Sales Contracts and Options

Question 1

acceptance

Answer 1

The expression of the intention of the person receiving an offer (offeree, usually the seller) to be bound by the terms of the offer.

Question 2

addendum

Answer 2

An agreement that adds terms and conditions and incorporates them into the legal document.

Question 3

assignment

Answer 3

The written transfer of interest in a mortgage, lease, or contract.

Question 4

breach of contract

Answer 4

Violation of any of the terms or conditions of a contract without legal excuse; default, nonperformance, such as failure to make payment when due.

Question 5

consideration

Answer 5

An act or forbearance, or the promise thereof, that is offered by one party to induce another to enter into a contract; that which is given in exchange for something from another.

Question 6

contingency

Answer 6

A provision placed in a contract that requires the completion of a certain act or the happening of a particular event before a contract is binding.

Question 7

contract

Answer 7

A legal agreement between competent parties who agree to perform or refrain from performing certain acts for a consideration. In real estate, there are many different contracts, including listings, contracts of sale, options, mortgages, assignments, leases, deeds, escrow agreements, and loan commitments, among others.

Question 8

contract sale

Answer 8

A financial agreement between the contract holder (vendor) and the contract purchaser (vendee) for the purchase of real property.

Question 9

counteroffer

Answer 9

A new offer made as a reply to an offer received from another; this has the effect of rejecting the original offer, which cannot thereafter be accepted unless reviewed by the offeror’s repeating it.

Question 10

default

Answer 10

Failure to fulfill a duty or promise or failure to perform any obligation or required act. The most common occurrence of default on the part of a buyer or lessee is nonpayment of money.

Question 11

deposit

Answer 11

Money offered by a prospective buyer as an indication of good faith in entering into a contract to purchase; earnest money; security for the buyer’s performance of a contract.

Question 12

duress

Answer 12

Unlawful constraint or action exercised on a person whereby that person is forced to perform some act against his or her will. A contract entered into under _______ is void.

Question 13

executory contract

Answer 13

A contract in which one or both of the parties has not yet performed.

Question 14

offer

Answer 14

A promise by one party to act or perform in a specified manner provided the other party will act or perform in the manner requested.

Question 15

offer and acceptance

Answer 15

The two components of a valid contract; a “meeting of the minds.”

Question 16

option

Answer 16

An agreement to keep open, over a set period, an offer to sell or purchase property.

Question 17

rescission

Answer 17

The legal remedy of canceling, terminating, or annulling a contract and restoring the parties to their original positions; a return to the status quo.

Question 18

specific performance

Answer 18

A legal action brought in a court of equity to compel a party to carry out the terms of a contract.

Question 19

statute of of frauds

Answer 19

English law requiring that certain contracts be in writing and signed by the party to be charged therewith in order to be legally enforceable.

Question 20

statute of limitations

Answer 20

Originated from English law (doctrine of laches) pertaining to the period of time within which certain actions must be brought to court in order to be considered enforceable.

Question 21

time is of the essence

Answer 21

The clause in a contract that emphasizes that punctual performance is an essential requirement of the contract.

Question 22

unilateral contract

Answer 22

A contract in which one party makes an obligation to perform without receiving in return any express promise of performance from the other party, such as an open listing contract, where the seller agrees to pay a commission to the broker who brings in a ready, willing, and able buyer.

Question 23

valid

Answer 23

Describes a contract that complies with all the essentials of a contract and is binding and enforceable on all the parties. The required essentials include offer and acceptance, consideration, reality of consent, legal purpose, and legally competent parties.

Question 24

MISTAKEN IDENTITY

addendum/amendment

Answer 24

Addendums are always added to an agreement, while amendments always amend existing ones.

Question 25

MISTAKEN IDENTITY

down payment/deposit

Answer 25

A down payment is the amount of cash offered by a buyer – as an indication of good faith in entering into a contract to purchase – or purchaser at the time of purchase. Even though the down payment usually includes the earnest money ‘deposit’, the terms are not synonymous (earnest money is applied toward the total amount of cash down payment due at the closing). If the buyer completes the purchase, the deposit money is applied toward the purchase price.

Question 26

MISTAKEN IDENTITY

executed/executory

Answer 26

An executory contract is one that still needs to be performed, whereas an executed contract has been completed.

Question 27

MISTAKEN IDENTITY

option/right of first refusal

Answer 27

An option is a right to purchase property at a set price for a fixed period of time, whereas a right of first refusal is a right to purchase property only if it is offered for sale in the future.

Question 28

MISTAKEN IDENTITY

optionor/optinee

Answer 28

The optionor is the owner of the property being held for possible sale, whereas the optionee is the potential buyer who has the option to purchase.

Question 29

MISTAKEN IDENTITY

rescission/restriction

Answer 29

Rescission is the remedy on breach of contract in which the parties return to their respective positions before the contract (return to the status quo), whereas restriction is some limitation placed on the use of some property.

Question 30

MISTAKEN IDENTITY

statute of frauds/statute of limitations

Answer 30

The statute of frauds requires that certain contracts be in writing to be enforceable, whereas the the statute of limitations sets time limits on the ability to file a lawsuit to enforce a right.

Question 31

MISTAKEN IDENTITY

unilateral/bilateral

Answer 31

A unilateral contract involves one promise to perform (option contract), whereas a bilateral contract involves mutual promises to perform (as in a sales contract)

Question 32

MISTAKEN IDENTITY

void/voidable

Answer 32

A void contract lacks the essential elements to be valid, whereas a voidable contract is valid, except one of the parties has the ability to void it because of some wrongdoing.