Contracts

A 19 year old inherits property from his great aunt. He wants to use the proceeds to pay off his debts, so immediately enters into contract to sell the home. Can he later refuse to sell the property? Select one: A. Yes, because contracts with minors are void B. Yes, because contracts with minors are voidable C. Yes, because the contract is unenforceable D. No, the contract is valid and binding on all parties

(general knowledge of contract law) A 19 year old is a legal adult with the capacity to contract. Therefore, based on the limited information provided in the question, the best answer is that the contract is valid and binding. The correct answer is: No, the contract is valid and binding on all parties

Bill the Buyer makes an offer to purchase and gives Broker Joan a $1,000 earnest money deposit. The next day, and before Joan has a chance to present the offer, Bill finds another property that he wishes to purchase instead. What should Bill do? Select one: A. Ask Joan to return his money B. Wait for acceptance, rejection, or a counteroffer because he is obligated by his offer C. Attempt to withdraw his offer D. Both A and C Feedback

(general knowledge of contract law) A buyer can withdraw his offer anytime before the offer is accepted. If Bill withdraws his offer before acceptance, he is entitled to have his earnest money deposit returned. Therefore, if Bill wishes to purchase another property, Bill should attempt to withdraw his offer and request his earnest money to be returned. The correct answer is: Both A and C

What is an invitation to enter into a contract? Select one: A. Acceptance B. Counteroffer C. Contract D. All of the above

(general knowledge of contract law) A counteroffer is an offer to enter into a contract that deviates from, and rejects, the original offer. The correct answer is: Counteroffer

A seller receives an offer from a buyer and responds with a counteroffer. Before the buyer responds to the seller's counteroffer, the seller receives a better offer from another prospective buyer. Under these circumstances, the seller: Select one: A. May withdraw the counteroffer B. Must advise the second offeror of the pending offer C. May accept the second offer without consequence D. Must wait for the first offeror's response Feedback

(general knowledge of contract law) A counteroffer, like any offer (except an offer in an option contract), may be withdrawn at any time prior to acceptance; there is no requirement to wait for the buyer's response. There is no requirement to advise the second offeror of the pending counteroffer, and there may be consequences to accepting the second offer without withdrawing the pending counteroffer (the seller could not perform for two buyers at once). The correct answer is: May withdraw the counteroffer

Which of the following statements, if proven false and made by a broker, is least likely to be puffing? Select one: A. "This is the most beautiful house in the world" B. "You can double your money on this property in less than 2 years" C. "This is the best deal we've had in years" D. "The property is close to everything" Feedback

(general knowledge of contract law) Any time that a broker suggests or guarantees the return on investment, he has crossed the line from puffing to misrepresentation (or possibly fraud). Puffing a harmless exaggeration that any reasonable person would see as an opinion, not a fact. The correct answer is: "You can double your money on this property in less than 2 years"

Which of the following real estate documents must be in writing? Select one: A. Option B. Real estate sales contract C. Lease for more than one year D. All of the above

(general knowledge of contract law) As required by the statute of frauds, all of these documents must be in writing in order to be enforced by a court of law. The correct answer is: All of the above

Clara offered $60,000 to Bernie for his home. Bernie scratched out $60,000, penciled in $62,000, initialed the change, and signed the offer. With respect to the offer, which of the following statements is true? Select one: A. Clara created a contract by accepting Bernie's offer B. Bernie rejected Clara's offer, so Clara must make another offer C. Bernie made a counteroffer D. Clara made a counteroffer Feedback

(general knowledge of contract law) Bernie rejected the original offer and made a counteroffer by changing the price. Clara now has the power to accept Bernie's counteroffer. The correct answer is: Bernie made a counteroffer

Joan and Bob negotiate for the sale of Joan's property. Joan lists her property for $150,000. Bob declares that he will pay $125,000. Under these circumstances, Bob has: Select one: A. Made a counteroffer B. Entered into a binding contract C. Invited Joan to enter into a contract D. Invited Joan to enter into an option contract Feedback

(general knowledge of contract law) Bob made an offer, also known as an invitation to enter into a contract. Bob did not make a counteroffer because this is the first offer on the table--the listing price is not an offer. Bob's offer did not give rise to a contract because it was not (yet) accepted by Joan. Finally, there are insufficient facts to indicate whether Bob proposed an option contract in his offer. The correct answer is: Invited Joan to enter into a contract

A person has the capacity to contract if he: Select one: A. Is mentally competent B. Has given consent C. Has agreed to the terms of the contract D. Is not subject to coercion

(general knowledge of contract law) Consent, agreement, and coercion do not establish whether one has the legal capacity (ability) to contract with another person. Mental competence, on the other hand, is relevant to whether one has the capacity to contract. That is, assuming no other problems, a person who is mentally competent has the capacity to contract. Compare this to minors who have a limited capacity to contract, and to the legally insane who do not have the capacity to contract. The correct answer is: Is mentally competent

Which of the following is most likely to render a contract void? Select one: A. Fraud in the inducement B. Mutual mistake C. Illegal purpose D. All of the above

(general knowledge of contract law) Contracts for an illegal purpose are always void (because courts won't enforce an agreement to break the law). If parties enter into a contract and there was fraud in the inducement or a mutual mistake, the contract would be VOIDABLE, not VOID. Fraud in the inducement exists where a party is induced to sign the contract because of fraudulent statements or facts from the other party. The correct answer is: Illegal purpose

A listing broker receives an offer, which he presents to his client/seller. The two are elated when they read that the seller has a full 6 days to accept! However, despite this provision, the buyer withdraws her offer at the end of the 3rd day. The buyer is: Select one: A. Within her rights to withdraw the offer B. Liable for beaching the option C. Liable to the broker for a commission D. Liable at the discretion of the seller

(general knowledge of contract law) In general, one may withdraw an offer at ANY time before it is accepted. Note that a valid option contract is an exception to this general rule, but that requires consideration and mutual agreement to be enforceable. In this case, there is no mention of consideration or any prior agreement between the buyer and seller (the facts imply the seller was surprised by the 6 day provision). Therefore, the (potential) option is not enforceable, the seller has no remedy, and the buyer is not liable. The correct answer is: Within her rights to withdraw the offer

If the seller makes a counteroffer, when can that counteroffer be withdrawn? Select one: A. At any time before settlement B. At any time prior to acceptance C. Within 72 hours D. Within 24 hours

(general knowledge of contract law) Like any offer, a counteroffer may be withdrawn at any time before acceptance by the offeree. The correct answer is: At any time prior to acceptance

When may a counteroffer be withdrawn? Select one: A. Within 24 hours after acceptance B. Within 36 hours after acceptance C. At any time before acceptance D. At any time before closing Feedback

(general knowledge of contract law) Like any offer, counteroffers may be withdrawn any time before acceptance. The correct answer is: At any time before acceptance

Liquidated damages from breach of a sales contract are usually available to the: Select one: A. Buyer, in the event of the seller's default B. Seller, in the event of the buyer's default C. Broker, in the event of the buyer's default D. Either the buyer or seller where the other defaults

(general knowledge of contract law) Liquidated damages are pre-negotiated damages that are due if a party breaches a contract. In real estate sales contracts, it is common for the buyer to offer an earnest money deposit along with his offer on the property. If accepted, the buyer's earnest money is deposited into an escrow account to serve as either liquidated damages if the buyer defaults, or as a down payment on the property if the sale closes. Generally, if the seller defaults and the buyer choses to rescind the contract, the buyer is entitled to have his earnest money returned (not as liquidated damages). The correct answer is: Seller, in the event of the buyer's default

A broker lists a property. A buyer makes an offer for less than the listed price. The seller makes a counteroffer, which the buyer rejects. Later, the seller informs the buyer that he will accept the buyer's original offer. Which of the following statements is CORRECT? Select one: A. The seller's proposal to accept the buyer's original offer is an new offer B. The buyer is obligated to perform C. The seller is obligated to perform D. The seller must pay a commission to the broker Feedback

(general knowledge of contract law) Once rejected, an offer (or counteroffer) dies and can no longer be accepted. Therefore, the seller's proposal to accept the buyer's original offer is itself a new offer that the buyer has the power to accept or reject. The seller is not obligated to perform or pay a commission because the buyer (even if ready, willing, and able) did not make an offer meeting the seller's terms. The correct answer is: The seller's proposal to accept the buyer's original offer is an new offer

What would NOT be legally sufficient for use as consideration in a sales contract? Select one: A. Money B. Property C. Service D. Love and affection

(general knowledge of contract law) One-sided promises, like love and affection, are insufficient to constitute consideration--there must be an exchange of promises (as illustrated by the other answer choices). The correct answer is: Love and affection

Fred sold his home, but will be out of town on the day of closing. He gives his friend Paul a limited power of attorney. The limited power of attorney authorizes Paul to consummate the sale on Fred's behalf. Paul is best described as: Select one: A. A friend, helping a friend B. A listing broker C. An attorney-at-law D. An attorney-in-fact

(general knowledge of contract law) Paul COULD be any of the persons described. However, Paul is functioning as an attorney-in-fact in the outlined situation. Therefore, the best answer accurately describes what Paul is confirmed as rather than who Paul might be. The correct answer is: An attorney-in-fact

A court order requiring parties to perform as agreed is known as a suit for: Select one: A. Specific performance B. Quiet title C. Quiet enjoyment D. Punitive damages

(general knowledge of contract law) Specific performance is a court order directing a party to perform as he agreed in a valid and enforceable contract. Specific performance is a potential remedy in disputes over real estate sales contracts because all real estate is unique, and other damages may not sufficiently remedy a party's breach. The correct answer is: Specific performance

Barry makes a $150,000 offer on Pam's home, subject to financing at 4%. Pam accepts Barry's offer, but only agrees to 6% financing. Which of the following statements is INCORRECT concerning Pam's acceptance? Select one: A. It is a partial acceptance of the original offer B. Barry is now the offeree C. Pam rejected Barry's offer D. Pam may withdraw her offer at any time, prior to acceptance by Barry Feedback

(general knowledge of contract law) The choice that is NOT true is the best answer for this question. An offer is either accepted or rejected; there is no such thing as partial acceptance. Therefore, partial acceptance is the BEST answer because it is incorrect. Counteroffers are NEW offers which reject (kill) the preceding offer. As such, it is true that Barry is now the offeree to Pam's counteroffer. Like any offer, a counteroffer may be withdrawn at any time prior to acceptance. The correct answer is: It is a partial acceptance of the original offer

Which of the following is required for a contract to be valid? Select one: A. Must be written B. Property description C. Consideration D. All of the above

(general knowledge of contract law) The essential elements of a contract are: offer/acceptance, consideration, and a lack of defenses. The question does not specify a REAL ESTATE contract, which would require (in addition to the other essentials) that it be in writing and include a property description. The correct answer is: Consideration

Baker gives power of attorney to a real estate licensee. The licensee would be best described as a(n): Select one: A. Agent B. Broker C. Principal D. Attorney-in-fact

(general knowledge of contract law) The person who grants a power of attorney is the principal. Meanwhile, the person who receives power of attorney is called the attorney-in-fact. Although he/she could be Baker's agent, the question does not specify (requires an agency agreement). The question also doesn't specify whether the licensee is a broker or salesperson. Therefore, these are not the best answers. The correct answer is: Attorney-in-fact

A buyer and a seller enter into a valid sales contract. For personal reasons, the buyer asks to be released by the seller. The buyer also locates another person to buy the property. The seller then enters into a sales contract with the new buyer and releases the first buyer. This is most likely an example of: Select one: A. Assignment B. Novation C. Implied consent agreement D. Redemption Feedback

(general knowledge of contract law) The primary difference between assignment and novation is whether the original party remains liable to perform under the original contract. With novation, a new person agrees to substitute the original party and to relieve the original party of liability. Through novation, a new contract arises that replaces the old contract. With assignment, a new party agrees to receive the rights and responsibilities that the original party possessed, without relieving the original party of liability. Through assignment, the old contract remains intact and a new party is added. The correct answer is: Novation

A salesperson comments to a prospective buyer: "In my opinion, this is the greatest house in town." This statement most likely amounts to: Select one: A. Puffing B. Misrepresentation C. Fraud D. Good salesmanship

(general knowledge of contract law) The salesperson's statement is most likely to be puffery because the agent said "in my opinion." There was no apparent attempt to mislead or cheat the buyer, which would make the statement fraudulent or an instance of misrepresentation. The correct answer is: Puffing

Under the Statute of Frauds, a verbal contract for the sale of real property is: Select one: A. Void B. Voidable C. Unenforceable D. Both A and C

(general knowledge of contract law) The statute of frauds does not determine whether verbal contracts are illegal, void, or voidable. However, it does require that contracts for real property be in writing to be ENFORCEABLE. The correct answer is: Unenforceable

When there is a meeting of the minds, what has been accomplished? Select one: A. Offer and acceptance B. All contract elements C. Settlement D. Acknowledgement and delivery Feedback

(general knowledge of contract law) The term "meeting of the minds" means that there has been an offer and acceptance of the terms and conditions in the contract. The other choices express things that follow offer and acceptance. The correct answer is: Offer and acceptance

Helen listed her property for $145,000. Jim made an offer to purchase for $135,000. Helen made a counteroffer for $140,000. Which of the following statements is correct? Select one: A. Helen's counteroffer is a partial acceptance of Jim's original offer B. Jim is the offeree in his original offer C. Helen is the offeree in her original offer D. In the original offer, Helen is the offeree Feedback

(general knowledge of contract law) There is no such thing as a partial acceptance--an offer is either accepted, rejected, or it expires. Helen's listing is NOT an offer; it is only an invitation to others to make offers (with some indication of what Helen wants). Therefore, the original offer was made by Jim (offeror) and the only true statement is that Helen is the offeree in the original offer. The correct answer is: In the original offer, Helen is the offeree

When a seller makes a counteroffer, which of the following statements is INCORRECT? Select one: A. It is a partial acceptance of the original offer B. The original offeror becomes the offeree in the counteroffer C. It is a rejection of an earlier offer D. It may be withdrawn at any time prior to acceptance

(general knowledge of contract law) There is no such thing as a partial acceptance--either the offer is accepted, rejected, or a new offer is made through a counteroffer. The correct answer is: It is a partial acceptance of the original offer

When a seller makes a counteroffer, which of the following statements is NOT true? Select one: A. It is a partial acceptance of the original offer B. The seller has obligated herself C. The original offeror (buyer) becomes the offeree D. It is a rejection of an earlier offer

(general knowledge of contract law) There is no such thing as a partial acceptance--you either accept the offer or make a counteroffer. The seller has, in fact, obligated herself by making a counteroffer, although she is free to withdraw prior to acceptance. This is why offers must not be taken lightly! The correct answer is: It is a partial acceptance of the original offer

If a seller were to accept a buyer's offer by mail, a contract arises when: Select one: A. The buyer receives the acceptance B. The buyer's agent receives the acceptance C. The seller mails the acceptance D. The seller calls the buyer's agent after mailing to provide a verbal acceptance

(general knowledge of contract law) Unless otherwise specified by its terms, an offer may be accepted by any reasonable manner. For example, this includes mailing the acceptance to the offeror. When acceptance is properly made by mail, the law states that the acceptance becomes effective when it is deposited into a mailbox. Other forms of acceptance do not become binding until they are actually received. Note that the same is NOT true when withdrawing an offer. The withdrawal of an offer is effective when it is received by the other party, NOT upon mailing. The correct answer is: The seller mails the acceptance

All of the following facts could render a contract voidable, EXCEPT: Select one: A. One party was legally insane at the time of signing B. The contract was for an illegal purpose C. One party was intoxicated at the time of signing D. Both A and B Feedback

(general knowledge of contract law) You must select the choice(s) that are not true (answers that would NOT render a contract voidable). If a party was intoxicated and didn't understand his actions, the contract could be voided if he acts promptly (resulting contract is voidable, not void). If a party was legally insane or the contract was for an illegal purpose, the contract would be void, not voidable. Therefore, an illegal purpose and legal insanity are the best choices because they do not render a contract voidable. The correct answer is: Both A and B

A lease is a(n): Select one: A. Tenement B. Assignment C. Contract D. Mortgage

(leases as contracts) A lease is a type of contract between a lessor (landlord) and a lessee (tenant), giving the lessee possession and use of a property for a period of time in exchange for a stipulated amount of money to be paid as rent. The correct answer is: Contract

When property is sold with an existing lease: Select one: A. The lease interests are transferred B. The original lessor retains liability C. The lessee must renegotiate possession D. The assignee would pay the rent to the assignor

(leases as contracts) Because the lease is personal property belonging to the lessee, the lease remains valid and the lessee may remain in possession. However, the lessor's interests transfer. The correct answer is: The lease interests are transferred

A lease entitles a tenant to all of the following except: Select one: A. Exclusive use B. Ownership C. Possession D. Both A and B Feedback

(leases as contracts) The only listed item that a tenant is NOT entitled to is ownership. Ownership is held by the landlord. The correct answer is: Ownership

A landlord is obligated to provide all of the following EXCEPT: Select one: A. Quiet enjoyment B. Safe and habitable premises C. Use as the tenant and landlord negotiate D. Possession by the tenant Feedback

(leases as contracts) The tenant may not use the property for an illegal purpose, even if the landlord and tenant so negotiate (the contract would be void). The tenant is obligated to exercise reasonable care for the property and may not use the property for an illegal purpose. The correct answer is: Use as the tenant and landlord negotiate

A person buys the right to purchase land up until a stated date, at a specified price. Which of the following items would be used to create such an arrangement? Select one: A. An option agreement B. A deed C. An offer to purchase agreement D. A contract for deed

(offers/purchase agreements) A option agreement provides the right to buy land at a stated price for a specified period of time. The correct answer is: An option agreement

What does a person have if contracted for the opportunity to purchase property at a specified price and within a specified time? Select one: A. A right of first refusal B. An option C. A sales contract D. Both A and B

(offers/purchase agreements) A person who contracts for the opportunity to buy property within a specific period of time has an option contract. A right of first refusal is a contractual agreement for the right to purchase, but only after the owner offers the property for sale or entertains an offer from a third party. The correct answer is: An option

Which of the following items is NOT essential to a valid sales contract? Select one: A. Competent parties B. Termination date C. Consideration D. All of the above are essential

(offers/purchase agreements) A termination date is NOT essential, but could be included in a sales contract. The correct answer is: Termination date

An option on real property is: Select one: A. Consideration B. A contract C. A license D. Both A and B Feedback

(offers/purchase agreements) A valid option is an enforceable contract whereby the optionor (seller) gives the optionee (buyer) the right to buy the property for a specified price at any time until some specific date in the future. Like any contract, an option requires consideration to be enforceable, but the option itself is NOT sufficient consideration--the optionee must exchange something for the option (like money). The correct answer is: A contract

The vendee is: Select one: A. The one who buys or offers to buy B. The one who sells or offers to sell C. The one who lends or offers to lend money D. The one who borrows or offers to borrow money Feedback

(offers/purchase agreements) A vendee is one who buys or offers to buy real estate (buyer). The vendor is one who sells or offers to sell real estate (seller). The correct answer is: The one who buys or offers to buy

What is most likely to be true if an optionee does NOT exercise his option during the option period? Select one: A. The optionor must return the optionee's consideration B. The optionor has a reasonable chance to win specific performance C. The optionor may keep the optionee's consideration as liquidated damages D. The optionor may keep the optionee's consideration

(offers/purchase agreements) An option contract is like any other contract--it requires offer/acceptance, consideration, and a lack of any defenses. The purpose of valid consideration is to support the option contract, not to provide liquidated damages. Failing to exercise the option is not alone a breach of an option contract. The optionee is paying the optionor for right to exercise the option, whether he choses to do so or not. Therefore, the best answer is that the consideration need not be returned. The correct answer is: The optionor may keep the optionee's consideration

Which of the following statements is true about options? Select one: A. The optionor can void the option if another offer is submitted B. The optionee can allow the option to expire C. The optionee can extend the option period automatically D. Options only involve raw land Feedback

(offers/purchase agreements) An option is the right to purchase a property within a specified time period on specified terms. An optionee may allow the option to expire, without further liability, by not exercising the option. The correct answer is: The optionee can allow the option to expire

Charlie has an option to buy Jim's property, which expires on July 15th. Charlie does NOT exercise his option. After July 15th, if Jim wants to extinguish his duty to perform under the option, he: Select one: A. Must obtain a formal release from Charlie B. Does not have to do anything C. Must file a quitclaim deed in the public record D. Must record a release un the public record

(offers/purchase agreements) Because the option was never exercised within the specified timeframe, Jim has no further contractual obligation to Charlie. Therefore, Jim does not need to take any action once the option expires. The correct answer is: Does not have to do anything

A contract in which an owner gives a prospective purchaser the right to buy a property at a fixed price and within a stated period of time is called a(n): Select one: A. preference B. estoppel C. exclusive D. option

(offers/purchase agreements) By definition, an option is the right to buy a property at a fixed price within a stated period of time. The prospective purchaser is the optionee and the owner is the optionor. Note that like any contract, an option must be supported by consideration. The correct answer is: option

A property is listed at $185,000. Four offers are presented. Which offer BEST describes an offer made by a ready, willing, and able buyer? Select one: A. An all cash offer of $175,00 B. A full price offer from a financially qualified buyer, subject only to financing at current market rates C. A full price offer, contingent upon the buyer (offeror) first selling his current residence D. Both B and C Feedback

(offers/purchase agreements) By definition, ready, willing, and able must be on the TERMS OF THE SELLER. The other choices do NOT meet the terms of the seller. Therefore, the best choice is "a full price offer, from a financially qualified buyer, subject only to financing at current market rates." The correct answer is: A full price offer from a financially qualified buyer, subject only to financing at current market rates

A purchaser receives equitable title to real estate: Select one: A. By closing on the property B. By signing a valid sales contract on the property C. By accepting the deed to the property D. By receiving an estoppel certificate from the seller Feedback

(offers/purchase agreements) Equitable title is conveyed to the buyer when the seller signs the offer to purchase, thereby creating a sales contract. After closing and accepting the deed, the buyer receives legal title. The correct answer is: By signing a valid sales contract on the property

Vernon presents an offer to a seller, with the provision that it must be accepted within 72 hours. Under which of the following circumstances would the offer terminate?

(offers/purchase agreements) If Vernon dies before the seller accepts the offer, the offer terminates. Re-submitting an offer with a different settlement date and proposing to wait a week before acceptance are both counteroffers. Counteroffers are new offers that terminate the original offer. The correct answer is: Any of the above would terminate the offer

Jon obtains option contract for Joan's house. On the last day of the option period, Jon finds another house and declines to exercise his right. Jon then requests that Joan return his previous payment. Must Joan comply? Select one: A. Yes, because Jon failed to exercise his right B. No, unless Jon and Joan agreed in the option contract C. Yes, because Joan would otherwise be unjustly enriched D. No, unless the contract is otherwise invalid Feedback

(offers/purchase agreements) If the contract is valid, Joan cannot return Jon's consideration. Consideration is a necessary element of contract formation. Without consideration, there is no contract and no option, even if Joan and Jon agreed differently in the contract. The correct answer is: No, unless the contract is otherwise invalid

After closing, a couple moves into their newly purchased home. They notice that the living and dining room draperies have been removed, despite being specifically included in the ratified sales contract. What can the buyer do? Select one: A. Nothing, if the cost to sue would be more than the cost of the drapes B. Sue the seller for specific performance C. File a mechanic's lien against the seller D. Either A or B Feedback

(offers/purchase agreements) If the parties agreed that the draperies would transfer with the property, then the seller's removal of the draperies is a breach of the sales contract. The buyer COULD sue for specific performance or do nothing. A mechanic's lien does not apply to this situation. The correct answer is: Either A or B

In order to be legally binding on all parties, a contract for sale of real estate MUST include: Select one: A. The signature of the spouse, if the seller is married B. An earnest money deposit C. A method to calculate the licensee's commission D. Legally competent parties

(offers/purchase agreements) Of the listed choices, only competent parties are required for a binding sales contract. Attorneys usually require the spouse's signature if the seller is married, but it is not a necessary element. Neither is an earnest money deposit required, although it is frequently included as a condition. The correct answer is: Legally competent parties

Which of the following circumstances would NOT terminate an offer to sell real property? Select one: A. Lapse of reasonable time B. Rejection of the offer by the offeree C. Death of the salesperson D. Revocation of the offer Feedback

(offers/purchase agreements) Sales contracts are between the buyer and seller--the salesperson is not a party. Therefore, the salesperson's death has no affect on an offer or the validity of a sales contract. The correct answer is: Death of the salesperson

To be legally binding, a real estate sales contract MUST contain a: Select one: A. List of personal property B. Commission to be paid to the broker C. Property Description D. All of the above

(offers/purchase agreements) Sales contracts must include a description of the property to be sold. The property address is sufficient for the sales contract, while deeds and titles require a legal description. Commission is agreed upon in the listing agreement, not the sales contract. Personal property may or may not transfer with the real property. Therefore, the best answer is property description. The correct answer is: Property Description

If a buyer defaults on a valid sales contract, which performance remedy is available to the seller? Select one: A. Specific performance B. Monetary damages C. Liquidated damages D. Both A and B

(offers/purchase agreements) Specific performance, monetary damages, and liquidated damages are all potential remedies for breach of a sales contract. However, the question asks you to identify "performance" remedies. Specific performance is the only performance-related remedy identified. Specific performance requires the breaching party to perform as agreed. The correct answer is: Specific performance

Which of the following could have no legal effect on a valid contract to purchase? Select one: A. Interest rates substantially increase B. The salesperson dies C. The property is condemned D. The lending institution forecloses on the existing mortgage Feedback

(offers/purchase agreements) The fact that the salesperson dies has no effect on the contract because the contract is between the buyer and the seller. A substantial increase in interest rates could affect the contract if the contract contains a loan contingency, as many sales contracts do. If the property is condemned or the lending institution forecloses, the seller no longer has anything to sell. The correct answer is: The salesperson dies

Which of the following contracts will provide instruction for the distribution and proration of escrow and impound funds? Select one: A. The deed B. The mortgage C. The sales contract D. The listing Feedback

(offers/purchase agreements) The settlement agent will examine various documents to ascertain how to distribute funds. Of the choices, the sales contract will come closest to containing all pertinent information about disbursements. The correct answer is: The sales contract

Under a contract of sale, the seller is most likely to be the: Select one: A. Offeror B. Vendor C. Grantee D. Vendee Feedback

(offers/purchase agreements) The vendee is known as the buyer and the vendor is known as the seller. The correct answer is: Vendor

A buyer and a seller entered into a valid sales contract. Which of the following circumstances is least likely to jeopardize the sale? Select one: A. Interest rates increase substantially after contract ratification B. The seller dies prior to closing C. The state condemns the property for environmental reasons D. The lender holding the current mortgage forecloses Feedback

(offers/purchase agreements) Understand that you must identify the event that is LEAST likely to jeopardize the sale. The death of a party has no effect on a valid sales contract--the estate of the deceased party is obligated to carry out performance on behalf of the deceased party. Therefore, the death of the seller is least likely to jeopardize the sale. The other choices are more likely to jeopardize the sale. For example: a substantial rise in interest rates could disqualify the buyer and/or violate a condition of the buyer's offer; condemnation of the property would invalidate the contract (defense of impossibility); and if foreclosure is completed and the property is sold, the sale would become impossible. The correct answer is: The seller dies prior to closing

When the seller and purchaser sign a sales contract, the purchaser receives: Select one: A. Equitable title B. Possession C. Fee simple estate D. Formidable Interest

(offers/purchase agreements) When the parties sign the contract, the purchaser receives equitable title. The purchaser receives possession and a fee simple interest at closing. The correct answer is: Equitable title

Under which type of contract would the seller withhold legal title to property until the terms of the contract have been fulfilled? Select one: A. Contract for sale B. Option C. Installment sales contract D. Any of the above

(offers/purchase agreements) With a contract for sale, the seller holds title until closing when the seller presents the money in exchange for legal title. With an option, the seller holds title until the option is exercised. With an Installment contract, the seller holds title until the buyer pays the agreed upon purchase price in full. The correct answer is: Any of the above

Broker Fowler located a property for Buyer Cook. Cook paid Seller Allegro a $1,000 fee for a 30-day option. Which of the following statements is true? Select one: A. Fowler earned his commission when the option was signed B. Part of Fowler's commission will come from $1,000 C. Local custom will determine the commission D. Fowler will not get a commission unless Cook exercises the option

(offers/purchase agreements; commission and fees) Fowler does not get a commission unless, or until, Cook exercises the option. An option is a contract which allows the optionee (Cook) to purchase the property from the optionor (Allegro) within the specified time (30 days). The correct answer is: Fowler will not get a commission unless Cook exercises the option

Sarah wants to purchase Rico's home and assume his mortgage. Rico's mortgage contract allows for an assumption. However, Rico does not want to be liable. In this situation, the parties should sign a(n): Select one: A. Assignment B. Novation C. Sublease D. Cancellation Feedback

(performance obligations) Novation occurs when contracting parties agree to substitute one agreement in part or in full for another agreement. Through novation, the old agreement terminates and is replaced by the new agreement; therefore, all of the obligations and benefits of a contract are transferred to a third party. Under assignment, a contract still exists between the original parties (Rico and his lender) and the original buyer remains liable if the new party (Sarah) fails to perform. The correct answer is: Novation

When a contract is breached, the injured party may: Select one: A. Not sue for monetary damages B. Not sue for specific damages C. Rescind the contract bilaterally D. Rescind the contract unilaterally Feedback

(rescission and cancellation agreements/other contract terminations) A breach justifies rescission by the non-defaulting party. However, parties must be careful to ensure that there actually is a breach, or the rescission will be itself a breach. The correct answer is: Rescind the contract unilaterally

Betty and Billy had a contract for sale, but it discharged. Which of the following statements must be true about Betty and Billy's conduct? Select one: A. Both Betty and Billy fully performed B. Either Betty or Billy is in breach C. Both parties may seek damages D. Both B and C

(rescission and cancellation agreements/other contract terminations) A contract is only "discharged" after both parties fully perform. Therefore, neither party could be in breach or entitled to seek damages. The correct answer is: Both Betty and Billy fully performed

Which of the following items would cancel a contract without breaching it? Select one: A. Option clause B. Right of first refusal C. Subordination clause D. Rescission agreement Feedback

(rescission and cancellation agreements/other contract terminations) A rescission or cancellation agreement is an agreed upon remedy in a contract that allows the parties to terminate under specified conditions. The correct answer is: Rescission agreement

Which item returns the parties to their original positions? Select one: A. Novation B. Subordination C. Recission D. Discharge Feedback

(rescission and cancellation agreements/other contract terminations) A rescission or cancellation agreement is an agreed upon remedy in a contract which allows parties to terminate under specified conditions. Rescission allows the parties to return to their original positions from before the contract. The correct answer is: Recission

Which of the following is true of a contract under novation? Select one: A. A new contract replaces the old one B. The old contract is void C. A new party is assigned the rights and obligations of an old party D. Both A and B Feedback

(rescission and cancellation agreements/other contract terminations) Answer A is the basic definition of novation. The old contract is not void, but is extinguished (ceases to be). The correct answer is: A new contract replaces the old one

Under which of the following conditions would a buyer most likely sue for specific performance? Select one: A. If the seller did not inform the buyer that the purchased property is a serviant estate B. If the seller defaulted on the sales contract before closing C. If the broker lied about the location of the schools D. If the salesperson misquoted the size of the lot Feedback

(rescission and cancellation agreements/other contract terminations) Even if the size of the lot, location of the schools, or the fact that the property is a servient estate are real issues for the buyer, he would not sue to have the contract carried out (to have the sale to go through). However, if the seller tries to back out of the contract, then the buyer would probably sue for specific performance. The correct answer is: If the seller defaulted on the sales contract before closing

If there is a breach to a valid real estate sales contract, what remedy is available to the non-breaching party? Select one: A. Rescission B. Specific performance and monetary damages C. Punitive damages D. Both A and B

(rescission and cancellation agreements/other contract terminations) If a party is in material breach of a sales contract, rescission is a remedy available to the non-breaching party. Other remedies available to the non-breaching party include specific performance OR monetary damages, but not both. Punitive damages are not available for breach of contract. The correct answer is: Rescission

One's rights in a mortgage or lease may be transferred to another through a(n): Select one: A. Novation B. Assignment C. Deed of Trust D. Both B and C

(rescission and cancellation agreements/other contract terminations) The TRANSFER of a contractual obligation or right from one person to another is an assignment. The substitution of one party for another is a novation. Unlike an assignment, novation results in a new contract with a different party and the same terms. A deed of trust is a real estate financing agreement, wherein a neutral third person (trustee) holds title until the loan is paid in full. While a deed of trust does involve a transfer of title rights after the loan is paid in full, the question was limited to a mortgage or a lease. Therefore, assignment is the best answer. The correct answer is: Assignment

All of the following statements about the impossibility defense must be true, EXCEPT: Select one: A. At least one party is excused from performance B. At least one party cannot legally perform as agreed C. The contract could be rescinded, pursuant to a rescission agreement D. Neither party is liable for damages Feedback

(rescission and cancellation agreements/other contract terminations) The only statement that could be false is that the contract may be rescinded pursuant to a rescission agreement. Rescission agreements permit the parties to agree to various scenarios that justify rescinding the contract. Impossibility may or may not be an agreed upon ground for rescission. Therefore, it doesn't HAVE to be true, and this is the best answer of the choices presented. The correct answer is: The contract could be rescinded, pursuant to a rescission agreement

What is a legal action available to either the buyer or seller to enforce the terms of a sales contract? Select one: A. Pur autre vie B. A suit for specific performance C. A suit for quiet title D. All of the above Feedback

(rescission and cancellation agreements/other contract terminations) The question asks about enforcing the terms of the contract. Specific performance is remedy for breach of contract, which seeks performance as promised. The correct answer is: A suit for specific performance

A failure to perform without any recognized excuse is: Select one: A. Rescission B. Cancellation C. Breach D. Illegal Feedback

(rescission and cancellation agreements/other contract terminations) The question states the textbook definition of a breach. The correct answer is: Breach

The best example of rescission is: Select one: A. A mutual agreement of a landlord and a tenant to cancel a lease B. An option which is not exercised by the optionee C. A seller making a counteroffer to a buyer's offer D. A buyer accepting a counteroffer made by a seller

(rescission and cancellation) When a landlord and a tenant agree to cancel a lease contract (as with any other contract), the lease contract ceases to exist and the relationship of the parties returns to position they were in before signing the lease contract. The failure to exercise an option results in the discharge of the option contract (full performance; not a rescission). A counteroffer is a rejection of the original offer, not a contract rescission. Finally, accepting an offer results in a contract (assuming all elements), not a rescission. The correct answer is: A mutual agreement of a landlord and a tenant to cancel a lease

When should a buyer and seller receive copies of a contract? Select one: A. Immediately upon signing B. Immediately upon contract ratification C. Within five days of signing D. Three days prior to the scheduled closing date

It is not a contract until it is ratified (signed by both parties). Upon such ratification, both parties must receive copies of the contract agreement. The correct answer is: Immediately upon contract ratification

If a tenant and a landlord enter into a 3-month lease that expires at the end of the year, which of the following is correct? Select one: A. The lease may be oral B. The tenant must give 30 days notice before terminating the lease C. The landlord must give 30 days notice before terminating the lease D. The lease will extend for another term if the parties fail to provide proper notice

The correct answer is: The lease may be oral

An option holder is obligated to do which of the following actions? Select one: A. Withdraw the option prior to acceptance B. Convey further assurance to the optionor C. Exercise the option contract within a set period to time D. Nothing

offers/purchase agreements) The option holder (person with the right to exercise the option) is not obligated to do anything--he has the option to buy, but not the obligation to buy. It is true that the option is only available for the stated period of time, but the option holder doesn't have to exercise the option at all. Further, the option holder doesn't have to provide any further assurances or withdraw the option (the option automarically expires after the specified time). The correct answer is: Nothing

A purchaser submits an offer to a seller, with the condition that the property be financed by a conventional loan at no more than 1% interest. If the seller agrees, but such financing cannot be obtained, which of the following is true? Select one: A. The purchaser loses his deposit, but is relieved of further liability B. The seller is obligated to return the deposit plus interest C. The seller is obligated to return the buyer's deposit D. The purchaser loses his deposit and the seller is entitled to specific performance Feedback

(general knowledge of contract law) A financing contingency is a condition in a sales contract which establishes that a buyer is not obligated to perform (buy the property) unless he can secure financing on the specified terms. Such conditions are valid so long as the parties agree upon the terms. Earnest money deposits are either applied to the sales price at closing, handed over to the seller as liquidated damages if the buyer breaches the sales contract, or returned to the buyer if the property fails to close without the buyer's fault. In this case, there is no breach by the buyer because the contingency was not satisfied. Therefore, the best answer is that the seller must return the buyer's earnest money deposit. There is no duty to pay interest on the deposit. The correct answer is: The seller is obligated to return the buyer's deposit

Which of the following is the BEST example of a unilateral contract? Select one: A. Lease B. Option C. Real estate contract for sale D. Listing agreement Feedback

(general knowledge of contract law) A listing agreement could be either unilateral or bilateral. However, the best example shown here is the option. The seller is obligated to keep the offer open, but the buyer is not required to exercise the option. The correct answer is: Option

Under the statute of frauds, an oral listing is: Select one: A. Void B. Voidable C. Unenforceable D. Valid

(general knowledge of contract law) A listing is an agency agreement for a broker to perform services (sell a house). A listing is not a contract for the sale of land or transferring an interest in land (a lease). Therefore, a listing need not be written under the statute of frauds. Note that some states may require listings to be written under state license laws (applicable only to the State Portion of the exam). However, the question addresses the statute of frauds, not state license laws. The correct answer is: Valid

Which of the following facts could cause an otherwise valid contract to be void and invalid? Select one: A. Misrepresentation by one of the parties B. Intoxication C. Mutual, unintentional, and material mistake in fact D. All of the above

(general knowledge of contract law) A party's misrepresentation could cause an otherwise valid contract to be void and invalid (unenforceable), depending on the nature and circumstances of the misrepresentation. Intoxication and mutual, unintentional, and material mistakes of fact cannot render a contract void, but could render a contract voidable. The correct answer is: Misrepresentation by one of the parties

Which of the following items could be valid consideration for a contract? Select one: A. A mortgage note with interest B. A promise to install a cabinet C. A cash payment D. Any of the above

(general knowledge of contract law) A promise to perform is consideration. Consideration does NOT have to be money, but can be anything of value. A mortgage note is a promise to perform. The correct answer is: Any of the above

A unilateral contract arises: Select one: A. When the offeror signs the contract B. Upon completion of the requested act C. When the offeree signs the contract D. After a reasonable period of time Feedback

(general knowledge of contract law) A unilateral contract is a promise by one party only. For example, a broker promises a prize to any salesperson who can obtain a certain number of listings in the month. The broker is only obligated to fulfill his promise if and when a salesperson acquires that number of listings. Therefore, the contract arises upon completion of the requested act. The correct answer is: Upon completion of the requested act

Which of the following is NOT required for a valid real estate sales contract? Select one: A. Performance B. Offer and acceptance C. Consideration D. Must be in writing

(general knowledge of contract law) A valid contract requires: an offer/acceptance, consideration, and a lack of any defenses (including the statute of frauds). A contract is valid, binding, and enforceable, regardless of whether the parties perform. The correct answer is: Performance

A buyer enters into a sales contract with a seller. Which of the following facts could make the sales contract voidable? A. The buyer provides no earnest money deposit B. The seller, being illiterate, signed the agreement with an "X" C. The seller was under the influence of alcohol when the contract was signed D. The seller dies after executing the contract, but before closing Feedback

(general knowledge of contract law) A voidable contract is one that appears valid, but could be declared as void under certain circumstances. An intoxicated person might have been incompetent at the time of signing. If true, he could declare the contract void or elect to let the contract stand. However, note that the seller's intoxication must be to a degree that he did not understand the nature and consequences of executing the contract. The correct answer is: The seller was under the influence of alcohol when the contract was signed

Which of the following contracts would be invalid if it did NOT contain a description of the property? Select one: A. A listing agreement B. A contract for the sale of real property C. A real estate option agreement D. All of the above

(general knowledge of contract law) All of the listed contracts, which involve the sale of land, must include a description of the property. The correct answer is: All of the above

A buyer makes an offer to purchase property. The seller changes the date of occupancy by one day, then signs the contract. If the purchaser does not agree with this change, which of the following statements is true? Select one: A. The buyer has only 72 hours to accept this type of change B. The purchaser has no further liability C. The seller and purchaser could both sue for specific performance D. The seller may keep the deposit as liquidated damages Feedback

(general knowledge of contract law) Any change to an offer (regardless of how minor) is a counteroffer, which must be accepted by the other party. In this case, the buyer has no obligation to the seller unless he accepts the the seller's counteroffer. The correct answer is: The purchaser has no further liability