Unit 6

Who is BEST suited to assist a buyer and a seller to enter into an installment contract? A) A real estate salesperson B) The broker of record C) An accountant D) An attorney

The answer is an attorney. A seller and a buyer contemplating an installment sale should first consult an attorney to ensure that the agreement meets all legal requirements and addresses the individual concerns of the parties.

A buyer wants to make an offer to purchase a house that she suspects has a wet basement. The buyer is afraid that the house may be sold to someone else before she has a chance to get information about the structure. How should she proceed? A) Make an offer to purchase that is contingent on a structural inspection. B) Hire a contractor to give an estimate for repair before making an offer. C) Ask the seller to repair the basement before she makes an offer. D) Ask the real estate salesperson to guarantee that the basement is dry.

The answer is make an offer to purchase that is contingent on a structural inspection. A buyer can make an offer that is subject to a structural inspection to address concerns such as a wet basement. The contract would then be subject to an inspection contingency.

Under an installment contract, who is obligated to pay the real estate taxes? A) Split equally between the buyer and the seller B) The seller C) The trustee who holds naked title D) The buyer

The answer is the buyer. In an installment contract, the buyer acquires equitable title and thus is obligated to pay real estate taxes, insurance premiums, and repairs and upkeep on the property.

After a buyer makes an offer to purchase, the broker cannot locate the seller to present the offer. In the meantime, the broker receives an offer for a higher price from another buyer. How should the broker proceed? A) Decide which offer is best to present to the seller B) Inform the first buyer that the broker cannot present the offer because it is too low C) Present the offer for the higher price D) Present both offers to the seller

The answer is present both offers to the seller. Licensees are required to present all offers in a timely manner. In the case of multiple offers, the broker should present all offers to the sellers for their consideration.

In Pennsylvania, at what time should an estimated statement of closing costs be provided to the buyer and the seller? A) Prior to settlement B) After acceptance of an offer C) Prior to signature of the agreement of sale D) Within 24 hours of communication of acceptance of an offer

The answer is prior to signature of the agreement of sale. According to the Real Estate Commission's Rules and Regulations (Section 35.334), the seller and the buyer must be provided with statements of estimated cost and return before entering into an agreement of sale.

A house is rumored to be haunted. Additionally, the air conditioner is not working properly. Under Pennsylvania law, what must be disclosed? A) The rumored haunting B) Both the rumored haunting and the broken air conditioner C) The broken air conditioner D) Neither the rumored haunting or the broken air conditioner

The answer is the broken air conditioner. Pennsylvania requires the disclosure of a material defect, such as a broken air conditioner. State and federal law are silent regarding stigmatized properties, such as a rumored haunting.

Which of the following BEST describes a land contract or installment contract? A) A means of conveying title immediately whereby the purchaser pays for the property in installments B) A method of selling real estate whereby the purchaser pays in regular installments while the seller retains title C) A contract to buy land only D) A mortgage on land

The answer is a method of selling real estate whereby the purchaser pays in regular installments while the seller retains title. An installment contract combines elements of both a sale and a finance document into one legal instrument. The seller (vendor) retains legal title, while the purchaser (vendee) takes possession, acquires equitable title, and agrees to make principal and interest payments to the seller for a stated period of time, after which point, the seller will transfer legal title.

Before the agreement of sale is signed by both parties, real estate licensees must disclose all of the following details EXCEPT A) broker's commission. B) material defects. C) a murder was committed on the property. D) settlement expenses.

The answer is a murder was committed on the property. A stigma, such as a murder committed on the property is not considered a material fact in Pennsylvania. By law, licensees must disclose material defects, the broker's commission, and settlement expenses before the parties sign the agreement of sale.

The purchaser of real estate under an installment contract A) acquires equitable title. B) receives legal title immediately. C) is not required to pay property taxes for the duration of the contract. D) generally pays no interest charge.

The answer is acquires equitable title. The seller is the vendor in an installment contract; the purchaser is known as the vendee.

After the buyer and the seller entered into contract, they negotiated the sale of the side lot at the same time as the transfer of the home. What is this second document called? A) An option B) A contingency C) An amendment D) An addendum

The answer is an addendum. An addendum is any provision added to an existing contract without altering the content of the original agreement. In this case, the sale of the side lot is connected with the original contract, but does not alter the original contract.

The buyer and the seller entered into a contract contingent on a satisfactory home inspection. The inspection turned up a serious roof problem, which will cost about $5,000 to repair. What type of document should the two parties execute when they agree to split the cost of the repair? A) An amendment B) An addendum C) An option D) A contingency

The answer is an amendment. An amendment changes a provision in the original agreement; in this situation, the parties are changing the financial terms they had previously agreed upon.

Which of the following is a unilateral contract? A) Lease B) Option C) Purchase agreement D) Installment sale

The answer is option. An option is a unilateral contract by which an optionor gives an optionee the right to buy or lease the owner's property at a fixed price within a stated period of time. The owner/optionor is obligated to perform only if the optionee requires it. An option has two parties but only one party is obligated to perform.

Before buyers and sellers enter into a written contract to purchase, real estate licensees are required to provide A) an estimated statement of closing costs. B) verification that the property is properly insured. C) a confirmation that the buyers and sellers approve of paying a commission to the brokers involved. D) a statement from the buyers as to why they will use the property.

The answer is an estimated statement of closing costs. The Real Estate Commission's Rules and Regulations require that real estate licensees provide the buyer and the seller with written estimated statements of closing costs before the parties sign an agreement of sale; the statement must include the broker's commission, mortgage payments and financing costs, taxes and assessments, and settlement expenses.

When a prospective buyer makes a written purchase offer that the seller accepts, then the A) seller grants the buyer ownership rights. B) buyer receives legal title to the property. C) buyer receives equitable title to the property. D) buyer may take possession of the real estate.

The answer is buyer receives equitable title to the property. After both buyer and seller have executed a sales contract, the buyer acquires an interest in the land, known as equitable title. Legal title passes only upon delivery and acceptance of the deed.

The buyers made a very low offer to the sellers, expecting to negotiate to a higher price. While the seller was considering the very low offer, another higher offer materialized. The seller A) is obligated to continue with a counteroffer to the first buyers. B) can accept the second, higher offer. C) may not accept the second offer until the first buyers are sure that they do not want the property. D) must tell the first buyers about the second offer to ask if they want to match or exceed it.

The answer is can accept the second, higher offer. An offer or counteroffer may be withdrawn (revoked) at any time before it has been accepted, even if the person making the offer or counteroffer agreed to keep the offer open for a set period. The property remains on the market during negotiations. If another buyer materializes with a better offer, the seller does not owe the first buyer any special courtesy. The seller may revoke the counteroffer and accept the new offer.

In their offer to purchase a home, the buyers stated, "If we cannot obtain a mortgage loan for 5.5 percent or less, we will not purchase the property and we expect that the earnest money will be refunded." This clause is an example of A) an addendum. B) an amendment. C) a reversionary right. D) a contingency.

The answer is contingency. A contingency creates an additional condition that must be satisfied before an agreement is fully enforceable; in other words, a contingency creates a voidable contract.

The sellers told the broker about the unstable foundation on the side of the basement. They agreed that they would disclose this fact if the buyers raised a question, but the buyer never did. The broker's silence is an example of A) fraud. B) puffing. C) misrepresentation. D) deception.

The answer is fraud. Fraud is the intentional misrepresentation of a material fact in such a way as to harm or take advantage of another person. This includes making false statements about a property and intentionally concealing or failing to disclose important facts. Misrepresentation is an unintentional misstatement or omission. In Pennsylvania, a licensee may not knowingly be a party to a material false or inaccurate representation.

A licensee tells a prospective buyer, "This property has the most beautiful river view." In fact, the view includes the river and the back of a shopping center. The licensee A) has committed fraud. B) is guilty of negligent misrepresentation. C) is merely puffing. D) is guilty of intentional misrepresentation.

The answer is is merely puffing. Puffing is the legal exaggeration of the benefits of a property. Licensees walk a fine line between opinion and fact.

A buyer offers in writing to purchase a house for $220,000, including its draperies, with the offer to expire on Saturday at noon. The sellers reply in writing on Thursday, accepting the $220,000 offer but excluding the draperies. On Friday, while the buyer considers this counteroffer, the sellers decide to accept the original offer, draperies included, and state that in writing. At this point, the buyer A) is not bound to buy. B) must buy the house but is not entitled to the draperies. C) must buy the house and have the right to insist on the draperies. D) must buy the house and can deduct the value of the draperies from the $220,000.

The answer is is not bound to buy. Any change a seller makes to the terms proposed by a buyer in an offer constitutes a rejection of the buyer's offer and the buyer has no obligation to purchase the property. Those changes, known as a counteroffer, now constitute a new offer being made by the seller to the buyer. The buyer can accept or reject that offer, or make another counteroffer.

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

The answer is keeps the offer open for a specified time. An option is a unilateral contract by which an optionor (generally an owner) gives an optionee (a prospective purchaser or lessee) the right to buy or lease the owner's property at a fixed price within a stated period of time.

Water leaks into the basement only in the spring when the snow melts; the basement is dry during the summer. This is an example of A) a problem that must be dealt with only if it surfaces while the property is on the market. B) a latent defect that does not need to be discussed with prospective buyers. C) an example of caveat emptor. D) a latent defect that must be disclosed to prospective buyers.

The answer is latent defect that must be disclosed to prospective buyers. A latent defect is one that cannot easily be discovered by an ordinary person and sometimes even by a home inspector. However, if it affects the structure and/or the health and safety of the occupants, sellers must disclose its existence.

Under a typical installment contract, the seller retains A) qualified title. B) legal title. C) executor title. D) equitable title.

The answer is legal title. Although the buyer acquires equitable title and obtains possession under the contract, the seller is not obligated to execute and deliver a deed until all the terms of the contract have been satisfied. The seller retains legal title.

Under Pennsylvania law, which of the following, if any, must be disclosed? A) None of these need to be disclosed. B) A registered sex offender lives nearby. C) Neighbors think the house is haunted. D) The former owner committed suicide in the home.

The answer is none of these need to be disclosed. Stigmatized properties are those that society has found undesirable because of events that occurred there or because a known sex offender lives in the area. Neither federal law nor state law mandate active notification.

Which of the following is an example of a material defect? A) The listing agent notes that the subject property is within three blocks of an elementary school. B) The house was built over a ditch filled with decaying timber. C) The listing agent declares that the floor plan is the best in the neighborhood. D) The seller instructs the listing agent not to disclose that her grandmother died in her sleep in the house.

The answer is the house was built over a ditch filled with decaying timber. Sellers must disclose a material defect, one that affects that structure and/or the health and safety of the occupants and that negatively would influence the buyers. A stigmatized property is one that is psychologically affected (someone died in the home), but this fact, while important to some, does not affect health and safety.

A real estate purchaser is said to have equitable title when A) the transaction is closed. B) a contract for deed is paid off. C) the sales contract is signed by both buyer and seller. D) escrow is opened.

The answer is the sales contract is signed by both buyer and seller. Full legal title to property passes to a buyer when the agreement of sale is executed at closing or settlement. However, the buyer obtains an interest in the property, known as equitable title, when both the buyer and the seller have signed the agreement of sale.

An option to purchase binds A) neither buyer nor seller. B) the seller only. C) the buyer only. D) both buyer and seller.

The answer is the seller only. An option is a unilateral contract in which the optionor agrees that the optionee (usually the buyer) has the right to purchase the property at an agreed-upon price within an agreed-upon period. While the optionee is not obligated to purchase the property, the optionor is obligated to sell if the optionee exercises this right.

At the time that the installment contract is signed, who has legal title to the property? A) Held jointly by the vendor and vendee B) The vendee/buyer C) The trustee because the title is in limbo until all payments are received D) The vendor/seller

The answer is the vendor/seller. The seller is not obligated to execute and deliver a deed until all the terms of the contract have been satisfied.