section 14 Video Introduction: Contracts for the sale of real estate

Question 1

a binding and enforceable agreement wherein a buyer agrees to buy an identified parcel of real estate, and a seller agrees to sell it under certain terms and conditions. It is the document that is at the center of the transaction.

Other names for the sale contract are agreement of sale, contract for purchase, contract of purchase and sale, and earnest money contract.

Answer 1

Contract for Sale:

Question 2

A seller in a real estate contract.

Answer 2

vendor

Question 3

A buyer in a real estate contract.

Answer 3

vendee

Question 4

An impound account used for the safekeeping of a buyer’s earnest money deposit; accompanied by specific instructions to the escrow agent for holding and disbursing the funds.

Answer 4

escrow

Question 5

A condition that must be satisfied for a contract to be binding and enforceable.

Answer 5

Contingencies

Question 6

Failure to perform.

Buyer default: If a buyer fails to perform under the terms of a sale contract, the breach entitles the seller to legal recourse for damages.

Seller default: If a seller defaults, the buyer may sue for specific performance, damages, or cancellation.

Answer 6

default

Question 7

An option-to-buy is an enforceable contract in which a potential seller, the optionor, grants a potential buyer, the optionee, the right to purchase a property before a stated time for a stated price and terms. In exchange for the right of option, the optionee pays the optionor valuable consideration.

Answer 7

Option-to-Buy Contract:

Question 8

The optionee enjoys an equitable interest in the property because the option creates the right to obtain legal title. However, the option does not in itself convey an interest in real property, only a right to do something governed by contract law.

Answer 8

Equitable Interest:

Question 9

A financial contract where a seller retains legal title to a property and gives the buyer equitable title and possession over a period of time. During the contract period, the seller finances all or part of the purchase price. If the buyer makes timely payments and abides by all contract provisions, the seller conveys legal title at the end of the contract period.

Answer 9

Contract for Deed:

Question 10

A real estate sale contract is an executory contract until

Answer 10

Executory contract. A sale contract is executory: the signatories have yet to perform their respective obligations and promises. Upon closing, the sale contract is fully performed and no longer exists as a binding agreement.

Question 11

If a married couple owns a property that is for sale, and only one of them signs a sale contract, what is the legal status of the contract?

Answer 11

The contract may be valid.

Question 12

In assisting a buyer or seller to complete an offer to purchase, what should an agent do to reduce the risk of committing an unauthorized practice of law?

Answer 12

Use a standard contract promulgated by a state agency or a real estate board.

Question 13

To be enforceable, a contract for the sale of real estate must

Answer 13

be written.

Question 14

A buyer makes an offer to purchase a house, and the seller accepts the offer. Both parties sign the sale contract, but the buyer fails to provide an earnest money deposit. What are the seller’s obligations to the buyer?

Answer 14

None. There is no valid contract.

Question 15

Which of the following is an essential element of a valid contract for the sale of real estate?

Answer 15

Offer and acceptance.

Question 16

What kind of interest does the buyer own after a real estate sale contract is signed by the principal parties?

Answer 16

Equitable title.

Question 17

A contingency in a sale contract is

Answer 17

a condition that, if unmet, renders the contract unenforceable.

Question 18

A “termite” clause in a sale contract states that the seller must provide suitable evidence that the property is free of infestation. On the day of closing, the buyer learns that the inspection service hired by the seller was not properly licensed. The seller expresses surprise, promises to pay for another inspection and/or extermination, and insists on proceeding with the closing. The buyer refuses, and declares that the sale is off. Which of the following is true of this situation?

Answer 18

The buyer may be able to have the contract canceled.

Question 19

A buyer signs an earnest money agreement and gives it to the broker who showed her the property she is buying. After leaving the broker’s office, she reconsiders and decides she prefers a different property. How long does she have to take back her offer?

Answer 19

Until the seller communicates acceptance of the offer.

Question 20

On Wednesday, Fred offers to sell his property to Jack for $275,000, with the offer to remain open until 5 p.m. the next day. On Thursday morning, Sally offers Fred $280,000 for the property and Fred accepts. At 1 p.m. on Thursday afternoon, Jack accepts. Which of the following is true of this situation?

Answer 20

Fred has entered into contracts with both Jack and Sally to sell the same property.

Question 21

What parties must be identified in a sale contract?

Answer 21

Seller and buyer.

Question 22

Among the items that usually must be disclosed in a sale contract or its addenda are

Answer 22

agency relationships and property condition.

Question 23

To create an enforceable option-to-buy contract, there must be an exchange of

Answer 23

valuable consideration and a right to buy.

Question 24

Mary Carboy buys a house from Jim Schmidt and at the same time obtains an option to purchase the adjoining vacant lot for $10,000 within one year. A few months later, Carboy informs Schmidt that she is ready to exercise her option, but finds that Schmidt has received an offer of $12,000 from another party. Schmidt states that he will accept the offer unless Carboy is willing to match the $12,000 offer. Which of the following is true of this situation?

Answer 24

Schmidt must sell to Carboy for $10,000.

Question 25

An option-to-buy is

Answer 25

assignable unless the contract prohibits assignment.

Question 26

Which of the following is true of a contract for deed transaction?

Answer 26

At the end of the contract period, the vendor conveys legal title, provided the vendee has fulfilled all obligations.

Question 27

A potential danger involved in a contract for deed is that

Answer 27

the vendee may not have a right of redemption.

Question 28

While a property is under a contract for deed, the seller, or vendor, mortgages her equity in the property, and has a separate judgment lien placed on the property. Faced with financial loss, the vendor assigns the contract to another party, then leaves town. What can the vendee do in this case?

Answer 28

comply with the contract and take legal title when its terms are fulfilled.

Question 29

An important distinction between a contract for deed and a contract for sale is

Answer 29

the seller retains legal title in a contract for deed transaction until fully executed.

Question 30

Which of the following is true regarding the legal nature of option contracts?

Answer 30

They give the optionee an equitable interest in the property.

Question 31

A tenant exercises an option to buy a condominium. The landlord agrees, but raises the agreed price by $3,000, claiming financial distress. The landlord does, however, offer the tenant two months of free rent before closing as an offset. Which of the following is true?

Answer 31

The tenant can force the sale at the original terms.