Unit 5: Contracts Used in Real Estate

A death of the landlord will terminate the lease, and the parties' heirs will NOT be bound by its terms under which of the following estates?

Estate at will

A contract may be discharged or terminated when which of the following occurs?

Impossibility of performance

A clause in the lease that allows a tenant the right to purchase the leased property before the owner accepts an offer from another party is the

right of first refusal.

The following statements about improvements to a leased space are true EXCEPT

trade fixtures can be removed by the tenant after the lease expires.

A situation in which a seller is retaining title to the property until full payment is made by the buyer is

The answer is a land contract. There is no mortgage; the buyer makes installment payments over time until the amount owed is paid. Once paid, the seller will deliver title to the buyer.

An employment contract that establishes the rights and obligations of the broker as agent and the seller as principal is

The answer is a listing agreement. There are several types of listing agreements, such as exclusive right to sell, exclusive agency, and open.

A listing under which a broker's commission is the difference between the sales proceeds and an amounted desired by the seller is

The answer is a net listing. A "net listing" is a listing agreement in which the broker's commission is the difference ("net") between the sales proceeds and an amount desired by the owner of the real property. A broker may not take net listings unless the principal requires a net listing and the principal appears to be familiar with current market values of real property.

The listing contract should contain

The answer is all of these. Generally, the listing contract should contain the seller's authorization to place a sign on the property, the desired sales price, and a legal description.

In which of the following does the seller retain legal title?

The answer is all of these. Real estate can be sold under a land contract, also called a contract for deed, an installment contract, a land sales contract, or articles of agreement for warranty deed. Under a typical land contract, the seller (also called the vendor) retains legal title.

By executing a listing or buyer agency agreement with a client, a real estate broker becomes

The answer is an agent of the client. Principals (sellers or buyers) hire agents (real estate brokers) to represent them in real estate transactions.

A tenant transfers all leasehold interest to another person who is legally obligated for all the promises the original tenant made in the lease. This is an example of

The answer is an assignment. When a tenant transfers all leasehold interests to another person, the lease has been assigned. The new tenant is legally obligated for all the promises the original tenant made in the lease.

An agreement where the seller gives the exclusive right of representation to a broker-agent to market the seller's property but reserves the right to sell the property, without obligation to pay the broker a commission, is called

The answer is an exclusive-agency listing. In this type of listing, the broker-agent is authorized to act as the exclusive agent of the principal. However, the seller retains the right to sell the property without obligation to the broker.

A tenant signs a lease that allows the stated rent to be increased or decreased every year based on the percentage increase or decrease in the consumer price index (CPI) for that period. This is called

The answer is an index lease. This is a common commercial type of lease that allows the escalation of rents based on changes in the consumer price index. It allows the landlord to keep up with inflation in the return on the landlord's investment.

A buyer obtains possession of a property under a contract, and the seller is not obligated to execute and deliver a deed to the buyer until the terms of the contract have been satisfied. This is

The answer is an installment contract. An installment contract (also called a contract for deed or land contract) is one in which title is not conveyed until all of the covenants in the contract are performed (like the payment of monies).

A tenant is interested in leasing at least 85,000 square feet of space over a 10-year lease. A landlord has enough space in a high rise office building that he feels will accommodate their needs. However, the tenant will need extensive tenant finish-out, including some special needs which require a special building permit. As this will take some time and investment from both parties, the parties agree to a contract that will allow the tenant to lease the property at a set rate for certain period of time with the right to terminate the contract if the lessee cannot get an acceptable building permit. This is

The answer is an option contract. The optionee (tenant) will pay the optionor (landlord) for this right. The optionee may be obligated to exercise the option if the conditions are met.

All of the following are written agreements used by license holders EXCEPT

The answer is business opportunity contracts. The sale of a business opportunity is not regulated by the Texas Real Estate Commission. Therefore, contracts for the sale of business opportunities would not be contracts a real estate license holder would use.

A property owner is interested in providing financing on a residential property for a buyer. A contract is written where the property owner will retain title to the property until the buyer has paid the owner in full. Once paid, the owner will deliver title to the buyers. This type of sales contract is called a

The answer is contract for deed. This is a land contract, also called a contract for deed, an installment contract, a land sales contract, or articles of agreement for warranty deed. Often, title passes when the buyer has made enough payments to obtain a mortgage loan and pay off the balance due on the contract.

The right the lessee has to occupy the premises without interference from the owner or anyone else is the

The answer is covenant of quiet enjoyment. The lease usually stipulates the conditions under which the landlord may enter the property to perform maintenance, to make repairs, or for other stated purposes.

Which of the following is needed for the listing agreement and for other brokers through the MLS?

The answer is current (or most recent year's) property taxes. While the listing agent will need to know the other information, it does not necessarily need to appear in the MLS.

What type of title does the buyer get in a land sales contract?

The answer is equitable title. The buyer (called the vendee) takes possession and gets equitable title to the property. The buyer agrees to give the seller a down payment and to pay regular monthly installments of principal and interest over a number of years. The buyer also agrees to pay real estate taxes, insurance premiums, repairs, and upkeep on the property.

Which type of leasehold estate lasts for a definite period of time and then ends?

The answer is estate for years. An estate for years is a leasehold estate that continues for a definite period and always has specific starting and ending dates.

A tenant pays a fixed rent and the landlord pays all taxes, insurance, repairs, utilities, and maintenance connected with the property. This type of lease is called a

The answer is gross lease. Residential and commercial office leases are most often gross leases.

When a landlord leases unimproved land to a tenant who agrees to erect a building on the land, the lease is usually called a

The answer is ground lease. The ground lease is most often used in commercial property development. They often run for terms of 50 to 99 years.

A man is interested in purchasing a home but has credit issues that prevent him from getting a mortgage. A seller decides to provide owner's financing to allow the buyers to purchase the home now while the man cleans up his credit. Under the terms in the contract, the seller will deliver title to the man once the contract has been paid in full. This is a

The answer is land contract. The buyer (called the vendee) takes possession and gets equitable title to the property. The seller (called the vendor) retains legal title until the contract is paid in full by the buyer, at which time the title is conveyed to the buyer.

Which of these is a type of exchange that requires a specific type of exchange agreement?

The answer is land or installment contract. A land or installment contract is the total agreement between a buyer and a seller; the seller retains title until the full amount of sales price is paid; the buyer receives possession and responsibility for taxes, insurance, repairs, and upkeep of the property.

Which of the following does NOT have legal title to real property?

The answer is lessee. A lessee is a tenant. Tenants are granted the right of possession, not ownership of the property.

A tenant pays all or most of the property charges (i.e., property taxes, insurance, etc.) in addition to the rent. This type of lease is called a

The answer is net lease. This lease is most often associated with large commercial and industrial leases.

An owner gives a prospective buyer the right to buy the owner's property at a fixed price within a certain period. This represents what type of agreement?

The answer is option contract. An option is a contract by which an optionor (generally an owner) gives an optionee (a prospective purchaser or lessee) the right to buy or lease the owner's property at a fixed price within a certain period. The optionee pays a fee for this option right. The optionee has to decide to either exercise the option or allow the option to expire. An option is enforceable by the optionee only.

A seller listed her residence with a broker. The broker brought an offer at full price and terms of the listing from buyers who are ready, willing, and able to pay cash for the property. However, the seller rejected the buyer's offer. In this situation, the seller

The answer is owes a commission to the broker. The broker's promise to the seller is to bring a "ready, willing, and able" buyer with an offer of the sales price and other terms stated in the listing agreement. To reject this offer puts the seller in breach of contract, and the broker is owed a commission.

Which of the five rights to real property does the landlord sell to the tenant in a lease?

The answer is possession. The landlord sells (rents) the right of possession to the tenant. The tenant now has rights that the landlord cannot violate. The landlord still holds the rest of the rights to the property. The tenant does not have the right to sell it (disposition), but the landlord still does.

A restaurant owner has selected a new site to open a restaurant. He has signed a long-term ground lease and contracted with a builder to build the restaurant. The construction of the site is complete and has the restaurant for business. The restaurant owner sells the restaurant to an investor and leases back the restaurant. This type of lease is a

The answer is sale-and-leaseback. This type of lease is often used when extra capital is needed on a construction project. It can also allow the tenant to pull out equity to use on other projects and reduce the tenant's taxable income when the tenant pays rent to the new owner. The new owner has a reliable source of rental income for an extended time. In commercial real estate, it is often a win-win situation for both parties.

Listing agreements address all of the following EXCEPT

The answer is the actual day of closing. A listing agreement should address the anticipated closing date. It cannot address the actual closing date until a buyer is procured and that date negotiated.

A broker should discuss all of the following issues with a buyer before signing a buyer representation agreement EXCEPT

The answer is the source of compensation determines the agency relationship. The source of compensation does not determine the agency relationship. A buyer's agent may be compensated by either the buyer or the seller. Issues of compensation are always negotiable. All of the remaining issues should be discussed before entering into a buyer representation agreement.

Some leases allow for increases in the rental charges during the lease periods. This type of lease is called a

The answer is variable lease. This allows a landlord to offer a lower rate to entice a tenant into the property while allowing the landlord to reach market rents through a stated increase later.

Which of the following is TRUE about listing agreements and buyer agency agreements?

The listing and buyer agency agreements need to address compensation issues.

Which of the following is TRUE regarding an estate for years?

When the estate expires, the lessee is required to vacate.

Which of the following statements about assignment and subleasing is FALSE?

When the property has been sublet, the original tenant is not responsible for any damages by the new tenant during the term of the lease.

A person has a one-year leasehold interest in a house. The interest automatically renews itself at the end of each year. The person's interest is called an estate

Which type of leasehold estate lasts for a definite period of time and then ends?

A real estate buyer takes over the seller's FHA loan that originated in 2005. The lender releases the seller of liability and substitutes the buyer as the party primarily liable for the mortgage debt. This type of transaction is

a novation.

A tenant transfers less than all leasehold interest to another person but remains legally responsible for the rent if the new tenant does not pay it. This is an example of

a sublease.

A buyer has given her right under a sales contract to a third party but has not been released of the liability under the contract. This is called

assignment

All of the following are valid reasons for terminating a listing agreement EXCEPT

death of the sales agent.

A tenant's right to possess real estate for a definite period with a specific starting and ending date is an

estate for years.

All of the following information is needed for a listing agreement EXCEPT

names and addresses of the previous owners.

The buyer's agent received a counteroffer that has been faxed back and forth with another agent that has counters on both sides and is no longer legible. He drafts a new, clear contract with all the accepted changes and has it signed by all the parties. This substitution of new contract is called

novation