Session 5: Real Estate Contracts & Advertising Regulations Flashcards
Real Estate Contracts
A real estate contract is a legally enforceable agreement between competent parties who agree to perform or refrain from performing certain acts for consideration
Competent parties
Must be viewed by law as being capable of making a binding promise
What makes you a competent party?
Over 16
legally emancipated by the court
Meeting of the minds
There must be an offer by the offeror and acceptance by the offeree.
Does the acceptance need to be a mirror image of the offer?
Yes
What if a client wants to change an offer?
Write a counteroffer
Words that end in “or” describe which party
The giving party
Words that end in “ee” describe which party
The accepting/receiving party
Consideration
Something of legal value that two parties agree to
Would property transferred as a gift be a consideration? What is this called?
Yes - love and affection
Bilateral Contract
Both parties agree to do something
What is an example of a bilateral contract?
Residential re-sale contract
Unilateral Contract
Only one party is bound by the agreement
What is an example of a unilateral contract?
Option contract
If there is a contract dispute between the boiler-plate language or the written word in a contract, which one takes precedence?
Written word
Express contract
Can be in writing or verbal
Is a verbal contract legally enforceable?
No, only written contracts
Which verbal express contracts are legally enforceable?
Leases of a year or less
Broker to broker agreements
Implied Contracts
Created by the parties ACTIONS and are not expressed
Whose actions does it take to create an implied contract?
Both parties
Statute of Frauds
All real estate contracts need to be in writing to be enforceable
Executory Contract
Promises have been made but have not been fulfilled yet
What is an example of an executory contract?
When a buyer prepares an offer and the seller accepts the offer
Executed Contract
A contract that has been completed. Close of escrow.
When does an executory contract become an executed contract?
after the closing of escrow
Counteroffer
A new offer that negates the original offer
Does a counter negate the original offer?
Yes
What is a valid contract?
Contains all required elements and is binding on all parties.
What is a voidable contract?
Can be rescinded by one of the parties but is not in and of itself void
Is a contract with a minor voidable?
Yes
Is a contract under duress or coercion voidable?
Yes
Is a contract under fraud voidable?
Yes
Is a contract for a property in AZ without ingress and egress voidable?
Yes
Void
Has no legal or binding effect because it is missing one or more of the requirements for a valid contract
Unenforceable
The contract appears to be valid but is not legally enforceable by either party
Is a contract expressed verbally enforceable by either party?
No
Option Contract
Only one party is required to perform to the terms of the contract
If Joe gives Sally the option to buy his house in the future does Sally have to buy it?
No
If Joe gives Sally the option to buy his house in the future does Joe have to sell his house when the time comes?
Yes
Right of first refusal
The right of a person to have the first opportunity to either purchase or lease real property
Does the holder of a right of first refusal have the right to buy the property at any time?
No, they have to wait until the seller actually offers the property for sale or entertains an offer to purchase from a third party
Escalation Clause
Raises an offer to make sure the buyer is the highest bidder
Equitable title
When an offer is accepted by the seller, the buyer is entitled to the equity on the property
Legal title
Once the deed is delivered and accepted by the county recorder
Is the equitable title negotiable?
Yes
Trust account
a neutral account where a broker, attorney or property manager will hold money that belongs to others
Commingling
Mixing trust money with operating funds
Conversion
Spending trust money
Which is legal? Commingling or Conversion?
Neither, both are illegal
Addendum
An additional term or agreement that is added to the existing contract and needs to be dated and signed by all parties to the contract
Amendment
Changes existing terms that are already agreed to by the parties and needs to be dated and signed by all parties to the contract
Compensation Sharing
The broker must disclose to all parties in a transaction, in writing before closing, the name of each employing broker who represents a party to the transaction and who will receive compensation from the transaction
Do you have to disclose a referral fee on a transaction?
No
Property Negotiations
Negotiations shall be conducted exclusively through the principal’s broker or the broker’s representative
Can the principal wave the right for negotiations by the broker?
Yes as long as it’s in writing
What happens if the principal can’t locate a licensed representative of the broker for 24hrs during negotiations?
They can negotiate directly with the seller and without the broker
Does death cancel a purchase contract?
No
What would be a termination of contract due to impossibility of performance?
Bankruptcy or loss of financing
Can someone put in multiple offers?
Yes but they need to disclose using a multiple offer contract
Can a transaction coordinator live out of state?
Yes, but they need to have an in-state license.
Can a transaction coordinator work for multiple brokers?
No, they can only work for one brokerage.
Mutual rescission
the court finds both parties wrong & restores contract to original state
Specific Performance remedy
Court forces parts of the contract to be performed
Compensatory Damages
Court orders payment
Punitive Damages
Highest level of remedy
Liquidated damages
Earnest money
Arbitration
Non-judicial submission of a controversy to selected third parties for their determination in a manner provided by agreement or by law
Is arbitration binding?
Yes
Mediation
An alternative process of dispute resolution in which an independent third party works with two disputing parties to help them resolve their differences
is mediation binding?
No
Assignment
transferring legal rights from one party to another
Are contracts usually assignable?
Yes unless they say otherwise
Binder
Good faith agreement between the parties that includes all the terms that keep the agreement together until the final longer version of the contract is drafted
What other name is used for a binder?
Letter of intent
Nominee
a party who will be added to an existing contract or someone who is going to act on behalf of a party
Why would you use a nominee
Husband and wife are moving to new state but one has not arrived yet
Novation
The substitution of a new obligation for an old one or obligating a new party to an agreement and releasing the old party
In a novation are both parties on the hook?
No, it takes the first off the hook.
In assignment are both parties on the hook?
Yes
How long does the brokerage have to keep signed copies?
5 years
Contingency
a condition that must be met before entering into the terms of the contract
When do SPUDS need to be delivered?
3 days
When do home warranty claims need to be delivered?
5 days
Article 26 (XXVI)
Brokers can draft contracts, but can’t charge for this service
How long do brokers have to keep rejected offers?
1 year
How many square feet are in an acre
43,560 sqft
In the typical real estate transaction, before a sales contract has been signed by the offeree, the earnest money belongs to the
Offeror
A clause in a sales contract that requires punctual performances is described as
Time is of the essence
A vendee is best described as one who
Buys or offers to buy
Under the statutes of fraud, all contracts for the sales of real estate must be
a. originated by a broker
b. on preprinted forms
c. in writing to be enforceable
d. accompanied by earnest money deposits
in writing to be enforceable
Mr. Sherwood received a net of $86,250 for the sale of his lot after the broker deducted 7% commission. What was the gross sales price of the lot?
100%-7% = 93%
86250 / 0.93 = $92,742
Buyer James and seller Lyndsie have agreed to mutual assent, this becomes indicated by
a. acknowledgemetn
b. recording
c. close of escrow
d. offer and acceptance
Offer and acceptance
The seller has died before the real estate transaction closed. The contract is considered to be
a. void
b. voidable
c. enforceable
d. executory
Enforceable
Kelly approaches Tom and says “I would like to buy your house and close escrow on May 18.” Tom says “sure”, and they agree on a price of $125,000. What kind of contract do they have?
a. unenforceable
b. void
c. expressed
d. there is no contract
Unenforceable
Which of the following is an essential requirement for a valid contract?
a. legal description
b. competent parties
c. time is of the essence
d. recording
Competent parties
When buying a home, the amount of the buyer’s earnest money is determined by
The buyer and seller
Home sold for $125,000 which was 90% of the list price. What was the list price?
125000 / 0.9 = $138,889
In the typical purchase of a home, the offeror would most likely be the
a. trustee
b. mortgagee
c. lessee
d. mortgagor
Mortgagor
The transfer of rights under a contract without the release from obligation by the transferor is known as
Assignment
Which party would a unilateral contract be enforceable against?
a. optionee
b. optionor
c. lessor
d. trustee
Optionor, the one who gave the option
Based on the validity of a contract, which of the following agreements would be considered voidable?
a. signed by an attorney in fact
b. an oral agreement
c. a contract with a minor
d. an agreement for sale
A contract with a minor
When both parties to a purchase contract decide to mutually cancel, this is called
Rescission
A contract that has been agreed to by the actions of the parties is called
Implied
The purchase contract states that John will purchase the property if John’s wife agrees to the sale by July 18. The wife’s approval is a
Contingency
Angela was the salesperson for the buyer and earned $4,650 which represented 40% of her broker’s commission. The total commission rate on the sale was 6%. What did the house sell for?
4650 / 0.4 = 11625
11625 / 0.06 = $193,750
The failure to meet an obligation in a real estate contract is best defined as
Breach
Rhonda has a very high interest in purchasing Olivia’s home. Olivia has communicated to Rhonda that if she ever considers putting it on the market for sale that she will offer it to her first. This is an example of
Right of first refusal
The buyer and seller have a disagreement based on the terms of the contract. Rather than going to court, they agree to let a 3rd party make a binding decision after hearing all the facts. This is called
Arbitration
What law gives real estate licensees in AZ the right to draft contracts without charging for those services?
Article 26
In AZ the designated broker must review all contracts in how many days?
10 business days
In AZ, how many years are transaction records kept from completion of the transaction?
5 years
In Az, rejected offers are kept for how many years?
1 year
All of the following should be included in a purchase contract except:
a. Starting date
b. Closing date
c. Seller’s signature
d. Commission split
Commission split
The commission goes into the employment agreement
A buyer purchases a property and at closing discovers that there is no access (no ingress or egress) to the property, what kind of contract do they have?
a. Voidable
b. Void
c. Enforceable
d. Unenforceable
Voidable
What is another name for a mortgagor?
Debtor
Marsha and Tim were recently married and they decided to purchase their first home. Tim is 21 and Marsha is 17. What is the status of the purchase contract?
Valid, because the minor is emancipated by marriage
A licensee who advertises property that is the subject of another person’s real estate employment agreement shall display
The name of the listing broker
A real estate licensee must make an agency disclosure to prospective purchasers or tenants
a. before they are shown any properties
b. at an open house
c. at the close of escrow
d. before any purchase offers or leases are prepared
before any purchase offers of leases are prepared
Tom was a real estate agent in CA before moving to AZ. He decided not to obtain a real estate license in AZ. Lisa, his friend, asked Tom if he would help her write a contract on a house and offered him $500. Tom took the $500. What is this a violation of?
Article 26
Joyce wrote an offer to purchase Marty’s home and he accepted the offer. However, Joyce was informed that she does not qualify for a loan. Based on the lender’s decision both Marty and Joyce cancel the contract. This is known as
Recission
