Contracts Continued...

Vendor

seller

Vendee

buyer

Lendee

person who gets a loan

Acceleration Clause

States that upon default, all of the principal installments come due immediately.

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 goes to a third party.

Option contract

contract to hold an offer to make a contract open for a fixed period of time

A buyer makes an offer to purchase property. The seller changes the date of occupancy by one day, and signs the contract. If the purchaser does not agree with this change, which of the following is true? Select one: A. The buyer only has 72 hours to accept a change of this type 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

B. The purchaser has no further liability Any change to an offer, regardless of how minor, is a counteroffer that 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.

Escalator Clause

A lease provision which calls for changes in rental payments at specific intervals in the future.

Offeror

A person who makes an offer.

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

A. Equitable title

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

A. Offer and acceptance

If there is a breach of a valid contract for the sale for real property, which of the following remedies is available to the party who is not in breach? Select one: A. Rescission B. Specific performance and monetary damages C. Punitive damages D. Both A and B

A. Rescission 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 is a remedy that is not available for breach of contract.

A listing agreement must contain all of the following information EXCEPT: Select one: A. The signature of the owner of the property B. The percentage of commission or fee C. An expiration date D. The proceeds due to the seller from the sale

D. The proceeds due to the seller from the sale

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

D. option

Which of the following statements about options is true? 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

C. The optionee can extend the option period automatically

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

D. Rescind the contract unilaterally

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

B. A contract

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

B. The salesperson dies

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

B. Upon completion of the requested act

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

C. The sales contract 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.

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

C. Unenforceable

In which type of listing is the commission least likely to be expressed in terms of a percentage? Select one: A. Open B. Exclusive agency C. Exclusive right-to-sell D. Net

D. Net In a net listing, the seller stipulates a price he wants to receive for the property and agrees that the broker may keep (for his commission) any amount above this price. In a true net listing a commission is not specified. Net listings are illegal in most states.

Percentage clause

A rent arrangement in which, after the salon and spa grosses a certain amount of business, the rent will be computed on a percentage of the gross sales.

Unilateral Contract

A unilateral contract is a promise by one party only, like a broker who promises a prize to any salesperson that obtains 15 listings for the month. If and when a salesperson acquires 15 listings for the month is the broker obligated to fulfill his promise

Mr. Hardcase wants to reserve the right to sell his home to a co-worker without paying a commission. Which of the following listings best serves Mr. Hardcase's interests? Select one: A. An exclusive agency B. An exclusive right to sell C. A net listing D. None of the above

A. An exclusive agency An exclusive agency listing would allow the owner to sell the home himself without being liable for a commission. A net listing is illegal in most states.

Betty and Billy had a contract for sale but it discharged. Which of the following must be true regarding 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

A. Both Betty and Billy fully performed A contract is "discharged" only after both parties fully perform. Therefore, neither party could be in breach or entitled to seek damages.

Which of the following 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

A. Misrepresentation by one of the parties 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.

A listing may be revoked by: Select one: A. The seller B. The selling broker C. The salesperson that obtained the listing D. The death of the salesperson

A. The seller A listing may be revoked by the client (seller), agent (broker), or by mutual consent of both. The salesperson cannot terminate the listing. The LISTING broker, not the selling broker, may revoke the listing. Watch the wording of these questions.

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

B. Counteroffer

A listing will automatically terminate: Select one: A. If the listing broker goes bankrupt B. On the date specified in the listing agreement C. If the seller dies prior to receiving an offer from a ready, willing, and able buyer D. All of the above

D. All of the above

Helen listed her property for $145,000. Jim made an offer to purchase the property for $135,000. Helen made a counteroffer for $140,000. Which of the following statements is correct? Select one: A. Helen's counter offer 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

D. In the original offer, Helen is the offeree 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.

Sales assoicate Kelly of XYZ Realty takes a 90 day exclusive listing to sell a home owned by Murphy. Three weeks later, Kelly moves out of the area and puts her license on inactive status. Which of the following is true concerning the listing of Murphy's house? Select one: A. The exclusive listing becomes an open listing B. The listing remains effective C. The listing is voidable by Murphy D. The listing is automatically terminated

B. The listing remains effective The listing is a contract between the seller (Murphy) and XYZ Realty (broker), and NOT between the seller and sales associate. Therefore, the listing remains in force.

A buyer and a seller entered into a valid sales contract. Which of the following is least likely to jeopardize the sale? Select one: A. Interest rates substantially increase 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

B. The seller dies prior to closing Understand first 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. However, 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 as well.

A sales associate takes an exclusive right-to-sell listing on April 1 for 90 days, but moves out of the area on May 15 and has his license placed on voluntary inactive status on June 1. This listing would: Select one: A. Remain in effect B. Terminate on May 15 C. Revert to an open listing D. Terminate on June 1

A. Remain in effect The listing is with the broker, not the salesperson. Thus, it will remain valid regardless of the salesperson's residence or licensing status.

An option holder is obligated to do which of the following? 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 of time D. Nothing

D. Nothing The option holder (one 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 holder's option is only available for the stated period of time. However, it is not true that the option holder must exercise the option at any time at all. It is also not true that the option holder must provide any further assurances or withdraw the option (the option expires automatically after the specified time).

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? Select one: A. Vernon dies before the seller accepts the offer B. The seller re-submits the offer with a minor change as to settlement date C. The seller proposes to wait a week before acceptance D. All of the above would terminate the offer

D. All of the above would terminate the offer

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

D. Any of the above

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

D. Attorney-in-fact

An owner entered into a valid listing agreement. During the period of the agreement, the seller sells the property himself. The seller is not legally required to pay a commission to any broker. What type of listing agreement did the seller have? Select one: A. An open listing B. An exclusive agency C. An exclusive right-to-sell listing D. Either A or B

D. Either A or B In an open listing, the only person that gets paid is the broker that sells the property. So if the owner sells the property, no commission is due to anyone. In an exclusive agency, even though the owner has given the listing to a broker, the owner reserves for himself the right to sell the property and NOT pay a commission. In an exclusive right to sell listing, the broker gets her commission regardless of who procures the sale, even if it is the seller who finds the buyer. Therefore the seller could have either an open listing or an exclusive agency.

Contingency clause

a clause in a real estate sales contract that makes the agreement conditional on such factors as the availability of financing, property inspections, or obtaining expert advice

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.

Contract rescission

refers to the termination or cancellation of a contract. ... The word rescission comes from the word "rescind" which means to cancel or annul. The purpose of contract rescission is to restore the parties to their original status before the contract was made

A broker who intends to be compensated if any other person sells his listed property during the listing period, should acquire: Select one: A. An exclusive right-to-sell listing B. An open listing C. An exclusive agency listing D. A net listing

A. An exclusive right-to-sell listing

When property is sold with an existing lease: Select one: A. 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

A. Lease interests are transferred 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.

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 party's fail to provide proper notice

A. The lease may be oral This lease has a definite duration and a definite expiration--3 months. Therefore, this lease is an estate for years, and NOT a periodic tenancy. Note that an estate for years can be for any fixed term (days, months, years). An estate for years requires no notice to terminate because the termination date is specified in the lease contract. A periodic tenancy, on the other hand, requires notice to terminate or the leasehold will continue for another term. Leases for less than a year may be oral without violating the Statute of Frauds. Therefore, the best and only correct answer is that the lease may be oral.

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

B. A suit for specific performance

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

B. By signing a valid sales contract on the property

Charlie has an option to buy Jim's property. The option expires this year 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 quit claim deed in the public record D. Must record a release in the public record

B. Does not have to do anything

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

C. Consideration The essential elements of a contract are offer/acceptance, consideration and lack of defenses. The question does not specify a REAL ESTATE contract which would require a writing and property description in addition to the other essentials.

The clause in a lease that allows rent to increase is a/an: Select one: A. Acceleration clause B. Percentage clause C. Escalator clause D. Contingency clause

C. Escalator clause Of the choices, only an escalator clause specifies that rent will increases at periodic times by predetermined amounts.

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

C. Invited Joan to enter into a contract

Broker Sam lists a house and sells it 2 months into the listing period. After closing Sam tries to collect his commission but the seller refuses and correctly asserts that he is not legally obligated to pay. What type of listing did Sam have? Select one: A. Exclusive agency listing B. Open listing C. Net listing D. Exclusive right-to-sell listing

C. Net listing With a net listing (which is illegal in most states) the seller specifies the NET amount that he must receive and the broker gets anything over and above that amount. If the property sold did not give the seller his specified net, then the broker would not be entitled to a commission even though he sold the property. In all of the other listings the commission would be due if the broker sold the property.

All of the following must be true of the impossibility defense 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

C. The contract could be rescinded pursuant to a rescission agreement 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 is not the case that it must be true, and it is the best answer of the choices presented.

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

C. The seller is obligated to return the buyer's deposit

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

C. Use as the tenant and landlord negotiate 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.

Jon and Jacob are parties in a valid agency agreement. One day, Jon wakes up and decides that he no longer cares for Jacob's personality. Can Jon terminate the contract? Select one: A. Yes, if Jon is the client B. No, because Jon has an acceptable reason C. Yes, regardless of whether Jon is the client D. No, because Jon must perform

C. Yes, regardless of whether Jon is the client Courts will not enslave someone to perform by ordering specific performance. While Jon could be in breach (there is insufficient data to determine), he or Jacob can terminate the contract at any time and for any reason, although his actions may cost him a damage award to Jacob.

A broker obtains an open listing on a piece of property. In order to collect a commission on the sale of the property, the broker must prove which of the following? Select one: A. He was licensed at the time of the sale B. He had been engaged by the owner at the time of the sale C. He was the procuring cause of the sale D. All of the above

D. All of the above

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

D. All of the above

Which of the following 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

D. All of the above All of the listed contracts, which involve the sale of land, must include a description of the property.

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

D. Any of the above

A broker, by virtue of a signed listing agreement, generally has the authority, without the consent of the seller, to do all of the following EXCEPT? Select one: A. Use the services of another broker B. Use the services of salespersons in his own brokerage firm C. Use the MLS to market the property D. Bind the seller to a full price offer

D. Bind the seller to a full price offer The decision to accept or reject an offer always remains with the client.

Which of the following listings permits a seller to sell his property without paying a commission to any broker? Select one: A. Open listing B. Exclusive agency listing C. Exclusive right to sell listing D. Both A and B

D. Both A and B

Bill the buyer makes an offer to purchase and gives broker Joan a $1,000 earnest money deposit. The next day, 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

D. Both A and C

A seller accepts an offer on his property when a second one arises. The agent may: Select one: A. Hold the second offer to see if the first offer goes to closing B. Present the second offer C. Tell the second offeror to "stand by" D. Both B and C

D. Both B and C

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 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

D. Fowler will not get a commission unless cook exercises the option Fowler does not get a commission until and unless 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).

A 19-year-old inherits property from his grandfather and immediately enters into a contract to sell it. 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

D. No, the contract is valid and binding on all parties 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.

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 so agreed in the option contract C. Yes, because Joan would otherwise be unjustly enriched D. No, unless the contract is otherwise invalid

D. No, unless the contract is otherwise invalid 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.

A property owner, after the death of his wife, lists his property with a broker. Two days later he sells the property himself but is NOT obligated to pay the broker a commission. What type of listing agreement did he most likely sign? Select one: A. Multiple B. Exclusive authorization-to-sell C. Exclusive right-to-sell D. Open

D. Open

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

D. Rescission agreement

If an optionee does NOT exercise his option during the option period, which of the following is most likely to be true? 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

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

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

D. Valid 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 the transfer of an interest in land (lease). Therefore, a listing need not be written under the statute of frauds. However, 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.

Which of the following statements, if proven false and made by a broker, is least likely to be puffery? 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 have had in years" D. "The property is close to everything"

B. "You can double your money on this property in less than 2 years" Any time that a broker suggests or guarantees the return on investment, he has crossed over the line from puffery to misrepresentation or possibly fraud. Puffery is a matter of opinion.

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 and orally accepts

C. The seller mails the acceptance

Lender

A person or organization who makes funds available for others to borrow

Offeree

A person to whom an offer is made.

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. A writing

A. Performance A valid contract requires an offer and 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.

A listing agreement will automatically terminate: Select one: A. If the selling agent changes brokers B. On the date specified in the listing agreement C. If the owner abandons the property D. All of the above

B. On the date specified in the listing agreement

Under the customary listing agreement, the sales associate can: Select one: A. Accept or reject offers for the seller B. Place a "For Sale" sign on the property C. Deposit earnest money in her escrow account D. Advertise the property at a price lower than the listed price

B. Place a "For Sale" sign on the property

Which of the following 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

B. Termination date

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 property being purchased is a servient 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

B. If the seller defaulted on the sales contract before closing 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, then he would not sue to have the terms of the contract carried out. If the seller tries to back out of the contract, then the buyer would probably sue.

Which of the following listing agreements is LEAST likely to specify a commission rate? Select one: A. Open listing B. Net listing C. Exclusive agency D. Exclusive right-to-sell

B. Net listing A net listing will not show any commission rate. Instead, the seller specifies that she wants to net a certain amount of money from the sale. Anything over and above that amount is the broker's commission.

Seller Pruitt signed an exclusive right-to-sell listing with broker Cook. The listing includes a 7% commission and a clause stating it is in effect until the house is sold. Is this legal? Select one: A. No, because the commission was over 6% B. No, because the duration is potentially indefinite C. Yes, if it is a multiple listing D. Yes, assuming all other elements are satisfied

B. No, because the duration is potentially indefinite Exclusive listings must have a definite termination date. If the house does not sell, the agreement could exist forever.

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

B. Novation

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 three parties should sign a(n): Select one: A. Assignment B. Novation C. Sublease D. Cancellation

B. Novation 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 goes 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.

Which of the following 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 sales associate D. Revocation of the offer

C. Death of the sales associate Sales contracts are between the buyer and seller--the sales associate is not a party. Therefore, the sales associate's death has no affect on an offer or the validity of a sales contract.