Unit 10 test
Which of the following is TRUE of a right of first refusal given to the tenant of a rental house? A)The landlord must offer to sell the property to the tenant first, if the landlord decides to sell the house. B)The landlord cannot sell the property to anyone but this tenant. C)The tenant must buy the property, if the landlord decides to sell. D)The landlord must sell the property, if the tenant decides to buy.
A A right of first refusal is created when a property owner promises to give the contracting party the first chance to buy the property or to match the bona fide offer of a third party, should the owner decide to sell sometime in the future. Rights of first refusal are commonly found in leases.
Which of the following statements is correct? A)A listing agent can present multiple offers in any order, as long as all are presented at the same time. B)A listing agent can refuse to present a verbal offer because the statute of frauds states that real estate contracts have to be written to be binding. C)A listing agent can tell a potential buyer the terms of a competing offer in order to get the best possible contract terms for a seller client. D)A seller's agent can reject offers on behalf of the seller if the agent knows some of the offer terms are unacceptable to the seller.
A Contrary to what some buyers and brokers believe, sellers are not committed to dealing with the first offer before considering others. In other words, in multiple offer situations, there is no priority to one offer over another. A seller is not bound to consider offers in the order in which they were received, even if they are full price or exceed full price without concessions.
When a valid purchase contract is fully executed by the seller and the buyer, A)the seller transfers equitable title to the buyer. B)the seller retains reversionary rights. C)the buyer transfers equitable title to the lender. D)the buyer forfeits financing contingency rights.
A Equitable title is interest held by the buyer that gives the buyer the right to demand that legal title to the property be transferred to the buyer upon full payment of the purchase price. A fully executed contract transfers equitable title to a property to the buyer.
A for-sale-by-owner signs a written offer to purchase without making any changes to the offer. The seller then mails the signed offer to the buyer by express mail without any further contact with the buyer. Before receipt of the envelope from the seller, the buyer changes her mind about purchasing the property and calls the seller to withdraw the offer. Which of the following statements is TRUE? A)Buyer cannot withdraw offer because she is already under contract. B)Buyer was under contract as soon as the seller signed the offer to purchase. C)Contract has been formed but is unenforceable since real estate brokers were not involved. D)Buyer can withdraw offer since she has not received the signed contract yet.
A If an acceptance is placed into the mail service to the other party or that party's agent, it is considered as having been delivered when mailed, not necessarily when actually received; this is known as the mailbox rule. The parties cannot revoke the offer once the acceptance is mailed because it is now a contract.
A broker is preparing an offer for a buyer he represents as an exclusive agent. The buyer wants to make certain there is a clear acceptance deadline for the offer. To accomplish this, the broker should A)use a preprinted form that defines the time frame for acceptance. B)add the time frame to the signature section of the offer. C)use the Contingent Sale Addendum to define the time frames. D)write an addendum and attach it to the Offer to Purchase and Contract (NCAR/NCBA).
A The Additional Provisions Addendum is used to set a deadline for acceptance of an offer.
The amount of earnest money deposit is determined by A)an agreement between the parties to the contract. B)the broker's office policy on such matters. C)the Real Estate Settlement Procedures Act. D)the listing agreement.
A The amount of earnest money is usually included with a real estate purchase contract and agreed to by the seller if the seller accepts the contract. There is no standard legal amount or percentage of the purchase price for earnest money.
The buyer in an installment land contract is typically NOT responsible for paying during the contract period for A)contract recording fees. B)real property taxes. C)any homeowners association dues. D)property insurance.
A The buyer usually agrees to give the seller a down payment and pay regular monthly installments of principal and interest over a number of years. The buyer also agrees to pay real estate taxes, assessments, homeowner dues, insurance premiums, repairs, and upkeep on the property. The seller does not execute and deliver a deed to the buyer until the final payment has been made and all the terms of the contract have been satisfied, at which time the contract is recorded.
A buyer agreed to purchase a property for $230,000. The buyer gave a $7,000 earnest money deposit to the listing broker. The seller was unable to transfer clear title, so the buyer subsequently demanded the return of his earnest money. The broker should A)return the entire amount to the buyer only if the seller does not dispute the return. B)retain the earnest money in the interest-bearing trust account until completion of the second interest cycle. C)deduct her commission and return the balance to the buyer if there is no dispute of the return of funds. D)immediately deposit the money with the county clerk of court.
A The earnest money belongs to the seller even while held in the broker's trust account, and the broker may return it to the buyer only with the seller's consent.
Which of the following statements is TRUE of the due diligence fee in the NCBA/NCAR 2-T Offer to Purchase and Contract? A)The due diligence fee is applied to the purchase price at closing. B)The earnest money check is paid directly to the seller. C)It requires all the systems of the property to be functioning adequately. D)Within three business days after the due diligence period expires, the buyer must notify the seller of the buyer's decision to proceed with the contract.
A The length of the due diligence period or the amount of the fee is negotiable by the parties before contract formation. If the buyer proceeds to settlement, the due diligence fee will be credited toward the purchase price. If the buyer exercises the right to terminate within the due diligence period, the buyer will receive a refund of any paid earnest money deposit.
The Uniform Electronic Transaction Act (UETA) A)states that electronic signatures are binding on contract parties. B)states that conveyance of title must be in writing. C)deals with verbal contracts. D)is not applicable to real estate transactions.
A UETA was published in 1999 and gives electronic signatures the same legality as traditional handwritten signatures under the statute of frauds. Both parties must have agreed to conduct the transaction electronically.
At 1:30 pm, a broker faxed an offer to purchase to her seller client. At 2:00 pm, after considering the offer, the seller called and informed his agent that he wanted to increase the earnest money deposit by $1,000. To make the seller's requested change for additional earnest money, the seller's agent need only change the term in the original offer, initial, and date the one change on behalf of the seller. prepare a new offer and, with the seller's permission, sign on behalf of the seller. A)Both I and II B)Neither I nor II C)II only D)I only
B A seller may want certain changes to be made to an offer before accepting it. For example, instead of a $1,000 earnest money deposit, the seller may demand a $5,000 earnest money deposit. Once the offeree makes any material change in the offer, the offeree has rejected that offer and created a counteroffer. No contract has been formed at this point.
The listing broker has received four offers on a property. The first is full list price, the second is $5,000 over list price, the third is $2,000 under list price, and the fourth is full list price but has a contingency for the buyer to sell her current home. When presenting the offers, the listing broker should A)vocalize to the brokers who offered less than the list price to elevate their offer to full list price or higher or the listing broker will not present the offer to the seller. B)present all offers to the seller at the same time and allow the seller to determine which, if any, to negotiate or accept. C)present the highest and best offers first and then work to the lowest price if needed. D)give the seller only the over-list-price offer because it is clearly the best for all parties.
B If multiple offers arrive at the listing agent's office before the agent has the opportunity to present any offer, the agent should try to present all offers at the same time to the seller. A listing agent can assist the seller in reviewing the different terms in order to choose the best offer for that particular seller. Once an offer is accepted, the seller may consider other back-up offers.
A seller receives two offers to purchase her North Carolina property at the same time. One offer is for full listing price but wants a delayed closing that is not in the seller's best interest. The second offer has terms that are very agreeable to the seller but offers less than full price for the property. Without any knowledge or consent of the first offeror, the listing agent contacts only the second offeror and tells them that there is a full price offer on the table and asks if they would like to increase the purchase price in their offer. Listing agent is A)honoring his fiduciary duty to the seller by soliciting a higher offer. B)in violation of Commission Rules because he revealed offer terms. C)in violation of Commission Rules because he must also respond to the first offeror. D)working within Commission Rules as long as his actions were at the direction of his seller client.
B If multiple offers arrive at the listing agent's office before the agent has the opportunity to present any offer, the agent should try to present all offers at the same time to the seller. Again, all offers must be presented.
Which of the following statements is/are TRUE when an offer to purchase has been signed by the buyer and then given to the seller's broker with an earnest money deposit check for the seller to consider? The earnest money check must be deposited immediately into the listing firm's trust account. If the buyer withdraws the offer before it is accepted by the seller, the earnest money will be forfeited. A)I only B)Neither I nor II C)II only D)Both I and II
B If the offeree changes any terms or conditions of the offer, or withdraws the offer, an acceptance does not take place. Any earnest money that was presented with the offer to purchase must be handled in accordance with NCREC Rule A.0107. If no contract is ever formed, the full earnest money is returned to the offeror.
A preprinted North Carolina sales contract provided for use by a real estate broker may NOT contain a provision about A)negotiated repair issues. B)broker compensation. C)items to be prorated at settlement. D)payment terms of purchase price.
B North Carolina Real Estate Commission Rule A.0112 requires that brokers include all required data when completing preprinted contracts but prohibits the inclusion of brokerage compensation or a liability disclaimer in a sales contract.
All of the following will terminate an offer EXCEPT A)revocation of the offer before acceptance. B)an offer from a third party. C)death of the offeror before acceptance. D)a counteroffer by the offeree.
B Termination of offers can take place if the offeree rejects the offer and/or creates a counteroffer; if the offeree fails to accept within the prescribed time stipulated in the offer; within a reasonable time, if a time of acceptance is not prescribed; prior to acceptance, if the offeror communicates a revocation of the offer; or by the death of the offeror or offeree.
The buyer's offer is made on the condition that the buyer is able to obtain an 80% institutional loan at a specified interest rate by a specified date. If the buyer notifies the seller in writing of the inability to obtain such a loan, the buyer will A)have to go ahead with the purchase anyway. B)not have to purchase the home and will be entitled to a full refund of the earnest money deposit. C)not have to purchase the home but will forfeit the whole earnest money deposit. D)not have to purchase the home but will forfeit half of the earnest money deposit.
B The buyers should explore their financing options and determine if they can obtain a loan during the due diligence period. If the buyer decides to terminate the contract during the due diligence period, a written notice of termination must be delivered to the seller before the expiration of the period.
A buyer makes an offer on a $15,000 property and gives an earnest money deposit of $1,500 in the form of a personal check. The buyer then withdraws the offer before the seller can accept it. The broker should dispose of the earnest money by A)deducting the commission and giving the balance to the seller. B)returning it to the buyer. C)turning it over to the seller. D)depositing it in the broker's trust account.
B The earnest money deposit is not the property of the seller until the seller accepts the offer including the earnest money. The broker should return the earnest money to the buyer because the seller has not agreed to the offer.
The listing agent received a full price offer that she faxed to the out-of-town seller. The seller signed the faxed copy and faxed the signed copy back to the listing agent. The agent faxed the signed offer to the buyer's agent. Has contract been formed? A)No, because the buyer has not been notified of the acceptance yet. B)Yes, because the Uniform Electronic Transaction Act states that faxed signatures are as binding as ink signatures. C)Yes, because faxed signatures are binding for 48 hours until ink signatures can be obtained. D)No, because there is not one copy that has ink signatures of both parties.
B Yes, because the Uniform Electronic Transaction Act states that faxed signatures are as binding as ink signatures. Under the scope of this Act, contracts can be created by electronic means such as email, DocuSign and faxes (although faxes are used less frequently these days).
Which of the following statements is TRUE of a conventional option to purchase contract? A)It is enforceable by both the optionor and the optionee. B)It does not allow negotiation on changes to contract terms during the option period. C)It must be exercised within a specified time period by the optionee. D)It need not recite a set amount of consideration for purchase of the property.
C A conventional option is a contract in which an optionor (usually an owner) gives an optionee (a prospective purchaser or lessee) the irrevocable right to buy or lease the owner's property at a fixed price within a stated period of time. The optionee must decide, within the specified time, either to exercise the option right (to buy or lease the property) or to allow the option right to expire.
A broker presented a written offer to a seller on behalf of a prospective buyer. The seller changed the offer amount from $142,000 to $142,800, initialed and dated the change, and signed the offer. This action by the seller was A)a partial acceptance of the buyer's offer. B)a qualified acceptance of the buyer's offer. C)a new offer by the seller. D)an illegal counter offer.
C A counteroffer is a rejection or termination of the original offer and creates a new offer.
A purchaser made an offer to purchase and gave it to the listing agent, who forwarded the offer to the owners by email. The owners signed the sales contract and mailed it to the listing agent. While this document was in the mail to the listing agent, a second purchaser made a higher offer on the property. The listing agent called the owners to tell them about the second offer. Before the owners could say they had accepted the first offer and inform the listing agent that they had mailed the signed contract to the agent, the agent told the owners there was a second higher offer for the property. The owners immediately told the agent to disregard the signed contract they had mailed because they would prefer to accept the second offer. At this point, which of the following statements is TRUE? A)The seller and the listing broker must respond or reject the first offer before responding to the second offer. B)The second offer has been legally accepted. C)The seller may accept the second offer because notice to the first buyer has not occurred. D)The first offer has been legally accepted.
C A signed offer is still not a contract until notice of acceptance by the last party is communicated to the opposite party. The owners had only submitted their response to the first offer by mail to the listing agent.
When real estate is sold under an installment land contract, the legal title A)is transferred to the buyer at settlement. B)must be transferred to a land trust. C)is held by the seller until the purchase price is paid in full. D)is subject to a purchase money mortgage agreement.
C An installment land contract is a contract for deed agreement in which the buyer receives equitable title (the right to possession) with the seller retaining legal title (also known as record title). The buyer makes payments to the seller in installments, and when the buyer has paid the full purchase price, the buyer receives the legal title, full ownership of the property, from the seller.
Under contract terms, one party will pay the property owner $1,500 a month for 10 years. The property owner will continue to hold legal title to the property. That party will live on the property and pay all real estate taxes, insurance premiums, and regular upkeep costs. What kind of contract is in place? A)Option to purchase contract B)Contract for mortgage C)Installment land contract D)Unilateral contract
C An installment land contract is not only a sales contract but also a financing instrument. The buyer usually agrees to give the seller a down payment and pay regular monthly installments of principal and interest over a number of years. The buyer also agrees to pay real estate taxes, assessments, homeowner dues, insurance premiums, repairs, and upkeep on the property.
A buyer and a seller enter into a real estate sales contract. Under the contract's terms, the buyer will pay the seller $500 a month for 10 years. The seller will continue to hold legal title, while the buyer will have possession of the home and pay all real estate taxes, insurance premiums, and regular upkeep costs. What kind of contract do the buyer and the seller have? A)Contract for mortgage or deed B)Unilateral contract binding on the seller C)Installment land contract with seller as lender D)A 10-year option contract
C An installment land contract is not only a sales contract but also a financing instrument. The seller agrees to owner financing with some type of installment payment method for the buyer. Under an installment land contract, the seller, also known as the vendor, retains legal title, while the buyer, known as the vendee, secures possession of and an equitable interest in the property. The buyer holds equitable title, and the contract is a cloud on the seller's title.
In real estate, an option to purchase contract and the option fee are used to A)create a bilateral contract allowing both parties time to negotiate price, terms, fees, and closing date. B)give the optionee notice and the first right to buy if the seller decides to sell. C)compensate the seller for holding the property for the buyer while the buyer has the choice to terminate or proceed with the sale within the option period. D)allow a buyer a period of time to complete due diligence and negotiate the price, terms, and full-option fees.
C An option is enforceable by only one party—the optionee—making it a unilateral contract. Because the seller is prohibited from selling the property to anyone else during the option period, it would probably be in the optionor's best interest to clearly terminate the optionee's rights by using the term time is of the essence regarding the option date.
All of the following are essential elements to create the validity of a purchase agreement EXCEPT A)communication of acceptance. B)consideration. C)earnest money. D)lawful objective.
C Earnest money is not consideration and is not required in a purchase offer. If used, it is tied to liquidated damages and the seller's recourse if the buyer defaults.
A buyer is under contract to purchase a home using the standard Offer to Purchase and Contract (NCAR/NCBA) and has terminated the contract during the due diligence period. In this instance, A)the seller can sue the buyer for specific performance to retain the due diligence fee and earnest money. B)any due diligence fee, earnest money, or both will be refunded to the buyer because the contract was terminated during the due diligence period. C)any earnest money will be refunded to the buyer and the seller will retain any due diligence fee that was paid. D)the due diligence fee, earnest money, or both will be retained by the seller as liquidated damages for the terminated contract.
C If the buyer exercises the right to terminate within the due diligence period, the buyer will receive a refund of any paid earnest money deposit. The due diligence fee is generally nonrefundable, regardless of the outcome of the transaction.
The buyer's offer is made on the condition that the buyer's inspection indicates that all working systems of the structure are up to current code. This condition is called A)an option. B)a first right of refusal. C)a contingency. D)a unilateral offer.
C If the buyer has indicated that he needs to sell other property to consummate the purchase of the subject property, it is highly recommended that the buyer consider using the Contingent Sale Addendum. If the contract on the buyer's other property is terminated for any reason after the expiration of the due diligence period for the subject property, either party may terminate the contract and the buyer will receive a refund of all earnest money.
If a broker receives a due diligence fee from a buyer under the North Carolina standard offer to purchase and contract, when can the seller receive the fee? A)After the deed is recorded B)When the offer is presented to the seller C)When a contract is created between the seller and the buyer D)At the settlement meeting
C In exchange for a negotiated due diligence fee paid directly to the seller, the buyer has the unlimited right to fully investigate the condition and allowed uses of the property to determine if the buyer wishes to consummate the purchase contract on the negotiated terms.
An NCBA/NCAR 2-T Offer to Purchase and Contract offered for use by a real estate broker must not include a disclaimer of liability on the part of the broker. can include any agent compensation that is being split with the buyer in the contract. A)Neither I nor II B)Both I and II C)I only D)II only
C North Carolina Real Estate Commission Rule A.0112 requires that brokers include all required data when completing preprinted contracts but prohibits the inclusion of brokerage compensation or a liability disclaimer in a sales contract.
To sell his property the seller has entered into a contract. While the sale is pending, the listing agent receives another offer to purchase the property from a different firm. Which of the following statements is TRUE? A)The listing agent has to present this offer only if its terms are better than the terms of the pending sale. B)The listing agent must tell the offeror that offers are prohibited while a sale is pending. C)The listing agent must present this offer to the seller. D)The listing agent does not have to present this offer to the seller.
C Real estate brokers are obligated by License Law (93A-6(a)(13)) and Commission Rule A.0106 to disclose all offers to sellers immediately, but no later than three days from the date of the offer. Simply telephoning the offeree with the terms of an offer is not sufficient delivery.
Shopping offers A)is a practice in which a homeseller's real estate agent discloses prices and terms of an offer to competing buyers, in an effort to get higher bids. B)is prohibited in North Carolina. C)both of these. D)neither of these.
C Shopping offers is strictly prohibited. Commission Rule A.0115 prohibits brokers from sharing the price or other material terms in offers with competing parties without the express authority of the offering party (the buyer).
Per the NCBA/NCAR 2-T Offer to Purchase and Contract, if the seller commits a material breach and the buyer elects to terminate the contract, the buyer is entitled to A)a refund of any earnest money only. B)a refund of any earnest money and due diligence fee. C)a refund of paid earnest money, due diligence fee, and all reasonable costs of the buyer's due diligence. D)nothing more than contract termination.
C The due diligence fee is generally nonrefundable with two exceptions: (1) a material breach by the seller, or (2) material damage or destruction of the property improvements before closing. The due diligence fee should not be confused with the earnest money deposit that serves as the liquidated damages.
A married couple offers in writing to purchase a house for $320,000, including the draperies, with the offer to expire on Saturday at noon. The owners reply in writing on Thursday, accepting the $320,000 offer, but excluding the draperies. On Friday, while the couple considers this response, the owners reconsider the original offer and decide to accept the original offer in writing, including the draperies. Since it is before Saturday at noon, the couple A)must buy the house but may deduct the value of the draperies from the $320,000. B)must buy the house and is not entitled to the draperies. C)is not bound to buy because they are not under contract. D)is legally bound to buy the house including the draperies.
C When the offeree receives the offer and makes any change to that offer, it constitutes a counteroffer, which is a rejection of the first offer. When the counteroffer takes place, the original offer cannot be revived. The offeree also cannot later reconsider and accept the original offer. It has been rejected; it no longer exists.
Checks for earnest money and tenant security deposits must be deposited in a trust account within three A)banking days after receipt of the trust funds. B)calendar days after receipt of the trust funds. C)calendar days after acceptance of the contract. D)banking days after acceptance of the contract.
D Earnest money (and tenant security deposits) must be deposited in a trust account held in an insured bank or savings and loan association legally conducting business in North Carolina within three banking days of contract formation.
Under the NCBA/NCAR 2-T Offer to Purchase and Contract, which of the following BEST describes the due diligence fee? A)Purchase price deposit B)Liquidated damages C)Good-faith money D)Legal consideration
D In North Carolina, when a buyer makes an offer to purchase, the buyer usually writes two checks, the earnest money deposit and the due diligence fee. The due diligence fee may range from as little as $500 to $2,000 or more, but there is no legally required amount because the fee is negotiable. The fee compensates the sellers for taking their home off the market while the buyer conducts inspections of the property and is legal consideration. The fee is usually cashed right away by the seller and is credited to the buyer toward the purchase price at closing.
An offer to purchase is submitted on a listing while the property owner is out of town on business. The offer is electronically submitted to the owner and the owner signs and returns the offer with no changes in terms. If the signed offer is then electronically submitted to the listing agent who calls the buyer's agent with this information, which of the following statements is TRUE? A)The original signatures of both buyer and seller must appear on the same copy of the offer; therefore, a contract does not exist. B)No contract exists yet since the buyer has not been personally told of the contract acceptance. C)No contract exists since no one on the buyer's side of the transaction has seen the seller's signature. D)The seller is under contract to sell his property since electronic signatures are binding.
D North Carolina has a version of the federal e-sign legislation, Uniform Electronic Transactions Act, which addresses electronic commerce, which includes real estate transactions. Under the scope of this Act, contracts can be created by electronic means such as email, DocuSign, and faxes. Also of major importance for the real estate industry is that under the legislation, an electronic signature is binding.
If a buyer wishes to make an offer on property that is already under contract, the buyer should ask his broker to add which addendum? A)Vacation Rental Addendum B)Seller Financing Addendum C)Buyer Possession Before Closing D)Back-Up Contract Addendum
D The Back-Up Contract Addendum language automatically makes the secondary contract null and void if the primary contract closes or upon reaching a named date, whichever occurs first. The secondary contract moves to primary position upon notification to the secondary buyer that the primary contract is terminated.
An offer to purchase real estate can be terminated by all of the following reasons EXCEPT A)acceptance of the offer by the offeree after making one change in terms. B)failure to accept the offer within a prescribed period. C)death of the offeror or offeree. D)revocation by the offeror communicated to the offeree after acceptance.
D There are several ways to terminate an offer. Termination of offers can take place if the offeree rejects the offer and/or creates a counteroffer; if the offeree fails to accept within the prescribed time stipulated in the offer; within a reasonable time, if a time of acceptance is not prescribed; prior to acceptance, if the offeror communicates a revocation of the offer; or by the death of the offeror or offeree.
Under an installment land contract, the title to the property is held by A)the trustor. B)the trustee. C)the vendee. D)the vendor.
D Under an installment land contract, the seller, also known as the vendor, retains legal title, while the buyer, known as the vendee, secures possession of and an equitable interest in the property. The buyer holds equitable title, and the contract is a cloud on the seller's title.
When a buyer and seller have entered into an installment land contract, the seller retains an interest called legal title. the buyer acquires an immediate interest in the property known as equitable title. A)II only B)I only C)Neither I nor II D)Both I and II
D Under an installment land contract, the seller, also known as the vendor, retains legal title, while the buyer, known as the vendee, secures possession of and an equitable interest in the property. The buyer holds equitable title, and the contract is a cloud on the seller's title.
Mr. and Mrs. Moore purchased a lot at Lake Gaston from the Waterfront Development Corporation. An installment land contract was used to finance the purchase. In this form of owner finance, A)the seller does not have foreclosure rights if the buyer is in default. B)the buyer receives possession and title at closing. C)the seller retains possession to the property at closing. D)the buyer is given possession at closing and the seller retains title.
D When an installment contract is used, the buyer takes possession of the property and equitable title but does not receive full legal title until the final payment is made.
