Lesson 5: Contracts Used in Real Estate

If a buyer buys an option to buy a property from a seller for $5,000, what is the consideration? A.) The $5,000 from the buyer is exchanged for a promise from the seller. B.) Consideration is not required. C.) The buyer's decision to exercise his right to buy. D.) There is no consideration. Contract is not valid.

A.) The $5,000 from the buyer is exchanged for a promise from the seller. Feedback: A promise in exchange for money is valid consideration. The contract has met the essential element of consideration.

Under the TREC contract forms, if a seller defaults under a contract can the buyer take the earnest money and sue the seller for damages? A.) Yes, those are penalties for default B.) No, when anyone accepts the earnest money it releases everyone from the contract C.) Yes, seller is in default D.) Yes, the buyer is within her legal rights

A.) Yes, those are in penalties for default Feedback: The following is found in the TREC sales contracts; If Seller fails to comply with this contract, Seller will be in default and Buyer may: (a) enforce specific performance, seek such other relief as may be provided by law, or both, or (b) terminate this contract and receive the earnest money, thereby releasing both parties from this contract.

A lease for 6 months ________. A.) Must be in writing to be enforceable B.) Can be oral and enforceable C.) Is never enforceable D.) Leases must be over one year

B.) Can be oral and enforceable Feedback: Leases for less than a year that do not involve a sale are exempt from the requirements of the Statute of Frauds.

A contract may be terminated without the terminating party suffering any consequences for all of the following reasons EXCEPT: A.) Fraud B.) Default C.) Misrepresentation D.) Mistake

B.) Default Feedback: Rescission can only occur in cases of fraud, misrepresentation or mistake. When a party rescinds the contract for one of these reasons the other party cannot sue for specific performance. There are no consequences when a contract is rescinded.

Which one of the following terms refers to an exact account of a particular parcel of land? A.) Property description B.) Legal description C.) Chain of title D.) Deed

B.) Legal Description Feedback: All contracts that transfer real property ownership must contain a legal description of the property. The purpose of identifying a property's exact location is to ensure that property is without a doubt the property being conveyed.

Which contract outlines the responsibilities of the seller and broker in a real estate transaction? A.) Sale contract B.) Listing agreement C.) Option agreement D.) Earnest money contract

B.) Listing agreement Feedback: Listing Agreements are contracts between the seller and the broker. Listing Agreements spell out the rights and obligations of the broker and the seller.

Which one of the following documents is the most important in a real estate transaction? A.) A lease B.) A sale contract C.) A contract for deed D.) An option agreement

B.) sale contract Feedback: It is when the sales contract closes that the seller gets their money, the buyer gets their keys and the agent collects their commission. All of the other real estate activities are in preparation of closing day. The sales contract is a critical part of that process. It is essential that licensees be proficient at completing the real estate sale contracts correctly.

When does a breach of contract occur? A.) When the terms and conditions of a contract have been fulfilled B.) When the terms and conditions of a contract have been partially satisfied C.) When the terms and conditions of a contract have been violated D.) When the parties both mutually agree to cancel the contract

C.) When the terms and conditions of a contract have been violated Feedback: If the parties in a contract do not completely fulfill or default on their obligations, they have breached the contract. In situations where a breach of contract occurs, the injured party can seek compensation for any damages or discharge the contract.

Real estate contracts include: A.) Sales contracts B.) Listing agreements C.) Buyer representation agreements D.) All of the above

D.) All of the above Feedback: There are many different real estate contracts used in the real estate business, including listing agreements, buyer's representation agreements, leases, agreements between brokers and purchase contracts.