Chapter 11

Question 1

What is a contract?

Answer 1

If it is in writing, and contains all the valid essentials, it is also enforceable.

Question 2

What is the statue of frauds?

Answer 2

protects consumers from fraud. It says that all contracts must be in writing to be enforceable and that all leases for more than one year must be in writing to be enforceable

Question 3

What is the statue of limitations?

Answer 3

provides a time frame which court cases must be filed on certain offenses. If the Statute of Limitations runs out, the case cannot be heard

Question 4

What are the essential parts of a contract to be valid?

Answer 4

1. Legally competent parties
2. Offer and acceptance - meeting of the minds
3. Consideration
4. Legality of object - purpose of the contract, rent, sell, buy, etc.

Question 5

When is an contract valid?

Answer 5

an offer to purchase is not a contract. When an offer or counter offer is mutually agreed upon and the seller and/or buyer have signed and dated the final change, the offer becomes a valid contract.

Question 6

Contract Valid means

Answer 6

it is binding and enforceable on all parties. All essentials of a contract are in place.

Question 7

Contract is void means

Answer 7

has no legal effect. One of the essential elements is missing or is corrupted.

Question 8

Voidable means

Answer 8

is valid on the surface but may be rejected by one of the parties due to an error or misinformation. A voidable contract requires court action on the part of the injured party to correct the problem.

Question 9

Enforceable means

Answer 9

that all of the essentials of a contract are present and that the contract is in writing. This is a contract that can be heard by the court.

Question 10

Unenforceable means

Answer 10

means the contract may be valid between the parties (such as a handshake agreement), that all the essential elements are in place but the contract is not in writing.

Question 11

To be enforceable, a contract must have four major components, which are:

Answer 11

1. Legal purpose and competency,

2. Offer and acceptance and consideration, and be in writing.

Question 12

What is earnest money?

Answer 12

It is only a good faith deposit to ensure the seller that the buyer will honor his promises and complete the sale. A deposit or escrow is NOT required to create a valid contract.

Question 13

What is equitable title?

Answer 13

The interest a buyer has in a property between the time of acceptance (notification) of the contract and the actual closing. When the transaction closes,

Question 14

What are the types of contracts?

Answer 14

1. Bilateral - each party of the contract promises to do something
2. Unilateral - one way contract
3. Expressed - is a contract, oral or written which contains specific terms and conditions
4. Implied - is a contract which occurs by the actions of the parties
5. Executory - is a contract in process
6. Executed - is a contract completed
7. Formal contract - was originally written under seal, meaning the wax seal of the parties.
8. Informal contract - an oral or parol contract usually not enforceable

Question 15

What are the ways to terminate an offer?

Answer 15

An offer is withdrawn by the offeror.

The time for an offer has passed and the offer is dead.

The death or insanity of either party.

A counter offer is given, making the first offer dead.

The offer is accepted and signed by both parties,
creating a CONTRACT.

The offer is rejected by one party completely.

The property in question is destroyed.

Question 16

How can a contract be terminated?

Answer 16

1. Performance: the contract is completed
2. Mutual rescission: both parties agree to cancel the contract.
3. Impossibility of performance:
4. Operation of Law: bankruptcy of either party or eminent domain of the property.
5. Breach: one or the other or both of the parties have broken the promises made.

Question 17

An injury party may seek remedy for damages by one of the following methods:

Answer 17

1. Suit for Cancellation: (Rescind the contract) the court restores the parties to their original position before the contract.
2. Suit for Specific Performance: Because no two pieces of property are alike, the buyer wants this house, at this time and asks the court to enforce the contract.
3. Suit for Damages: Because a party may have expenses to the contract (such as an appraisal or moving) the injured party asks the court to make the other party pay damages

Question 18

What is an assignment of contract?

Answer 18

when a third person takes the place of one of the original people in the contract.

Question 19

What is Novation?

Answer 19

is a change in the original terms, such as an extension of time for closing or loan commitment. All other terms of the contract remain the same.

Question 20

What is contingency?

Answer 20

means conditions or terms yet to be performed.

Question 21

What is Mirror Image?

Answer 21

A seller agrees to an offer exactly as it was written. No changes are made to the offer; it is signed by the seller as it was written.

Question 22

What is a Counteroffer?

Answer 22

is an attempt by the seller or buyer to change the terms proposed by the other party

Question 23

What is deemed as Time is of the Essence?

Answer 23

means the promises must be performed with a certain time frame or the party will be in breach of contract.

Question 24

What is the Parol Evidence Rule?

Answer 24

anything in writing (like the contract) takes precedence over oral or verbal agreements.

Question 25

What must be included in any written listing agreement?

Answer 25

a definite expiration date; 
proper identification of the property; 
price, terms and conditions; 
fee or commission to be paid; 
signature of the owner and the broker or his agent.

Question 26

What is a unilateral contract?

Answer 26

When the seller sells the property without the broker, he pays no commission. In other words, the seller does it all.

Question 27

There are two types of listing agreements

Answer 27

Exclusive Agency Listing - seller can get commission if he or she procures the buyer.

The listing broker is always entitled to a commission

Question 28

What conditions entitle the broker to a commission?

Answer 28

A ready, willing and able buyer = commission

Question 29

What conditions terminate a listing?

Answer 29

“The property sold!”

Expiration of the time as stated in the agreement - “Too late!”

Renunciation by the broker - “I quit!”

Revocation by the seller- “You’re fired!”

Transfer of title by operation of law- Foreclosure

Mutual Consent- “Let’s quit, this was a bad idea!”

Death or incapacity of either the seller or the broker*

Destruction of the property or a change in use by outside forces-“The property has been zoned commercial, now!”
Bankruptcy of the seller

Question 30

What elements must be included in a buyer brokerage agreement?

Answer 30

Names of the parties 
Definite beginning and expiration date 
Terms and conditions of employment 
General description of the property sought 
Retainer or compensation 
Type of broker-buyer relationship 
Signatures of the parties

Question 31

What must be contained in a sales contract?

Answer 31

names of the parties (seller and buyer)
legal description of the property or street address or both
consideration given/purchase price
financing or cash terms
quality and evidence of title to be conveyed
name, phone number and address of the Escrow holder
type of deed to be used- General Warranty is presumed unless otherwise stated
Estate to be acquired - Fee simple unless otherwise noted
terms of expenses and statement of prorations
any personal property to be included
date, time and place of closing
when possession will occur
signatures of the parties
any disclosures required by law

Question 32

Does Earnest Money binds a contract?

Answer 32

No

Question 33

What disclosures must be made to a buyer prior to the purchase of a property according to state and federal law?

Answer 33

Radon gas 
Energy Efficiency brochure 
Lead-based paint disclosure
Home owner's association disclosure
Flood insurance disclosure
Condominium and cooperative disclosure
Building code violation disclosure

Question 34

What is an installment contract?

Answer 34

It is a bilateral contract and can be called a Contract for Deed

Question 35

Who is exempt from do not call?

Answer 35

Political organization 
Charities 
Telephone survey firms 
Business telephone numbers 
Legitimate calls made to For Sale by Owners

Question 36

What is Safe Harbor?

Answer 36

A policy manual within the brokerage directing action of sales associate