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National Real Estate Exam > Unit 5: Types of Real Estate Contracts > Flashcards

Unit 5: Types of Real Estate Contracts Flashcards

1
Q

What are the 6 types of real estate contracts?

A
  1. Purchase Contract
  2. Option
  3. Lease-Purchase
  4. Right of First Refusal
  5. Sale-Leaseback
  6. Lease
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2
Q

What is a purchase contract?

A

It creates the conditions for closing.

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3
Q

What are the other names for a purchase contract?

A
  • Offer to Purchase
  • Contract of Sale
  • Purchase and Sale Contract
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4
Q

What are the 4 stages of a purchase contract?

A
  1. Listed
  2. Offer, Acceptance, & Communication of Acceptance
  3. Under Contract (With or Without Earnest Money)
  4. Closing
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5
Q

T/F Acceptance must be communicated to the offeror to form a binding contract.

A

True

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6
Q

What is another name for the Under Contract stage of a purchase contract?

A

Executory Period

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7
Q

What is another name for the Closing stage of a purchase contract?

A

Executed

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8
Q

In a purchase contract, when does the offer become an executory contract?

A

Upon communication of acceptance.

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9
Q

What is communication of acceptance?

A

When the last party has signed and the other party has been notified either in writing or orally.

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10
Q

T/F A purchase contract is a unilateral contract.

A

False. A purchase contract is a BILATERAL contract and is binding to both parties.

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11
Q

Who are the 2 parties in a purchase agreement?

A
  1. Seller - Vendor

2. Buyer - Vendee

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12
Q

Who holds legal title in a purchase contract?

A

The seller, vendor.

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13
Q

Who holds equitable title in a purchase contract?

A

The buyer, vendee.

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14
Q

What are the essential elements in a purchase contract?

A

The buyer’s and seller’s signature, property description, price and terms, and in writing and signed.

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15
Q

What are the typical contingencies in a purchase contract?

A

Financing, appraisal, and inspection.

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16
Q

What is a “time is of the essence” clause?

A

It requires exact adherence to dates specified or the party will be in breach.

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17
Q

What is an option contract?

A

A potential buyer purchases the right to buy in the future from a seller who agrees to sell within a set period for a set price.

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18
Q

T/F An option contract is a unilateral contract.

A

True. It is binding for the seller but the buyer has option/choice to perform.

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19
Q

When does an option contract become a bilateral contract?

A

When the buyer/optionee exercise the contract.

20
Q

Who are the parties in an option contract?

A
  1. Owner - optionor

2. Potential buyer - optionee

21
Q

Is there a fee with an option contract?

A

Yes. There is a nonrefundable option fee to hold the option for the buyer.

22
Q

In an option contract, if the buyer decides not to buy what can the seller do?

A

Nothing except keeps the option fee.

23
Q

What is a lease-purchase contract?

A

When a tenant wants to purchase a property but can’t get financing for the full amount.

24
Q

T/F In a lease-purchase contract, part of the rent may be applied to the purchase price.

A

True

25
Q

What is a right to first refusal contract?

A

Typically used in condominiums and cooperatives where the right of a person to have the first opportunity to purchase or lease real property.

26
Q

Which contract gives more flexibility to the owner than an option contract?

A

Right of first refusal

27
Q

What is a sale-leaseback contract?

A

The owner sells property to investor and leases it back.

28
Q

Which contract converts equity to working capital without giving up possession?

A

Sale-leaseback

29
Q

What is the purpose of a lease contract?

A

I promise to give you possession and you promise to pay rent.

30
Q

T/F A lease contract is bilateral.

A

True

31
Q

Who are the parties in a lease contract?

A
  1. Landlord - lessor

2. Tenant - lessee

32
Q

What are the 3 essential elements in a lease contract?

A
  1. Names of lessor and lessee (landlord and tenant)
  2. Description of property
  3. Rent terms
33
Q

In a lease contract, which party has reversionary interest?

A

The landlord allowing them to retake possession.

34
Q

What are the 2 types of lease contracts?

A
  1. Gross/fixed

2. Commercial

35
Q

What is a gross/fixed lease contract?

A

The tenant pays fixed rent and the landlord pays all expenses.

36
Q

Which type of lease contract gives the landlord a stable income and is most typical for residential?

A

Gross/fixed lease

37
Q

What are the 4 kinds of commercial lease contracts?

A
  1. Net
  2. Percentage
  3. Variable
  4. Ground
38
Q

What is a commercial net lease?

A

The tenant pays base rent and expenses.

39
Q

What is a commercial percentage lease?

A

The rent is based on a percentage of gross income/sales.

40
Q

Which kind of commercial lease is most typical in retail properties?

A

Percentage

41
Q

What is a commercial variable lease?

A

The rent increases or decreases at predetermined intervals.

42
Q

Which kind of variable lease has the rent increase at predetermined intervals?

A

Graduated variable lease

43
Q

What kind of variable lease has the rent adjusted based on an economic indicator (Consumer Price Index, CPI)?

A

Index variable lease

44
Q

What kind of commercial lease is used to rent unimproved property?

A

Ground

45
Q

Who gets ownership of the land improvements in a commercial ground lease?

A

The landlord

46
Q

How are lease contracts terminated?

A
  1. Expiration date
  2. Actual eviction
  3. Constructive eviction
47
Q

What is the difference between an actual eviction and a constructive eviction?

A

An actual eviction is taken because the tenant is in breach. A constructive eviction also forces the tenant out but it is because the landlord is in breach.

National Real Estate Exam (42 decks)

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