Sales Contracts

Question 1

North Carolina does not promulgate contracts. In other words, there is no standard purchase contract that must be used for all real estate transactions. There are a few forms that are authorized by NCREC for use by all brokers:

t or f

Answer 1

t

Question 2

Principals in a transaction can write or alter their own contracts. T or f

Answer 2

T

Question 3

Earnest money is required for a contract to be valid. T or f

Answer 3

F

Question 4

The two things that CANNOT be in a purchase contract in North Carolina are:

Answer 4

Broker liability disclaimer and broker compensation

Question 5

The only acceptable legal description for use in a contract is a metes and bounds description. T or f

Answer 5

F

Question 6

Manuel is selling his home. His contract’s effective date is April 7. The due diligence period ended April 21. The final walkthrough was on May 4. The settlement was on May 5, and they closed May 6. What day can Manuel stop insuring the property?

Answer 6

May 6

Question 7

Buyer Laurel made an offer on seller Daisy’s home on September 20. Daisy countered on September 21. Laurel countered the counter on September 23. Daisy accepted the counteroffer and signed the contract that day, September 23, late in the evening. The morning of the 24th, Daisy’s broker called Laurel’s broker to let her know the contract had been accepted and signed. What is the effective date of this contract?

Answer 7

Sept 24

Question 8

who can and cannot sue for specific performance?

Answer 8

the seller cannot
the buyer can

Question 9

Carole Morales Vasquez and her husband, Roland Tiberius Vasquez are your buyer clients. You are filling out a contract for them to make an offer on a property. Which of these would be acceptable to put in the buyer name blank in Paragraph 1?

Answer 9

It is required that you put all buyers’ names in the name blank with at least a middle initial, if the person has a middle name. It’s optional to mention that they are married, but you cannot use Mr. and Mrs. Lastname to describe a married couple.

in this case, the answer is:

Carole Morales Vasquez and husband, Roland Tiberius Vasquez

Question 10

What contingencies appear in the Offer to Purchase and Contract?

Answer 10

There are no contingencies in this contract. They must either be added (for the sale of another property contingency) or resolved during the due diligence period (if the buyer wants to be able to cancel the sale based on the appraisal).

Question 11

Buyer Lilly is reaching the end of her due diligence period and she has some more inspections she’d like to do. She would also like to ask the seller for some repairs. What can she do?

Answer 11

Lilly can ask the seller to extend the due diligence period, but they do not have to agree to do it. If the seller won’t extend the due diligence period, her options are to accept the contract as-is or cancel it.

Question 12

A buyer cancels their contract before 5 p.m. on the last day of the due diligence period. What will happen?

Answer 12

They will get their earnest money back. Due diligence fees are never refundable except in the case of a seller breach.

Question 13

The only acceptable legal description for use in a contract is a metes and bounds description.

t or f

Answer 13

f

Question 14

Manuel is selling his home. His contract’s effective date is April 7. The due diligence period ended April 21. The final walkthrough was on May 4. The settlement was on May 5, and they closed May 6. What day can Manuel stop insuring the property?

Answer 14

Property owners must insure the property through closing, not just through settlement. Manuel can cancel his hazard insurance as of May 6.

Question 15

Buyers using the Offer to Purchase and Contract will receive what kind of deed?

Answer 15

The Offer to Purchase and Contract specifies a general warranty deed.

Question 16

If there is a conflict between an addendum and the contract, which one will be followed?

Answer 16

addenda

Question 17

Marcel is a buyer making an offer on a home. His agent submits his offer with checks for the due diligence fee and earnest money attached. The listing broker, Elena, lets Marcel know they have already accepted an offer but he can be the backup contract, if he wants. Marcel agrees, his broker writes an offer with the Back-Up Contract Addendum attached, and all parties sign. Elena’s BIC then puts Marcel’s due diligence fee and earnest money in her firm’s trust account. Did Elena and her BIC handle this money properly? Why or why not?

Answer 17

Yes, due diligence fees and earnest money from backup offers should be held in a firm’s trust account until either the backup contract becomes the primary contract or the backup contract is terminated.

Question 18

Edan is a buyer’s agent. Their client submitted a contract as a backup offer on a property. After a week, the buyer changed their mind and decided they didn’t want to be backup anymore. There was another property they’d rather make an offer on. Edan apologized, explaining that once they agreed to be a backup offer and both parties signed the backup contract and addendum, they can’t terminate the contract until the closing date of the primary contract. Is Edan right? Why or why not?

Answer 18

No, Edan is incorrect. The buyer who is the backup contract has the right to terminate the contract at any time until it becomes the primary contract (and then they presumably still have their due diligence period to terminate it if they want to).

Question 19

A buyer is planning to purchase a property with a VA loan. Their broker attaches the FHA/VA Financing Addendum. What right does this give the buyer that would not otherwise have?

Answer 19

If the property does not meet the “reasonable value” assigned by the Department of Veteran Affairs, they can terminate the contract. Typically, an Offer to Purchase doesn’t have an appraisal contingency.

Question 20

what is a short sale

Answer 20

A short sale is when the value of a property is less than the amount owed in liens on the property. This is often called being underwater. If home prices drop and a buyer used a low-down-payment loan, they could owe more to their lender than the home can be sold for. Short sales, unlike most transactions, must be approved by the lender, because they are agreeing to take less than the amount left on the loan.

Question 21

According to the Buyer Possession Before Closing Agreement form, who pays for utilities while the buyer is occupying the property?

Answer 21

buyer

Question 22

What protections does the Buyer Possession Before Closing Agreement give to the seller while the buyer occupies the property?

Answer 22

The form requires the property to be returned to its original condition if the contract is terminated. It also requires the buyer to vacate immediately if the contract terminates and pay a holdover fee for every day they overstay the agreement.

Question 23

Look, Makayla, everybody makes mistakes. And when it comes to contracts, there are some mistakes that are made frequently. Our friends at the Real Estate Commission have shared the mistakes their legal department most commonly see when brokers are filling out the Offer to Purchase and Contract. Avoid these issues and you’ll already be ahead: (7)

Answer 23

Using the phrase “owner of record” instead of properly identifying the parties in the contract, particularly the seller

Failing to clearly list any fixtures the seller does not want to convey

Failing to clearly specify any personal property the buyer wants the seller to convey as part of the sale — note that you have to specify this even if the MLS information lists the personal property as part of the sale (remember, if it’s not in the contract, it’s not legal!)

Failing to clearly define all critical dates. This is most often a problem when a contract has a vague description of a time period rather than a specific date. Be very careful and exacting with your dates!

Failing to present ALL offers in a timely manner

Failing to provide all parties with copies of the fully executed contract immediately (but no later than three calendar days!)

Confusion as to the timing of requesting and negotiating repair issues versus the completion of agreed repairs as it relates to the due diligence period. Repairs need to be negotiated before the end of the due diligence period and completed before settlement in time for the buyer to do a final walkthrough.

Question 24

BALANCE OF PURCHASE PRICE AT SETTLEMENT MEANS:

Answer 24

It’s the purchase price amount left over after you pay due diligence and escrow

Question 25

to calculate the amount of loan the buyer will be acquiring, you should use the original purchase amount of the offer, not the balance of purchase at settlement. t or f

Answer 25

t

Question 26

The sellers accepted your buyers’ offer. Yay! Great news! The contract was signed and you were officially notified that it had been accepted today. What is “day one” for the Guerreros’ due diligence period?

Answer 26

“Day one” of a due diligence period is the day AFTER the contract was acknowledged. But because you correctly put a date in the blank instead of a number of days, the due diligence period ends on the day it says in the contract.

Question 27

For a contract that is a backup contract, how should the settlement date and due diligence period deadline be recorded?

Answer 27

For a backup contract, you should write “see attached Back-Up Contract Addendum” in the blanks for the settlement date and due diligence period deadline in form 2-T. You should then note the number of days after notification that the backup contract has become the primary contract each deadline will be in the Back-Up Contract Addendum.

Question 28

If there a conflict between the Back-Up Contract Addendum and the Offer to Purchase and Contract, which one will be followed?

Answer 28

Per the addendum itself, if there’s a conflict between the addendum and the contract, the addendum controls UNLESS the conflict is with the parties’ names or the legal description.

Question 29

A week after this contract and its addenda are signed and acknowledged, Wesley comes to you and asks you to rescind the offer. He’s found another property he’s interested in making an offer on, one where he has a good chance of being the primary contract. What should you tell him?

Answer 29

Backup contracts can be rescinded up until the moment they become primary contracts. It’s completely fine for Wesley to pull the offer.

“Sure, no problem, let me inform the seller’s agent in writing.”

Question 30

Remember that according to the statute of frauds, for an offer to be legal in NC, it must be in…

Answer 30

writing

Question 31

Note that verbally telling a client about the details of an offer is not enough. You still must give the client a copy of the actual offer within three days of receiving it. t or f

Answer 31

t

Question 32

Retain All Offers (NCAC 58A .0108) states,

Answer 32

Agents must legally retain all offers for three years, even ones that are rejected or replaced.

Question 33

A buyer and a seller discuss the changes to the original offer they would both potentially agree to. They come to a verbal understanding, and the seller makes an official counteroffer. Is the buyer obligated to accept? Why or why not?

Answer 33

No, the buyer doesn’t have to accept the counteroffer just because they verbally agreed on the terms. An offeree can always decline an offer. A contract isn’t binding until it’s been accepted in writing and the offeror notified.

Question 34

The NCAR Response to Buyer’s Offer (Form 340-T) is

Answer 34

Designed to reject offers in 3 ways:

1. no
2. no but perhaps if you’d…
3. accepting all best offers by…

Question 35

It is legally required for brokers to use the Response to Buyer’s Offer (Form 340-T) form to reject offers.

t or f

Answer 35

f

Question 36

Sometimes, brokers get confused about what they can share about other offers with the competing offerors. This is important, because if information is disclosed to one buyer and not another, it can give them an unfair advantage. Here are the rules: (4)

Answer 36

1. agent gives ALL offers to seller
2. agent cannot give existence of multiple offers or one offer to others buyers without seller’s permission
3. agent cannot give details of a buyer’s offer without the buyer’s permission
   4.agent can only gives the details of what a seller wants to see in an offer if the seller gives permission to do so.

Question 37

an offer can be withdrawn before

Answer 37

communicated acceptance

Question 38

True acceptance is:

Answer 38

in writing
no changes to the original offer
communicated

Question 39

However, if a seller rejects an asking-price offer and never accepts any offer, they may be liable for their broker’s full commission (yes, even if

Answer 39

they don’t end up selling the house. make sure you alarm them of this

Question 40

If you’re using e-signing technology for the contract, it’s important to understand that under North Carolina’s Uniform Electronic Transactions Act, “electronic signatures” and “digital signatures” are ____ the same thing.

Answer 40

not

Question 41

Communicating acceptance works differently when you are a dual agent. Because the dual agent represents both the buyer and the seller, it’s considered communication of acceptance if the agent

Answer 41

witnesses the final offeree signing the contract

Question 42

According to the mailbox rule, when is acceptance communicated?

Answer 42

According to the mailbox rule, acceptance is communicated when the person sending the acceptance puts it in the mail, not when the person receiving it gets in their mailbox. Aren’t you glad we have email these days??

Question 43

Buyer Samhita is represented by agent Lona from Mountainview Agency Durham. She makes an offer to seller Alonzo, who is represented by agent Rami from Mountainview Agency Raleigh. Alonzo accepts the offer, and signs in the presence of Rami. That afternoon, a better offer comes in. Can Alonzo accept it? Why or why not?

Answer 43

No, because Rami is a dual agent and Alonzo signed the offer in front of him, that constitutes both acceptance and communication of acceptance. Alonzo is in contract and cannot accept another offer.

Question 44

A buyer’s agent submits a $350,000 offer for Sapna’s home. The asking price is $365,000. Sapna was really hoping for closer to asking. Stephen calls up the buyer’s agent and asks if they can come up to $360,000. The buyer’s agent consults with the buyer, and says yes. Yay! Stephen is so excited. He strikes through the $350,000 asking price on the offer and writes in $360,000. Sapna initials the change and signs the forms. Was a contract created?

Answer 44

Stephen got a little ahead of himself there! Just striking out the offer’s terms and writing in new ones isn’t quite enough to form a contract, even though the buyer’s agent verbally agreed to the terms. Stephen needed to make a formal counteroffer to the buyer. The buyer would then accept, reject, or counter the counter. If they accepted, they would sign the counteroffer, initial the changes, and their agent would let Stephen know they’d accepted his offer. THEN a contract would be created.

Question 45

Stephen wanted to make sure he got the best offer possible for Ralph. Since $30,000 over asking was already pretty great, he asked Ralph’s permission to share the details of the offer with the other three agents. “That way, they know what they have to beat,” Stephen reasoned. He didn’t want to waste any time with offers that couldn’t beat the one they already had.

Answer 45

An agent can’t share the details of another offer without the permission of the person making the offer. The seller cannot give this permission. This is called “shopping an offer” and it is an ethical breach.

Question 46

It’s unfortunate that Nicole’s offer was not accepted. She thought she was in contract, and instead, she is going to have to make another, higher offer or move on.

What could Stephen have done differently? It’s true that he could go back in time and send that amended contract to Tamina faster. It might or might not have been accepted and acceptance communicated before the other offer came in. But the real mistake Stephen made was

Answer 46

in telling Nicole that she had a deal before the contract was officially signed.

Be Careful With Your Language
It’s up to you as a broker to manage client expectations about what is or isn’t a done deal. If you want happy clients, make sure you are precise and clear about what stage of the negotiation process you are in.

Until that offer is signed and acceptance is communicated, a contract has not been created. Never use language like “you’re in contract” or “we’ve got a deal” unless it’s actually true. As Stephen and Nicole’s situation illustrates, things happen and deals fall apart.

Question 47

Kaylee is the broker-in-charge at a firm. One of her provisional brokers brought her checks for the due diligence fee and earnest money for a deal she’s working with a seller on. Kaylee decided to hold the checks until she had word that the contract was actually created.

On Tuesday, she got a text from the provisional broker that they’d communicated acceptance to the buyer and the deal was on. The provisional broker promised a copy of the contract by the end of the day, and Kaylee put it on her to-do list to deliver the checks to the buyer and the escrow agent that afternoon. Before she could, the buyer came to her office demanding their money back. Should Kaylee return the checks? Why or why not?

Answer 47

Kaylee legally must return the checks to the buyer if they ask her to if the checks are still in her possession (which, obviously, they are). This puts the buyer in breach of contract, but Kaylee still has to comply with their wishes.

Question 48

the buyer has this many days to deliver the initial earnest money, if the appropriate box is check in the contract (otherwise it’s due on the effective date)

Answer 48

five days

Question 49

Kelsey, a buyer’s agent, makes an offer on behalf of her client to seller agent Rita for $10,000 under asking. Rita’s seller is not willing to accept any offer under asking. Rita calls Kelsey to see if the buyer will come up to asking price. Kelsey’s client reluctantly agrees, but then wants to put down less earnest money. The seller agrees to this change. Rita tells Kelsey that they’ve got a deal.

Kelsey fills out a new offer and sends it to Rita, who emails it to her client. But Kelsey’s buyer client is having second thoughts. She decides she can’t actually afford to pay the extra $10,000 and asks Kelsey to rescind the offer. Can Kelsey do this? Why or why not?

Answer 49

Yes, Kelsey can rescind the offer because it has not been accepted and acceptance has not been communicated. Saying “we have a deal” is not enough to create a contract.

Question 50

Broker-in-charge Paolo was given a check by one of his provisional brokers for the earnest money on a deal that was still in the works. Paolo deposited the check in his firm’s trust account, even though the contract hadn’t officially been created yet. Did Paolo handle this money correctly? Why or why not?

Answer 50

Yes, Paolo can deposit the check in the firm’s trust account until the contract forms. He then has three business days after the effective date of the contract to deliver the funds to the escrow agent. If the contract doesn’t form, he will just write a check back to the buyer.

Question 51

A contract for deed, also known as an installment sales contract, installment land contract, or land contract is

Answer 51

a purchase contract in which the buyer pays the seller for the property in multiple installments for a predetermined length of time, and the seller holds the deed and title until the property has been fully paid for.

Question 52

Interim Contract vs. Ongoing Contract

Question 53

A contract for deed in NC must also include a _____-day rescission period, where the buyer has the right to cancel the contract any time until midnight of the third business day following the execution of the contract.

Answer 53

3

Question 54

What form should be used for a contract for deed?

Answer 54

There is no standard form for a contract for deed. A lawyer needs to create the contract. NEVER use an Offer to Purchase and Contract with a contract for deed.

Question 55

After the contract for deed is signed and acknowledged, the seller has ______ business days to record a copy of the contract (or memorandum of the contract) with the Register of Deeds in the county the property is located in. The seller pays the recording fees, unless the parties agreed otherwise.

Answer 55

5

Question 56

Which of these are advantages for sellers in contracts for deed?

Answer 56

There are several advantages for sellers if they use a contract for deed: they can delay tax liability, potentially keep both the title and payments if the buyer defaults, and access a wider pool of buyers (like those who cannot qualify for a conventional mortgage). The contract process, however, is more complicated than a typical sale because a lawyer must be involved to create the contract.

Question 57

What are the disadvantages for buyers in a contract for deed?

Answer 57

The biggest downside for buyers in a contract for deed is the lack of protections if they default. There’s also the potential for them to get a defective title and a property in a contract for deed is difficult to sell or borrow against. It’s actually easier to qualify for the loan portion of the contract in comparison to a conventional loan.

Question 58

An option to purchase contract is

Answer 58

the exchange of a fee, known as the option fee, for the exclusive right to purchase a property for a set period of time, for a set amount.

Question 59

Allen has a 50-day option contract for Jenna’s property. In the option contract, they agreed on a price of $200,000. While doing due diligence, Allen discovered the property wasn’t as easy to build on as he’d hoped, so he offered Jenna $180,000. She turned down his offer. 40 days into the contract, it was announced that a new shopping center will be built near Jenna’s land, raising its value. Allen contacted Jenna and let her know that he’d like to exercise his option to buy at $200,000. Since the announcement, she’d heard from several other buyers willing to pay more. Jenna argued that because Allen had counteroffered and she’d turned down his counter, the offer was now dead. Allen believed that because his option contract had not expired, she was obligated to sell to him at the agreed-upon price. Who is correct, and why?

Answer 59

Jenna is obligated to honor the option contract. Negotiating during the option period is not a counteroffer and doesn’t terminate the original offer. Because Allen exercised his option during the contract period, Jenna has to sell at the price they set.

Question 60

Broker Shun collected an option fee from his potential buyer-client. What should he do with the check?

Answer 60

Option fees go directly to the optionor. It’s theirs to keep. Remember, the option contract is about exchanging a fee for an option.

Question 61

A lease with option to buy, or lease-option agreement, is a contract in which the buyer can

Answer 61

lease a property for a period of time (usually a year or two) and then have the option to buy the property. The lease contract will spell out when the property can be purchased and at what price.

Question 62

The right of first refusal gives a person the contractual right to

Answer 62

to match another party’s bona fide offer to purchase a property.

for example, that Tina has the right of first refusal on Beyoncé’s mansion. Beyoncé is under no obligation to sell the mansion at any point. But if she does put it on the market, Tina has the right to match any contract that comes in. So if Kelly makes an offer, Beyoncé accepts it, they sign the contract, and Kelly does her due diligence and decides to buy, then Tina could step in and buy the property for the same price Kelly was in contract for.

Question 63

The right of first opportunity to purchase is similar to the right of first refusal, except that instead of waiting for an offer to come in and matching it, the right-holder is offered the

Answer 63

for a certain, agreed-upon price. This is most commonly used with leased commercial property.

It would be included as a term in the lease that if the owner of the property decided to sell during the lease term, the tenant would have the opportunity to buy the property at a certain price before the landlord/owner offered it to anyone else. Every time the price drops, the owner has to give the tenant a new opportunity to purchase the property.