Contracts of Sale

Question 1

List the 5 elements required for a contract for the sale of real estate to be legally valid.

Answer 1

1) Mutual agreement (offer and acceptance)
2) Consideration
3) Legally competent parties
4) Lawful purpose
5) Description adequate to identify property

Question 2

What law requires a contract of sale for real estate to be in writing to be enforceable?

Answer 2

The Statute of Frauds

Question 3

List some names used for a contract to sell real estate

Answer 3

Contract of sale, agreement of sale, purchase and sale agreement, offer and acceptance, earnest money contract

Question 4

A contract of sale occurs before or after the settlement?

Answer 4

Before

Question 5

What occurs at settlement (closing)?

Answer 5

The buyer provides payment in direct exchange for a deed to the property delivered by the seller.

Question 6

Why does contract of sale precede closing?

Answer 6

Time interval is necessary because of the time required for the buyer to research title, arrange financing, and perform inspections.

Question 7

If the specific form used for a sale by a licensed broker or salesperson requires more than minor changes, who makes the changes?

Answer 7

A broker may not make the changes. They must have a form drafted by an attorney.

Question 8

A valid contract of sale typically includes what 6 elements?

Answer 8

1. Interests and identities of parties
2. Description of the real estate
3. Price and any financing required
4. Contingencies to be resolved and other terms of sale
5. Settlement date
6. Signatures of buyers and sellers

Question 9

What is the minimum description required for legal description of property in a contract?

Answer 9

One sufficient to locate the property

Question 10

The price should state…?

Answer 10

The total to be paid, and the amount, terms, and type of loan that will be sough for the contract to be acceptable.

Question 11

What are typical contingencies?

Answer 11

Inspections (property condition including structural, mechanical, electrical, plumbing, termites, environmental), and the buyer’s need to do something else, such as arrange financing or sell another property. The contract should specify who is to repair or pay for repairs and what may happen if the cost of repairs exceeds specific amounts.

Question 12

True or false, prices and terms of reals estate are negotiable?

Answer 12

True!

Question 13

How does the negotiation process often start?

Answer 13

A prospective buyer presents an offer, often through a broker, to an owner.

Question 14

An offer can be withdrawn anytime before it is _____.

Answer 14

Accepted.

Question 15

What is acceptance?

Answer 15

An owner signs an offer as it is presented, making no changes. This creates a contract.

Question 16

If an owner decides not to respond to an offer, the offer is void when?

Answer 16

On its expiration date, or if earlier, when withdrawn by the prospective buyer

Question 17

The slightest change of an offer by the owner constitutes a _____ of the offer and substitution of a new offer to the other party, called a ______.

Answer 17

rejection; counteroffer

Question 18

The negotiation process can continue back and forth until a party decides to break negotiations. However, once an acceptance occurs, a _____ exists.

Answer 18

Contract

Question 19

The process a buyer performs to be certain that the property’s condition is as described, with no surprises as to its physical, financial, or legal attributes, is called what?

Answer 19

Due diligence

Question 20

What phrase is included in offers to describe the settlement (closing) date, so that the deadlines are interpreted exactly?

Answer 20

Time is of the essence

Question 21

Can the deadline for closing be amended by mutual agreement of the parties?

Answer 21

Yes

Question 22

Describe power of attorney. What is the name for the designated individual?

Answer 22

This is used to give another person authority to act. The person with such authority is called an attorney-in-fact (need not be an attorney-at-law). If the intent is to transfer real estate, the POA should be in writing to be enforceable.

Question 23

What is earnest money? What happens to this money if a contract falls through?

Answer 23

The deposit given by a buyer to a seller (or a broker if one is involved) to show good faith. Also called hand money. In most situations, the seller keeps the earnest money if the buyer defaults. However, if the contingencies stated in the contract are not met, the buyer is entitled to a full refund of the earnest money.

Question 24

What are liquidated damages?

Answer 24

These are stated in a contract to define the penalty for failure to complete the contract as specified.

Question 25

What is the term for a legal remedy sought by a buyer to compel the seller to complete the contract, often enforced in court, and allowed because each piece of real estate is unique?

Answer 25

Specific performance

Question 26

Do contracts for sale of real estate remain valid on the estate of an owner who died? What about leases/deeds/mortgages?

Are listings valid upon death of any of the following?: either party, the owner, the broker

Answer 26

Yes. Yes.

No. Listings terminate on the death of either party, the owner, or the broker.

Question 27

What does an assignable contract for real estate mean? What is an assignor?

Answer 27

It is transerrable to someone else. Assignors are the party who assigned the contract. They are not relieved of the obligation unless the opposing party agrees to such a release.

Question 28

What is the document used to release a party to a contract and substitute another called?

Answer 28

A novation