Chapter 7: Contracts

Which of the following is true?

B. A valid contract can be an unenforceable contract.

The authority of the broker to accept a good faith deposit from a buyer is provided for in the:

C. listing agreement.

The essential elements of an enforceable contract are:

D. competency, mutual consent, lawful object, consideration.

On an exclusive listing, a broker can be disciplined for failure to do all of the following, except:

A. attach a tax statement to the listing.

Failure to perform as agreed under a contract is known as a(n):

C. breach.

A buyer and seller initial the liquidated damages clause in a real estate purchase agreement. The buyer later defaults. The amount recoverable is:

C. given to the seller after the default. The amount recoverable under a liquidated damages provision in a purchase agreement is not always limited to 3%, only for one-to-four unit residential property.

A real estate transaction in which the buyer gains possession of a property while the seller retains legal title until the debt is fully repaid is an example of a(n):

C. land sales contract.

The hold harmless clause in a listing agreement protects the agent from liability for:

C. misinformation about the property from the seller.

Under a(n)____________, the agent's fee is set as all sums received exceeding a net price established by the owner.

C. net listing

When an existing contract is replaced by an entirely new contract, it is an example of:

C. novation. Under a novation, there is a substitution or exchange of a new obligation or contract for an old one by the mutual agreement of the parties.

An offer to perform in accordance with contractual obligations is an example of:

C. tender. To make an offer is to "tender" the offer.

When a broker has a nonexclusive listing, to be legally entitled to a commission, they need to be able to prove they:

C. they were the procuring cause of the sale.

A husband signed a contract to sell community real estate without his wife's signature. The contract is:

C. unenforceable.

Broker Matthews took a 90-day exclusive agency listing to sell a property owned by Tyler. After 30 days without selling the property, Tyler sent Broker Matthews a letter cancelling the listing. One week later, Tyler enters into open listings with several other brokers. Two weeks later, one of the brokers sold the property. In this situation, Tyler:

D. is liable for payment of a commission to Matthews as well as to the selling broker. The open listing guaranteed payment to the procuring broker. The exclusive listing is a bilateral contract which cannot be voided unilaterally. Therefore, the seller still owes a commission to both brokers.

A real estate buyer can rescind an offer until:

D. the seller's acceptance has been communicated to the buyer.

A salesperson obtains a listing on a family member's house. After taking the listing, the salesperson changes brokers. The listing:

A. belongs to the salesperson's previous broker.

A listing agreement in which a seller agrees to pay a broker a commission if they produce a "ready, willing, and able" buyer and agree to use due diligence in procuring a buyer is an example of a(n):

A. bilateral executory contract. Bilateral refers to a promise to perform made by one party in exchange for a promise to perform made by another. Executory means the promised activities will be performed by both parties in the future.

A listing agreement needs to comply with all the legal requirements for a valid contract, including:

A. offer and acceptance.

Mutual consent is typically evidenced by:

A. offer and acceptance.

Writing "without recourse" on the back of a check creates a(n):

A. qualified endorsement. Qualified suggests the endorser meant to set certain restrictions on the check. In this instance, if the check is not honored, the endorser is not liable.

Acknowledgment by a notary public of the signature on a deed is done as a prerequisite for:

A. recording the deed at the county recorder's office.

Brokers Phoebe and Saul both have an open listing on a property. Broker Phoebe showed the property to a prospective buyer, but the buyer decided not to buy. Two weeks later, Broker Saul contacted the same buyer and arranged a sale of the property. The seller is obligated to pay a commission as follows:

A. the full amount to Saul.

Seller Vega listed a vacant lot with Broker Wright for $120,000. Prospective buyer Marty submitted an offer at a purchase price of $100,000 with the offer to expire in 30 days. The next day, Seller Vega countered at $110,000. Buyer Marty rejected the counter. Three days later, Seller Vega delivered to Broker Wright a signed acceptance of Buyer Marty's initial $100,000 purchase offer. When Broker Wright told Buyer Marty of Seller Vega's acceptance, Marty stated he did not intend to buy the property. Based on the foregoing actions:

A. there is no contract. When a counteroffer is made, no matter what the reason may be, the original offer is voided.

The right of possession and equitable title is held by the:

A. vendee. The reference to "equitable title" indicates this question is framed in the context of a land sales contract in which the participants are the vendor (seller) and vendee (buyer). In most cases, the party name ending in "or" owns the real estate. The "ee" is the buyer and therefore has possession and equitable title of a property, but not legal title.

A contract based on an unlawful purpose is:

A. void. Any contract to perform an illegal act is void by definition. This is one of the four essential conditions of a contract.

Under which one of the following listing contracts must an owner pay a commission, regardless of who sells the property?

B. An exclusive right to sell listing.

All of the following may request specific performance when damages resulting from a breach of the contract are not adequate, except the:

B. Broker.

The terms "index," "triple net" and "flat" are used to describe:

B. Leases

All of the following are false concerning an option, except:

B. Only the optionor is bound to perform under the terms of an option. The optionor is the owner of the real estate. Thus, the optionor is the only party obligated to perform under the terms of the option.

Heather made an offer to purchase real property. The seller accepted the offer but Heather died before this acceptance was communicated to her by the seller's agent. Based on these facts, which of the following is true?

B. The death of Heather constitutes a revocation of the offer. Had Heather's death occurred after communication of the acceptance of the offer by the seller's agent, her estate would have been responsible to complete the escrow.

All of the following statements are incorrect, except:

B. Under an exclusive agency listing, the seller may not liable for a commission if they sell the property themselves.

When Jack sells his home, he wants to be relieved of the primary liability for payment of the existing loan. He needs to find a buyer who is willing to:

B. assume the existing loan.

In a contract, the terms "adequate, valuable, good or sufficient" refer to:

B. consideration.

A(n) ___________ is an example of a bilateral contract in which both the offeror and the offeree are grantors.

B. exchange agreement.

The typical listing contract authorizes a broker to:

B. find a purchaser and accept a deposit with an offer to purchase.

Any intentional concealment of material facts by an agent is regarded as:

B. fraud.

The instrument most likely to state that "time is of the essence" is a(n):

B. real estate purchase contract. The purchase agreement is the only contract offered that would require a response from the opposing party within a stated period of time.

An offer is terminated by:

B. rejection by the offeree.

If one party in a contract is coerced or placed under duress by the other party, the contract is ________ at the discretion of the injured party.

B. voidable.

Liquidated damages cannot exceed ______________ in the instance of an owner-occupied one-to-four unit residential property:

C. 3% of the sales price. Liquidated damages are limited to 3% of the sales price on an owner-occupied one-to-four unit residential property (a protected property).

Which of the following contracts needs to be in writing in accordance with the Statute of Frauds?

C. A contract that is not to be performed for thirteen months. The Statute of Frauds requires written contracts for actions not to be performed within one year.

Which of the following is true concerning an option?

C. An option is valid so long as consideration is actually delivered. The amount of consideration is not relevant. However, the consideration itself needs to be delivered to create a valid and enforceable option.

Anita signs a real estate purchase contract as a buyer. The contract states the offer to purchase is valid for three days. One day later, Anita wishes to rescind her unaccepted offer. Which of these answers is correct?

C. Anita may revoke the offer and recover her deposit.

A broker receives an offer from a buyer. The deposit is in the form of a personal promissory note for $20,000 payable to the seller in 60 days, plus 10% interest. Which of the following is true?

C. The broker needs to accept the promissory note but must notify the seller the deposit is in the form of a promissory note. A deposit for the purchase of property may be made in any form. However, the broker needs to disclose the form and amount of the deposit to the seller.

When does a broker not have to present an offer to purchase real property to their principal?

C. When the offer is patently frivolous or the broker is acting on written instructions of the principal.

The most essential element of an enforceable listing contract is that it provides:

C. a written contract documenting the broker's employment.

To be enforceable, the listing of a business opportunity:

C. does not always have to be in writing.

Upon the default of a buyer under a land sales contract, the seller:

C. files a quiet title action. In the instance of a land contract, aka a contract sale, there is no trustee. Further, the vendor already has legal title to the property, so upon default by the buyer, the seller files a quiet title action.

Which of the following is an acceptable termination date for an enforceable exclusive listing of residential real property?

D. 180 days after the listing agreement is signed. An exclusive listing requires a specific termination date.

A listing agreement can be described as:

D. All of the above. A promise for a promise, a bilateral contract, and an executory contract.

Broker Greg took a listing on a commercial office complex and received an option to purchase the property within one month. On the 25th day of the listing, Broker Greg decides to buy the property. Before buying the property, Broker Greg is required to:

D. All of the above. Disclose the existence of any outstanding offers received on the property to the seller, disclose all material information to the seller, and obtain written consent from the seller which acknowledges any profit or anticipated profit. This is an example of FULL disclosure.

All of the following contracts do not need to be in writing in order to be enforceable, except:

D. Both a. and b. An agreement by a buyer to assume an existing loan secured by a deed of trust AND an agreement which is not to be performed within one year of being entered into.

Under a land sales contract, title is conveyed to a buyer when they pay ____________ the remaining unpaid amount on the purchase price.

D. all.

In order to qualify for recording with the County Recorder, a land sales contract needs to:

D. be signed by both the buyer and seller and be acknowledged before a notary public.

All of the following persons may not lawfully enter into a valid contract to purchase property, except:

D. international buyers.

All of the following are essential elements of a contract, except:

D. performance. Performance may be required to complete the activity called for in a contract after it has been signed, but it is not necessary to the formation of a contract.

Under a land sales contract for the sale of real property, legal title is held by the:

D. vendor. The vendor (seller) holds legal title to the property until the debt is repaid in full. The vendee (buyer) holds the equitable title.