Unit 8.2 Quiz: Sales Contract Formation
A listing broker receives an offer to purchase for $192,000 from Buyer A on a listed property and submits the offer to Seller. While Seller is considering this offer, the listing broker receives another offer on the same property from Buyer B for $194,000 and also submits this offer to Seller. Which of the following statements is TRUE? A The listing broker must obtain the permission of Buyer B to disclose the terms of Buyer B's offer to Buyer A B The listing broker may lawfully tell Buyer A the amount of Buyer B's offer and suggest Buyer A submit a higher offer. C The listing broker may lawfully follow Seller's directions to advise both buyers of the amount of each offer and allow open negotiation for the property. D With Seller's permission, the listing agent may lawfully advise Buyer A there is a competing offer for $194,000 and invite Buyer A to submit a higher offer
Answer: A The listing broker must obtain the permission of Buyer B to disclose the terms of Buyer B's offer to Buyer A Explanation: Offer terms are confidential. We as licensees cannot share the terms of one buyer's offer with another buyer unless we are specifically given permission to do so. That permission must come from the buyer whose offer terms we are disclosing. Even if our seller clients instruct us to create a bidding war by exposing offer terms, we do not do so unless we have the permission of the buyer who made the offer.
A broker receives an offer to purchase from a buyer on the NCAR/NCBA Standard Form 2-T Offer to Purchase and Contract for a property listed on behlaf of a seller-client. A $5000 check is attached for the initial Earnest Money Deposit. The offer includes a provision that states "This offer will expire in five days." Two days later, the buyer notifies the listing broker that he is withdrawing the offer. The broker should A notify the seller that the offer is no longer valid and return the earnest money to the buyer B notify the seller of the withdrawal and equally share the earnest money with the seller C explain to the buyer that the offer cannot be withdrawn until the five days have passed D notify the seller of the withdrawal and give the earnest money to the seller for damages due to the buyers default. CONFIRM
Answer: A notify the seller that the offer is no longer valid and return the earnest money to the buyer Explanation: While the original offer may have said "valid for 5 days", offers can ALWAYS be cancelled at any time by offerors....right up until the moment of contract formation. Since the earnest money was never actually earnest money in this case (no contract was formed), it should be returned to the buyer without question and not deposited into the trust account.
Under a purchase contract for real property, all the following are essential elements, EXCEPT: 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.
Answer: A the deed must be recorded to be valid. Explanation: A deed would only be recorded AFTER a purchase was closed. The deed being recorded has nothing to do with the sales contract or the promises in the sales contract. A purchase contract does not need to be recorded to be legally binding and the buyer / seller would not want to do this anyway because it would make the terms publicly available before closing. Recall that recording gives public notice. A purchase contract does need to have a clear legal description of the property being sold as well as clear offer, mutual agreement, and acceptance of the terms.
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? 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
Answer: B 10:10 AM Saturday when Hermione was informed of seller's acceptance Explanation: 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 Sunday.
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): A Installment Land Contract. B Right of first opportunity/first refusal. C Option to purchase. D Annexation agreement.
Answer: B Right of first opportunity/first refusal. Explanation: With a right of first opportunity/first refusal, 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 installment land contract is a sales agreement in which the purchase price will not be paid to the seller in one lump sum but will take place over a number of years with ownership/legal title not being transferred until the full price has been paid. 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.
Before leaving town on vacation, Buyer gives a signed offer to purchase to his buyer's agent. The buyer's agent presents the offer to the listing agent. Seller signs the offer without any changes and the listing agent notifies the buyer's agent of the acceptance. The buyer's agent unsuccessfully tries to contact Buyer with news of Seller's acceptance. The next day, the buyer's agent gets a voicemail message from Buyer saying that he has had second thoughts and is withdrawing his offer. Which of the following statements is TRUE? A The contract became binding when Seller signed the offer with no changes. B The offer became a binding contract when the buyer's agent was notified of Seller's acceptance. C No contract was legally created because Buyer withdrew his offer before he was notified of Seller's acceptance. D To be effective, the Buyer's withdrawal of the offer must be received in writing by the listing agent prior to the Buyer being personally notified of Seller's acceptance CONFIRM
Answer: B The offer became a binding contract when the buyer's agent was notified of Seller's acceptance. Explanation: We have had acceptance by the offeree (seller signed with no changes) and communication of that acceptance to the offeror's side of the transaction. That creates a contract. Whether the buyer is personally aware or not, they have been legally informed because their agent (legal representative) was informed.
Which of the following statements about brokers' responsibilities for handling offers is TRUE? A Only a listing agent is subject to the requirement to deliver offers to a seller in a timely manner B Under the Law of Agency, the listing agent has the power to accept or reject offers on behalf of the seller C A broker must submit an offer to his/her seller-client immediately, even if the seller's property is already under contract D An executed offer to purchase must be delivered by a broker to his/her client no later than 5 days from the broker's receipt of the signed document
Answer: C A broker must submit an offer to his/her seller-client immediately, even if the seller's property is already under contract Explanation: All licensees are required to convey all offers as soon as they possibly can....even if the property is already under contract.
In North Carolina, which of the following types of contracts must be in writing and signed by the parties in order to be enforceable against that party? 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.
Answer: C A contract that grants an appurtenant easement Explanation: The Statute of Frauds requires certain contracts to be in writing in order to be enforceable. These include real estate sales contracts - purchases, options, rights of first refusal, first rights of opportunity, easements, etc.Leases are not generally required to be in writing to be enforceable in North Carolina. There is an exception for leases that have a longer term than 3 years, but the lease of 2 years would not be required to be in writing (even though it's a good idea!). The Statute of Frauds does not apply to personal service contracts such as mowing grass. Again, it is probably a good idea to have such agreements in writing, but is not absolutely required.
Which of the following statements about counter-offers is TRUE? A If a counter-offer is rejected, negotiations must cease. B The original offer is automatically revived when a counter-offer is rejected C In order for the counteroffer to be binding, the party making a counteroffer should initial each change made to the original offer D Only changes in price or settlement date are considered to be material changes that will result in a counteroffer
Answer: C In order for the counteroffer to be binding, the party making a counteroffer should initial each change made to the original offer Explanation: Any change at all in offer terms represents a counteroffer. A counteroffer is first and foremost a rejection of the offer that came before it. That old offer is now dead. It doesn't come back on its own. It could be re-offered, but it is no longer viable without further action. Counteroffers do not end negotiations. Negotiations continue as long as one party continues to submit offers or counteroffers. In order to be binding, we need the signatures of all parties....this would include on any terms changed in a counteroffer.
A listing agent lists a property for sale and receives multiple offers. Which of the following actions should be taken by the agent? A The agent should request highest and best offers from all parties to get the best offer for the seller. B The agent should sign the highest offer and communicate acceptance. C The agent must present all offers and allow the seller to decide which action to take. D The agent should seek the highest offer by disclosing the highest offer received to the other buyers.
Answer: C The agent must present all offers and allow the seller to decide which action to take. Explanation: An agent has a duty to present all offers to the seller and then the seller will decide how to respond. A broker needs permission from the seller on how to respond to multiple offers and cannot unilaterally decide how to proceed. A broker cannon sign on the sellers behalf as the broker is a special agent with no signing authority. We cannot disclose a buyer's offer to another buyer without the original buyer's express permission.
All of the following will terminate an offer, EXCEPT: 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
Answer: D An offer from a third party Explanation: The receipt of a new offer from a third-party would not terminate another buyers offer. Revocation (withdrawal) or death prior to acceptance will terminate the offer. A counter offer terminates the initial offer and replaces it with a new one.
A buyer makes an offer that is agreeable to the seller. The seller has indicated to the listing agent that he intends to sign the offer. The listing agent calls the buyer and says that we are under contract. Is this an accurate statement? A Yes. The seller has accepted the offer and the acceptance has been communicated. B Yes. When the seller accepts an offer and contract has been created. C No. In order to form a legally binding contract it must be in writing and the seller must deliver the signed contract to the buyer. D No. The seller must sign the offer and such signing must be communicated to form the contract.
Answer: D No. The seller must sign the offer and such signing must be communicated to form the contract. Explanation: Intent does not create a legally binding contract on the sale of real property. There must be a written offer by the offeror, the offeree must unconditionally agree and the offeree must communicate acceptance to the offeror. It is important to read carefully.
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? 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
Answer:B Present all offers at the same time Explanation:
Kathy Klutz makes a cash offer to purchase a home listed by Wanda Wave of Seaside Realty through Sally Sunshine, another agent of Seaside Realty. The offer contained a time limit, where the seller must respond within 5 days by 5:00 pm. Seaside Realty is a dual agent in the transaction. Wanda Wave's seller accepts the offer in Wanda's presence, 3 days after the offer was made . As Wanda returns to the office, Sally Sunshine receives a phone call from Kathy who has fallen off the pier and broken her leg. She wants to withdraw her offer and move to the desert. Which of the following statements is TRUE? A She can withdraw the offer because neither she nor Sally have been notified of acceptance B She cannot withdraw the offer since Wanda has been notified of the seller's acceptance C She can withdraw the offer as Kathy is not a represented buyer D She cannot withdraw the offer as the 5 day period has not expired
Answer:B She cannot withdraw the offer since Wanda has been notified of the seller's acceptance Explanation: The type of agency being practiced - dual, designated, exclusive or sub- agency - impacts one a property goes under contract. In order to form a legally binding contract there must be acceptance and communication of acceptance back to the offering party. Both Wanda and Sally are acting as dual agents in the transaction. What one knows - they all know. The property goes under contract when the seller accepts the offer in Wanda's presence. Kathy is not permitted to withdraw the offer because it is become a legally binding contract.
A buyer makes an offer to purchase a property for $425,000 with the seller promising to pay $4,000 in closing costs and the closing to occur within 30 days. The seller agreed to all terms except for the closing costs which the seller eliminated, signing the offer and sending it to the buyer's agent. This is the best example of: A a valid purchase contract. B a counteroffer. C a contract addendum. D a contingency.
Answer:B a counteroffer. Explanation: 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.).
An offeror may revoke their offer in all of the following situations EXCEPT: A The offeree has failed to respond to the offer B The offer was submitted with an automatic expiration of June 10 but the offeror chooses to revoke it on June 9 C The offeree has communicated acceptance of the offer D The offer was transmitted electronically via email
Answer:C The offeree has communicated acceptance of the offer Explanation: Offers can always be revoked. Contracts cannot. Once communication of acceptance has occurred, there is a contract.
If an offer has been transmitted to the seller for his consideration and before a decision is made another offer is submitted 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
Answer:C The second offer should be submitted immediately to the seller Explanation: 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 but offers should still be submitted to them! The seller could ask that the second buyer add a Back-up Contract Addendum to their offer.
The buyer's offer will NOT be automatically be terminated if A the buyer is killed in a car wreck after submitting the offer B a lightning strike causes the property to burn to the ground C the buyer submits an offer to purchase on another property D the sellers sent the buyer a counter offer
Answer:C the buyer submits an offer to purchase on another property Explanation: Offers are fragile. Pretty much any change in status will terminate an offer. Buyer or seller die....offer gone. Property destrotyed......offer gone. Counteroffer.....offer gone. Rejection.....offer gone. There is a pretty big exception here. Buyers are free to make offers on more than one property at at time and even to be under contract on more than one property at a time. Making an offer on one property will not terminate an offer made by the same buyer on another property.
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? 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
Answer:D When Kevin notified Carolyn that the seller accepted the offer to purchase Explanation: 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.