Contracts

Question 1

A buyer phoned a seller to inquire about a piece of real estate the seller had for sale. The buyer and seller agreed to the price and terms over the phone. Which of the following is the MOST LIKELY legal effect of this agreement?
   A  »  Enforceable
   B  »  Non-enforceable
   C  »  Void
   D  »  Voidable

Answer 1

(B) The statute of frauds says that oral contracts for the sale of real estate are unenforceable. (A) Enforceable means that the court would require a party to complete it (which the statute of frauds says cannot be done in an oral contract to purchase a property). (C) It is not automatically void because the buyer and seller COULD complete it if they wanted to. They just cannot be REQUIRED to. (D) Voidable means that one of the parties could void it but otherwise it would be enforceable.

Question 2

A contract where one or more of the parties can rescind is called:
   A  »  void
   B  »  voidable
   C  »  valid
   D  »  unenforceable

Answer 2

(B) Contracts that can be voided are “voidable.” (A) A void contract has no legal effect and is void on its face. (C) A valid contract cannot be rescinded by a party just due to the fact that the party desires to rescind it and therefore is enforceable in court. (D) An unenforceable contract (such as an oral contract) is just a contract that cannot be enforced in court.

Question 3

When a contract is signed between a buyer and a seller, the buyer is known to have received equitable title upon the happening of which of the following events?
A » Buyer making the offer
B » Recording of the deed
C » Signing of the agreement by the buyer and seller
D » Conveyance of the deed

Answer 3

Equitable title is the right to get title in the future. So, when the (C) buyer and seller sign the contract, the buyer has the right to get title at closing. (A) Making the offer gives no rights unless the seller accepts it. (B) & (D) The deed transfers legal title, not equitable title.

Question 4

Which of the following items would NOT always be a part of a contract for the sale of personal property?
   A  »  Offer and acceptance
   B  »  Legality
   C  »  Consideration
   D  »  Written agreement

Answer 4

D) All contracts do not have to be in writing. The Statute of Frauds says that to be “enforceable” all real estate sales contracts, deeds and leases over one year must be in writing. However, this question calls for the sale of personal property, not real estate. (A), (B) & (C) will all be part of the contract.

Question 5

H had a property for sale for $129,000. B made an offer for $123,000. H made a counter-offer of $127,000. Which of the following statements is NOT true regarding this situation?
A » H’s counter-offer terminated the first offer
B » With the second offer, B would become the offeree
C » The counter-offer would be binding on B
D » In the original transaction, B was the offeror

Answer 5

(C) The counter made by H is not binding on B. It is only an offer. (A), (B) & (D) are all true.

Question 6

What is the purpose of earnest money being part of a real estate contract?
A » Without it, there would be no consideration
B » It gives the broker commission money in case the buyer does not close
C » It establishes the intent of the buyer to carry out the contract
D » It provides for payment of some of the buyer’s closing costs

Answer 6

(C) Earnest money is considered to be good faith money showing sincerity on the part of the buyer. (A) Earnest money is not the consideration for the contract; a promise to pay is the consideration. (B) If the buyer does not close, the broker probably has not earned the commission money. (D) The earnest money eventually goes toward the purchase price, not necessarily closing costs.

Question 7

Which of the following constitutes illegal commingling by a licensee?
A » Salesperson deposits earnest money into a broker’s trust account
B » Broker deposits commercial rent receipts from a property management contract into the trust account
C » Salesperson deposits residential rental money into the trust account
D » Broker deposits payroll funds into the trust account

Answer 7

(D) A broker can never deposit payroll funds into a trust account - this would always be commingling. (A) A salesperson may deposit earnest money into the broker`s trust account. (B) & (C) Depending on what state you live in, rent money (commercial or residential) sometimes may be deposited into an escrow account.

Question 8

A right to buy a property for a definite sale price with a definite time period is referred to as a(n):
   A  »  sales contract
   B  »  listing contract
   C  »  right of first refusal
   D  »  option contract

Answer 8

(D) An option contract does give the right to buy in the future for a definite price within a definite time frame. (A) A sales contract is between a buyer and a seller for a definite contract here and now. (B) A listing contract is between a seller and a broker. (C) A right of first refusal gives a person the first opportunity to buy only if the seller offers the property for sale.