Chapter 8 - Real Estate Sales Contracts

Question 1

Purchase Contract

Answer 1

• Provision for the buyer’s earnest money deposit
• The buyers offer to purchase
• The acceptance of the offer by the seller
• Provisions for the payment of a brokerage commission

Question 2

Earnest Money Deposit

Answer 2

Money that accompanies an offer to purchase as evidence of good faith
- No laws govern size or need for one (Amount is negotiable)
-Court ordered sales - Normally 10%

Question 3

Date of Possession

Answer 3

Closing Date

Question 4

Deposit Money

Answer 4

Money held in escrow
Downpayment

Question 5

Loan Conditions

Answer 5

Protects buyers from losing deposit money if he cannot get a loan

Question 6

Loan Commitment Letter

Answer 6

A written agreement that a lender will make a loan

Question 7

Uniform Vendor and Purchase Risk Act

Answer 7

• If neither possession nor tile has passed and there is destruction ( ex. tornado) to the property, the seller cannot enforce the contract and the buyer is entitled to his money back
• If the damage is minor and promptly repaired, the contract is still enforceable
• If either possession or title HAS passed, the buyer is not relieved of his duty to pay the price, nor is he entitled to a refund of money already paid.

Question 8

Time is of the essence

Answer 8

The time limits of a contract must be faithfully observed or the contract is voidable by the non-defaulting party

Question 9

Amendatory Language

Answer 9

Government required clauses in FHA and VA contracts

Question 10

Rider

Answer 10

Any addition annexed to a document and made part of the document by reference (Addendums or attachments)

Question 11

Binder

Answer 11

Short purchase contract used to secure a real estate transaction until a more formal contract can be signed

Question 12

Installment Contract

Answer 12

Method of selling and financing property whereby the seller retains title but the buyer takes possession while making payments
- Used when buyer doesn’t have the money and cannot borrow it
- Most commonly used to sell vacant land

Question 13

Equitable Title

Answer 13

The right to demand that title be conveyed upon payment of the purchase price

Question 14

Lease-Option Contract

Answer 14

Lease with the option to buy
Allows the tenant to by the property at preset price and terms for a given period
Popular in soft-real estate markets
May create income tax issues
Contract must be water-tight from the beginning
Unilateral

Question 15

Right of First Refusal

Answer 15

The right to match or better an offer before the property is sold to someone else
Tenant can veto any negotiations

Question 16

Exchange Agreements

Answer 16

No need to pay income taxes
I’ll give you this property for that property

Question 17

Tax-Deferred Exchange

Answer 17

A sale of real property in exchange for another parcel of real estate to effect a nontaxable gain
- Apply to investment property only
- 3 transactions: 2 conveyances & 1 escrow agreement with a QI

Question 18

Qualified Intermediary (QI)

Answer 18

The 3rd party escrow agent used in tax-deferred exchange

Question 19

Delayed Exchange

Answer 19

Property is exchanged for a right to receive property at a future date

Question 20

A formal real estate contract, prepared at the outset by an agent using prepared forms, may be idenitified as

Answer 20

• Purchase Contract
• Offer and Acceptance
• Purchase Offer

Question 21

Property taxes, rent, loan interest and other items paid in advance, may be divided between the parties to the contract by the process of

Answer 21

Proration

Question 22

Typically, physical possession of the property is given to the buyer

Answer 22

the day of close of escrow (Settlement/closing)

Question 23

A contract of sale called for loan closing cost to be paid entirely by the seller. Was this an enforceable provision of the contract?

Answer 23

Yes, because the loan closing cost is negotiable

Question 24

A buyer signed a contract to purchase real property from the seller, subject to the buyer’s ability to secure a loan for a part of the purchase price within thirty days. After diligent effort, the buyer was unable to secure the loan within the specific time. This contract is

Answer 24

voidable by the buyer

Question 25

If a seller fails to carry out his obligation under a typical residential contract of sale, the buyer can

Answer 25

- Sue for specific performance - Rescind the contract - Sue for monetary damager

Question 26

The phrase "time is on the essence" in a sales contract means that the

Answer 26

time limits specified in the contract must be faithfully observed or the contract is voidable

Question 27

Mr. and Mrs. Snell enter into a real estate contract with no contingencies with Mr. and Mrs. Garcia. If Mr. Garcia dies before settlement takes place, what would happen?

Answer 27

Should a party to a sales contract die after its execution but before performance is completed, the contract remains binding on the other party and upon the estate of the decedent

Question 28

A letter of intent is

Answer 28

one which creates no liability. - It is not an agreement to enter into a contract and is not binding to either party

Question 29

Who should be represented by an attorney at the meeting for the purpose of preparing a formal contract as provided for in a binder?

Answer 29

Seller and buyer - There is generally no need for the agent to have legal representation

Question 30

Traditionally installment contracts used for the purchase of real estate has favored the

Answer 30

Vendor (Seller)

Question 31

A well-written installment contract will include language which specifies:

Answer 31

- Responsibility for maintenance - Payment of taxes and insurance - Casualty loss

Question 32

A purchaser's right to acquire legal title to real property under the terms of a valid purchase agreement is known as

Answer 32

Equitable Title

Question 33

Equitable title can

Answer 33

be transferred by sale

Question 34

A buyer and seller enter into a purchase contract for the sale of the seller's residence. From the moment the contract was signed by both parties, the

Answer 34

The seller retains the legal title, but the buyer now holds an equitable interest in the property. The seller may not void the contract.

Question 35

Under the terms of a lease with option to buy, the tenant is given the right to purchase the property

Answer 35

At any time during the option period at a preset price

Question 36

A lease-option tends to favor the

Answer 36

Optionee because the open may or may not be exercised by the optionee and the optionor has no choice but to accept the optionee's decision

Question 37

Landlord Larry and tenant Tee entered into an agreement in writing which gave Tee the right to match any valid offer which Larry might receive for the purchase of the property. Did this agreement constitute a lease-option on the property?

Answer 37

No, because the elements of an option to buy were not present.

Question 38

When an owner-occupied dwelling sells for a profit, which has been owned for 24 months, taxes on the gain are

Answer 38

Not due - because it has been owned for 24 months

Question 39

1984 Tax Reform Act requires that the designated property to be exchanged be

Answer 39

- Identified within 45 days of the original closing - That title be acquired within 180 days of closing - The property be received before the designating party's tax return is due

Question 40

Wade wants to trade up to a larger property and at the same time defer that capital gain in his present property. He wants Tom's property and would like to trade directly with Tom. However, Tom wants cash, not Wade's property. John has cash and wants Wade's property. How can this be done.

Answer 40

- Wade trades with Tom who in turn sells to John. - John buys Tom's property and trades with Wade

Question 41

Lead based paint disclosure is required for all homes built prior to

Answer 41

1978