Exam Smart - Contracts

A buyer phoned a seller to inquire about a piece of real estate the seller had for sale. The buyer and seller agreed to the price and terms over the phone. Which of the following is the MOST LIKELY legal effect of this agreement? A » Enforceable B » Non-enforceable C » Void D » Voidable

B » Non-enforceable The statute of frauds says that oral contracts for the sale of real estate are unenforceable.

In order for a real estate sales contract to be valid, it must include a: A » survey B » property description C » description of the personal property D » commission

B » property description Of the four, only the property description is required.

A broker tells a buyer that the broker thinks a particular house is the best in the neighborhood. The buyer purchases the property only to find another property later on that is more desirable. The broker is guilty of: A » misrepresentation B » fraud C » bait and switch D » puffing

D » puffing Puffing is a subjective opinion and is not illegal - this was just the broker`s opinion.

A buyer writes a contract with a contingency that says if a certain thing does NOT happen, the buyer does NOT have to purchase the property. The contract does not close due to this contingency. Normally, any earnest money should be given to the: A » buyer B » seller C » broker D » state

A » buyer If a contingency agreed to by all parties is not met, then normally any earnest money will be returned to the buyer

A contract where one or more of the parties can rescind is called: A » void B » voidable C » valid D » unenforceable

B » voidable Contracts that can be voided are "voidable."

Which of the following statements would be the BEST example of puffing? A » Telling a buyer a home on a septic system is connected to city sewers B » Telling a buyer a property with 60 acres has 75 acres C » Telling a buyer this home has the most beautiful view overlooking the lake D » Telling a buyer a residentially zoned lot can be used for a commercial structure

C » Telling a buyer this home has the most beautiful view overlooking the lake Puffing is a subjective opinion - the "most beautiful view" statement would be an opinion

False information was given to induce a person to enter into a contract. Which of the following legal effects BEST describes this contract? A » Valid and enforceable B » Void C » Voidable by the misrepresented party D » Voidable by either party

C » Voidable by the misrepresented party It is voidable by the person to whom it was misrepresented.

When a change is needed in a contract, the best way to accomplish this would be with a(n): A » verbal agreement B » addendum C » amendment D » new contract

C » amendment An amendment is used to change an item in a contract.

An offer to purchase contract was contingent upon the buyer receiving a loan. The buyer was not able to obtain financing. The buyer informed both the seller and the broker of the loan denial. Which of the following statements is true? A » The broker must pay cash for the property B » The broker must return the earnest money to the buyer C » The seller may have cause to sue the buyer for specific performance D » The seller may keep the earnest money as a form of liquidated damages

B » The broker must return the earnest money to the buyer If a mortgage contingency clause is part of a contract, then the earnest money should be returned to the buyer if the buyer cannot qualify for a loan.

A prospective buyer wanted to have the right to purchase a home at a set price within the next 90 days but did not want to be obligated to purchase it. Which of the following documents would allow the buyer to do this? A » Quitclaim deed B » Estoppel C » Right of first refusal D » Option

D » Option An option gives the optionee the RIGHT to buy at a specific price within a specific time period.

A contract whereby either party is not able to sue the other party would be classified as: A » unenforceable B » void C » voidable D » enforceable

A » unenforceable An unenforceable contract is where neither party has standing in court to sue the other.

A buyer made an offer on a property a broker had listed. The broker presented the offer to the seller. While the seller was still considering the offer, the buyer contacted and informed the broker that the buyer wanted to withdraw the offer. The broker should: A » tell the buyer the offer cannot be withdrawn B » tell the seller to accept the offer anyway C » continue to market the property for the seller D » tell the seller to sue the buyer for specific performance

C » continue to market the property for the seller An offer can always be withdrawn up until acceptance; therefore, the broker will continue to market the property for other possible buyers.

Knowingly misrepresenting a material fact in a deliberate way so that someone else suffers a loss in an attempt to make money is: A » a mistake B » misrepresentation C » fraud D » collusion

C » fraud Fraud is lying with the intent to make money.

Which of the following constitutes illegal commingling by a licensee? A » Salesperson deposits earnest money into a broker's trust account B » Broker deposits commercial rent receipts from a property management contract into the trust account C » Salesperson deposits residential rental money into the trust account D » Broker deposits payroll funds into the trust account

D » Broker deposits payroll funds into the trust account A broker can never deposit payroll funds into a trust account - this would always be commingling.

What is true when a counter-offer is made? A » This represents a partial acceptance B » It is binding on the offeree C » It voids only part of the previous offer D » It voids the previous offer

D » It voids the previous offer A counter-offer does void the previous offer.

S owns a property and lists the property for sale with a broker. The broker finds a buyer who makes an offer on the property. S is considered to be the: A » grantor B » grantee C » offeror D » offeree

D » offeree Since S is the receiver of the offer, S is the offeree.

A salesperson received an offer on a house. While preparing to present the offer, another offer on the same house came into the office. Which of the following statements BEST describes what the salesperson should do? A » NOT present the second one until after the first offer has been acted upon B » Present both offers at the same time C » Present the offer that would net the seller the best price D » Present the offer with the highest price that would yield the highest commission

B » Present both offers at the same time The owner has the right to know about all existing offers before making a decision on any one particular offer.

R made a promise to sell the property to T. T, however, was only obliged to purchase the property if a certain condition was met. Which of the following statements would be true? A » This is a unilateral contract where R does not have to perform B » This is a unilateral contract where T does not have to perform C » This is a bilateral contract and would be binding on both parties D » This is a non-enforceable agreement

B » This is a unilateral contract where T does not have to perform Since only R was definitely making a promise, this was a uni-lateral contract - T was the one who does not have to perform if a condition was not met.

In order to be in compliance with the Statute of Frauds, a sales contract must be: A » in English B » in writing C » acknowledged D » recorded

B » in writing The Statute of Frauds only requires that real estate sales contracts, deeds, and leases over one year be in writing to be enforceable.

A good example of a unilateral contract would be a(n): A » sales contract B » option contract C » listing contract D » lease contract

B » option contract An option contract is a one way promise and is therefore a unilateral contract.

In the process of preparing to present an offer to the seller, a broker receives another offer. The broker: A » is required to present the offer received first B » should present both offers together C » should present the offer that would net the seller the most money D » should present the offer that would yield the highest commission

B » should present both offers together An agent must present all offers together if all were received by the agent at the same time.

What is the purpose of earnest money being part of a real estate contract? A » Without it, there would be no consideration B » It gives the broker commission money in case the buyer does not close C » It establishes the intent of the buyer to carry out the contract D » It provides for payment of some of the buyer's closing costs

C » It establishes the intent of the buyer to carry out the contract Earnest money is considered to be good faith money showing sincerity on the part of the buyer.

A buyer contacts a listing broker about writing an offer on a property the broker has listed. The buyer wants to make an offer $40,000 below the list price. What should the listing broker do? A » Write the offer as instructed by the buyer B » Tell the buyer that writing such a low offer would be a waste of time C » Pressure the buyer to raise the amount of the offer D » Qualify the buyer before presenting the offer

A » Write the offer as instructed by the buyer A broker must present all offers to a seller no matter how low the offer might be.

An agent brought an offer to a seller with the seller counteroffering back to the buyer. In the meantime, another offer was brought to the seller with terms more favorable to the seller. The seller's best option would be to: A » rescind the first counteroffer before acceptance and then accept the better offer B » go ahead and accept the better offer and just ignore the outstanding counteroffer C » wait for a third offer and hope the other two buyers won't go elsewhere D » counteroffer on the new offer and wait back to hear from both

A » rescind the first counteroffer before acceptance and then accept the better offer The seller should not accept the new better offer until the counteroffer has been rescinded.

When is a purchaser said to have equitable title? A » At the signing of the sales contract by both buyer and seller B » When transference occurs C » When the purchaser gives earnest money D » When the offer is submitted to the seller

A » At the signing of the sales contract by both buyer and seller Equitable title is the right to obtain title in the future.

A sales contract is accepted by both parties with earnest money being involved in the transaction. What should the broker do with the earnest money? A » Deposit it into an escrow account immediately B » Deposit it in escrow only after the 3 day right of rescission had expired C » Hang onto it for a while D » Deposit into an escrow account at closing

A » Deposit it into an escrow account immediately Earnest money must be deposited into an escrow account immediately.

A property has had termite problems in the past. A broker tells a buyer that the termite problems have been taken care of knowing that the problems actually still exist. The broker is guilty of: A » deceptive and fraudulent conduct B » puffing C » fraud only in skill and care D » negligent misrepresentation

A » deceptive and fraudulent conduct Knowingly misrepresenting something in an attempt to make money would be deceptive and fraudulent conduct.

A seller told a broker, "If you find me a buyer, I'll pay you a commission. However, I don't want to sign a formal agreement." This type of agency would be classified as an: A » expressed B » implied C » executory D » executed

A » expressed An expressed agency is created, either orally or in writing, by a principal authorizing an agent to act on their behalf.

A seller of a property could NOT transfer marketable unencumbered title. What should the broker do with any earnest money involved in the transaction? A » Give it to the seller B » Give it to the buyer C » Pay the broker's commission and give the balance to the seller D » Pay for any expenses and give the balance to the buyer

B » Give it to the buyer If the seller cannot transfer title, then the seller is in default and any earnest money should be returned to the buyer.

A seller and buyer enter into a sales contract on a property. The seller breaches the agreement causing the buyer to sue for specific performance. If the buyer wins this lawsuit, the seller will have to: A » pay damages B » follow through with the original contract C » return the earnest money to the buyer D » rescind the contract

B » follow through with the original contract Specific performance is court action to force completion. If the court orders this, the seller must complete the original agreement.

A contract is not completed and binding until it is signed by the: A » mortgagor B » offeree C » offeror D » lessor

B » offeree The offeree is the one accepting the offeror`s offer.

A contract that begins as uni-lateral but could end up being bi-lateral is a(n): A » sales contract B » option contract C » offer to purchase contract D » listing contract

B » option contract An option contract is where the seller promises to sell but the buyer has the option of purchasing or not. So initially, an option is a one way promise or uni-lateral but could end up bi-lateral if the buyer decides to purchase.

An offer to purchase contract has been presented to a seller. Which of the following statements is true regarding the offer? A » Any counteroffer must be close to the terms of the original offer B » Any counteroffer must be in writing C » It could be withdrawn anytime prior to conveyance of an acceptance or rejection D » The buyer would have a three day right of rescission even after acceptance by the seller

C » It could be withdrawn anytime prior to conveyance of an acceptance or rejection An offer or counteroffer can be withdrawn up until acceptance and communication back of the acceptance

A broker had a piece of property listed for $90,000. A buyer submitted an $89,000 offer. Which of the following statements is correct regarding this situation? A » The owner must accept or reject the offer in writing B » The buyer cannot revoke the offer until it has been accepted or rejected C » The broker should NOT present such a low offer D » The buyer can revoke the offer until it is accepted

D » The buyer can revoke the offer until it is accepted An offeror can always revoke an offer before acceptance.

When does a sales contract become legally binding for the buyer? A » When the offer is made initially B » When the offer is presented to the seller C » When the offer is accepted by the seller D » When the seller's acceptance is communicated back to the buyer

D » When the seller's acceptance is communicated back to the buyer A sales contract becomes binding upon acceptance and communication back to the offeror (giver of the offer) - in this case the buyer.

Which of the following items would NOT always be a part of a contract for the sale of personal property? A » Offer and acceptance B » Legality C » Consideration D » Written agreement

D » Written agreement All contracts do not have to be in writing. The Statute of Frauds says that to be "enforceable" all real estate sales contracts, deeds and leases over one year must be in writing. However, this question calls for the sale of personal property, not real estate.

A mortgage contingency usually includes all of the following items EXCEPT: A » the amount of the mortgage B » commitment date C » maximum interest rate D » name of the lending institution

D » name of the lending institution A contingency allows a party to void a contract upon some event happening or failing to happen.

A right to buy a property for a definite sale price with a definite time period is referred to as a(n): A » sales contract B » listing contract C » right of first refusal D » option contract

D » option contract An option contract does give the right to buy in the future for a definite price within a definite time frame.

A sales contract must be in writing to be enforceable due to the: A » state license laws B » statute of limitations C » state Real Estate Commission D » statute of frauds

D » statute of frauds The Statute of Frauds says that to be enforceable all real estate sales contracts, deeds, and leases over one year must be in writing.

A seller's agent has a property listed. A buyer would like to make an offer on the property but wants to include an inspection contingency. In order to protect the seller, the listing agent should: A » discourage these types of contingencies B » refuse to take such an offer to the seller C » make the inspection contingency for the shortest time frame possible D » only allow contingencies based on financial issues

C » make the inspection contingency for the shortest time frame possible A buyer wanting an inspection contingency is normal. However, it is reasonable to insist on a short time frame for the inspection. If the buyer backs out based on the inspection, the seller can put the property back on the market quickly.

A listing agent has received several offers on a listed property all at the same time. The listing agent should: A » present the offers in the order received B » present the best offer first C » present all offers together at the same time D » present only the offers with pre-approved buyers

C » present all offers together at the same time An agent must present all offers together at the same time to allow the seller to choose which one is best.

Which of the following elements must be in a contract to have a valid contract? A » A clear description of the land B » A clear description of the land, house and improvements C » Earnest money D » Good faith estimate of closing costs

A » A clear description of the land The land must be clearly described in order for the contract to be valid.

A person with a mental impairment would like to enter into a contract for the purchase of a piece of real estate. Which of the following statements would be true? A » The person can sign the contract if a psychiatrist says okay B » The state would have to provide housing for this person C » A person appointed by the court as a guardian can sign the contract on behalf of the mentally impaired person D » This person would never be able to purchase a property

C » A person appointed by the court as a guardian can sign the contract on behalf of the mentally impaired person A person with a mental handicap is still a protected class and cannot be discriminated against in real estate transactions. However, a guardian would have to sign the contract

Which of the following would be an example of an impossibility of performance regarding a sales contract? A » A buyer could not qualify for a loan B » A seller died after signing the sales contract but before closing C » A seller had signed the contract without the consent and knowledge of the other owners who were joint tenants D » The property was destroyed by fire after the signing of the contract but before closing

C » A seller had signed the contract without the consent and knowledge of the other owners who were joint tenants A joint owner who signs a sales contract without the consent of the other owners has no legal authority to do so - this would be never be valid and therefore would be impossible to perform.

Which of the following items would NOT always be part of a real estate purchase contract? A » Competent parties B » Offer and acceptance C » Earnest money D » Consideration

C » Earnest money Earnest money is not required to have a contract. Remember that earnest money is not the consideration itself.

A seller and buyer have agreed to a sales contract. The buyer backs out of the agreement. Which of the following could the seller NOT do? A » Sue for specific performance B » Rescind the agreement C » File for a writ of execution D » Sue for compensatory damages

C » File for a writ of execution A writ of execution is typically where the court orders a sheriff to seize property and sell it to satisfy a judgment.

When a contract is signed between a buyer and a seller, the buyer is known to have received equitable title upon the happening of which of the following events? A » Buyer making the offer B » Recording of the deed C » Signing of the agreement by the buyer and seller D » Conveyance of the deed

C » Signing of the agreement by the buyer and seller Equitable title is the right to get title in the future.

A broker has a property listed for $110,000. A buyer tells the listing broker she would like to make an offer of $90,000. What should the listing broker do? A » Pressure the buyer to raise the amount of the offer B » Tell the buyer to increase the earnest money with such a low offer C » Tell the buyer that the broker will present the offer to the seller D » Tell the buyer that the seller has told the broker not to present such low offers

C » Tell the buyer that the broker will present the offer to the seller A listing broker must present all offers to a seller - period.

H had a property for sale for $129,000. B made an offer for $123,000. H made a counter-offer of $127,000. Which of the following statements is NOT true regarding this situation? A » H's counter-offer terminated the first offer B » With the second offer, B would become the offeree C » The counter-offer would be binding on B D » In the original transaction, B was the offeror

C » The counter-offer would be binding on B The counter made by H is not binding on B. It is only an offer.

Which of the following statements BEST describes the usual legal effect of a contract signed between an adult and a minor? A » Void on its face B » Binding on both parties C » Voidable by the minor D » Voidable by either party

C » Voidable by the minor It is voidable by the injured party (minor). We assume the minor is extremely susceptible to being taking advantage of by an adult. Therefore, although the adult is bound, the minor may void it.

An agent is working with a married couple in the purchase of a home. The couple asks the agent how they should take title to the property. The agent should say: A » tenancy in the entireties B » joint tenancy C » see an attorney D » tenancy in common

C » see an attorney Any issue about how to take title should be referred to an attorney.

A contract where one party is bound to perform but the other party is not would be referred to as: A » void B » bi-lateral C » uni-lateral D » implied

C » uni-lateral A uni-lateral contract is a one way promise - a promise for an action. One party is bound but the other is not

A listing agent presents two offers to a seller that are close to the list price. The listing agent advises the seller to take the higher priced offer. The seller is leaning toward accepting the higher priced offer when the listing agent learns of another offer from a third buyer on the same property. This new offer is a lot lower than the other two offers. What should the listing agent do? A » Don't bother to present the third offer as the agent must follow the seller's instructions and the seller is leaning toward the higher priced offer B » Don't bother to present the third offer as such a low price would be harmful to the seller C » Present the offer from the third buyer because otherwise, the agent would be violating fiduciary obligations to the buyer D » Present the offer from the third buyer because the listing agent must present all offers regardless of how low the price might be

D » Present the offer from the third buyer because the listing agent must present all offers regardless of how low the price might be A listing agent must present all offers to the seller no matter what.

A buyer and seller negotiated a sale whereby the seller was to include all the kitchen appliances. Upon moving in, the buyer discovered that the seller had taken all the kitchen appliances. What would be the buyer's best remedy? A » Declare the contract invalid B » The buyer is out of luck as the buyer negotiated this himself C » Sue the seller for partial performance D » Sue the seller for specific performance

D » Sue the seller for specific performance Specific performance is court action to force completion of a contract. This would be the buyer`s best remedy. (

Two brothers wanted to purchase a property for their parents to live in during their retirement years. The brothers wanted to take title in a manner that limited their tax liability. As an agent helping the brothers in this purchase, what would you recommend? A » Severalty B » Tenancy in common C » Joint tenancy D » That the brothers seek advice from an attorney

D » That the brothers seek advice from an attorney Any type of questions on how to take title should be referred to an attorney.

Y offers X $60,000 for X's property. Which of the following terms BEST describes the role of X? A » Lessor B » Lessee C » Offeror D » Offeree

D » Offeree X is the one receiving the offer, thus making them the offeree.