Chapter 09: Real Estate Contracts Flashcards
All of the following are essential to the formation of a contract, EXCEPT:
A. offer
B. acceptance
C. consideration
D. earnest money deposit
D. earnest money deposit
(Although we require signatures on certain real estate contracts a signature is not a required element to form a basic contract. Formation of a contract requires mutual assent (including offer and acceptance), competent parties, consideration and it must be for a legal purpose)
Which of the following statement(s) is/are true?
1. In a breach of a sales contract, the earnest money deposit is considered liquidated damages. 2. In a breach of a sales contract, liquidated damages are an agreed upon amount of money the parties agree to accept in the event of breach.
A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2
C. Both 1 and 2
(Liquidated damages are an agreed upon amount stated in a contract that the parties agree to accept in the event of a breach. In a purchase contract the amount of earnest money is the amount given as liquidated damages)
Which of the following document(s) would be covered by the NC Statute of Frauds? 1. Listing agreement 2. Buyer agency agreement
A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2
D. Neither 1 nor 2
(The statute of frauds requires contracts that contain a right or interest in real property to be in writing in order to be enforceable. These types of agreements would be purchase contracts, deeds, easements and options. The listing agreement and the buyer broker agreement are employment agreements. They need to be in writing due to commission rules, not because they are subject to the statute of frauds)
Which of the following documents must be written under the Statute of Frauds in order to be enforceable in a court of law?
A. Offer to purchase and contract
B. Exclusive right to sell listing agreement
C. Exclusive right to represent buyer
D. Short-term leases of less than three years
A. Offer to purchase and contract
(The Offer to Purchase and Contract must be in writing pursuant to the statute of frauds because it deals with the conveyance of a right or interest in real estate. The same is true with leases longer than 3 years, options, easements, deeds, restrictive covenants, assignments and installment land contracts)
A listing broker schedules an appointment to present a purchase offer to the seller. The seller has serious health problems and her son is attending to her health care. When the broker arrives, he finds the seller’s son and daughter-in-law present. In the broker’s presence, both persistently urge the seller to accept the offer. The seller is reluctant to accept since the offer is substantially less than the list price. If the seller accepts the offer under these circumstances, she may later claim that:
A. the broker should not have brought such a low offer for her property
B. she was under undue influence from her son and daughter-in-law, and therefore, the contract is voidable
C. the broker defrauded her by allowing her son and his wife to see the offer he brought to her
D. her consumer protection rights under anti-trust laws were violated by her son and daughter-in-law
B. she was under undue influence from her son and daughter-in-law, and therefore, the contract is voidable
(A contract is voidable by party if it was signed under duress. Duress is undue influence and the party lacked the ability to enter into the agreement of their own free will)
A man has posted a $100 reward for anyone who returns his missing dog. This is an example of:
A. a unilateral contract
B. a bilateral contract
C. an implied contract
D. an executed contract
A. a unilateral contract
(A unilateral contract is a contract where only one party is bound to perform. A reward poster does not obligate anyone to find the man’s dog, but if someone finds the dog the person who issued the reward poster would be bound to pay the money)
The seller unintentionally misrepresented that the soil of a lot was suitable for the construction of a building at the time the buyer was negotiating the purchase of the lot for the site of a new home. After entering into a contract to purchase, the buyer learned that contrary to the seller’s statement, the soil was unsuitable for construction. This is an example of a contract that is probably:
A. binding on the buyer due to the doctrine of caveat emptor
B. voidable by the buyer because of the seller’s mistake
C. voidable by the seller because of the mistake
D. voidable by neither party because this was a harmless error
B. voidable by the buyer because of the seller’s mistake
(When a misrepresentation is made that induces or causes a party to enter into a contract, the contract is voidable at the option of the person who is injured by the misrepresentation)
The law requiring real estate options to be in writing in order to be enforceable is the:
A. law of agency
B. statute of frauds
C. statute of limitations
D. parol evidence rule
B. statute of frauds
(The statute of frauds does not require all contracts to be in writing. Only those contracts that evidence a right or interest in real estate are required to be in writing in order to be enforceable)
The legal remedy to enforce the terms of a contract is known as:
A. an injunction
B. a lis pendens
C. a writ of attachment
D. specific performance
D. specific performance
(Specific performance means that the court is ordering a party to perform the terms of the contract to which they agreed. If for example a seller decided they did not want to sell their home after executing a binding contract with a buyer, the buyer could bring a court action for specific performance to force the seller to sell the home)
The term “rescission” is best defined as:
A. change
B. nullification
C. substitution
D. subordination
B. nullification
(Rescission is the termination of a contract which returns the parties to their original position. The original agreement is nullified. Rescission is not the same as cancellation. If a party cancels a contract they may be subject to certain penalties or lose certain deposits. When rescission occurs, all monies are returned to the buyer and both parties are relieved of their obligations under the contract)
An executory contract is one in which:
A. all of the terms and conditions have been performed
B. there are still essential elements to be performed
C. one or more of the parties is in breach of the agreement
D. the contract has expired
B. there are still essential elements to be performed
(An executory contract is a contract where there are still items yet to be performed. An executed contract is a contract where all of the terms and conditions have been completed)
A buyer makes an offer to purchase a home and states in the offer that the offer will remain open for the seller’s acceptance until April 6th. On April 4th the buyer changes their mind and notifies the seller that they are withdrawing their offer. On April 5th the seller accepts the original offer. Which of the following statements is correct?
A. The buyer is not bound because they withdrew their offer prior to being notified of the seller’s acceptance.
B. The buyer is bound because they stated that the offer would remain open until April 6th.
C. Once an offer is made it cannot be withdrawn.
D. The acceptance by the seller on April 5th created a binding and enforceable contract.
A. The buyer is not bound because they withdrew their offer prior to being notified of the seller’s acceptance.
(An offer can be withdrawn at anytime prior to the seller’s acceptance being communicated back to the buyer. The right to withdraw an offer prior to acceptance is absolute, even if the buyer stated that the offer would remain open for a longer period of time)
Mary made an offer to purchase John’s property for $295,000. John replied in writing to Mary that he would sell the property for $300,000. Mary refused to pay the $300,000 and did not respond to John. After reconsidering, John notified Mary that he was accepting the $295,000 offer. Which of the following is correct?
A. Mary and John have a valid and binding contract for $295,000.
B. Mary’s offer remains open indefinitely and can always be accepted by John unless she included a deadline for acceptance in her offer.
C. John’s response of $300,000 constituted a counteroffer which terminated Mary’s original offer and therefore there is no agreement between the parties.
D. Because Mary failed to take any action regarding John’s initial reply her original offer remained open.
C. John’s response of $300,000 constituted a counteroffer which terminated Mary’s original offer and therefore there is no agreement between the parties
(Any change to an offer, no matter how small, creates a counteroffer and the offeror is relieved of liability for the original offer)
