Real Estate Contracts

Question 1

A ________ is a legally enforceable promise or set of promises between competent parties, upon legal consideration, to do or abstain from doing some legal act, for which, if breached, a remedy is
provided by law.

Answer 1

contract

Question 2

Contracts can be classified in four different ways:

Answer 2

A. Method of Creation
B. Parties Involved
C. By Status
D. By Validity

Question 3

_______ ________: In contracts this one method of creation is formed by the suggestion of the parties’ acts and conduct. The conduct of the parties is a demonstration of their agreement. The terms do not
need to be written or even spoken to be effective and legally binding.
For example, if Mr. Baker eats
breakfast every day at a certain restaurant and every day the waitress routinely brings him toast and coffee, then just by sitting down, he enters into an implied contract with the waitress. That is, if she brings
him the food, he agrees to pay for it.

Answer 3

Implied Contract

Question 4

_______ ________: In this method of creation the terms are communicated in words. The words can be either written or spoken. Each party is clearly aware of exactly what is being
contracted and exactly what is expected at exactly what time. If Mr. Baker had actually told the waitress to bring him toast and coffee, an _______ ________would have been formed. Under the statute of frauds, some types of contract must be in writing to be enforceable.

Answer 4

Express contract

Question 5

____ _________ are valid but unenforceable.

Answer 5

Oral contracts

Question 6

Contracts for the sale of real estate are required to be in writing to be enforceable.

Answer 6

Written Contracts

Question 7

__________ ________: with parties involved, one party makes a promise with the hope that it will motivate another party to do something. The second party is not legally obligated to comply, but if he does, the first party is obligated to keep the promise. This contract must be signed by only one party.

Answer 7

Unilateral contract

Question 8

_________ ________: both parties promise to perform as stated in the contract. An example is a real estate sales contract. The seller promises to sell a parcel of real estate and the buyer
promises to pay a certain sum of money for it. This contract must be signed by both parties to be legally binding.

Answer 8

Bilateral contract

Question 9

__________ ________: By status this contract is one which has not been completed or fulfilled. All of the terms of the contract have yet to be met

Answer 9

Executory contract

Question 10

________ ________: By status this contract is one in which all the parties have met all the terms and conditions of the contract. The contract is completed.

Answer 10

Executed contract

Question 11

_____ ________is one that is binding and enforceable. It contains all the essentials of
a legal contract. Each party may be required to perform, as stated in the contract, by
any of the other parties.

Answer 11

Valid contract

Question 12

____ ________ is actually no contract at all. It has no legal effect and is not binding on
either party. It is often created when the subject of the agreement does not conform with the law. (* Null in Louisiana).

Answer 12

Void contract

Question 13

__________ ________ is a contract that is still binding, but is flawed. These contracts arise from threats or fraud and can be void by the wronged party. If the wronged party chooses not to void the contract, the guilty party remains bound to it. This contract is considered to be valid unless voided by the wronged party within a prescribed period of time.
(* Relatively Null in Louisiana).

Answer 13

Voidable contract

Question 14

____________ ________a contract is whose terms cannot be enforced by the courts. This contract has all of the essential elements of a valid contract, however, for some reason,
neither party can sue the other for specific performance. An example would be an oral contract.

Answer 14

Unenforceable contract

Question 15

A contract may also be classified as legal or illegal. A _____ contract is one that is required or permitted
by law. An _______ contract is one that is in violation of local, state, or federal law.

Answer 15

legal
illegal

Question 16

_____ ___ __________ All parties must enter into a contract with a clear understanding of the
contract’s terms and agreements. There must be a “meeting of the minds”.

Answer 16

Offer and acceptance

Question 17

An offer may be revoked by the offeror at any time prior to acceptance. (*In Louisiana, an offer is irrevocable.) If any change is made by the offeree to the original offer this constitutes a rejection of the
original offer and is known as a ____________.

Answer 17

counteroffer

Question 18

____________ communication
occurs when an offeror specifies the means by which he wants his offer accepted. It is legally binding as soon as the offeree follows the offeror’s directions.

Answer 18

Constructive

Question 19

______ communication is said to occur when the offeror receives written or oral communication
of acceptance, or when there is a meeting of the minds.

Answer 19

Actual

Question 20

_____________: A contract is not valid unless each party has pledged to exchange something of value with the other party. Whatever is exchanged may be tangible or intangible and may include granting the legal right to do something, or making a promise not to do something.

Answer 20

Consideration

Question 21

________ is the first type of consideration that refers to items of material value, such as real property, money, etc.

Answer 21

Valuable

Question 22

____ this second type of consideration refers to things of abstract value such as the promise for love, affection, friendship or loyalty.

Answer 22

Good

Question 23

(* In Louisiana, we must have “_____” for a contract to be considered valid, even if money is involved. Promise is considered to be a sufficient cause.

Answer 23

cause

Question 24

Also, in Louisiana, we have what is called “______ ______ ______”. This means that if a property is sold for less than half of the market value at the time of sale, the seller can sue to rescind the sale for up to one year from the time of the sale.)

Answer 24

lesion beyond moiety

Question 25

_____ ________ All parties to a contract must be legally competent and authorized. Generally, minors
may not enter into a legal agreement without the protection of a legal guardian.

Answer 25

Legal Capacity

Question 26

Intoxication and insanity
are also grounds for _____ __________. If a party to a contract is considered to be incompetent, the contract
may be voidable.

Answer 26

legal incapacity

Question 27

_____ _________: Contracts that are in violation of the law lack legality of purpose and are therefore not valid. Contracts are also invalid if they infringe on the rights of others or are formed with the intent of
harming another person or his property. An illegal contract is unenforceable in court because it is not valid.

Answer 27

Legal Objective

Question 28

__________: For a real estate contract to be valid, an accurate legal description of the subject property must be disclosed. The street address of the property should be mentioned as well.

Answer 28

Disclosure

Question 29

_____ is the deliberate or intentional misrepresentation of pertinent facts which allow one party to gain undue advantage over another party.

Answer 29

Fraud

Question 30

______ fraud is committed when there is intent to deceive, for example, lying or
withholding pertinent information.

Answer 30

Actual

Question 31

____________ fraud is committed with no intent to harm, mislead or misrepresent. Examples would be breach of trust, responsibility, or duty.

Answer 31

Constructive

Question 32

________-__-____: errors regarding the facts of a contract, for example, a
misunderstanding as to the location of a parcel of land being conveyed.

Answer 32

Mistakes-of-fact

Question 33

________-__-___: These occur when a party, in full knowledge of the facts, comes to an
erroneous conclusion as to their legal ramifications.

Answer 33

Mistakes-of-law

Question 34

_____ _________ is the use of one’s power or authority to force another person to enter into an agreement against his will.

Answer 34

Undue influence

Question 35

______ is unlawful influence exerted upon a person to force him to act against his own will.
This includes physical force, property damage and confinement.

Answer 35

Duress

Question 36

______ is the actual threat to commit duress.
Example: Someone threatens to kill you unless you sign a contract to sell your property to him.

Answer 36

Menace

Question 37

A contract is said to be __________ when the
obligation of all parties to perform or not to perform is terminated.

Answer 37

discharged

Question 38

__ ___________: one way a contract can be discharged when all the terms of the contract are satisfactorily carried out.

Answer 38

By performance

Question 39

__ _______ ___________ ____ _______ __________: the contract is discharged when the person to whom acts have not
been done or to whom money has not been paid accepts in writing partial performance of the terms of the contract.

Answer 39

By partial performance with written acceptance

Question 40

___________ ___________: when one party has substantially performed to the terms of the
contract but has not completed every detail exactly as the contract requires. The contract may be discharged or specific adjustments may be made.

Answer 40

Substantial performance

Question 41

_____________ __ ___________: If an act required by a contract is not within legal limitations, the
contract may be discharged.

Answer 41

Impossibility of performance

Question 42

_____: With the exception of listing agreements, most contracts are NOT terminated by the death of either party. The heirs are required to abide by the terms of the contract.

Answer 42

Death

Question 43

______ _________ __ ___ _______ __ ______: when both parties to a contract decide to cancel it.

Answer 43

Mutual agreement of the parties to cancel

Question 44

_________ __ ___: discharge by law of contracts, for example, because of one party being a
minor, or fraud.

Answer 44

Operation of law

Question 45

__ ______ ___ ____________: this type of contract discharge allows one party to the contract to substitute a new contractual
obligation for his original one.

Answer 45

By accord and satisfaction

Question 46

______ is the agreement between contracting parties to substitute the new obligation.

Answer 46

Accord

Question 47

____________ occurs when the new terms have been fulfilled.

Answer 47

Satisfaction

Question 48

__ ________: this contract discharge type allows the substitution of one party to the contract with a new party, or
the replacement of a new obligation for an old one.

Answer 48

By novation

Question 49

__ ___________ __ ________: When the property is destroyed, the contract is considered to be
discharged.

Answer 49

By destruction of property

Question 50

__ __________: Under certain conditions, bankruptcy may cause a contract to be discharged. However, in cases of fraud, bankruptcy will not relieve you of a fraudulent debt.

Answer 50

By bankruptcy

Question 51

__ ________ __ ___________: Failure to perform within the allotted time may cause discharge of a
contract.

Answer 51

By statute of limitations

Question 52

___ __ _____ __ __________________: A contract entered into through fraud or misrepresentation
may provide grounds for the contract’s discharge. The guilty party may also be liable for criminal prosecution.

Answer 52

Due to fraud or misrepresentation

Question 53

______ __ ________: occurs when a party fails to meet contractual
obligations. It may be caused by a party’s failure to perform, his inability to perform or his acting in such a way as to make performance impossible.

Answer 53

Breach of contract

Question 54

If a seller breaches a
real estate contract, the buyer may sue for ________ __________. If the buyer defaults, the seller
can sue for damages or sue for the purchase price. Sue to have sale completed.

Answer 54

specific performance
*Louisiana: A deposit is not required. If no money accompanies the contract it is specific performance.

Question 55

_________: Under certain conditions, one party may cancel or terminate the contract as if it had never been made.

Answer 55

Recission

Question 56

This concept holds
that one may lose his legal rights if he inexcusably fails to exercise them within a reasonable time.

Answer 56

Laches

Question 57

This originated in English Law. It was adopted because of confusion over oral contracts. It holds that real estate contracts must be in writing if they are to be enforceable by the courts. Typically, the following contracts must be in writing:
1. All contracts for sale, purchase or exchange of ownership or interest in real
property.
2. All contracts for the leasing of real estate for a period of time longer than one year.

Answer 57

The Statute of Frauds

Question 58

The Statute of Frauds also specifies that
certain information must be contained in the real estate contracts:
a.
b.
c.
d.

Answer 58

 The date
 A description of the property
 The terms of payment
 The signature of the party incurring the debt of obligation

Question 59

_______ ________: the way in which the sellers of property furnish the real estate brokers and salespeople with their inventory. It is also an employment contract, that is,
employment of the broker by the principal to find a ready, willing and able buyer for his property.

Answer 59

Listing Agreement

Question 60

The listing agreement forms a _______ ______ relationship between the broker and seller in that it authorizes the broker to represent the principal’s property for sale, solicit offers and submit the offers to the principal.

Answer 60

special agency

Question 61

____ _______: The seller retains the right to employ as many brokers as he wants to try to sell his property, but is only obligated to pay a commission to the one who actually finds a ready, willing and able
buyer. If the seller sells his property himself, he is not obligated to pay a commission.

Answer 61

Open listing

Question 62

_________ _____: Only one broker is hired to act as the exclusive agent of the principal. The seller, however, can still sell his property himself and not pay a commission to the broker.

Answer 62

Exclusive agency

Question 63

_________ _____ __ ____: Only one broker is hired as the agent in this type of listing agreement and he is given exclusivity to sell the property. Regardless of who actually sells the property, the seller must pay the broker a commission. This is the most common and popular type of listing agreement for
brokers and sellers alike.

Answer 63

Exclusive right to sell

Question 64

________ _______ ______: means that the broker is a member of a multiple listing service and must share the listing with all other members of MLS.

Answer 64

Multiple listing clause

Question 65

___ _______ ______: This means that the broker may legally accept as his commission all proceeds of the sale in excess of the net price specified by the principal. These listings are illegal in some states.

Answer 65

Net listing clause

Question 66

_____ ________: Two agencies can list the same property for sale and work together to find a
buyer.

Answer 66

Joint listings

Question 67

_____ _______ ____ __ ________: The agent is given an interest in the property being sold.

Answer 67

Agency coupled with an interest

Question 68

_______ ______: seller reserves right to sell to certain parties and not pay a commission to the broker.

Answer 68

Reserve clause

Question 69

__________ __ ______ ______: Exclusive Right to Sell Listing Agreements contain a clause that entitles the real estate broker to a commission after the listing expires or is canceled. This applies only in the event a buyer who was introduced to the property by the listing broker purchases the property after the listing has been withdrawn or expired. The broker, to comply with the terms of the listing agreement
typically needs to send notice with each buyer’s name within a certain number of days to the seller.The clause “protects” the broker from collusion between sellers and buyers.

Answer 69

Protection or safety clause

Question 70

1. The listing agreement must be in writing.
2. There must be a legal description of the property.
3. The listing agreement must have a definite termination date.
4. The lot size.
5. The square footage of all buildings and improvements on the property.
6. The listing agreement must show the broker’s fee.
7. The type of deed that the seller will deliver.
8. All personal property (movables) listed.

Answer 70

Requirements of Listing Agreements

Question 71

1. When the property is sold. Listing terminates at closing.
2. Mutual agreement between the broker and owner.
3. Death of broker or seller.
4. The listed property is destroyed.
5. Bankruptcy of seller.

Answer 71

Ways to terminate a listing

Question 72

A _____ _____ _________ is an agreement between the broker and the buyer. The buyer contracts with a broker to find property for the buyer. In this type of representation, the buyer is the client. The
agreement should describe the type of property that the buyer is looking for and should state how the commission is to be paid.

Answer 72

Buyer Agency Agreement

Question 73

_________ _____ _____ _________: The buyer engages a single licensee to search for a suitable
property, and the licensee is entitled to compensation no matter who finds the property, including the buyer.

Answer 73

Exclusive buyer agency agreement

Question 74

_________-______ _____ ______ _________: The buyer engages the licensee to search for a
suitable property and that licensee is entitled to compensation if anyone other than the buyer finds a
suitable property.

Answer 74

Exclusive-agency buyer agency agreement

Question 75

____ _____ ______ _________: This agreement is nonexclusive and allows the buyer to employ an
unlimited number of brokers. The buyer compensates only the broker who actually locates the property purchased.

Answer 75

Open buyer agency agreement

Question 76

When the commission is shared between the listing broker and
the selling broker, this is known as ______ ___________.

Answer 76

broker cooperation

Question 77

_____ _________ ________ __________: The real estate sales contract is basically an
agreement between a buyer and a seller to convey real estate. It spells out the precise terms of the agreement and specifies the kind of title conveyed, type of deed, liens and encumbrances, manner of
payment, and amount of commission. The sales contract requires at least two parties.

Answer 77

SALES CONTRACTS
(PURCHASE AGREEMENTS)

Question 78

________ ___________ ________: A monetary deposit is required which accompanies the offer to purchase. If either party fails to meet contractual obligations, he has several choices for recourse.

Answer 78

Specific performance contract

Question 79

_______ _____ ________: Earnest money is required along with the offer to purchase. The buyer customarily puts down a cash deposit with his offer to prove his intent to carry out the terms of the contract.

Answer 79

Earnest money contract

Question 80

If the buyer should default, the seller may retain the earnest money deposit as __________ _______. In the case of default by the seller, the buyer must receive his earnest money back plus an equal amount from the seller.

Answer 80

liquidated damages

Question 81

___________ _______: clauses specifying provisions and conditions which must be met before an agreement is binding. If they are not met, the contract will not be valid. An example would be ability to obtain financing.

Answer 81

Contingency Clauses

Question 82

_______ ______: states that the seller has inspected the property for termite damages and has remedied any damage found.

Answer 82

Termite Clause

Question 83

______: Any other added clauses.

Answer 83

Riders

Question 84

__________ ______: insures that the broker will receive a commission if his client buys the house within a
certain time period after the listing agreement has expired.

Answer 84

Protection Clause

Question 85

______ ______: When selling contingent upon buyer selling his house, this clause protects the seller from having to keep his house off the market for an extended period of time.

Answer 85

Escape Clause

Question 86

______ ___________: While verbal negotiations are common, it is important to put all negotiations in
writing as soon as possible.

Answer 86

Verbal Negotiations

Question 87

_____ ____________: Many purchase agreements are negotiated by fax. It is the responsibility of the agent to ensure that faxed copies are legible.

Answer 87

Faxed Negotiations

Question 88

__________ ____________: A contract may not be denied legal effect or enforceability solely because an electronic record was used. Electronic records satisfy the legal requirement for a contract to be in writing. Both parties must agree to the use of electronic signatures.

Answer 88

Electronic Negotiations

Question 89

_______ __________ ____________ ___: UETA was the first attempt at uniformity in the use of technology in business and commerce.

Answer 89

Uniform Electronic Transactions ACT

Question 90

_____ ___: The Electronic Signatures in Global and National Commerce Act, or ESIGN Act, is a federal law enacted in 2000 legalizing the use of electronic signatures and records. While individual
states have laws pertaining to digital or electronic signatures, this law legalized the use of electronic signatures in interstate commerce.

Answer 90

ESIGN Act

Question 91

(*Louisiana adopted UETA with a few modifications. The Louisiana law is known as LUETA.)

Answer 91

LUETA :Louisiana Uniform Electronic Transactions Act

Question 92

The owner gives a prospective buyer the right to buy the property at a certain price for a certain period of time

Answer 92

Option

Question 93

The _____-________ ______ is a variation of the option in which the renter, or lessee, of a piece of property is given the option of purchasing the leased property at a later date. If he buys the property, part of his previous rental payments may be applied to the purchase price, if so agreed.

Answer 93

lease-purchase option

Question 94

___________ ____, ____ ________, or ________ ___ ____: Also called land contract or contract for
deed; a type of owner financing in which the seller retains title until the full sales price is paid.

Answer 94

Installment sale

• In Louisiana, this type of contract is called “Bond for Deed”.

Question 95

Owner financing in which the buyer receives the title at closing.

Answer 95

Purchase Money Mortgage

Question 96

The contract must be performed within the time limit specified.

Answer 96

Time is of the essence

Question 97

The buyer’s interest in the property after the contract to purchase is signed, but before title is actually transferred.

Answer 97

Equitable title

Question 98

A ____ __ ____ is used only if personal property is included in the conveyance of the property.

Answer 98

bill of sale

Question 99

The sale is closed at the ___ __ ____.

Answer 99

Act of Sale

Question 100

If a property is sold for an illegal purpose, that contract is:
a. void b. voidable
c. unenforceable d. valid

Answer 100

a. void

Question 101

An example of a service contract is:
a. purchase agreement
b. option
c. listing agreement
d. executed sales contract

Answer 101

c. listing agreement

Question 102

A buyer becomes obligated when:
a. he signs the purchase agreement
b. the seller accepts the purchase agreement
c. agent presents him with the accepted contract
d. the offer is presented.

Answer 102

c. agent presents him with the accepted contract

Question 103

In the closing statement, new loan proceeds are listed as:
a. credit to the buyer
b. credit to the seller.
c. debit to the buyer
d. debit to the seller.

Answer 103

a. credit to buyer

Question 104

Which of the following is an example of a unilateral contract?
a. open listing
b. option
c. exclusive listing
d. exclusive agency

Answer 104

a. open listing
b. option

Question 105

An owner sells her house telling the buyer the patio furniture goes with it. The furniture is not mentioned in
the contract. If the seller does not leave the furniture, the buyer can:
a. sue for the furniture
b. not sue because it is not in writing
c. cancel the contract
d. sue to rescind the sale

Answer 105

b. not sue because it is not in writing

Question 106

A contract signed under duress is:
a. void b. voidable
c. null d. unenforceable

Answer 106

b. voidable

Question 107

A contract is signed between buyer and seller. The contract would become impossible to perform if:
a. the seller dies
b. the buyer is under age.
c. the buyer does not have the money
d. the house burns down.

Answer 107

d. the house burns down

Question 108

Mr. Jones sold his $200,000 home for $60,000. Mr. Jones’ daughter may rescind the sale under what Louisiana law?
a. dation en paiment
b. lesion beyond moiety
c. redhibition d. lemon law

Answer 108

b. lesion beyond moiety

Question 109

A listing contract may be terminated if:
a. the seller feels the broker is not doing a good job.
b. the seller decides to list with a different broker.
c. the broker thinks the house is overpriced.
d. both parties agree.

Answer 109

d. both parties agree

Question 110

A broker in listing a house, wanted an exclusive right to sell the property for 90 days. The seller wanted to retain the right to sell the property himself. What type of listing would be best?
a. open listing b. multiple listing
c. exclusive agency
d. exclusive right to sell

Answer 110

c. exclusive agency