N. Real Estate Contracts and Agency Flashcards
Nevina may be creating an implied agency agreement if she does which of these?
A. Speaks to a local civic club about the homebuying process
B. Contacts a mortgage broker to find out what first-time homebuyer programs are available
C. Gives her neighbor a tour of another neighborhood home that’s on the market
D. Performs a CMA for an acquaintance and suggests a list price based on other comparable properties in the area
D. Performs a CMA for an acquaintance and suggests a list price based on other comparable properties in the area
Licensees are permitted to provide general information to individuals or groups without the risk of creating an implied agency agreement, so option A is incorrect. Option B is also incorrect, because Nevina is simply gathering information for potential clients. As long as Nevina’s tour of a neighborhood property is a tour for curiosity’s sake and an isolated occurrence, Nevina is probably not forming an implied agreement, so we can eliminate option C. The key to option D being the correct answer is that Nevina not only performed the CMA but provided advice on setting a list price. Once Nevina performs tasks that require her to make a judgment call, she’s crossing the line into tasks that imply an agency relationship.
Desmond has a signed listing agreement with his clients, the Harpers. In exchange for helping the Harpers list, market, and sell their home, the Harpers have agreed to pay Desmond a commission. What type of contract do Desmond and the Harpers have?
A. Executed
B. Mutual
C. Bilateral
D. Unilateral
C. Bilateral
an exchange of promises or other consideration between two parties is a bilateral contract.
Sondra thinks the new business contract she’s signed with her business partner is valid. Both parties are legally competent, the purpose is a business transaction so it’s a legal purpose, an offer was made and accepted, and a fee has been negotiated and documented. Which essential element of a valid contract has Sondra not yet considered?
A. Whether the contract is in writing
B. Whether the parties are over 21
C. Whether consent was voluntary
D. Whether the contract is translatable into all possible languages
C. Whether consent was voluntary
This question requires you to think about the essential elements of a valid contract and then determine whether Sondra has considered all of them. Option A is not correct because the statute of frauds says only that real estate contracts must be in writing—not business contracts. The first essential element of all contracts is whether the parties are legally competent. This means that the parties are of legal age and of the intellectual capacity to sign a contract. The question stem says that Sondra did consider this, so answer option B is not correct. Sondra also considered offer and acceptance (a second essential element), that consideration is being given (the fee, and a third essential element), and that it has a legal purpose (a fourth essential element). The only remaining essential element is whether the contract was entered into voluntarily.
Breanna signs a contract offering to purchase Kathy’s home for $150,000. Kathy replies, “No way,” but offers to sell it to her for $200,000. Breanna agrees to these terms and they add their signatures. Which of the following statements is correct?
A. The contract is valid but unenforceable.
B. The contract is invalid.
C. Kathy made an offer and Breanna accepted it.
D. Breanna made an offer and Kathy accepted it.
C. Kathy made an offer and Breanna accepted it.
Kathy’s counter-offer is an offer, and Breanna’s acceptance of the counter-offer occurs when she signs it.
Mary has a contract to buy her mother’s house when her mother is finally ready to move to a senior living community. This way the house stays in the family. After her mother finds a suitable senior apartment and moves, Mary writes a check for the agreed-upon amount and her mother transfers the deed to Mary. What is happening in this scenario?
A. Assignment
B. Breach
C. Novation
D. Performance
D. Performance
Assignment occurs when one party assigns their interest in a contract to another party, so option A isn’t correct. A breach of contract is when one party to a contract fails to meet the agreed-upon contract obligations. There’s no breach of contract in this scenario, eliminating option B. Novation is when one contract is substituted for another. It’s similar to assignment, but novation releases the original party from all obligations under the contract. This makes option C incorrect, as no contract substitution took place. Mary contracted with her mother to purchase her mother’s house; both Mary and her mother fulfill the contract terms, so performance is complete (the contract has been executed).
Starla, 35, and Gwen, 32, are going into business! Gwen is buying a share of Starla’s franchise. Their attorneys drew up a contract that had Gwen providing $45,000 to Starla in return for 50% ownership. Gwen and Starla happily signed the contract, Gwen paid Starla the $45,000, and Starla presented Gwen with a notarized certificate showing Gwen’s 50% ownership in the company. What type of contract is this?
A. Executory
B. Valid
C. Void
D. Voidable
B. Valid
An executory contract is one that has contract terms yet to be completed. Gwen and Starla have completed Gwen’s purchase of 50% ownership in Starla’s business, so this contract is executed, not executory, eliminating option A. The contract is for a legal, attainable purpose, so it’s not void. This eliminates option C. It appears from the information we’re given that Starla and Gwen are entering the contract willingly and that both are of age and legally competent, so the contract isn’t voidable. Out with option D, leaving option B as the correct answer. This contract, from the information given, appears to be valid
Ken signed a contract to purchase Debra’s condo. Ken signed the contract two weeks prior to turning 18, which is the age of majority in their state. Debra found out about his age prior to the closing but honored the contract and they closed on the condo a month after Ken’s birthday. What was the status of the contract when Ken and Debra entered into it?
A. Executed
B. Illegal
C. Void
D. Voidable
D. Voidable
Which of these statements best describes a listing that terminates by performance?
A. Greg listed a property that failed to sell during the term of the listing agreement. Aside from that, he performed all the tasks promised to the seller.
B. Marty listed Todd’s condo. With Marty’s efforts they got to closing, only to have the buyer’s financing fall through.
C. Roberto listed a property for Terrence. After two failed offers, the property made it to a successful closing.
D. Evan performed all required fiduciary duties and tasks in listing Von’s house, even though it didn’t sell before the listing expired.
C. Roberto listed a property for Terrence. After two failed offers, the property made it to a successful closing.
While a property going under contract is a major milestone for the buyer, the seller, and the agents involved, the key word here is “performance”: The listing agreement can only end by performance if it ends with a successful closing. Even though the agents may still need to account for various transaction funds, documents, or property, the agreement itself ends with the successful closing. Greg’s property never sold, so performance didn’t occur—so long, option A. Marty’s deal fell through at the last minute so there was no performance—buh-bye, B! The same goes for option D: the sale never closed. This leaves us with option C, in which property ownership does cross the finish line at closing.
Kirby is found to be in breach of contract in the sale of his house to Marta. Kirby’s contract doesn’t limit Marta’s remedies. Which of these remedies is LEAST likely to be awarded by a court?
A. Compensatory damages
B. Actual damages
C. Punitive damages
D. Liquidated damages
C. Punitive damages
Courts rarely award punitive damages in a real estate contract dispute.
Drew and Hank were camping at Hank’s riverfront cabin. Hank told Drew that he so rarely used the cabin that he was thinking of selling it. Drew said that he’d buy it from Hank for $80,000, and Hank agreed that was a fair price. It’s two months later, and Hank is upset that Drew now says he won’t buy it. Why isn’t this contract enforceable?
A. Drew didn’t have the financial resources to make the offer.
B. There was no offer and acceptance.
C. Real estate contracts must be in writing.
D. This wasn’t a legal purpose.
C. Real estate contracts must be in writing.
Unless otherwise stated in the contract, the buyer’s financial inability to purchase a property doesn’t make the contract unenforceable, eliminating option A. Drew made a verbal offer and Hank agreed to it, so option B is incorrect. It’s legal for Hank to sell his property to Drew, which makes option D incorrect. The statute of frauds requires that contracts for the conveyance of real property be in writing, so option C is correct.
Because there were no deadlines specified in the contract, Myron didn’t think there was a problem with his waiting to apply for a loan to help purchase the property. He was therefore a little surprised and not very happy when the seller sued him for breach of contract, stating that the delay was impacting the seller’s ability to purchase a new home. What did Myron fail to do?
A. Perform his contractual obligations within a reasonable time.
B. Notify the seller that he had a loan contingency.
C. Complete his loan application correctly.
D. Talk to the seller about the seller’s contingency to sell his house in order to buy another property.
A. Perform his contractual obligations within a reasonable time.
When you take your licensing exam, you’ll need to carefully read each question and each potential response before making your choice. Carefully evaluate the information you’ve been given and determine what information you need to respond. In this case, you’ll note that the scenario presented doesn’t mention anything about the presence or absence of a loan contingency. It’s information we don’t have and don’t need, and so option B is out. If Myron filled out the loan application incorrectly, it’s likely that the lender would simply have him correct it and move forward, and unlikely that it would be the cause of a breach of contract complaint. This eliminates option C. Most buyers wouldn’t know whether or not the seller had to sell his or her existing property to buy another (though of course, sellers need to know if buyers have to sell an existing property to buy the seller’s property). Out with option D. The gist of this question is the “time is of the essence” requirement. All parties to a contract must perform their tasks either by the dates specified in the contract or, if no specific dates are noted, within what would be considered a reasonable amount of time (which is usually determined by the courts).
Breanna signs a purchase offer stating she’ll buy Kathy’s home for $150,000. Kathy replies, “No way,” but offers to sell it to her for $200,000. Breanna agrees to these terms and they add their signatures. Which of the following statements is correct?
A. The contract is valid but unenforceable.
B. The contract is invalid.
C. An offer made by Kathy was accepted by Breanna.
D. An offer made by Breanna was accepted by Kathy.
C. An offer made by Kathy was accepted by Breanna.
Based on the information we have, there’s no reason to believe that this contract isn’t valid or enforceable, so we can eliminate options A and B. Breanna did make the initial offer, but Kathy rejected that offer and instead provided a counter-offer. Kathy is now the offeror and Breanna is the offeree. Breanna accepted the counter-offer, which constitutes acceptance of Kathy’s offer.
Kenneth enters into a contract to sell his home to Valerie, who puts down a $5,000 earnest money deposit. At the last minute, Valerie backs out of the deal. Kenneth keeps the earnest deposit. This is an example of ______.
A. Accepting liquidated damages
B. Accepting partial performance
C. Suing for damages
D. Suing for specific performance
A. Accepting liquidated damages
When Valerie backed out of the deal, she breached the contract she had with Kenneth. All of the answer options listed are actual remedies to breach of contract, so you just have to determine which one applies in this situation. Options C and D aren’t correct, because no one is filing a lawsuit. Partial performance means part of the contract is executed, but in this case, Valerie isn’t performing any part of the contract. Option B is out. That leaves liquidated damages, which is a specific compensation amount in the event of a breach.
Which of these is the most accurate definition of equitable title as it relates to a real estate purchase contract?
A. An individual with equitable interest in a property has full title to and ownership of the property.
B. Equitable title refers to the ownership interest one joint tenant has in a property.
C. Equitable title is the right to obtain full ownership of a property when a certain condition has been met.
D. The distribution of assets when a partnership is dissolved is called equitable title.
C. Equitable title is the right to obtain full ownership of a property when a certain condition has been met.
Legal title, not equitable title, provides individuals with full ownership of a property, so option A is incorrect. Joint tenancy refers to the ownership interest one joint tenant has in a property, making option B incorrect. The distribution of assets when a partnership is dissolved isn’t a title issue, so option D isn’t a definition of equitable title. The right to obtain either full ownership or an ownership interest when some condition has been met (usually closing on a property or paying of a mortgage loan) is equitable title
Katelyn really wants to include an inspection contingency in her purchase offer. Her agent explains that the inspection contingency will document which of the following?
A. How much money the sellers will spend on fixing inspection issues
B. The name of the inspector Katelyn will use
C. Whether Katelyn will ignore some of the inspection issues
D. The dates by which all inspection issues must be addressed
D. The dates by which all inspection issues must be addressed
An inspection contingency is a way of signaling to the seller that if the inspector finds property condition issues, the buyer may require the sellers to fix those issues or may even terminate the contract. Until an inspection is performed, there is no way of knowing what issues exist and whether those issues will be costly or not. Options A and C aren’t correct. The buyer may use an inspector of choice, but this doesn’t have to be documented or approved by the seller, so option B isn’t the right answer. The one thing that the inspection contingency must do is document the date prior to closing by which all inspection issues must be fixed.
