National Contracts

Question 1

The sales contract says the buyer will purchase the property only if an attorney approves the sale by the following Saturday. The attorney’s approval is

A)
a warranty.
B)
a consideration.
C)
a lis pendens.
D)
a contingency.

Answer 1

The sales contract says the buyer will purchase the property only if an attorney approves the sale by the following Saturday. The attorney’s approval is

A)
a warranty.
Incorrect Answer
B)
a consideration.
Incorrect Answer
C)
a lis pendens.
Incorrect Answer
D)
a contingency.
Correct Answer
Explanation
A contingency requires something to happen or the contract can be terminated and the earnest money returned. A lis pendens is notice of a pending lawsuit. A warranty promises that certain stated facts are true. Consideration is one of the essential elements of the contract to make it valid and is something of value offered in exchange for something from another.

Reference: Contracts > Contract Clauses, Including Amendments and Addenda

Question 2

Which of these is NOT required to create a valid sales contract?

A)
Signatures
B)
Consideration
C)
Offer and acceptance
D)
Earnest money

Answer 2

Which of these is NOT required to create a valid sales contract?

A)
Signatures
Incorrect Answer
B)
Consideration
Incorrect Answer
C)
Offer and acceptance
Incorrect Answer
D)
Earnest money
Correct Answer
Explanation
Earnest money is not consideration and is not necessary to create a binding contract.

Reference: Contracts > General Concepts

Question 3

A seller sold a residential dwelling to a buyer for $1,000,000. The buyer obtained financing from a major institutional lender for $800,000 and had sufficient assets to put $100,000 towards a down payment. To assist the buyer, the seller extended $100,000 in credit towards the purchase price. Title transferred immediately to the buyer at the close of escrow. All of the following terms describe this scenario EXCEPT

A)
land contract.
B)
seller carry-back.
C)
seller financing.
D)
purchase money mortgage.

Answer 3

A seller sold a residential dwelling to a buyer for $1,000,000. The buyer obtained financing from a major institutional lender for $800,000 and had sufficient assets to put $100,000 towards a down payment. To assist the buyer, the seller extended $100,000 in credit towards the purchase price. Title transferred immediately to the buyer at the close of escrow. All of the following terms describe this scenario EXCEPT

A)
land contract.
Correct Answer
B)
seller carry-back.
Incorrect Answer
C)
seller financing.
Incorrect Answer
D)
purchase money mortgage.
Incorrect Answer
Explanation
In a land contract (a.k.a. an installment sales contract), title to the property is only conveyed from the seller to the buyer when the land contract is paid in full. Here, title to the property transferred immediately to the buyer at the close of escrow. All of these terms relate to the seller financing described in the test question.

Note: A purchase money mortgage is any loan that is used to purchase a property. In this test question, the $800,000 loan from a major institutional lender and the $100,000 seller carry-back loan would both be considered purchase money mortgages.

Reference: Contracts > Installment Sales Contracts (Equitable Title)

Question 4

A contract that exchanges a promise for performance is

A)
unilateral.
B)
bilateral.
C)
executory.
D)
implied.

Answer 4

A contract that exchanges a promise for performance is

A)
unilateral.
Correct Answer
B)
bilateral.
Incorrect Answer
C)
executory.
Incorrect Answer
D)
implied.
Incorrect Answer
Explanation
In a unilateral contract, such as an option, the seller promises to sell if the buyer decides to buy (perform). Bilateral contracts have both parties promising to each other. An implied contract is created by actions and an executory contract is yet to be performed.

Reference: Contracts > General Concepts

Question 5

A real estate contract with a minor is

A)
voidable.
B)
unilateral.
C)
illegal.
D)
void.

Answer 5

A real estate contract with a minor is

A)
voidable.
Correct Answer
B)
unilateral.
Incorrect Answer
C)
illegal.
Incorrect Answer
D)
void.
Incorrect Answer
Explanation
Duress, fraud, misrepresentation, and minors always make contracts voidable. A promise exchanged for performance is a unilateral contract. A void contract lacks an essential element an illegal contract lacks a lawful purpose so is also void.

Reference: Contracts > Types of Contracts

Question 6

One contract was substituted for another contract, and there was a release of liability from the original contract. The term that defines the release is

A)
assignment.
B)
novation.
C)
exchange.
D)
alienation.

Answer 6

One contract was substituted for another contract, and there was a release of liability from the original contract. The term that defines the release is

A)
assignment.
Incorrect Answer
B)
novation.
Correct Answer
C)
exchange.
Incorrect Answer
D)
alienation.
Incorrect Answer
Explanation
Novation is a new contract replacing the old with the full release of liability. The transfer of rights duties, but not the liabilities, from one person to another person, is an assignment. Alienation is the process of transferring ownership via a deed.

Reference: Contracts > General Concepts

Question 7

During the period of time after a real estate sales contract is signed, but before title actually passes, the status of the contract is

A)
voidable.
B)
executed.
C)
unilateral.
D)
executory.

Answer 7

During the period of time after a real estate sales contract is signed, but before title actually passes, the status of the contract is

A)
voidable.
Incorrect Answer
B)
executed.
Incorrect Answer
C)
unilateral.
Incorrect Answer
D)
executory.
Correct Answer
Explanation
A contract is in executory status when its terms of agreement have not yet been carried out. When it has been carried out, it is said to be executed. A unilateral contract binds only one party to act. A voidable contract is one that is able to be voided because of duress, fraud, misrepresentation, or because one party to the contract is a minor.

Reference: Contracts > General Concepts

Question 8

A contract that may be rescinded by one party due to duress, fraud, misrepresentation, or because one party is a minor, is also known as

A)
a voidable contract.
B)
a void contract.
C)
a novation.
D)
valid.

Answer 8

A contract that may be rescinded by one party due to duress, fraud, misrepresentation, or because one party is a minor, is also known as

A)
a voidable contract.
Correct Answer
B)
a void contract.
Incorrect Answer
C)
a novation.
Incorrect Answer
D)
valid.
Incorrect Answer
Explanation
A contract is voidable if only one party may enforce or rescind it against the other party. Valid contracts contain all the essential elements and are binding and enforceable. Void contracts lack an essential element and are not binding. Novation is a new contact replacing an old one.

Reference: Contracts > General Concepts

Question 9

A listing broker presents an offer to her client, a seller, with a selling price much lower than what the seller is asking for the property. The offer allows the seller 24 hours to accept. The broker recommends that the seller counter the offer and leaves a blank counter with the seller. The seller emails the broker in the morning saying that based on the wishes of her children, who are not on the title, she has accepted the offer. It this case, the offer

A)
gives the buyer possession until closing.
B)
may be a voidable contract due to duress.
C)
is a valid contract, which may be voidable due to fraud.
D)
is void due to undue influence by the children.

Answer 9

A listing broker presents an offer to her client, a seller, with a selling price much lower than what the seller is asking for the property. The offer allows the seller 24 hours to accept. The broker recommends that the seller counter the offer and leaves a blank counter with the seller. The seller emails the broker in the morning saying that based on the wishes of her children, who are not on the title, she has accepted the offer. It this case, the offer

A)
gives the buyer possession until closing.
Incorrect Answer
B)
may be a voidable contract due to duress.
Correct Answer
C)
is a valid contract, which may be voidable due to fraud.
Incorrect Answer
D)
is void due to undue influence by the children.
Incorrect Answer
Explanation
The seller would have to claim her children forced her to accept the buyer’s offer under duress in order to terminate the contract or make it voidable. Void contracts lack one or all of the essential elements of a contract. A contract must be entered into freely and voluntarily by each party, without undue influence. Duress, undue influence, misrepresentation, fraud, or a minor party entering into a contract are all circumstances that may create a contract that is voidable by the injured party.

Reference: Contracts > Types of Contracts

Question 10

A real estate professional has found a buyer for a seller’s home. The buyer has indicated in writing a willingness to buy the property for $1,000 less than the asking price and has deposited $5,000 in earnest money with the real estate professional. The seller is out of town for the weekend, and the real estate professional has been unable to inform the seller of the signed document. At this point, the buyer has

A)
a voidable contract.
B)
an offer.
C)
an executory contract.
D)
an implied contract.

Answer 10

A real estate professional has found a buyer for a seller’s home. The buyer has indicated in writing a willingness to buy the property for $1,000 less than the asking price and has deposited $5,000 in earnest money with the real estate professional. The seller is out of town for the weekend, and the real estate professional has been unable to inform the seller of the signed document. At this point, the buyer has

A)
a voidable contract.
Incorrect Answer
B)
an offer.
Correct Answer
C)
an executory contract.
Incorrect Answer
D)
an implied contract.
Incorrect Answer
Explanation
Until the seller accepts the offer and the buyer is notified of the acceptance, there is no contract, only an offer.

Reference: Contracts > General Concepts

Question 11

A seller has received an offer. The seller crossed out a number of items, wrote in the changes the seller wanted, initialed them, and returned the document to the buyer. The original offer the offeror gave the seller is considered

A)
binding only on the original offeror.
B)
a partial termination with conditional acceptance of the offer.
C)
terminated and countered.
D)
a partial acceptance of the original offer.

Answer 11

A seller has received an offer. The seller crossed out a number of items, wrote in the changes the seller wanted, initialed them, and returned the document to the buyer. The original offer the offeror gave the seller is considered

A)
binding only on the original offeror.
Incorrect Answer
B)
a partial termination with conditional acceptance of the offer.
Incorrect Answer
C)
terminated and countered.
Correct Answer
D)
a partial acceptance of the original offer.
Incorrect Answer
Explanation
The counteroffer effectively terminates the original offer and creates a new offer. Therefore, the original offer is not valid, accepted, or binding.

Reference: Contracts > Sales Contract

Question 12

An optionee has communicated to the optionor that the optionee will purchase the property. This option contract is now exercised and is BEST described as

A)
an executory unilateral purchase contract.
B)
an executed unilateral purchase contract.
C)
an executed bilateral purchase contract.
D)
an executory bilateral purchase contract.

Answer 12

An optionee has communicated to the optionor that the optionee will purchase the property. This option contract is now exercised and is BEST described as

A)
an executory unilateral purchase contract.
Incorrect Answer
B)
an executed unilateral purchase contract.
Incorrect Answer
C)
an executed bilateral purchase contract.
Incorrect Answer
D)
an executory bilateral purchase contract.
Correct Answer
Explanation
When the buyer informs the seller that he is going to purchase the property, the option is exercised, and an executory bilateral purchase contract exists.

Reference: Contracts > Option Contracts

Question 13

A legally enforceable agreement under which both parties promise to do something for each other is called

A)
an option agreement.
B)
an escrow agreement.
C)
a bilateral contract.
D)
a legal pledge.

Answer 13

A legally enforceable agreement under which both parties promise to do something for each other is called

A)
an option agreement.
Incorrect Answer
B)
an escrow agreement.
Incorrect Answer
C)
a bilateral contract.
Correct Answer
D)
a legal pledge.
Incorrect Answer
Explanation
Bilateral contracts are created by the parties both making promises. Escrow agreements set the terms for closing. An option is a unilateral contract.

Reference: Contracts > Types of Contracts

Question 14

A buyer signed a purchase agreement, but then the seller decided not to sell. The buyer sued the seller successfully and was able to purchase the house. What was the contract remedy if the seller was in default?

A)
Unilateral rescission
B)
Mutual agreement
C)
Specific performance
D)
Liquidated damages

Answer 14

A buyer signed a purchase agreement, but then the seller decided not to sell. The buyer sued the seller successfully and was able to purchase the house. What was the contract remedy if the seller was in default?

A)
Unilateral rescission
Incorrect Answer
B)
Mutual agreement
Incorrect Answer
C)
Specific performance
Correct Answer
D)
Liquidated damages
Incorrect Answer
Explanation
The buyer does not have the option of liquidated damages because the seller has not brought any earnest money to the contract. Mutual agreement is when the parties terminate and return all items of value to each party as if the contract did not exist. Unilateral rescission is one party terminating.

Reference: Contracts > General Concepts

Question 15

A buyer signs a contract under which he is given the right to purchase a property for $130,000 anytime in the next six months. The buyer pays the current owner $500 at the time that contract is signed. Which of these BEST describes this agreement?

A)
A bilateral executory sales contract
B)
A bilateral contingency contract
C)
An installment land contract binding both parties
D)
A unilateral option contract binding the seller

Answer 15

A buyer signs a contract under which he is given the right to purchase a property for $130,000 anytime in the next six months. The buyer pays the current owner $500 at the time that contract is signed. Which of these BEST describes this agreement?

A)
A bilateral executory sales contract
Incorrect Answer
B)
A bilateral contingency contract
Incorrect Answer
C)
An installment land contract binding both parties
Incorrect Answer
D)
A unilateral option contract binding the seller
Correct Answer
Explanation
The buyer has the right to buy in the future but is not bound to buy, which creates an option contract.

Reference: Contracts > Option Contracts

Question 16

A buyer makes an offer on a house, and the seller accepts the offer. At this point, the buyer has what type of title to the property?

A)
Equitable
B)
Voidable
C)
Possessionary
D)
Legal

Answer 16

A buyer makes an offer on a house, and the seller accepts the offer. At this point, the buyer has what type of title to the property?

A)
Equitable
Correct Answer
B)
Voidable
Incorrect Answer
C)
Possessionary
Incorrect Answer
D)
Legal
Incorrect Answer
Explanation
On formation of the contract between both parties, the contract is now an executory contract, with the buyer having equitable title. Voidable is a term used to describe a contract that is able to be voided because of duress, fraud, misrepresentation, or because one party to the contract is a minor. In the executory stage, the seller holds legal title and possession until closing, unless a different time of possession is negotiated.

Reference: Contracts > General Concepts

Question 17

The buyer’s offer stipulates that the closing must take place by April 15 or the contract is null and void. The buyer may refuse to purchase on April 16 if the contract contained

A)
a settlement clause.
B)
a contingency clause.
C)
a time is of the essence clause.
D)
a transfer clause.

Answer 17

The buyer’s offer stipulates that the closing must take place by April 15 or the contract is null and void. The buyer may refuse to purchase on April 16 if the contract contained

A)
a settlement clause.
Incorrect Answer
B)
a contingency clause.
Incorrect Answer
C)
a time is of the essence clause.
Correct Answer
D)
a transfer clause.
Incorrect Answer
Explanation
Time is of the essence means that if the requirement is not met, the contract has been breached.

Reference: Contracts > Contract Clauses, Including Amendments and Addenda

Question 18

A purchase agreement would likely be voidable under all of these circumstances EXCEPT

A)
the seller signed under duress.
B)
the buyer didn’t read or understand the contract.
C)
the purchaser is a minor.
D)
the seller made a material misrepresentation to the buyer.

Answer 18

A purchase agreement would likely be voidable under all of these circumstances EXCEPT

A)
the seller signed under duress.
Incorrect Answer
B)
the buyer didn’t read or understand the contract.
Correct Answer
C)
the purchaser is a minor.
Incorrect Answer
D)
the seller made a material misrepresentation to the buyer.
Incorrect Answer
Explanation
Part of due diligence on the part of a buyer and a seller is to fully read and understand all legal documents they are signing or consult an attorney or other advisor for help. Duress, fraud, misrepresentation, and minors always make contracts voidable.

Reference: Contracts > Types of Contracts

Question 19

A broker has found a buyer for a seller’s home. The buyer has indicated in writing a willingness to buy the property by signing a written agreement. The seller is out of town for the weekend, and the broker has been unable to inform the seller of the signed document. At this point, the buyer has signed

A)
a voidable contract.
B)
an implied contract.
C)
an offer.
D)
an executory contract.

Answer 19

A broker has found a buyer for a seller’s home. The buyer has indicated in writing a willingness to buy the property by signing a written agreement. The seller is out of town for the weekend, and the broker has been unable to inform the seller of the signed document. At this point, the buyer has signed

A)
a voidable contract.
Incorrect Answer
B)
an implied contract.
Incorrect Answer
C)
an offer.
Correct Answer
D)
an executory contract.
Incorrect Answer
Explanation
A form that offers to buy property but has not been seen or acted on by the property owner is simply an offer. Even if the offer had been for full price, no contract or agreement would yet exist, and the offeror (buyer) would have no claim on the offeree (seller).

Reference: Contracts > Types of Contracts

Question 20

Which of these gives the BEST evidence of the buyer’s intention to carry out the terms of the real estate purchase contract?

A)
The provision that “time is of the essence”
B)
The earnest money deposit
C)
The agreement to seek mortgage financing
D)
The “subject to” clause

Answer 20

Which of these gives the BEST evidence of the buyer’s intention to carry out the terms of the real estate purchase contract?

A)
The provision that “time is of the essence”
Incorrect Answer
B)
The earnest money deposit
Correct Answer
C)
The agreement to seek mortgage financing
Incorrect Answer
D)
The “subject to” clause
Incorrect Answer
Explanation
The earnest money deposit is customary in real estate transactions to provide evidence of a buyer’s intention to carry out the terms of the contract in good faith. It is also the seller’s only remedy in a liquidated damages contract. A buyer may pay cash and not require mortgage financing, so an earnest money deposit is the best evidence of the buyer’s intention to purchase, even though earnest money is not consideration and not required to have a valid sales contract. The “subject to” clause and the “time is of the essence” clause do not relate to the buyer’s intentions but are requirements of the contract.

Reference: Contracts > General Concepts

Question 21

A contract between two or more parties, each making a promise to perform certain acts, is called

A)
an implied contract.
B)
a voidable contract.
C)
a bilateral contract.
D)
a unilateral contract.

Answer 21

A contract between two or more parties, each making a promise to perform certain acts, is called

A)
an implied contract.
Incorrect Answer
B)
a voidable contract.
Incorrect Answer
C)
a bilateral contract.
Correct Answer
D)
a unilateral contract.
Incorrect Answer
Explanation
Promises exchanged for promises define bilateral contracts. A promise exchanged for performance is a unilateral contract. Implied contracts are created by actions.

Reference: Contracts > Types of Contracts

Question 22

A person approaches an owner and says, “I’d like to buy your house.” The owner says, “Sure,” and they agree on a price. What kind of contract is this?

A)
Void
B)
Implied
C)
No contract
D)
Unenforceable

Answer 22

A person approaches an owner and says, “I’d like to buy your house.” The owner says, “Sure,” and they agree on a price. What kind of contract is this?

A)
Void
Incorrect Answer
B)
Implied
Incorrect Answer
C)
No contract
Incorrect Answer
D)
Unenforceable
Correct Answer
Explanation
Until the parties put the agreement into writing, it is unenforceable, because under the statute of frauds, all transfers of real estate must be in writing.

Reference: Contracts > Types of Contracts

Question 23

All of these are essential elements of a contract EXCEPT

A)
words of conveyance.
B)
lawful objective.
C)
mutual agreement.
D)
consideration.

Answer 23

All of these are essential elements of a contract EXCEPT

A)
words of conveyance.
Correct Answer
B)
lawful objective.
Incorrect Answer
C)
mutual agreement.
Incorrect Answer
D)
consideration.
Incorrect Answer
Explanation
The essential elements of a valid contract are the following: competent parties, mutual agreement, lawful objective, consideration, and in writing. Words of conveyance are required in deeds.

Reference: Contracts > General Concepts

Question 24

Under the statute of frauds, all contracts for the sale of real estate must be

A)
accompanied by earnest money deposits.
B)
on preprinted forms.
C)
in writing to be enforceable.
D)
originated by a real estate professional.

Answer 24

Under the statute of frauds, all contracts for the sale of real estate must be

A)
accompanied by earnest money deposits.
Incorrect Answer
B)
on preprinted forms.
Incorrect Answer
C)
in writing to be enforceable.
Correct Answer
D)
originated by a real estate professional.
Incorrect Answer
Explanation
The statue of frauds requires all documents for the transfer of real estate be in writing; the exception is leases of 12 months or less.

Reference: Contracts > General Concepts

Question 25

The buyer and the seller have entered into a binding contract for sale. However, before closing, the law changes and the buyer's intended use of the property becomes illegal. Which is TRUE? A) The contract is void due to impossibility of performance. B) The contract is valid and enforceable under the rules of risk. C) The contract is valid, but the price must be renegotiated. D) The contract is terminated due to fraud by the seller.

Answer 25

The buyer and the seller have entered into a binding contract for sale. However, before closing, the law changes and the buyer's intended use of the property becomes illegal. Which is TRUE? A) The contract is void due to impossibility of performance. Correct Answer B) The contract is valid and enforceable under the rules of risk. Incorrect Answer C) The contract is valid, but the price must be renegotiated. Incorrect Answer D) The contract is terminated due to fraud by the seller. Incorrect Answer Explanation An essential element of a contract is the lawful objective or purpose; if this is no longer part of the contract, then the contract is void. In this case, the seller did not commit fraud, and no contract requires the price to be renegotiated if it becomes void. Reference: Contracts > Types of Contracts

Question 26

The seller has accepted monetary consideration and has agreed to sell his property for an agreed-upon amount within a specified time frame, if the buyer then chooses to purchase. This contract is called A) an option contract. B) a sales contract. C) a land contract. D) listing contract.

Answer 26

The seller has accepted monetary consideration and has agreed to sell his property for an agreed-upon amount within a specified time frame, if the buyer then chooses to purchase. This contract is called A) an option contract. Correct Answer B) a sales contract. Incorrect Answer C) a land contract. Incorrect Answer D) listing contract. Incorrect Answer Explanation In an option contract, the seller accepts option money and agrees to sell his property for a specified amount within a specified time frame, if the buyer chooses to purchase in the future. Reference: Contracts > Option Contracts

Question 27

In the purchase agreement, the buyer and the seller agreed to liquidated damages as a remedy for default. If the buyer defaults, this means that the seller A) keeps only the buyer’s earnest money. B) sues the buyer and keeps the earnest money. C) sues the buyer to buy the property. D) needs to notify the buyer of the intent to sue for liquidated damages.

Answer 27

In the purchase agreement, the buyer and the seller agreed to liquidated damages as a remedy for default. If the buyer defaults, this means that the seller A) keeps only the buyer’s earnest money. Correct Answer B) sues the buyer and keeps the earnest money. Incorrect Answer C) sues the buyer to buy the property. Incorrect Answer D) needs to notify the buyer of the intent to sue for liquidated damages. Incorrect Answer Explanation Liquidated damages as a remedy allows the seller to keep the earnest money and nothing more. Specific performance is a lawsuit to have the buyer perform the terms of the contract. Reference: Contracts > General Concepts

Question 28

In the event of a default, which of the following security instruments may result in a substantially longer foreclosure? A) A land contract B) A mortgage C) A trust deed D) A contract for deed

Answer 28

In the event of a default, which of the following security instruments may result in a substantially longer foreclosure? A) A land contract Incorrect Answer B) A mortgage Correct Answer C) A trust deed Incorrect Answer D) A contract for deed Incorrect Answer Explanation A mortgage (especially one that does not include a power of sale clause) may result in a substantially longer foreclosure. The traditional foreclosure—when a mortgage was used as a security instrument—was processed through the courts as a lawsuit, and that might not be resolved for a year or even longer. A land contract (a.k.a. a contract for deed) does not have the traditional historical protections for a borrower in default under a mortgage. This is particularly true because the seller still has legal title to the property. A trust deed (a.k.a. a deed of trust) is used in some states as a security instrument for a loan. The reason for the popularity of this type of financing instrument is that foreclosures typically occur outside of court, making them faster and cheaper. Reference: Contracts > Installment Sales Contracts (Equitable Title)

Question 29

If an owner takes his property off the market for a definite period of time in exchange for some consideration, but he grants an individual the right to purchase the property within that period for a stated price, the contract is called A) a contract of sale. B) an installment agreement. C) an option. D) a right of first refusal.

Answer 29

If an owner takes his property off the market for a definite period of time in exchange for some consideration, but he grants an individual the right to purchase the property within that period for a stated price, the contract is called A) a contract of sale. Incorrect Answer B) an installment agreement. Incorrect Answer C) an option. Correct Answer D) a right of first refusal. Incorrect Answer Explanation An option is granted when an owner (optionor) gives the potential purchaser (optionee) the right to purchase the property at a fixed price within a certain period. A contract of sale occurs when a seller and a buyer come to an agreement on the sale of a property. A right of first refusal is an agreement in which the holder of the right has the first opportunity to either purchase or lease real property once the owner offers the property for sale or lease. An installment agreement, also known as a contract for deed, is an agreement in which the seller becomes the lender and the buyer takes possession of the property, retaining equitable title to the property until the final payment to the seller is made. Reference: Contracts > Option Contracts

Question 30

What action returns a contract's parties to their positions before the contract, including return of any deposit? A) Cancellation B) Substitution C) Subordination D) Rescission

Answer 30

What action returns a contract's parties to their positions before the contract, including return of any deposit? A) Cancellation Incorrect Answer B) Substitution Incorrect Answer C) Subordination Incorrect Answer D) Rescission Correct Answer Explanation A rescission occurs when one party cancels or terminates the contract as if it had never been made. Cancellation terminates the contract without a return to the original position. Substitution is an appraisal principle of value. Subordination is used as a place holder and indicates a mortgage or other interest will not move in front of a newer recording. Reference: Contracts > General Concepts

Question 31

A person approaches an owner and says, "I'd like to buy your house." The owner says, "Sure," and they agree on a price and write it down on a piece of note paper and sign it. What kind of contract is this? A) Valid B) Unenforceable C) Voidable D) Void

Answer 31

A person approaches an owner and says, "I'd like to buy your house." The owner says, "Sure," and they agree on a price and write it down on a piece of note paper and sign it. What kind of contract is this? A) Valid Correct Answer B) Unenforceable Incorrect Answer C) Voidable Incorrect Answer D) Void Incorrect Answer Explanation Anytime a buyer and a seller agree in writing with notice and acceptance, a valid contract is formed. If the offer is missing an essential element, it is void and unenforceable. Duress, fraud, misrepresentation, and minors always make contracts voidable. Reference: Contracts > Types of Contracts

Question 32

All of these are examples of due diligence in a purchase contract EXCEPT A) the seller orders title work and agrees to pay for the owner’s policy at closing. B) the buyer has an attorney review the title commitment. C) the broker who completes a comparative market analysis (CMA) for a listing appointment. D) the buyer has a property inspection and calls zoning to verify the property zoning will meet her needs.

Answer 32

All of these are examples of due diligence in a purchase contract EXCEPT A) the seller orders title work and agrees to pay for the owner’s policy at closing. Incorrect Answer B) the buyer has an attorney review the title commitment. Incorrect Answer C) the broker who completes a comparative market analysis (CMA) for a listing appointment. Correct Answer D) the buyer has a property inspection and calls zoning to verify the property zoning will meet her needs. Incorrect Answer Explanation The broker is using due diligence, but it is for a listing and not the purchase contract. Due diligence is all parties to the transaction working in good faith to close. Reference: Contracts > General Concepts

Question 33

Consideration could be all of these EXCEPT A) something of value. B) earnest money. C) a promise. D) money.

Answer 33

Consideration could be all of these EXCEPT A) something of value. Incorrect Answer B) earnest money. Correct Answer C) a promise. Incorrect Answer D) money. Incorrect Answer Explanation Consideration is defined as a promise, money, or something of value. Earnest money is not consideration; it is the seller's remedy in a liquated damages contract. Reference: Contracts > General Concepts

Question 34

In regard to an offer and acceptance, all the following are true EXCEPT A) an offer can be revoked at any time before acceptance. B) in real estate, an oral acceptance creates a binding contract. C) to offer means to put forward for acceptance or rejection. D) a counteroffer reverses the legal positions of the offeror and offeree.

Answer 34

In regard to an offer and acceptance, all the following are true EXCEPT A) an offer can be revoked at any time before acceptance. Incorrect Answer B) in real estate, an oral acceptance creates a binding contract. Correct Answer C) to offer means to put forward for acceptance or rejection. Incorrect Answer D) a counteroffer reverses the legal positions of the offeror and offeree. Incorrect Answer Explanation The oral acceptance of an offer does not create a binding contract. The offer must be signed and followed with a communication of acceptance to become a binding contract. Reference: Contracts > General Concepts

Question 35

A minor entered into a contract to sell the house she had inherited to a buyer. This contract is MOST likely A) valid. B) voidable by the buyer. C) voidable by the minor. D) void.

Answer 35

A minor entered into a contract to sell the house she had inherited to a buyer. This contract is MOST likely A) valid. Incorrect Answer B) voidable by the buyer. Incorrect Answer C) voidable by the minor. Correct Answer D) void. Incorrect Answer Explanation Contracts with minors are always voidable. In this case, the contract is not voidable by the buyer because the buyer is the adult. Reference: Contracts > Types of Contracts

Question 36

Which statement BEST identifies the meaning of the term novation? A) A recorded notice of lis pendens B) A return of all parties to their condition before the contract was executed C) Substitution of a new contract for an existing one D) A rejection of a contract by all parties

Answer 36

Which statement BEST identifies the meaning of the term novation? A) A recorded notice of lis pendens Incorrect Answer B) A return of all parties to their condition before the contract was executed Incorrect Answer C) Substitution of a new contract for an existing one Correct Answer D) A rejection of a contract by all parties Incorrect Answer Explanation Novation is a new contract that replaces the original. Rescission is the return of all parties to their condition before the contract, and lis pendens is a notice of a pending lawsuit. Reference: Contracts > General Concepts

Question 37

After a long period of negotiation, the seller and the buyer are under contract. The buyer's lender has some issues with getting the final numbers, so the buyer asks to postpone the closing by three days. The seller agrees to the change. To make the change binding and enforceable, the seller and the buyer should sign A) an addendum. B) an attachment. C) an ad valorem. D) an amendment.

Answer 37

After a long period of negotiation, the seller and the buyer are under contract. The buyer's lender has some issues with getting the final numbers, so the buyer asks to postpone the closing by three days. The seller agrees to the change. To make the change binding and enforceable, the seller and the buyer should sign A) an addendum. Incorrect Answer B) an attachment. Incorrect Answer C) an ad valorem. Incorrect Answer D) an amendment. Correct Answer Explanation The document that modifies a contract is an amendment. Attachments are items that explain and are added to offers, such as an addendum for a long legal description. Ad valorem is used in property taxes. Reference: Contracts > Contract Clauses, Including Amendments and Addenda

Question 38

Which of the following is NOT a synonym for an installment sales contract? A) Contract for deed B) Land contract C) Deed in lieu D) Agreement for deed

Answer 38

Which of the following is NOT a synonym for an installment sales contract? A) Contract for deed Incorrect Answer B) Land contract Incorrect Answer C) Deed in lieu Correct Answer D) Agreement for deed Incorrect Answer Explanation In lieu means instead of. The deed in lieu (a.k.a. a deed in lieu of foreclosure) is a deed given to a lender by a borrower who is in default on a loan. This deed conveys the property securing the loan to the lender and is an alternative to foreclosure. Lenders are not required to accept a deed from a borrower in default. These other terms are synonyms for an installment sales contract. Reference: Contracts > Installment Sales Contracts (Equitable Title)

Question 39

The remedy for parties in default that is available to both the buyer and the seller in a purchase contract is A) actual damages. B) lis pendens. C) specific performance. D) liquidated damages.

Answer 39

The remedy for parties in default that is available to both the buyer and the seller in a purchase contract is A) actual damages. Incorrect Answer B) lis pendens. Incorrect Answer C) specific performance. Correct Answer D) liquidated damages. Incorrect Answer Explanation If the purchase contract gives both parties the remedy of suing if the other party defaults, the contract is specific performance. A liquidated damages contract allows the seller to keep the earnest money if the buyer defaults and gives the buyer specific performance remedies if the seller defaults. Reference: Contracts > General Concepts

Question 40

Which of the following pairs of terms is MOST frequently used to describe the parties to a land contract? A) Vendor/vendee B) Mortgagor/mortgagee C) Lessor/lessee D) Optionor/optionee

Answer 40

Which of the following pairs of terms is MOST frequently used to describe the parties to a land contract? A) Vendor/vendee Correct Answer B) Mortgagor/mortgagee Incorrect Answer C) Lessor/lessee Incorrect Answer D) Optionor/optionee Incorrect Answer Explanation The terms vendor (seller) and vendee (buyer) are most frequently used to describe the parties to a land contract. The word vend means to sell, and a memory aid for this word is a vending machine. The terms mortgagor (borrower) and mortgagee (lender) are used for loans secured by real estate. The terms optionor (property owner) and optionee (prospective buyer or tenant) refer to an option contract. The optionor promises to sell or rent a property to the optionee for an agreed upon price, in exchange for an option fee. If the optionee decides against renting or buying the property, the optionor keeps the option fee. Finally, a lessor is a landlord, and a lessee is a tenant. Reference: Contracts > Installment Sales Contracts (Equitable Title)

Question 41

Mutual rescission is BEST defined as A) the agreement that the party in default will make payment to the nondefaulting party. B) the agreement of both sides to allow one party to prevail and keep any funds. C) the ability of one party to sue a defaulting party. D) the dissolution of a contract with the return of all funds or things of value to both sides.

Answer 41

Mutual rescission is BEST defined as A) the agreement that the party in default will make payment to the nondefaulting party. Incorrect Answer B) the agreement of both sides to allow one party to prevail and keep any funds. Incorrect Answer C) the ability of one party to sue a defaulting party. Incorrect Answer D) the dissolution of a contract with the return of all funds or things of value to both sides. Correct Answer Explanation Mutual rescission is when both parties agree to terminate any agreement and return all funds, property, or things of value to the respective parties. Reference: Contracts > General Concepts

Question 42

All of these are true about contingencies EXCEPT A) they must identify who will pay for any costs involved. B) common contingencies include finance and inspection contingencies. C) they must be met within the time given in the contract. D) they must be worded loosely to allow reasonable satisfaction.

Answer 42

All of these are true about contingencies EXCEPT A) they must identify who will pay for any costs involved. Incorrect Answer B) common contingencies include finance and inspection contingencies. Incorrect Answer C) they must be met within the time given in the contract. Incorrect Answer D) they must be worded loosely to allow reasonable satisfaction. Correct Answer Explanation Contingencies create a voidable contract; if the contingencies are rejected or not satisfied, the contract is void. A loosely worded contingency that is not specific and detailed may create an unenforceable contract. Reference: Contracts > Contract Clauses, Including Amendments and Addenda

Question 43

A contract between two parties that legally binds one party to perform but allows the other party to disaffirm it is A) void. B) executed. C) voidable. D) bilateral.

Answer 43

A contract between two parties that legally binds one party to perform but allows the other party to disaffirm it is A) void. Incorrect Answer B) executed. Incorrect Answer C) voidable. Correct Answer D) bilateral. Incorrect Answer Explanation Voidable contracts have one side obligated, but the other party is able to rescind the contract if they wish. A contract with a minor is always voidable—for example, if an adult agrees to buy a property owned by a minor, the contract is voidable by the minor. Executed contracts are closed and completed. Void contracts lack an essential element, and bilateral contracts exchange promises. Reference: Contracts > General Concepts

Question 44

In order for contracts transferring real property to be valid, they must include all of these EXCEPT A) all parties must meet the legal definition of competency. B) the parties must come to a mutual agreement as to all terms and conditions. C) the objective of the offer/contract must have legal purpose with the ability to transfer title. D) earnest money must be given from the buyer to the seller as consideration for selling.

Answer 44

In order for contracts transferring real property to be valid, they must include all of these EXCEPT A) all parties must meet the legal definition of competency. Incorrect Answer B) the parties must come to a mutual agreement as to all terms and conditions. Incorrect Answer C) the objective of the offer/contract must have legal purpose with the ability to transfer title. Incorrect Answer D) earnest money must be given from the buyer to the seller as consideration for selling. Correct Answer Explanation Consideration is a required element of a valid contract, but earnest money is not. The parties must be competent; they must come to a meeting of the minds; the contract must have a lawful objective or purpose; and if for the transfer of real estate (except for certain leases), it must be in writing and signed. Reference: Contracts > General Concepts

Question 45

A common feature and coverage of MOST home warranty programs is that A) preexisting conditions are not covered. B) preexisting conditions are always covered. C) flood insurance is included. D) pools are covered.

Answer 45

A common feature and coverage of MOST home warranty programs is that A) preexisting conditions are not covered. Correct Answer B) preexisting conditions are always covered. Incorrect Answer C) flood insurance is included. Incorrect Answer D) pools are covered. Incorrect Answer Explanation Most home warranty programs cover such things as plumbing, electrical, heating, water systems, duct work, and major appliances. It does not cover preexisting conditions, flood damage, or pools. Reference: Contracts > Sales Contract

Question 46

The buyer's due diligence period is used to A) finalize and remove all contingencies. B) verify the property will meet the buyer’s needs. C) determine if the zoning is correct. D) give the seller time to complete a property disclosure.

Answer 46

The buyer's due diligence period is used to A) finalize and remove all contingencies. Incorrect Answer B) verify the property will meet the buyer’s needs. Correct Answer C) determine if the zoning is correct. Incorrect Answer D) give the seller time to complete a property disclosure. Incorrect Answer Explanation Depending on the contract terms, the buyer may be using the due diligence period to remove contingencies and determine if the zoning is correct; all of which are incorporated in verifying the property meets the buyer's needs. The seller's property disclosure should be given to the buyer at time of acceptance of the offer. Reference: Contracts > General Concepts

Question 47

An investor does not want to be obligated to purchase a property but would like to have the right to purchase a property within 60 days for $300,000. The investor should try to negotiate A) a purchase agreement. B) a purchase money mortgage. C) an option. D) a contract for deed.

Answer 47

An investor does not want to be obligated to purchase a property but would like to have the right to purchase a property within 60 days for $300,000. The investor should try to negotiate A) a purchase agreement. Incorrect Answer B) a purchase money mortgage. Incorrect Answer C) an option. Correct Answer D) a contract for deed. Incorrect Answer Explanation An option contract would allow the investor the time to determine if she wants to buy and has the advantage of locking the seller into selling at a price agreed to at the beginning of the process. Contract for deed and purchase money mortgages are forms of seller financing and would not give this type of flexibility. Both require a purchase agreement to create the terms of the financing. Reference: Contracts > Option Contracts

Question 48

The purpose of the Uniform Electronic Transactions Act (UETA) is to A) harmonize state laws concerning retention of paper records and the validity of electronic signatures. B) prosecute real estate licensees and sellers who utilize electronic signatures in their real estate transactions. C) prevent the practice of obtaining electronic signatures and paperless transactions. D) penalize the use of electronic signatures and enforce the sole use of paper records with signatures

Answer 48

The purpose of the Uniform Electronic Transactions Act (UETA) is to A) harmonize state laws concerning retention of paper records and the validity of electronic signatures. Correct Answer B) prosecute real estate licensees and sellers who utilize electronic signatures in their real estate transactions. Incorrect Answer C) prevent the practice of obtaining electronic signatures and paperless transactions. Incorrect Answer D) penalize the use of electronic signatures and enforce the sole use of paper records with signatures. Incorrect Answer Explanation The UETA's purpose is to give electronic signatures the validity of paper-based signatures. Reference: Contracts > General Concepts

Question 49

The remedy available only to the seller as compensation if a buyer is in default is known as A) liquidated damages. B) consideration. C) actual damages. D) rescission.

Answer 49

The remedy available only to the seller as compensation if a buyer is in default is known as A) liquidated damages. Correct Answer B) consideration. Incorrect Answer C) actual damages. Incorrect Answer D) rescission. Incorrect Answer Explanation When parties agree that a certain amount of money will compensate the nonbreaching party in the event one party defaults on a contract, that money is called liquidated damages. Earnest money typically serves as liquidated damages in a purchase contract in case the buyer defaults. Actual damages refer to monies awarded by a court to a plaintiff for a wrong committed against the plaintiff. Rescission is the mutual agreement of the parties to return to their original state. Consideration is an essential element of a contract, something of value offered by one party and accepted by the other. Reference: Contracts > General Concepts

Question 50

To assign a contract for the sale of real estate means to A) record the contract with the county recorder's office. B) transfer one's rights under the contract. C) permit another broker to act as agent for the principal. D) allow the seller and the buyer to exchange positions.

Answer 50

To assign a contract for the sale of real estate means to A) record the contract with the county recorder's office. Incorrect Answer B) transfer one's rights under the contract. Correct Answer C) permit another broker to act as agent for the principal. Incorrect Answer D) allow the seller and the buyer to exchange positions. Incorrect Answer Explanation An assignment is a transfer of the interest of one person to another. In an assignment, rights are assigned to a third party, but the original party remains primarily liable unless specifically released. Assignment of a contract does not change the broker/agent relationship. Reference: Contracts > General Concepts

Question 51

The seller told the buyer that the property had no roof leaks. But when the buyer had the property inspected, a roofing contractor found leaks and said they had been leaking for months. The contract between the seller and the buyer is probably A) implied. B) voidable. C) valid. D) void.

Answer 51

The seller told the buyer that the property had no roof leaks. But when the buyer had the property inspected, a roofing contractor found leaks and said they had been leaking for months. The contract between the seller and the buyer is probably A) implied. Incorrect Answer B) voidable. Correct Answer C) valid. Incorrect Answer D) void. Incorrect Answer Explanation Duress, fraud, misrepresentation, and minors always make contracts voidable. The seller either misrepresented the property or committed fraud, which means the contract is voidable by the buyer. The buyer may choose to move forward and continue the sale or terminate the contact. If the buyer terminates, the seller must return the earnest money. Reference: Contracts > Types of Contracts

Question 52

A buyer and a seller sign a contract to purchase. The seller backs out, and the buyer sues for specific performance. What is the buyer seeking in this lawsuit? A) Transfer of the property B) Money damages C) Deficiency judgment D) New contract

Answer 52

A buyer and a seller sign a contract to purchase. The seller backs out, and the buyer sues for specific performance. What is the buyer seeking in this lawsuit? A) Transfer of the property Correct Answer B) Money damages Incorrect Answer C) Deficiency judgment Incorrect Answer D) New contract Incorrect Answer Explanation Specific performance means sue to perform. The seller, if suing, would be suing the buyer to buy the property. The buyer is suing the seller to sell the property. Reference: Contracts > General Concepts

Question 53

Under the statute of frauds, all contracts for the sale of real estate must be A) accompanied by earnest money deposits. B) originated by a real estate broker. C) on preprinted forms. D) in writing to be enforceable.

Answer 53

Under the statute of frauds, all contracts for the sale of real estate must be A) accompanied by earnest money deposits. Incorrect Answer B) originated by a real estate broker. Incorrect Answer C) on preprinted forms. Incorrect Answer D) in writing to be enforceable. Correct Answer Explanation A statute of frauds calls for real estate sales contracts to be in writing. The law does not address who writes the agreements or on what forms they are written. Earnest money is not consideration and is not an essential element of a contract of sale, although it is often mistakenly said to be. Reference: Contracts > General Concepts

Question 54

A buyer who owns the property in equity has A) an option contract. B) a liquidated damages contract. C) a lease. D) an executory contract.

Answer 54

A buyer who owns the property in equity has A) an option contract. Incorrect Answer B) a liquidated damages contract. Incorrect Answer C) a lease. Incorrect Answer D) an executory contract. Correct Answer Explanation During any point in the executory contract (time period between signed offer to title transfer), the buyer has equitable title (also called the owner in equity). An executory purchase contract can be liquidated damages or specific performance. In an option contract, only one party is bound and there is no equity of title. Reference: Contracts > General Concepts

Question 55

An option A) requires the optionee to complete the purchase. B) makes the seller liable for a commission. C) binds the optionor for a specified time. D) gives the optionee an easement on the property.

Answer 55

An option A) requires the optionee to complete the purchase. Incorrect Answer B) makes the seller liable for a commission. Incorrect Answer C) binds the optionor for a specified time. Correct Answer D) gives the optionee an easement on the property. Incorrect Answer Explanation An option obligates an owner (the optionor) to sell at a fixed price within a certain period of time but does not obligate the optionee (the proposed buyer) to exercise the option. The option gives the optionee no rights to the property and does not require the optionee to complete the purchase. The seller is only liable for a commission to a broker when the option is exercised, that is, when the buyer actually purchases the property from the seller. Reference: Contracts > Option Contracts

Question 56

A broker took a listing and later discovered that the client had been declared legally incompetent before signing the listing. The listing is now A) valid. B) voidable by the broker. C) void. D) voidable by the incompetent client.

Answer 56

A broker took a listing and later discovered that the client had been declared legally incompetent before signing the listing. The listing is now A) valid. Incorrect Answer B) voidable by the broker. Incorrect Answer C) void. Correct Answer D) voidable by the incompetent client. Incorrect Answer Explanation A contract made by a person who has been adjudicated incompetent is void because the judgment of sanity is a matter of public record. The contract is not valid or voidable because it is missing the essential element of competency or competent parties. Reference: Contracts > Types of Contracts

Question 57

A sales contract or land contract would give the buyer A) a legal title. B) a cloud on the title. C) an equitable title. D) a quiet title.

Answer 57

A sales contract or land contract would give the buyer A) a legal title. Incorrect Answer B) a cloud on the title. Incorrect Answer C) an equitable title. Correct Answer D) a quiet title. Incorrect Answer Explanation The sales contract, land contract, or trust deed would give the buyer an equitable title. Legal title is transferred from the seller to the buyer via deed at closing of a sales contract and upon last payment to the seller from the buyer in a land contract. Reference: Contracts > General Concepts

Question 58

A minor signed a sales contract to purchase a home. Which of these describes this contract? A) Void B) Voidable by the minor C) Valid and binding D) Voidable by the seller

Answer 58

A minor signed a sales contract to purchase a home. Which of these describes this contract? A) Void Incorrect Answer B) Voidable by the minor Correct Answer C) Valid and binding Incorrect Answer D) Voidable by the seller Incorrect Answer Explanation Minors who are parties to a contract always make the contract voidable. It is incumbent upon the seller to not allow a minor to enter into a contract. The seller will have to wait for the minor to cancel or move forward. Reference: Contracts > Types of Contracts

Question 59

When determining whether an electronic signature is compliant under the Electronic Signatures in Global and National Commerce Act (E-Sign), the law requires that A) all electronic signatures include a paper signed component as additional proof of signatures. B) attorneys representing the parties in the agreement consent to the electronic signatures. C) all parties to an agreement agree to conduct the transaction using electronic means. D) the real estate licensees’ electronic signature be included in all transactions.

Answer 59

When determining whether an electronic signature is compliant under the Electronic Signatures in Global and National Commerce Act (E-Sign), the law requires that A) all electronic signatures include a paper signed component as additional proof of signatures. Incorrect Answer B) attorneys representing the parties in the agreement consent to the electronic signatures. Incorrect Answer C) all parties to an agreement agree to conduct the transaction using electronic means. Correct Answer D) the real estate licensees’ electronic signature be included in all transactions. Incorrect Answer Explanation The E-Sign makes certain requirements to support the validity of electronic signatures. The intent to sign and the consent to do electronic business is a key requirement of the act. Reference: Contracts > General Concepts

Question 60

Whose signature is necessary for a signed offer to purchase real estate to become a contract? A) Buyer’s only B) Seller’s only C) Buyer’s and seller’s D) Seller’s and seller’s broker

Answer 60

Whose signature is necessary for a signed offer to purchase real estate to become a contract? A) Buyer’s only Incorrect Answer B) Seller’s only Incorrect Answer C) Buyer’s and seller’s Correct Answer D) Seller’s and seller’s broker Incorrect Answer Explanation A signed offer already has the buyer's signature, but to be a ratified contract, both the buyer's and the seller's signatures are necessary. Reference: Contracts > Sales Contract

Question 61

Upon acceptance and communication of acceptance, an offer is considered A) a contract. B) unilateral. C) a counteroffer. D) valid.

Answer 61

Upon acceptance and communication of acceptance, an offer is considered A) a contract. Correct Answer B) unilateral. Incorrect Answer C) a counteroffer. Incorrect Answer D) valid. Incorrect Answer Explanation An offer lacks acceptance, once acceptance is communicated to all parties the offer, if a purchase contract becomes an executory contract. A unilateral contract exchanges a promise for performance. Valid contracts are binding and enforceable. Counteroffers terminate the original offer. Reference: Contracts > Sales Contract

Question 62

A contract entered into while someone is under duress is considered A) voidable. B) fully valid and enforceable. C) executory. D) void.

Answer 62

A contract entered into while someone is under duress is considered A) voidable. Correct Answer B) fully valid and enforceable. Incorrect Answer C) executory. Incorrect Answer D) void. Incorrect Answer Explanation Duress, fraud, misrepresentation, and contracts entered into by minors create voidable contracts. Such contracts are neither valid nor enforceable. A void contract has no legal force and is not enforceable due to its lack of an essential element, such as one made for an illegal purpose. An executory contract is a valid contract that has been signed but not fully fulfilled. Reference: Contracts > Types of Contracts

Question 63

If, upon the receipt of an offer to purchase a property, the seller makes a counteroffer, the prospective buyer is A) bound by the original offer, which is still active. B) relieved of the offer which is now void. C) relieved of the original offer, which has terminated. D) bound to accept the counteroffer.

Answer 63

If, upon the receipt of an offer to purchase a property, the seller makes a counteroffer, the prospective buyer is A) bound by the original offer, which is still active. Incorrect Answer B) relieved of the offer which is now void. Incorrect Answer C) relieved of the original offer, which has terminated. Correct Answer D) bound to accept the counteroffer. Incorrect Answer Explanation Countering an offer terminates the original offer and creates a new offer. The original offer is terminated, not void. Reference: Contracts > Sales Contract

Question 64

A purchase contract contains several personal property items and fixtures that will be transferred upon sale of the property. Which of these is TRUE? A) All fixtures must be listed in the deed to convey to the buyer. B) All personal property must be listed in the bill of sale to convey to the buyer. C) There is no need to list the personal property in the contract because it will automatically convey unless it is excluded by the seller. D) The fixtures and personal property will need to be itemized in the bill of sale.

Answer 64

A purchase contract contains several personal property items and fixtures that will be transferred upon sale of the property. Which of these is TRUE? A) All fixtures must be listed in the deed to convey to the buyer. Incorrect Answer B) All personal property must be listed in the bill of sale to convey to the buyer. Correct Answer C) There is no need to list the personal property in the contract because it will automatically convey unless it is excluded by the seller. Incorrect Answer D) The fixtures and personal property will need to be itemized in the bill of sale. Incorrect Answer Explanation Fixtures are appurtenant, attached to the property, and automatically conveyed with the deed without being listed. Personal property must be listed in the bill of sale in order to be included in the sale. Reference: Contracts > Sales Contract

Question 65

A contract that has been fully performed is A) voidable. B) executed. C) unenforceable. D) executory.

Answer 65

A contract that has been fully performed is A) voidable. Incorrect Answer B) executed. Correct Answer C) unenforceable. Incorrect Answer D) executory. Incorrect Answer Explanation Prior to execution, the contract is executory. Once the parties have performed, it is called executed. Reference: Contracts > General Concepts

Question 66

Which of these is an essential element of a contract? A) Words of conveyance B) Competent grantor C) Signature of the grantee D) Competent parties

Answer 66

Which of these is an essential element of a contract? A) Words of conveyance Incorrect Answer B) Competent grantor Incorrect Answer C) Signature of the grantee Incorrect Answer D) Competent parties Correct Answer Explanation One of the five essential elements of a contract is competent parties. Words of conveyance and competent grantor are elements of a deed. The grantor, not grantee, signs the deed. Reference: Contracts > General Concepts

Question 67

A promise, or something of value, made by one party to induce another party to enter into a contract is A) the authorization to perform. B) words of conveyance. C) legal consideration. D) the meeting of the minds.

Answer 67

A promise, or something of value, made by one party to induce another party to enter into a contract is A) the authorization to perform. Incorrect Answer B) words of conveyance. Incorrect Answer C) legal consideration. Correct Answer D) the meeting of the minds. Incorrect Answer Explanation Legal consideration is a promise, or something of value, made by one party to induce another party to enter into a contract. In a purchase contract, consideration is the promise of the seller to sell and the buyer to buy. Words of conveyance are used in deeds to create the estate being transferred. Reference: Contracts > General Concepts

Question 68

Which of the following correctly describes the difference between a tenant, renting real estate, and a vendee, under a land contract? A) The tenant is the grantee of the right of possession, but the vendee is the grantor. B) Both can possess the property when their respective contracts are executed. C) Neither the tenant nor the vendee will ever hold legal title. D) The tenant has no share in any gain of equity, but the vendee typically does.

Answer 68

Which of the following correctly describes the difference between a tenant, renting real estate, and a vendee, under a land contract? A) The tenant is the grantee of the right of possession, but the vendee is the grantor. Incorrect Answer B) Both can possess the property when their respective contracts are executed. Incorrect Answer C) Neither the tenant nor the vendee will ever hold legal title. Incorrect Answer D) The tenant has no share in any gain of equity, but the vendee typically does. Correct Answer Explanation The tenant, under a lease, does not profit from equity growth of the landlord's property. But, the vendee (buyer), under a land contract, holds equitable title and typically would profit from an increase in the equity of the subject property. Note: Here is the formula for calculating equity: market value today – debt charged to the property today = equity in the subject property today. The tenant cannot possess the property after the lease is executed (completed), but the vendee, after the land contract is executed (completed), can. In fact, this is when the vendor (seller) conveys legal title to the vendee via a deed. Under both a lease and a land contract, the tenant and the vendee are both grantees, receiving the right to possession from the owner of the real estate. Reference: Contracts > Installment Sales Contracts (Equitable Title)

Question 69

An option to purchase binds which of these parties? A) Seller only B) Neither buyer nor seller C) Buyer only D) Both buyer and seller

Answer 69

An option to purchase binds which of these parties? A) Seller only Correct Answer B) Neither buyer nor seller Incorrect Answer C) Buyer only Incorrect Answer D) Both buyer and seller Incorrect Answer Explanation An option contract is a unilateral contract in which the seller agrees to sell the property at a set price in the future if the buyer decides to buy. Reference: Contracts > Option Contracts

Question 70

When a party is in default in a contract due to missing a payment deadline, the contract is considered A) illegal. B) executed. C) unilateral. D) breached.

Answer 70

When a party is in default in a contract due to missing a payment deadline, the contract is considered A) illegal. Incorrect Answer B) executed. Incorrect Answer C) unilateral. Incorrect Answer D) breached. Correct Answer Explanation Anytime one of the parties misses a deadline or payment, that party is in breach of the contract. Reference: Contracts > General Concepts

Question 71

A vendor and vendee enter into a land contract. Who holds legal title to the subject property? A) The vendor B) Both the vendor and the vendee C) The vendee D) Neither the vendor nor the vendee

Answer 71

A vendor and vendee enter into a land contract. Who holds legal title to the subject property? A) The vendor Correct Answer B) Both the vendor and the vendee Incorrect Answer C) The vendee Incorrect Answer D) Neither the vendor nor the vendee Incorrect Answer Explanation A land contract is a form of seller financing. During the term of the land contract, the seller (the vendor) holds legal title: Legal title is legal ownership of the property, typically as evidenced by the most recent deed. The buyer (the vendee) holds equitable title: Equitable title is the right to possess, occupy, use, and enjoy the property. When the land contract is paid in full, the seller will give a deed to the buyer, merging legal and equitable title in the buyer. Reference: Contracts > Installment Sales Contracts (Equitable Title)

Question 72

The amount of earnest money deposit is determined by A) real estate licensing statutes. B) meeting the acceptable minimum of 5% of the purchase price. C) agreement between the parties. D) the listing broker's office policy on such matters.

Answer 72

The amount of earnest money deposit is determined by A) real estate licensing statutes. Incorrect Answer B) meeting the acceptable minimum of 5% of the purchase price. Incorrect Answer C) agreement between the parties. Correct Answer D) the listing broker's office policy on such matters. Incorrect Answer Explanation The amount of earnest money deposit is determined by agreement of the parties. Under the terms of most listing agreements, a real estate broker is required to accept a "reasonable amount" as earnest money. Brokerage firms and license law may not set the amount of earnest money required. The amount is set by the seller and negotiated by the buyer. Reference: Contracts > General Concepts

Question 73

An executed contract means A) contingencies do not have to be met. B) all the parties have fully performed their duties. C) only one party to the contract must perform. D) a party has the right to sue for specific performance.

Answer 73

An executed contract means A) contingencies do not have to be met. Incorrect Answer B) all the parties have fully performed their duties. Correct Answer C) only one party to the contract must perform. Incorrect Answer D) a party has the right to sue for specific performance. Incorrect Answer Explanation An executed contract means all the parties have fully performed their duties, and if a purchase contract, title was passed via a deed. The remedies for default, specific performance, or liquidated damages are created in the contract and exist until the contract is executed. Reference: Contracts > General Concepts

Question 74

A contract for the sale of real estate that does NOT state the consideration and provides no basis on which the consideration could be determined is considered A) voidable. B) executory. C) void. D) enforceable.

Answer 74

A contract for the sale of real estate that does NOT state the consideration and provides no basis on which the consideration could be determined is considered A) voidable. Incorrect Answer B) executory. Incorrect Answer C) void. Correct Answer D) enforceable. Incorrect Answer Explanation Consideration is an essential element of a real estate contract, along with competent parties, meeting of the minds, lawful objective, and in writing. Without all the elements, a contract is void and cannot be voidable, executory, or enforceable. Reference: Contracts > Types of Contracts

Question 75

Legal action that may be taken to enforce the terms of the contract is A) suit for possession. B) suit for money damages. C) suit for specific performance. D) suit to quiet the title.

Answer 75

Legal action that may be taken to enforce the terms of the contract is A) suit for possession. Incorrect Answer B) suit for money damages. Incorrect Answer C) suit for specific performance. Correct Answer D) suit to quiet the title. Incorrect Answer Explanation Legal action that may be taken to enforce the terms of the contract is a suit for specific performance. A suit to quiet title is used if there is cloud on title. Reference: Contracts > General Concepts

Question 76

A void contract is one that A) is unenforceable. B) has all the essential elements of a contract. C) does not have earnest money listed as consideration. D) can be terminated by one party but not the other.

Answer 76

A void contract is one that A) is unenforceable. Correct Answer B) has all the essential elements of a contract. Incorrect Answer C) does not have earnest money listed as consideration. Incorrect Answer D) can be terminated by one party but not the other. Incorrect Answer Explanation A void contract lacks some or all of the essential elements of a valid contract and so was never a contract in the eyes of the law. Earnest money is not a requirement of a valid contract, so not having earnest money in a contract does not make the contract void. A valid contract can be rescinded by agreement of all parties but is not voidable by an action of only one of the parties. Reference: Contracts > Types of Contracts

Question 77

The status of a contract that meets all the essential elements and is enforceable is called A) an unenforceable contract. B) a void contract. C) a voidable contract. D) a valid contract.

Answer 77

The status of a contract that meets all the essential elements and is enforceable is called A) an unenforceable contract. Incorrect Answer B) a void contract. Incorrect Answer C) a voidable contract. Incorrect Answer D) a valid contract. Correct Answer Explanation When a contract meets all the essential elements and is enforceable, it is a valid contract. Duress, fraud, misrepresentation, and minors always make contracts voidable. Void or unenforceable real estate contracts lack an essential element and do not exist in the eyes of the court for enforcement. Reference: Contracts > Types of Contracts

Question 78

A buyer under an executory contract has found numerous inspection issues the seller is unwilling to repair. The seller and the buyer agree to terminate the contract with all things of value returned to each party. This is known as A) specific performance. B) mutual rescission. C) mutual performance. D) liquidated damages.

Answer 78

A buyer under an executory contract has found numerous inspection issues the seller is unwilling to repair. The seller and the buyer agree to terminate the contract with all things of value returned to each party. This is known as A) specific performance. Incorrect Answer B) mutual rescission. Correct Answer C) mutual performance. Incorrect Answer D) liquidated damages. Incorrect Answer Explanation When both parties to a contract are returned to their original position, it is known as mutual rescission. Liquidated damages and specific performance are types of purchase contracts chosen for the remedy for default by one of the parties. Mutual performance is when both parties complete the contract. Reference: Contracts > General Concepts

Question 79

The majority of the terms for closing are established by A) the deed of trust. B) the escrow agent. C) the title company. D) the purchase contract.

Answer 79

The majority of the terms for closing are established by A) the deed of trust. Incorrect Answer B) the escrow agent. Incorrect Answer C) the title company. Incorrect Answer D) the purchase contract. Correct Answer Explanation The purchase contract establishes the terms of closing with additional items being added by the escrow or settlement company. A deed of trust creates a lien when money is loaned on the property. Reference: Contracts > Sales Contract

Question 80

A seller accepts the buyer's offer to purchase his property. Before closing, the seller changes his mind, and the buyer sues for specific performance. What is the buyer seeking in this lawsuit? A) Deficiency judgment B) New contract C) Money damages D) Conveyance of the property

Answer 80

A seller accepts the buyer's offer to purchase his property. Before closing, the seller changes his mind, and the buyer sues for specific performance. What is the buyer seeking in this lawsuit? A) Deficiency judgment Incorrect Answer B) New contract Incorrect Answer C) Money damages Incorrect Answer D) Conveyance of the property Correct Answer Explanation A suit for specific performance is a lawsuit to require the breaching party to perform as promised, in this case for the seller to sell the home. A suit for specific performance will not result in a new contract, deficiency judgment, or money damages for the buyer. Reference: Contracts > General Concepts

Question 81

A contract for the sale of real estate that does not state the consideration and is not signed by the parties is considered A) executory. B) enforceable. C) void. D) valid.

Answer 81

A contract for the sale of real estate that does not state the consideration and is not signed by the parties is considered A) executory. Incorrect Answer B) enforceable. Incorrect Answer C) void. Correct Answer D) valid. Incorrect Answer Explanation A contract is void when no consideration is stated; consideration is an essential element of a contract. An executory contract is one that has been signed by both parties but all the requirements of the contract have not yet been performed. A contract that lacks all the essential elements is not valid but void and unenforceable. Reference: Contracts > Types of Contracts

Question 82

A contract is said to be bilateral if A) all parties to the contract exchange binding promises. B) the contract has yet to be fully performed. C) only one party to the contract is bound to act. D) if there is a contingency that has not been met.

Answer 82

A contract is said to be bilateral if A) all parties to the contract exchange binding promises. Correct Answer B) the contract has yet to be fully performed. Incorrect Answer C) only one party to the contract is bound to act. Incorrect Answer D) if there is a contingency that has not been met. Incorrect Answer Explanation When all parties to a contract are bound by its provisions, the contract is said to be bilateral. A contract yet to be performed is executory. A contract that binds only one party to act is unilateral. A contingency can be in both bilateral and unilateral contracts. Reference: Contracts > Types of Contracts

Question 83

In an executory contract, A) the buyer may take possession of the real estate. B) the buyer receives equitable title to the property. C) the buyer receives legal title to the property. D) the seller grants the buyer possessory rights.

Answer 83

In an executory contract, A) the buyer may take possession of the real estate. Incorrect Answer B) the buyer receives equitable title to the property. Correct Answer C) the buyer receives legal title to the property. Incorrect Answer D) the seller grants the buyer possessory rights. Incorrect Answer Explanation Equitable title occurs when the buyer and the seller have an accepted offer, which creates an executory contract, at which time the buyer acquires equitable title without yet holding legal title. Legal title will not pass until the deed is passed at closing. The buyer has no right to take possession of the property until all requirements of the contract have been met, usually at the day of closing. Reference: Contracts > General Concepts

Question 84

A minor inherited a commercial real estate property and has entered into a sales contract with a buyer to purchase the property. In this situation, the sales contract is considered A) voidable by the minor. B) legal and binding because it was an inheritance. C) unenforceable by the buyer. D) voidable by the buyer.

Answer 84

A minor inherited a commercial real estate property and has entered into a sales contract with a buyer to purchase the property. In this situation, the sales contract is considered A) voidable by the minor. Correct Answer B) legal and binding because it was an inheritance. Incorrect Answer C) unenforceable by the buyer. Incorrect Answer D) voidable by the buyer. Incorrect Answer Explanation A contract with a minor is always voidable, in this case by the minor. Reference: Contracts > Types of Contracts

Question 85

An option to purchase binds which of these parties? A) Neither buyer nor seller B) Both buyer and seller C) Buyer only D) Seller only

Answer 85

An option to purchase binds which of these parties? A) Neither buyer nor seller Incorrect Answer B) Both buyer and seller Incorrect Answer C) Buyer only Incorrect Answer D) Seller only Correct Answer Explanation In an option, the seller has agreed to not sell the property to anyone else and to give the buyer the right to purchase during the option period. The potential buyer (optionee) who purchases an option to purchase is not bound to purchase the property. However, should the buyer decide to exercise the option, the seller is bound to proceed with the sale in keeping with all the details contained in the option. Once the option is accepted, the buyer and the seller move forward with a bilateral purchase contract. Reference: Contracts > Option Contracts

Question 86

In a bilateral contract, A) a restriction is placed in the contract. B) both parties to the contract have duties to be performed. C) only one of the parties is bound to the contract. D) consideration is not an essential element.

Answer 86

In a bilateral contract, A) a restriction is placed in the contract. Incorrect Answer B) both parties to the contract have duties to be performed. Correct Answer C) only one of the parties is bound to the contract. Incorrect Answer D) consideration is not an essential element. Incorrect Answer Explanation In a bilateral contract, both parties are obligated to perform what they have promised to do. Only one party is bound in a unilateral contract. Consideration is an essential element of all contracts. Reference: Contracts > Types of Contracts

Question 87

The buyer has made an offer that the seller has accepted and proper notice has been given to the buyer of the seller's acceptance. The offer is now considered A) a unilateral contract. B) an executed contract. C) an executory contract. D) an assignment.

Answer 87

The buyer has made an offer that the seller has accepted and proper notice has been given to the buyer of the seller's acceptance. The offer is now considered A) a unilateral contract. Incorrect Answer B) an executed contract. Incorrect Answer C) an executory contract. Correct Answer D) an assignment. Incorrect Answer Explanation The period from when the contract is agreed to and signed by both parties until it is executed (closed) is called the executory period. Executed contracts have been closed. Unilateral contracts bind only one party, such as an option. Assignments transfer the contract duties but not liabilities. Reference: Contracts > General Concepts

Question 88

A bilateral contract is one in which A) something is to be done by one party only. B) a restriction is placed in the contract by one party to limit the performance by the other. C) the promise of one party is given in exchange for the promise of the other party. D) only one of the parties is obligated to act.

Answer 88

A bilateral contract is one in which A) something is to be done by one party only. Incorrect Answer B) a restriction is placed in the contract by one party to limit the performance by the other. Incorrect Answer C) the promise of one party is given in exchange for the promise of the other party. Correct Answer D) only one of the parties is obligated to act. Incorrect Answer Explanation In a bilateral contract, both parties agree to do something, and promises are exchanged. A unilateral contract is a one-sided agreement that does not obligate a second party. Reference: Contracts > Types of Contracts

Question 89

To create an executory contract, the offeree must accept the offer A) only after it has been approved by an attorney. B) within 24 hours of receiving the offer. C) before the end of the business day of receiving it. D) without any changes to the offer.

Answer 89

To create an executory contract, the offeree must accept the offer A) only after it has been approved by an attorney. Incorrect Answer B) within 24 hours of receiving the offer. Incorrect Answer C) before the end of the business day of receiving it. Incorrect Answer D) without any changes to the offer. Correct Answer Explanation An offer must be accepted without any changes. Time frames for acceptance are created in the offer and can vary. Contracts do not have to be written or approved by an attorney to be valid. Reference: Contracts > General Concepts

Question 90

A buyer and a seller have entered into a binding contract for the sale of real estate. During this phase and until closing, the buyer has which type of title? A) Equitable B) Escalating C) Legal D) Executory

Answer 90

A buyer and a seller have entered into a binding contract for the sale of real estate. During this phase and until closing, the buyer has which type of title? A) Equitable Correct Answer B) Escalating Incorrect Answer C) Legal Incorrect Answer D) Executory Incorrect Answer Explanation The buyer has equitable title, which recognizes that he has an interest but has not received legal title. Legal title will pass at closing when the seller gives the buyer the deed. Reference: Contracts > General Concepts

Question 91

At the time a buyer was negotiating the purchase of a lot on which to build a new home, the seller represented that the soil was firm enough to support the construction of a building when, in fact, the seller knew it was not. This contract is A) void because of the seller’s misrepresentation. B) voidable by the seller because of the mistake. C) voidable by the buyer because of fraud. D) valid because no harm was done yet.

Answer 91

At the time a buyer was negotiating the purchase of a lot on which to build a new home, the seller represented that the soil was firm enough to support the construction of a building when, in fact, the seller knew it was not. This contract is A) void because of the seller’s misrepresentation. Incorrect Answer B) voidable by the seller because of the mistake. Incorrect Answer C) voidable by the buyer because of fraud. Correct Answer D) valid because no harm was done yet. Incorrect Answer Explanation The contract is voidable because it contains all the essential elements of a contract but could be rescinded due to fraud by the seller. A void contract lacks one of the essential elements of a contract. In this voidable contract, the buyer has the right to terminate but the seller does not. The contract is not valid because the seller has misrepresented the property. Reference: Contracts > Types of Contracts

Question 92

A contract that has no legal force or effect is A) valid. B) voidable. C) enforceable. D) void.

Answer 92

A contract that has no legal force or effect is A) valid. Incorrect Answer B) voidable. Incorrect Answer C) enforceable. Incorrect Answer D) void. Correct Answer Explanation When a contract has no legal force or effect, it is void and unenforceable. When a contract meets all the essential elements and is enforceable, it is a valid contract. Duress, fraud, misrepresentation, and minors always make contracts voidable. Reference: Contracts > Types of Contracts

Question 93

The length and terms of home warranties are determined by A) the city and local laws. B) the warranty contract. C) the federal laws. D) the state laws.

Answer 93

The length and terms of home warranties are determined by A) the city and local laws. Incorrect Answer B) the warranty contract. Correct Answer C) the federal laws. Incorrect Answer D) the state laws. Incorrect Answer Explanation Home warranties are provided by private companies and the coverage given and length of the coverage is determined by the contract signed between the company and the consumer. Reference: Contracts > Sales Contract

Question 94

A legally enforceable contract in which two parties exchange promises to do something for each other is known as A) a bilateral contract. B) an option contract. C) a void contract. D) a unilateral contract.

Answer 94

A legally enforceable contract in which two parties exchange promises to do something for each other is known as A) a bilateral contract. Correct Answer B) an option contract. Incorrect Answer C) a void contract. Incorrect Answer D) a unilateral contract. Incorrect Answer Explanation A bilateral contract is one in which both parties make a promise to each other. A unilateral contract is a one-sided contract in which one party makes a promise to induce a second party to do something. A void contract lacks one or all the essential elements of a contract. An option contract is a unilateral contract in which only one party makes a promise to perform, in this case, to hold open the right for a buyer to purchase a property in the future. Reference: Contracts > Types of Contracts

Question 95

A buyer makes an offer on a seller's house and the seller accepts. Both parties sign the sales contract. At this point, the buyer has what type of title to the property? A) Voidable B) Contract C) Escrow D) Equitable

Answer 95

A buyer makes an offer on a seller's house and the seller accepts. Both parties sign the sales contract. At this point, the buyer has what type of title to the property? A) Voidable Incorrect Answer B) Contract Incorrect Answer C) Escrow Incorrect Answer D) Equitable Correct Answer Explanation The seller holds legal title until closing, and the buyer's interest in the property is recognized in the buyer's holding equitable title. Reference: Contracts > General Concepts

Question 96

The MOST typical contingency in a real estate contract is for A) inspections. B) appraisal. C) the buyer to sell a current home. D) financing.

Answer 96

The MOST typical contingency in a real estate contract is for A) inspections. Incorrect Answer B) appraisal. Incorrect Answer C) the buyer to sell a current home. Incorrect Answer D) financing. Correct Answer Explanation Most buyers must use some form of financing, and typically the contract is contingent on the buyer receiving the financing. Other common contingencies include sale of a property, inspections, and appraisals. Reference: Contracts > Contract Clauses, Including Amendments and Addenda

Question 97

A contract in which one party purchases the right to buy at a fixed price within a specified period is A) a listing contract. B) a lease contract. C) a purchase contract. D) an option contract.

Answer 97

A contract in which one party purchases the right to buy at a fixed price within a specified period is A) a listing contract. Incorrect Answer B) a lease contract. Incorrect Answer C) a purchase contract. Incorrect Answer D) an option contract. Correct Answer Explanation An option is a unilateral contract binding on the seller with an obligation to sell for a set price if the buyer decides to buy. Typically, if the buyer does not buy, the seller will keep the option fee, the amount of which was set by the option contract. A listing, lease, and purchase contract are all bilateral contracts. Reference: Contracts > Option Contracts

Question 98

Which of these statements regarding an executory purchase contract is TRUE? A) The contract may be oral. B) The contract terms must be identical to the terms in the listing agreement. C) The contract conveys legal title when signed by both parties. D) The contract is binding on both parties.

Answer 98

Which of these statements regarding an executory purchase contract is TRUE? A) The contract may be oral. Incorrect Answer B) The contract terms must be identical to the terms in the listing agreement. Incorrect Answer C) The contract conveys legal title when signed by both parties. Incorrect Answer D) The contract is binding on both parties. Correct Answer Explanation An executory purchase contract is one in which both parties have reached mutual agreement and are both bound to the complete the contract. A deed conveys legal title in the executory phase of a contract; the buyer has equitable title while the seller retains legal title. Reference: Contracts > General Concepts

Question 99

A buyer and a seller sign a contract for the sale of real property. A few days later, they decide to change many terms of the contract, while retaining the basic intent to buy and sell. The process by which the new contract replaces the old one is called A) novation. B) assemblage. C) assignment. D) rescission.

Answer 99

A buyer and a seller sign a contract for the sale of real property. A few days later, they decide to change many terms of the contract, while retaining the basic intent to buy and sell. The process by which the new contract replaces the old one is called A) novation. Correct Answer B) assemblage. Incorrect Answer C) assignment. Incorrect Answer D) rescission. Incorrect Answer Explanation When a new contract replaces an old one, the process is novation. The new contract may be between the same parties or between one of the original parties and a new party. In any event, the parties' obligations under the old contract are terminated. Reference: Contracts > General Concepts

Question 100

The law that requires real estate contracts to be in writing to be enforceable is A) the law of descent. B) the statute of frauds. C) the statute of limitations. D) the probate requirement.

Answer 100

The law that requires real estate contracts to be in writing to be enforceable is A) the law of descent. Incorrect Answer B) the statute of frauds. Correct Answer C) the statute of limitations. Incorrect Answer D) the probate requirement. Incorrect Answer Explanation The statute of frauds requires real estate contracts to be in writing to be enforceable. An oral contract, although unenforceable, is still valid between parties. The law of descent regulates the processes by which an heir acquires an intestate estate. Probate is used to distribute property in a will. The statute of limitations is law dictating a period of time within which actions regarding an alleged offense may be brought to court by an accuser. Reference: Contracts > General Concepts

Question 101

Every enforceable contract for the sale of real estate must be in writing and signed by all parties, in accordance with A) the Truth in Lending Act. B) the statute of frauds. C) the Uniform Commercial Code. D) the Real Estate License Act.

Answer 101

Every enforceable contract for the sale of real estate must be in writing and signed by all parties, in accordance with A) the Truth in Lending Act. Incorrect Answer B) the statute of frauds. Correct Answer C) the Uniform Commercial Code. Incorrect Answer D) the Real Estate License Act. Incorrect Answer Explanation Contracts for the sale of real estate must be in writing to be enforceable, according to the statute of frauds. Reference: Contracts > General Concepts

Question 102

A buyer defaults on a purchase agreement, and the seller goes to court to force the buyer to buy. The seller's remedy is A) money damages. B) specific performance. C) liquidated damages. D) partial performance.

Answer 102

A buyer defaults on a purchase agreement, and the seller goes to court to force the buyer to buy. The seller's remedy is A) money damages. Incorrect Answer B) specific performance. Correct Answer C) liquidated damages. Incorrect Answer D) partial performance. Incorrect Answer Explanation An action in court to have the defaulting party perform on the contract is called a suit for specific performance. Reference: Contracts > General Concepts

Question 103

When neither party can sue the other to force performance, the real estate contract is said to be A) voidable. B) unenforceable. C) void. D) valid.

Answer 103

When neither party can sue the other to force performance, the real estate contract is said to be A) voidable. Incorrect Answer B) unenforceable. Correct Answer C) void. Incorrect Answer D) valid. Incorrect Answer Explanation When neither party can sue the other to force performance, the contract is said to be unenforceable. When a contract meets all the essential elements and is enforceable, it is a valid contract. Duress, fraud, misrepresentation, and minors always make contracts voidable. Void real estate contracts lack an essential element and are unenforceable. Reference: Contracts > Types of Contracts

Question 104

If upon receipt of an offer to purchase his property, the seller makes a counteroffer, the original offer is A) terminated. B) contingent on the counteroffer. C) binding on the seller but not the buyer. D) binding on the buyer but not the seller.

Answer 104

If upon receipt of an offer to purchase his property, the seller makes a counteroffer, the original offer is A) terminated. Correct Answer B) contingent on the counteroffer. Incorrect Answer C) binding on the seller but not the buyer. Incorrect Answer D) binding on the buyer but not the seller. Incorrect Answer Explanation When the original offer is rejected by the seller, it ceases to exist and is considered terminated. The buyer may accept or reject the seller's counteroffer, which is in effect a new offer. Reference: Contracts > Sales Contract

Question 105

The legal proceeding or legal action brought by either the buyer or the seller under a purchase contract to enforce the terms of the contract is known as A) suit for specific performance. B) an attachment. C) liquidated damages. D) a lis pendens.

Answer 105

The legal proceeding or legal action brought by either the buyer or the seller under a purchase contract to enforce the terms of the contract is known as A) suit for specific performance. Correct Answer B) an attachment. Incorrect Answer C) liquidated damages. Incorrect Answer D) a lis pendens. Incorrect Answer Explanation In a suit for specific performance, the court may force the buyer or the seller to go through with the sale and convert the property as previously agreed. Lis pendens is a recorded legal document giving constructive notice of an action filed in court. An attachment is the legal process in which a defendant in a lawsuit seizes property by judicial order or levy, holding the property as security for satisfaction of a judgment. Liquidated damages is the seller's remedy if the buyer is in default, which is keeping the earnest money. Reference: Contracts > General Concepts

Question 106

When the buyer is in default and the seller keeps the earnest money, the contract MOST likely provided for A) actual damages. B) liquidated damages. C) specific performance. D) executed damages.

Answer 106

When the buyer is in default and the seller keeps the earnest money, the contract MOST likely provided for A) actual damages. Incorrect Answer B) liquidated damages. Correct Answer C) specific performance. Incorrect Answer D) executed damages. Incorrect Answer Explanation Earnest money is not consideration; it is the seller's remedy in a liquated damages contract if the buyer defaults. Reference: Contracts > General Concepts

Question 107

The transfer of rights and duties, but not liabilities, from one contract to another contract or from one person to another person is an A) amendment. B) acknowledgment. C) addendum. D) assignment.

Answer 107

The transfer of rights and duties, but not liabilities, from one contract to another contract or from one person to another person is an A) amendment. Incorrect Answer B) acknowledgment. Incorrect Answer C) addendum. Incorrect Answer D) assignment. Correct Answer Explanation The transfer of rights and duties, but not the liabilities, from one person to another person is an assignment. Acknowledgment is a notarized signature. Addendums are items added to offers and an amendment modifies an executory contract. Reference: Contracts > General Concepts

Question 108

An attorney was discussing an investment with a buyer who will be attending a foreclosure sale. The attorney said "caveat emptor." This means let A) the buyer beware. B) the seller beware. C) the bank beware. D) the neighbors beware.

Answer 108

An attorney was discussing an investment with a buyer who will be attending a foreclosure sale. The attorney said "caveat emptor." This means let A) the buyer beware. Correct Answer B) the seller beware. Incorrect Answer C) the bank beware. Incorrect Answer D) the neighbors beware. Incorrect Answer Explanation Caveat emptor means "let the buyer beware." Reference: Contracts > General Concepts

Question 109

Earnest money A) is required as part of all purchase agreements. B) may become the seller’s if the buyer defaults. C) is considered to be consideration and is required in a purchase offer. D) will be a credit to the seller and a debit to the buyer at closing.

Answer 109

Earnest money A) is required as part of all purchase agreements. Incorrect Answer B) may become the seller’s if the buyer defaults. Correct Answer C) is considered to be consideration and is required in a purchase offer. Incorrect Answer D) will be a credit to the seller and a debit to the buyer at closing. Incorrect Answer Explanation Earnest money is not consideration. Therefore, it is not an essential element of a contract or required; it is a show of good faith on the part of the buyer and liquidated damages for the seller, if the buyer defaults. Reference: Contracts > General Concepts

Question 110

An example of specific performance for breaching a real property purchase contract would be A) damages for the taking of private land for public use. B) recovery of money lost as a result of the breach. C) a court action to force compliance with the contract. D) the forfeiture of the earnest money deposit.

Answer 110

An example of specific performance for breaching a real property purchase contract would be A) damages for the taking of private land for public use. Incorrect Answer B) recovery of money lost as a result of the breach. Incorrect Answer C) a court action to force compliance with the contract. Correct Answer D) the forfeiture of the earnest money deposit. Incorrect Answer Explanation Specific performance means that if one breaks the promise, the other party has the legal right to sue in court to make the defaulting party perform. Reference: Contracts > General Concepts

Question 111

A buyer agrees to buy a property, and then changes his mind. The seller in this agreement has no recourse against the buyer. The contract was A) a lease. B) a purchase agreement. C) an option. D) voidable.

Answer 111

A buyer agrees to buy a property, and then changes his mind. The seller in this agreement has no recourse against the buyer. The contract was A) a lease. Incorrect Answer B) a purchase agreement. Incorrect Answer C) an option. Correct Answer D) voidable. Incorrect Answer Explanation In an option contract, the seller's only recourse is to retain the option money. A seller may sue a buyer for specific performance if a buyer does not perform according to the provisions of a purchase agreement. A lease is a contract to rent a property, not to buy that property. A voidable contract appears to be valid but may be rescinded on some legal principle, as in the case of a contract entered into by a minor. Reference: Contracts > Option Contracts

Question 112

Contracts that transfer interests in real estate should be express A) oral or written contracts. B) implied contracts. C) written contracts. D) bilateral contracts.

Answer 112

Contracts that transfer interests in real estate should be express A) oral or written contracts. Incorrect Answer B) implied contracts. Incorrect Answer C) written contracts. Correct Answer D) bilateral contracts. Incorrect Answer Explanation Documents transferring an interest in real estate, per the statute of frauds, must be in an express written form. The contract could be unilateral or bilateral, but it cannot be implied or oral. Reference: Contracts > General Concepts

Question 113

A home warranty program covers such things as A) pools, roofs, plumbing, and appliances. B) plumbing, electrical and heating, water heaters, and appliances. C) structural defects, environmental hazards, and septic tanks. D) all mechanical features of a property.

Answer 113

A home warranty program covers such things as A) pools, roofs, plumbing, and appliances. Incorrect Answer B) plumbing, electrical and heating, water heaters, and appliances. Correct Answer C) structural defects, environmental hazards, and septic tanks. Incorrect Answer D) all mechanical features of a property. Incorrect Answer Explanation Most home warranty programs cover such things as plumbing, electrical, heating, water systems, duct work, .and major appliances. It does not cover preexisting conditions, flood damage, or pools. Reference: Contracts > Sales Contract

Question 114

The essential elements of a contract include all of these EXCEPT A) consideration. B) competent grantor. C) lawful purpose. D) offer and acceptance.

Answer 114

The essential elements of a contract include all of these EXCEPT A) consideration. Incorrect Answer B) competent grantor. Correct Answer C) lawful purpose. Incorrect Answer D) offer and acceptance. Incorrect Answer Explanation Competent grantor is a requirement of a deed but not an essential element of a contract. Offer and acceptance, lawful purpose, consideration, voluntary consent, and legally competent parties are the essential elements of a contract. Reference: Contracts > General Concepts

Question 115

A contract that has NOT yet been fully performed is A) executory. B) voidable. C) executed. D) unenforceable.

Answer 115

A contract that has NOT yet been fully performed is A) executory. Correct Answer B) voidable. Incorrect Answer C) executed. Incorrect Answer D) unenforceable. Incorrect Answer Explanation The phase from offer to a closed and executed/closed contract is called the executory period. Voidable contracts are binding on one party and not the other. An unenforceable contract is also void due to lack of an essential element. Reference: Contracts > General Concepts

Question 116

A couple offers to purchase a house for $120,000, including its draperies, with the offer to expire on Saturday at noon. The sellers reply in writing on Thursday accepting the $120,000 offer but excluding the draperies. On Friday, while the buyers consider this counteroffer, the sellers decide to accept the original offer; draperies included, and state that in writing. At this point, the buyers A) are legally bound to buy the house, although they have the right to insist that the draperies be included. B) are not bound to buy. C) must buy the house and are not entitled to the draperies. D) must buy the house but may deduct the value of the draperies from the $120,000.

Answer 116

A couple offers to purchase a house for $120,000, including its draperies, with the offer to expire on Saturday at noon. The sellers reply in writing on Thursday accepting the $120,000 offer but excluding the draperies. On Friday, while the buyers consider this counteroffer, the sellers decide to accept the original offer; draperies included, and state that in writing. At this point, the buyers A) are legally bound to buy the house, although they have the right to insist that the draperies be included. Incorrect Answer B) are not bound to buy. Correct Answer C) must buy the house and are not entitled to the draperies. Incorrect Answer D) must buy the house but may deduct the value of the draperies from the $120,000. Incorrect Answer Explanation The sellers' counteroffer is regarded in law as a new offer. They have rejected or terminated the buyers' original offer by changing something in it and thereby releasing the buyers from the original offer. At this point, the sellers can keep both their draperies and their house, and the buyers are not bound by any agreement to buy the property. Reference: Contracts > Sales Contract

Question 117

An amendment to a contract is created A) only if using fill-in-the-blank agreements. B) by adding provisions to an accepted contract. C) before the original contract is written. D) only by attorneys before the closing.

Answer 117

An amendment to a contract is created A) only if using fill-in-the-blank agreements. Incorrect Answer B) by adding provisions to an accepted contract. Correct Answer C) before the original contract is written. Incorrect Answer D) only by attorneys before the closing. Incorrect Answer Explanation An addendum is a change to an original contract. An amendment is created to make changes or to add provisions after the original contract is created. Reference: Contracts > Contract Clauses, Including Amendments and Addenda

Question 118

Due diligence is BEST defined as A) a seller’s obligation to complete a property disclosure. B) using a good-faith effort to carry out the terms of a contract. C) all the acts required of all parties to a transaction. D) the requirement to have an inspection on a property.

Answer 118

Due diligence is BEST defined as A) a seller’s obligation to complete a property disclosure. Incorrect Answer B) using a good-faith effort to carry out the terms of a contract. Correct Answer C) all the acts required of all parties to a transaction. Incorrect Answer D) the requirement to have an inspection on a property. Incorrect Answer Explanation Buyers are expected to use due diligence to verify the property will meet their needs, is zoned properly, and is in an acceptable condition. The sellers are expected to use due diligence to make sure their title being passed is marketable. Reference: Contracts > General Concepts

Question 119

A seller may keep the buyer's earnest money as liquidated damages if A) the buyer defaults and the purchase agreement stipulates liquidated damages as a remedy. B) the seller failed to perform an essential element of the contract. C) the seller and the broker agree that the buyer defaulted and the contract calls for specific performance. D) that is stated in the listing agreement as a remedy for the seller.

Answer 119

A seller may keep the buyer's earnest money as liquidated damages if A) the buyer defaults and the purchase agreement stipulates liquidated damages as a remedy. Correct Answer B) the seller failed to perform an essential element of the contract. Incorrect Answer C) the seller and the broker agree that the buyer defaulted and the contract calls for specific performance. Incorrect Answer D) that is stated in the listing agreement as a remedy for the seller. Incorrect Answer Explanation A liquidated damages purchase contract allows the seller to keep the earnest money if the buyer defaults. Typically, the buyer will have specific performance remedies if the seller is in default. Reference: Contracts > General Concepts

Question 120

The clause in a contract that makes timely performance a condition of the contract is called A) the time is of the essence clause. B) the within a reasonable time clause. C) the unity of time clause. D) the drop dead clause.

Answer 120

The clause in a contract that makes timely performance a condition of the contract is called A) the time is of the essence clause. Correct Answer B) the within a reasonable time clause. Incorrect Answer C) the unity of time clause. Incorrect Answer D) the drop dead clause. Incorrect Answer Explanation Time is of the essence means that timely performance is a condition of the contract. Reference: Contracts > Contract Clauses, Including Amendments and Addenda

Question 121

A contract entered into without duress, menace, misrepresentation, or fraud means that it meets the legal requirement of A) proper legal form. B) meeting of the minds C) full consent. D) valuable consideration.

Answer 121

A contract entered into without duress, menace, misrepresentation, or fraud means that it meets the legal requirement of A) proper legal form. Incorrect Answer B) meeting of the minds Incorrect Answer C) full consent. Correct Answer D) valuable consideration. Incorrect Answer Explanation Full consent means a contract was entered into without duress, menace, misrepresentation, or fraud. Reference: Contracts > General Concepts

Question 122

Breach of contract is refusal or failure to comply with the terms of a contract. If the seller breaches the purchase contract, the buyer may do all of these EXCEPT A) rescind the contract and recover the earnest money. B) sue the seller for damages. C) sue the seller for specific performance. D) sue the broker for nonperformance.

Answer 122

Breach of contract is refusal or failure to comply with the terms of a contract. If the seller breaches the purchase contract, the buyer may do all of these EXCEPT A) rescind the contract and recover the earnest money. Incorrect Answer B) sue the seller for damages. Incorrect Answer C) sue the seller for specific performance. Incorrect Answer D) sue the broker for nonperformance. Correct Answer Explanation The broker is not a party to a real estate purchase contract and could not be sued for nonperformance in the event of a seller breach. The buyer may take any of the other actions stated in the remaining answers. Reference: Contracts > General Concepts

Question 123

All of these are essential elements of a contract EXCEPT A) consideration. B) mutual agreement. C) earnest money. D) a lawful objective.

Answer 123

All of these are essential elements of a contract EXCEPT A) consideration. Incorrect Answer B) mutual agreement. Incorrect Answer C) earnest money. Correct Answer D) a lawful objective. Incorrect Answer Explanation The five essential elements of real estate contracts are lawful objective, consideration, mutual agreement, competent parties, and in writing. Reference: Contracts > General Concepts

Question 124

During the period of time after a real estate sales contract is signed, but before title actually passes, the status of the contract is A) executory. B) unilateral. C) executed. D) voidable.

Answer 124

During the period of time after a real estate sales contract is signed, but before title actually passes, the status of the contract is A) executory. Correct Answer B) unilateral. Incorrect Answer C) executed. Incorrect Answer D) voidable. Incorrect Answer Explanation An offer becomes an executory contract upon acceptance and executed upon completion of the duties. Duress, fraud, misrepresentation, and minors always make contracts voidable. Only one party is bound in a unilateral contract. Reference: Contracts > Types of Contracts

Question 125

In an executory purchase contract, the buyer's interest is described as A) legal title. B) possessionary interest. C) ownership in equity. D) free and clear title.

Answer 125

In an executory purchase contract, the buyer's interest is described as A) legal title. Incorrect Answer B) possessionary interest. Incorrect Answer C) ownership in equity. Correct Answer D) free and clear title. Incorrect Answer Explanation Once an executory contract is created, the buyer's interest is called ownership in equity, the seller retains legal ownership until the deed is passed. Free and clear title is free from liens. A possessionary interest gives the holder the right to possess the property, which is not part of a purchase contract. Reference: Contracts > General Concepts

Question 126

The buyer has made an offer to the seller, who has countered and given the buyer 24 hours to accept the counter. In this case, the original offer is considered A) executory. B) void. C) voidable. D) terminated.

Answer 126

The buyer has made an offer to the seller, who has countered and given the buyer 24 hours to accept the counter. In this case, the original offer is considered A) executory. Incorrect Answer B) void. Incorrect Answer C) voidable. Incorrect Answer D) terminated. Correct Answer Explanation A counteroffer terminates the original offer and creates a new offer. Because there is no contract, the terms are executory. An offer is not a contract and cannot be considered voidable or void. Reference: Contracts > General Concepts

Question 127

An agent forgot to get the buyer to sign the offer. What is the status of the offer? A) Void B) Voidable C) Voluntary D) Valid

Answer 127

An agent forgot to get the buyer to sign the offer. What is the status of the offer? A) Void Correct Answer B) Voidable Incorrect Answer C) Voluntary Incorrect Answer D) Valid Incorrect Answer Explanation The offer is missing an essential element and is void. Duress, fraud, misrepresentation, and minors always make contracts voidable. A contract that is binding and enforceable is valid. Reference: Contracts > Types of Contracts

Question 128

One of the key provisions of the Uniform Electronic Transactions Act (UETA) is A) if a state law requires a written record, an electronic record is sufficient. B) a contract has no legal effect if it contains an electronic signature. C) electronic signatures are not legally enforceable. D) electronic signatures should not be regulated.

Answer 128

One of the key provisions of the Uniform Electronic Transactions Act (UETA) is A) if a state law requires a written record, an electronic record is sufficient. Correct Answer B) a contract has no legal effect if it contains an electronic signature. Incorrect Answer C) electronic signatures are not legally enforceable. Incorrect Answer D) electronic signatures should not be regulated. Incorrect Answer Explanation One of the key provisions of the UETA is to give electronic signatures the validity of paper-based signatures. Reference: Contracts > General Concepts

Question 129

In a standard sales contract, several words were crossed out or inserted by the parties. To eliminate future controversy as to whether the changes were made before or after the contract was signed, the usual procedure is to A) write a letter to each party listing the changes. B) have each party write a letter to the other approving the changes. C) redraw the entire contract. D) have both parties initial or sign in the margin near each change.

Answer 129

In a standard sales contract, several words were crossed out or inserted by the parties. To eliminate future controversy as to whether the changes were made before or after the contract was signed, the usual procedure is to A) write a letter to each party listing the changes. Incorrect Answer B) have each party write a letter to the other approving the changes. Incorrect Answer C) redraw the entire contract. Incorrect Answer D) have both parties initial or sign in the margin near each change. Correct Answer Explanation All parties must initial or sign the changes. If negotiations had gone back and forth a number of times, it might merit redrawing the contract for clarity; in this case, initialing is sufficient. Letters approving all changes might be treated as part of the contract but such a cumbersome procedure is seldom seen. More often, changes are done with preprinted standard or approved addendum forms. Reference: Contracts > Sales Contract

Question 130

When a buyer and a seller enter into a purchase agreement (contract of sale), the legal remedy that each has to force the other party to perform the terms of the agreement is A) unilateral rescission. B) specific performance. C) actual damages. D) liquidated damages.

Answer 130

When a buyer and a seller enter into a purchase agreement (contract of sale), the legal remedy that each has to force the other party to perform the terms of the agreement is A) unilateral rescission. Incorrect Answer B) specific performance. Correct Answer C) actual damages. Incorrect Answer D) liquidated damages. Incorrect Answer Explanation Specific performance is defined as suing to perform if this is the remedy being used as the default when the suing party wants the other party to complete the terms of the transaction. In a purchase agreement, this is available to both the buyer and the seller. Actual damages is a suit to receive money in return for damages not necessarily requiring the performance of the contract. Liquidated damages is where the buyer's earnest money is kept, and unilateral rescission is a one-sided termination when that party feels that the other party has failed to complete its side of the agreement. Reference: Contracts > General Concepts

Question 131

Which of these requires that real estate sales contracts be in writing? A) Caveat emptor law B) Truth in Lending Act C) Statute of limitations D) Statute of frauds

Answer 131

Which of these requires that real estate sales contracts be in writing? A) Caveat emptor law Incorrect Answer B) Truth in Lending Act Incorrect Answer C) Statute of limitations Incorrect Answer D) Statute of frauds Correct Answer Explanation The statute of frauds requires that all transfers of interests in real estate be in writing, the exception is a lease of three years or less. The statute of limitations sets the amount of time lawsuits can be filed. The Truth in Lending Act sets disclosure requirements for lender fees. Caveat emptor means buyer beware. Reference: Contracts > General Concepts

Question 132

A lease agreement is signed by a lessee who is 16 years of age. Which of these is TRUE? A) The lease agreement is valid, provided the security deposit is increased. B) The lease agreement is void. C) A 16-year-old person cannot sign a lease. D) The lease agreement is voidable by the minor.

Answer 132

A lease agreement is signed by a lessee who is 16 years of age. Which of these is TRUE? A) The lease agreement is valid, provided the security deposit is increased. Incorrect Answer B) The lease agreement is void. Incorrect Answer C) A 16-year-old person cannot sign a lease. Incorrect Answer D) The lease agreement is voidable by the minor. Correct Answer Explanation A 16-year-old person can sign a contract. However, it was incumbent on an adult who is the other party to the contract to stop the minor from signing the contract. If this does not occur because the lessee is a minor, the lease is voidable by the minor. The amount of the security deposit does not affect the validity of a lease contract. The 16-year-old may in fact decide to enforce the lease contract, in which case the lease is valid. Reference: Contracts > Types of Contracts

Question 133

When a property is misrepresented because defects are not disclosed to a buyer, the buyer may be able to rescind a sales contract or receive A) a return of any earnest money paid to the seller. B) special damages due to the inconvenience to the buyer. C) incidental damages that occur in every real estate transaction. D) compensatory damages for repair of the defect.

Answer 133

When a property is misrepresented because defects are not disclosed to a buyer, the buyer may be able to rescind a sales contract or receive A) a return of any earnest money paid to the seller. Incorrect Answer B) special damages due to the inconvenience to the buyer. Incorrect Answer C) incidental damages that occur in every real estate transaction. Incorrect Answer D) compensatory damages for repair of the defect. Correct Answer Explanation Compensatory damages are a monetary payment for the repair of the defect. In some cases, a court may award other payments to the buyer for flagrant misrepresentation. Reference: Contracts > Sales Contract

Question 134

The multiple listing service (MLS) lists a number of personal property items the seller was willing to include in the sale, including the commercial stove and refrigerator, along with all other appliances. The buyer and the seller have gone back and forth over a number of items, including price and the appliances, which were included in the first offer. The final contract did not included any appliances. In this case, the appliances A) if removed by the seller after closing would be a breach of contract by the seller and listing broker. B) belong to the seller, who may take them upon closing the property. C) will belong to the buyer because they were listed in the MLS and the seller is obligated to include all items listed in MLS as part of good faith in contracting. D) will have to be paid for out of closing by the buyer in order to meet the requirements of the original contact.

Answer 134

The multiple listing service (MLS) lists a number of personal property items the seller was willing to include in the sale, including the commercial stove and refrigerator, along with all other appliances. The buyer and the seller have gone back and forth over a number of items, including price and the appliances, which were included in the first offer. The final contract did not included any appliances. In this case, the appliances A) if removed by the seller after closing would be a breach of contract by the seller and listing broker. Incorrect Answer B) belong to the seller, who may take them upon closing the property. Correct Answer C) will belong to the buyer because they were listed in the MLS and the seller is obligated to include all items listed in MLS as part of good faith in contracting. Incorrect Answer D) will have to be paid for out of closing by the buyer in order to meet the requirements of the original contact. Incorrect Answer Explanation The final contract is what is used to determine what is to be conveyed, and because no mention of the appliances was made, they belong to the seller who may take them. Reference: Contracts > Sales Contract

Question 135

A new contract that transfers all rights and liabilities is A) an assignment. B) a novation. C) a subordination. D) an option.

Answer 135

A new contract that transfers all rights and liabilities is A) an assignment. Incorrect Answer B) a novation. Correct Answer C) a subordination. Incorrect Answer D) an option. Incorrect Answer Explanation In a novation, a new contract is used to replace the original contract. Subordination is used in recording to keep liens in place. An assignment is the transfer of contract duties but not liabilities. An option is a contract that exchanges a promise for performance. Reference: Contracts > General Concepts

Question 136

In order for a purchase agreement to be binding on all parties, it must contain certain essential elements. Of these, which is essential for a purchase agreement to be valid? A) Lawful objective B) Notarization C) Competent grantor D) Recordation

Answer 136

In order for a purchase agreement to be binding on all parties, it must contain certain essential elements. Of these, which is essential for a purchase agreement to be valid? A) Lawful objective Incorrect Answer B) Notarization Incorrect Answer C) Competent grantor Correct Answer D) Recordation Incorrect Answer Explanation The essential elements of a contract are competent parties, mutual agreement, lawful objective, consideration, and the document in writing. To be valid, a contract does not need to be recorded or notarized. Competent grantor is a requirement of a valid deed. Reference: Contracts > General Concepts

Question 137

In a preprinted sales contract, several words were crossed out or inserted by the parties. To eliminate future controversy as to whether the changes were made before or after the contract was signed, the usual procedure is to A) redraw the entire contract. B) have each party write a letter to the other approving the changes. C) write a letter to each party listing the changes. D) have both parties initial or sign in the margin near each change.

Answer 137

In a preprinted sales contract, several words were crossed out or inserted by the parties. To eliminate future controversy as to whether the changes were made before or after the contract was signed, the usual procedure is to A) redraw the entire contract. Incorrect Answer B) have each party write a letter to the other approving the changes. Incorrect Answer C) write a letter to each party listing the changes. Incorrect Answer D) have both parties initial or sign in the margin near each change. Correct Answer Explanation If there are minor changes in a contract, the initialing or signature at the changes notes that the party saw and agreed to the change. The best course of action if there are many or major changes to a contract is to draft a new one with all the agreed changes. Reference: Contracts > Sales Contract

Question 138

The broker receives an earnest money deposit with a written offer to purchase that includes a 10-day acceptance clause. On the fifth day, before the offer is accepted, the buyer notifies the broker that she is withdrawing the offer and requests the return of her earnest money deposit. In this situation, A) the buyer may revoke the offer but will not have the earnest money returned because the buyer failed to give the seller the full acceptance time. B) the buyer cannot withdraw the offer because it must be held open for the full 10 days. C) the buyer has the right to revoke the offer at any time until it is accepted and recover the earnest money. D) the seller and the broker have the right to each retain one-half of the deposit.

Answer 138

The broker receives an earnest money deposit with a written offer to purchase that includes a 10-day acceptance clause. On the fifth day, before the offer is accepted, the buyer notifies the broker that she is withdrawing the offer and requests the return of her earnest money deposit. In this situation, A) the buyer may revoke the offer but will not have the earnest money returned because the buyer failed to give the seller the full acceptance time. Incorrect Answer B) the buyer cannot withdraw the offer because it must be held open for the full 10 days. Incorrect Answer C) the buyer has the right to revoke the offer at any time until it is accepted and recover the earnest money. Correct Answer D) the seller and the broker have the right to each retain one-half of the deposit. Incorrect Answer Explanation The offeror (the buyer) may revoke the offer at any time before the offer is accepted, even if the person making the offer agreed to keep the offer open for a set period of time. At that point, the earnest money deposit should be refunded to the buyer. Reference: Contracts > Sales Contract