Unit 11: Real Estate Contracts

T/F: In a unilateral contract, both parties promise to do something—one promise is given in exchange for another.

False

T/F: In some states, instead of preparing a complete sales contract, real estate professionals may prepare a shorter document known as a briefer.

False

T/F: MOST real estate contracts are implied contracts.

False

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? A) Land sales contract B) Contract for mortgage C) Unilateral contract D) Option contract

A) Land sales contract

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? A) Option B) Sales C) Installment D) Contingency

A) Option

The buyer and the seller are negotiating an offer. During the final stages of negotiations, the buyer crosses out part of paragraph 19 that states the seller has the right to continue to show the property and receive, negotiate, and accept back up offers and the seller agrees. What are the implications? A) The change should be initialed in the margin by the buyer before presentation to the seller. B) This is illegal; only a real estate attorney can do this. C) The broker will need to have a separate written agreement drawn up for the parties. D) This can only take place on an amendment form.

A) The change should be initialed in the margin by the buyer before presentation to the seller.

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) a contingency. B) a reservation. C) a warranty. D) a consideration.

A) a contingency.

A contract that exchanges a promise for a promise is said to be A) unilateral. B) bilateral. C) relateral. D) omnilateral.

B) bilateral.

What is minimum consideration in a valid contract? A) Specified goods or services B) One dollar C) Anything the parties agree is good and valuable D) Any item that can be appraised to determine its likely market value

C) Anything the parties agree is good and valuable

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? A) Money damages B) Partial performance C) Rescission D) Liquidated damages

D) Liquidates damages

What action returns a contract's parties to their positions before the contract, including return of any deposit? A) Substitution B) Subordination C) Cancellation D) Rescission

D) Rescission

A buyer and a seller enter a contract for the sale of a three-bedroom residential property. Shortly after the contract is in place, the buyer has an inspection done. As a result of the inspection, the buyer wants the seller to fix the fence and replace the garage door opener. The seller refuses. How should the parties proceed? A) The buyer can terminate the contract. B) The brokers need to encourage the parties to seek legal counsel. C) The seller can terminate the contract. The answer is the contract should provide the buyer's remedy if the seller refused to make indicated repairs. D) The contract should provide the buyer's remedy if the seller refused to make indicated repairs.

D) The contract should provide the buyer's remedy if the seller refused to make indicated repairs.

T/F: Rescission returns the parties in a contract to their original position, whereas cancellation terminates a contract without a return to the original position.

True

T/F: Substitution of a new contract for an existing contract is called novation.

True

True or False: 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 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 A) an executory contract. B) an assignment. C) an executed contract. D) a unilateral contract.

A) an executory contract.

A contract is said to be bilateral if A) both parties to the contract exchange binding promises. B) only one party to the agreement is bound to act. C) the contract has yet to be fully performed. D) one of the parties is a minor.

A) both parties to the contract exchange binding promises.

A contract that has been fully performed is A) executed. B) executory. C) voidable. D) unenforceable.

A) executed.

A buyer purchased a home under a land contract. In this form of seller-carry lending, the seller A) holds the deed to the home until final payment. B) holds the deed and possession of the property until final payment. C) passes title at the closing and has a second lien against the property. D) has equitable title and the buyer has legal title.

A) holds the deed to the home until final payment.

In case the buyer decides not to buy for no legal reason, the contract may provide that the earnest money be used as A) liquidated damages. B) punitive damages. C) nominal damages. D) actual damages.

A) liquidated damages.

The buyer's agent received a counteroffer that has been faxed back and forth so many times during the negotiations that it is no longer legible. The buyer's agent drafts a new, clear contract with all the accepted changes and has it signed by all the parties. This substitution of new contract is called A) novation. B) substitution. C) assignment. D) breach of contract.

A) novation.

A prospective buyer submits an offer to purchase a residential property. All of the following circumstances would automatically terminate the offer EXCEPT A) the seller received a better offer from another buyer. B) the house on the property was destroyed in a storm. C) after submitting the offer, the buyer died. D) the seller made a counteroffer.

A) the seller received a better offer from another buyer.

The term statute of limitations is BEST described as A) the time period in which parties to a contract may bring a lawsuit to enforce their rights. B) the broker's right to a commission. C) the amount of damages that can be claimed in the event of breach. D) the parties' abilities to demand a "time is of the essence" clause in a sales contract.

A) the time period in which parties to a contract may bring a lawsuit to enforce their rights.

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 A) void. B) executory. C) enforceable. D) voidable.

A) void.

All of the following are essential elements of a contract EXCEPT A) words of conveyance. B) mutual agreement. C) lawful objective. D) consideration.

A) words of conveyance.

Which of the following describes an executed contract? A) Two parties have yet to perform an obligation under the agreement B) All obligations under the agreement have been performed C) One party has yet to perform an obligation under the agreement D) A sales contract is signed, but ownership has not yet changed hands.

B) All obligations under the agreement have been performed

A legally enforceable agreement under which both parties promise to do something for each other is called A) an escrow agreement. B) a bilateral contract. C) an option agreement. D) a legal pledge.

B) a bilateral contract.

If a contract does NOT contain a time or date for performance, the obligations required by the contract should be performed within A) two weeks. B) a reasonable time. C) one week. D) one month.

B) a reasonable time.

To make a change to a contract A) the parties may agree to change orally. B) an amendment must be used. C) the parties must state the change in the special provisions paragraph. D) the parties must request the change in writing to their broker.

B) an amendment must be used.

When the parties agree to terms and show their intentions in words, whether orally or written, the agreement is said to be A) an executed contract. B) an express contract. C) a unilateral contract. D) a voidable contract.

B) an express contract.

If a property owner is forced under threat of violence to sign a contract to sell property for a low price, the contract is voidable because there is lack of A) discharge. B) consent. C) consideration. D) offer and acceptance.

B) consent.

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 A) after-acquired title. B) equitable title. C) preliminary title. D) quiet title.

B) equitable title.

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? A) The listing entitles the broker to collect a commission from the client's guardian or trustee if the broker produces a buyer. B) The listing must be renegotiated between the broker and the client, based on the new information. C) The listing is of no value to the broker because the contract is void. D) The listing is unaffected because the broker acted in good faith as the owner's agent.

C) The listing is of no value to the broker because the contract is void

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) an acceleration clause. B) a due-on-sale clause. C) a contingency clause. D) a release clause.

C) a contingency clause.

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 A) a voidable contract. B) an implied contract. C) an offer. D) an executory agreement.

C) an offer.

An amendment A) clarifies the promises made in a contract. B) is rarely used in real estate contracts. C) changes the contract. D) has no effect on farm and ranch contracts.

C) changes the contract.

The purchaser of real estate under an installment contract A) is not required to pay property taxes for the duration of the contract. B) receives title immediately. C) has only an equitable interest in the property's title. D) generally pays no interest charge.

C) has only an equitable interest in the property's title.

An amount of money that serves as compensation for a breach of contract is called A) contingent funds. B) lienholder approval. C) liquidated damages. D) equitable title.

C) liquidated damages.

If, upon the receipt of an offer to purchase a property, the seller makes a counteroffer, the prospective buyer is A) bound by whichever offer is lower. B) bound by the original offer. C) relieved of the original offer. D) not able to counter the counteroffer.

C) relieved of the original offer.

A buyer and a seller enter into a sales contract for the sale of a home. The seller backs out of the contract at the last minute, and the buyer suffers a financial loss of $1,500 and must rent a home in which to live. Unless the contract provides otherwise, all of these are legal actions that are likely to succeed EXCEPT A) the buyer may sue the seller for specific performance, forcing the sale of the home to the buyer. B) the buyer may sue the seller for the rent he paid. C) the seller is not liable because the buyer should not have incurred the $1,500 cost before the sale. D) the buyer may sue the seller for damages to recover the $1,500 loss.

C) the seller is not liable because the buyer should not have incurred the $1,500 cost before the sale.

A contract is said to be executed when it includes A) the consideration. B) the offer and acceptance. C) the signatures of the parties. D) the competent parties.

C) the signatures of the parties.

The buyer of real estate takes possession but not legal title to property under A) a purchase money mortgage. B) an option. C) a counteroffer. D) a land contract.

D) a land contract.

A deposit provided when making an offer to purchase real estate is known as A) binder. B) equitable title. C) acceptance. D) earnest money.

D) earnest money.

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 A) actual damages. B) specific performance. C) suit to quiet title. D) liquidated damages.

D) liquidated damages.

Substitution of a new contract for an existing contract is called A) assignment. B) conveyance. C) consideration. D) novation.

D) novation.

The document that can be used to begin negotiations between the parties is A) the preliminary title report. B) the addendum. C) the land contract. D) the letter of intent.

D) the letter of intent.