Prelicense Contracts

4 elements required in every contract

-Competent parties -A legal (or lawful) object or purpose -An agreement between the parties (also called offer and acceptance, mutual consent or mutual assent) -Consideration

Robert and Tammy Lowell, who own a house at 1843 River Drive in Silverton, Oregon, decided to list their property. The property is encumbered by a trust deed, which had a balance of $36,928.71 after the most recent payment was made on November 1, 2002. The interest rate on the note is 10.5%. The Lowells decided to list the property for $105,000 and pay Port Properties a 7% commission on the sale. On the Real Estate Employment Agreement which of the following figures should be entered in blank (5) below? PRICE (1) _____________ Terms (2) _____________ Encumbrances (3) ______ Loan/Esc. # (4) _________ Balance $ (5) __________ A) $36,928.71 B) $65,571.29 C) $68,070.29 D) $47,071.71

A) $36,928.71 Blank 5 is for the balance of the existing loan.

All of the following are true of the public report EXCEPT A) A copy of the public report must be visibly displayed at all times in the office of the subdivider. B) A copy must be given to a prospective purchaser prior to the execution of a binding sales contract. C) The seller must keep a receipt from the buyer on file for three years. D) The seller must take a receipt for it from the buyer.

A) A copy of the public report must be visibly displayed at all times in the office of the subdivider. A copy of the public report must be given to a prospective purchaser prior to the execution of a binding sales contract and the seller must take a receipt from the buyer and keep it on file for three years. There is no requirement that a copy of the public report be visibly displayed in the office of the subdivider.

Which of the following needs to be recorded to be valid against subsequent purchasers? A) An option to purchase B) Properly created prescriptive easement C) None of these need to be recorded to be valid against D)subsequent purchasers. Property tax lien

A) An option to purchase The property tax lien is automatic so it need not be recorded. The prescriptive easement was created by open, notorious, hostile use. Since it's open, it would be observable and therefore there would be constructive notice of its existence, so it need not be recorded. The option would be recorded to provide evidence of its existence to prospective purchasers.

All contracts for the sale of real property must I. be in writing. II. be acknowledged. III. have an earnest money deposit. A) I only. B) III only. C) I and III. D) II and III.

A) I only. The Statute of Frauds requires all contracts for the sale of land (e.g., earnest money agreements, exchange agreements) or any interest in land (e.g., options, mortgages, easements, etc.), all listings of real property and contracts exceeding one year to perform to be in writing. If such contracts are not in writing, they are unenforceable. Earnest money is not required (it's just a good idea).

Mr. and Mrs. Thomas Martin want to sell their house. They want a broker to show the property, but they would like to be able to sell the house themselves without the obligation of paying a broker a commission. What form of listing would allow them to use several brokers' services and not pay a commission should they sell the house themselves? A) Open listing B) Exclusive listing C) Exclusive right-to-sell listing D) Net listing

A) Open listing An open listing provides the broker will be paid a commission if he procures a buyer at terms listed or acceptable to the seller. It allows the seller to sell himself, and to enter into listings with other brokers since his obligation is to pay the listing broker only if he procures the buyer.

Which of the following is true of the purchasers of a lot in a new subdivision and of a unit in a new condominium? A) The lot purchaser cannot waive his right of rescission, but the condo purchaser can. B) The condo purchaser cannot waive his right of rescission, but the lot purchaser can. C) Neither had a right of rescission. D) Each can waive his right of rescission.

A) The lot purchaser cannot waive his right of rescission, but the condo purchaser can. The lot purchaser has a three business day right to rescind and cannot waive this right. The condo purchaser has a five business day right and can waive it.

An option A) should recite in detail the terms of the purchase in the event it is exercised. B) is enforceable without actual consideration. C) may always be assigned by the optionee. D) may be exercised within 30 days after the expiration date.

A) should recite in detail the terms of the purchase in the event it is exercised. The option must be in writing and signed by the optionor and optionee. It should specify the terms of the agreement to purchase in the event it is exercised. It should include a receipt for actual consideration received from the optionee. The option is assignable by the optionee unless there is a provision prohibiting assignment. So some options will be assignable while others are not. Note, all contracts involving money or property may be sold, assigned, binding on heirs, etc. unless there is a specific provision in the contract stating this is not so.

On October 26, 2002, Gary Walsh signed an offer to purchase a house owned by Paul Spencer for $93,500. Spencer's house was listed with Port Properties for a commission of 7%. Tom Gardiner was the broker who listed the property and wrote the offer to purchase. The house was listed for $96,500. Spencer owned the house free and clear of any encumbrance. Walsh deposited $9,000 earnest money in the form of a check. The offer was contingent upon the buyer obtaining new financing acceptable to him within 10 business days from the date the seller accepted the offer at a rate of no more than 12% interest. The offer was set to expire November 5, 2002. Closing was set for December 30, 2002. On November 3, 2002, Spencer accepted the offer. On the Earnest Money Agreement which of the following amounts should be entered in blank (2) of this line: "Upon acceptance of title and delivery of deed/contract (strike whichever not applicable) the sum of (1) _____________ Dollars ($[2] _________." A) $93,500 B) $84,500 C) $96,500 D) $86,500

B) $84,500 Blank 2 is for the amount the buyer must have at closing. In this example it is the sales price less the earnest money already paid ($93,500 - $9,000). The balance line below is only used if the buyer will finance the sale with a contract from the seller or a purchase money mortgage or trust deed to the seller.

To be enforceable, a contract for the sale of real property must I. sufficiently describe the property. II. be in writing. III. be recorded. A) I only. B) I and II. C) II and III. D) I, II and III.

B) I and II. The real estate sales contract must be in writing, signed by a competent buyer and seller and contain terms of agreement which are clear enough to be enforceable in court. Therefore, the property must be adequately described. Recording is not required for validity.

To be legally enforceable, an option or contract for the sale of real property must be all of the following EXCEPT A) signed by all parties. B) initialed by a real estate broker or attorney. C) supported by consideration. D)in writing.

B) initialed by a real estate broker or attorney. All contracts must have consideration and real estate contracts must also be written and signed. There is no requirement for a broker or attorney to be involved. Note, the general rule for written contracts is that all parties must sign (and questions should be answered that way). However, there are exceptions in practice.

A listing broker receives his authority to accept an earnest money deposit in the A) earnest money agreement. B) listing. C) closing documents. D) administrative rules and regulations.

B) listing. The listing contains the authorization of the broker to act on behalf of the seller. Therefore, if the broker is authorized to accept a deposit, this authorization is contained in the listing agreement.

A buyer of a home assumes and agrees to pay a loan on the home. The seller however, was required to get a release from his obligation from the lender. This substitution of new parties to an existing obligation is called A) ultra vires. B) novation. C) satisfaction. D)reservation.

B) novation. Novation is the substitution of a new obligation for an old one, or substitution of new parties to an existing obligation. For example, if a buyer assumes the seller's loan, and the lender agrees to release the seller from liability for the loan, this results in a substitution of new parties to an existing obligation and would be a novation.

All of the following are essential elements to a lawfully enforceable contract, EXCEPT A) consideration and competency. B) recordation. C) mutual assent. D)legality of object.

B) recordation To have a valid contract four elements are needed. These are: (1) competent parties, (2) agreement to do or not to do certain things (this is mutual consent; the offer and acceptance of the offer), (3) legal consideration (promises, something of value, an act, giving up the right to act, etc.), (4) legal object (the parties are agreeing to do something which is legal and not against public policy), so that the agreement is legally enforceable in a court of law. No contract must be notarized, acknowledged or recorded to be valid.

A listing broker receives his authority to accept an earnest money deposit in the A) closing documents. B)listing. C) earnest money agreement. D)administrative rules and regulations.

B)listing. The listing contains the authorization of the broker to act on behalf of the seller. Therefore, if the broker is authorized to accept a deposit, this authorization is contained in the listing agreement.

Which of the following is the best explanation of an option? A) A clause that grants either party the right to cancel the contract provided legal notice is given. B) A legal procedure or action brought by either the buyer or seller to enforce the terms of the contract. C) An agreement granting exclusive right to buy, sell, or lease property at a given price within a stated period of time. D) A document used in closing a real estate transaction.

C) An agreement granting exclusive right to buy, sell, or lease property at a given price within a stated period of time. An option is an agreement in which the optionor promises to lease, sell, or purchase property at fixed terms during a specified time if the optionee decides he wants to lease, buy or sell it. It differs from the earnest money agreement in that the optionee does not have to lease, buy, or sell the property. The option in effect is a contract in which the offeree buys the right to purchase (lease or sell) real property. It is not a contract where he does actually purchase (lease or sell). The option specifies what the optionee must do to exercise the option and the duty of the optionor with regard to the property. Note, the option does not give the optionor the right to cancel the contract.

The consideration necessary for a valid contract could be I. a promissory note. II. personal property, such as a boat. A) I only. B) II only. C) I and II. D) Neither I nor II.

C) I and II. To have a valid contract four elements are needed. These are: (1) competent parties, (2) agreement to do or not to do certain things (this is mutual consent; the offer and acceptance of the offer), (3) legal consideration (promises, something of value, an act, giving up the right to act, etc.), (4) legal object (the parties are agreeing to do something which is legal and not against public policy), so that the agreement is legally enforceable in a court of law. "Consideration" in a contract can be anything of value given - an act, money, a promise to do something, a promise to not do something, a note, personal property, etc.

An oral lease for two years is not enforceable due to the A) Uniform Commercial Code. B) Statute of Limitations. C) Statute of Frauds. D) Usury Laws.

C) Statute of Frauds. The Statute of Frauds requires all contracts for the sale of land (e.g., earnest money agreements, exchange agreements) or any interest in land (e.g., options, mortgages, easements, etc.), all listings of real property and contracts exceeding one year to perform to be in writing. If such contracts are not in writing, they are unenforceable.

A provision in an offer to purchase that requires the completion of a certain act before the contract is binding is known as a A) restriction. B) covenant. C) contingency. D) mandamus.

C) contingency A contingency is a provision in a contract that requires the completion of a certain act or the happening of a particular event before that contract is binding. In other words, the agreement depends on something that is not certain to happen.

The Statute of Frauds requires that contracts for the transfer of an interest in land be A) reviewed by the county recorder. B) in an outline form. C) in writing to be enforceable. D) all of these.

C) in writing to be enforceable. The Statute of Frauds requires all contracts for the sale of land (e.g., earnest money agreements, exchange agreements) or any interest in land (e.g., options, mortgages, easements, etc.), all listings of real property and contracts exceeding one year to perform to be in writing. If such contracts are not in writing, they are unenforceable.

The purchase agreement specifies that the agent and the seller may keep the earnest money if the buyer defaults. This stipulation is known as A) mutual rescission. B) punitive damages. C) liquidated damages. D) unilateral rescission.

C) liquidated damages.

Judy Brown listed her property with Broker David Rowell. The listing contract stipulated that Brown would receive $62,000, with all proceeds over that amount to be given to Rowell for his commission. This type of listing is referred to as a(n) "_____ listing." A) open B) exclusive agency C) net D) exclusive right-to-sell

C) net A net listing is a listing which specifies the amount the seller wishes to receive from the sale, and authorizes the broker to keep any sale proceeds above that amount.

If a note is taken as earnest money, it is in the seller's best interest to have the note payable A) at closing. B) on the first banking day after the day that the buyer takes possession. C) on the seller's acceptance. D) within 72 hours of closing.

C) on the seller's acceptance.

All of the following are true of the public report EXCEPT A) The seller must keep a receipt from the buyer on file for three years. B) A copy must be given to a prospective purchaser prior to the execution of a binding sales contract. C)The seller must take a receipt for it from the buyer. D) A copy of the public report must be visibly displayed at all times in the office of the subdivider.

D) A copy of the public report must be visibly displayed at all times in the office of the subdivider. A copy of the public report must be given to a prospective purchaser prior to the execution of a binding sales contract and the seller must take a receipt from the buyer and keep it on file for three years. There is no requirement that a copy of the public report be visibly displayed in the office of the subdivider.

To comply with the Statute of Frauds, all real estate contracts must be I. written. II. acknowledged. III. recorded. A) I, II and III B) I and II C) I and III D) I only

D) I only The Statute does not require acknowledgment or recordation.

In Oregon, which of the following must be in writing in order to be enforceable? I. An option to purchase real estate. II. A lease for less than a year. A) I and II B) II only C) Neither I nor II D) I only

D) I only The Statute of Frauds requires all contracts for the sale of land (e.g., earnest money agreements, exchange agreements) or any interest in land (e.g., options, mortgages, easements, etc.), all listings of real property and contracts exceeding one year to perform to be in writing. If such contracts are not in writing, they are unenforceable. Contracts (e.g., leases and rental agreements) for one year or less may be oral.

A typical listing contract contains which of the following? I. Description of the property. II. Seller's obligation to pay a commission. III. Terms on which the seller wishes to sell the property. A) I and II B) I and III C) II and III D) I, II and III

D) I, II and III The listing will contain a description of the property, specify the terms for which the broker is authorized to offer the property and have a promise to pay a commission if a buyer is found who is willing and able to buy the property at terms acceptable to the seller.

Ward noticed a broker's "for sale" sign on a property he was interested in purchasing. He called the property owner, Taylor, who told him that the exclusive agency listing on the property would expire on May 9. Ward waited until May 11 to meet with Taylor, and then bought the property for the listed price. The listing broker I. is legally entitled to a commission from the seller since Ward's attention to the property was induced by the broker's display sign. II. is legally entitled to a commission from the seller since the property was sold within the protective period after the listing expired. A) I only B) II only C) I and II D) Neither I nor II

D) Neither I nor II Since this was an exclusive agency listing, the agent is entitled to no commission unless he or another agent produces an offer from a buyer. In this case, the seller and buyer negotiated directly, so the seller owes no commission.

A declarant is required to expressly warrant against defects in plumbing, electrical, mechanical and other components of newly constructed units and common elements for how long? A) Five years B) 90 days C) Three years D) One year

D) One year In the sale of new condominium units, the declarant must expressly warrant against defects in plumbing, electrical, mechanical, structural, and all other components of newly constructed units and common elements for one year.

It is said that a valid contract must have legality of object. Which of the following best describes legality of object? A) An agreement between competent parties that is legally enforceable. B) All parties are of legal age and agree upon the legal consideration to be paid. C) Either party has the legal right to cancel the contract, provided legal notice is given. D) The contract must not be for an illegal purpose or against public policy.

D) The contract must not be for an illegal purpose or against public policy. To have a valid contract four elements are needed. These are: (1) competent parties, (2) agreement to do or not to do certain things (this is mutual consent; the offer and acceptance of the offer), (3) legal consideration (promises, something of value, an act, giving up the right to act, etc.), (4) legal object (the parties are agreeing to do something which is legal and not against public policy), so that the agreement is legally enforceable in a court of law.

Under the Oregon Subdivision and Series Partition Control Law, the buyer can rescind his purchase of a lot for which a public report has been issued within what period of time after the purchase? A) Five business days B) Three calendar days C) None of these D) Three business days

D) Three business days Generally, a purchaser of a lot in a subdivision may for any reason cancel the contract within three business days of the date he signed the contract and cannot waive this right.

A multiple listing may properly be defined as a listing agreement in which A) both the broker and the seller have the right to sell the property, the seller paying a commission only when the broker is the procuring cause of the sale. B) two or more owners are involved as principals. C) more than two prospective purchasers must view the property before the broker is allowed to present an offer. D) a broker with an exclusive right-to-sell has a contractual obligation to distribute the listing among certain other brokers.

D) a broker with an exclusive right-to-sell has a contractual obligation to distribute the listing among certain other brokers. A multiple listing service is an organization of brokers who have agreed to exchange listings. The listing broker will be paid a commission if any member of the service sells the property, and he will share the commission with the selling broker. Members of the service have a contractual obligation to distribute their listings to the other members.

A contract created by actions rather than oral or written words is called a(n) A) expressed contract. B)determinable contract. C) actionable contract. D) implied contract.

D) implied contract.

The purchase agreement specifies that the agent and the seller may keep the earnest money if the buyer defaults. This stipulation is known as A) mutual rescission. B) unilateral rescission. C) punitive damages. D) liquidated damages.

D) liquidated damages. Liquidated damages is an amount agreed to in advance which will compensate a party to a contract for any loss (regardless of the actual amount of loss) he may suffer. This is what the earnest money deposit represents.

In order to be enforceable, an exclusive listing for residential property A) must be signed and accepted by the purchaser. B) need only be in writing. C) shall contain the words "exclusive right to sell." D) must be signed by the owner and broker or their agents.

D) must be signed by the owner and broker or their agents. The listing must be in writing and signed by the owner and broker (or the broker's agent). The exclusive listing may contain words specifying the fact that the broker would be entitled to a commission regardless of who sold the property, without ever stating "exclusive right to sell."

The Oregon Subdivision Control Law applies to the sale of A) apartments. B) parcels larger than 160 acres. C) commercial property. D) residential lots.

D) residential lots The Subdivision and Series Partition Control Law applies to lots for residential structures, not to apartments; cemetery lots; condominiums; property zoned for nonresidential, industrial or commercial purposes; land sold in parcels of 160 acres or more; or time-shares..

Buyer Linda Brown and seller Marilyn Johnson entered into a purchase agreement. Johnson later stated that she did not wish to sell the property. In order for Brown to force Johnson to sell, she may sue her for A) assignment. B) eminent domain C) unilateral rescission. D) specific performance.

D) specific performance. "Specific performance" is an action brought in court to compel a party to carry out the terms of a contract. A seller could sue a buyer requiring him to buy the property, and a buyer could sue a seller requiring him to sell the property, if either party defaults.

Real estate values are inflating rapidly. Despite having already signed a written contract of sale, Smith, the seller, refuses to complete the sale to Jones. The remedy Jones may choose is A) action to quiet title. B) rescission. C)foreclosure. D) suit for specific performance.

D) suit for specific performance. "Specific performance" is an action brought in court to compel a party to carry out the terms of a contract. A seller could sue a buyer requiring him to buy the property, and a buyer could sue a seller requiring him to sell the property, if either party defaults.

To be legally enforceable, an option or contract for the sale of real property must be all of the following EXCEPT A) in writing. B) signed by all parties. C) supported by consideration. D)initialed by a real estate broker or attorney.

D)initialed by a real estate broker or attorney. All contracts must have consideration and real estate contracts must also be written and signed. There is no requirement for a broker or attorney to be involved. Note, the general rule for written contracts is that all parties must sign (and questions should be answered that way). However, there are exceptions in practice.

contingency

a provision in a contract that requires the completion of a certain act or the happening of a particular event before that contract is binding

consideration

contract law refers to something of value given by one party in exchange for something of value from the other party to the contrac

exclusive right-to-sell

entitles the broker to a commission regardless of who sells the property during the listing period. It provides for the payment of a commission to the listing broker even though the owner makes a sale without the aid of the broker.

Novation

is the substitution of a new obligation for an existing one with the intent to cancel the existing one

Coercion or duress

means forcing a person to do something against his will, including using threats to force a person to do something

exclusive agency listing

permits the owner to sell the property through his own efforts without any obligation to pay the listing broker a commission

Statute of Frauds

purpose of this statute is to prevent perjury and dishonest conduct in proving the existence and terms of certain important contracts.