Real Estate Prelicensing Unit 8
Which of the following has an automatic right to cancel without liability for damages? Choose only ONE best answer. A An offeror under a submitted offer to purchase which has not yet been accepted B A timeshare purchaser if the right to cancel is exercised within 10 days C An offeror under an accepted sales contract prior to closing D A seller that has changed his mind within 3 days of entering into an installment land contract.
A)An offeror under a submitted offer to purchase which has not yet been accepted An offer or can terminates an offer without penalty prior to acceptance. A time share purchaser has 5 days from the effective date of contract to terminate. The 10 day period is how long the developer must hold all funds in an escrow account. There is no rescission or termination period for an installment land contract.
If a buyer is under contract, using the standard NCAR / NCBA Offer to Purchase and Contract, and after diligent effort is unable to secure the loan, which of the following statements is FALSE? Choose only ONE best answer. A The buyer can terminate the offer without penalty as the contract is contingent upon finance. B The seller is entitled to the earnest money deposit if the due diligence period has expired. C The seller can retain the due diligence fee even if the buyer is unable to obtain financing. D The buyer is entitled to a refund of the earnest money deposit if the due diligence period has not expired.
A)The buyer can terminate the offer without penalty as the contract is contingent upon finance. The correct answer is 'A' The standard NCAR / NCBA Offer to Purchase is not contingent upon the buyer's ability to obtain financing. Assuming that the buyer paid both a due diligence fee and an earnest money deposit - the buyer would not be entitled to a refund of the due diligence fee. In order to determine if the buyers entitled to a refund of the earnest money deposit, we need to determine if the due diligence period has expired. If the due diligence period has expired, the buyer is not entitled to a refund of the earnest money deposit. This differs from National testing where a contract can contain a financing contingency, where the buyer has a period of time to get financing, and if they are not able may terminate without penalty during that contingency period and receive a refund of their earnest money deposit. The denial must be in writing.
A seller has offered to leave the washer and dryer which the listing agent included in the MLS listing. A buyer's agent wrote an offer that resulted in an contract which failed to mention the washer or dryer. The seller has refused to leave the washer and dryer, and the buyer will not close. Which of the following statements is TRUE? Choose only ONE best answer. A The seller is not required leave the personal property and the buyer has breached the terms of the contract. B The seller has breached the terms of the contract and the buyer is entitled to sue for specific performance. C The buyer is required to close on the property but is entitled to sue the seller for the cost to replace the washer and dryer. D The buyer is not required to purchase the property and can sue the seller for specific performance and recover legal costs incurred.
A)The seller is not required leave the personal property and the buyer has breached the terms of the contract. For the seller to be obligated to leave personal property it must be addressed in the offer to purchase and contract. The MLS listing is an offer and the buyer must include the request in the offer to make it binding. The buyer's failure to close is a breach of contract. The seller would be entitled to the remedies identified in the contract.
A buyer writes a $3,000 earnest money check that is submitted with an offer to purchase on Monday at 2:00 pm. The offer is immediately accepted by the seller and communicated on Tuesday at 4:00 pm. When must the firm deposit the earnest money into the brokerage trust account? Choose only ONE best answer. A Within 3 banking days from the effective date of contract B Within 3 banking days from receipt of the earnest money deposit C Within 3 calendar days from the effective date of contract D Within 3 calendar days from the receipt of the earnest money deposit
A)Within 3 banking days from the effective date of contract An earnest money check must be deposited into a trust account the later of 3 banking days from receipt or 3 banking days from the effective date of contract. While the money was paid with the offer, the brokerage is not required to deposit until the property is under contract. The days to deposit are banking days, not calendar days. If the earnest money deposit was made in cash, the broker would need to deposit immediately but no later than 3 business days.
Hines and Kirk enter into an oral contract wherein Hines promises to pay $500,000 to Kirk in return for Kirk's promise to convey title to 50 acres of real estate. This contract between Hines and Kirk is Choose only ONE best answer. A invalid and unenforceable. B invalid but enforceable. C valid but unenforceable. D valid and enforceable.
A)invalid and unenforceable. A contract for real property must be in writing for it to be valid and enforceable according to the Statute of Frauds. Purchase contracts, installment land contracts, options and right of first refusal must be in writing to be enforceable.
John Allen offers to sell Naomi Summers undeveloped land in an sparsely populated county and represents to Summers that a new freeway will run right by the land, even though Allen knows that the plans for the new freeway have been dropped. Summers, relying on the representation, signs a contract to purchase the land from Allen. Under these circumstances: Choose only ONE best answer. A the contract is voidable at the option of Summers. B the contract is void. C the Commission with terminate the purchase contract. D the contract is legally binding on Allen and Summers.
A)the contract is voidable at the option of Summers. The contract is voidable since Allen committed fraud by lying to induce the sale. The buyer, Summers can still choose to purchase the property. If Allen refuses, Summers can sue to force the sale - specific performance.
Under a purchase contract for real property, all the following are essential elements, EXCEPT: Choose only ONE best answer. A the deed must be recorded to be valid. B there must be unconditional acceptance of an offer by the offeree. C a proper legal description. D communication to the offeror of acceptance.
A)the deed must be recorded to be valid. A valid deed does not require recording (IGPWED - In writing, Grantor competent, Property description, Words of conveyance, Execution - signing and Delivery and acceptance.) A purchase contract does not need to be recorded to be legally binding and the buyer / seller would not want the terms public. Recall that recording gives public notice. A deed that is not recorded would not be binding against third parties.
Harry lists his property for sale with Hermione, a provisional broker with ABC Realty, by signing a Exclusive Agency listing agreement that authorizes both dual and designated agency. Ginny, the broker-in-charge with ABC Realty, is working with a buyer under oral buyer's agency, that has authorized both dual and designated agency. The buyer, Ron, decides to write an offer on the property on Friday at 5:00 PM. Ginny promptly delivers the offer to Hermione at 7:00 PM on Friday and the seller asks that it be emailed immediately to him. The seller signs and dates the offer at 10:00 AM on Saturday and emails it back to Hermione at 10:10 AM on Saturday. Hermione waits until 9:00 AM Sunday to notify Ginny of the sellers acceptance. Ginny promptly calls Ron at 9:05 AM Sunday to inform him of the seller's acceptance. At what point did the offer become a legally binding contract? Choose only ONE best answer. A 10:00 AM Saturday when the seller signed the offer B 10:10 AM Saturday when Hermione was informed of seller's acceptance C 9:00 AM Sunday when Ginny is notified of seller's acceptance D 9:05 AM Sunday when Ron is notified of seller's acceptance
B)10:10 AM Saturday when Hermione was informed of seller's acceptance When a(n) agent(s) / firm are acting as dual agent - they represent both the buyer and the seller in the same transaction. What one knows, we all know. So when Hermione is informed of the seller's acceptance, a legally binding contract is formed. The two agents of ABC would be acting as dual agents - as a BIC and a provisional broker cannot act as designated agents. If the question were changed and Ginny was not the broker in charge, rather a provisional or non-provisional broker, and both Ginny and Hermione did not have personal or confidential information, it would be possible for them to act as designated agents. If that were the case, the answer would change to when Ginny was notified of acceptance at 9:00 AM Sunda
Under the standard NCAR / NCBA Offer to Purchase, which of the following statements is FALSE? Choose only ONE best answer. A The buyer or seller is entitled to a 14-day delay in settlement when they are using best efforts. B The contract is terminates when the buyer fails to pay the earnest money deposit within 5 days from the effective date of the contract. C The buyer can terminate the contract for any reason during the due diligence period. D The seller is entitled to the earnest money deposit and retains the due diligence fee if the buyer breaches the contract after the due diligence period has expired.
B)The contract is terminates when the buyer fails to pay the earnest money deposit within 5 days from the effective date of the contract. For the seller to terminate the contract as a result of the buyer not paying the earnest money, the seller must make a written demand and allow the buyer one banking day to provide good funds. The contract then becomes voidable on behalf of the seller. This is specified on page 1 and continued on page 2 of the standard NCAR / NCBA OPC. It is very important to review the contract and remember the important sections that were highlighted in class.
A buyer makes an offer to purchase a property for $425,000 with the seller paying $4,000 in closing costs and the closing to occur within 30 days. The seller agreed to all terms except for the closing costs, signing the offer and sending it to the buyer's agent. This is the best example of: Choose only ONE best answer. A a valid purchase contract. B a counteroffer. C a contract addendum. D a contingency.
B)a counteroffer. A counteroffer occurs when the seller makes any changes to a buyers offer. A valid purchase contract is created when all terms are agreed to by the offeree and communication is made to the offeror. An addendum is adding language to an offer to purchase which may add a contingency to the contract (short sale, contingent sale, back-up contract, etc.).
A buyer wants to add a provision to a contract that requires them to sell or lease another property in order to be obligated to purchase the current property. This is known as a (an): Choose only ONE best answer. A contract amendment. B contract addendum. C contract option. D contract annexation.
B)contract addendum. An addendum is used during the offer process before it becomes a contract, that adds a contingency where one party is only obligated to be performed if some event occurs (contingent sale, back-up contract, short sale, etc.). An amendment occurs once a legally binding contract has been formed, where the terms are changed by agreement and signing. An option is where a party ties up a property while they decide to exercise an option to purchase, with all terms agreed to up front (purchase price, days to exercise, how a party exercises). Annexation is the taking of territory by the government - which has can take property to extend a city's boundaries. NOTE: NCAR has removed the contingent sale addendum, eliminating a standard form that a broker can use.
When the parties to a contract decide in advance the amount of damages that will be payable if the contract is not fulfilled, this provision is called: Choose only ONE best answer. A accord and satisfaction. B liquidated damages. C punitive damages. D compensatory damages.
B)liquidated damages. Liquidated damages are those that are defined in the contract. In the standard NCAR/NCBA OPC, the payment of the EMD and retention of DDF by the seller when a buyer breaches the contract is an example. An accord and satisfaction is where a party agrees to less then what has been originally contracted - for example the property does not appraise for the purchase price, so the seller agrees to reduce the contract price to the appraised value. Punitive damages are awarded as punishment by the courts. Compensatory damages are actual damages for an incurred loss, that make a party hold. This is for actual costs - which in an OPC examples would be reimbursement for the appraisal, property inspection, termite inspection, etc.
In consideration of $500, Jim Pascucci give Charles Gutnam the right to purchase certain described real estate for $200,000 if Gutman tenders the purchase price within 60 days. This agreement is (an) Choose only ONE best answer. A installment land contract. B option contract. C right of first refusal. D right of first opportunity.
B)option contract. The ability to tie up a property for a period of time with all the terms agreed to upfront is an option contract (purchase price, period of time to exercise, how long to close, etc). An installment land contract or contract for deed is seller financing. The right of first refusal is a written agreement for an indefinite period of time that requires the seller to check if another party wants to buy the property by matching the highest price offered by another before selling it to the party that has made an offer. The right of first opportunity means the seller must check with a party to see if they want to purchase (they retain the right to accept or reject), before offering the property for sale to others.
A seller is obligated to check with to see if a party is interested in purchasing a property before listing it for sale is best defined as a(an): Choose only ONE best answer. A right of first refusal. B right of first opportunity. C option to purchase. D annexation agreement.
B)right of first opportunity. With a right of first opportunity, the owner must offer to sell the property to a party before they can sell it to another. The right of first refusal allows a party to elect to rent or purchase a property by meeting an offer before the owner can sell or lease the property to another. An option agreement is a contract with all terms agreed to up front about the purchase price, number of days to decide, the period to close, etc. Annexation is the taking of property - where a city can extend his/her boundaries.
To be a bilateral contract, a listing contract should be signed by Choose only ONE best answer. A the buyer and seller. B the seller and broker. C the seller and brokerage. D the buyer and broker-in-charge.
B)the seller and broker. The correct answer is 'B' A listing broker can sign a listing agreement on behalf of the brokerage, binding the brokerage to the agreement (general agency). The signing broker is primarily responsible for fulfilling the duties. The listing broker will act as a special agent in their relationship with the seller. The buyer does not sign a listing agreement.
An example of a novation is Choose only ONE best answer. A the substitution of one party for another in a contract wherein both the original parties remain liable. B the substitution of one party for another in a contract wherein the original party's liability is extinguished and replaced with a new party that is liable. C the same as an assignment. D a means of acquiring title by adverse possession.
B)the substitution of one party for another in a contract wherein the original party's liability is extinguished and replaced with a new party that is liable. Novation means new - the substitution of one party for another, with the release of liability. It is often used when a lease is assigned or loan is assumed where the landlord or lender has agreed to release liability.
An executory contract is Choose only ONE best answer. A made by the executor of an estate for the sale of probate property. B yet to be performed. C performed completely. D not yet accepted by either party.
B)yet to be performed. Execute = signing, executory = not fully performed, executed = fully performed.
Suppose a listing broker receives an offer to purchase that fully matches the terms of the listing contract. Before presenting the offer however, suppose the broker receives two additional offers, one for less than the listing price but for cash, and one for more than the listing price but requesting the seller finance a portion of the sales price. Which of the following is the best approach for the listing broker to take regarding the order of first presentation of the offers? Choose only ONE best answer. A Present the offer for the highest price B Present all offers at the same time C Present the last offer first D Present the offers in the order received, one at a time
BPresent all offers at the same time The listing broker has a duty to present all offers, advising the seller about the pros and cons. They are acting as a special agent and therefore cannot sign on the owner's behalf or make decisions. The seller will decide which offer to accept or if they want to counter or ask for highest and best.
In North Carolina, which of the following types of contracts must be in writing, signed by the parties, and recorded to be enforceable against that party? Choose only ONE best answer. A A lease which exceeds two years from the effective date of lease. B An agreement for a landscaper to mow for greater than 3 years. C A contract that grants an appurtenant easement. D A lease for a commercial facility which exceeds one year.
C)A contract that grants an appurtenant easement. The correct answer is 'C' The Statute of Frauds requires certain contracts to be in writing in order to be enforceable. These include real estate contracts - purchase, option, first writer refusal, first right of opportunity, easement, etc.A lease that exceeds 3 years must be in writing under the Statute of Frauds, which includes residential and commercial transactions. The Statute of Frauds does not apply to personal service contracts.
George Barstow agrees to buy Elaine Clark's real estate for $530,000. Barstow signs the NCAR / NCBA standard Offer to Purchase and deposits $5,300 earnest money with the listing broker Stuart Donovan. Clark is unable to provide good title, and Barstow demands the return of his earnest money from Donovan. Assuming no dispute, what should Donovan do? Choose only ONE best answer. A Deduct his commission and return the balance to Barstow B Deduct his commission and pay the balance to Clark C Return the entire amount of the earnest money to Barstow D Deduct 50% of the earnest money deposit and pay the rest to Barstow
C)Return the entire amount of the earnest money to Barstow When a seller defaults on a contract, the buyers entitled to a return of the earnest money. The listing agent is entitled to sue the seller for the commission amount - they are not entitled to take the buyers funds to cover the seller's potential expense. It is important to remember that in order to release earnest money, the broker holding the funds can release the money 1) closing, 2) mutual agreement of the parties, 3) court order, or 4) transfer of funds to the clerk of court in the county in which the property is located after providing 90-days notice.
A buyer wants to make substantial changes to the offer to purchase and contract, to make the contact contingent upon the acceptance of a lease agreement. The broker should do which of the following: Choose only ONE best answer. A advise the seller what language to insert into the offer to purchase so long as it is in the buyers handwriting. B make the changes that the seller requests by adding a lease agreement to the offer to purchase. C advise the seller to seek the legal assistance of an attorney to add the requested provision. D make the requested changes following the clients instructions regarding language.
C)advise the seller to seek the legal assistance of an attorney to add the requested provision. When a client seeks to make major changes to an offer to purchase a broker should refer them to an attorney. The client can elect to make changes in his/her own handwriting, however they are not allowed to dictate or make the changes themselves. A real estate agent is not permitted to draft language in an offer to purchase as they are not party to the transaction. The offer to purchase is been the buyer and the seller.
Mr. Jones signed a listing agreement with Broker Brown stating that he would pay 6% commission to Brown upon the sale of his house. Broker Brown promised to use diligence in attempting to find a buyer. This contract is Choose only ONE best answer. A unilateral executed. B unilateral executory. C bilateral executory. D bilateral executed.
C)bilateral executory. A bilateral contract is a mutual exchange of promises, while a unilateral contract is a promise to perform if the other party performs. Executed = fully performed / Executory = not finished.
A "right of first refusal" differs from an "option contract" in that: Choose only ONE best answer. A the holder of a "right of first refusal" has a definite purchase commitment executable by a certain date whereas the holder of an "option contract" does not. B an enforceable "right of first refusal" must be written whereas an "option contract" does not. C the holder of a "right of first refusal" has an indefinite purchase commitment not necessarily executable by a certain date whereas the holder of an "option contract" does not. D an enforceable "option contract" must be written whereas an enforceable "right of first refusal" does not.
C)the holder of a "right of first refusal" has an indefinite purchase commitment not necessarily executable by a certain date whereas the holder of an "option contract" does not. An option agreement is defined as the right to purchase the property for a specific period of time, with all terms agreed to upfront - purchase price, how the option must be exercised, once exercised how long the option he has to close, etc. The right of first refusal allows the owner to put the property up for sale or rent without obligating the party that holds the right of first refusal. Before the owner can sell or rent the property to another, they must first check to see if the party that holds the right of first refusal wants to buy or rent.
If an offer has been transmitted to the seller for his consideration and before a decision is made another offer is submitted Choose only ONE best answer. A the broker should turn down the second offer. B the second offer should not be submitted until the seller has fully considered the first. C the second offer should be submitted immediately to the seller. D the second offer should be submitted immediately only if it is better than the one under consideration.
C)the second offer should be submitted immediately to the seller. A broker must deliver all offers - even if the seller requests otherwise, the property is already under contract, it is a short sale or the new offer is lower than the current offer. The listing agent should review all offers with the seller outlining the pros and cons. The seller ultimately gets to decide which offer to accept. The broker has no authority to make a decision on behalf of the seller as he/she is acting as a special agent. If the seller has already accepted another offer, they cannot terminate the first contract unilaterally. The buyer would have to mutually agree. The seller could ask that the second buyer add a Back-up Contract Addendum to their offer.
A buyer agrees to purchase a property under an installment land contract. All of the following statements are correct, EXCEPT: Choose only ONE best answer. A the buyer is known as the vendee. B the seller is known as the vendor. C the seller will hold equitable title until final payment has been made by the buyer. D the buyer will hold equitable title until full payment has been made to the seller.
C)the seller will hold equitable title until final payment has been made by the buyer. The correct answer is 'C' Under an installment land contract the seller retains legal / actual title until final payment is made by the buyer. The buyer will hold equitable title to the property until final payment is made. Upon final payment, the seller will transfer legal / actual title to the buyer. The seller is the vendor and the buyer is the vendee. An installment land contract may also be called a contract for deed or land contract.
A buyer has entered into a contract under the standard NCAR/NCBA Offer to Purchase and Contract, and learns that they will not be able to obtain financing. Which of the following statements is TRUE? Choose only ONE best answer. A The buyer can terminate without penalty since they were not able to obtain the financing outlined in the contract so long as termination was made prior to the expiration of the due diligence period. B he buyer can terminate the contract however will receive a refund of the earnest money and due diligence fee so long as termination was made prior to the expiration of the due diligence period. C The seller should sue the buyer for specific performance if the buyer seeks to terminate the contract so long as the due diligence period has expired. D The seller is entitled to retain the earnest money and due diligence so long as the due diligence period has expired.
D)The seller is entitled to retain the earnest money and due diligence so long as the due diligence period has expired. The standard NCAR/NCBA OPC is not contingent upon financing. The buyer should determine if they qualify for a loan prior to the expiration of the due diligence period or risk losing their earnest money deposit. If the buyer paid a due diligence fee, that is not refundable when they fail to obtain financing. The due diligence fee is credited to the buyer if they purchase the property, is refundable if the seller breaches the contract or if RPOADS or MOG is not provided within the time limit.
Carolyn is interested in purchasing property in Durham, NC however does not want to hire a buyer's agent to represent her. She locates a broker, Kevin of ABC Realty, that is willing to act as a seller's subagent. Kevin shows Carolyn multiple properties before find a home listed by the broker in charge of XYZ Realty, Betty. Kevin writes the offer, using the Standard NCAR / NCBA Offer to Purchase and submits it to Betty at 4:00 PM on Tuesday. Betty meets with the seller at 7:00 PM on Tuesday, presents the offer and the seller accepts the offer by signing at 7:30 PM. Betty immediately calls Kevin to inform him of the acceptance. Kevin calls Carolyn at 8:15 PM on Tuesday to notify her of the seller's acceptance. When was the property under contract? Choose only ONE best answer. A When the seller signed the offer to purchase B When Betty witnessed that the seller signed the offer to purchase C When Betty notified Kevin that the seller accepted the offer to purchase D When Kevin notified Carolyn that the seller accepted the offer to purchase
D)When Kevin notified Carolyn that the seller accepted the offer to purchase When a buyer is not represented it means that all agents are working for the seller. In order to form a legally binding contract communication has to be made to the other side, so in this instance Carolyn must be notified of the acceptance. If the question is changed, where Kevin is representing Carolyn as a buyer's agent instead of a subagent of the seller, a legally binding contract would have been formed when Betty notified Kevin that the seller accepted the offer. Offer - Acceptance - Communication back over the wall - in order to form a legally binding contract.
All of the following will terminate an offer, EXCEPT: Choose only ONE best answer. A revocation of the offer before acceptance. B death of the offeror before acceptance. C a counteroffer by the offeree. D an offer from a third party.
D)an offer from a third party. The correct answer is 'D' The receipt of a new offer from a third-party would not terminate another buyers offer. Revocation (withdrawal) or death before acceptance will terminate the offer. A counteroffer terminates the initial offer and replaces it with a new one.
Maia is forced to sign a contract under threat of physical harm to her children. The contract: Choose only ONE best answer. A is void due to undue infuence. B is voidable due to undue influence. C is void due to duress. D is voidable due to duress.
D)is voidable due to duress. The correct answer is 'D' Undue influence is the abuse of a position of trust. The threat of physical harm is called duress. It results in a voidable contract where the party under duress has the right to terminate or purchase the property. A contract is voidable when either party is a minor, a buyer or seller is intoxicated or undue influence.
The doctrine that allows one party to a real estate sales contract to make the second party complete what he had agreed to perform in the contract is called Choose only ONE best answer. A the doctrine of execution. B an action to quiet title. C accord and satisfaction. D specific performance.
D)specific performance. Specific performance is used to force the sale of a legally binding contract, typically when the seller is refusing to sell. An action or suit to quiet title is used to settle which party has the highest claim to a property when there is an ownership dispute (adverse possession, foreclosure, etc.). Accord and satisfaction occurs when a party agrees to take less than they are entitled to under the terms of a contract.