Unit 9: Real Estate Contracts

Question 1

Identify the requirements for a valid contract and the statute of limitations for contract enforcement.

Answer 1

1 - competent parties
2 - offer and acceptance
3 - consideration
4 - legality of object
5 - agreement in writing and signed

Under Texas law, any action for the specific performance of a contract for the conveyance of real property must be commenced within four years from the date of the breach.

Question 2

assignment

Answer 2

The transfer in writing of interest in a

contract, mortgage, lease, or other instrument.

Question 3

breach

Answer 3

Violation of any terms or conditions
in a contract without legal excuse; for example, failure to
make a payment when it is due.

Question 4

competent parties

Answer 4

People who are recognized by law as
being able to contract with others; usually those of legal age
and sound mind.

Question 5

consideration

Answer 5

Something of value that induces a person
to enter into a contract. Consideration may be “valuable”
(money) or “good” (love and affection).

Question 6

contract

Answer 6

An agreement entered into by two or more
legally competent parties by the terms of which one or
more of the parties, for a consideration, undertake to do or
refrain from doing some legal act or acts. A contract may
be either unilateral, where only one party is bound to act,
or bilateral, where all parties to the instrument are legally
bound to act as prescribed.

Question 7

contract for deed

Answer 7

A contract for the sale of real estate
wherein the purchase price is paid in periodic installments
by the purchaser, who is in possession of the property even
though title is retained by the seller until final payment.
Also called an installment contract, land contract, or contract
of sale.

Question 8

counteroffer

Answer 8

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

Question 9

earnest money deposit

Answer 9

An amount of money,
deposited by a prospective buyer as evidence of good faith
under the terms of a contract, that is to be forfeited if the
buyer defaults but applied to the purchase price if the sale
is closed.

Question 10

equitable title

Answer 10

The interest held by a vendee under a
contract for deed or an installment contract; the equitable
right to obtain absolute ownership to property when legal
title is held in another’s name.

Question 11

escrow agreement

Answer 11

A contract, used when a transaction
is closed through an escrow, that sets forth the duties of the
escrow agent, as well as the requirements and obligations of
the parties to the transaction.

Question 12

executed contract

Answer 12

A contract in which all parties have
fulfilled their promises; a contract is executed upon closing
and funding.

Question 13

executory contract

Answer 13

A contract under which something

remains to be done by one or more of the parties.

Question 14

express contract

Answer 14

An oral or a written contract in which
the parties state the contract’s terms and express their
intentions in words.

Question 15

implied contract

Answer 15

A contract under which the agreement

of the parties is demonstrated by their acts and conduct.

Question 16

legality of object

Answer 16

An essential component of a valid
contract; a contract must be for a legal purpose and in
compliance with public policy.

Question 17

liquidated damages

Answer 17

An amount predetermined
by the parties to an agreement as the total amount of
compensation an injured party should receive if the other
party breaches a contract; usually the earnest money in a
residential sales transaction.

Question 18

novation

Answer 18

Substituting a new obligation for an old one
or substituting new parties to an existing obligation. For
example, a lender’s modifying note terms for a buyer who
fell behind on payments.

Question 19

offer and acceptance

Answer 19

Two essential components of a

valid contract; a “meeting of the minds.”

Question 20

option

Answer 20

The right to purchase property within a definite
time at a specified price. There is no obligation to purchase,
but the seller is obligated to sell if the option holder
exercises the right to purchase.

Question 21

specific performance

Answer 21

A legal action brought to compel

a party to carry out the terms of a contract.

Question 22

statute of limitations

Answer 22

That law pertaining to the period
of time within which certain actions must be brought to
court.

Question 23

Texas Real Estate Broker-Lawyer Committee

Answer 23

A
committee that drafts and revises standard contract forms
to be used by real estate license holders.

Question 24

unenforceable contract

Answer 24

A contract that has all the
elements of a valid contract, yet neither party can sue the
other to force performance of it. For example, an oral
listing agreement is generally unenforceable.

Question 25

unilateral contract

Answer 25

A one-sided contract wherein one
party makes a promise in order to induce a second party
to do something. The second party is not legally bound to
perform; however, if the second party does comply, the first
party is obligated to keep the promise.

Question 26

valid contract

Answer 26

A contract that complies with all the
essentials of a contract and is binding and enforceable to all
parties to it.

Question 27

void contract

Answer 27

A “contract” that has no legal force or
effect because it does not meet the essential elements of a
contract and therefore is not a contract.

Question 28

voidable contract

Answer 28

A contract that seems to be valid on
the surface but may be rejected or disaffirmed by one or
both parties.