Section 13, Unit 1: Arizona Real Estate Contracts
Which of these statements about an equitable property interest is true?
An equitable property interest or equitable title to a property refers to a borrower's future rights.
Kenneth entered into a contract to sell his home to Valerie, who put down a $5,000 earnest money deposit. At the last minute, Valerie backed out of the deal and Kenneth kept the earnest deposit. This is an example of ______.
Accepting liquidated damages
Grace found herself in a breach of contract situation where the other party met some of the terms but not others. Grace thought it would cost a lot of time and money to sue, so she decided to accept the work that had been done and call it good. This is an example of ______.
Accepting partial performance
Martha made an offer to buy Drake's home, and he accepted it. Under the terms of the agreement, Martha was supposed to make an earnest money deposit of $10,000, but she only put down $5,000. Drake accepted the lesser deposit, and the sale was ultimately finalized. This is an example of ______.
Accepting partial performance
Adam and Ron are co-listing agents representing Roger and Marta Bryant, and Tanika is representing Julio and Tina in the sale of the Bryants' property. Which of these individuals is NOT a principal to the transaction?
Adam
Cindy enters into a contract to buy Jarod's home. She then transfers her right to purchase to her twin sister, Maud, for a small fee. But Maud neglects to fulfill the buyer's obligations under the contract, and Jarod is able to pursue Cindy, who's still liable. This is an example of ______.
Assignment
Mary agreed to buy her mother's house when her mother planned to move to a senior living community. They signed a purchase agreement, but when Mary had to move because of work, she signed her rights in the contract over to her sister, Tina. Mary may still owe money if Tina can't come up with the agreed-upon funds. What's happening in this scenario?
Assignment
Britta included an appraisal contingency in her offer on Zoe's house, and Zoe accepted the offer. The appraisal came in $4,000 less than the list price of the home. Which of these is NOT an option Britta and Zoe have?
Britta can force the lender to increase the loan-to-value ratio to cover the gap.
Which of the following is an example of an escalator offer?
Buyer offers $650,000 with clause that buyer will beat all competing offers by $3,000 up to $675,000.
One of the following licensee's actions would constitute commingling. Which is it?
Cynthia deposited her client's earnest money check into the firm's operating account.
Several counter-offers have passed between Josh and the Kobza family in their attempt to buy Josh's house. All records have been transmitted and signed electronically. The Kobzas electronically signed Josh's latest counter-offer. Their response was due on June 6; they signed on June 5. Josh saw their response in his email on June 7. Josh terminated the contract, saying he didn't receive their response in a timely manner. Which statement about Arizona's electronic records laws is correct?
Properly sent electronic records are considered received even if the recipient is unaware of the document's receipt.
Roberto and Tabitha are purchasing Glenn's house. The inspection report was late, and Roberto and Tabitha missed the 10-day inspection deadline. What is Glenn required to do based on the AAR purchase contract cure period provision?
Provide a three-day cure notice to Roberto and Tabitha.
Who or what most likely establishes a covenant not to compete?
Purchase or lease contract
Which of the following scenarios includes the best example of offer and acceptance?
Racine made an offer on Todd's property and Todd signed the offer.
From a seller's perspective, which of these contingencies is generally considered the least desirable?
Rami's offer is contingent on his selling his existing home that's already under contract.
Jayne was tired of waiting for her subcontractor to get his part of the deal done. The agreed-upon deadlines came and went, and Jayne lost money waiting for the subcontractor to come through. She decided that if the subcontractor wasn't going to honor his commitments, neither was she, so Jayne consulted with her attorney and then terminated the contract. This is an example of ______.
Rescinding the contract unilaterally
Margaret isn't ready to buy Jill's property, but she pays Jill a fee that guarantees she'll be notified if another buyer appears. If another buyer does make an offer, Margaret has the opportunity to purchase at the price and terms of the offer. Margaret has a(n) ______ on Jill's property.
Right of first refusal
Marsha leases a ranch house in a bedroom community. When the owner decided to sell the house, Marsha was given the opportunity to purchase it but declined. What does Marsha have?
Right of first refusal
Marta, a new licensee, woke up in the middle of the night terrified that she failed to write a loan contingency into her buyers' recently executed purchase contract. What should she do?
Roll over and go back to sleep when she remembers that the AAR purchase contract includes an automatic loan contingency.
The Arizona boilerplate purchase contract includes a number of preprinted provisions, as well as many that the licensee will fill in. Which of these items in that boilerplate contract would be information specific to a transaction, and therefore subject to errors?
The legal description provision
Which of the following is an example of conversion?
Herve withdrew funds from the trust account to pay the brokerage's rent.
What's the purpose of the title search?
To collect evidence that the title is a marketable title, meaning it's clear and free of encumbrances
Tony is ready to make an offer on Bryce's house. Which of these statements about the Arizona offer and purchase contract are true?
Tony and Bryce can agree to use electronic documents and signatures for all parts of the sales transaction.
Thaddeus submitted an offer to purchase Trinity's home with appraisal, loan, and inspection contingencies. He failed to meet one of the contingencies. Which of these is true?
Trinity has the option of either continuing with or terminating the contract.
Mary contracted to buy her mother's house when her mother moves to a senior living community, but now Mary has to move because of work and no longer wants to buy the house. With their mother's agreement, Mary's sister, Tina, steps in, releasing Mary from her obligation. They write up a new contract, with the only change being that Tina is now the party to the contract rather than Mary. What's happened here?
Novation
Because there were no deadlines specified in the contract, Myron didn't think there was a problem with his waiting to apply for a loan to help purchase the property. He was therefore a little surprised and not very happy when the seller sued him for breach of contract, stating that the delay was impacting the seller's ability to purchase a new home. What did Myron fail to do?
Perform his contractual obligations within a reasonable time.
Tyne entered a contract to buy Fred's home. Per the terms of the contract, Tyne agreed to pay $20,000 for the earnest money deposit by this coming Wednesday and have the property inspected within seven days. She submitted the earnest money deposit on time and had the property inspected within five days. What action does this scenario exemplify?
Performance of this part of the contract
Which one of Gerry's statements to a client crosses the line into unauthorized practice of law?
"Most couples take ownership of property as joint tenants, so that's what I'd advise."
Woody has a lease with an option to buy on his penthouse apartment. Each month, 20% of his lease payment goes toward ________.
A down payment toward the purchase price
When offer and acceptance has occurred, both parties enter into ______.
A mutual agreement
Bethany's Arizona house was being sold by her estate executor after her death. Kiersten's real estate broker presented Kiersten's offer on the house through an electronic contracting system. The estate's executor accepted the offer by signing electronically. The executor subsequently refused to abide by the contract, and Kiersten is suing to enforce the contract. Which of these statements is true?
A properly executed electronic contract is as enforceable as a similar paper contract.
For Arizona electronic records laws to apply to a real estate transaction, to what must the parties first agree?
Conduct the transaction electronically
Constance made an offer on Ziggy's house. Ziggy prepared a counter-offer and sent it to Constance. Constance decided she wanted to buy Matilda's house instead, so she didn't sign the counter-offer before it's due date. Which of these is true?
Constance terminated the offer through expiration.
A buyer, hoping to beat out all other offers, included a clause in the offer that reads, "Buyer to beat all competing offers by $1,000 up to a price of $700,000. Seller to provide copies of competing offer to buyer on acceptance." What type of offer is this an example of?
Escalator
Which of the following Arizona residential sales contract provisions is used to identify which items are to remain with the property?
Fixtures and personal property
To meet the requirements of the statute of frauds, an agreement must clearly identify the contract's subject matter, present the contract's essential terms and conditions, and ______ to be enforceable.
Identify the contracting parties
Jillian's lease for her apartment has a right of first refusal clause. What kind of obligation does this create for her landlord Kathy?
If Kathy decides to sell, she must offer it to Jillian for purchase first.
Which offer would be the most appealing to a seller?
It depends on the seller's needs and motivations.
Which of these is true about a covenant not to compete?
It reduces the likelihood of a competing business locating in a small geographic area.
Which of these scenarios is an example of nomination?
Jessie named Serena to purchase a property on his behalf. The agreement requires Serena to convey the property to Jessie immediately after closing.
The statute of frauds will probably address all but which of the following transactions?
Joanna agrees to give the Keen family a goat when they close on their house.
Related to purchase contracts, which of these is FALSE?
Joey can write a purchase contract without identifying himself or anyone else as the buyer.
Edna leased her house to Joan with a right of first refusal. Edna's cousin, who knows that she needs liquid assets, just offered her $250,000 for the house. What does Joan have to do if she wants to buy the house?
Match the offer on the table.
Which of these statements about Arizona real estate contracts is true?
Member licensees may use forms provided by the Arizona Association of REALTORS®.
What is the key difference between assignment and novation of a contract?
Novation releases the original party from all obligations, while assignment does not.
Xavier is buying Natasha's condominium. Xavier submitted his offer to Natasha electronically and Natasha signed the offer electronically. While awaiting the inspection and appraisal, Natasha receives a higher offer for the condo. She terminates the agreement with Xavier, saying it was invalid because she didn't agree to conduct the transaction electronically. Which of these is true?
Parties can agree in writing or through their actions to conduct a transaction electronically.
When multiple offers are received, which of the following is something a licensee should do?
Prepare net proceeds statements on all offers.
Drew and Hank were camping at Hank's riverfront cabin. Hank told Drew that he rarely used the cabin and was thinking of selling it. Drew said that he'd buy it from Hank for $80,000, which Hank agreed was a fair price. It's two months later, and Hank is upset that Drew now says he won't buy it. Why isn't this contract enforceable?
Real estate contracts must be in writing.
Greta is working with agent Brandon to sell some property. Nelson represents the buyer, Rigby. Of these four parties, who will pay the earnest money?
Rigby
Velma accepted Rigli's offer on her acreage. The offer's contingent on Rigli's sale of his current home. She accepted the offer on the condition that she can continue to actively market her property. What's likely to happen if Velma gets a non-contingent offer on her property?
She'll give Rigli a set amount of time to remove the contingency (usually 24 hours).
Which of these scenarios is an example of two parties rescinding a contract?
Sherman, the seller, decides not to sell his condo after all. Fortunately, his buyer, Alice, decided to join the Peace Corps. They mutually agree to cancel the sale with no penalty on either side, and each signs paperwork to this effect.
Sonja is purchasing some land from her landlord, Jonathan, in a contract-for-deed situation. Which of these is true?
Sonja's equitable interest in the property gives her the right to live in, improve, or rent the property.
Betty hired a contractor to replace her gutters. Within days, the gutters leaked and flooded her basement. She complained to the contractor, who replaced the gutters again. The next time it rained, the gutters leaked and flooded Betty's basement a second time. Frustrated, Betty decided to file a lawsuit against the contractor in an attempt to recover the money she lost. This is an example of ______.
Suing for damages and breach of contract
DeeAnna thought she purchased an investment property, but the seller refused to deliver the title to her. DeeAnna met all of her obligations per the written contract she and the seller signed. She decided to take the seller to court in an effort to force him to hand over the title. This is an example of ______.
Suing for specific performance
Which of these scenarios is a covenant not to compete likely to address?
Teeny Tots Clothing is leasing a retail condominium unit.
Swede is the vendor in a contract for deed arrangement. The vendee is not making his monthly payments. What is the process Swede can use to reclaim equitable title of the property?
Termination
A letter of intent is used to begin negotiations. In which of these circumstances might a letter of intent most likely be used?
Terrance is interested in buying a restaurant that's been struggling recently. He's sure he can turn it around!
Contingencies normally include the responsible party's name, the deadline for the contingency removal, and _______.
The actions required for removal
Ron owns a landscaping company. He and Trace, a new homeowner, signed an agreement saying that Ron would supply Trace with all the supplies for landscaping Trace's new property for $1,800. Trace later bought the same supplies from another landscaper for $1,200. If Ron wished to sue Trace to enforce their agreement, what would he need to prove in order for the statute of frauds to apply?
The amount Trace agreed to pay
What's one of the required elements of a valid option contract?
The amount of consideration the optionee is paying the optionor
What is put at risk if a buyer misses a contingency deadline?
The buyer's earnest money
Which of the following is a potential disadvantage for a buyer who enters into a lease with an option to buy contract?
The buyer/lessee could lose any funds credited to the purchase price if he breaches the lease's terms.
Fontaine and Charles are concerned about some items in the inspection report they just received. They elect to request that the seller repair the electrical panel and the HVAC system. Which of these statements is true?
The contract requires that agreed-upon corrections be made within the time noted in the contract.
Harini had a lease with an option to buy on her condo since she wasn't financially stable enough to purchase the condo when she first signed the lease. Two years later Harini was in great financial shape, but she found out that the owner legally sold the condo to another buyer. Harini has to move out next month. What must have happened?
The option expired.
Which of the following laws requires that contracts—including contracts made for the sale of real estate or for leases of more than one year—be in writing?
The statute of frauds
Walt and Ginger were informed by their landlord that their option to purchase the bungalow they're renting has just been terminated. Which of the following things that can occur is likely to terminate an option to purchase?
They sublet the bungalow for a month without permission.
Both the buyer and the seller have to sign the purchase and sale agreement in order to demonstrate that ________.
They understand the terms
What role do the principals play when an Arizona real estate contract is in escrow?
They're the parties who determine conditions to be met and perform them.
In which of these situations might an Arizona Multiple Counter Offer form be used?
Trent received four offers on his property and wants to ask buyers for their highest and best offers.
Tricia wrote an offer to purchase Ziggy's vacant lot. She intended to borrow $55,000 of the $95,000 purchase price at an interest rate of 5.75%. She applied for the loan but wouldn't cooperate with the lender to provide the required documentation. Tricia subsequently used the loan contingency to terminate the contract. Which of these is true?
Tricia failed to act in good faith to try to get her loan, so she's in breach of contract.
Roger's offer on Trenton's property was accepted. At what point in the transaction does Roger first get equitable title to Trenton's property?
When the contract is accepted
Unauthorized practice of law and acting outside the scope of one's expertise are similar issues. Which of the following circumstances specifically relates to the unauthorized practice of law?
Writing contract addenda or additional provisions that cover unfamiliar circumstances
Xavier deposited a $3,000 earnest money check into his personal account for safekeeping while he was on vacation. The balance in his account when he left on vacation was $4,200, and when he returned, it was $2,800. He withdrew enough funds from his savings account to cover the earnest money check and delivered the funds to the escrow agent. Which statement best represents Xavier's issue?
Xavier is guilty of commingling and conversion.
Lionel is a real estate licensee working with Mac on the purchase of his new home. A contract requires Mac's signature, which Lionel obtains electronically. Is the contract enforceable?
Yes, the enforceability of a contract can't be denied simply because it contains an electronic signature.
In a real estate transaction, which of the following is established when the parties enter into an agreement voluntarily with full understanding of the contract terms?
consent
Sue Ellen has a contract to buy Roger's house, which she has always admired, when Roger decides he's ready to move to a senior living community. After Roger finds a suitable senior apartment and moves, Sue Ellen writes a check for the agreed-upon amount, and Roger transfers the deed to her. What is happening in this scenario?
performance
Hank leases 150 acres from Sara and Jesse. He has an option contract attached to his lease, with an option to purchase that can be exercised within the next two years. What type of contract is this?
unilateral
Which of the following statements regarding electronic signatures or records is true?
The enforceability of a signature can't be denied simply because it's in electronic form.
Kathryn and Megan, neighbors in a rural Arizona area, agreed over coffee that Kathryn would sell her ranch to Megan. They agreed on the sale terms, and Megan gave Kathryn a check for $10,000 to hold as earnest money. Which of these statements is FALSE?
Because Kathryn accepted the earnest money check from Megan, the agreement between them is enforceable.
Regarding the potential impact of buyer contingencies on a transaction, which of these statements is true?
The fewer contingencies a buyer uses, the less likely a contract is to fall through.
Lou and Lannie, two unmarried siblings, decide to buy a vacation home. They enter into a contract with the seller, Amanda. A week after signing the contract, Lou and Lannie have a falling out. Now their brother Larry wants to buy the home with Lou, and Lannie wants no part of the purchase anymore. Amanda agrees, and they substitute Larry for Lannie in the contract, leaving Lannie with no further liability. This is an example of ______.
Novation
Peggy signed an offer to purchase Myrtle's house, and Myrtle accepted. Peggy filed for bankruptcy before the contract was executed. Which of these statements best describes what happens now?
The contract will terminate by operation of law.
Debra's listing agent, Raj, just called to tell her that he'd received an offer on her house and an earnest money check for $4,500. "I'm on my way over to go through the offer with you. I think you'll like it!" Debra's excited, and she knows exactly what she wants to spend that $4,500 on. What's wrong with Debra's thought process?
The earnest money doesn't belong to Debra. It will be held in an escrow account.
