Section 9: Purchase and Sale Agreements - quiz

8. Which of the following items does not need to be included in a purchase and sale agreement? A. Adequate description of the property B. Copy of the deed C. Method of payment D. Closing date

Correct Answer: B Explanation: A copy of the deed is not required to be included in a purchase and sale agreement.

22. If a purchase and sale agreement provides that time is of the essence: A. timely performance is considered an essential term of the agreement B. failure to meet any deadline is never considered a breach of the contract C. each party has 24 hours to meet all deadlines D. both the selling and the listing brokerage must meet all deadlines set forth in the contract

Correct Answer: A Explanation: A "time is of the essence" clause means that while performing the duties required by the agreement, the parties are legally required to meet whatever deadlines are set in the agreement.

30. The buyers want to make an offer to purchase a home, but they don't want to be bound to the contract if they are unable to obtain the necessary financing. What should they do? A. Include a financing contingency B. Include an earnest money refund provision C. Make a small earnest money deposit D. Refuse to put the offer in writing until the financing is obtained

Correct Answer: A Explanation: A financing contingency in the purchase and sale agreement would say something like, "If, through no fault of the buyer, the necessary financing cannot be obtained, the earnest money shall be refunded in full and this agreement shall terminate."

28. If the provisions of the purchase and sale form being used do not adequately cover the transaction an agent is handling, the agent may: A. attach a simple addendum form B. rewrite the unsuitable provisions C. write a new agreement that covers the transaction D. None of the above

Correct Answer: A Explanation: An addendum is used wherever additional contract provisions are necessary, including topics such as fixtures to be excluded from the sale and FHA/VA financing.

12. When completing a purchase and sale agreement form, a real estate agent must meet the same standard of care as: A. an attorney B. a private individual acting in his own best interest C. the seller D. the offeror

Correct Answer: A Explanation: An agent filling out a purchase and sale agreement form is held to the same standard of care as an attorney, so he may be liable for damages caused to either party because of his breach of duty.

21. Which of the following types of personal property would be transferred to a buyer in a typical real estate transaction? A. Only property listed in the purchase and sale agreement B. Personal property that was already in the house when the seller purchased it C. Personal property the buyer assumes is part of the real estate D. Lawn care equipment

Correct Answer: A Explanation: As a rule, on the completion of the transaction the seller removes personal property unless there is a written agreement to the contrary. The easiest way to avoid controversy is to put the intentions of the parties in writing, ordinarily in an addendum to the purchase and sale agreement.

27. The remedy of liquidated damages: A. is available only if provided for in the contract B. is available only if there is an earnest money deposit exceeding 5% of the purchase price C. is rarely provided for in purchase and sale agreements D. only applies if a financial loss can be shown

Correct Answer: A Explanation: Liquidated damages are available only if provided for in the agreement. Most purchase and sale agreements provide that the buyer's earnest money deposit will be treated as liquidated damages.

18. The date on which the seller receives the proceeds of the sale, the deed is delivered to the buyer, and all documents are recorded is called the: A. closing date B. termination date C. transfer of possession D. date of acceptance

Correct Answer: A Explanation: On the closing date, the proceeds of the sale are disbursed, the deed is delivered to the buyer, and all appropriate documents are recorded.

24. An earnest money deposit: A. can be any amount the parties agree upon B. may not be paid in cash C. must be deposited in a trust account immediately upon receipt D. must be at least 5% of the sales price

Correct Answer: A Explanation: The amount for an earnest money deposit varies according to local custom, but may be any amount that both parties agree on.

25. In most real estate transactions, the buyer is the: A. offeror B. offeree C. agent D. party responsible for setting a closing date

Correct Answer: A Explanation: The buyer is typically the offeror, since the buyer's completed purchase and sale agreement (before it is signed by the seller) serves as an offer to purchase.

9. A bump clause: A. permits a seller to keep the property on the market pending fulfillment of a contingency B. allows a VA purchaser to make up the difference between the appraisal price and the purchase price C. can only be exercised with the permission of the first buyer D. prohibits the seller from accepting contingent offers

Correct Answer: A Explanation: The purpose of the bump clause is to enable a seller to wait until a contingency is fulfilled before having to sell the property.

5. In a typical residential sales transaction, if there was no mention of a possession date, possession would be given: A. at the time of closing B. within three days of closing C. within a reasonable time after closing D. the date the purchase and sale agreement is signed

Correct Answer: A Explanation: Title transfers on the day of closing, and that would be the date the buyer would be entitled to possession, unless otherwise agreed.

6. A buyer and seller enter into a purchase and sale agreement that specifies that the buyer has 45 days to obtain financing. Through no fault of the buyer, it becomes impossible to obtain a loan commitment from a lender within the prescribed period; so the seller agrees to give the buyer an extension. The real estate agent should have both the buyer and the seller sign a/an: A. addendum B. amendment C. rescission agreement D. acceleration agreement

Correct Answer: B Explanation: The amendment would amend the agreed-upon closing date to accommodate the delay. An addendum would be a part of the original contract, not a later modification.

13. After receiving a seller disclosure statement a buyer can rescind the purchase and sale agreement: A. only if there is inaccurate information contained in the statement B. at her own discretion C. only if the statement is incomplete D. in writing, with proper explanation

Correct Answer: B Explanation: The decision to accept or reject the transfer disclosure statement is in the complete discretion of the buyer. No explanation is required.

15. The type of deed specified in most purchase and sale agreement forms is a: A. special warranty deed B. general warranty deed C. tax deed D. bargain and sale deed

Correct Answer: B Explanation: The most commonly specified deed in purchase and sale agreement forms is the general warranty deed, which offers the greatest protection to the buyer.

16. A written extension agreement between buyer and seller serves to: A. terminate the existing purchase and sale agreement B. defer the closing date C. invalidate the listing agreement D. increase the sales price

Correct Answer: B Explanation: The parties may agree to a written extension of the closing date, for instance, if it appears that a contingency will not be satisfied in time.

3. An offer to purchase real property: A. need not be in writing because it is only preliminary to a contract B. must be in writing because of the statute of frauds C. must be in writing because it is a contract D. should not be in writing until it is accepted

Correct Answer: B Explanation: The statute of frauds is a state law that requires certain contracts to be in writing; this generally applies to transfers of real property.

10. Once a sales contract is signed by the parties, the buyer immediately receives: A. possession B. legal title C. equitable title D. the right to lease the property

Correct Answer: C Explanation: A buyer receives equitable title to the property once the sales contract has been signed.

4. The effect of a counteroffer is to: A. extend the deadline for acceptance of the original offer B. revise the existing contract to purchase C. terminate the offer D. create a new, binding contract

Correct Answer: C Explanation: A counteroffer completely terminates an offer and acts as a new offer.

19. Despite a good faith effort, the buyer was unable to obtain financing on the terms spelled out in the contingency clause. As a result: A. the seller is entitled to damages B. the earnest money is forfeited C. the purchase and sale agreement terminates and the earnest money is refunded D. new financing terms must be specified

Correct Answer: C Explanation: A financing contingency protects the buyer from being liable for damages in the event he is unable to obtain the necessary financing.

20. Transfer of possession: A. cannot occur before closing B. must occur after closing C. normally takes place at closing D. is the same as closing

Correct Answer: C Explanation: On the closing date, the deed is delivered to the buyer and all appropriate documents are recorded.

14. P enters into a purchase and sale agreement with Seller H. Shortly thereafter, a title search reveals that H will not be able to deliver marketable title to P because there are some title defects that cannot be corrected. P demands, in writing, that her earnest money deposit be returned immediately. Which of the following is the proper course of action for the brokerage? A. Immediately refund the deposit to the buyer B. Split the deposit 50/50 with the seller C. Notify the seller of the buyer's demand D. Take no action until the buyer and seller have reached an agreement on the disposition of the earnest money

Correct Answer: C Explanation: The brokerage must send the seller a written notice that the buyer has demanded release of the deposit. If the seller doesn't object, the brokerage must release the funds to the buyer. If the seller does object, the brokerage will have to file an interpleader action and let a court resolve the issue.

23. The purchase and sale agreement includes a financing contingency clause, for the benefit of the buyer. Three weeks after signing the agreement, the seller receives notice that the buyer is backing out of the transaction. The seller will be required to return the buyer's earnest money deposit if the buyer: A. never applied for financing B. applied and qualified for financing C. applied for financing and was turned down D. applied for the financing and then withdrew the application

Correct Answer: C Explanation: The buyer is only entitled to have the deposit refunded if the contingency clause was not fulfilled in spite of a good faith effort to get it fulfilled. If the buyer is withdrawing from the transaction without having made a good faith effort, or withdrawing even though the contingency has been fulfilled, he forfeits the earnest money.

17. A binding contract exists: A. as soon as the buyer signs the purchase and sale agreement form B. when the agent receives the signed form from the buyer C. after the seller signs the form signed by the buyer and returns it to the buyer D. once the earnest money has been received by the agent

Correct Answer: C Explanation: The buyer's signature turns the form into an offer to purchase, and the seller's signature turns the form into a binding contract.

1. If the full legal description of a property is too long to fit on the form, the agent should: A. use the street address instead B. give as much of the description as will fit in the space provided C. attach a separate sheet with the full description D. insert a reference to the recorder's office where the deed is on file

Correct Answer: C Explanation: When the legal description is lengthy, the licensee should prepare a full description on a separate sheet of paper and reference the attachment in the space provided in the purchase and sale agreement for the legal description. The licensee should never just fill in the street address; it is not a legally adequate description.

29. The purchase and sale agreement includes a contingency clause for the benefit of the buyer. It is clear now that the contingency will NOT be met by the closing date. The contingency clause can be waived by: A. either the seller or the buyer B. neither the seller nor the buyer C. the seller D. the buyer

Correct Answer: D Explanation: A contingency clause can be waived by the party that it was intended to benefit, if that party chooses to go ahead with the transaction.

11. The prohibition against the unauthorized practice of law prohibits a real estate agent from: A. completing a purchase and sale agreement form for a buyer B. accepting an earnest money deposit C. completing a purchase and sale agreement form for a seller D. completing a purchase and sale agreement form for a transaction in which the agent is not representing either party

Correct Answer: D Explanation: A real estate agent may prepare routine purchase and sale agreements using standardized forms that were originally drafted by lawyers. A real estate agent may not go beyond that, however, by writing additional clauses or by offering a legal opinion regarding the document.

7. If a buyer makes an offer to purchase a house and sets no deadline for the seller's acceptance: A. the seller can accept at any time and create a binding contract B. the offer is invalid C. the offer expires 30 days from delivery D. the offer terminates if not accepted within a reasonable time

Correct Answer: D Explanation: An offer is not indefinite; it terminates after a reasonable time (although one court's definition of a "reasonable time" may vary from another's).

26. With the exception of sales supervised by the court, the amount of the earnest money deposited by a purchaser along with his offer is determined by: A. state law B. federal law C. MLS policy D. agreement between buyer and seller

Correct Answer: D Explanation: The amount of the deposit is determined by agreement between the buyer and the seller.

2. If the buyer will assume the seller's mortgage balance of $250,000 and pay the seller $85,000 in cash at closing, the agent should fill in the space provided for the purchase price as follows: A. $165,000 B. $185,000 C. $250,000 D. $335,000

Correct Answer: D Explanation: The full purchase price should include any mortgages or other liens that the buyer is assuming.