acceptance creates a binding contract. The oral acceptance of an offer does not create a binding contract. The offer must be signed and followed with a communication of acceptance to become a binding contract.

Under the statute of frauds, all contracts for the sale of real estate must be

The answer is in writing to be enforceable. The statue of frauds requires all documents for the transfer of real estate be in writing; the exception is leases of 12 months or less.

A listing broker presents an offer to her client, a seller, with a selling price much lower than what the seller is asking for the property. The offer allows the seller 24 hours to accept. The broker recommends that the seller counter the offer and leaves a blank counter with the seller. The seller emails the broker in the morning saying that based on the wishes of her children, who are not on the title, she has accepted the offer. It this case, the offer A) gives the buyer possession until closing. B) is void due to undue influence by the children. C) may be a voidable contract due to duress. D) is a valid contract, which may be voidable due to fraud.

The answer is may be a voidable contract due to duress. The seller would have to claim her children forced her to accept the buyer's offer under duress in order to terminate the contract or make it voidable. Void contracts lack one or all of the essential elements of a contract. A contract must be entered into freely and voluntarily by each party, without undue influence. Duress, undue influence, misrepresentation, fraud, or a minor party entering into a contract are all circumstances that may create a contract that is voidable by the injured party.

Earnest money A) is considered to be consideration and is required in a purchase offer. B) will be a credit to the seller and a debit to the buyer at closing. C) is required as part of all purchase agreements. D) may become the seller's if the buyer defaults.

The answer is may become the seller's if the buyer defaults. Earnest money is not consideration. Therefore, it is not an essential element of a contract or required; it is a show of good faith on the part of the buyer and liquidated damages for the seller, if the buyer defaults.

A buyer under an executory contract has found numerous inspection issues the seller is unwilling to repair. The seller and the buyer agree to terminate the contract with all things of value returned to each party. This is known as A) mutual performance. B) liquidated damages. C) specific performance. D) mutual rescission.

The answer is mutual rescission. When both parties to a contract are returned to their original position, it is known as mutual rescission. Liquidated damages and specific performance are types of purchase contracts chosen for the remedy for default by one of the parties. Mutual performance is when both parties complete the contract.

Last night, a fire destroyed an apartment building. Are the tenants required to honor the remaining term of the lease? A) Yes, because a lease is not affected by destruction of the property. B) No, because the owner will file a claim with the insurance company and rebuild the property. C) No, because a lease is terminated by destruction of the property. D) Yes, because the owner still has a mortgage payment to make next month.

The answer is no, because a lease is terminated by destruction of the property. The lease is terminated by the loss of the property, and the tenant is not required to pay rent or honor other terms of the lease.

An option to purchase binds which of these parties? A) Buyer only B) Seller only C) Both buyer and seller D) Neither buyer nor seller

The answer is seller only. In an option, the seller has agreed to not sell the property to anyone else and to give the buyer the right to sell during the option period. The potential buyer (optionee) who purchases an option to purchase is not bound to purchase the property. However, should the buyer decide to exercise the option, the seller is bound to proceed with the sale in keeping with all the details contained in the option. Once the option is accepted, the buyer and the seller move forward with a bilateral purchase contract.

A buyer defaults on a purchase agreement, and the seller goes to court to force the buyer to buy. The seller's remedy is

The answer is specific performance. An action in court to have the defaulting party perform on the contract is called a suit for specific performance.

The remedy for parties in default that is available to both the buyer and the seller in a purchase contract is

The answer is specific performance. If the purchase contract gives both parties the remedy of suing if the other party defaults, the contract is specific performance. A liquidated damages contract allows the seller to keep the earnest money if the buyer defaults and gives the buyer specific performance remedies if the seller defaults.

When a buyer and a seller enter into a purchase agreement (contract of sale), the legal remedy that each has to force the other party to perform the terms of the agreement is

The answer is specific performance. Specific performance is defined as suing to perform if this is the remedy being used as the default when the suing party wants the other party to complete the terms of the transaction. In a purchase agreement, this is available to both the buyer and the seller. Actual damages is a suit to receive money in return for damages not necessarily requiring the performance of the contract. Liquidated damages is where the buyer's earnest money is kept, and unilateral rescission is a one-sided termination when that party feels that the other party has failed to complete its side of the agreement.

A buyer signed a purchase agreement, but then the seller decided not to sell. The buyer sued the seller successfully and was able to purchase the house. What was the contract remedy if the seller was in default?

The answer is specific performance. The buyer does not have the option of liquidated damages because the seller has not brought any earnest money to the contract. Mutual agreement is when the parties terminate and return all items of value to each party as if the contract did not exist. Unilateral rescission is one party terminating.

The legal proceeding or legal action brought by either the buyer or the seller under a purchase contract to enforce the terms of the contract is known as

The answer is suit for specific performance. In a suit for specific performance, the court may force the buyer or the seller to go through with the sale and convert the property as previously agreed. Lis pendens is a recorded legal document giving constructive notice of an action filed in court. An attachment is the legal process in which a defendant in a lawsuit seizes property by judicial order or levy, holding the property as security for satisfaction of a judgment. Liquidated damages is the seller's remedy if the buyer is in default, which is keeping the earnest money.

A seller has received an offer. The seller crossed out a number of items, wrote in the changes the seller wanted, initialed them, and returned the document to the buyer. The original offer the offeror gave the seller is considered A) binding only on the original offeror. B) a partial termination with conditional acceptance of the offer. C) a partial acceptance of the original offer. D) terminated and countered.

The answer is terminated and countered. The counteroffer effectively terminates the original offer and creates a new offer. Therefore, the original offer is not valid, accepted, or binding.

The buyer has made an offer to the seller, who has countered and given the buyer 24 hours to accept the counter. In this case, the original offer is considered

The answer is terminated. A counteroffer terminates the original offer and creates a new offer. Because there is no contract, the terms are executory. An offer is not a contract and cannot be considered voidable or void.

If upon receipt of an offer to purchase his property, the seller makes a counteroffer, the original offer is

The answer is terminated. When the original offer is rejected by the seller, it ceases to exist and is considered terminated. The buyer may accept or reject the seller's counteroffer, which is in effect a new offer.

An attorney was discussing an investment with a buyer who will be attending a foreclosure sale. The attorney said "caveat emptor." This means let A) the bank beware. B) the neighbors beware. C) the buyer beware. D) the seller beware.

The answer is the buyer beware. Caveat emptor means "let the buyer beware."

The broker receives an earnest money deposit with a written offer to purchase that includes a 10-day acceptance clause. On the fifth day, before the offer is accepted, the buyer notifies the broker that she is withdrawing the offer and requests the return of her earnest money deposit. In this situation, A) the buyer cannot withdraw the offer because it must be held open for the full 10 days. B) the buyer has the right to revoke the offer at any time until it is accepted and recover the earnest money. C) the buyer may revoke the offer but will not have the earnest money returned because the buyer failed to give the seller the full acceptance time. D) the seller and the broker have the right to each retain one-half of the deposit.

The answer is the buyer has the right to revoke the offer at any time until it is accepted and recover the earnest money. The offeror (the buyer) may revoke the offer at any time before the offer is accepted, even if the person making the offer agreed to keep the offer open for a set period of time. At that point, the earnest money deposit should be refunded to the buyer.

Which of these statements regarding an executory purchase contract is TRUE? A) The contract conveys legal title when signed by both parties. B) The contract is binding on both parties. C) The contract terms must be identical to the terms in the listing agreement. D) The contract may be oral.

The answer is the contract is binding on both parties. An executory purchase contract is one in which both parties have reached mutual agreement and are both bound to the complete the contract. A deed conveys legal title in the executory phase of a contract; the buyer has equitable title while the seller retains legal title.

The buyer and the seller have entered into a binding contract for sale. However, before closing, the law changes and the buyer's intended use of the property becomes illegal. Which is TRUE? A) The contract is valid, but the price must be renegotiated. B) The contract is terminated due to fraud by the seller. C) The contract is void due to impossibility of performance. D) The contract is valid and enforceable under the rules of risk.

The answer is the contract is void due to impossibility of performance. An essential element of a contract is the lawful objective or purpose; if this is no longer part of the contract, then the contract is void. In this case, the seller did not commit fraud, and no contract requires the price to be renegotiated if it becomes void.

Which of these gives the BEST evidence of the buyer's intention to carry out the terms of the real estate purchase contract? A) The "subject to" clause B) The provision that "time is of the essence" C) The agreement to seek mortgage financing D) The earnest money deposit

The answer is the earnest money deposit. The earnest money deposit is customary in real estate transactions to provide evidence of a buyer's intention to carry out the terms of the contract in good faith. It is also the seller's only remedy in a liquidated damages contract. A buyer may pay cash and not require mortgage financing, so an earnest money deposit is the best evidence of the buyer's intention to purchase, even though earnest money is not consideration and not required to have a valid sales contract. The "subject to" clause and the "time is of the essence" clause do not relate to the buyer's intentions but are requirements of the contract.

A lease agreement is signed by a lessee who is 16 years of age. Which of these is TRUE? A) A 16-year-old person cannot sign a lease. B) The lease agreement is voidable by the minor. C) The lease agreement is void. D) The lease agreement is valid, provided the security deposit is increased.

The answer is the lease agreement is voidable by the minor. A 16-year-old person can sign a contract. However, it was incumbent on an adult who is the other party to the contract to stop the minor from signing the contract. If this does not occur because the lessee is a minor, the lease is voidable by the minor. The amount of the security deposit does not affect the validity of a lease contract. The 16-year-old may in fact decide to enforce the lease contract, in which case the lease is valid.

Every enforceable contract for the sale of real estate must be in writing and signed by all parties, in accordance with A) the Truth in Lending Act. B) the statute of frauds. C) the Uniform Commercial Code. D) the Real Estate License Act.

The answer is the statute of frauds. Contracts for the sale of real estate must be in writing to be enforceable, according to the statute of frauds.

The law that requires real estate contracts to be in writing to be enforceable is A) the law of descent. B) the probate requirement. C) the statute of limitations. D) the statute of frauds.

The answer is the statute of frauds. The statute of frauds requires real estate contracts to be in writing to be enforceable. An oral contract, although unenforceable, is still valid between parties. The law of descent regulates the processes by which an heir acquires an intestate estate. Probate is used to distribute property in a will. The statute of limitations is law dictating a period of time within which actions regarding an alleged offense may be brought to court by an accuser.

The clause in a contract that makes timely performance a condition of the contract is called

The answer is the time is of the essence clause. Time is of the essence means that timely performance is a condition of the contract.

At the time a buyer was negotiating the purchase of a lot on which to build a new home, the seller represented that the soil was firm enough to support the construction of a building when, in fact, the seller knew it was not. This contract is A) void because of the seller's misrepresentation. B) voidable by the seller because of the mistake. C) valid because no harm was done yet. D) voidable by the buyer because of fraud.

The answer is voidable by the buyer because of fraud. The contract is voidable because it contains all the essential elements of a contract but could be rescinded due to fraud by the seller. A void contract lacks one of the essential elements of a contract. In this voidable contract, the buyer has the right to terminate but the seller does not. The contract is not valid because the seller has misrepresented the property.

A contract entered into while someone is under duress is considered

The answer is voidable. Duress, fraud, misrepresentation, and contracts entered into by minors create voidable contracts. Such contracts are neither valid nor enforceable. A void contract has no legal force and is not enforceable due to its lack of an essential element, such as one made for an illegal purpose. An executory contract is a valid contract that has been signed but not fully fulfilled.

The seller told the buyer that the property had no roof leaks. But when the buyer had the property inspected, a roofing contractor found leaks and said they had been leaking for months. The contract between the seller and the buyer is probably

The answer is voidable. Duress, fraud, misrepresentation, and minors always make contracts voidable. The seller either misrepresented the property or committed fraud, which means the contract is voidable by the buyer. The buyer may choose to move forward and continue the sale or terminate the contact. If the buyer terminates, the seller must return the earnest money.