Unit 11: Real Estate Contracts
What is the status of the contract Connie and Dennis signed?
Voidable
The buyer has made an offer that the seller has accepted, and proper notice has been given to the buyer of the seller's acceptance. The offer is now considered
an executory contract.
Once a contract has been agreed upon and signed by all parties
changes must be addressed through the use of an amendment.
A real estate licensee may assist consumers with contract preparation using preprinted forms as long as
no separate fee is charged for completing the forms.
Substitution of a new contract for an existing contract is called
novation
Which of the following is FALSE about assignments?
All contracts must allow assignments.
What is another reason a contract may be voidable?
All of these may be reasons a contract is voidable.
A buyer and a seller enter into a real estate sales contract. Under the contract's terms, the buyer will pay the seller $500 a month for 10 years. The seller will continue to hold legal title, while the buyer will live in the home and pay all real estate taxes, insurance premiums, and regular upkeep costs. What kind of contract do the buyer and seller have?
Land sales contract
If a buyer defaults on a purchase agreement and the seller keeps the buyer's earnest money, which of the following remedies has the seller elected?
Liquidated damages
A buyer signs a contract under which he is given the right to purchase a property for $130,000 anytime in the next six months. The buyer pays the current owner $500 at the time that contract is signed. Which of the following BEST describes this agreement?
Option
What action returns a contract's parties to their positions before the contract, including return of any deposit?
Rescission
While suffering from a mental illness that caused delusions, hallucinations, and loss of memory, a person signed a contract to purchase real estate. Which statement regarding the contract to purchase is TRUE?
The contract is voidable.
A broker accepted a listing and later discovered that the client had been declared incompetent by a court. What is the current status of the listing?
The listing is of no value to the broker because the contract is void.
A buyer and a seller sign a contract to purchase. The seller backs out, and the buyer sues for specific performance. What is the buyer seeking in this lawsuit?
Transfer of the property
Rescission returns the parties in a contract to their original position, whereas cancellation terminates a contract without a return to the original position.
True
Substitution of a new contract for an existing contract is called novation.
True
A clause in a purchase agreement that would allow the buyer to cancel the contract if the buyer cannot secure financing from a lender is
a contingency clause.
The sales contract says the buyer will purchase only if an attorney approves the sale by the following Saturday. The attorney's approval is
a contingency.
The buyer of real estate takes possession but not legal title to property under
a land contract.
The parties are returned to their original positions before the contract was created if there is
a rescission.
A contract is said to be bilateral if
all parties to the contract are bound to act
To make a change to a contract
an amendment must be used.
To make a change to a contract,
an amendment must be used.
The transfer of rights or duties under a contract to a third party is called
an assignment.
Once a sales contract is completed with all parties fulfilling their promises, the ownership changing hands, and the seller receiving the purchase price, the sales contract is
an executed contract.
A buyer and a seller agree on a purchase price of $300,000 for a house. The contract contains a clause stating that "time is of the essence." Which statement is TRUE?
an executory contract.
A buyer who owns the property in equity has
an executory contract.
A real estate professional has found a buyer for a seller's home. The buyer has indicated in writing a willingness to buy the property for $1,000 less than the asking price and has provided an earnest money check for $5,000. The seller is out of town for the weekend, and the real estate professional has been unable to inform the seller of the signed document. At this point, there is
an offer.
The property owner has given a potential buyer the right to buy the property at a set price for a set period of time; this is
an option.
A transfer of rights or duties under a contract is
assignment
In states that have adopted it, the Uniform Vendor and Purchaser Risk Act will come into play if
damage occurs to the property between the time a contract is entered into and the buyer takes possession
In the period after an offer to purchase real estate is accepted and the sale is closed, the buyer acquires an interest in the property that is called
equitable title.
A contract that has been fully performed is
executed contract
During the period after a real estate sales contract is signed, but before title actually passes, the status of the contract is
executory.
Funds in individual retirement accounts (IRAs) can never be used for a down payment on a home.
false
In a unilateral contract, both parties promise to do something—one promise is given in exchange for another.
false
In some states, instead of preparing a complete sales contract, real estate professionals may prepare a shorter document known as a briefer.
false
MOST real estate contracts are implied contracts.
false
Should the buyer default, an example of liquidated damages to the seller in a purchase contract could be
forfeiture of the earnest money deposit.
The purchaser of real estate under an installment contract
has only an equitable interest in the property's title.
A real estate broker uses earnest money placed in the company trust account to pay for the rent owed on the brokerage's office. Using escrow funds for this purpose is
illegal.
Under the statute of frauds, all contracts for the sale of real estate must be
in writing to be enforceable.
The buyer has defaulted on a purchase contract, and the seller's only remedy is to keep the buyer's earnest money. In this case, the seller's remedy is known as
liquidated damages.
A buyer under an executory contract has found numerous inspection issues the seller is unwilling to repair. The seller and the buyer agree to terminate the contract with all things of value returned to each party. This is known as
mutual rescission.
A void contract is one that was
never legally enforceable.
All of the following are essential to the formation of a contract EXCEPT
performance.
A buyer makes an offer to purchase certain property listed with a real estate professional and leaves an escrow deposit with the real estate professional to show good faith. The real estate professional should
put the deposit in an account, as provided by state law.
If, upon the receipt of an offer to purchase a property, the seller makes a counteroffer, the prospective buyer is
relieved of the original offer.
A contract is said to be executed when it includes
signatures of the parties
The period during which the parties to a contract may begin legal action to enforce their rights is determined by a state's
statute of limitations.
The courts usually do NOT inquire into
the adequacy of the consideration provided in a contract.
An inspection contingency in a real estate sales contract provides that
the buyer may obtain certain inspections of the property, at the buyer's expense.
The document that can be used to begin negotiations between the parties is
the letter of intent.
A prospective buyer submits an offer to purchase a residential property. All of the following circumstances would automatically terminate the offer EXCEPT
the seller received a better offer from another buyer.
After both a buyer and a seller have executed a sales contract, the buyer acquires an interest in the land. This interest is called equitable title.
true
The payments on all debts—normally including long-term debt such as car payments, student loans, or other mortgages—should not exceed 36% of monthly income.
true
A contract that has no legal force or effect is
void
A contract for the sale of real estate that does not state the consideration and provides no basis on which the consideration could be determined is considered
void.
The listing broker and the seller know that the foundation of the seller's house is unsafe. If they do not inform the buyer of this condition, the contract to purchase the property would be
voidable by the buyer.
When a seller deliberately deceives a buyer about the condition of real property, their contract of sale would be considered
voidable.
All of the following are essential elements of a contract EXCEPT
words of conveyance.
