Unit 9 - Basic Contract Law & Unit 10 Pretest - Sales Contracts and Practices
Contract for deed
A Contract for Deed is a tool that can allow buyers who either don't qualify for traditional lending options or who want a faster financing option to purchase property. ... The seller retains legal title to the property until the balance is paid; the buyer gets legal title to the property once the final payment is made.
Which of the following would be used if the buyer and the seller wish to change the agreed upon sales price in an existing sales contract?
Changes to existing contracts are generally made using amendments. Addenda (Addendum) are used at the time a contract is being negotiated to add or remove items from the agreement. However, once under contract, it takes an amendment to make a change.
What is the difference between compensatory damages and liquidated damages?
Compensatory damages seek to make a party whole for the actual costs incurred. In a real estate contract, where the seller breaches, these may include the appraisal, inspection, survey, pest inspection, etc. Liquidated damages are defined in the contract. A contractor agrees to pay a $5,000 penalty if they do not complete the project by a certain date. In the standard NC Offer to Purchase and Contract - this would be payment of the earnest money deposit and retention of the due diligence fee by the seller when the buyer breaches the contract.
Which of the following statements regarding contractual remedies (damages) is true in North Carolina?
Damages are involved any time there has been a breach of contract. Generally the breaching party will pay the non breaching party a penalty for the breach either as part of an agreement or as part of a judgement from a court. Consequential, Compensatory, and Specific Performance all refer to damages that are awarded in court settings by a judge or jury. Compensatory damages are meant to reimburse the harmed party for their actual hard-money costs associated with the breach. Consequential damages are means to provide compensation for other issues that might arise as a result of the breach but that we don't know exact costs of. Specific performance is a lawsuit where the non-breaching party sues the breaching party to force the breaching party to follow through with the contract exactly as written rather than breach it. Liquidated damages are negotiated damages. They do not involve or require a lawsuit or court and are therefore very popular in real estate contracts. With liquidated damages, the parties agree at the time of contract (long before a breach happens) what the amount of any monetary damages will be. This limits the damage amount to be exactly the agreed upon number.
Under the 2-T Offer to Purchase, when can a buyer terminate the purchase contract?
During the due diligence period the buyer can terminate the contract for any reason or no reason at all. The buyer, even after lengthy negotations over repairs - where the seller has agreed to complete all - the buyer can terminate and receive the earnest money deposit so long as the due diligence period has not expired.
A buyers agent submits an offer to the seller along with an earnest money check for $3,000. When must the check be deposited into a trust account?
Earnest Money Checks - may be deposited the later of 3 banking days from receipt or 3 banking days from the effective date of contract. Since this is only an offer, the clock has not started. Once the property is effectively under contract, the listing brokerage will have 3 banking days to deposit the EMD.
A seller has offered to leave the washer and dryer which the listing agent included in the MLS listing. A buyer's agent wrote an offer that resulted in an contract which failed to mention the washer or dryer. The seller has refused to leave the washer and dryer, and the buyer will not close. Which of the following statements is TRUE?
In order for the seller to be obligated to leave personal property it must be addressed in the offer to purchase and contract. The MLS listing is an offer and the buyer must include the request in the offer to make it binding. The buyer's failure to close is a breach of contract. The seller would be entitled to the remedies identified in the contract.
Under the standard NCAR / NCBA Offer to Purchase, which of the following statements is FALSE?
In order for the seller to terminate the contract as a result of the buyer not paying the earnest money, the seller must make a written demand and allow the buyer one banking day to provide good funds. The contract then becomes voidable on behalf of the seller. This is specified on page 1 and continued on page 2 of the standard NCAR / NCBA OPC. It is very important to review the contract and remember the important sections that were highlighted in class.
novation
In real estate, novation is simply replacing someone or something in a contract with someone or something else. All parties must agree to the replacement or the new contract is not valid. Novation replaces the original contract with a new one.
What is an installment land contract?
Installment land contract or contract for deed is seller financing that is very adventageous to the seller. The seller/vendor holds legal/actual title to the property until the buyer/vendee makes final payment. The buyer/vendee holds equitable title. If the buyer defaults they lose everything - all money paid and the seller regains possession of the property.
An agreement that combines an offer to purchase with detailed owner financing is a(n)
Installment land contracts may also be known as "contracts for deed" or simply "land contracts". In a standard transaction, sellers are paid in full at the time of purchase. That does not happen in an installment contract. The seller will be paid over time by the buyer in monthly installment payments (that usually add interest). Because the seller has not been paid in full, they do not give up title/ownership of the property until the deal is complete.....many years down the road. We say that the sellers will hold legal title (ownership) while the buyer holds equitable title (possession, use, future ownership) until the property is completely paid off. Purchasers who use this method to purchase are not able to refinance with other lenders or borrow money against the value of the property until they have completed the installment purchase with the seller.
A buyer makes an offer that is agreeable to the seller. The seller has indicated to the listing agent that he intends to sign the offer. The listing agent calls the buyer and says that we are under contract. Is this an accurate statement?
Intent does not create a legally binding contract on the sale of real property. There must be a written offer by the offeror, the offeree must unconditionally agree and the offeree must communicate acceptance to the offeror. It is important to read carefully.
The Standard 2-T Offer to Purchase and Contract used by most brokers in North Carolina is prepared by....
NCAR - North Carolina Assocation of RealtorsNCBA - North Carolina Bar Association NOTE: The Real Estate Commission sets the rules for what must be included in a standard offer to purchase and contract that a brokerage will use with their clients. They do not create the form or have to give approval for a form before it is used.
Is the standard 2-T Offer to Purchase and Contract contingent upon an appraisal at or above the sales price or upon the buyer obtaining financing?
NO. The buyer needs to determine this during the due diligence period. The broker and buyer should verify with the lender the amount of time needed to obtain the appriasal and for the buyer to obtain loan approval. Note: On the national exam financing contingencies may be tested.
Is settlement "time is of the essence" in 2-T NCAR/NCBA OPC?
NO. There is a 14-day delay so long as the delaying party is using best efforts. Time is of the essence is a drop dead date - in a contract it requires an action to be performed in a certain period of time or the contract is breached.
A provisional broker enters into an Exclusive Right to Sell listing agreement with a property owner on behalf of the firm. She wants to advertise the property to find a buyer. What laws / rules should the provisional broker be concerned about?
No Blind Ads - Must list the firm name in all advertising - website not sufficient BIC Approval - The BIC must review ads for provisional and non-provisional brokers Reg Z - The broker must be careful not to use trigger terms unless they provide full disclosure. Fair Housing - Cannot discriminate - stick to facts about the property not the people.
Must a buyer use a firm's standard offer to purchase form?
No the buyer can hire an attorney to write up an offer or can write up their own offer. A broker is not permitted to draft and therefore can only fill in the blanks on a pre-printed standard form that meets Commission guidelines.
A seller has offered to leave the washer, dryer and refrigerator, which the listing agent included in the listing on the Multiple Listing Service. The buyer wanted them, but the buyer's agent forgot to include them in the offer. At closing the buyer discovers the seller removed the appliances. Is the seller in breach?
No. The buyer's agent should have added the personal property to the Offer to Purchase which is the final expression of terms between the two parties. The seller is not obligated to leave them and is not in breach of the contract.
Harris sells land to Henderson under an installment contract which is not recorded. Harris then mortgages the property. In the event of foreclosure on the mortgage, the interest of which of the following has priority?
North Carolina's is a race state, meaning the first to record wins. The mortgage holder will have a higher priority than Henderson does with the installment contract since it was not recorded. Recording gives constructive notice that the encumbrance exists.
An example of a novation is
Novation means new - the substitution of one party for another, with the release of liability. It is often used when a lease is assigned or loan is assumed where the landlord or lender has agreed to release liability.
What is novation? What happens if you have assignment of a contract with or without novation?
Novation releases liability by substituting a new party for an old party or a new contract for an old contract. Assignment with Novation: liability is released. The old party does not have to perform. Assignment without Novation: new party for an old party. If the new party defaults, the old party is still liable.
A listing broker receives an offer to purchase for $192,000 from Buyer A on a listed property and submits the offer to Seller. While Seller is considering this offer, the listing broker receives another offer on the same property from Buyer B for $194,000 and also submits this offer to Seller. Which of the following statements is TRUE?
Offer terms are confidential. We as licensees cannot share the terms of one buyer's offer with another buyer unless we are specifically given permission to do so. That permission must come from the buyer whose offer terms we are disclosing. Even if our seller clients instruct us to create a bidding war by exposing offer terms, we do not do so unless we have the permission of the buyer who made the offer.
The buyer's offer will NOT be automatically be terminated if
Offers are fragile. Pretty much any change in status will terminate an offer. Buyer or seller die....offer gone. Property destrotyed......offer gone. Counteroffer.....offer gone. Rejection.....offer gone. There is a pretty big exception here. Buyers are free to make offers on more than one property at at time and even to be under contract on more than one property at a time. Making an offer on one property will not terminate an offer made by the same buyer on another property.
An offeror may revoke their offer in all of the following situations EXCEPT:
Offers can always be revoked. Contracts cannot. Once communication of acceptance has occurred, there is a contract.
Under the NCAR/NCBA Standard Form 2-T Offer to Purchase and Contract, a buyer who is unable to complete Settlement by the date stated in the contract, but who is acting in good faith and with reasonable diligence to proceed to Settlement, may, by giving notice to the seller, delay the Settlement without the seller's consent up to
PLEASE remember this is a question specifically about the 2T form and not all sales contracts. In that particular form, there is a paragraph that deals with delay in closing by either party. The form says that either party should be given up to 14 days past the scheduled settlement in order to try to still close without penalty.
How do contracts terminate?
1. Fully performed - closed 2. Partially performed and through accord & satisfaction - a party agreed to take less 3. Mutual Agreement to terminate / contract cannot be accomplished 4. Operation of Law - bankruptcy / expiration of the Statute of Limitations 5. Impossibility of Performance - property destroyed
What are the essential elements of a contract?
1. Legally competent parties2. Mutual assent / voluntary consent3. Lawful objective4. Consideration (purchase price) NOTE: An earnest money deposit is not required in a contract. The consideration is the purchase price - the amount to be paid by the buyer.
A sales contract contains a financing contingency. What does this mean? When can the buyer terminate? Are they entitled to a refund of money?
1. A contingency must be met in order for the party to be required to perform under a contract. In this instance the buyer must be approved for financing - or they can terminate the contract. The buyer and seller agree that the buyer has "X" days to obtain financing. 2. The buyer is entitled to terminate the contract upon obtaining written notice of loan denial. 3. The buyer is entitled to a refund of the earnest money deposit when the contract is terminated within the contingency period. NOTE: The seller is not obligated to extend the contingency period.
An executory contract is
Execute = signing, executory = not fully performed, executed = fully performed.
The NCAR/NCBA Standard Form 2-T Offer to Purchase and Contract is appropriate for use in which of the following transactions?
The 2-T form is appropriate for any transaction involving residential real estate (condos, single family, townhomes) that is NOT new construction.
Suppose a listing broker receives an offer to purchase that fully matches the terms of the listing contract. Before presenting the offer however, suppose the broker receives two additional offers, one for less than the listing price but for cash, and one for more than the listing price but requesting the seller finance a portion of the sales price. Which of the following is the best approach for the listing broker to take regarding the order of first presentation of the offers?
The listing broker has a duty to present all offers, advising the seller about the pros and cons. They are acting as a special agent and therefore cannot sign on the owner's behalf or make decisions. The seller will decide which offer to accept or if they want to counter or ask for highest and best.
All of the following will terminate an offer, EXCEPT:
The receipt of a new offer from a third-party would not terminate another buyers offer. Revocation (withdrawal) or death prior to acceptance will terminate the offer. A counter offer terminates the initial offer and replaces it with a new one.
The Smiths have a contract to sell their home to the Jones. Prior to closing, the house burned down. If the contract was silent on this point, who would bear the loss?
The risk of loss in a contract is borne by the seller unless otherwise stated. In the standard NCAR / NCBA Offer to Purchase the risk remains with the seller until closing. If the property is damaged, the contract is voidable on behalf of the buyer. The buyer can choose to purchase the property and receive the insurance proceeds to cover the repair or can terminate the contract and receive a refund of their earnest money deposit and due diligence fee.
A buyer and seller are under contract - using the standard 2-T NCAR/NCBA Offer to Purchase and Contract. What happens if the earnest money/due diligence check is not received or the check bounces?
The seller must make written demand and allow the buyer 1 banking day before the contract becomes voidable. After the 1 banking day the seller can terminate the contract or allow the buyer more time to bring good funds.
If a buyer is under contract, using the standard NCAR / NCBA Offer to Purchase and Contract, and after diligent effort is unable to secure the loan, which of the following statements is FALSE?
The standard NCAR / NCBA Offer to Purchase is not contingent upon the buyer's ability to obtain financing. Assuming that the buyer paid both a due diligence fee and an earnest money deposit - the buyer would not be entitled to a refund of the due diligence fee. In order to determine if the buyers entitled to a refund of the earnest money deposit, we need to determine if the due diligence period has expired. If the due diligence period has expired, the buyer is not entitled to a refund of the earnest money deposit. This differs from National testing where a contract can contain a financing contingency, where the buyer has a period of time to get financing, and if they are not able may terminate without penalty during that contingency period and receive a refund of their earnest money deposit. The denial must be in writing.
A buyer has entered into a contract under the standard NCAR/NCBA Offer to Purchase and Contract, and learns that they will not be able to obtain financing. Which of the following statements is TRUE?
The standard NCAR/NCBA OPC is not contingent upon financing. The buyer should determine if they qualify for a loan prior to the expiration of the due diligence period or risk losing their earnest money deposit. If the buyer paid a due diligence fee, that is not refundable when they fail to obtain financing. The due diligence fee is credited to the buyer if they purchase the property, is refundable if the seller breaches the contract or if RPOADS or MOG is not provided within the time limit.
Kathy Klutz makes a cash offer to purchase a home listed by Wanda Wave of Seaside Realty through Sally Sunshine, another agent of Seaside Realty. The offer contained a time limit, where the seller must respond within 5 days by 5:00 pm. Seaside Realty is a dual agent in the transaction. Wanda Wave's seller accepts the offer in Wanda's presence, 3 days after the offer was made . As Wanda returns to the office, Sally Sunshine receives a phone call from Kathy who has fallen off the pier and broken her leg. She wants to withdraw her offer and move to the desert. Which of the following statement s is TRUE?
The type of agency being practiced - dual, designated, exclusive or sub- agency - impacts one a property goes under contract. In order to form a legally binding contract there must be acceptance and communication of acceptance back to the offering party. Both Wanda and Sally are acting as dual agents in the transaction. What one knows - they all know. The property goes under contract when the seller accepts the offer in Wanda's presence. Kathy is not permitted to withdraw the offer because it is become a legally binding contract.
What is the parole evidence rule?
The written contract between the parties is the final expression and all previous oral or written communication is no longer binding. The final contract is the final agreement between the parties.
Maia is forced to sign a contract under threat of physical harm to her children.I. This is referred to as undue influenceII. The contract is voidable
Undue influence is the abuse of a position of trust. The threat of physical harm is called duress. It results in a voidable contract where the party under duress has the right to terminate or purchase the property. A contract is voidable when either party is a minor, a buyer or seller is intoxicated or undue influence.
Josie enters into an agreement to purchase a home in North Carolina utilizing the Standard Offer to Purchase and Contract form 2-T from NC REALTORS. The sellers have agreed in writing to replace the HVAC system prior to closing but have not done so as of the scheduled date of the closing. Which of the following is most likely correct regarding the contract status?
This is most definitely a breach on the part of the sellers. The key to answering this question is understanding that the EMD is the liquidated damages penalty for a BUYER breach. If the seller breaches, the buyer should definitely expect refunds of all money paid (DD Fee, EMD) but also has every right to sue the seller for MUCH more in the way of damages. Right now, the buyer must decide if they want to move forward in spite of the breach. This ability to decide to move forward or back out means the buyer is no longer bound to the promises they made. A contract where both parties made promises but one of the parties is not bound to those promises is called voidable.
Standard provisions of the NCAR/NCBA Standard Form 2-T Offer to Purchase and Contract include which of the following?
This is sort of specific but a good example of using general knowledge....you know that keys aren't exchanged until documents are recorded. If you have faith in that knowledge, you can choose it and move on....
On September 19, Buyer made an offer to purchase a residential property using the NCAR/NCBA Standard Form 2-T Offer to Purchase and Contract. Buyer's offer was accompanied by checks for the Due Diligence Fee and the Initial Earnest Money Deposit. Per the offer, the Due Diligence Period would expire on October 20 and the Settlement Date would be October 31. Seller accepted Buyers offer as written and acceptance was properly communicated. The property appraisal, received by the lender on October 19, indicated a much lower estimate of value than the sales price. On October 21, Buyer notified Seller in writing that Buyer was terminating the transaction because his mortgage loan application was denied. According to the standard contract provisions, who is entitled to the Due Diligence Fee and the Earnest Money Deposit?
Timing is everything in the 2T Contract. Specifically the Due Diligence Expiration Date. The DD Fee is always nonrefundable (assuming the seller doesn't breach the contract) so obviously the seller keeps that. The real question is whether the seller also keeps the EMD. Any termination that comes from the buyer for any reason AFTER the expiration of the due diligence period results in the EMD being forfeit to the seller as liquidated damages. Therefore in this case, seller gets both.
A buyer agrees to purchase a property under an Installment Land Contract. All of the following statements are correct, EXCEPT:
Under an installment land contract the seller retains legal / actual title until final payment is made by the buyer. The buyer will hold equitable title to the property until final payment is made. Upon final payment, the seller will transfer legal / actual title to the buyer. The seller is the vendor and the buyer is the vendee. An installment land contract may also be called a contract for deed or land contract.
Harry lists his property for sale with Hermione, a provisional broker with ABC Realty, by signing a Exclusive Agency listing agreement that authorizes both dual and designated agency. Ginny, the broker-in-charge with ABC Realty, is working with a buyer under oral buyer's agency, that has authorized both dual and designated agency. The buyer, Ron, decides to write an offer on the property on Friday at 5:00 PM. Ginny promptly delivers the offer to Hermione at 7:00 PM on Friday and the seller asks that it be emailed immediately to him. The seller signs and dates the offer at 10:00 AM on Saturday and emails it back to Hermione at 10:10 AM on Saturday. Hermione waits until 9:00 AM Sunday to notify Ginny of the sellers acceptance. Ginny promptly calls Ron at 9:05 AM Sunday to inform him of the seller's acceptance. At what point did the offer become a legally binding contract?
When a(n) agent(s) / firm are acting as dual agent - they represent both the buyer and the seller in the same transaction. What one knows, we all know. So when Hermione is informed of the seller's acceptance, a legally binding contract is formed. The two agents of ABC would be acting as dual agents - as a BIC and a provisional broker cannot act as designated agents. If the question were changed and Ginny was not the broker in charge, rather a provisional or non-provisional broker, and both Ginny and Hermione did not have personal or confidential information, it would be possible for them to act as designated agents. If that were the case, the answer would change to when Ginny was notified of acceptance at 9:00 AM Sunday.
Carolyn is interested in purchasing property in Durham, NC however does not want to hire a buyer's agent to represent her. She locates a broker, Kevin of ABC Realty, that is willing to act as a seller's subagent. Kevin shows Carolyn multiple properties before find a home listed by the broker in charge of XYZ Realty, Betty. Kevin writes the offer, using the Standard NCAR / NCBA Offer to Purchase and submits it to Betty at 4:00 PM on Tuesday. Betty meets with the seller at 7:00 PM on Tuesday, presents the offer and the seller accepts the offer by signing at 7:30 PM. Betty immediately calls Kevin to inform him of the acceptance. Kevin calls Carolyn at 8:15 PM on Tuesday to notify her of the seller's acceptance. When was the property under contract?
When a buyer is not represented it means that all agents are working for the seller. In order to form a legally binding contract communication has to be made to the other side, so in this instance Carolyn must be notified of the acceptance. If the question is changed, where Kevin is representing Carolyn as a buyer's agent instead of a subagent of the seller, a legally binding contract would have been formed when Betty notified Kevin that the seller accepted the offer. Offer - Acceptance - Communication back over the wall - in order to form a legally binding contract.
A buyer wants to make substantial changes to the offer to purchase and contract, to make the contact contingent upon the acceptance of a lease agreement. The broker should do which of the following:
When a client seeks to make major changes to an offer to purchase a broker should refer them to an attorney. The client can elect to make changes in his/her own handwriting, however they are not allowed to dictate or make the changes themselves. A real estate agent is not permitted to draft language in an offer to purchase as they are not party to the transaction. The offer to purchase is been the buyer and the seller.
George Barstow agrees to buy Elaine Clark's real estate for $530,000. Barstow signs the NCAR / NCBA standard Offer to Purchase and deposits $5,300 earnest money with the listing broker Stuart Donovan. Clark is unable to provide good title, and Barstow demands the return of his earnest money from Donovan. Assuming no dispute, what should Donovan do?
When a seller defaults on a contract, the buyers entitled to a return of the earnest money. The listing agent is entitled to sue the seller for the commission amount - they are not entitled to take the buyers funds to cover the seller's potential expense. It is important to remember that in order to release earnest money, the broker holding the funds can release the money 1) closing, 2) mutual agreement of the parties, 3) court order or 4) transfer of funds to the clerk of court in the county in which the property is located after providing 90-days notice.
A buyer and seller enter a valid purchase agreement. Subsequent to the agreement but before closing the seller dies of a massive heart attack. The listing agent informs the buyer that the offer to purchase and contract has been terminated. Is the agent correct?
When the buyer and seller have entered into a legally binding contract to purchase a property and the seller dies, the heirs are obligated to perform. If they refuse the buyer can sue for specific performance to force the sale. In the event that the buyer dies, the contract is "binding on the heirs". The seller would not be successful in suing the buyer for specific performance. The seller would be entitled to the damages outlined in the contract.
When a buyer wants to add non-standard terms and conditions into the NCAR/NCBA Standard Form 2-T Offer to Purchase and Contract, the broker should
While some buyers and sellers may wish to make changes or additions to standardized forms, we as licensees can never make these changes for them OR advise them on how to make the changes themselves. If new language is needed, the most appropriate advice is for the buyer or seller to seek an attorney. Technically, the buyer or seller can legally make the changes themselves (without our help), but it is not advisable to do so.
A broker receives an offer to purchase from a buyer on the NCAR/NCBA Standard Form 2-T Offer to Purchase and Contract for a property listed on behlaf of a seller-client. A $5000 check is attached for the initial Earnest Money Deposit. The offer includes a provision that states "This offer will expire in five days." Two days later, the buyer notifies the listing broker that he is withdrawing the offer. The broker should
While the original offer may have said "valid for 5 days", offers can ALWAYS be cancelled at any time by offerors....right up until the moment of contract formation. Since the earnest money was never actually earnest money in this case (no contract was formed), it should be returned to the buyer without question and not deposited into the trust account.
A seller is obligated to check with to see if a party is interested in purchasing a property before listing it for sale is best defined as a(an):
With a right of first opportunity, the owner must offer to sell the property to a party before they can sell it to another. The right of first refusal allows a party to elect to rent or purchase a property by meeting an offer before the owner can sell or lease the property to another. An option agreement is a contract with all terms agreed to up front about the purchase price, number of days to decide, the period to close, etc. Annexation is the taking of property - where a city can extend his/her boundaries.
How does an amendment differ from an addendum?
You AMEND a legally binding contract - contract has already been formed and both parties are agreeing to a change. An ADDENDUM is added to an offer to purchase to add additional language or a contingency to the offer.
Mr. Jones signed a listing agreement with Broker Brown stating that he would pay 6% commission to Brown upon the sale of his house. Broker Brown promised to use diligence in attempting to find a buyer. This contract is
A bilateral contract is a mutual exchange of promises, while a unilateral contract is a promise to perform if the other party performs. Executed = fully performed / Executory = not finished.
If an offer has been transmitted to the seller for his consideration and before a decision is made another offer is submitted
A broker must deliver all offers - even if the seller requests otherwise, the property is already under contract, it is a short sale or the new offer is lower than the current offer. The listing agent should review all offers with the seller outlining the pros and cons. The seller ultimately gets to decide which offer to accept. The broker has no authority to make a decision on behalf of the seller as he/she is acting as a special agent. If the seller has already accepted another offer, they cannot terminate the first contract unilaterally. The buyer would have to mutually agree. The seller could ask that the second buyer add a Back-up Contract Addendum to their offer.
A buyer make an offer to purchase a property with the seller having 5 days to respond, time is of the essence. His agent submits the offer to the seller. The buyer elects to terminate the offer. Under the following circumstances, when is the withdrawal effective?
A buyer can terminate the contract at any time prior to receiving notice that the seller has accepted the offer, including terminating an offer that was made allowing the seller 5 days to respond. Withdrawal must be communicated to the seller or sellers agent prior to acceptance in order to be effective. When answering questions it is important to select the most correct option.
Hines and Kirk enter into an oral contract wherein Hines promises to pay $500,000 to Kirk in return for Kirk's promise to convey title to 50 acres of real estate. This contract between Hines and Kirk is
A contract for real property must be in writing and in order for it to be valid and enforceable according to the statute of frauds. Purchase contracts, installment land contracts, options and right of first refusal must be in writing to be enforceable.
When is a contract voidable?
A contract is voidable when one party is obligated to perform, while the other party may elect to perform or terminate. A voidable contract occurs when a contract is formed with a minor, the offeror or offeree was intoxicated at the time the contract was formed, or the property is damaged prior to closing.
A buyer makes an offer to purchase a property for $425,000 with the seller paying $4,000 in closing costs and the closing to occur within 30 days. The seller agreed to all terms except for the closing costs, signing the offer and sending it to the buyer's agent. This is the best example of:
A counteroffer occurs when the seller makes any changes to a buyers offer. A valid purchase contract is created when all terms are agreed to by the offeree and communication is made to the offeror. An addendum is adding language to an offer to purchase which may add a contingency to the contract (short sale, contingent sale, back-up contract, etc.).
What is the Statute of Frauds?
A law that requires certain agreements to be in writing in order to be enforceable. In North Carolina - deeds, contracts for sale, mortgages, options, easements and certain leases (over 3 years) must be in writing.
To be a bilateral contract, a listing contract should be signed by
A listing broker can sign a listing agreement on behalf of the brokerage, binding the brokerage to the agreement (general agency). The signing broker is primarily responsible for fulfilling the duties. The listing broker will act as a special agent in their relationship with the seller. The buyer does not sign a listing agreement.
Purchase-money mortgage
A purchase-money mortgage is a mortgage issued to the borrower by the seller of a home as part of the purchase transaction. Also known as a seller or owner financing, this is usually done in situations where the buyer cannot qualify for a mortgage through traditional lending channels.
Under a purchase contract for real property, all the following are essential elements, EXCEPT:
A valid deed does not require recording (IGPWED - In writing, Grantor competent, Property description, Words of conveyance, Execution - signing and Delivery and acceptance.) A purchase contract does not need to be recorded to be legally binding and the buyer / seller would not want the terms public. Recall that recording gives public notice. A deed that is not recorded would not be binding against third parties.
Which of the following contracts would be considered voidable under North Carolina law?
A voidable contract is one where both parties made promises but only one party is going to be legally held responsible for those promises. In the case of a contract with a minor, the adult party would indeed be held responsible while the minor would not. The contract between two LLC's would be valid as companies pass all the tests for competency. The contract for an illegal act would be void. A sales contract in which one party dies between contract and closing is still valid. The sales contract lives on even if the buyer or seller does not. Basically, the administrator of the estate of the deceased person would have to continue in the contract as if the dead party were still alive.
Which of the following statements about brokers' responsibilities for handling offers is TRUE?
All licensees are required to convey all offers as soon as they possibly can....even if the property is already under contract.
addendum
An addendum is an additional document that gets added to the purchase and sale agreement. The document will include any additional information or requests that the buyer did not put into the original purchase and sale agreement.
A buyer wants to add a provision to a contract that requires them to sell or lease another property in order to be obligated to purchase the current property. This is known as a (an):
An addendum is used during the offer process before it becomes a contract, that adds a contingency where one party is only obligated to be performed if some event occurs (contingent sale, back-up contract, short sale, etc.). An amendment occurs once a legally binding contract has been formed, where the terms are changed by agreement and signing. An option is where a party ties up a property while they decide to exercise an option to purchase, with all terms agreed to up front (purchase price, days to exercise, how a party exercises). Annexation is the taking of territory by the government - which has can take property to extend a city's boundaries.
A listing agent lists a property for sale and receives multiple offers. Which of the following actions should be taken by the agent?
An agent has a duty to present all offers to the seller and then the seller will decide how to respond. A broker needs permission from the seller on how to respond to multiple offers and cannot unilaterally decide how to proceed. A broker cannon sign on the sellers behalf as the broker is a special agent with no signing authority. We cannot disclose a buyer's offer to another buyer without the original buyer's express permission.
A buyer writes a $3,000 earnest money check that is submitted with an offer to purchase on Monday at 2:00 pm. The offer is immediately accepted by the seller and communicated on Tuesday at 4:00 pm. When must the firm deposit the earnest money into the brokerage trust account?
An earnest money check must be deposited into a trust account the later of 3 banking days from receipt or 3 banking days from the effective date of contract. While the money was paid with the offer, the brokerage is not required to deposit until the property is under contract. The days to deposit are banking days, not calendar days. If the earnest money deposit was made in cash, the broker would need to deposit immediately but no later than 3 business days.
Which of the following has an automatic right to cancel without liability for damages?
An offer or can terminates an offer without penalty prior to acceptance. A time share purchaser has 5 days from the effective date of contract to terminate. The 10 day period is how long the developer must hold all funds in an escrow account. There is no rescission or termination period for an installment land contract.
A "right of first refusal" differs from an "option contract" in that
An option agreement is defined as the right to purchase the property for a specific period of time, with all terms agreed to upfront - purchase price, how the option must be exercised, once exercised how long the option he has to close, etc. The right of first refusal allows the owner to put the property up for sale or rent without obligating the party that holds the right of first refusal. Before the owner can sell or rent the property to another, they must first check to see if the party that holds the right of first refusal wants to buy or rent.
A properly completed option to purchase real estate contract must include
An option to purchase is a contract between a seller and a potential buyer which basically prevents the seller from selling the property to anyone other than the option holder during the option period. The price and terms of a sale are agreed upon as part of the option and then the buyer gets the right to "decide" whether or not to proceed with the transaction. This is a unilateral contract because one party (seller) is bound while the other (buyer) is not.
Which of the following statements about counter-offers is TRUE?
Any change at all in offer terms represents a counteroffer. A counteroffer is first and foremost a rejection of the offer that came before it. That old offer is now dead. It doesn't come back on its own. It could be re-offered, but it is no longer viable without further action. Counteroffers do not end negotiations. Negotiations continue as long as one party continues to submit offers or counteroffers. In order to be binding, we need the signatures of all parties....this would include on any terms changed in a counteroffer.
Seller and Buyer are under contract using the Standard Form 2-T offer to purchase and contract. the parties have negotiated a Due Diligence fee, Upon formation of the contract, the due diligence fee must be
Assuming there is no seller breach, DD Fees are always nonrefundable when using the 2T contract. They are paid directly to the seller the moment the contract becomes effective. They do not get deposited into trust accounts. If the buyer does indeed end up closing on the property, the DD Fee will be credited toward the purchase price.
How is a legally binding contract formed between a buyer and seller for the purchase of real estate?
First: Offer, unconditional Acceptance and Communication back to the offeror or the offeror's agent. Second: It must be in writing (Statute of Frauds) and all owners must sign for it to be valid and binding.
In consideration of $500, Jim Pascucci give Charles Gutnam the right to purchase certain described real estate for $200,000 if Gutman tenders the purchase price within 60 days. This agreement is (an)
The ability to tie up a property for a period of time with all the terms agreed to upfront is an option contract (purchase price, period of time to exercise, how long to close, etc). An installment land contract or contract for deed is seller financing. The right of first refusal is a written agreement for an indefinite period of time that requires the seller to check if another party wants to buy the property by matching the highest price offered by another before selling it to the party that has made an offer. The right of first opportunity means the seller must check with a party to see if they want to purchase (they retain the right to accept or reject), before offering the property for sale to others.
A seller refuses to sell his home to the buyer even though they have a legally binding contract. What action can the buyer take?
The buyer can sue for specific performance since all property is unique (non-homogenious) - thus forcing the sale.
In a land contract arrangement, where the buyer pays all or part of the price to the seller in installments
The buyer or vendee under installment land contract has equitable title in the property until final payment is made. The seller or vendor retains legal / actual title to the property. Title does not pass until it is paid in full. In the event that the vendee defaults on the contract, they will lose everything.
What does it mean when a contract is unenforceable?
The contract is vaild between the buyer and seller, however neither party can force performance in a court of law. Example: Oral contract to purchase a house. The buyer and seller can both perform and there is a legal transfer of ownership at the closing. However, if either the buyer or seller changes his/her mind, they cannot be forced through a suit for specific performance.
John Allen offers to sell Naomi Summers certain undeveloped land in an sparsely populated county and represents to Summers that a new freeway will run right by the land, even though Allen knows that the plans for the new freeway have been dropped. Summers, relying on the representation, signs a contract to purchase the land from Allen. Under these circumstances: I. Allen can be forced to sell the land even though there was fraudII. The contract is voidable at the option of Summers
The contract is voidable since John committed fraud by lying to induce the sale. The buyer, Naomi can still choose to purchase the property. If John refuses, Naomi can sue to force the sale - specific performance.
Which of the following is the best description of a contract?
The key word is "best" - which statement provides the most complete answer. In order to form a legally binding contract you must have (1) offer; (2) acceptance; (3) consideration; (4) mutuality of obligation; (5) competency and capacity; and, in certain circumstances, (6) a written instrument - under the Statute of Frauds.
A buyer submits an offer to purchase with a provision that the seller has 5 days to accept. Prior to the 5 day expiration the buyer decides to withdraw the offer. Can they withdraw prior to the 5 days expiring? How does withdrawal become effective?
1. The buyer does not have to leave the offer open for the 5 days. He/she can withdraw at any time prior to receiving notice of the seller's acceptance. 2. Notice of withdrawal must make it over the wall. The seller or seller's agent needs to receive notice of withdrawal (email / voicemail, etc.) and that notice must be received prior to the seller or seller's agent notifying the buyer of acceptance. NOTE: Communication must be received to be effective. It does not have to be read (email) or listened to (voicemail), it just has to be received by the brokers email or phone system.
Which of the following documents may be used when the seller may receive a down payment and regular periodic payments in accordance with the contract terms, in a title theory state? I. Contract for deedII. Purchase-money mortgage
Both the contract for deed and a purchase money mortgage (seller financing) typically have the seller receiving a down payment and regular monthly payments. The seller retains legal / actual title to the property and the buyer has equitable title in the property until final payment has been made. Even though both provide the buyer with equitable title, there rights are not the same. If the buyer defaults under a contract for deed or installment land contract, they lose all money. If the borrower defaults under a purchase money mortgage, the borrower would be entitled to any money received over the amount owned after the foreclosure auction finalizes.
Which of the following is the best example of an executory agreement?
Executory means "under contract" but not yet closed. If there isn't yet a contract, it isn't executory. If it is already closed, it isn't executory.
An agent representing a buyer learns that a seller is behind on the mortgage and would take substantially less than the current list price. In what circumstance would the agent not be able to disclose this information.
If the agent is operating under dual agency - personal/confidential information cannot be passed to the buyer or seller. The agent would need to treat both the buyer and seller equally and would need to conceal information that could weaken either party, unless it rises to the level of material fact.
When the parties to a contract decide in advance the amount of damages that will be payable if the contract is not fulfilled, this provision is called
Liquidated damages are those that are defined in the contract. In the standard NCAR/NCBA OPC, the payment of the EMD and retention of DDF by the seller when a buyer breaches the contract is an example. An accord and satisfaction is where a party agrees to less then what has been originally contracted - for example the property does not appraise for the purchase price, so the seller agrees to reduce the contract price to the appraised value. Punitive damages are awarded as punishment by the courts. Compensatory damages are actual damages for an incurred loss, that make a party hold. This is for actual costs - which in an OPC examples would be reimbursement for the appraisal, property inspection, termite inspection, etc.
Which of the following statements about contracts for the sale of real estate in North Carolina is TRUE?
The North Carolina Real Estate Commission does NOT publish forms or contracts that help licensees do their job of selling or leasing property. That's not the job of NCREC. The job of NCREC is to oversee licensees and make sure they are doing things within the law. Most real estate salespersons/agents/brokers in any state working in a sales transaction are special agents. This means they have no authority to sign or agree to anything on behalf of their clients. The clients must make all decisions. NCREC does not allow any statements that deal with the payment of commission in preprinted sales contracts.
What 2 things can never be included in an Offer to Purchase when prepared by a real estate agent?
The Offer to Purchase and Contract is between the buyer and the seller - not the agent. No reference to agent compensation / No disclaimer of liability. Agent compensation is outlined in the listing agreement / buyer agency agreement.
The doctrine that allows one party to a real estate sales contract to make the second party complete what he had agreed to perform in the contract is called
Specific performance is used to force the sale of a legally binding contract, typically when the seller is refusing to sell. An action or suit to quiet title is used to settle which party has the highest claim to a property when there is an ownership dispute (adverse possession, foreclosure, etc.). Accord and satisfaction occurs when a party agrees to take less than they are entitled to under the terms of a contract.
In North Carolina, which of the following types of contracts must be in writing and signed by the parties in order to be enforceable against that party?
The Statute of Frauds requires certain contracts to be in writing in order to be enforceable. These include real estate contracts - purchase, option, first writer refusal, first right of opportunity, easement, etc.A lease that exceeds 3 years must be in writing under the Statute of Frauds, which includes residential and commercial transactions. The Statute of Frauds does not apply to personal service contracts.
Before leaving town on vacation, Buyer gives a signed offer to purchase to his buyer's agent. The buyer's agent presents the offer to the listing agent. Seller signs the offer without any changes and the listing agent notifies the buyer's agent of the acceptance. The buyer's agent unsuccessfully tries to contact Buyer with news of Seller's acceptance. The next day, the buyer's agent gets a voicemail message from Buyer saying that he has had second thoughts and is withdrawing his offer. Which of the following statements is TRUE?
We have had acceptance by the offeree (seller signed with no changes) and communication of that acceptance to the offeror's side of the transaction. That creates a contract. Whether the buyer is personally aware or not, they have been legally informed because their agent (legal representative) was informed.