California Real Estate Principles Unit 7: Contracts
Because such a contract is long and quite detailed, it is likely to contain corrections and written additions. The general rule regarding preprinted forms is as follows:
- Typed insertions take precedence over preprinted material. - Handwritten insertions take precedence over both typed and preprinted material. - Specific information takes precedence over general information.
An action based on a judgment must be brought within _______the awarding of the judgment.
10 years
An action based on a written instrument (such as a real estate sales contract) must be brought within
four years
void contract
A contract having no legal force or binding effect.
bilateral contract
A contract in which each party promises to perform an act in exchange for the other party's promise to perform. The usual real estate contract is an example of a bilateral contract in which the buyer and seller exchange reciprocal promises respectively to buy and sell the property.
discharged contract
A contract is discharged when the agreement is terminated. Obviously, the most desirable case is when a contract terminates because it has been completely performed, with all its terms carried out. However, a contract may be terminated for other reasons, such as a party's breach or default.
valid contract
A contract that complies with all the essentials of a contract and is binding and enforceable with all associated parties.
Voidable Contract
A contract that seems to be valid on the surface but may be rejected or disaffirmed by one or both of the parties.
executory contract
A contract under which some future contract obligation remains to be done by one or more of the parties.
implied agreement/contract
A contract under which the agreement of the parties is demonstrated by their acts and conduct.
Unenforceable Contract
A contract which is considered unenforceable either because it cannot be proven or will not be enforced by a court.
actual fraud
A deliberate misrepresentation or a representation made in reckless disregard of its truth or falsity; the suppression of truth; a promise made without the intention to perform it; or any other act intended to deceive.
affirmative fraud
A deliberate statement of a material fact that the speaker knows to be false and on which the speaker intends another person to rely to his or her detriment.
Fraudelent Misrepresentation
A false statement or concealment of a material fact made with the intention of inducing some action by another party.
tender
A formal offer of money or service in payment of an obligation. A written offer to contract goods or services at a specified cost or rate; a bid. Something, especially money, offered in payment.
emancipated minor
A legal mechanism by which a person below the age of majority ("adulthood") gains certain rights, generally identical to those of adults. An emancipated minor is free of any authority from his or her parent or other legal guardian. The extension of these rights, as well as the remaining prohibitions, vary according to the jurisdiction.
contract
A legally enforceable promise or set of promises that must be performed and for which, if a breach of the promise occurs, the law provides a remedy. A contract may be either unilateral, by which only one party is bound to act, or bilateral, by which all parties to the instrument are legally bound to act as prescribed
mutual consent
A meeting of the minds; a mutual assent of the parties to the formation of a contract.
counteroffer
A new offer made in response to an offer received. It has the effect of rejecting the original offer, which cannot be accepted thereafter, unless revived by the offeror.
unilateral contract
A one-sided contract wherein one party makes a promise so as to induce a second party to do something. The second party is not legally bound to perform; however, if the second party does comply, the first party is obligated to keep the promise.
option
A right given for consideration to purchase or lease a property upon specified terms within a specified time.
Statute of Frauds
A state law requiring certain contracts to be in writing and signed before they will be enforceable, such as a contract for the sale of real estate.
exchange
A transaction in which all or part of the consideration for the purchase of real property is the transfer of property of "like kind" (i.e., real estate for real estate).
A homeowner is trying to sell a house without the assistance of a real estate agent. After four months in which no offers are received on the house, the homeowner places an ad in the newspaper that states, "Three percent commission paid to buyer's agent at closing." Salesperson S phones the owner, identifies herself as a real estate licensee working for ABC brokerage, and makes an appointment to show the property to one of her clients. Is there an agency agreement? If the owner accepts the offer made by S's client, and the offer does not mention any commission for S's brokerage, do S and the owner have an agreement? At closing, is the owner obliged to pay S's brokerage the 3% commission? If the purchase offer that the owner accepted stipulates that S's brokerage will receive a 3% commission on the transaction, will the owner and S's brokerage have an agreement at that point? K decides to make an all-cash offer on the H house. K fills out a standard offer to purchase, giving the street address of the property, and notes that the selling price is to be "agreed to by the par¬ties." If H signs the contract, can K enforce it? When K is shown the H house in Pasadena, the listing broker says the house was designed by Frank Lloyd Wright. K questions H on the house's designer, and H also tells him the designer was Frank Lloyd Wright. K makes an offer that is accepted by H. Before the sale closes, K checks the city records and learns that Floyd White designed the house. Does K have to go ahead with the sale? On Monday, January 6, a new tenant agreed to a one-year lease on an apartment at Shady Acres. The lease term began on Monday, January 13. Is the oral lease contract valid? Can the management of Shady Acres enforce the oral contract if the tenant moves out before the end of the lease term?
After S's first phone call to the homeowner, they do not have agreement because they have no writing. If the owner accepts an offer that does not mention a commission for S's brokerage, there is still no written agreement, and the owner is not obligated to pay a commission. If the purchase offer accepted by the owner had stipulated a commission for S's brokerage, S could have used that as the basis to claim a commission from the owner. No, because no purchase price was specified. No, because the identity of the house's designer, which would have a significant impact on the purchase price in this case, was misrepresented to him. The oral lease for a term expiring more than one year from the date of agreement is unenforceable.
mutuality of contract
Agreement that imposes obligations on both parties
specific performance
An action brought in a court of equity in special cases to compel a party to carry out the terms of a contract. The basis for an equity court's jurisdiction in breach of a real estate contract is the fact that land is unique and mere legal damages would not adequately compensate the buyer for the seller's breach.
The statute of frauds lists the types of contract that must be in writing. They include the following:
An agreement that will not be completed within a year An agreement for the sale of real property or an interest in real property, or the lease of real property for more than one year (and an agent making such an agreement on behalf of a principal must be authorized to do so by a written agreement) An agreement that employs an agent, a broker, or any other person topurchase or sell real property,lease real property for a period longer than one year, or find a purchaser or seller of real property or a lessee or lessor of real property where the lease period is for longer than one year. An agreement by a purchaser of real property to pay a debt secured by a mortgage or deed of trust on the property purchased, unless the purchaser is to assume the debt
option
An agreement to keep open, for a set period, an offer to sell or lease real property.
real estate purchase contract
An agreement whereby a seller promises to sell an interest in realty by conveying a deed to the designated estate for which a buyer promises to pay a specified purchase price. form of real estate sales contract commonly used in calfironia
liquidated damgages
An amount predetermined and agreed by the parties to an agreement as the total amount of compensation an injured party should receive if the other party breaches a specified part of the contract. (See damages)
revocation
An offeree may fail to accept the offer before it expires. The offeror may revoke the offer at any time before receiving the acceptance. This revocation must be communicated to the offeree by the offeror, either directly or through the parties' agents.
express agreement/contract
An oral or written contract in which the parties state the contract's terms and express their intentions in words.
oral contract
An unwritten agreement. With few exceptions, unwritten agreements for the sale or use of Real Estate are unenforceable. In most states, contracts for the sale or rental of real estate are, unless they are in writing, unenforceable under the Statute of Frauds. Verbal leases for up to a year are often acceptable.
B and R to buy a house. They make an offer to purchase the M house for $365,000. M, who is single, accepts. Before the sale is closed, Brad is seriously injured on the job. B and R can no longer expect to comfortably make the house payments. What can they do? The Ws are in the process of buying the H farm. Their offer was accepted, and they have received a loan commitment from a lender. Before the closing, however, the Hs inform the Ws that they no longer wish to sell their property "for sentimental reasons." What recourse do the Ws have? The Hs purchased a home from the Ds, closing the transaction on March 15, 2018, and moving into the home a week later. In a period of unusually heavy rainfall in November 2019, the Hs experienced water damage to the living room ceiling. When part of the ceiling was removed, extensive prior water damage and earlier repairs were revealed. The Hs homeowners' insurance policy does not cover water damage. Do the Hs have any recourse against the Ds?
B and R can ask M to agree to rescind the contract. If M refuses, they can ask M to release them from their contract obligation on payment of some consideration, perhaps the earnest money deposit. B and R also could refuse to go ahead with the sale, claiming impracticability of performance; if they succeed, they may be liable for damages. The Ws can agree to rescind the contract if their deposit is returned. The Ws could sue for specific performance. Alternatively, they could sue for any damages they may have incurred as a result of the sale being canceled. The condition of the living room ceiling indicates that the Ds may have concealed earlier water damage. The Hs have up to three years from the discovery of the possibly fraudulent conduct to sue the Ds to recover the cost of repairs to the ceiling.
constructive fraud
Breach of a legal or equitable duty that the law declares fraudulent because of its tendency to deceive others, despite no showing of dishonesty or intent to deceive. For example, if a listing broker failed to disclose a known major foundation problem not readily observable upon an ordinary inspection. (See material fact)
FOR EXAMPLE: H gives C a one-year lease and an option to buy his house, in exchange for $5,000 and monthly lease payments of $3,000. Before the year is up, Harvey decides to give the house to his daughter. H notifies C by certified mail, enclosing a money order for $5,000. Does C still have an option to buy the house? What can C do?
C still has a valid option contract but will have to return the $5,000 to Harvey. If she delays, she may be understood as approving his revocation of the agreement. If C had already decided—or decides when she gets the $5,000—that she will not exercise the option, she is $5,000 richer than she would have been had H not returned her money. Either way, C should talk to her attorney.
lawful object
Contract performance that does not violate any laws; requirement for a valid contract
contractual obligation
The act of binding oneself by a social, legal, or moral tie. A social, legal, or moral requirement, such as a duty, contract, or promise that compels one to follow or avoid a particular course of action.
execute
The act of making a document legally valid, such as formalizing a contract by signing or acknowledging and delivering a deed. In some cases, execution of a document may refer solely to the act of signing, in other cases it may refer to complete performance of the document's terms.
negative fraud
Deliberate concealment of something that should be revealed.
Natural Hazard Disclosure Statement
Document indicating property location in a hazardous area that must be provided by seller to buyer in California residential transactions of one to four dwelling units, with certain exceptions
impossibility of performance
Event, such as destruction of property, that makes it impossible to perform a contract on its terms
FOR EXAMPLE: The Y's offer to buy the Z residence is contingent on the Ys selling their home within the next 30 days. The Z's receive another offer that has no contingencies. Z asks the Ys to remove the home sale contingency from their offer to purchase within 48 hours, as is permitted by the contract. The Ys decide to go forward with the purchase, even though they have not yet sold their old home. To do so, the Ys sign a waiver of the home sale contingency in their contract with the Z.
FOR EXAMPLE: The Y's offer to buy the Z residence is contingent on the Ys selling their home within the next 30 days. The Z's receive another offer that has no contingencies. Z asks the Ys to remove the home sale contingency from their offer to purchase within 48 hours, as is permitted by the contract. The Ys decide to go forward with the purchase, even though they have not yet sold their old home. To do so, the Ys sign a waiver of the home sale contingency in their contract with the Z.
How buyer will pay for the property? When seller must leave the premises? Manner in which conflicts between the parties will be decided? Report to other brokers of the sale and closing? Compliance with anti-discrimination laws?
Finance terms Closing and possession Dispute resolution Multiple listing service Equal housing opportunity
HL, feeling no pain after six margaritas, gripes at a party that he is so fed up with his job he will sell his house to the first person who offers him a motor home in trade for it so he can fulfill his lifelong dream of visiting all 50 states. SW offers HL her well-used "Minnie-Winnie" in exchange for his Beverly Hills home. HL, amid much laughter, accepts the offer and tells SW to get the paperwork ready to sign the next day. SW shows up at HL's the next day with her attorney. Now what?
HL, who only vaguely remembers the "deal" of the night before, can do one of two things. He can disaffirm the contract because he was intoxicated at the time and lacked the capacity to enter an agreement. Or he can thank SW for the terrific motor home as he signs the deed that her attorney has prepared.
Negligent Misrepresentation
Negligent misrepresentation occurs when the licensee should have known that a statement about a material fact was false. The fact that the licensee may actually be ignorant about the issue is no excuse. (See material fact, misrepresentation)
FOR EXAMPLE: An engineer for a local software company fills out a rental application at Ocean Villas and is told to expect a response. The next day, the engineer learns that the software company is moving its office to Modesto. News of the move appears in the newspaper the same morning and the manager at Ocean Villas sees the article. The manager phones the company and learns that all employees, including Maria, will be relocating to Modesto. Before the engineer can get back to Ocean Villas to withdraw the rental application, the manager signs it and faxes a copy of the rental agreement to the engineer. Does the manager have a new tenant?
No. Once the manager learned of the prospective tenant's change of circumstance from a reliable source and verified it with a phone call to the applicant's place of business, the manager had sufficient notice of the intended revocation of the application.
FOR EXAMPLE: The asking price for a Tahoe residence is $495,000. A couple offer $488,600 for the house. The seller makes a counteroffer of $492,000. The counteroffer is rejected and the seller decides $488,600 is not such a bad offer after all and signs the original purchase contract, returning it to couple. Can the seller do that?
No. Once the seller made a counteroffer, the seller effectively turned down the Murrays' original offer. Of course, the Murrays can treat George's "acceptance" as an invitation to remake their original offer and proceed with the transaction on those terms.
FOR EXAMPLE: P and Q, a married couple, make an offer to purchase the Castle estate. The offer is accepted, and the closing of the sale is to take place in two months. Before the closing date, P and Q decide to dissolve their marriage and live apart. Alone, neither can qualify for a loan to purchase the Castle estate. What can P and Q do to get out of their offer of purchase?
P and Q should immediately inform the Castles, who may agree to rescind the contract. If not, P and Q could refuse to perform on the grounds of impracticability but should consult an attorney first.
assignee
Party to whom an assignment of rights is made. (See assignment, assignor)
legal capacity
Person who is an adult or emancipated minor and mentally competent to enter into a contract.
FOR EXAMPLE: J and K want to buy a house in Woodville. They contact broker C, who shows them several houses, including one near a major thoroughfare. J and K talk to the owner, who tells them that the traffic noise will be reduced considerably after the city puts up a cement block wall along the property closest to the roadway. Broker C, who is present, knows that such a wall has been proposed to the city council but has not yet been approved. C does not contradict the owner, however. J and K make an offer, which is accepted. Before the close of the sale, they check with the city authorities to find out when the soundproofing wall will be erected and discover the truth. Can J and K back out of their deal with the seller?
Probably, the seller misrepresented the condition of the property—that is, the owner said the noise problem would be alleviated. Broker C knowingly went along with that misrepresentation, for the broker was present when it was made but did not object. Broker C's conduct could be reported to the Real Estate Commissioner.
rejection
Proposing any deviation from the terms of the offer constitutes a rejection of the original offer and becomes a new offer. (See counteroffer)
undue influence
Strong enough persuasion to completely overpower the free will of another and prevent him or her from acting intelligently and voluntarily, as in a case where a broker guilty of blockbusting has induced someone to sell in fear of a change in the racial character of the community.
novation
Substituting a new obligation for an old one or substituting new parties to an existing obligation.
FOR EXAMPLE: A week before closing, P and Q, who have rec¬onciled their differences, decide against buying the C estate. What recourse do the Cs have when informed of this decision?
The Cs can agree to rescind their contract and either keep or return the earnest money deposit. If the Cs keep the deposit, P and Q could sue for its return. The Cs could agree to release the P and Q from their contractual obliga¬tion but retain the security deposit as consideration for the release. Or the Cs could sue P and Q for specific performance. Most likely, the Cs will sell the property as soon as possible to someone else and sue P and Q for any loss in value that might result.
The Ms offer to purchase the P residence. Their offer to purchase describes the property as the P residence on Gray Street, Meadowville, Yolo County. Is this description adequate? Is it advisable?
The description could be adequate if P owns only one house on Gray Street. It is not advisable, however. Not only could P own more than one house on Gray Street—there is no description of the land involved.
performance
The execution of an action; the fulfillment of a promise or request; implementation.
Rescission
The legal remedy of terminating or annulling a contract and restoring the parties to their original positions; a return to the status quo. Contracts may be rescinded due to mistake, fraud or misrepresentation and, there is no need to show any money damage. both parties back out
default
The nonperformance of a duty or obligation that is part of a contract. A default is normally a breach of contract, and the nondefaulting party can seek legal remedies to recover any loss.
Elements of a valid contract
The parties must have the legal capacity to enter into a contract. There must be an offer by one party and acceptance of that offer by the other party. There must be a lawful object to the contract. There must be some form of consideration, or payment, supporting the contract. The contract may have to be written.
assignor
The party making an assignment of rights to someone else (the assignee). (See assignment, assignee)
offeror
The party who makes an offer - usually the buyer. (See offer)
offeree
The person to whom an offer is made - usually the owner. (See offer)
optionee
The person who acquires the right to purchase (the optionee)
assignment
The transfer of the right, title and interest in the property of one person (the assignor) to another (the assignee). There are assignments of, among other things, mortgages, sales contracts, contracts for deeds, leases and options. (See assignor, assignee)
uniform vendor and purchaser risk act
This act states that the seller bears any loss that occurs before the title passes or the buyer takes possession.
offer and acceptance
Two essential components of a valid contract; a "meeting of the minds." (See acceptance, offer)
Which of the following describes "mutual consent?" (a)Offer and acceptance (b)Tender (c)Counter offer (d)None of the above
Your answer: (A) is correct. Mutual consent means a meeting of the minds, usually in the form of an offer and acceptance.
breach of contract
Violation of any of the terms or conditions of a contract without legal excuse; default; nonperformance. The nonbreaching party can usually seek one of three alternative remedies upon a material breach of the contract: rescission of the contract, action for money damages or an action for specific performance.
executed contract
Written agreement that has been signed by all parties; agreement that has been completed according to its terms
FOR EXAMPLE: Hearth Homes is offering an extra incentive to agents to attract more buyers to the newest Hearth Homes subdivision. For every sale that is closed before Labor Day, the selling agent will earn an extra $1,000 commission. This offer is advertised in a flyer sent to each brokerage office. Broker L brings a client to the Hearth Homes subdivision, and the client purchases a home. The sale is finalized on August 31. Is L entitled to the $1,000 bonus?
Yes. Because broker L met the terms of the unilateral offer, L is entitled to the extra compensation.
FOR EXAMPLE: A new resident moved to Imperial City but never notified the local waste disposal company to start service. The resident leaves leave their trash out at the usual pickup time, and it is removed by the disposal company. Can the waste company bill the resident for the service?
Yes. By making use of the waste disposal company's service, the resident made an implied contract to pay for the service.
D is the neighbor, good friend, and accountant of E, who is 82 years old and legally blind. D wants to buy E's condominium and tells E that property values are going down, so E should sell the unit as soon as possible. D then offers E $300,000 for the condo, about $200,000 less than its current market value. Because E paid $43,000 for the unit in 1977, E is very impressed with the offer and accepts. Shortly after the offer is accepted but before the sale is closed, E is visited by another friend, who informs E of what a poor deal E has made. Can E do anything about it?
Yes. E should contact an attorney immediately to disaffirm the contract with D. E should have no problem doing so, because the offer D persuaded E to take is so obviously inadequate. E's attorney should also advise E that it may be in E's best interest to seek another accountant.
Failure to perform any of the terms or conditions of a contract is called (a)breach. (b)novation. (c)break. (d)addendum.
Your answer: (A) is correct. Breach of contract is the violation of any of the terms or conditions of a contract without legal excuse. The non-breaching party can usually seek one of three alternative remedies upon a material breach of the contract: rescission of the contract, action for money damages, or an action for specific performance.
Failure to perform any of the terms or conditions of a contract is called (a)breach. (b)novation. (c)break. (d)addendum.
Your answer: (A) is correct. Breach of contract is the violation of any of the terms or conditions of a contract without legal excuse. The non-breaching party can usually seek one of three alternative remedies upon a material breach of the contract; rescission of the contract, action for money damages, or an action for specific performance.
A counteroffer by the seller (a)creates a brand new offer that replaces the buyer's original offer. (b)amends the original offer from the buyer, essentially adding to it. (c)accepts the original offer and starts a back-up offer. (d)rejects the original offer and bars that buyer from submitting future offers.
Your answer: (A) is correct. If the seller changes any of the contract terms, the seller makes a counteroffer. Any change by the seller rejects the buyer's offer as originally written. The seller can change terms only by, in effect, creating a brand new offer that replaces the buyer's original offer.
You enter into a contract with a person not knowing he was judicially declared incompetent. The incompetence of one of the parties to this agreement would make the contract (a)void. (b)valid. (c)enforceable. (d)valid until voided by the court.
Your answer: (A) is correct. Since one of the parties to the agreement was incompetent, the contract is void.
To verify the condition of the property prior to close of escrow, it is a good idea to do a (a)secondary property inspection (b)final walk-through (c)drive-by (d)contingency removal
Your answer: (B) is correct. A final walk-through inspection of the property by the buyer a day or two before closing is always advisable.
Which of the following is an example of actual fraud? (a)An inadvertent omission of a material fact by a subcontractor (i.e., termite company). (b)A promise made without any intention of performing it. (c)An unfulfilled promise to hold a certain number of open houses without deliberate intent to deceive. (d)An accidental slip of the tongue without the intent to deceive.
Your answer: (B) is correct. Actual fraud must be performed with the intent to deceive.
A broker sells a house advertised "as-is." There are no obvious defects that would be evident to a prudent buyer upon inspection, but the seller and the broker know that the plumbing is very defective. The buyer moves in and discovers the defects. The buyer then sues the broker and the seller for misrepresentation. The suit will probably be (a)Successful because the seller and the broker withheld material information that should have been disclosed. (b)Successful because an "as-is" clause does not relieve a seller or broker from liability for disclosing material facts which they knew of. (c)Unsuccessful because selling the property "as-is" gives constructive notice that there are defects. (d)Unsuccessful because the defects would have been revealed if the purchase agreement had contained an inspection clause.
Your answer: (B) is correct. An "as-is" clause, by itself, does not relieve a residential property seller or broker from liability for latent defects which they knew of or latent defects which the seller or broker had a duty to inspect for and discover. This is because an "as-is" clause, by itself, never bars claims of fraudulent misrepresentation and does not even bar claims of negligent misrepresentation, concealment, or nondisclosure.
According to the statute of limitations, an action based on a written real estate sales contract must be brought within (a)five years. (b)four years. (c)three years. (d)one year.
Your answer: (B) is correct. An action based on a written instrument (such as a real estate sales contract) must be brought within four years.
A contract signed under duress is (a)void. (b)voidable. (c)illegal. (d)enforceable.
Your answer: (B) is correct. Duress is a threat whereby a person is forced to do some act against his or her will. The person who was forced to perform under a threat has the right to void the agreement or let it stand. A voidable contract is one that appears valid and enforceable on its face but is subject to rescission by one of the parties who acted under a disability.
In most cases, an offer may be revoked (a)prior to close of escrow. (b)before it is accepted, as long as the revocation is communicated directly to the offeree. (c)at any time, for any reason, as long as the revocation is in writing.
Your answer: (B) is correct. In general, an offer may be revoked before it is accepted if the offeror communicates the revocation directly to the offeree.
What is it called when one person is substituted for another in a contract? (a)redaction (b)novation (c)subordination (d)hypothecation
Your answer: (B) is correct. The most general definition of novation is the substitution of a new obligation for an old one. It also means substitution of new parties to an existing obligation, as when the parties to an agreement accept a new debtor in place of an old one. For example, in the assumption of a loan, the lender may release the seller and substitute the buyer as the party primarily liable for the mortgage debt.
Which of the following statements is correct regarding mold or radon gas on the property? (a)It is the responsibility of the seller (or the seller's agent) to test for either mold or radon. (b)If radon gas or mold is known to exist on the property, it must be revealed to a prospective buyer. (c)Both (a) and (b) are correct. (d)neither (a) nor (b) are correct.
Your answer: (B) is correct. While it is not the responsibility of the seller (or the seller's agent) to test for either mold or radon, if either is known to exist on the property, it must be revealed to a prospective buyer.
Prior to close of escrow the subject property burns to the ground without fault of the buyer or buyer's agent and neither the legal title nor possession of the property had been transferred to the buyer. In this case, which of the following is the most likely outcome? (a)The buyer must still complete the terms of the contract. (b)The buyer must still complete the terms of the contract but the seller's insurance will cover rebuilding the home. (c)The seller cannot enforce the contract and the buyer is entitled to recover any part of the purchase price paid. (d)The buyer can back out of the deal but will lose his/her down payment.
Your answer: (C) is correct. If a material part of the real property is destroyed without fault of the buyer (or is taken by eminent domain), and neither the legal title nor possession of the property has been transferred to the buyer, the seller cannot enforce the contract and the buyer is entitled to recover any part of the purchase price that has already been paid.
Since a purchase contract is such a long and quite detailed contract, it is likely to contain corrections and written additions. The general rule regarding corrections to preprinted forms is (a)typed corrections take precedence over handwritten insertions. (b)corrections and/or written additions are not allowed on preprinted forms. (c)handwritten insertions take precedence over both typed and preprinted material. (d)preprinted insertions take precedence over handwritten insertions.
Your answer: (C) is correct. The general rule regarding preprinted forms is as follows: Typed insertions take precedence over preprinted material; handwritten insertions take precedence over both typed and preprinted material; and specific information takes precedence over general information.
When speaking about contract obligations, the word "execute" means (a)signing of the document. (b)death of one party to the contract. (c)performance of contract obligations. (d)cancellation of the contract prior to performance.
Your answer: (C) is correct. When speaking of future contract obligations, the word "execute" means contract performance. It may also mean signing of a document when speaking of contracts in general
A lawsuit to recover title to real property must be brought within
five years
If an "exclusive authorization and right to sell listing" does not contain a complete legal description, (a)the listing is void. (b)it is a violation of the Real Estate Law. (c)the listing is unenforceable. (d)None of the above
Your answer: (D) is correct. A complete legal description is not required for a listing, however, the description must be adequate, clear and not ambiguous.
Which of the following accurately describes a listing agreement which allows the broker to either find a prospective buyer, or purchase the home himself/herself?
Your answer: (D) is correct. An Option Listing is a listing in which the broker also retains an option to purchase the property for the broker's own account.
Both parties to a contract wish to terminate their agreement, restoring them to their original positions. This is called (a)release (b)novation (c)breach (d)rescission
Your answer: (D) is correct. Rescission is the legal remedy of canceling, terminating or annulling a contract and restoring the parties to their original positions.
Which of the following is a potential penalty for fraud? (a)Loss or suspension of a real estate license (b)Money damages (c)Criminal prosecution resulting in a fine and/or imprisonment (d)All of the above
Your answer: (D) is correct. The injured party may seek money damages, including punitive damages. A criminal prosecution may be brought against the person who committed the fraud, resulting in a fine and/or imprisonment. A real estate agent who takes part in fraud may suffer loss or suspension of his/her real estate license.
Which of the following types of contracts must be in writing under the Statute of Frauds? (a)listing agreement (b)an agreement that will not be completed within one year (c)a lease of real property for more than one year (d)All of the above
Your answer: (D) is correct. The statute of frauds lists the types of contracts that are required to be in writing. Among others, they include: an agreement that will not be completed within one year; the lease of real property for more than one year; an agreement that employs an agent, a broker, or any other person to purchase or sell real property (listing agreement).
minor
a person younger than 18 years of age A person who has not reached the age of majority and therefore does not have legal capacity to transfer title to real property.
The subject matter of the contract must be clearly expressed in definite terms:
adequate description of the property. All parties must be identified unambiguously The price must be specified in a real estate contract, unlike contracts for other types of property in which a reasonable (market) price may be inferred. The terms that specify the nature of the transaction and any conditions to its performance must be clear. The time of performance is important.
If either legal title or possession has been transferred, and
all or part of the property is then destroyed (or taken by eminent domain) without fault of the seller, the buyer must still complete the terms of the contract and is not entitled to recover any part of the purchase price already paid.
reformation
an action to correct a mistake in a contract, deed, r another document
consideration
anything of value given or promised by a party to induce another to enter into a contract; may be a benefit conferred on one party or a detriment suffered by the other
the typical real estate purchase contract is ______
bilateral
An offer is revocable before acceptance unless it is supported by some form of
consideration (payment)
commercial frustration / impracticability of performance
excuse for failure to perform contract obligation because of changed circumstances that make a purchase uneconomic; also called impracticabilty of performance
statute of limitations
law that stipulates the specific the specific time period during which a legal action must be brought following the act that gives rise to it. The statute of limitations prescribes time limits for various lawsuits. You can remember the deadlines below by remembering the numbers 5-4-3-2-10.
penalties for fraud
money damages, criminal prosecution, suspension of real estate license
If a material part of the real property is destroyed without fault of the buyer (or is taken by eminent domain), and
neither the legal title nor possession of the property has been transferred to the buyer, the seller (vendor) cannot enforce the contract and the buyer is entitled to recover any part of the purchase price that has already been paid.
release
removal of part of contract obligation, for consideration , by the party to whom the obligation is owed; removal of part of a property from a lien on payment of part of the debt owed
optionor
the property owner
An action based on fraud must be brought within _______ of the discovery of the fraud.
three years
An action based on an oral agreement (such as a lease for only a few months) must be brought within
two years
A mentally incompetent person cannot form a valid contract. Any such contract would be
void
A contract is _______ if it is entered into under threat of harm to a person or thing.
voidable
If someone makes a contract while drugged or intoxicated, the contract is
voidable
