National Contracts Flashcards
The sales contract says the buyer will purchase the property only if an attorney approves the sale by the following Saturday. The attorney’s approval is
A)
a warranty.
B)
a consideration.
C)
a lis pendens.
D)
a contingency.
The sales contract says the buyer will purchase the property only if an attorney approves the sale by the following Saturday. The attorney’s approval is
A)
a warranty.
Incorrect Answer
B)
a consideration.
Incorrect Answer
C)
a lis pendens.
Incorrect Answer
D)
a contingency.
Correct Answer
Explanation
A contingency requires something to happen or the contract can be terminated and the earnest money returned. A lis pendens is notice of a pending lawsuit. A warranty promises that certain stated facts are true. Consideration is one of the essential elements of the contract to make it valid and is something of value offered in exchange for something from another.
Reference: Contracts > Contract Clauses, Including Amendments and Addenda
Which of these is NOT required to create a valid sales contract?
A)
Signatures
B)
Consideration
C)
Offer and acceptance
D)
Earnest money
Which of these is NOT required to create a valid sales contract?
A)
Signatures
Incorrect Answer
B)
Consideration
Incorrect Answer
C)
Offer and acceptance
Incorrect Answer
D)
Earnest money
Correct Answer
Explanation
Earnest money is not consideration and is not necessary to create a binding contract.
Reference: Contracts > General Concepts
A seller sold a residential dwelling to a buyer for $1,000,000. The buyer obtained financing from a major institutional lender for $800,000 and had sufficient assets to put $100,000 towards a down payment. To assist the buyer, the seller extended $100,000 in credit towards the purchase price. Title transferred immediately to the buyer at the close of escrow. All of the following terms describe this scenario EXCEPT
A)
land contract.
B)
seller carry-back.
C)
seller financing.
D)
purchase money mortgage.
A seller sold a residential dwelling to a buyer for $1,000,000. The buyer obtained financing from a major institutional lender for $800,000 and had sufficient assets to put $100,000 towards a down payment. To assist the buyer, the seller extended $100,000 in credit towards the purchase price. Title transferred immediately to the buyer at the close of escrow. All of the following terms describe this scenario EXCEPT
A)
land contract.
Correct Answer
B)
seller carry-back.
Incorrect Answer
C)
seller financing.
Incorrect Answer
D)
purchase money mortgage.
Incorrect Answer
Explanation
In a land contract (a.k.a. an installment sales contract), title to the property is only conveyed from the seller to the buyer when the land contract is paid in full. Here, title to the property transferred immediately to the buyer at the close of escrow. All of these terms relate to the seller financing described in the test question.
Note: A purchase money mortgage is any loan that is used to purchase a property. In this test question, the $800,000 loan from a major institutional lender and the $100,000 seller carry-back loan would both be considered purchase money mortgages.
Reference: Contracts > Installment Sales Contracts (Equitable Title)
A contract that exchanges a promise for performance is
A)
unilateral.
B)
bilateral.
C)
executory.
D)
implied.
A contract that exchanges a promise for performance is
A)
unilateral.
Correct Answer
B)
bilateral.
Incorrect Answer
C)
executory.
Incorrect Answer
D)
implied.
Incorrect Answer
Explanation
In a unilateral contract, such as an option, the seller promises to sell if the buyer decides to buy (perform). Bilateral contracts have both parties promising to each other. An implied contract is created by actions and an executory contract is yet to be performed.
Reference: Contracts > General Concepts
A real estate contract with a minor is
A)
voidable.
B)
unilateral.
C)
illegal.
D)
void.
A real estate contract with a minor is
A)
voidable.
Correct Answer
B)
unilateral.
Incorrect Answer
C)
illegal.
Incorrect Answer
D)
void.
Incorrect Answer
Explanation
Duress, fraud, misrepresentation, and minors always make contracts voidable. A promise exchanged for performance is a unilateral contract. A void contract lacks an essential element an illegal contract lacks a lawful purpose so is also void.
Reference: Contracts > Types of Contracts
One contract was substituted for another contract, and there was a release of liability from the original contract. The term that defines the release is
A)
assignment.
B)
novation.
C)
exchange.
D)
alienation.
One contract was substituted for another contract, and there was a release of liability from the original contract. The term that defines the release is
A)
assignment.
Incorrect Answer
B)
novation.
Correct Answer
C)
exchange.
Incorrect Answer
D)
alienation.
Incorrect Answer
Explanation
Novation is a new contract replacing the old with the full release of liability. The transfer of rights duties, but not the liabilities, from one person to another person, is an assignment. Alienation is the process of transferring ownership via a deed.
Reference: Contracts > General Concepts
During the period of time after a real estate sales contract is signed, but before title actually passes, the status of the contract is
A)
voidable.
B)
executed.
C)
unilateral.
D)
executory.
During the period of time after a real estate sales contract is signed, but before title actually passes, the status of the contract is
A)
voidable.
Incorrect Answer
B)
executed.
Incorrect Answer
C)
unilateral.
Incorrect Answer
D)
executory.
Correct Answer
Explanation
A contract is in executory status when its terms of agreement have not yet been carried out. When it has been carried out, it is said to be executed. A unilateral contract binds only one party to act. A voidable contract is one that is able to be voided because of duress, fraud, misrepresentation, or because one party to the contract is a minor.
Reference: Contracts > General Concepts
A contract that may be rescinded by one party due to duress, fraud, misrepresentation, or because one party is a minor, is also known as
A)
a voidable contract.
B)
a void contract.
C)
a novation.
D)
valid.
A contract that may be rescinded by one party due to duress, fraud, misrepresentation, or because one party is a minor, is also known as
A)
a voidable contract.
Correct Answer
B)
a void contract.
Incorrect Answer
C)
a novation.
Incorrect Answer
D)
valid.
Incorrect Answer
Explanation
A contract is voidable if only one party may enforce or rescind it against the other party. Valid contracts contain all the essential elements and are binding and enforceable. Void contracts lack an essential element and are not binding. Novation is a new contact replacing an old one.
Reference: Contracts > General Concepts
A listing broker presents an offer to her client, a seller, with a selling price much lower than what the seller is asking for the property. The offer allows the seller 24 hours to accept. The broker recommends that the seller counter the offer and leaves a blank counter with the seller. The seller emails the broker in the morning saying that based on the wishes of her children, who are not on the title, she has accepted the offer. It this case, the offer
A)
gives the buyer possession until closing.
B)
may be a voidable contract due to duress.
C)
is a valid contract, which may be voidable due to fraud.
D)
is void due to undue influence by the children.
A listing broker presents an offer to her client, a seller, with a selling price much lower than what the seller is asking for the property. The offer allows the seller 24 hours to accept. The broker recommends that the seller counter the offer and leaves a blank counter with the seller. The seller emails the broker in the morning saying that based on the wishes of her children, who are not on the title, she has accepted the offer. It this case, the offer
A)
gives the buyer possession until closing.
Incorrect Answer
B)
may be a voidable contract due to duress.
Correct Answer
C)
is a valid contract, which may be voidable due to fraud.
Incorrect Answer
D)
is void due to undue influence by the children.
Incorrect Answer
Explanation
The seller would have to claim her children forced her to accept the buyer’s offer under duress in order to terminate the contract or make it voidable. Void contracts lack one or all of the essential elements of a contract. A contract must be entered into freely and voluntarily by each party, without undue influence. Duress, undue influence, misrepresentation, fraud, or a minor party entering into a contract are all circumstances that may create a contract that is voidable by the injured party.
Reference: Contracts > Types of Contracts
A real estate professional has found a buyer for a seller’s home. The buyer has indicated in writing a willingness to buy the property for $1,000 less than the asking price and has deposited $5,000 in earnest money with the real estate professional. The seller is out of town for the weekend, and the real estate professional has been unable to inform the seller of the signed document. At this point, the buyer has
A)
a voidable contract.
B)
an offer.
C)
an executory contract.
D)
an implied contract.
A real estate professional has found a buyer for a seller’s home. The buyer has indicated in writing a willingness to buy the property for $1,000 less than the asking price and has deposited $5,000 in earnest money with the real estate professional. The seller is out of town for the weekend, and the real estate professional has been unable to inform the seller of the signed document. At this point, the buyer has
A)
a voidable contract.
Incorrect Answer
B)
an offer.
Correct Answer
C)
an executory contract.
Incorrect Answer
D)
an implied contract.
Incorrect Answer
Explanation
Until the seller accepts the offer and the buyer is notified of the acceptance, there is no contract, only an offer.
Reference: Contracts > General Concepts
A seller has received an offer. The seller crossed out a number of items, wrote in the changes the seller wanted, initialed them, and returned the document to the buyer. The original offer the offeror gave the seller is considered
A)
binding only on the original offeror.
B)
a partial termination with conditional acceptance of the offer.
C)
terminated and countered.
D)
a partial acceptance of the original offer.
A seller has received an offer. The seller crossed out a number of items, wrote in the changes the seller wanted, initialed them, and returned the document to the buyer. The original offer the offeror gave the seller is considered
A)
binding only on the original offeror.
Incorrect Answer
B)
a partial termination with conditional acceptance of the offer.
Incorrect Answer
C)
terminated and countered.
Correct Answer
D)
a partial acceptance of the original offer.
Incorrect Answer
Explanation
The counteroffer effectively terminates the original offer and creates a new offer. Therefore, the original offer is not valid, accepted, or binding.
Reference: Contracts > Sales Contract
An optionee has communicated to the optionor that the optionee will purchase the property. This option contract is now exercised and is BEST described as
A)
an executory unilateral purchase contract.
B)
an executed unilateral purchase contract.
C)
an executed bilateral purchase contract.
D)
an executory bilateral purchase contract.
An optionee has communicated to the optionor that the optionee will purchase the property. This option contract is now exercised and is BEST described as
A)
an executory unilateral purchase contract.
Incorrect Answer
B)
an executed unilateral purchase contract.
Incorrect Answer
C)
an executed bilateral purchase contract.
Incorrect Answer
D)
an executory bilateral purchase contract.
Correct Answer
Explanation
When the buyer informs the seller that he is going to purchase the property, the option is exercised, and an executory bilateral purchase contract exists.
Reference: Contracts > Option Contracts
A legally enforceable agreement under which both parties promise to do something for each other is called
A)
an option agreement.
B)
an escrow agreement.
C)
a bilateral contract.
D)
a legal pledge.
A legally enforceable agreement under which both parties promise to do something for each other is called
A)
an option agreement.
Incorrect Answer
B)
an escrow agreement.
Incorrect Answer
C)
a bilateral contract.
Correct Answer
D)
a legal pledge.
Incorrect Answer
Explanation
Bilateral contracts are created by the parties both making promises. Escrow agreements set the terms for closing. An option is a unilateral contract.
Reference: Contracts > Types of Contracts
A buyer signed a purchase agreement, but then the seller decided not to sell. The buyer sued the seller successfully and was able to purchase the house. What was the contract remedy if the seller was in default?
A)
Unilateral rescission
B)
Mutual agreement
C)
Specific performance
D)
Liquidated damages
A buyer signed a purchase agreement, but then the seller decided not to sell. The buyer sued the seller successfully and was able to purchase the house. What was the contract remedy if the seller was in default?
A)
Unilateral rescission
Incorrect Answer
B)
Mutual agreement
Incorrect Answer
C)
Specific performance
Correct Answer
D)
Liquidated damages
Incorrect Answer
Explanation
The buyer does not have the option of liquidated damages because the seller has not brought any earnest money to the contract. Mutual agreement is when the parties terminate and return all items of value to each party as if the contract did not exist. Unilateral rescission is one party terminating.
Reference: Contracts > General Concepts
A buyer signs a contract under which he is given the right to purchase a property for $130,000 anytime in the next six months. The buyer pays the current owner $500 at the time that contract is signed. Which of these BEST describes this agreement?
A)
A bilateral executory sales contract
B)
A bilateral contingency contract
C)
An installment land contract binding both parties
D)
A unilateral option contract binding the seller
A buyer signs a contract under which he is given the right to purchase a property for $130,000 anytime in the next six months. The buyer pays the current owner $500 at the time that contract is signed. Which of these BEST describes this agreement?
A)
A bilateral executory sales contract
Incorrect Answer
B)
A bilateral contingency contract
Incorrect Answer
C)
An installment land contract binding both parties
Incorrect Answer
D)
A unilateral option contract binding the seller
Correct Answer
Explanation
The buyer has the right to buy in the future but is not bound to buy, which creates an option contract.
Reference: Contracts > Option Contracts
A buyer makes an offer on a house, and the seller accepts the offer. At this point, the buyer has what type of title to the property?
A)
Equitable
B)
Voidable
C)
Possessionary
D)
Legal
A buyer makes an offer on a house, and the seller accepts the offer. At this point, the buyer has what type of title to the property?
A)
Equitable
Correct Answer
B)
Voidable
Incorrect Answer
C)
Possessionary
Incorrect Answer
D)
Legal
Incorrect Answer
Explanation
On formation of the contract between both parties, the contract is now an executory contract, with the buyer having equitable title. Voidable is a term used to describe a contract that is able to be voided because of duress, fraud, misrepresentation, or because one party to the contract is a minor. In the executory stage, the seller holds legal title and possession until closing, unless a different time of possession is negotiated.
Reference: Contracts > General Concepts
The buyer’s offer stipulates that the closing must take place by April 15 or the contract is null and void. The buyer may refuse to purchase on April 16 if the contract contained
A)
a settlement clause.
B)
a contingency clause.
C)
a time is of the essence clause.
D)
a transfer clause.
The buyer’s offer stipulates that the closing must take place by April 15 or the contract is null and void. The buyer may refuse to purchase on April 16 if the contract contained
A)
a settlement clause.
Incorrect Answer
B)
a contingency clause.
Incorrect Answer
C)
a time is of the essence clause.
Correct Answer
D)
a transfer clause.
Incorrect Answer
Explanation
Time is of the essence means that if the requirement is not met, the contract has been breached.
Reference: Contracts > Contract Clauses, Including Amendments and Addenda
A purchase agreement would likely be voidable under all of these circumstances EXCEPT
A)
the seller signed under duress.
B)
the buyer didn’t read or understand the contract.
C)
the purchaser is a minor.
D)
the seller made a material misrepresentation to the buyer.
A purchase agreement would likely be voidable under all of these circumstances EXCEPT
A)
the seller signed under duress.
Incorrect Answer
B)
the buyer didn’t read or understand the contract.
Correct Answer
C)
the purchaser is a minor.
Incorrect Answer
D)
the seller made a material misrepresentation to the buyer.
Incorrect Answer
Explanation
Part of due diligence on the part of a buyer and a seller is to fully read and understand all legal documents they are signing or consult an attorney or other advisor for help. Duress, fraud, misrepresentation, and minors always make contracts voidable.
Reference: Contracts > Types of Contracts
A broker has found a buyer for a seller’s home. The buyer has indicated in writing a willingness to buy the property by signing a written agreement. The seller is out of town for the weekend, and the broker has been unable to inform the seller of the signed document. At this point, the buyer has signed
A)
a voidable contract.
B)
an implied contract.
C)
an offer.
D)
an executory contract.
A broker has found a buyer for a seller’s home. The buyer has indicated in writing a willingness to buy the property by signing a written agreement. The seller is out of town for the weekend, and the broker has been unable to inform the seller of the signed document. At this point, the buyer has signed
A)
a voidable contract.
Incorrect Answer
B)
an implied contract.
Incorrect Answer
C)
an offer.
Correct Answer
D)
an executory contract.
Incorrect Answer
Explanation
A form that offers to buy property but has not been seen or acted on by the property owner is simply an offer. Even if the offer had been for full price, no contract or agreement would yet exist, and the offeror (buyer) would have no claim on the offeree (seller).
Reference: Contracts > Types of Contracts
Which of these gives the BEST evidence of the buyer’s intention to carry out the terms of the real estate purchase contract?
A)
The provision that “time is of the essence”
B)
The earnest money deposit
C)
The agreement to seek mortgage financing
D)
The “subject to” clause
Which of these gives the BEST evidence of the buyer’s intention to carry out the terms of the real estate purchase contract?
A)
The provision that “time is of the essence”
Incorrect Answer
B)
The earnest money deposit
Correct Answer
C)
The agreement to seek mortgage financing
Incorrect Answer
D)
The “subject to” clause
Incorrect Answer
Explanation
The earnest money deposit is customary in real estate transactions to provide evidence of a buyer’s intention to carry out the terms of the contract in good faith. It is also the seller’s only remedy in a liquidated damages contract. A buyer may pay cash and not require mortgage financing, so an earnest money deposit is the best evidence of the buyer’s intention to purchase, even though earnest money is not consideration and not required to have a valid sales contract. The “subject to” clause and the “time is of the essence” clause do not relate to the buyer’s intentions but are requirements of the contract.
Reference: Contracts > General Concepts
A contract between two or more parties, each making a promise to perform certain acts, is called
A)
an implied contract.
B)
a voidable contract.
C)
a bilateral contract.
D)
a unilateral contract.
A contract between two or more parties, each making a promise to perform certain acts, is called
A)
an implied contract.
Incorrect Answer
B)
a voidable contract.
Incorrect Answer
C)
a bilateral contract.
Correct Answer
D)
a unilateral contract.
Incorrect Answer
Explanation
Promises exchanged for promises define bilateral contracts. A promise exchanged for performance is a unilateral contract. Implied contracts are created by actions.
Reference: Contracts > Types of Contracts
A person approaches an owner and says, “I’d like to buy your house.” The owner says, “Sure,” and they agree on a price. What kind of contract is this?
A)
Void
B)
Implied
C)
No contract
D)
Unenforceable
A person approaches an owner and says, “I’d like to buy your house.” The owner says, “Sure,” and they agree on a price. What kind of contract is this?
A)
Void
Incorrect Answer
B)
Implied
Incorrect Answer
C)
No contract
Incorrect Answer
D)
Unenforceable
Correct Answer
Explanation
Until the parties put the agreement into writing, it is unenforceable, because under the statute of frauds, all transfers of real estate must be in writing.
Reference: Contracts > Types of Contracts
All of these are essential elements of a contract EXCEPT
A)
words of conveyance.
B)
lawful objective.
C)
mutual agreement.
D)
consideration.
All of these are essential elements of a contract EXCEPT
A)
words of conveyance.
Correct Answer
B)
lawful objective.
Incorrect Answer
C)
mutual agreement.
Incorrect Answer
D)
consideration.
Incorrect Answer
Explanation
The essential elements of a valid contract are the following: competent parties, mutual agreement, lawful objective, consideration, and in writing. Words of conveyance are required in deeds.
Reference: Contracts > General Concepts
Under the statute of frauds, all contracts for the sale of real estate must be
A)
accompanied by earnest money deposits.
B)
on preprinted forms.
C)
in writing to be enforceable.
D)
originated by a real estate professional.
Under the statute of frauds, all contracts for the sale of real estate must be
A)
accompanied by earnest money deposits.
Incorrect Answer
B)
on preprinted forms.
Incorrect Answer
C)
in writing to be enforceable.
Correct Answer
D)
originated by a real estate professional.
Incorrect Answer
Explanation
The statue of frauds requires all documents for the transfer of real estate be in writing; the exception is leases of 12 months or less.
Reference: Contracts > General Concepts
The buyer and the seller have entered into a binding contract for sale. However, before closing, the law changes and the buyer’s intended use of the property becomes illegal. Which is TRUE?
A)
The contract is void due to impossibility of performance.
B)
The contract is valid and enforceable under the rules of risk.
C)
The contract is valid, but the price must be renegotiated.
D)
The contract is terminated due to fraud by the seller.
The buyer and the seller have entered into a binding contract for sale. However, before closing, the law changes and the buyer’s intended use of the property becomes illegal. Which is TRUE?
A)
The contract is void due to impossibility of performance.
Correct Answer
B)
The contract is valid and enforceable under the rules of risk.
Incorrect Answer
C)
The contract is valid, but the price must be renegotiated.
Incorrect Answer
D)
The contract is terminated due to fraud by the seller.
Incorrect Answer
Explanation
An essential element of a contract is the lawful objective or purpose; if this is no longer part of the contract, then the contract is void. In this case, the seller did not commit fraud, and no contract requires the price to be renegotiated if it becomes void.
Reference: Contracts > Types of Contracts
The seller has accepted monetary consideration and has agreed to sell his property for an agreed-upon amount within a specified time frame, if the buyer then chooses to purchase. This contract is called
A)
an option contract.
B)
a sales contract.
C)
a land contract.
D)
listing contract.
The seller has accepted monetary consideration and has agreed to sell his property for an agreed-upon amount within a specified time frame, if the buyer then chooses to purchase. This contract is called
A)
an option contract.
Correct Answer
B)
a sales contract.
Incorrect Answer
C)
a land contract.
Incorrect Answer
D)
listing contract.
Incorrect Answer
Explanation
In an option contract, the seller accepts option money and agrees to sell his property for a specified amount within a specified time frame, if the buyer chooses to purchase in the future.
Reference: Contracts > Option Contracts
In the purchase agreement, the buyer and the seller agreed to liquidated damages as a remedy for default. If the buyer defaults, this means that the seller
A)
keeps only the buyer’s earnest money.
B)
sues the buyer and keeps the earnest money.
C)
sues the buyer to buy the property.
D)
needs to notify the buyer of the intent to sue for liquidated damages.
In the purchase agreement, the buyer and the seller agreed to liquidated damages as a remedy for default. If the buyer defaults, this means that the seller
A)
keeps only the buyer’s earnest money.
Correct Answer
B)
sues the buyer and keeps the earnest money.
Incorrect Answer
C)
sues the buyer to buy the property.
Incorrect Answer
D)
needs to notify the buyer of the intent to sue for liquidated damages.
Incorrect Answer
Explanation
Liquidated damages as a remedy allows the seller to keep the earnest money and nothing more. Specific performance is a lawsuit to have the buyer perform the terms of the contract.
Reference: Contracts > General Concepts
In the event of a default, which of the following security instruments may result in a substantially longer foreclosure?
A)
A land contract
B)
A mortgage
C)
A trust deed
D)
A contract for deed
In the event of a default, which of the following security instruments may result in a substantially longer foreclosure?
A)
A land contract
Incorrect Answer
B)
A mortgage
Correct Answer
C)
A trust deed
Incorrect Answer
D)
A contract for deed
Incorrect Answer
Explanation
A mortgage (especially one that does not include a power of sale clause) may result in a substantially longer foreclosure. The traditional foreclosure—when a mortgage was used as a security instrument—was processed through the courts as a lawsuit, and that might not be resolved for a year or even longer. A land contract (a.k.a. a contract for deed) does not have the traditional historical protections for a borrower in default under a mortgage. This is particularly true because the seller still has legal title to the property. A trust deed (a.k.a. a deed of trust) is used in some states as a security instrument for a loan. The reason for the popularity of this type of financing instrument is that foreclosures typically occur outside of court, making them faster and cheaper.
Reference: Contracts > Installment Sales Contracts (Equitable Title)
If an owner takes his property off the market for a definite period of time in exchange for some consideration, but he grants an individual the right to purchase the property within that period for a stated price, the contract is called
A)
a contract of sale.
B)
an installment agreement.
C)
an option.
D)
a right of first refusal.
If an owner takes his property off the market for a definite period of time in exchange for some consideration, but he grants an individual the right to purchase the property within that period for a stated price, the contract is called
A)
a contract of sale.
Incorrect Answer
B)
an installment agreement.
Incorrect Answer
C)
an option.
Correct Answer
D)
a right of first refusal.
Incorrect Answer
Explanation
An option is granted when an owner (optionor) gives the potential purchaser (optionee) the right to purchase the property at a fixed price within a certain period. A contract of sale occurs when a seller and a buyer come to an agreement on the sale of a property. A right of first refusal is an agreement in which the holder of the right has the first opportunity to either purchase or lease real property once the owner offers the property for sale or lease. An installment agreement, also known as a contract for deed, is an agreement in which the seller becomes the lender and the buyer takes possession of the property, retaining equitable title to the property until the final payment to the seller is made.
Reference: Contracts > Option Contracts
What action returns a contract’s parties to their positions before the contract, including return of any deposit?
A)
Cancellation
B)
Substitution
C)
Subordination
D)
Rescission
What action returns a contract’s parties to their positions before the contract, including return of any deposit?
A)
Cancellation
Incorrect Answer
B)
Substitution
Incorrect Answer
C)
Subordination
Incorrect Answer
D)
Rescission
Correct Answer
Explanation
A rescission occurs when one party cancels or terminates the contract as if it had never been made. Cancellation terminates the contract without a return to the original position. Substitution is an appraisal principle of value. Subordination is used as a place holder and indicates a mortgage or other interest will not move in front of a newer recording.
Reference: Contracts > General Concepts
A person approaches an owner and says, “I’d like to buy your house.” The owner says, “Sure,” and they agree on a price and write it down on a piece of note paper and sign it. What kind of contract is this?
A)
Valid
B)
Unenforceable
C)
Voidable
D)
Void
A person approaches an owner and says, “I’d like to buy your house.” The owner says, “Sure,” and they agree on a price and write it down on a piece of note paper and sign it. What kind of contract is this?
A)
Valid
Correct Answer
B)
Unenforceable
Incorrect Answer
C)
Voidable
Incorrect Answer
D)
Void
Incorrect Answer
Explanation
Anytime a buyer and a seller agree in writing with notice and acceptance, a valid contract is formed. If the offer is missing an essential element, it is void and unenforceable. Duress, fraud, misrepresentation, and minors always make contracts voidable.
Reference: Contracts > Types of Contracts
All of these are examples of due diligence in a purchase contract EXCEPT
A)
the seller orders title work and agrees to pay for the owner’s policy at closing.
B)
the buyer has an attorney review the title commitment.
C)
the broker who completes a comparative market analysis (CMA) for a listing appointment.
D)
the buyer has a property inspection and calls zoning to verify the property zoning will meet her needs.
All of these are examples of due diligence in a purchase contract EXCEPT
A)
the seller orders title work and agrees to pay for the owner’s policy at closing.
Incorrect Answer
B)
the buyer has an attorney review the title commitment.
Incorrect Answer
C)
the broker who completes a comparative market analysis (CMA) for a listing appointment.
Correct Answer
D)
the buyer has a property inspection and calls zoning to verify the property zoning will meet her needs.
Incorrect Answer
Explanation
The broker is using due diligence, but it is for a listing and not the purchase contract. Due diligence is all parties to the transaction working in good faith to close.
Reference: Contracts > General Concepts
Consideration could be all of these EXCEPT
A)
something of value.
B)
earnest money.
C)
a promise.
D)
money.
Consideration could be all of these EXCEPT
A)
something of value.
Incorrect Answer
B)
earnest money.
Correct Answer
C)
a promise.
Incorrect Answer
D)
money.
Incorrect Answer
Explanation
Consideration is defined as a promise, money, or something of value. Earnest money is not consideration; it is the seller’s remedy in a liquated damages contract.
Reference: Contracts > General Concepts
In regard to an offer and acceptance, all the following are true EXCEPT
A)
an offer can be revoked at any time before acceptance.
B)
in real estate, an oral acceptance creates a binding contract.
C)
to offer means to put forward for acceptance or rejection.
D)
a counteroffer reverses the legal positions of the offeror and offeree.
In regard to an offer and acceptance, all the following are true EXCEPT
A)
an offer can be revoked at any time before acceptance.
Incorrect Answer
B)
in real estate, an oral acceptance creates a binding contract.
Correct Answer
C)
to offer means to put forward for acceptance or rejection.
Incorrect Answer
D)
a counteroffer reverses the legal positions of the offeror and offeree.
Incorrect Answer
Explanation
The oral acceptance of an offer does not create a binding contract. The offer must be signed and followed with a communication of acceptance to become a binding contract.
Reference: Contracts > General Concepts
A minor entered into a contract to sell the house she had inherited to a buyer. This contract is MOST likely
A)
valid.
B)
voidable by the buyer.
C)
voidable by the minor.
D)
void.
A minor entered into a contract to sell the house she had inherited to a buyer. This contract is MOST likely
A)
valid.
Incorrect Answer
B)
voidable by the buyer.
Incorrect Answer
C)
voidable by the minor.
Correct Answer
D)
void.
Incorrect Answer
Explanation
Contracts with minors are always voidable. In this case, the contract is not voidable by the buyer because the buyer is the adult.
Reference: Contracts > Types of Contracts
Which statement BEST identifies the meaning of the term novation?
A)
A recorded notice of lis pendens
B)
A return of all parties to their condition before the contract was executed
C)
Substitution of a new contract for an existing one
D)
A rejection of a contract by all parties
Which statement BEST identifies the meaning of the term novation?
A)
A recorded notice of lis pendens
Incorrect Answer
B)
A return of all parties to their condition before the contract was executed
Incorrect Answer
C)
Substitution of a new contract for an existing one
Correct Answer
D)
A rejection of a contract by all parties
Incorrect Answer
Explanation
Novation is a new contract that replaces the original. Rescission is the return of all parties to their condition before the contract, and lis pendens is a notice of a pending lawsuit.
Reference: Contracts > General Concepts
After a long period of negotiation, the seller and the buyer are under contract. The buyer’s lender has some issues with getting the final numbers, so the buyer asks to postpone the closing by three days. The seller agrees to the change. To make the change binding and enforceable, the seller and the buyer should sign
A)
an addendum.
B)
an attachment.
C)
an ad valorem.
D)
an amendment.
After a long period of negotiation, the seller and the buyer are under contract. The buyer’s lender has some issues with getting the final numbers, so the buyer asks to postpone the closing by three days. The seller agrees to the change. To make the change binding and enforceable, the seller and the buyer should sign
A)
an addendum.
Incorrect Answer
B)
an attachment.
Incorrect Answer
C)
an ad valorem.
Incorrect Answer
D)
an amendment.
Correct Answer
Explanation
The document that modifies a contract is an amendment. Attachments are items that explain and are added to offers, such as an addendum for a long legal description. Ad valorem is used in property taxes.
Reference: Contracts > Contract Clauses, Including Amendments and Addenda
Which of the following is NOT a synonym for an installment sales contract?
A)
Contract for deed
B)
Land contract
C)
Deed in lieu
D)
Agreement for deed
Which of the following is NOT a synonym for an installment sales contract?
A)
Contract for deed
Incorrect Answer
B)
Land contract
Incorrect Answer
C)
Deed in lieu
Correct Answer
D)
Agreement for deed
Incorrect Answer
Explanation
In lieu means instead of. The deed in lieu (a.k.a. a deed in lieu of foreclosure) is a deed given to a lender by a borrower who is in default on a loan. This deed conveys the property securing the loan to the lender and is an alternative to foreclosure. Lenders are not required to accept a deed from a borrower in default. These other terms are synonyms for an installment sales contract.
Reference: Contracts > Installment Sales Contracts (Equitable Title)
The remedy for parties in default that is available to both the buyer and the seller in a purchase contract is
A)
actual damages.
B)
lis pendens.
C)
specific performance.
D)
liquidated damages.
The remedy for parties in default that is available to both the buyer and the seller in a purchase contract is
A)
actual damages.
Incorrect Answer
B)
lis pendens.
Incorrect Answer
C)
specific performance.
Correct Answer
D)
liquidated damages.
Incorrect Answer
Explanation
If the purchase contract gives both parties the remedy of suing if the other party defaults, the contract is specific performance. A liquidated damages contract allows the seller to keep the earnest money if the buyer defaults and gives the buyer specific performance remedies if the seller defaults.
Reference: Contracts > General Concepts
Which of the following pairs of terms is MOST frequently used to describe the parties to a land contract?
A)
Vendor/vendee
B)
Mortgagor/mortgagee
C)
Lessor/lessee
D)
Optionor/optionee
Which of the following pairs of terms is MOST frequently used to describe the parties to a land contract?
A)
Vendor/vendee
Correct Answer
B)
Mortgagor/mortgagee
Incorrect Answer
C)
Lessor/lessee
Incorrect Answer
D)
Optionor/optionee
Incorrect Answer
Explanation
The terms vendor (seller) and vendee (buyer) are most frequently used to describe the parties to a land contract. The word vend means to sell, and a memory aid for this word is a vending machine. The terms mortgagor (borrower) and mortgagee (lender) are used for loans secured by real estate. The terms optionor (property owner) and optionee (prospective buyer or tenant) refer to an option contract. The optionor promises to sell or rent a property to the optionee for an agreed upon price, in exchange for an option fee. If the optionee decides against renting or buying the property, the optionor keeps the option fee. Finally, a lessor is a landlord, and a lessee is a tenant.
Reference: Contracts > Installment Sales Contracts (Equitable Title)
Mutual rescission is BEST defined as
A)
the agreement that the party in default will make payment to the nondefaulting party.
B)
the agreement of both sides to allow one party to prevail and keep any funds.
C)
the ability of one party to sue a defaulting party.
D)
the dissolution of a contract with the return of all funds or things of value to both sides.
Mutual rescission is BEST defined as
A)
the agreement that the party in default will make payment to the nondefaulting party.
Incorrect Answer
B)
the agreement of both sides to allow one party to prevail and keep any funds.
Incorrect Answer
C)
the ability of one party to sue a defaulting party.
Incorrect Answer
D)
the dissolution of a contract with the return of all funds or things of value to both sides.
Correct Answer
Explanation
Mutual rescission is when both parties agree to terminate any agreement and return all funds, property, or things of value to the respective parties.
Reference: Contracts > General Concepts
All of these are true about contingencies EXCEPT
A)
they must identify who will pay for any costs involved.
B)
common contingencies include finance and inspection contingencies.
C)
they must be met within the time given in the contract.
D)
they must be worded loosely to allow reasonable satisfaction.
All of these are true about contingencies EXCEPT
A)
they must identify who will pay for any costs involved.
Incorrect Answer
B)
common contingencies include finance and inspection contingencies.
Incorrect Answer
C)
they must be met within the time given in the contract.
Incorrect Answer
D)
they must be worded loosely to allow reasonable satisfaction.
Correct Answer
Explanation
Contingencies create a voidable contract; if the contingencies are rejected or not satisfied, the contract is void. A loosely worded contingency that is not specific and detailed may create an unenforceable contract.
Reference: Contracts > Contract Clauses, Including Amendments and Addenda
A contract between two parties that legally binds one party to perform but allows the other party to disaffirm it is
A)
void.
B)
executed.
C)
voidable.
D)
bilateral.
A contract between two parties that legally binds one party to perform but allows the other party to disaffirm it is
A)
void.
Incorrect Answer
B)
executed.
Incorrect Answer
C)
voidable.
Correct Answer
D)
bilateral.
Incorrect Answer
Explanation
Voidable contracts have one side obligated, but the other party is able to rescind the contract if they wish. A contract with a minor is always voidable—for example, if an adult agrees to buy a property owned by a minor, the contract is voidable by the minor. Executed contracts are closed and completed. Void contracts lack an essential element, and bilateral contracts exchange promises.
Reference: Contracts > General Concepts
In order for contracts transferring real property to be valid, they must include all of these EXCEPT
A)
all parties must meet the legal definition of competency.
B)
the parties must come to a mutual agreement as to all terms and conditions.
C)
the objective of the offer/contract must have legal purpose with the ability to transfer title.
D)
earnest money must be given from the buyer to the seller as consideration for selling.
In order for contracts transferring real property to be valid, they must include all of these EXCEPT
A)
all parties must meet the legal definition of competency.
Incorrect Answer
B)
the parties must come to a mutual agreement as to all terms and conditions.
Incorrect Answer
C)
the objective of the offer/contract must have legal purpose with the ability to transfer title.
Incorrect Answer
D)
earnest money must be given from the buyer to the seller as consideration for selling.
Correct Answer
Explanation
Consideration is a required element of a valid contract, but earnest money is not. The parties must be competent; they must come to a meeting of the minds; the contract must have a lawful objective or purpose; and if for the transfer of real estate (except for certain leases), it must be in writing and signed.
Reference: Contracts > General Concepts
A common feature and coverage of MOST home warranty programs is that
A)
preexisting conditions are not covered.
B)
preexisting conditions are always covered.
C)
flood insurance is included.
D)
pools are covered.
A common feature and coverage of MOST home warranty programs is that
A)
preexisting conditions are not covered.
Correct Answer
B)
preexisting conditions are always covered.
Incorrect Answer
C)
flood insurance is included.
Incorrect Answer
D)
pools are covered.
Incorrect Answer
Explanation
Most home warranty programs cover such things as plumbing, electrical, heating, water systems, duct work, and major appliances. It does not cover preexisting conditions, flood damage, or pools.
Reference: Contracts > Sales Contract
The buyer’s due diligence period is used to
A)
finalize and remove all contingencies.
B)
verify the property will meet the buyer’s needs.
C)
determine if the zoning is correct.
D)
give the seller time to complete a property disclosure.
The buyer’s due diligence period is used to
A)
finalize and remove all contingencies.
Incorrect Answer
B)
verify the property will meet the buyer’s needs.
Correct Answer
C)
determine if the zoning is correct.
Incorrect Answer
D)
give the seller time to complete a property disclosure.
Incorrect Answer
Explanation
Depending on the contract terms, the buyer may be using the due diligence period to remove contingencies and determine if the zoning is correct; all of which are incorporated in verifying the property meets the buyer’s needs. The seller’s property disclosure should be given to the buyer at time of acceptance of the offer.
Reference: Contracts > General Concepts
An investor does not want to be obligated to purchase a property but would like to have the right to purchase a property within 60 days for $300,000. The investor should try to negotiate
A)
a purchase agreement.
B)
a purchase money mortgage.
C)
an option.
D)
a contract for deed.
An investor does not want to be obligated to purchase a property but would like to have the right to purchase a property within 60 days for $300,000. The investor should try to negotiate
A)
a purchase agreement.
Incorrect Answer
B)
a purchase money mortgage.
Incorrect Answer
C)
an option.
Correct Answer
D)
a contract for deed.
Incorrect Answer
Explanation
An option contract would allow the investor the time to determine if she wants to buy and has the advantage of locking the seller into selling at a price agreed to at the beginning of the process. Contract for deed and purchase money mortgages are forms of seller financing and would not give this type of flexibility. Both require a purchase agreement to create the terms of the financing.
Reference: Contracts > Option Contracts
The purpose of the Uniform Electronic Transactions Act (UETA) is to
A)
harmonize state laws concerning retention of paper records and the validity of electronic signatures.
B)
prosecute real estate licensees and sellers who utilize electronic signatures in their real estate transactions.
C)
prevent the practice of obtaining electronic signatures and paperless transactions.
D)
penalize the use of electronic signatures and enforce the sole use of paper records with signatures
The purpose of the Uniform Electronic Transactions Act (UETA) is to
A)
harmonize state laws concerning retention of paper records and the validity of electronic signatures.
Correct Answer
B)
prosecute real estate licensees and sellers who utilize electronic signatures in their real estate transactions.
Incorrect Answer
C)
prevent the practice of obtaining electronic signatures and paperless transactions.
Incorrect Answer
D)
penalize the use of electronic signatures and enforce the sole use of paper records with signatures.
Incorrect Answer
Explanation
The UETA’s purpose is to give electronic signatures the validity of paper-based signatures.
Reference: Contracts > General Concepts
The remedy available only to the seller as compensation if a buyer is in default is known as
A)
liquidated damages.
B)
consideration.
C)
actual damages.
D)
rescission.
The remedy available only to the seller as compensation if a buyer is in default is known as
A)
liquidated damages.
Correct Answer
B)
consideration.
Incorrect Answer
C)
actual damages.
Incorrect Answer
D)
rescission.
Incorrect Answer
Explanation
When parties agree that a certain amount of money will compensate the nonbreaching party in the event one party defaults on a contract, that money is called liquidated damages. Earnest money typically serves as liquidated damages in a purchase contract in case the buyer defaults. Actual damages refer to monies awarded by a court to a plaintiff for a wrong committed against the plaintiff. Rescission is the mutual agreement of the parties to return to their original state. Consideration is an essential element of a contract, something of value offered by one party and accepted by the other.
Reference: Contracts > General Concepts
To assign a contract for the sale of real estate means to
A)
record the contract with the county recorder’s office.
B)
transfer one’s rights under the contract.
C)
permit another broker to act as agent for the principal.
D)
allow the seller and the buyer to exchange positions.
To assign a contract for the sale of real estate means to
A)
record the contract with the county recorder’s office.
Incorrect Answer
B)
transfer one’s rights under the contract.
Correct Answer
C)
permit another broker to act as agent for the principal.
Incorrect Answer
D)
allow the seller and the buyer to exchange positions.
Incorrect Answer
Explanation
An assignment is a transfer of the interest of one person to another. In an assignment, rights are assigned to a third party, but the original party remains primarily liable unless specifically released. Assignment of a contract does not change the broker/agent relationship.
Reference: Contracts > General Concepts
The seller told the buyer that the property had no roof leaks. But when the buyer had the property inspected, a roofing contractor found leaks and said they had been leaking for months. The contract between the seller and the buyer is probably
A)
implied.
B)
voidable.
C)
valid.
D)
void.
The seller told the buyer that the property had no roof leaks. But when the buyer had the property inspected, a roofing contractor found leaks and said they had been leaking for months. The contract between the seller and the buyer is probably
A)
implied.
Incorrect Answer
B)
voidable.
Correct Answer
C)
valid.
Incorrect Answer
D)
void.
Incorrect Answer
Explanation
Duress, fraud, misrepresentation, and minors always make contracts voidable. The seller either misrepresented the property or committed fraud, which means the contract is voidable by the buyer. The buyer may choose to move forward and continue the sale or terminate the contact. If the buyer terminates, the seller must return the earnest money.
Reference: Contracts > Types of Contracts
A buyer and a seller sign a contract to purchase. The seller backs out, and the buyer sues for specific performance. What is the buyer seeking in this lawsuit?
A)
Transfer of the property
B)
Money damages
C)
Deficiency judgment
D)
New contract
A buyer and a seller sign a contract to purchase. The seller backs out, and the buyer sues for specific performance. What is the buyer seeking in this lawsuit?
A)
Transfer of the property
Correct Answer
B)
Money damages
Incorrect Answer
C)
Deficiency judgment
Incorrect Answer
D)
New contract
Incorrect Answer
Explanation
Specific performance means sue to perform. The seller, if suing, would be suing the buyer to buy the property. The buyer is suing the seller to sell the property.
Reference: Contracts > General Concepts
Under the statute of frauds, all contracts for the sale of real estate must be
A)
accompanied by earnest money deposits.
B)
originated by a real estate broker.
C)
on preprinted forms.
D)
in writing to be enforceable.
Under the statute of frauds, all contracts for the sale of real estate must be
A)
accompanied by earnest money deposits.
Incorrect Answer
B)
originated by a real estate broker.
Incorrect Answer
C)
on preprinted forms.
Incorrect Answer
D)
in writing to be enforceable.
Correct Answer
Explanation
A statute of frauds calls for real estate sales contracts to be in writing. The law does not address who writes the agreements or on what forms they are written. Earnest money is not consideration and is not an essential element of a contract of sale, although it is often mistakenly said to be.
Reference: Contracts > General Concepts
A buyer who owns the property in equity has
A)
an option contract.
B)
a liquidated damages contract.
C)
a lease.
D)
an executory contract.
A buyer who owns the property in equity has
A)
an option contract.
Incorrect Answer
B)
a liquidated damages contract.
Incorrect Answer
C)
a lease.
Incorrect Answer
D)
an executory contract.
Correct Answer
Explanation
During any point in the executory contract (time period between signed offer to title transfer), the buyer has equitable title (also called the owner in equity). An executory purchase contract can be liquidated damages or specific performance. In an option contract, only one party is bound and there is no equity of title.
Reference: Contracts > General Concepts
An option
A)
requires the optionee to complete the purchase.
B)
makes the seller liable for a commission.
C)
binds the optionor for a specified time.
D)
gives the optionee an easement on the property.
An option
A)
requires the optionee to complete the purchase.
Incorrect Answer
B)
makes the seller liable for a commission.
Incorrect Answer
C)
binds the optionor for a specified time.
Correct Answer
D)
gives the optionee an easement on the property.
Incorrect Answer
Explanation
An option obligates an owner (the optionor) to sell at a fixed price within a certain period of time but does not obligate the optionee (the proposed buyer) to exercise the option. The option gives the optionee no rights to the property and does not require the optionee to complete the purchase. The seller is only liable for a commission to a broker when the option is exercised, that is, when the buyer actually purchases the property from the seller.
Reference: Contracts > Option Contracts
