Module 5: Contract Law

The purchase contract normally has three purposes. Which is not a purpose of the purchase contract? A.) Authorization to perform a background check on the buyer B.) Buyer's offer C.) Contract between the buyer and seller D.) Receipt for the earnest money deposit

A

The requirement for a valid contract states a person must be of legal age and mentally sound is: A.) Capacity B.) Consideration C.) Contingency D.) Criteria

A

Jeff is trying to sell his house to Jenny. To induce her to buy the house, he decided to give her his boat as part of the purchase price. The boat could be an example of: A.) Assignent B.) Consideration C.) Contingency D.) Substanperformance

B

Leo, a real estate agent, and his client who is selling a home have just signed a written listing agreement to list the seller's home on the market. Select the option that best describes this agreement at this time A.) Express, bilateral, executed B.) Express, bilateral executory C.) Express, unilateral, executory D.) Implied, bilateral, executed

B

Nancy, a real estate agent, sold a house for her client. The house sold for $148,000. Her commission rate is 7%. How much commission will she receive? A.) $10,400 B.) $10,360 C.) $1,036 D.) $8,880

B

The type of listing agreement that gives the broker the most protection and guarantees them a commission regardless of who sells the property is a/an: A.) Exclusive agency B.) Exclusive right to sell C.) Open listing D.) Net listing

B

There are four ways a contract can be terminated: Lapse of time, death or incapacity, revocation and: A.) Rebate B.) Rejection C.) Repudiation D.) Restitution

B

When a court awards money for damages incurred to a non-breaching party, this is called: A.) Collateral damage B.) Compensatory damages C.) Liquidated damages D.) Specific performance

B

When the Crooked Fence Co. contracted to install a wooden fence around the perimeter of Smitty's property, they came out and only installed the fence posts. Because their performance would be considered extremely poor, and it was unexcused by Smitty, this is an example of ______________ of contract A.) Discharge B.) Material breach C.) Mitigation D.) Substantial performance

B

When the parties to a contract have not yet performed the obligations in the contract, it is said to be: A.) Executed B.) Executory C.) Implied D.) Unilateral

B

Kendra sold a house for $70,000. The commission she received was $5,000. What was her commission rate? A.) 6% B.) 7% C.) 14% D.) 28%

B $5,000 / $70,000 = 7%

T or F: All contracts regarding real estate must be in writing to be enforceable in the state of Michigan

True

T or F: Basically, a contract is a legally enforceable promise

True

T or F: In Michigan, it's the listing agent's responsibility to obtain a completed and signed seller disclosure statement

True

T or F: Judges usually do not admit parole evidence in contract disputes, however they may allow it in cases where the written contract is unclear

True

T or F: Betty signed a listing agreement with Lots-O-Wealth Real Estate Company. They sold her house and she paid them the promised commission. Therefore, all terms of the contract have been met. This contract is now discharged

True A contract is discharged or terminated when all of the terms have been met

T or F: An earnest money deposit given with an offer is not consideration

True An earnest money deposit isn't consideration, but it can be used to induce the buyer's acceptance

T or F: Marc was only 17 when he signed a contract to buy a house from Sherry, who didn't realize Marc was underage. A few weeks later, when the sale is ready to close, Marc changes his mind and tells Sherry the deal is off. Sherry can't sue to enforce the contract

True If Sherry were to back out of the contract, Marc could sue her

Licensee Steven and some of his buddies, licensees who work for a different employing broker, meet after work for happy hour. After a few drinks, Steven lets it slip that his broker will be raising the commission rate he charges on residential home sales. Did Steven do anything wrong?

Yes The Federal Sherman Antitrust Act of 1890 was enacted to ensure that there are no restraints on trade. Even the appearance of discussing commissions and fees with other brokers could be considered an example of illegal price fixing

T or F: Mr. Smith contracts to buy Ms. Jones' house, but only if he can sell his house. This type of provision written into a contract is called a compensation clause

False Contingency clause

T or F: Michigan laws requires that a service provision contract have a definite expiration date and a broker protection clause

False Listing agreements must have a definite expiration date and a non-discrimination clause

T or F: Sally tells Dick that she isn't going to go through with the purchase of his property. Dick must wait until the scheduled closing date or tender his performance before suing Sally for breach of contract

False Once a party has repudiated a contract, the other party may immediately file a lawsuit

T or F: For a contract to be formed, there must be an offer and counteroffer

False There must be an offer and acceptance, otherwise referred to as the meeting of minds

T or F: Henry wants to sell his house so he signed a listing agreement with Lots-O-Wealth Realty Company. This is an example of a unilateral contract

False, this is an example of a bilateral contract

The Statute of Frauds is a statutory law that requires all contracts regarding real estate to: A.) Be in writing to be enforceable B.) Have a definite expiration date C.) Have adequate consideration D.) Include a non-discrimination clause

A

The most common remedy for breach of contract; this is a damage award given by the court to compensate the plaintiff for harm cause by the defendant's actions- usually monetary amount for actual damages A.) Compensatory damages B.) Liquidated damages C.) Rescission D.) Specific performance

A

A condition in a purchase contract that states the agreement depends on the property passing a home inspection and radon test is called a: A.) Contingency clause B.) Compensatory damage C.) Counteroffer D.) Fraudulent clause

A

A listing agreement is an example of which type of contract? A.) Bilateral B.) Executed C.) Implied D.) Unilateral

A

Francis asks a real estate broker to help her find a house and represent her through the purchase process. She created an agency relationship when she signed a: A.) Buyer agency agreement B.) Listing agreement C.) Option agreement D.) Purchase agreement

A

If a tenant pays rent and utility bills but does not pay property taxes, mortgage payments, or hazard insurance, he most likely has a: A.) Gross lease B.) Land lese C.) Net lease D.) Percentage lease

A

Joel wants to buy Maria's store, but he wants to include a statement in the purchase contract that he will only do so if it passes a property inspection. What is this type of statement added to the agreement called? A.) Contingency B.) Consideration C.) Novation D.) Accord and satisfaction

A

One a contract is terminated, it is considered: A.) Discharged B.) Executory C.) Mitigated D.) Unilateral

A

Terry is looking to purchase his first house. He has a contract with a broker to help him find a house, and repress his interests throughout the purchase process. What type of contract is this? A.) Buyer agency agreement B.) Listing agreement C.) Option agreement D.) Purchase contract

A

Tom agrees to buy Gary's house with a contingency that he put in new kitchen appliances. Tom put down $5,000 earnest deposit. Gary installed the new kitchen appliances. Then, Tom backed out of the deal. There was a clause in their contract stating: If the buyer breaches the contract, he forfeits the earnest money deposit. Instead of receiving actual damages, Gary will receive: A.) Liquidated damages B.) Mitigation C.) Restitution D.) Specific performance

A

Which situation is an agent not obligated to disclose? A.) The previous owner committed suicide on the property B.) The property is adjacent to the State Highway Patrol shooting range C.) The property is prone to flooding D.) There has been prior termite damage

A

Why is the exclusive right to sell agreement best for the broker? A.) The broker is guaranteed a commission no matter who sells the property B.) The broker will collect a commission only if the procuring cause C.) Increased competition will cause the agent to work hard to make sure he or she is the one who gets paid D.) The broker can make an unlimited amount of money over and above what the seller wants to get from the property

A

Which is an example of accord and satisfaction? A.) Marvin agrees to accept a substitute vinyl sliding because the installer could no longer get the type he had originally contracted for B.) Ned agrees to take over Lucy's mortgage and signs an agreement absolving her liability C.) Pam has a contract with a plumber to install new fixtures in her bathroom and she withholds all payments until the job is completed D.) Tony accepts an offer from a buyer and signs the purchase contract

A Accord and satisfaction is when there's an agreement to accept something different than what was in the original contract

James gave David a $10,000 earnest money deposit for the option to buy David's farm for $500,000 within six months. Which party is legally bound to perform in this contract? A.) David B.) James

A David is only required to perform if James presents the money within 6 months

What allows a court to enforce an oral agreement that should have been in writing, if one party has performed his side of the agreement and failure to enforce the contract would result in an unjust benefit to the other? A.) Doctrine of part performance B.) Dower rights C.) Lawful and possible D.) Statute of frauds

A The doctrine of part performance tries to stop unfairness of the promisor benefiting from breaching the contract

Which of these terms refer to the termination of an offer? Select all that apply: A.) Death or Incapacity B.) Intent to Contract C.) Lapse of Time D.) Option E.) Rejection F.) Revocation

A, C, E, and F

In the state of Michigan, service provision contracts must have a definite expiration date and a: A.) Broker protection clause B.) Non-discrimination clause C. Novation D.) Right of refusal

B

Identify which of the following is not a requirement for a valid contract: A.) Acceptance B.) Accord and satisfaction C.) Consideration D.) Lawful and possible objective

B

If broker Steve from ABC Realty and broker Harry from XYZ Realty decided that they should each charge a abseils commission of 6.75%, they would be in violation go what law? A.) Real Estate Settlement Procedures Act B.) Sherman Antitrust Act C.) Statute of frauds D.) Truth in Lending Act

B

Carol and Leslie enter into a contract. The terms of the contract state that Carol will pay Leslie $650 per month for the next 20 year. Carol will live in the house and pay all expenses including property taxes, insurance, and maintenance costs. Leslie will continue to hold the title until the property is paid off. What kind of contract do they have? A.) Buyer agency agreement B.) Land contract C.) Option agreement D.) Percentage lease

B A land contract allows the buyer to make payments over time to the owner, while the owner holds the property title until it's paid in full

Clarence was selling his house and he had an interested buyer sign a purchase agreement. After signing the agreement, the buyer changed his mind and wanted to cancel the contract. Before Clarence can sue, he must try to find another buyer for his house. What is this called? A.) Assignent B.) Mitigation C.) Novation D.) Rescission

B Clarence must first try to minimize the losses resulting from the breach of contract

Daphne, a victim of identity theft, can't currently qualify for a loan but wants to buy her friend's condo for $90,000. She could give him $1,000 now, if he promised not to sell to anyone else in the next six months and give her the opportunity to pay the rest and purchase the property within that time period. This is a: A.) Lease agreement B.) Option agreement C.) Purchase contract D.) Right of preemption

B Consideration is given with an option so she can purchase the property anytime within the six-month period

Shirley has experienced a great trauma and was under psychiatric care and declared incompetent in March. She signed a purchase contract two months later. What was the status of the contract when she signed? A.) Valid B.) Void C.) Voidable D.) Unenforceable

B She did not have capacity at the time she signed

When the court tries to decipher and enforce what the parties intended when they entered a contract, this is called: A.) Adequate consideration B.) Interpretation C.) Part performance D.) Revocation

B The court must interpret the agreement to determine if it's been breached

Which items must be included in a Michigan service provision contract? Select all that apply A.) Equitable title B.) Definite expiration date C.) Non-discrimination clause D.) Procuring clause

B and C

Taylor offers to sell his house to Sam for $150,000. Same wants to purchase the home, but offers to do so for $145,000. This is an example of a(n): A.) Acceptance B.) Consideration C.) Counteroffer D.) Earnest money deposit

C

Ted contracts to buy Calvin's house for $150,000, but later Ted changes his mind and refuses to go through with the deal. Calvin must try to find a new buyer, to reduce his losses. He can't automatically sue Ted. This is called: A.) Compensatory damages B.) Liquidation of damages C.) Mitigation of damages D.) Specific performance

C

There are four court enforceable remedies for breach of contract compensatory damages, liquidated damages, specific performance and: A.) Assignment B.) Mitigation C.) Rescission D.) Restitution

C Rescission is the undoing of a contract

The purchase contract has three main purposes: it's the buyer's offer, it's the earnest money deposit receipt, and it's the: A.) Contract between the buyer and the listing agent B.) Contract between the seller and the listing agent C.) Contract between the buyer and the seller D.) Seller's disclosure

C

When a contract is rescinded and both parties return any consideration to the other, this is called: A.) Mitigation B.) Rescission C.) Restitution D.) Specific performance

C

Who has an equitable interest in the property under a land contract? A.) Mortgagor B.) Seller C.) Vendee D.) Vendor

C

A listing that allows a broker to collect any amount over and above the listing price that the property sells for is known as a(n): A.) Exclusive listing B.) Exclusive right to sell listing C.) Net listing D.) Open listing

C

Compensatory damages, liquidated damages, specific performance and recession are: A.) Examples of contingency clauses B.) Examples of insurance coverage C.) Remedies for breach of contract D.) Statutory law affecting real estate

C

How is the commission paid by a seller to a real estate agent determined? A.) It depends on the usury laws in the state where the property is located B.) It must be within the range of commission rates acceptable in that community C.) It is negotiated between the seller and listing broker D.) The local board of REALTORS sets the commission rates

C

Jennifer sold a house for $98,500, and her commission rate is 6%. How much will her commission be? A.) $5,500 B.) $5,900 C.) $5,910 D.) $6,000

C

Kyle signs a contract that allows him to live in a house for one year in exchange for paying the homeowner $500 a month. This contract is known as a(n): A.) Assignment B.) Land contract C.) Lease D.) Listing

C

Let's say that Fred offers to sell a house to Barney, but Fred does not own that house. Barney, unknowingly, agrees to purchase the house. Which requirement for a valid contract is not present? A.) Acceptance B.) Capacity C.) Lawful and possible D.) Offer

C

Michigan law requires any type of listing agreement to include: A.) A broker protection clause and a uniform commission rate B.) A definite expiration date and a uniform commission rate C.) A non-discimination cause and a definite expiration date D.) A non-discrimination clause and a broke protection clause

C

T or F: When Gary gives consideration that is comparable in value to Tom's consideration, this is called favorable consideration

False Adequate consideration is when both parties give something of similar value

A vaguely worded contract that a court would refuse to uphold is: A.) Valid B.) Void C.) Voidable D.) Unenforceable

D

At what point does a buyer's offer become a legally binding contract? A.) At the moment the buyer signs the offer, assuming it is for the listing price B.) As soon as the buyer notifies the seller's agent C.) As soon as the seller's agent notifies the seller of the offer D.) When the seller receives the offer and signed it

D

Barry has offered to sell his condo for $120,000. Andy wants to buy Barry's condo, but he offers Barry $116,500 for it. Barry responds to Andy's offer and says he won't accept less than $118,000 for it . What is this an example of? A.) Assignment B.) Capacity C.) Contingency D.) Counteroffer

D

Joe makes an offer to purchase a house, but withdraws his offer before the seller accepts it. Technically, Joe has ___________ his offer A.) Assigned B.) Assumed C.) Novated D.) Revoked

D

The agent who is responsible for events that result in a sale is said to be the ____________ of a sale A.) Equitable title B.) Exclusive agency C.) Open door D.) Procuring cause

D

Which type of listing agreement would allow a homeowner to list his home with several brokers and not have to pay any commission if he sells it himself? A.) Exclusive agency B.) Land contract C.) Net listing D.) Open listing

D

The Crooked Fence Company contracted to install vinyl fencing around the perimeter of Mr. Goober's yard, with a gate on the east side of lot, for $2,000. Cooked Fence Co. put up the fence, but mistakenly put the gate on the south side of the lot. Mr. Goober still has to pay them because there was: A.) Earnest money deposit B.) Mitigation C.) Specific performance D.) Substantial performance

D Because the Cooked Fence Co. performed most of the required contract

Larry signed a contract to buy Bob's house. However, the deadline in the contract has passed and Larry has not finalized the load with his mortgage company. There is not a "time of essence" clause in their contract. The contract is considered: A.) Terminated B.) Inadequate C.) Void D.) Voidable

D The contract is voidable by Bob because Larry did not perform by the states deadline. However, if Bob chooses he can wait (a reasonable amount of time) for the loan to clean, and go forth with the contract

Dorothy pays rent for space to sell gift baskets in a retail gift store. In additional to her monthly rental fee, she also pays a portion of her gross sales to the store owner. What type of contract is this? A.) Buyer agency agreement B.) Net lease C.) Option agreement D.) Percentage lease

D The percentage lease is a type of commercial lease that requires the tenant to pay a portion of gross sales to the lessor

Joe found out about a great deal on a fixer-upper. Joe showed the property to his client, Ted, who loved it. The next day, they talked to the owner, negotiated a deal, and Ted signed the purchase agreement. For this sale, Joe is considered to have: A.) A broker protection clause B.) A net listing C.) A substantial performance D.) The procuring cause

D The person primarily responsible for bringing about the sale is the procuring cause of the sale

What indicates that a real estate contract not in writing is not enforceable? A.) Doctrine of part performance B.) Parole evident role C.) Specific performance D.) Statute of fraud

D The statue of fraud requires real estate contracts to be in writing

T or F: A valid contract requires consideration. Consideration is always money

False Consideration can be anything of value: money, services, goods, or promises

T or F: When putting a property up for sale, it's the broker's responsibility to determine the asking price

F It is ultimately the seller's responsibility

From the previous scenario, if James changes his mind and decides not to buy from David's farm, will he get his deposit back?

No

Karrie is 17 and is selling the house she inherited from her grandparents. George has agreed to buy the property, and both have signed a purchase agreement. Who, if anyone, may void this contract?

Karrie, because she is not of legal age

If a party does not perform his part of the contract, or performs very poorly, the other party is not required to perform her obligation to the contract. This is called a ______________ of contract. When a party fails to perform every details of the contract but does fulfill the main objective of the contract, the other party is required to fulfill their obligation. This is called ________________________

Material breach Substantial performance

Name the information found of listing agreements:

Name of Brokerage Firm Listing Price Real and Personal Property Leased Equipment Description of Property Details of closing Proof of Ownership Broker's Commission Termination of Contract Disclosure Indemnification Nondiscrimination Antitrust Wording Dated Signatures

Name the information found on a land contract:

Names and address of all parties Date each party signed Legal description of the property Price of the property Charges or fees for service, separate from the contract price Down payment amount Principal amount owed Amount and due date of each payment Interest rate and method of computing the interest rate Encumbrances against the property Requirement that the vendor delivers a general warranty deed Requirement that the vendor provides evidence of title Provision for vendor's default Requirement that the vendor records the contract

To forma a valid contract, there must be ________ and acceptance

Offer