Chapter 10
What do NC real estate commission rules say about a broker accepting a check payable to the seller?
A broker may accept checks made payable to the seller for due diligence fees but only for the limited purpose of delivering the checks to the seller.
Which of these is not a true statement about rights of first opportunity?
A right of first opportunity is an irrevocable right, and the owner must agree to sell the property under the terms both parties agreed to when entering into the options contract.
Which of these items is NOT an acceptable way to identify the property subject to this agreement?
A seller-provided map with the property outlined
Which of these is NOT a potential benefit to the seller of using an Installment Land Contract?
Access to lump-sum sales proceeds at closing.
Why should the buyer be cautious about how much they put down as a building deposit?
Although buyers are contractually entitled to a refund of the building deposit if there is a material breach of the contract, it may be difficult, time-consuming, and costly to actually get the deposit back from a seller who is unwilling or unable to voluntarily return it.
What type of ownership interest does an option to purchase real estate give the option holder?
An equitable interest
What is one important difference between preemptive rights and options to purchase real estate?
An option to purchase real estate gives the holder an equitable interest in the property.
Under which circumstances might the agreed-upon purchase price for the property in an options contract vary?
An options contract that extends over a period of years might include a provision allowing for adjustments to be made to the purchase price based on inflation, or it could specify that the price will depend on a new appraisal conducted when the holder is ready to exercise the option to buy.
What is one thing the buyer and seller can do to protect themselves against becoming victims of wire fraud in a real estate transaction?
Before wiring money, contact the closing attorney's office at a number obtained independently to verify the legitimacy of the arrangement.
What type of agreements are real estate contracts?
Bilateral agreements
Which of these statements regarding foreclosure/eviction procedures under Installment Land Contracts is false?
Buyers have greater protections because sellers must pursue their remedies as a matter of contract law and not foreclosure law.
Which of these is a potential risk buyers should know about before signing an Installment Land Contract?
Buyers typically do not have the foreclosure protection available when the property is financed using a mortgage or deed of trust.
Under this contract, which of these fees is NOT typically the buyer's responsibility?
Confirmed special assessments.
Which of the following terms is another common name for an Installment Land Contract?
Contract for Deed.
Which of these is NOT a statement or certification the seller makes on the New Construction Addendum?
Contract for Deed.
Which of these is not a right included with the buyer's equitable title during the term of the Installment Land Contract?
Convey the property.
Which of these remedies is not something that's contractually available to a buyer if the seller breaches the contract?
Damages of three times the amount of the earnest money and due diligence fees paid.
Which of these is not a required element to form a legally-binding contract?
Earnest money
Which of these is a true statement regarding earnest money?
Earnest money is not required to create a valid sales contract in North Carolina.
Are due diligence and earnest money payments refundable to a buyer who cancels the sales contract during the due diligence period?
Earnest money is refundable under these circumstances but due diligence payments are not refundable.
Potential benefits to buyers of using Installment Land Contracts include all of the following EXCEPT:
Higher interest rates.
Which of these is a true statement when it's necessary to use an attorney to prepare contract-related forms?
If a licensee is not a real estate agent, an attorney must prepare any contract-related forms provided by the licensee to the parties if the content of the document will affect the parties' legal rights.
Which of the following types of information should NOT be captured in the insulation chart included in the New Construction Addendum as item 7?
Insulation manufacture date.
Which of the following would be most likely to have a right of first refusal on a commercial property?
Long-term large business tenant.
What kind of down payment requirement might a borrower expect when purchasing property under an Installment Land Contract?
Lower compared to traditional financing.
Which of the following is not a type of investigation a buyer might complete when purchasing property using the Offer to Purchase Vacant Lot/Land form?
Mold and mildew inspection.
Can the "Offer to Purchase Vacant Lot/Land" contract be made contingent on the buyer's ability to obtain financing?
No, purchases using this form are not contingent on loan approval.
If a residential dwelling was designed in 1977 and erected in 1979, would the Lead-Based Paint Addendum be necessary for the contract?
No, the addendum is only required if the dwelling was constructed before 1978.
When the Short Sale Addendum is used, which of these is NOT a true statement regarding other offers and additional contracts?
No, the addendum is only required if the dwelling was constructed before 1978.
When a seller makes a counteroffer, is there automatically a valid agreement between the parties?
No. A counteroffer is, in effect, a rejection and a new offer. The buyer can choose to accept the counteroffer or make a counteroffer of their own.
May a broker who receives an offer "sit on" the offer and wait five days to give it to their client so they can deliver all offers at the same time?
No. Agents must present offers as soon as possible but under no circumstances later than three days from receipt.
Are verbal offers or counteroffers legally valid in North Carolina?
No. In North Carolina, offers must be in writing to be legally enforceable.
Are all of the provisions included in the standard NC OPC form required to form a valid contract?
No. The OPC includes required provisions plus additional terms and conditions designed to protect both the buyer and the seller.
Traditionally, real estate contracts were always made and signed on paper. Is that still the case?
No. Unless the contract limits or specifies the way offer and acceptance can be made, it is acceptable to create a contract through electronic means.
How long is the term of an options contract?
Options periods can differ, but they may be between 30 days and 90 days or multi-year periods.
Rich has a right of first refusal and Oscar has a right of first opportunity. Whose right gives them more control?
Oscar. When notified that the property owner wants to sell, he can be the first to make an offer. Rich cannot make an offer until a third-party has already done so and then, he can only offer to match that third party offer.
Which of these is not an option available to the seller when an offer is received?
Pend the offer indefinitely in the hopes of receiving a higher offer from someone else.
Buyers are usually responsible for paying certain expenses during the term of the contract. Which of these is an expense that the seller, not the buyer, typically pays?
Personal property insurance for the seller's property maintained on-site but not included in the sale.
Which has a longer duration, a right of first refusal or a right of first opportunity?
Preemptive rights are negotiated between the parties. The durations and time periods for exercising preemptive rights will differ from one contract to another
Which of these is not a common scenario for sellers and buyers to come to an agreement for a sale?
Property is left in a mother's will to her adult son who decides to keep it after her death.
What is another common name for the right of first opportunity to purchase?
Right of first offer.
An Installment Land Contract is:
Seller financing.
Why must the seller provide the buyer with an affidavit and indemnification agreement that states that anyone providing material or labor within 120 days of settlement was paid in full?
So the buyer, their lender, and insurer are not responsible for the seller's non-payment of these obligations.
Which of these is NOT included when completing item 1(d) of the agreement (purchase price)?
Survey fee.
A buyer's agent wants to include additional information regarding one of the contract provisions as an Addendum. Which of the following is a correct statement?
The agent may use a pre-printed addendum, or the client can retain an attorney to draft new language.
Which of these is a true statement regarding Installment Land Contracts?
The agreement may provide for monthly installments for a period of years, followed by a balloon payment at the end.
The seller agrees in item 6(b) of the New Construction Addendum to provide the buyer with all guarantees and warranties for individual components of the home, when such warranties are assignable. Who is responsible for providing notice of assignment?
The buyer
Which of these is a true statement regarding the buyer's right to inspect the property under the New Construction Addendum?
The buyer or their representative has the right to enter the property to inspect additional minor improvements at reasonable times to determine whether the work conforms to the terms of this contract, as long as their doing so does not impact or otherwise interfere with construction.
Which of the following statements about equitable and legal title under an Installment Land Contract is true?
The buyer's equitable title serves to protect them, prohibiting the seller from turning around and selling the property to someone else during the term of the contract.
What is the effective date for the Offer to Purchase Vacant Lot/Land contract?
The date on which the last of the parties signs or initials the final offer or counteroffer and that the signing or initialing has been communicated to the other party.
Which of these is not a true statement regarding closing?
The date when all required the documents are delivered to the closing attorney.
Why might an investor want to enter into an option to purchase real estate?
The investor thinks the market will go up, and they can lock in a lower price.
Which of the following is NOT a true statement about the limited warranty of construction described in the New Construction Addendum?
The limited warranty of construction is good for two years from the date of closing or from the date the buyer occupies the property, whichever comes first.
What right does a right of first refusal provide to the holder?
The option of matching a third party's offer to purchase the property owner's real estate (or to refuse to do so).
In an option to purchase real estate, who is the "optionee," and who is the "optioner"?
The optionee is the tenant, investor, or another party buying the right to purchase the real estate property. The optioner is the property owner, selling that right.
Closing costs for Installment Land Contracts are often lower than for transactions using traditional financing. Which of these is NOT a reason why closing costs would be lower?
The parties agree to prorate real estate taxes.
What is the "consideration" in an options contract?
The price the option holder pays for the contract, which gives them the right to purchase the piece of real estate.
Which of the following is NOT a risk associated with using an incorrect real estate contract form?
The property description might be incorrect or inaccurate.
Which of these is not a potential downside for a property owner who enters into an options contract?
The property owner gets to keep the amount paid for the options contract, whether the option holder exercises their rights or not.
Why might a property owner enter into an option agreement that gives someone else the option to purchase their property?
The property owner thinks the real estate market will go down, so the owner could make a profit.
Which type of preemptive right would you have if the owner of the burdened real estate must notify you if they intend to sell their property, before they accept offers from other potential buyers?
The right of first opportunity.
What happens if the contractual time period for a right of first opportunity expires without the rights holder making an offer?
The rights holder loses the opportunity to make the first offer and the owner may solicit and accept other offers.
Which of these is NOT a statement or certification the seller makes on the New Construction Addendum?
The seller or their General Contractor will begin construction after closing.
What happens at the end of the installment term, after the buyer has made all payments?
The seller records a deed to transfer legal title to the buyer.
What happens if the seller does not leave the property at the end of the agreed upon term?
The seller will be responsible for all of the agreement's terms and conditions and must also pay the buyer a daily holdover fee.
If the parties agree that the seller will make additional improvements to the property before settlement, who is responsible for paying for such improvements?
The seller.
If there are unforeseen delays that prevent the seller from completing agreed-upon minor improvements by settlement, what happens?
The time for completion will be extended if the seller notifies the buyer of the delay within five days.
Which of these is not a reason licensees should understand preemptive rights?
To draft preemptive rights agreements and tailor provisions to meet clients' needs.
Who is responsible for paying real estate taxes, rents, and dues?
Unless agreed upon otherwise, the seller is responsible for these expenses through closing, at which point the buyer becomes responsible.
Which of these is not one of the forms that options to purchase real estate can take?
Vacation rental addendum.
How is a right of first opportunity to purchase different from a right of first refusal?
With a right of first opportunity to purchase, the holder has the first right to make an offer when notified that the seller intends to sell their property. With a right of first refusal, the holder instead has the right to match a third party's offer.
Are agents obligated to let their clients know about offers that are expected to be forthcoming?
Yes, agents must let their clients know about offers they believe to be forthcoming.
May a buyer withdraw a submitted offer before the offer expiration date when the seller has not taken any action on it?
Yes. A buyer can withdraw a pending offer that has not been accepted by the seller, even if the deadline for the seller's response has not yet passed.
Must a broker notify their client about a new offer when there is already a pending offer?
Yes. Brokers must present clients with all offers received even if there is already a pending offer.
Which of these documents would not be covered by the delivery of instruments rule?
inspection reports
Which of these is not a type of inspection the DVA may require when a buyer applies for financing through the VA?
lead-based paint inspection
How many days do brokers have to deposit a client's earnest money into a trust or escrow account?
no later than three days after acceptance of the offer to purchase or lease property
Who in a brokerage firm is responsible for real estate brokerage trust accounts?
the firm's broker-in-charge
How long do brokers have to present their clients with required documents under the delivery of instruments rule, North Carolina real estate commission rule A.0106(a)?
three days