Unit 5: Types of Real Estate Contracts

Question 1

What are the 6 types of real estate contracts?

Answer 1

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

Question 2

What is a purchase contract?

Answer 2

It creates the conditions for closing.

Question 3

What are the other names for a purchase contract?

Answer 3

• Offer to Purchase
• Contract of Sale
• Purchase and Sale Contract

Question 4

What are the 4 stages of a purchase contract?

Answer 4

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

Question 5

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

Answer 5

True

Question 6

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

Answer 6

Executory Period

Question 7

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

Answer 7

Executed

Question 8

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

Answer 8

Upon communication of acceptance.

Question 9

What is communication of acceptance?

Answer 9

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

Question 10

T/F A purchase contract is a unilateral contract.

Answer 10

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

Question 11

Who are the 2 parties in a purchase agreement?

Answer 11

1. Seller - Vendor

2. Buyer - Vendee

Question 12

Who holds legal title in a purchase contract?

Answer 12

The seller, vendor.

Question 13

Who holds equitable title in a purchase contract?

Answer 13

The buyer, vendee.

Question 14

What are the essential elements in a purchase contract?

Answer 14

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

Question 15

What are the typical contingencies in a purchase contract?

Answer 15

Financing, appraisal, and inspection.

Question 16

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

Answer 16

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

Question 17

What is an option contract?

Answer 17

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.

Question 18

T/F An option contract is a unilateral contract.

Answer 18

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

Question 19

When does an option contract become a bilateral contract?

Answer 19

When the buyer/optionee exercise the contract.

Question 20

Who are the parties in an option contract?

Answer 20

1. Owner - optionor

2. Potential buyer - optionee

Question 21

Is there a fee with an option contract?

Answer 21

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

Question 22

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

Answer 22

Nothing except keeps the option fee.

Question 23

What is a lease-purchase contract?

Answer 23

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

Question 24

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

Answer 24

True

Question 25

What is a right to first refusal contract?

Answer 25

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

Question 26

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

Answer 26

Right of first refusal

Question 27

What is a sale-leaseback contract?

Answer 27

The owner sells property to investor and leases it back.

Question 28

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

Answer 28

Sale-leaseback

Question 29

What is the purpose of a lease contract?

Answer 29

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

Question 30

T/F A lease contract is bilateral.

Answer 30

True

Question 31

Who are the parties in a lease contract?

Answer 31

1. Landlord - lessor | 2. Tenant - lessee

Question 32

What are the 3 essential elements in a lease contract?

Answer 32

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

Question 33

In a lease contract, which party has reversionary interest?

Answer 33

The landlord allowing them to retake possession.

Question 34

What are the 2 types of lease contracts?

Answer 34

1. Gross/fixed | 2. Commercial

Question 35

What is a gross/fixed lease contract?

Answer 35

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

Question 36

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

Answer 36

Gross/fixed lease

Question 37

What are the 4 kinds of commercial lease contracts?

Answer 37

1. Net 2. Percentage 3. Variable 4. Ground

Question 38

What is a commercial net lease?

Answer 38

The tenant pays base rent and expenses.

Question 39

What is a commercial percentage lease?

Answer 39

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

Question 40

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

Answer 40

Percentage

Question 41

What is a commercial variable lease?

Answer 41

The rent increases or decreases at predetermined intervals.

Question 42

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

Answer 42

Graduated variable lease

Question 43

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

Answer 43

Index variable lease

Question 44

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

Answer 44

Ground

Question 45

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

Answer 45

The landlord

Question 46

How are lease contracts terminated?

Answer 46

1. Expiration date 2. Actual eviction 3. Constructive eviction

Question 47

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

Answer 47

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.