LESSON 7 - National

Option (contract)

A contract by which the optionor (owner) gives the optionee (prospective buyer) the right to buy at a fixed price within a stated period of time. An option is different from a purchase agreement because a purchase agreement is a requirement to buy whereas an option is the right to buy. The optionee usually pays the fee for the option right and assumes no obligation to make any other payment until the optionee decides, within a specified time, to either exercise the option right or allow the option to expire. The option fee may or may not be applied to the purchase price depending on the agreement in the option contract.

Bilateral contract

A contract that is a mutual exchange of promises. It does not matter who goes first, and both parties are obligated to perform under the contract. The typical real estate purchase agreement and listing agreement are examples of bilateral contracts. The seller promises to sell and the buyer promises to buy. Both are obligated to perform and it does not matter which party performs first.

Executory contract

A contract that is unfinished. In other words, promises have been made that have not yet been performed. For example, a real estate purchase agreement has many clauses that require certain acts to be performed. Requiring the buyer to get a loan, getting an appraisal and having a building inspection would be three such promises. All of these unfulfilled promises would be executory and thus the contract would be executory. Once all promises have been performed and there is nothing left to be done the contract is said to be executed.

Unilateral contract

A contract that requires one party to perform some type of service or provide some type of product before the other party's promise goes into affect. An example would be the offer of a reward in exchange for the finding of a dog. First the dog would have to be found, then and only then is the reward required to be paid. In real estate, some Options are considered by their wording to be unilateral contracts. In a unilateral contract, there is no obligation on the other party to do anything.

Open Listing

A listing wherein the owner lists the property for sale with one or more brokers and reserves the right to list the property concurrently with as many other brokers as he or she may desire. This listing need not contain a definite termination date and may generally be terminated by either party's giving notice to the other of his or her desire to terminate prior to an actual sale of the property. It may also be terminated by the expiration of a reasonable time. In the event of a sale, only the broker who produced the buyer will receive any commission. Because of the strong possibility of another broker's receiving the commission by producing a sale first, most brokers will not obligate themselves for any considerable advertising or other expense with this type of listing. The owner may sell of his or her own efforts without owing the agent a commission. This listing is used in most states by brokers in specialized circumstances, usually involving commercial real estate. This listing is rare in residential real estate.

Net Listing

A listing with a provision that the seller will receive a pre-determined net amount from any sale of the property and any amount over that will be the commission to the listing broker. The broker can offer the property at any amount above the net amount. It can easily create a conflict of interest between the broker's fiduciary duty to the seller and his own profit motive. Net listings are illegal in some states and frowned upon in most others.

Option Listing

A listing with a special provision that allows the broker to purchase the listed property. A broker must be careful to fulfill all of his obligations to the property owner and not let it appear as if he defrauded the seller. Many states require the broker to state if he intends to resell the property at a profit, and if so, what is his prospective profit. He is also usually required in those states to get the owner's written acknowledgement of that information or written permission to offer to purchase the property.

Multiple Listings

A multiple listing clause may be included in a listing. It is for an arrangement between a group of brokers, wherein all broker-members of the multiple listing service "pool" their listings in order to give maximum exposure to possible prospects.Any broker-member or salesperson employed by a broker-member may show any current exclusive listing, and if a sale results, the commission is divided according to a predetermined arrangement between the listing and selling brokers.These listings are usually drawn on exclusive authorization to sell listing contracts, with the agreement to place all exclusive listings in the multiple listing service being a part of the consideration tendered by the listing broker.

A net listing is: A. A listing with a provision that the seller will receive a pre-determined net amount from any sale of the property and any amount over the commission to the listing broker. B. A listing agreement between the seller and the salesperson, and does not include the broker. C. Legal if the broker receives less than 6% in commissions. D. Never legal

A. A listing with a provision that the seller will receive a pre-determined net amount from any sale of the property and any amount over the commission to the listing broker.

Which of the following correctly describes an open listing? A. The seller may employ any number of brokers B. Only one broker is authorized to act as agent for the seller C. The broker is entitled to a commission regardless of who sells the property D. The broker's commission is based on the excess over the sales price stated in the listing

A. The seller may employ any number of brokers

An unfulfilled contigency has the effect of rendering a contract: A. Voidable B. Valid C. Void D. Impossible to perform

A. Voidable

Buyer-Broker Agreement

Aka buyer representation agreement, is an employment contract between a buyer and a real estate broker. In the contract, the broker agrees to be the buyer's special agent in locating and negotiating for property. In many respects a buyer-broker agreement is the same as a listing except you are contracting with the buyer to find property instead of the seller to sell property. Buyer-broker agreements are personal service contracts and, therefore, can only be assigned to another broker with the buyer's permission.

Indexed Leases

Allows rent to be increased or decreased periodically based on changes in the government's cost-of-living index. The tenant knows when payment increases, but does not know how much at the signing of the lease because it is based on an index.

Gross Lease

Also called a fixed lease. Under a gross lease, the tenant pays a fixed amount of rent and the landlord assumes all the expenses of owning the property. Taxes, insurance, maintenance and repairs are examples of the expenses the landlord will pay. Most residential leases are fixed leases as are many small commercial leases written for three years or less. The tenant in a gross lease often does pay for utilities and other expenses that can be identified specifically to that tenant.

John signs a purchase agreement to buy Mary's property. Shortly afterward, Mary replaces the expensive ceiling fans in the home with cheaper ones. Which of the following is true? A. This is legal since John does not own the property yet B. John is protected from this under the Equitable Title Law C. Mary may do this as long as it does not materially alter the value of the property D. John is protected from this under the Legal Title Law

B. John is protected from this under the Equitable Title Law

A promise exchanged for performance is known as: A. Bilateral B. Unilateral C. Executory D. A deposit

B. Unilateral

A contract that appears to be valid, but does not allow for either party to sue the other to force performance is: A. Voidable B. Void C. Valid D. Unenforceable

B. Void

'A' gave an option on her property for 90 days to 'B' and received a cash consideration of $100. 'B' later assigned the option to 'C' for a valuable consideration. Before expiration of the option, 'A' stated that she no longer wanted to sell the property. Which of the following is correct? A. The option is void, for an option cannot be assigned B. The option is not binding on 'A', for $100 is not sufficient consideration C. 'C' would have a good chance in court to compel 'A' to sell to him, if he exercises the option before its expiration date D. A can refuse to sell, for the consideration paid by 'C' was not in cash

C. 'C' would have a good chance in court to compel 'A' to sell to him, if he exercises the option before its expiration date

Which of the following must exists under IRS regulations for a salesperson to be considered an independant contractor? A. 50% or more of compensation is paid as commission and not salary to the licensee. B. You cannot obtain a real estate license to be considered an Independant Consultant C. 90% or more of compensation is paid as commission and not salary to the licensee. D. You are paid a salary as an assistant to a real estate broker

C. 90% or more of compensation is paid as commission and not salary to the licensee.

Selling a contract to another party is called: A. Novation B. Illegal, this cannot be done under any circumstances C. Assignment D. Risk of loss

C. Assignment

Which of the following below is a remedy when there is no deposit in the agreement of purchase? A. Buyer or Seller may request the return of the deposit. B. Buyer or Seller can walk away from the agreement without any damages. C. Buyer or Seller may sue for Specific Performance D. Buyer or Seller may request a deposit to be paid

C. Buyer or Seller may sue for Specific Performance

Which of the following statements about contracts is true? A. Most contracts are in writing B. Real Estate Purchase Agreements not in writing are illegal C. Contracts are required to have consideration D. All of the above are true

C. Contracts are required to have consideration

A listing where one broker is given the right to sell the property and the seller retains their right to sell the property without obligation to the broker is an example of a(n): A. Net Listing B. Exclusive Right to Sell Listing C. Exclusive Agency Listing D. Open Listing

C. Exclusive Agency List

A buyer has contracted with a seller to purchase property. The contract was ratified on January 10. The closing was on March 31. What is the status of the contract on April 1? A. Void B. Anticipatory C. Executed D. Executory

C. Executed

A(n) _________________ contract has something remaining to be done by one or both parties to the contract. A. Implied B. Executed C. Executory D. Bilateral

C. Executory

A liquidated damages contract A. Does not have a deposit B. Allows specific performance C. Has a deposit declared as liquidated damages D. Allows a suit for damages

C. Has a deposit declared as liquidated damages

A counteroffer A. Does not void the original offer B. Is not legally considered a new offer C. In most states, may be written on the original offer by changing it D. Is illegal

C. In most states, may be written on the original offer by changing it

A listing contract A. Is a conveyance B. Is a contract of enjoyment C. Is a bilateral contract D. Is terminated on the death of the listing salesperson

C. Is a bilateral contract

A salesperson: A. May receive a commission directly from a principal B. Can carry out activities in his or her own name C. Is responsible primarily to the broker under whom she or he is licensed D. May place a blind ad

C. Is responsible primarily to the broker under whom she or he is licensed

If the seller breaches the contract and the buyer is entitled to receive a refund of their deposit and a matching amount from the seller, the contract must specify: A. Right to sue B. Specific Performance C. Liquidated Damages D. Acts of the parties

C. Liquidated Damages

Which of the following would be considered a voidable contract? A. Contract is executed B. Has no legal effect C. Misreprensenation and Fraud D. Lacks an essential elements

C. Misreprensenation and Fraud

A valid contract includes which of the following elements EXCEPT: A. Legal Age B. Consideration C. Property Disclosure Information D. Offer and Acceptance

C. Property Disclosure Information

All of the following are characteristics of an open listing EXCEPT: A. Seller doesn't pay a commission to the broker, if the seller sold the property B. Seller can hire multiple brokers to market the seller's property C. Seller can keep all the commission regardless of who sells the property D. Seller to pay commission to the broker who procured the sell

C. Seller can keep all the commission regardless of who sells the property

A salesperson for a broker listed an owner's home under an exclusive-right-to-sell listing contract. Which of the following statements correctly describes this situation? A. The listing belongs to the salesperson B. If the principal sells his own house, he will not have to pay a commission C. The listing belongs to the broker D. The listing belongs to both the salesperson and the broker

C. The listing belongs to the broker

An owner gives an exclusive-right-to-sell listing to a broker for a six-month period. During the exclusive period, the owner also gives an open listing to another broker who produces a buyer. What is the owner's liability for payment of a commission? A. Only one commission must be paid, which both brokers share on a 50/50 basis B. The owner is liable only to the first broker for the payment of a commission C. The owner is liable for payment of a commission to both brokers D. The owner is liable only to the second broker for the payment of a commission

C. The owner is liable for payment of a commission to both brokers

A contract that complies with all essentials of a contract, and is binding and enforceable on both parties is known as: A. Voidable B. Unenforceable C. Valid D. Void

C. Valid

A contract that has no legal effect because it does not contain all essential requirements of a contract is A. Voidable B. Unenforceable C. Void D. Canceled

C. Void

All of the following might legally terminate a listing with a broker EXCEPT A. bankruptcy of the client B. Insanity of the broker C. Inability of the broker to find a buyer within a reasonable amount of time D. An economic depression

D. An economic depression

A(n) ________________________ contract when both parties promise to do something, one promise in exchange for another. A. Unilateral B. Executed C. Implied D. Bilateral

D. Bilateral

A Purchase Agreement is also known as: A. Aleatory Contract B. Lease Contract C. Unilateral Contract D. Bilateral Contract

D. Bilateral Contract

A seller listed her home with a broker. Shortly thereafter, the seller telephoned the broker and withdrew the exclusive-right-to-sell listing. A week later, she sold the home to her neighbor for a higher price than the price on the listing. In this situation, which of the following is true? A. The owner has the right to terminate the listing at any time without being liable for damages B. Under an exclusive-right-to-sell listing, the broker is not entitled to damages C. The broker is not entitled to a commission because the seller obtained a better price than she would have received through the broker's efforts D. If the owner withdrew the listing after the broker spent money on it, the owner may be liable to the broker for damages.

D. If the owner withdrew the listing after the broker spent money on it, the owner may be liable to the broker for damages.

John enters into an agreement whereby he agrees to accept as his commission an amount above a minimum price acceptable to seller. This is which type of Listing? Select one: A. Exclusive Right to Sell Listing B. Exclusive Agency Listings C. Open Listing D. Net Listing

D. Net Listing

John enters into a contract with George and discovers that George has committed fraud in his claims in the contract. In this case: A. The contract is void B. George may void the contract or have the contract honored at his choice C. John or George may void the contract D. None of the above are true

D. None of the above are true

Leases for more than ___________ must be in writing to be enforceable. A. 6 months B. Two years C. 5 Years D. One year

D. One year

Both the buyer and the seller agree to wait until the broker's exclusive-right-to-sell listing has expired. They then have a third party buy the home. After a short while, the third party conveys ownership to the interested buyer, who was introduced to the owner by the listing broker. In this case, ... A. The broker is not entitled to a commission because the listing expired B. If the listing broker can prove collusion, he can collect full commission C. The broker may sue both the buyer and the seller for the commission D. The broker is entitled to his commission because he performed the task for which he was hired

D. The broker is entitled to his commission because he performed the task for which he was hired

Any offer or counteroffer may not be withdrawn at any time prior to acceptance by the offeree. T or F?

False.

Exclusive Right To Sell

The most common form of listing used in real estate because it is the listing that gives the broker the most commission protection. Most brokers in most states use only this type of listing in most residential transactions. In an exclusive right to sell listing, only one broker has the listing during the listing period to the exclusion of all other brokers.Whether or not that broker agrees to share the commission with other brokers if those other brokers produce a buyer is up to the discretion of the listing broker. In most MLS arrangements, the broker is required to share his commission with the other brokers if the other broker produces a buyer.

Novation

The substitution of a new contract or person for a previous one. For example, when a veteran assumes a veteran's loan, the VA will sometimes release the original borrower from the obligation. With novation, the departing party is released from the obligation to complete the contract.

Percentage Lease

The tenant pays a minimum fixed rent and also agrees to pay a portion of business income as additional rent. Percentage leases are most common in retailing.

Exclusive Agency Listing

This listing employs one broker as the sole agent for the property for a definite period of time, but leaves with the owner the right to find his or her own buyer without the obligation to pay a commission to the broker. This is the only legal type of listing in some states. Most states require all exclusive listings to contain definite termination dates. Additionally, most states do not allow those termination dates to have qualifying terms or conditions. Automatic renewal clauses are legal in some states and not others. All exclusive listings must be based upon a consideration, such as the broker's promise to use reasonable efforts to advertise and promote the sale of the property.

An Exclusive Buyer-Broker agreement entitles the broker compensation whenever a buyer purchases a property of the type described within the period prescribed of the agreement. T or F?

True

Graduated Lease

Also called a step up lease. The tenant agrees to periodic increases in rent. Graduated leases can be part of either a gross or net lease agreement. The tenant knows when these increases will take place and how much they will be.

In most states, a listing must meet all of the following EXCEPT: A. Must specify and ending date B. Authorize the broker to actually convey title to the property C. Require authorization from the seller(s) to advertise or promote the property D. Must be in writing

B. Authorize the broker to actually convey title to the property

Procuring cause would not be required for a broker to receive a commission in a (an) A. Open listing B. Exclusive-right-to-sell listing C. Net listing D. Exclusive agency listing

B. Exclusive-right-to-sell listing

Exclusive Buyer Agency Agreement

Buyer must compensate his/her agent whenever he/she purchases a property of the type described within the period described.

A counteroffer is legally considered to be: A. Unacceptable to the buyer B. Part of the property disclosure C. A new offer and voids the original offer D. A reinterpretation of the new offer.

C. A new offer and voids the original offer

A salesperson obtains a written offer to purchase a home that she has listed for sale.The seller accepts the offer, and the salesperson promptly telephones the purchaser to notify him of the acceptance. Because the purchaser lives in a nearby town, the salesperson informs him that she will deliver a copy of the contract in three days. The salesperson has an enforceable contract when A. The seller signs the acceptance B. The offer to purchase is presented to the seller C. The acceptance has been telephoned to the salesperson who is representing the purchaser D. A copy of the contract is delivered to the purchaser in three days

D. A copy of the contract is delivered to the purchaser in three days

Open Agreement (Buyer-Broker Agreement Type)

The buyer can work with more than one buyer's agent at the same time but owes compensation only if he/she uses the services of a buyer's broker.

Net Lease

In a net lease, the tenant pay a fixed amount of rent and agrees to pay some or all of the landlord's other expenses as well. These expenses could include taxes, insurance, maintenance and repairs. Net leasing is most commonly used in larger commercial spaces as well as long term leases.

Exclusive Listings

Listings wherein for a stipulated time only one broker may be employed for the purpose of marketing the property.

Exclusive Agency Buyer Agency Agreement

The buyer's agent is assured of buyer's loyalty relative to any other agents. The buyer may, however, purchase property on his/her own without the assistance of an agent and thus without any compensation being due to the buyer's agent.