Unit 15

What contract type is used when a purchase contract falls through or terminates and both parties release each other from liability?

A rescission contract

(Quiz) Which of the following best defines a marketable title? A title that has been recorded at the county court house A title to a property that is free from encumbrances, litigation, and other defects and that can be readily be sold or mortgaged A title that has been reviewed by an attorney A title that has at least one lien attached to the property

A title to a property that is free from encumbrances, litigation, and other defects and that can be readily be sold or mortgaged

What is the difference between an offer and a contract?

An offer is a promise by one party based on the performance of the other party and becomes an actual contract after it is accepted and the other party has been notified of the acceptance.

(Quiz) What does a rescission contract do?

Releases all parties from any present and future liability.

What is important to note about the street address of a property when writing a purchase and sale agreement?

A street address is rarely enough. A complete legal description should be attached to the agreement.

11 of 20 - When does an offer become a contract? When the offeror signs the offer When the seller signs the offer When the offer expiration date arrives When both the buyer and the seller sign the offer

When both the buyer and the seller sign the offer

6 of 20 - By changing any terms of an offer, the seller negates the offer. cancels the offer. creates a counteroffer. changes the offer to a contract.

creates a counteroffer

(Quiz)Valuable consideration included in the contract must be tangible. monetary. made in payments. either tangible or intangible.

either tangible or intangible.

Capacity to contract is determined by what three factors?

legal age, mental competency, legitimate authority

13 of 20 - The best practice is to have the buyers take possession on the day of the transaction close. have the buyers take possession at least 2 days after the day of the transaction close. have the seller remain on the property at least 2 days after the closing date. have the sellers move from the property at least 5 business days before the close date.

have the buyers take possession on the day of the transaction close.

An option is an example of a ________ contract: in an option-to-buy, the party offering the option (optionor) promises to sell a property if the optionee decides to exercise the option. While the potential buyer does not have to buy, the owner must sell if the option is exercised.

unilateral

(Quiz)Which of the following statements best defines closing costs? Marketing expenses incurred to sell the property All listing fees Expenses above the price of the property that buyers and sellers normally are required to pay to complete a real estate transaction Expenses not paid by the brokerage

Expenses above the price of the property that buyers and sellers normally are required to pay to complete a real estate transaction

8 of 20 - Victoria, the lessee is negotiating to lease a condo from Sanchez, the lessor. They have agreed on the monthly lease payment, term of lease, security deposit, and so forth. Victoria plans to start moving in on the first day of next month. Which of the following applies to this situation? Offer Contract Lease Executed

Offer

The five most common contracts:

Purchase and Sale Agreement Land Contract (Installment Sales Contract or Contract for Deed) Option to Buy Lease/Rental Rescission

Any of the following actions or circumstances can terminate an offer:

acceptance: the offeree accepts the offer, converting it to a contract rejection: the offeree rejects the offer revocation: the offeror withdraws the offer before acceptance lapse of time: the offer expires counteroffer: the offeree changes the offer death or insanity of either party

An offer may be revoked, or withdrawn, at ____________ the offeree has communicated acceptance.

any time before

20 of 20 - If an offeree alters any part of an offer and then signs it, the offeror must accept the contract with its alterations. the original offer is extinguished and the offeror is not bound by any agreement. the original offer becomes a contract with the alterations subject to acceptance or rejection by the offeror. the altered offer is a valid contract.

the original offer is extinguished and the offeror is not bound by any agreement.

6 of 20 - Which of the following contracts can be assigned to another party? An exclusive listing agreement An exclusive agency agreement A contract for the sale of a house An employment contract between a designated broker and licensee

A contract for the sale of a house

A contract is valid only if it meets all of the following criteria.

Competent parties Mutual agreement Lawful objective Consideration In writing

An aleatory contract is

one whose effects are triggered by the occurrence of a chance event ("aleatory" means "dependent on chance"). Insurance policies are aleatory contracts in that the insured only receives the proceeds of the policy if a specified event, such as an accident, fire, or death, occurs.

(Quiz) Which of the following contracts can be assigned to another party? An exclusive listing agreement An exclusive agency agreement A contract for the sale of a house An employment contract between a designated broker and licensee

A contract for the sale of a house

What is a purchase and sale agreement?

A contract in which the buyers agree to purchase the property for a certain price and the seller agrees to transfer the title to the buyer using a deed or an assignment of lease.

(Quiz) Which type of contract gives the weaker party only the options of accepting or rejecting the contract? Aleatory Unconscionable Adhesion Parol

Adhesion

What is the difference between an express contract and an implied contract?

An express contract is one in which all the terms and covenants of the agreement have been clearly stated and agreed to by all parties, whether verbally or in writing. An implied contract is an unstated or unintentional agreement that may be considered to exist when the actions of any of the parties suggest the existence of an agreement.

When may an offer be revoked?

An offer can be revoked anytime before the its acceptance has been communicated to the offeror.

Name four items that must be present in a purchase and sale agreement for it to be legal.

Identify the parties to the contract. Describe the property to be transferred. Give the offering price. Outline and explain any contingencies.

A purchase and sale agreement must also do the following:

Identify the parties to the contract. Describe the property to be transferred. Give the offering price. State the method of payment. Describe how utilities will be paid. Provide for settlement of taxes, insurance and any liens. State the type of deed and condition of the title. List any liens or encumbrances that the buyer will assume. Outline and explain any contingencies. Set a time for delivery of title and possession.

Why is the condition of the title clause in a purchase and sale agreement important?

If the seller has a pending legal action, they may not be able to convey a clear title.

16 of 20 - Buyer Jim agreed to a 20-day window to get a survey done. A number of problems have occurred and after 20 days from the signed contract date, buyer Jim has yet to have a survey completed. What is now the status of the sales contract? A hold will be put on the contract, until a survey is completed. Jim has defaulted on his contract. The seller must now order a property survey. A new contract must now be written for the sale to proceed.

Jim has defaulted on his contract.

(Quiz) Why are insurance policies called "aleatory" contracts? The insurance company dictates the terms of the policy. The considerations offered by the parties are extremely unequal. The rights of the insured party to seek court relief are extremely limited. The insurer performs the promised action only if a specified chance event occurs.

The insurer performs the promised action only if a specified chance event occurs.

What does "time is of the essence" mean?

This phrase emphasizes the requirement that events related to the contract must be performed on time.

18 of 20 - If a married person owns property separately from his or her spouse, that person can sell that property without the spouse's permission. Is this statement true or false? True, but only in states without community property laws True, but only in community property states False True

True

18 of 20 - An intangible agreement that is made in "the meeting of the minds" of the involved parties is called an oral agreement. an implied contract. an executory contract. a contract.

a contract

4 of 20 - The offer expires at exactly the time specified if the offer contains a date and time. an expiration date. a time and the phrase "time is of the essence." a date and the phrase "time is of the essence."

a date and the phrase "time is of the essence."

A contract must contain a two-way exchange of valuable ___________________ as compensation for performance by the other party.

consideration (In effect, consideration is the price one party must pay to obtain performance from the other party.)

17 of 20 - A contract that conveys an interest in real estate must include a title closing entity. contain default penalties. include all outstanding liens against the property. contain a legal description of the property.

contain a legal description of the property.

Note that a _________ is not a legal form or a prescribed set of words in a document, but rather the intangible agreement that was made in "the meeting of the minds" of the parties to the _______________.

contract.

By changing any of the terms of an offer, the offeree creates a __________________, and the original offer is void. At this point, the offeree becomes the offeror, and the new offeree gains the right of acceptance.

counteroffer

What does the mutual agreement require?

A contract must involve a clear and definite offer and an intentional, unqualified acceptance of the offer.

Why write a purchase and sale agreement?

If an offer is made without the agreement, the seller does not have all of the terms necessary to evaluate the offer. The seller could sign the offer, and it immediately becomes a contract and is enforceable without the buyer having an opportunity to include all the desired terms for the purchase of the property.

Why is it important to have both spouses sign any agreements that relate to a sale of property?

In a community property state, both signatures are required for the sale to be valid. However, sometimes a married person might own property separately from his/her spouse, so that person can sell the property without the spouse's signature. Since it is not up to the broker to determine if the property is separately owned or community property, it is best to have both spouses sign all documents anyway and let the legal professionals make the determination.

The mutual consent required for contract to be valid is reached through what process?

The process of offer and acceptance. When an offer is made by one party and the other party accepts the offer without amendment, then the offer becomes a valid contract.

List and briefly describe each of the additional classifications of contracts.

Unconscionable - unduly favors the party with the superior bargaining power and may not be enforceable Adhesion - dictated by the party who has the greater bargaining advantage and are sometimes not enforceable Aleatory - the effects of this contract are dependent on chance, such as an insurance policy wherein a specific event must occur before the promise of the contract is fulfilled

15 of 20 - When does an offer become a contract? When the offer is presented to the offeree When the offeree gives the offeror notice of the acceptance When the offeree initials the details of the offer When the offeree signs the offer

When the offeree gives the offeror notice of the acceptance

A valid contract is one that is

legally enforceable by virtue of meeting certain requirements of contract law.

Contracts may be classified according to:

mode of expression: oral (parol) or written degree of explicitness: express or implied degree of commitment: unilateral or bilateral state of fulfillment: executory or executed

The exact point at which the offer becomes a contract is when the offeree gives the offeror _____________.

notice of the acceptance.

11 of 20 - An adhesion contract binds parties who have contracted with each other repeatedly. establishes terms of agreement between an employer and a contract employee. imposes exclusivity on both parties. offers one party only the option of accepting or rejecting the contract.

offers one party only the option of accepting or rejecting the contract.

An adhesion contract is

one dictated by the party who has the greater bargaining advantage. It gives the weaker party only the options of accepting or rejecting the contract. Such contracts are not necessarily unconscionable, as they may not unfairly exploit the assenting party. However, courts sometimes refuse to enforce contracts of adhesion on the grounds that there was no true meeting of the minds or no true offer and acceptance because the purchaser had no choice but to accept.

An unconscionable contract is

one that unduly favors the party with superior bargaining power. It is one that a mentally competent person or honest person would normally reject. Because of the inequality of bargaining power, the element of voluntary participation without duress may be deemed to be absent. Most contracts of this type occur in consumer transactions and limit the rights of the buyer to seek court relief against the seller or disclaim any warranty that the purchaser may rely upon. A court may look at the relative circumstances of the parties at the time of contracting to determine whether it would be an affront to the judicial system to enforce such a contract.

The Statute of Frauds

requires that certain contracts must be in writing to be enforceable.