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Real Estate Exam > Contracts 12% > Flashcards

Contracts 12% Flashcards

1
Q

Laches

A

Laches means failing to do something which should have been done.

DELAY/NEGLIGENCE in ASSERTING one’s LEGAL RIGHT.

i.e., to file a claim or to enforce a right, all within a prescribed time. The Statute of Limitations outlines actions that can be brought within a certain time frame.

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2
Q

Estate for years vs Periodic Tenancy

A

ESTATE FOR YEARS:
DEFINITE BEGINNING AND END DATE.
At the end of the lease, the tenant is expected to vacate the property. Neither the tenant nor the landlord is required to give notice to terminate this lease as the end date is specified at the beginning. The lease may or may not be renewed after the initial lease period.

PERIODIC TENANCY:
NO SPECIFIC ENDING DATE for the term of the lease. The landlord and tenant agree that the tenant can occupy the property indefinitely. They can agree, if both parties choose, that there will be notice given prior to termination of the arrangement. Any notice required will be specified in the lease itself, making each party aware of the amount of notice required from the beginning of the arrangement. (“MONTH TO MONTH”)

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3
Q

What font is used in real estate contracts?

A

Standard form real estate contracts use 10 POINT BOLD FONT.

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4
Q

Listing Agreements

A

Exclusive right to sell listing
In this agreement, the agent gets paid no matter who sells the property, regardless of whether it’s the agent or the seller.

Exclusive agency listing
Agents get paid in this type of agreement only if they sell the property. No fee is earned if the owner sells the property on his own.

Open listing
In this type of agreement, sellers have the right to use as many brokers as they want. The seller is not, however, obligated to pay any of them if he sells the property.

Net listing
This type of agreement is illegal in some states. The agent gets to keep everything he can get that’s more than the sale price the owner wants.

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5
Q

24 ol) Duress

A

Duress is a threat whereby a person is forced to do some act against his/her will.

The person who was forced to perform under a threat has the right to void (voidable) the agreement or let it stand.

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6
Q

40 ol) Terms of the Sale in a Listing Agreement includes:

A

The “Terms of the Sale” section in a listing agreement lists the PRICE price and AND HOW THE PRICE IS TO BE PAID. It also discusses any personal property which is included in the price.

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7
Q

The four main types of Leasehold Estates are:

A
  • Estate for Years
  • Estate from Period to Period/Periodic Tenancy
  • Estate/Tenancy at Will
  • Estate/Tenancy at Sufferance
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8
Q

ESTATE FOR YEARS

A

DEFINITE TERMINATION DATE!

It is not necessary to give notice to the landlord to terminate an estate for years.

Renewal is NOT automatic, when this type of lease is over, it’s over.

Many commercial leases and some apartment leases are estates for years.

Remember this type of lease can be for any amount of time.

A one day lease to rent a hotel room has a definite beginning and ending so it would be considered an estate for years.

An estate for years is a leasehold created by landlord and tenant for a particular period of time. The period of time could be a fixed number of years, months, weeks, or even days. An estate for years always will have a definite termination date.

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9
Q

87) Novation

A

The most general definition of novation is the substitution of a new obligation for an old one. It also means substitution of new parties to an existing obligation, as when the parties to an agreement accept a new debtor in place of an old one. For example, in the assumption of a loan, the lender may release the seller and substitute the buyer as the party primarily liable for the mortgage debt.

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10
Q

89) What requires that real estate listings to be in writing?

A

The STATUE OF FRAUDS generally requires all contracts for the sale of land or any interest therein (including listings) to be in writing.

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11
Q

ESTATE/TENANCY AT SUFFERANCE

A

Tenant stays past the term of his lease.

This tenant is known as a:
HOLDOVER TENANT because he/she are unlawfully in possession of the property.

The landlord must evict tenant through the courts. Cannot lock the tenant out, turn off utilities, or forcibly remove the tenant

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12
Q

3 Types of leases Lessee Pays Lessor Pays:

A
  • Gross Lease
  • Net Lease
  • Percentage Lease
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13
Q

Listing Agreements

A

-Exclusive right to sell listing-
In this agreement, the agent gets paid no matter who sells the property, regardless of whether it’s the agent or the seller. (must include an EXACT termination date)

-Exclusive agency listing-
Agents get paid in this type of agreement only if they sell the property. No fee is earned if the owner sells the property on his own. (must include an EXACT termination date)

  • Failure to include a specific termination date (12 noon on December 31st) in an exclusive listing can result in suspension or revocation of the broker’s license.
  • Term of listing can be any amount of time that buyer and seller agree on (ex. 30, 60, 90 day etc.)

-Open listing-
In this type of agreement, sellers have the right to use as many brokers as they want. The seller is not, however, obligated to pay any of them if he sells the property. (does not require termination date)

-Net listing-
This type of agreement is illegal in some states. The agent gets to keep everything he can get that’s more than the sale price the owner wants.

A Net Listing is a listing based on the net price the seller will receive if the property is sold. Under a net listing the broker can offer the property for sale at the highest price obtainable to increase the commission. This type of listing is legal in California but considered unethical and thus illegal in most states.

-Option Listing-
An Option Listing is a listing in which the broker also retains an option to purchase the property for the broker’s own account.

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14
Q

Safety Clause

A

A SAFTEY CLAUSE may be contained in a LISTING. It provides that a broker is still entitled to a commission for a set period of time after the listing has expired if the property is sold to a prospect, who was introduced to the property by the broker, during the period of the listing.

BROKER MUST SUBMIT ALL PEOPLE’S NAMES HE NEGOTIATED WITH –>IN WRITING

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15
Q

The four main types of Leasehold Estates are:

Plus the three commercial leases:

A
  • Estate for Years
  • Estate from Period to Period/Periodic Tenancy
  • Estate/Tenancy at Will
  • Estate/Tenancy at Sufferance
  • Gross Lease
  • Net Lease
  • Percentage Lease
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16
Q

ESTATE/TENANCY AT SUFFERANCE

A

Tenant stays past the term of his lease.

This tenant is known as a:
HOLDOVER TENANT because he/she are unlawfully in possession of the property.

The landlord must evict tenant through the courts. Cannot lock the tenant out, turn off utilities, or forcibly remove the tenant

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17
Q

3 other Types of Commercial Leases:

A
  • Gross Lease
  • Net Lease
  • Percentage Lease
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18
Q

ESTATE FROM PERIOD TO PERIOD/ PERIODIC TENANCY

A

NO TERMINATION DATE!

Also known as periodic tenancy, or a MONTH-TO-MONTH lease.

Proper notice is required to terminate (30 days - 60 days or whatever is agreed to in the lease).

No definite ending date (this type of lease renews itself for whatever period of time that was called for in the original lease or whatever is agreed upon in the actual lease).

Most apartment leases are estates from period to period if the tenant is required to give notice to terminate.

If agreement doesn’t say when rent is due, California law provides that it shall be payable at the end of each rent-paying period for a periodic tenancy or at the end of the lease term if the term is one year or less.

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19
Q

Buyer and seller are in escrow. Prior to the close of escrow, seller wants to back out

A

A contract to purchase cannot be rescinded by the seller. Seller would be in breach without remedy or recourse to buyer. Buyer is actually damaged.

MEDIATION would probably be the most appropriate response as both buyer and seller would have to agree as to the disposition of the purchase contract.

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20
Q

Corporation

A

An entity or organization, created by operation of law, whose rights of doing business are essentially the same as those of an individual. The entity has continuous existence until it is dissolved according to legal procedures.

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21
Q

A broker accepts an exclusive authorization and right to sell listing from a corporation. During the listing term, all of the officers of the corporation die. In this case:

A

The listing remains in full effect.

One of the main characteristics of a corporation is its perpetual existence, that is corporations never die and only cease to exist when properly dissolved.

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22
Q

Types of Commercial Leases:

A

Gross Lease - A gross lease is a type of commercial lease where the lessee (tenant) pays a fixed rent and the lessor (landlord) pays the taxes, insurance, and other charges regularly incurred through ownership. A gross lease can be modified to meet the needs of a particular building’s tenants. For example, a gross lease may require the tenant to pay the utility bills.

Net Lease - Commercial flat fee + fees that lessor usually pays (lessee pays maintenance, insurance and taxes)

-Expenses incorporated into net leases often include property taxes, utilities, janitorial services, property insurance, property management fees, sewer, water and trash collection.

Percentage Lease- Tenant pays a base rent + % of any revenue earned while doing business on the rental premises.

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23
Q

Termination of a Lease

A

“A lease may be terminated by expiration; notice of termination; surrender; the landlord’s breach of an implied promise; the tenant’s failure to pay rent or unauthorized use of the premises; foreclosure; destruction of the premises; or condemnation.”

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24
Q

Termination of Listing Agreement

A

A listing agreement will terminate on its expiration date or when the sale of the property closes. It will also terminate if the broker or seller dies (unless seller is a corporation) , goes out of business, or has her license suspended or revoked. The seller and the broker may mutually agree to terminate the listing, or one party may decide to terminate the agreement on his own. However, if one party terminated the listing agreement unilaterally, he may be liable for breach of contract.

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25
Q

Maximum durations of Estate for Years leases are as follows:

A
  • Agricultural leases 51 years
  • Residential property leases 99 years
  • Mineral, oil, and gas leases 99 years
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26
Q

Open Buyer Agency vs Open Listing

A

The open buyer agency agreement is similar to an open listing seller agreement.

Open-Buyer-Agency-Agreement
This agreement is a nonexclusive agency contract between a broker and a buyer. It permits the buyer to enter into similar agreements with an unlimited number of brokers. The buyer is obligated to compensate only the broker who locates the property the buyer ultimately purchases.

Open Listing
A listing given to any number of brokers who can work simultaneously to sell the owner’s property. The first broker to secure a buyer who is ready, willing and able to purchase at the terms of the listing earns the commission. In the case of a sale, the seller is not obligated to notify any of the brokers that the property has been sold.

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27
Q

All material facts must be disclosed to who:

A

All principals in transaction( buyer and seller)

19 ol)DOES NOT NEED TO BE DISCLOSED TO BROKER OR OR LISTING AGENT.

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28
Q

Leasehold Interest

A

A “leasehold interest” is the right to exclusive possession and use of real property for a fixed period of time held by the lessee. Remember: lessor (landlord), lessee (tenant).

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29
Q

Termination of Listing Agreement

A

A listing agreement will terminate

-on its expiration date
-when the sale of the property closes
-broker dies
-seller dies (unless seller is a corporation) ,
-broker goes out of business
-broker has her license suspended or revoked.
-mutually agreement to terminate the listing,
-or one party may decide to terminate the agreement on his own.
(However, if one party terminated the listing agreement unilaterally, he may be liable for breach of contract.)

30
Q

How long does a buyer have to pursue civil action against a seller for breach (default) of a written contract.

A

A right rising out of a written contract must be pursued in court within FOUR YEARS of the default (breach), according to the Statute of Limitations.

31
Q

Is a verbal agreement between two brokers to split a commission enforceable?

A

A verbal agreement between two brokers to split a commission is enforceable and is one of the exceptions to the Statute of Frauds.

32
Q

There are six basic requirements in a legally enforceable contract:

A
  • An offer.
  • An acceptance.
  • Competent parties who have the legal capacity to contract. (of age, not intoxicated, of sound mind)
  • Lawful subject matter.
  • Mutuality of obligation.
  • Consideration.

In any of these are missing when the contract is signed the contract is VOID. Void means that the contract doesn’t need to be help in court to be voided.

33
Q

What/who sets the upper and lower limits of pricing for real estate?

A

Upper Limit- Listing Price
Lower Limit- First Offer

The listing price set by the owner usually sets the upper limit of market value under normal market conditions. A prospective buyer’s first offer usually sets the lower limit.

34
Q
  1. A parcel of vacant land is LISTED for $100,000, requiring 20% down with the seller to carry back the balance. The broker brings in a FULL-PRICE CASH offer, but the owner refuses. The broker is entitled to:
A

Nothing.

Since the offer does not meet the EXACT TERMS of the listing, the broker is not entitled to any commission.

35
Q

Verbal agreements

A

Enforceable if LEASE AGREEMENT for less than 1 year

Enforceable for two brokers on COMMISSION SPLIT

36
Q

To whom does a listing belong?

A

THE BROKER

This is true even though the listing was prepared by a salesperson. If the salesperson transferred his/her license to another broker, the listing would stay with the listing broker.

37
Q

Deed of trust

Promissory Note

A

The DEED OF TRUST SECURES THE PROMISSORY NOTE AND THE PROPERTY. If payment is not made according to the terms of the note and deed of trust, the beneficiary may instruct the trustee to foreclose as set forth in the deed of trust.

The trust deed is the security (or mere incidence) of the debt.
The promissory note is the evidence of the debt.

38
Q
  1. A licensed real estate broker is successful in securing a buyer for a property who is ready, willing and able to buy. The offer is accepted and signed by both parties and escrow is opened. During the escrow period, the title company discovers that the seller is married but under 18 years of age and notifies the broker and the escrow holder. Under these circumstances, the contract is:
A

VALID…this one was tricky
A minor is generallay defined as any person under the age of 18. HOWEVER, a person under the aGe of 18 years is said to be an EMANCIPATED minor IF the PERSON HAS ENTERED INTO A VALID MARRIAGE, is on active duty in any armed forces, or willingly lives apart from their parents with the parents’ consent and manages their own fiancial affairs regardless of the source of income.

39
Q

If a lease agreement doesn’t mention either subleasing or assignment of the leasehold.

A

The tenant CAN sublease or assign without permission

Failure to discuss either subleasing or assigning a lease automatically gives those rights to the lessee.

40
Q

Assignment

A

Original lessee becomes assignor and is held secondarily liable and still holds the lease

Assignee/transferee (new lessee) becomes primarily liable and pays rent to Lessor.

41
Q

Sublease

A

Original lessee (sublessor) has original lease but makes a new lease with the sublessee.

sublessee liable to—> sublessor liable to—>lessor
sublessee pays rent to—> sublessor pays rent to—>lessor

42
Q

Listing agreement

A

A listing agreement is an employment agreement between an owner of property and the real estate broker authorizing the broker to find a buyer for the property. They are also bilateral contracts in that the seller promises to pay the broker a commission when the property sells and the broker promises to make reasonable efforts to obtain a purchaser.

43
Q

Valid Contract

A
  1. Competent Parties
  2. Mutual Consent
  3. Value Consideration
  4. Legal Purpose
  5. Voluntary act of good faith
44
Q

Contract that conveys an interest in real estate must:

A
  1. Be in writing
  2. Contain a legal description of the
    property
  3. Be signed by one or more of the
    parties
45
Q

Assignment

A

Original lessee becomes assignor and is held secondarily liable and still holds the lease

Assignee/transferee (new lessee) becomes primarily liable and pays rent to Lessor.

An assignment of a lease is the transfer of all title, right, and interest that a lessee possesses in a certain property.

46
Q

Valid Contract

A
  1. Competent Parties
  2. Mutual Consent
  3. Value Consideration
  4. Legal Purpose
  5. Voluntary act of good faith
47
Q

Valid Contract breakdown:

A

Competent Parties- 3 Factors

  1. Legal age
  2. Mental competency
  3. Legitimate authority

Mutual Consent
Offer & Acceptance and meeting of the minds

Valuable Consideration
Must contain a two-way exchange of valuable consideration. A consideration is the inducement to a contract. It is the cause, motive, or compelling influence which induces a contracting party to enter into a contract. Consideration means something of value in the eye of the law and considered as such by both parties. It may be money, services, or a promise, and consists of either a benefit to the promisee or a loss or detriment to the promisor.

Legal Purpose
Content, promise, or intent of a contract must be lawful

Voluntary, Good Faith Act
Must create the contract in good faith as a free and voluntary act

48
Q

Contract that conveys an interest in real estate must:

A
  1. Be in writing
  2. Contain a legal description of the
    property
  3. Be signed by one or more of the
    parties
49
Q

Lease contracts for less than 1 year

A

Do not have to be in writing to be enforceable

50
Q

Actions or Circumstances that can terminate an offer:

A 
1. Acceptance:the offered accepts the 
offer, converting it to a contract
2. Rejection: the offeree rejects the 
offer
3. Revocation: the offeror withdraws 
the offer before acceptance
4. Lapse of time: the offer expires
5. Counteroffer: the offeree changes
the offer
6. Death or insanity of either party
51
Q

Legal status of contracts

A

Legal status of contracts

  1. Valid
  2. Valid but unenforceable
  3. Void
  4. Voidable

Valid Contract
Meets the requirements for Validity

Valid but Unenforceable
Some contracts are enforceable only if they are in writing. Oral long term lease and oral real estate contracts

Void Contract
Does not meet tests for validity. Neither party can enforce it

Voidable Contract
Initially appears to be valid but is subject to rescission

52
Q

Recording

A

Recording is used for written instruments affecting the title to real property, such as deeds, mortgages, trust deeds, contracts for sale, options and assignments.

Listings cannot be recorded.

53
Q
  1. Which of the following is NOT essential to all contracts?
    (a) in writing
    (b) mutual consent
    (c) capable parties
    (d) None of the above
A

Your answer: (d) is not correct.
The correct answer is a: Only real estate contracts are required to be in writing.

Valid contract:

  1. Competent Parties
  2. Mutual Consent
  3. Value Consideration
  4. Legal Purpose
  5. Voluntary act of good faith
Contract that conveys real estate:
1. Be in writing
2. Contain a legal description of the 
property
3. Be signed by one or more of the 
parties
54
Q

The California State Contractor’s License Law DOES NOT apply to:

A

The California State Contractor’s License Law DOES NOT apply if the total cost of labor and materials is less than $500.

55
Q

63 ol)There are four essentials to all contracts:

A

1) A lawful object;
2) Competency: Parties capable of contracting;
3) Mutual consent: Their consent which includes the offer and acceptance; and
4) Consideration: A sufficient consideration.
* A 5th requirement exists for real estate contracts - “in writing.”

56
Q

Contracts in writing vs don’t have to be in writing

A

The Statute of Frauds is state law that requires certain contracts to be in writing and signed by the party to be charged (or held) to the agreement in order to be legally enforceable.

In Writing
All contracts for the sale of land or any interest herein.

Not in writing
Oral leases for a period less than one year, however are generally valid and enforceable.

57
Q

May a buyer get their deposit back if they revoke the offer before it is accepted?

A

It is a basic tenant of contract law that any offer may be revoked any time prior to acceptance and the buyer gets the deposit back. It doesn’t matter how many days the buyer gave the seller to accept.

58
Q

What does “Estate of inheritance” refer to?

A

Fee simple estate.

A Life Estate CANNOT be inherited

59
Q

ASK INSTRUCTOR ABOUT THIS ONE

A
  1. A broker has a combination of a listing and an option. She exercises the option without disclosing that she already has a buyer at a higher price. The broker:
    (a)is guilty of fraud.
    (b)has made a secret profit.
    (c)created an illegal dual agency.
    (d)has done nothing wrong.
    Your answer: (a) is not correct.
    The correct answer is b: Secret profit refers to a broker making an undisclosed profit at the seller’s expense. Brokers cannot conceal offers from buyers until after they have exercised the option. Full and fair disclosure must be given to the seller.
60
Q

Open Listing INTERESTING facts

A

Unlike an exclusive listing, an open listing NEED NOT HAVE A DEFINITE TERMINATION DATE. The listing terminates after a reasonable time, usually whatever is customary in the community. All other concurrent open listings are automatically cancelled by the sale. It is NOT necessary for the broker to give the owner a copy of the open listing at the time of signing.

61
Q
  1. An exclusive authorization and right to sell listing has an expiration date of noon on September 5th. At 1 p.m. on September 5th, the owner signed a new listing with Larry, another broker. At 2 p.m. on September 5th, Sally, the original listing broker, presents a full price offer. In this case:
A

(a)Sally is entitled to a commission.
(b)Sally has acted illegally.
(c)Larry is entitled to a commission.
(d)None of the above
Your answer: (c) is correct.

Technically speaking, Larry is entitled to the commission, however many other factors may come into play. SAFTEY CLAUSE provisions may apply if Sally documented previous negotiations with this buyer. It is likely that the commission would be split between Larry and Sally.

62
Q

Escalator Clause:

A

Many fixed-rental net leases, particulary long-term commercial leases, contain a clause in which THE PARTIES AGREE to an ADJUSTMENT OF RENT BASED ON INCREASES IN taxes, insurance, maintenance and other operating costs.

Similarly, the rent may be tied into the cost-of-living index to cover increases in the maintenance expenses and raised at stated intervals.

*An escalator clause is designed to protect the lessor’s investment position against a reduction in the rate of return over the term of the lease.

63
Q

Specific performance

A

Remedy for breach of real estate contract that requires a defaulting party to perform the promises made in the contract.

If either a purchaser or seller defaults on the obligations under a contract, then the injured party may recover certain relief from the defaulting party. This relief may be in the form of specific performance that requires the defaulting party to perfrom the ctonract as agreed to, or it may be in the form of money damages or recovery of expenses.

Specific performance is an action brought in a court of equity in special cases to compel a party to carry out the terms of a contract.

64
Q

This one is tricky….

A
  1. Mr. Owner enters into an exclusive listing with Broker X. One week later, Broker X brings in a full price offer, but Mr. Owner refuses the offer. Seeking an action of Specific Performance would be an option for:
    (a)the buyer.
    (b)the broker.
    (c)both the buyer and the broker.
    (d)neither the buyer nor the broker.
    Your answer: (b) is not correct.
    The correct answer is d: Specific performance is an action brought in a court of equity in special cases to compel a party to carry out the terms of a contract. There never was a contract between the buyer and seller since the offer was refused. Specific performance is not used to specifically enforce a contract to perform personal services, such as a broker’s agreement to find a buyer.
65
Q

Sale of Personal Property must be in writing if value exceeds $_____.

A

An agreement for the sale of real property must ordinarily be in writing signed by the party to be charged. An agreement for the sale of PERSONAL PROPERTY must be in writing if the amount or value of the property EXCEEDS $500.

66
Q

What form is sent when a short sale is completed?

A

The Short Sale Addendum (SSA) is a document specifically designed to deal with the unique circumstances that a short sale creates. The basic premise of the Short Sale Addendum is to set a deadline for the acceptance of the short sale by the lender and to delay the start of certain Contingency Periods within the Residential Purchase Agreement (RPA).

67
Q

What is the minimum time period that a listing must be?

A

*Term of listing can be any amount of time that buyer and seller agree on (ex. 30, 60, 90 day etc.)

Whatever time period is agreed to by seller and broker

68
Q

Net Lease

A

With a net lease, the lessee (tenant) not only pays the rent for occupancy but also pays maintenance and operating expenses such as taxes, insurance, utilities, maintenance, and repairs.

The lessor (owner) would pay the leasing commission. In a true net lease, the tenant is responsible for expenses relating to the premises exactly as if the tenant were the owner. The rent paid is “net” to the lessor. This kind of lease is popular with investors who want to obtain a steady stream of income without having to handle the problems associated with management and maintenance. Commercial or industrial leases, ground leases, and long-term leases are typically net leases.

69
Q

LOOK OUT FOR WORDING LIKE THIS!!

A
  1. All of the following would be required to be in writing EXCEPT:

(a) sale of a vacant lot.
(b) sale of a personal residence.
(c) sale of a condominium.
- —>(d)None of the above

Your answer: (a) is not correct.
The correct answer is d: The Statute of Frauds generally requires that all contracts for the sale of land or any interest herein be in writing.

70
Q

Constructive fraud VS Actual fraud

A

Constructive fraud is a breach of duty as by a person in a fiduciary capacity, WITHOUT an actual FRAUDULENT INTENT.

Actual fraud is an act INTENDED to deceive another;
e.g., making a false statement or false promise without intending to perform it.

71
Q

constructive fraud

A

Breach of a legal or equitable duty that the law declares fraudulent because of its tendency to deceive others, despite no showing of dishonesty or intent to deceive. For example, if a listing broker failed to disclose a known major foundation problem not readily observable upon an ordinary inspection.

Real Estate Exam (8 decks)

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