Ch. 13 - Section 9- Real Estate Contracts: Real Estate Contracts

What are the five criteria of a valid contract?

- Competent parties - Mutual agreement - Lawful objective - Consideration - In writing

What is a broker's authority to prepare real estate contracts?

A broker cannot prepare any contracts unless he or she is also a licensed attorney. Brokers may only fill in the blanks on contracts approved and promulgated by the commission.

What is a contingency and what is the most common contingency?

A contingency is a condition that must be met before the contract is enforceable. The most common contingency concerns financing.

What is the difference between a void contract and a voidable contract?

A void contract is an agreement that does not meet the tests for validity, and therefore is no contract at all. A voidable contract is one which initially appears to be valid, but is subject to cancellation by a party to the contract who is believed to have acted under some kind of disability.Ch. 13 - Section 9- Real Estate Contracts: Real Estate Contracts

What is the difference between an express contract and an implied contract?

An express contract is one in which all the terms and covenants of the agreement have been clearly stated and agreed to by all parties, whether verbally or in writing. An implied contract is an unstated or unintentional agreement that may be considered to exist when the actions of any of the parties suggest the existence of an agreement.

According to contract law, every valid contract is also what?

Enforceable or unenforceable

In what part of a sales contract would you find information regarding that a seller acknowledges that the buyer must withhold 10% of the purchase price at closing if the seller is a foreign person or entity, and forward the withheld amount to the Internal Revenue Service?

Foreign Seller Withholding

Which of these forms was NOT promulgated by TREC for use by licensees?

Improved Property Contract

What two primary purposes does a contract for deed serve for a seller?

It facilitates a sale that might otherwise be impossible. It may give the seller certain tax benefits.

The guardian for a mentally incompetent party enters into an oral contract with another party to buy a trade fixture. What is true about this contract?

It is possibly valid and enforceable.

What does the escrow clause in a sales contract do?

It provides for the custody and disbursement of the earnest money deposit, and releases the escrow agent from certain liabilities in the performance of escrow duties.

What is a licensee's responsibility for using forms drafted by the Broker-Lawyer Committee?

Licensees may use drafted forms that have been approved by TREC. However, if the commission promulgates the form, then licensees must use the form in the transaction for which it was designed.

In a contract for deed situation, what must a person do who wishes to convert his interest in the property into a legal title?

Pay the seller the full amount due on the contract for deed, or deliver a promissory note equal to the balance due that contains the same due date, interest rate, and late fees as the contract.

What is the purpose of the Statute of Frauds?

Require certain conveyance-related contracts to be in writing.

Which of the following statements best describes the survival clause in a sales contract?

Sales contract parties continue to be liable for the truthfulness of representations and warranties after the closing.

What does an escrow agreement define?

The arrangement by which one party deposits an asset with an escrow agent, who will in turn make delivery to another party if and when the specified conditions of the contract have been met.

If the seller of a property is a foreign person, what must the buyer do with respect to the IRS?

The buyer must withhold 10% of the purchase price at closing if the seller is a foreign person or entity and forward the withheld amount to the Internal Revenue Service.

What does a right of rescission clause set forth?

The buyer's right under certain conditions to rescind the sale contract and re-claim their deposits if sellers fail to complete and deliver the property condition disclosure statement to buyers in a timely fashion. The buyer must follow certain procedures and meet certain deadlines in order to legitimately effect the cancellation.

What is the main difference between an option-to-buy contract and a sale contract?

The option is unilateral-- only one party makes a promise. Both parties promise to perform in the sale contract.

What happens when a seller makes a counteroffer to a buyer's original offer?

The original offer terminates and the counteroffer in effect becomes a new offer.

What does a due-on-sale clause say?

The parties state their understanding that loans that survive the closing may be called due by the lender. Both parties agree to hold the other party harmless for the consequences of an acceleration of the loan.

When must a suit for damages be initiated?

The suit must be initiated within the time period allowed by the Statute of Limitations.

An option-to-buy is a(n)

enforceable contract.