Section 8: Real Estate Contracts

Question 1

Contracts and Components:
*Contracts can be used for many purposes and many reasons in all types of daily activities and must include certain components to be considered “______”.

Answer 1

Valid

Question 2

Contracts and Components:
Real estate is full of both promises and contracts. Most agents in fact don’t know the difference between contracts and ______, but it’s vital to understand this going forward.

Answer 2

Agreements

Question 3

Contracts and Components:
Remember, being an agent gives you the powers to draft, edit, and write contracts under the ______, but the power that this really brings, is why we want future agents to know how important it is to not only understand contracts, but to know what goes into them as well to protect your client!

Answer 3

Arizona Constitution

Question 4

Contracts and Components:
“A contract is a promise or set of promises which is protected under the ______, whereas an agreement is a manifestation of mutual assent which does not necessarily carry legal implications.”

-Supreme Court of Washington

Answer 4

Law

Question 5

Contracts and Components:
“A contract is a promise or set of promises which is protected under the law, whereas an agreement is a manifestation of mutual assent which does not necessarily carry ______ implications.”

-Supreme Court of Washington

Answer 5

Legal

Question 6

Contracts and Components:
Contract differ in nature by each industry served and contain different components:
o ______: Agreements between parties to either do something or not do something

Answer 6

Contracts

Question 7

Contracts and Components:
By entering into an agreement, all parties assume that the other party is acting in a reasonable standard and with good faith.
o ______: All parties acting fairly with the intent to complete the agreement.

Answer 7

Reasonable Standard

Question 8

Contracts and Components:
Contracts Validity:
*There are 5 effects that make contracts COMPLETE.

1.
2.
3.
4.
5.

Answer 8

1. Valid
2. Void
3. Voidable
4. Enforceable
5. Unenforceable

Question 9

Contracts and Components:
Contracts Validity:
*1 of the 5 effects that make contracts COMPLETE:
______: Contract has the required components.
o Legal, enforceable and binding upon all parties.

Answer 9

Valid

Question 10

Contracts and Components:
Contracts Validity:
*1 of the 5 effects that make contracts COMPLETE:
______: Contract is missing one of the required components.
o Not legal, unenforceable, nonbinding.

Answer 10

Void

Question 11

Contracts and Components:
Contracts Validity:
*1 of the 5 effects that make contracts COMPLETE:
______: Contract that could be voided by one party.
o Valid contract which may be either affirmed or rejected by one of the parties to the contract or an outside party.

Answer 11

Voidable

Question 12

Contracts and Components:
Contracts Validity:
*1 of the 5 effects that make contracts COMPLETE:
o Voidable:
Voidable contracts are considered valid until it is ______.
o If the contract this NEVER happens, it is accepted by all parties.

Answer 12

Rescinded

Question 13

Contracts and Components:
Contracts Validity:
______: Revoked, cancelled or taken back

Answer 13

Rescind

Question 14

Contracts and Components:
Contracts Validity:
*1 of the 5 effects that make contracts COMPLETE:
______: contract has all components and is binding on all parties in a court of law
o If a party defaults or breaches, the other party can sue for damages.

Answer 14

Enforceable

Question 15

Contracts and Components:
Contracts Validity:
*1 of the 5 effects that make contracts COMPLETE:
Enforceable:
o A valid contract can become unenforceable due to the ______.

Answer 15

Statutes of Limitations

Question 16

Contracts and Components:
Contracts Validity:
*1 of the 5 effects that make contracts COMPLETE:
Enforceable:
 ______: Contract appears to be valid but may be invalid.
o If a contract were agreed upon in conversation but never put in writing.
o In a real estate agreement for sale, if the listed owner is not in fact legal owner.

Answer 16

Unenforceable

Question 17

Contracts and Components:
Written vs Verbal Contracts:
*IMPORTANT: Even though we assume that contracts are in ______ to be enforceable, don’t forget that not all contracts must be in writing to be enforceable.
- In Arizona, leases for less than 1 year do NOT have to be in writing

Answer 17

Writing

Question 18

Contracts and Components:
Written vs Verbal Contracts:
* ______:
These can be assumed to be valid by both parties while other contracts are mandated to be in writing, such as the real estate contracts because of the statute of frauds.
o In Arizona, leases for less than 1 year do NOT have to be in writing.

Answer 18

Verbal Contracts

Question 19

Contracts and Components:
Written vs Verbal Contracts:
Implied Contract:
Both parties assume a contract based upon the parties ______.
o By entering a restaurant, ordering food and eating, it is understood and assumed that you will pay the bill–both parties actions assume this.
o Landscapers who show up, work and then expect to be paid is implied contract.

Answer 19

Actions

Question 20

Contracts and Components:
Written vs Verbal Contracts:
______: An exchange of promises either orally or in writing.
o Both parties have agreed to something and each party will be held to the contracts terms and conditions.

Answer 20

Express Contract

Question 21

Contracts and Components:
Written vs Verbal Contracts:
Express Contract:
o Real Estate contracts where one party offers to buy a condo and the other party agrees to sell and it is in writing is considered a ______ Express Contract.
o One party agrees to rent their home to snowbirds for 3 months in the winter, and the other party agrees verbally is an oral express contract.

Answer 21

Written

Question 22

Contracts and Components:
A contract where we agreed in a conversation to do something is known as an Express Contract where our actions proved our intent is an __________.

Answer 22

Implied Contract

Question 23

Contracts and Components:
One vs Two Party Contracts:
*It’s entirely possible for a contract to be one sided while __________ are two sided.

Answer 23

Most

Question 24

Contracts and Components:
One vs Two Party Contracts:
__________:
This is a one-sided contract where only one party must perform.
o Only one side must do or not do something in order for the contract to be valid and enforceable while the other party is under no obligation to perform.

Answer 24

Unilateral Contract

Question 25

Contracts and Components:
One vs Two Party Contracts:
Unilateral Contract:
o A __________ is unilateral since the seller must pay a commission if the broker brings a buyer, BUT the broker does NOT have to do anything IF a buyer naturally comes in.

Answer 25

Listing Agreement

Question 26

Contracts and Components:
One vs Two Party Contracts:
Unilateral Contract:
o Life insurance company is promising to pay out upon death, but the __________ of the insurance policy doesn’t have to do anything One Promise.
- REMEMBER: The Beneficiary here, is the person who benefits from the payout of the policy.

Answer 26

Beneficiary

Question 27

Contracts and Components:
One vs Two Party Contracts:
__________:
This is when both parties promise to do something in exchange for something.

Answer 27

Bilateral Contract

Question 28

Contracts and Components:
One vs Two Party Contracts:
Bilateral Contract:
Most contracts are bilateral especially in real estate where one party is agreeing to something if the other party promises to ALSO __________.
o A purchase agreement where one side agrees to pay $500,000 for a ranch and the other side agrees to deliver the deed in exchange for the $500,000.
- If the buyer didn’t bring the money, the seller wouldn’t deliver the deed.
- The buyer would be in breach of contract as an example here.

Answer 28

Deliver

Question 29

Contracts and Components:
Which of the following could be used to describe the state of a contract?

Valid

Void

Inviolable

Unenforceable

Answer 29

Valid

Void

Unenforceable

Question 30

Contracts and Components:
Case Study:
Q: A potential client calls you to list a home for sale. They sign a listing agreement with you to represent them. However, during the listing process, it becomes apparent that they do not own the home. When you ask the client why this is, they state that they are selling it for their mother (the actual owner), who has been moved to a nursing home. Is the contract (the listing agreement) valid? Why or why not?

Answer 30

A: In a real estate agreement for sale, if the listed owner is not, in fact, a legal owner due to unenforceable effect, the contract appears to be valid but may be invalid. Suppose a contract was agreed upon in conversation but never put in writing.

Question 31

Contracts and Components:
Case Study:
Q: Give an example of an Implied Contract. (It does not have to be real estate related.)

Answer 31

A: By entering a restaurant, ordering food, and eating, it is understood and assumed that you will pay the bill – both parties’ actions think this.

Question 32

Contracts and Components:
Case Study:
Q: Give an example of an Express Contract. (It does not have to be real estate related.)

Answer 32

A: One party agrees to rent their home to snowbirds for 3 months in the winter, and the other party agrees verbally is an oral express contract.

Question 33

Contracts and Components:
Case Study:
Q: What is the difference between an Implied Contract and an Express Contract?

Answer 33

A: In an Implied Contract, both parties assume a contract based upon their actions, while an express Contract is an exchange of promises either orally or in writing.

Question 34

Contracts and Components:
Quiz:
When all parties act fairly with the intent to complete the agreement, they are acting within a?

Accord and Satisfaction

Reasonable Stipulation

Good Faith

Assumed intentions

Answer 34

Good Faith

Question 35

Contracts and Components:
Quiz:
A voidable contract that is never rescinded is considered to be?

Unenforceable

Valid

Null and void

Limited

Answer 35

Valid

Question 36

Contracts and Components:
Quiz:
A broker verbally agreed to list a neighbor’s house for sale and put the house in the local MLS and promised to get the agreements to the sellers soon. What is the status of this listing?

Void

Valid

Enforceable

Rescinded

Answer 36

Void

Question 37

Contracts and Components:
Quiz:
An owner of a condo while at a community function agrees to sell their unit to someone who is currently renting in the same complex. The buyer and seller agreed on all the terms, including the price. This is an example of a(n)?

Undeniable Contract

Unilateral Contract

Executed Contract

Express Contract

Answer 37

Express Contract

Question 38

Contracts and Components:
Quiz:
A unilateral contract requires?

A written contract

One party to perform

Two parties to perform

Two parties to perform the same task

Answer 38

One Party to Perform

Question 39

Contracts and Components:
Components of a Valid Contract:
REMEMBER: Nurse Jackie:
This is Dr. Jackie! She has an acronym we want you to Remember: _______

This will aid you in understanding what you need for a valid contract.

Answer 39

COLD+SIC(k)

Question 40

Contracts and Components:
Components of a Valid Contract:
REMEMBER: Nurse Jackie:
First of all, remember:
This is Dr. Jackie! She has an acronym we want you to remember: COLD+SIC(k).
Real estate contracts must be in writing and have a description of what is being conveyed and for how long.
The contract, in Arizona real estate, must be accepted (signed by all parties) and the copies must be delivered to the parties in order to be deemed valid.
Remember? Signed, sealed and delivered? That applies here as well!
If a contract were never _______ to the parties, it would be impossible to enforce as they didn’t know the offer or acceptance had taken place.

Answer 40

Delivered

Question 41

Contracts and Components:
Components of a Valid Contract:
IMPORTANT: According to the statutes, E-signing is now acknowledged in the State of Arizona for all correspondences including real estate contracts. However, some banks or government agencies will still require ‘_______’ signatures and will NOT allow E-signatures.

Answer 41

Wet Ink

Question 42

Contracts and Components:
Components of a Valid Contract:
*Contracts must have _______, offer and acceptance, consideration and be legal in nature.

Answer 42

Capacity

Question 43

Contracts and Components:
Components of a Valid Contract:
*For REAL ESTATE CONTRACTS must be signed, in writing and have a legal description.
As in any real estate agreement, a contract must be signed in order to be accepted, but it has to be delivered also to the agent or the _______ themself.
o NOTE: According to the statutes, E-signing is now acknowledged in the State of Arizona for all correspondences.

Answer 43

Principal

Question 44

Contracts and Components:
Components of a Valid Contract:
Remember the Acronym
C.O.L.D + S.I.C(k) to relate to contracts validity.
What’s the meaning of the acronym?

Answer 44

C= Competent parties or Capacity
O= Offer and acceptance
L= Legal purpose
D=Description (Legal Description)
S= Signed
I= In Writing
C=Consideration

Question 45

Contracts and Components:
Components of a Valid Contract:
REMEMBER: Nurse Jackie: COLD+SIC(k):
_______: All parties are legally deemed able to enter into agreements.

Answer 45

Competent Parties

Question 46

Contracts and Components:
Components of a Valid Contract:
REMEMBER: Nurse Jackie: COLD+SIC(k):
Competent Parties:
_______:
o People who are not of sound mind or body as deemed by the courts have no capacity to perform and as such the contract would be automatically voided.
o However, people who have not yet been deemed insane, could enter into an agreement, but that agreement could be voidable.

Answer 46

Insanity

Question 47

Contracts and Components:
Components of a Valid Contract:
Competent Parties:
Quiz:
Which of these is NOT an example of an incompetent party?

Someone who is under the age of 18

Someone being threatened into an agreement

Someone who has a prescription for anxiety medication

Someone under the influence of alcohol and drugs

Answer 47

Someone who has a prescription for anxiety medication

Question 48

Contracts and Components:
Components of a Valid Contract:
REMEMBER: Nurse Jackie: COLD+SIC(k):
Competent Parties:
_______:
o Parties must be of legal age to enter into agreements
o Legal age varies by state and by contract and in Arizona it is 18 years of age
o Exceptions to the rule include the emancipation of minors

Answer 48

Age

Question 49

Contracts and Components:
Components of a Valid Contract:
REMEMBER: Nurse Jackie: COLD+SIC(k):
Competent Parties:
_______:
o A party that was forced to enter into an agreement or contract cannot be deemed to have been in sound mind or body at time of agreement was made.
o A state of coercion, fear, threat or even to humiliate are all examples.

Answer 49

Duress

Question 50

Contracts and Components:
Components of a Valid Contract:
REMEMBER: Nurse Jackie: COLD+SIC(k):
Competent Parties:
_______:
o Being under the effects of alcohol, drugs or even medication can render someone incompetent to enter into agreements.
o Courts will look at the type of influence and character to determine competency.

Answer 50

Under the Influence

Question 51

Contracts and Components:
Components of a Valid Contract:
_______:
An offer to contract by one party to another party and an indication by the agreed upon acceptance of those terms.
o An offer is simply a proposal to enter into an agreement.

Answer 51

Offer and Acceptance

Question 52

Contracts and Components:
Components of a Valid Contract:
REMEMBER: Nurse Jackie: COLD+SIC(k):
Offer and Acceptance:
o There must be at least two parties to have an offer and acceptance:
 _______= the person making the offer, the “Give-or”
 _______= the person receiving the offer, the “Receiv-ee”
o All offers must display agree to terms known as a ‘meeting of the minds’.
o All offers must display terms that are certain and definite.
o All offers must be delivered or communicated to the offeree.

Answer 52

OfferOR

OfferEE

Question 53

Contracts and Components:
Components of a Valid Contract:
REMEMBER: Nurse Jackie: COLD+SIC(k):
Offer and Acceptance:
o _______:
Offers Acceptance must have a time of expiration. They can NOT last forever.
 You must submit offers as soon as practical. The owners must be informed that the offer has been made, and in a timely fashion!

Answer 53

Expiration Date

Question 54

Contracts and Components:
Components of a Valid Contract:
REMEMBER: Nurse Jackie: COLD+SIC(k):
Offer and Acceptance:
In commercial properties this is also known as a “_______”. It is designed to express interest in purchasing a property.

Answer 54

Letter of Intent

Question 55

Contracts and Components:
Components of a Valid Contract:
REMEMBER: Nurse Jackie: COLD+SIC(k):
Offer and Acceptance:
*_______:
There is a Deadline looming or expiration.

Answer 55

Time Is Of The Essence

Question 56

Contracts and Components:
Components of a Valid Contract:
REMEMBER: Nurse Jackie: COLD+SIC(k):
Offer and Acceptance:
IMPORTANT: Offer must be accepted as it was offered or a _______ is created.

Answer 56

Counteroffer

Question 57

Contracts and Components:
Components of a Valid Contract:
REMEMBER: Nurse Jackie: COLD+SIC(k):
Offer and Acceptance:
*_______:
A new and changed offer based on the original.
 Original ‘Offeree’ now becomes the ‘Offeror’ with the counteroffer.

Answer 57

Counteroffer

Question 58

Contracts and Components:
Components of a Valid Contract:
REMEMBER: Nurse Jackie: COLD+SIC(k):
Offer and Acceptance:
o Offeror can _______ his offer up to the MINUTE before it has been accepted.
* Offers are not considered accepted until the offeror has been NOTIFIED of its acceptance.

Answer 58

Rescind

Question 59

Contracts and Components:
Components of a Valid Contract:
REMEMBER: Nurse Jackie: COLD+SIC(k):
Offer and Acceptance: IMPORTANT: If the ‘Agent’ on behalf of the offeror had been notified of acceptance, notice is considered to have been given to offeror (agent on behalf).
o If the offeror DIES before the offer was _______, the offer is VOID.

Answer 59

Accepted

Question 60

Contracts and Components:
Components of a Valid Contract:
REMEMBER: Nurse Jackie: COLD+SIC(k):
Offer and Acceptance:
 If the offer had been ACCEPTED and then the offeror DIED, the contract is _______ and is enforceable against the estate of the Offeror.

Answer 60

Valid

Question 61

Contracts and Components:
Components of a Valid Contract:
REMEMBER: Nurse Jackie: COLD+SIC(k):
Offer and Acceptance:
 Counteroffer the same is true if Offeree DIES while under contract, the estate of the Offeree can be forced to perform after the Seller’s _______.

Answer 61

Death

Question 62

Contracts and Components:
Components of a Valid Contract:
If the offeror dies before the offer was accepted, the offer is:

Valid

Void

Enforceable

Accepted

Answer 62

Void

Question 63

Contracts and Components:
Components of a Valid Contract:
REMEMBER: Nurse Jackie: COLD+SIC(k):
MEMORIZE:
LDS Acronym in C.O. [L.D. S.] I.C.

Answer 63

L is for Legal Purpose,

D is for Description,

S is for Signed!

Question 64

Contracts and Components:
Components of a Valid Contract:
_______:
Only a contract that is for legal purposes is considered a valid contract.
o Any contract must be for legal purposes only if it were to ever go to court.
o Even if both parties agreed to it, and either party knew of it being illegal, the contract would be unenforceable and void.

Answer 64

Legal Purpose

Question 65

Contracts and Components:
Components of a Valid Contract:
Nurse Jackie: C.O.L.D. S.I.C.(k)
_______:
Real Estate contracts must have the legal description of the property.
o To avoid confusion in real estate, some form of property description must be given other than the property address.
o Legal Descriptions work best or if land, a surveyors instructions and coordinates.
- We don’t use an address for specific reasons:
not all real estate has an address.
- Sometimes we are conveying oil, gas, water, minerals, crops etc.

Answer 65

Description

Question 66

Contracts and Components:
Components of a Valid Contract:
Nurse Jackie: C.O.L.D. S.I.C.(k)
_______:
Signatures from each party must be on the contract to affirm it’s acceptance.
o By signing the contract, parties have ratified the terms and agreed to it.
o In Arizona, it takes ONE signature from a married couple to buy, but TWO to sell.

Answer 66

Signed

Question 67

Contracts and Components:
Components of a Valid Contract:
TRUE or FALSE; By signing a contract, parties have ratified the terms and agree to them.

True

False

Answer 67

True

Question 68

Contracts and Components:
Components of a Valid Contract:
Nurse Jackie: C.O.L.D. S.I.C.(k)
_______:
Due to Statute of Frauds, all real estate contracts must be in writing.
o To prevent fraud, under English law, all contracts are required to be written.
o All states require that the real estate contract be in writing to be valid.

Answer 68

In Writing

Question 69

Contracts and Components:
Components of a Valid Contract:
Nurse Jackie: C.O.L.D. S.I.C.(k)
In Writing:
o Contracts do NOT have to be on boilerplate forms, can use a _______, receipt, etc.
o The written word takes precedence over boiler plate writings.

Answer 69

Napkin

Question 70

Contracts and Components:
Components of a Valid Contract:
Nurse Jackie: C.O.L.D. S.I.C.(k)
In Writing:
 _______: Contract must rely on written words.

Answer 70

Parol of Evidence

Question 71

Contracts and Components:
Components of a Valid Contract:
Nurse Jackie: C.O.L.D. S.I.C.(k)
In Writing:
o The written word takes precedence over boiler plate writings.
Exceptions to the rule are:
 Short term leases (less than one year).
 Sales of personal goods less than$500.
 _______ agreements between brokers.

Answer 71

Commission

Question 72

Contracts and Components:
Components of a Valid Contract:
Nurse Jackie: C.O.L.D. S.I.C.(k)
_______:
Something of value must be given up inducing another to perform.
o When something of value is exchanged for a promise to do something or to not do something is valid consideration.

Answer 72

Compensation / Consideration

Question 73

Contracts and Components:
Components of a Valid Contract:
Nurse Jackie: C.O.L.D. S.I.C.(k)
Compensation / Consideration:
o Doesn’t have to be money, could be a _______ of assets, love, services etc.
o As long as the exchange is based on LEGAL consideration
 You can trade your yacht for another party’s house.
Mother can ‘gift’ her love and affection to her son by gifting him a home.
IMPORTANT: Transfer of property between family is usually no exchange of consideration, so the county recorder will state a nominal amount ($10.00 in AZ)

Answer 73

Trade

Question 74

Contracts and Components:
Components of a Valid Contract:
What are the exceptions to the rule of “… all real estate contracts must be in writing”:

Short term leases

Consideration

Contracts

Parol of evidence

Commission agreement between brokers

Answer 74

Short term leases

Consideration

Parol of evidence

Commission agreement between brokers

Question 75

Contracts and Components:
Components of a Valid Contract:
Q: Name 3 of the seven components of a valid real estate contract

Answer 75

A: By remembering the Acronym C.O.L.D + S.I.C. to relate to contract validity.
C = Competent parties or Capacity
O = Offer and acceptance
L = Legal purpose
D = Description (Legal Description)
S = Signed
I = In Writing
C = Consideration

Question 76

Contracts and Components:
Components of a Valid Contract:
Case Study:
Q: A buyer offers to purchase a house for $5,000 less than asking. Who is the offeror and offeree? The seller counter offers with $1000 less than asking. Who is now the offeror and offeree?

Answer 76

A: The Offeror is the person making the offer, the “Give-or”. However, the Offeree is the person receiving the request, the “Receiv-ee.” In the first case, the buyer is the offeror, while in the second case, the seller is the offeror.

Question 77

Contracts and Components:
Components of a Valid Contract:
Case Study:
Q: An elderly gentleman agrees to pay cash for an investment property. The following day, he passes away. Would the agreement still be enforceable?

Answer 77

A: If the offer had been accepted and then the offeror died, the contract is valid and is enforceable against the estate of the offeror.

Question 78

Contracts and Components:
Components of a Valid Contract:
Case Study:
Q: Why is a description a required component of a valid real estate contract?

Answer 78

A: Real Estate contracts must have the legal description of the property. Property descriptions must be given beside the property address to ensure everything is transparent in real estate. Legal Descriptions work best, or if land, a surveyor’s instructions and coordinates.

Question 79

Contracts and Components:
Components of a Valid Contract:
Quiz:
The broker had been showing homes for some time to a high end buyer. After a few months, she found out that her buyer bought a different house from a different agent. She tried to sue the other agent but the judge in the case cited that she was missing what?

Valid Consideration

Signatures by all parties

Statute of description

Statute of validity

Answer 79

Signatures By All Parties

Question 80

Contracts and Components:
Components of a Valid Contract:
Quiz:
A contract signed by a party under the influence of pain medication could be considered voidable due to the lack of?

Competent parties

Duress

Consideration

Parol of Evidence

Answer 80

Competent Parties

Question 81

Contracts and Components:
Components of a Valid Contract:
Quiz:
Which is not an additional requirement for real estate contract validity?

Signed

In Writing

Escrow Instructions

Consideration

Answer 81

Escrow Instructions

Question 82

Contracts and Components:
Components of a Valid Contract:
Quiz:
What clause would an agent use in an offer to purchase that indicates in a hot market that they want an ANSWER before their deadline in an effort to prevent other buyers from making better offers?

Counteroffer

Time is of the essence

Description

Legal Purpose

Answer 82

Time is of the Essence

Question 83

Contracts and Components:
Components of a Valid Contract:
Quiz:
During contract negotiations, the counterofferor died unexpectedly. What is the status of the Sale?

The offeror is under contract and must proceed

The agent must deliver the signed acceptance

There is no contract

The parties can sue for specific performance

Answer 83

There is No Contract

Question 84

Contracts and Components:
Completed vs Incomplete:
*Since not every contract is completed at the immediate time of agreement, we need to identify WHEN a contract is considered complete:
o _______:
These are contracts that are in process, but not yet completed.
 A house that has a contract and is in escrow is an executory contract.

Answer 84

Executory Contracts

Question 85

Contracts and Components:
Completed vs Incomplete:
*Since not every contract is completed at the immediate time of the signing of the agreement, we need to _______ when a contract is considered complete.

Answer 85

Identify

Question 86

Contracts and Components:
Completed vs Incomplete:
_______:
These are agreed upon and completed and all promises have been kept.
 The recording of the deed and the conveyance of real property concludes the transaction and both buyers and sellers have fulfilled all promises to the contract.

Answer 86

Contracts

Question 87

Contracts and Components:
Contract Fulfillment:
_______:
“When the main obligations of a contract end”.
*The discharge of a contract and a release of its parties of the obligations in the contract could take place in any number of ways.

Answer 87

Discharge Of A Contract

Question 88

Contracts and Components:
Contract Fulfillment:
Discharge Of A Contract:
*Sometimes, parties may still discharge or terminate a contract even when they do not fulfill the _______ obligations required by a contract.

Answer 88

Primary

Question 89

Contracts and Components:
Contract Fulfillment:
*The discharge of a contract and a release of its parties of the obligations in the contract could take place in any number of ways:
_______: Tis occurs when the main obligations of a contract end.

Answer 89

Discharge of a Contract

Question 90

Contracts and Components:
Contract Fulfillment:
*The discharge of a contract and a release of its parties of the obligations in the contract could take place in any number of ways:
_______:
o Most common type of contract completion whereby all parties have performed

Answer 90

Completed Contract

Question 91

Contracts and Components:
Contract Fulfillment:
*The discharge of a contract and a release of its parties of the obligations in the contract could take place in any number of ways:
_______:
This occurs when one party in a contract gives up their position to another party.
o Assignor wants the assignee to step into his shoes and assume all their contractual obligations, rights and even benefits.
o Original party (assignor) is still however fully liable to perform in case the assignee doesn’t perform–not off the hook.

Answer 91

Assignment

Question 92

Contracts and Components:
Contract Fulfillment:
*The discharge of a contract and a release of its parties of the obligations in the contract could take place in any number of ways:
Assignment:
o _______= the original party to the original contract who is the ‘give-or’.
o _______= the new party to the old contract or the ‘receiv-ee’.

Answer 92

Assignor

Assignee

Question 93

Contracts and Components:
Contract Fulfillment:
*The discharge of a contract and a release of its parties of the obligations in the contract could take place in any number of ways:
_______:
This occurs when there is a substitution of parties or parts of an existing contract.
o It is possible to substitute a new buyer for an existing buyer if the existing buyer can’t perform and there is a backup offer for the identical terms.
o The substitution of terms or sections of a contract that both parties agree to.

Answer 93

Novation

Question 94

Contracts and Components:
Contract Fulfillment:
_______: Most common type of contract completion whereby all parties have performed.

Answer 94

Completed Contract

Question 95

Contracts and Components:
Contract Fulfillment:
Assignment: “One party in a contract gives up their position to “_______”
Assignor wants the assignee to step into his shoes and assume all their contractual obligations, rights and even benefits
Original party (assignor) is still however fully liable to perform in case the assignee doesn’t perform – not off the hook
Assignor: “The original party to the original contract who is the give-or“
Assignee: “The new party to the old contract or the receiv-ee“.

Answer 95

Another Party

Question 96

Contracts and Components:
Contract Fulfillment:
_______: “When the main obligations of a contract end”.

Answer 96

Discharge Of A Contract

Question 97

Contracts and Components:
Contract Fulfillment:
Novation: “The _______ of parties or parts of an existing contract”.
It is possible to exchange a new buyer for an existing buyer if the existing buyer can’t perform and there is a backup offer for the identical terms.
This can also apply to terms or sections of a contract that both parties agree to.

Answer 97

Substitution

Question 98

Contracts and Components:
Contract Fulfillment:
* _______:
This is the term that is used when we identify the party who is to be substituted.
Ex: “Using my rights of novation, I nominate William to take my place.”

Answer 98

Nomination

Question 99

Contracts and Components:
Contract Fulfillment:
Quiz:
TRUE or FALSE; The most common type of contract completion whereby only one of the parties have performed their obligations.

True

False

Answer 99

False

Question 100

Contracts and Components:
Partial or Unable to Complete Contracts:
*Not every contract terminates with all aspects of the agreements being met and sometimes, this is acceptable by both parties:
o _______:
Agreement to discharge a claim in which the parties agree to give and accept different performance which is usually less than what is required or owed.
 In this case, both parties are agreeing to accept the current situation and walk away from the contract as it stands without pursuing further action.

Answer 100

Accord and Satisfaction

Question 101

Contracts and Components:
Partial or Unable to Complete Contracts:
*Not every contract terminates with all aspects of the agreements being met and sometimes, this is acceptable by both parties:
_______:
o When law supersedes a contract, that would make it impossible to perform
o A city chooses to condemn a property in order to build a new road, would discharge any contract the owner had with a contractor to improve that property

Answer 101

Legal Cause

Question 102

Contracts and Components:
Partial or Unable to Complete Contracts:
*Not every contract terminates with all aspects of the agreements being met and sometimes, this is acceptable by both parties:
_______:
o The agreement is not possible due to an outside action that has occurred.
o A roofing company is unable to perform if the owners can’t get a permit.

Answer 102

Inability to Perform

Question 103

Contracts and Components:
Partial or Unable to Complete Contracts:
*Not every contract terminates with all aspects of the agreements being met and sometimes, this is acceptable by both parties:
_______Substantial Performance:
o When the promisor does not perform all of his contractual obligations, but does enough so the promise is required to fulfill his obligations.
o A swimming pool contractor builds a pool per plan and finished, but doesn’t fill the pool with water, he expects to get paid as they did the 99% of the work.

Answer 103

Substantial Performance

Question 104

Contracts and Components:
Partial or Unable to Complete Contracts:
*Not every contract terminates with all aspects of the agreements being met and sometimes, this is acceptable by both parties:
*_______:
o When some performance duties of the contract has been performed that satisfies the essential or primary requirements of a contract.
o Painters painting a house are 70% completed when the owner changes the color, the painter would be paid to finish but hasn’t yet.

Answer 104

Partial Performance

Question 105

Contracts and Components:
_______:
o One party can pull the contract back or take it away under some circumstances.
o Rescinding of a contract in essence is returning the parties to the original starting point as if they had never made a contract.
o Before the seller had a chance to review the offer, a buyer found a better home and decided to rescind their offer they made to that seller.

Answer 105

Contract Rescission

Question 106

Contracts and Components:
_______:
*As per the purchase contract, listing and buyer’s agreements and other real estate contracts, all parties are agreeing to both Mediation and Arbitration, looking for an agreed outcome.

Answer 106

Dispute Resolution

Question 107

Contracts and Components:
Dispute Resolution:
*_______:
All parties agree to have a neutral 3rd party hear their sides and make determinations.

Answer 107

Mediation

Question 108

Contracts and Components:
Dispute Resolution:
*_______:
More formal, like a small court where all parties plead their side to a board and the outcome must again be agreed upon by all parties.

Answer 108

Arbitration

Question 109

Contracts and Components:
Dispute Resolution:
Which of these is NOT a valid reason a contract was unable to be completed?

Legal Cause

Inability to Perform

Full Performance

Partial Performance

Answer 109

Full Performance

Question 110

Contracts and Components:
Failure to Perform Contract:
*Be failing to adhere to a contract, either party, this is a default. The injured party has the right to damages from the other party. The default is known as a _______.

Answer 110

Breach

Question 111

Contracts and Components:
Failure to Perform Contract:
o _______:
Breaking or failing to observe a law, agreement, or contract.

Answer 111

Breach

Question 112

Contracts and Components:
Failure to Perform Contract:
There are some specific remedies for breach of contracts that one party can pursue:
o _______:
The injured party can force the other party to fulfill the contract.
o By suing for this reason, the party is asking the courts to force the opposite party to live up to their obligations and perform according to the terms in the contract.
o Seller goes under contract with a buyer but decides to cancel the sale and not move, the buyer has a legal right force the seller to sell the house by filing this type of suit.

Answer 112

Suit for Performance

Question 113

Contracts and Components:
_______:
* If the breaching party cannot live up to the obligations set forth in the contract, the injured party is OWED compensation in some capacity to remedy the broken contract.

Answer 113

Damages

Question 114

Contracts and Components:
o _______:
This is an award issued to one party as compensation for breach of contract.
o A court may award two basic types of damages to the injured party.

Answer 114

Damages

Question 115

Contracts and Components:
 _______:
These provide a plaintiff with the monetary amount necessary to replace what was lost, and nothing more (compensation).
* Designed to return the party to original state, make whole again.

Answer 115

Compensatory Damages / Actual Damages

Question 116

Contracts and Components:
Damages:
 _______: monetary damages agreed upon UPFRONT if either party were to breach the terms of the contract
* The party who is in default will automatically relinquish the agreed upon money as damages to their opposite party

Answer 116

Liquidated Damages

Question 117

Contracts and Components:
Damages:
 _______: Damages exceeding simple compensation and awarded to PUNISH the defendant (rarely used in cases of contract disputes).
*Almost as a punishment, intended to deter the defendant and others from engaging in conduct similar to that which formed the basis of the lawsuit.

Answer 117

Punitive Damages

Question 118

Contracts and Components:
Damages:
Case Study:
Q: A buyer gets “cold feet” before closing a house. His friend offers to have the purchase agreement assigned to her. If the assignee were to pass away, who would be liable to fulfill the contract?

Answer 118

A: The Assignor wants the assignee to step into his shoes and assume all their contractual obligations, rights, and benefits. The original party (assignor) is still fully liable to perform in case the assignee doesn’t perform – not off the hook.

Question 119

Contracts and Components:
Damages:
Case Study:
Q: A seller has five days to submit SPDS (Seller’s Property Disclosure Statement) to a buyer after offer acceptance. In this instance, they took 12 days to do so. Is their contract still valid?

Answer 119

Yes, the contract is still valid. The buyer is assumed to accept the property in its condition if they did not raise any objections during their inspection period. They have lost their rights to change their offer due to the time restraints agreed upon in the offer and acceptance.

Question 120

Contracts and Components:
Damages:
Case Study:
Q: What options do I have about putting someone in my place if I can no longer fulfill the terms of my agreement or contract?

Answer 120

A: A possible solution would be that you could “Novate” someone to take over your position and obligations, in which case, the new party would be held responsible for the remainder of the contract terms. Another option is to “Assign” your rights to someone else, but the problem is that you would still be held responsible if the new party were to default.

Question 121

Contracts and Components:
Damages:
Case Study:
Q: If a seller has been harmed by the action or inaction of a buyer’s behaviors or acts, what types of damages could they seek?

Answer 121

A: There could be damages related to the “actual or compensatory” damages or costs incurred by the seller, or if it’s a bad case where the buyer caused significantly more damage to the seller, a judge/jury might award “punitive” damages, which are designed to punish the guilty party. Lastly, both parties had agreed to limited “liquidated” damages up front in case of breach or default, which in a real estate contract could be the Earnest Money being released to the injured party.

Question 122

Contracts and Components:
Damages:
Quiz:
In a contract assignment, which party is legally obligated to fulfill the original terms of the contract?

Owner

Assignor

Designee

Assignee

Answer 122

Assignor

Question 123

Contracts and Components:
Damages:
Quiz:
Two siblings are under contract to buy a house together. The brother no longer wants to proceed with the purchase but the sister does, however she cannot afford it on her own. What clause could allow the sister to replace her brother’s position on the contract with her husband for identical terms while releasing her brother from the obligations?

Sub-lease

Buyer substitution

Election

Novation

Answer 123

Novation

Question 124

Contracts and Components:
Damages:
Quiz:
Damages awarded in excess of simple compensation, designed to punish the defendant, are known as?

Compensatory Damages

Punitive Damages

Liquidated Damages

Preventive Damages

Answer 124

Punitive Damages

Question 125

Contracts and Components:
Damages:
Quiz:
In the event of a contractual breach, the injured party could pursue what action?

Suit for Performance

Limited Damages Action

Broker Damages Settlement

Assignment of Duty

Answer 125

Suit for Performance

Question 126

Contracts and Components:
Damages:
Quiz:
Which of the following would be generally a correct statement?

While in escrow a buyer can void a contract

The closing of escrow and recording of the deed deems an executed contract

Earnest money is always returned to the buyer if there is a breach of contract

Executory contracts are unenforceable

Answer 126

The closing of escrow and recording of the deed deems an executed contract

Question 127

Contracts and Components:
Damages:
Quiz:
What methods can be used to settle disputes in real estate contracts?

Dispute Disagreement

Mediation and Arbitration

Negotiation Clause

Agency Agreements Clause

Answer 127

Mediation and Arbitration

Question 128

Contracts and Components:
Contract Clauses and Terms:
*Since no two contracts will rarely be identical in all terms, it is best to use the standard contracts if available and to inject special clauses or change the terms as needed:
*_______:
These are pre-drafted contracts that are industry standards and commonly used
o Remember that anything that is hand written in this type of contract, overrides the standard pre-printed words, and written numbers override numerals.
 (One Hundred Thousand Dollars will override $100,000)

Answer 128

Boilerplate Contracts

Question 129

Contracts and Components:
Contract Clauses and Terms:
*Since no two contracts will rarely be identical in all terms, it is best to use the standard contracts if available and to inject special clauses or change the terms as needed:
_______:
A provision in a contract for an unforeseen event or circumstance
o There are a multitude of these that buyers and sellers can have but most are limited to a duration of time, otherwise the offer would go on for infinite time
o By adding these to a contract, that contract becomes voidable at anytime if the contingencies are not met and voided if the contract is cancelled

Answer 129

Contingency

Question 130

Contracts and Components:
Contingency:
_______:
o Contingent upon seller obtaining legal deed before they can sell the property
o Contingent upon both husband and wife agreeing to terms in Community Property states.
o Court Approval needed
Short Sale Approval needed

Answer 130

Seller Contingencies

Question 131

Contracts and Components:
Contingency:
_______:
o Contingent upon buyer successfully obtaining a loan
o Contingent upon passing all inspections
o Contingent upon the sale and closing of buyers current home
o Contingent upon spouses approval after they see it
o Contingent upon the successful offer of employment to a buyer

Answer 131

Buyer Contingencies

Question 132

Contracts and Components:
Contingency:
Buyer Contingencies:
_______:
Money used to confirm acceptance of a contract.
o Also known as good faith money, the buyer will offer to the seller a deposit of earnest money which is held by the escrow company (or title, or broker).
o This amount of money is agreed upon as liquidated damages in case of breach
The escrow agents act as intermediaries and will determine who is owed the earnest money based upon facts in case of breach.

Answer 132

Earnest Money Deposit

Question 133

Contracts and Components:
Contingency:
Buyer Contingencies:
*_______= Neutral third party who listens to each side of the story.

Answer 133

Interpleader

Question 134

Contracts and Components:
Contingency:
Buyer Contingencies:
________:
Contract on property that allows the buyer right to purchase.
Once a buyer has an option to buy a property, the seller cannot sell the property to anyone else.
The optionee is not forced to buy the property but the optionor is obligated to sell if the optionee exercises their rights to buy.
Usually a nominal fee is paid to the optionor for this right.

Answer 134

Option

Question 135

Contracts and Components:
Contingency:
Buyer Contingencies:
Options:
________: The person giving the option (Giv-or), one who grants or sells an option.
________: The person who is receiving the option (Receiv-ee), one who is granted or buys an option.

Answer 135

Optionor

Optionee

Question 136

Contracts and Components:
Contingency:
Buyer Contingencies:
________:
o Seller’s obligation to notify a primary interested party, that a secondary party has made an offer to purchase real estate.
o The primary interested party is given the opportunity to purchase the real estate at the same or better terms as the secondary parties’ offer.

Answer 136

First Right Of Refusal

Question 137

Contracts and Components:
Optionor vs Optionee real life Example:
(Remember, the “optionor” or giv-or gives to another person, the “optionee” (receiv-ee) to buy certain property at a fixed price for a definitive duration.)
An investor wants to buy in an area where they think a new factory is going to be built, but they are not sure yet if this is going to happen. Instead of buying on speculation, they can offer an option. The investor offers $4000 to a land owner for the rights to buy the land in the next one year. The investor in this case is the optionee, they have received the ‘________’ to buy, but they don’t HAVE to, while if they do decide to buy, the optionor (seller or giv-or of the option) MUST sell. The $4000 was the option fee, or nominal consideration in case the buyer does not purchase, and that goes to the optionor/seller.

Answer 137

Rights or Option

Question 138

Contracts and Components:
Contingency:
Buyer Contingencies:
________:
o Things change during contracts and negotiations and as such one would amend a contract to reflect those changes and both parties would agree to the change.
o Buyer elects to change the buyer by using the and or nominee clause.
o If the address were wrong, you would need to amend the contract.

Answer 138

Amendments

Question 139

Contracts and Components:
Contingency:
Buyer Contingencies:
________:
 When changes arise that don’t affect the terms of the original contract but are ‘added’ on to the contract an addendum would be used.

Answer 139

Addendums

Question 140

Contracts and Components:
Contingency:
Buyer Contingencies:
Addendums:
 Buyers and sellers would agree to these addendums in writing.
 They become part of the contract and are numbered in order.
 The ________ addendum is always referenced and moves backwards in case of a discrepancy with the interpleader or escrow agent.

Answer 140

Newest

Question 141

Contracts and Components:
Contingency:
MATCH THE TERMS:
Addendum The one giving the option
Contingency Adding onto an existing contract
Optionor A neutral third party who interprets
Interpleader The one receiving the option
Opinionee A predetermined escape clause

Answer 141

Optionor
Addendum
Interpleader
Opinionee
Contingency

Question 142

Contracts and Components:
Contingency:
Case Study:
Q: Give an example of a contingency a buyer could ask for in a contract to purchase a home

Answer 142

A: Buyer Contingencies are
1. Contingent upon the buyer successfully obtaining a loan
2. Contingent upon passing all inspections
3. Contingent upon the sale and closing of the buyer’s current home
4. Contingent upon spouses approval after they see it
5. Contingent upon the successful offer of employment to a buyer.

Question 143

Contracts and Components:
Contingency:
Case Study:
Q: What are some of the advantages of using boilerplate contracts?

Answer 143

A: Boilerplate Contracts are pre-drafted contracts that are industry standards and commonly used. Remember that anything handwritten in a boilerplate contract overrides the standard preprinted words, and reported numbers override numerals.

Question 144

Contracts and Components:
Contingency:
Case Study:
Q: A seller agrees to a selling price of $250,000. The boilerplate contract used has numerically written “$250,000”. But it is also written on the form as “two hundred and fifteen thousand dollars.” Which price is the seller legally obligated to sell for?

Answer 144

A: Two hundred and fifteen thousand dollars will override “$250,000.

Question 145

Contracts and Components:
Contingency:
Case Study:
Q: When would an interpleader be used?

Answer 145

A: The escrow agents act as intermediaries and will determine who is owed the earnest money based on facts in case of breach. Interpleader is the neutral third party who listens to each side of the story.

Question 146

Contracts and Components:
Contingency:
Quiz:
What is a buyer exercising when they decide to buy a property that they were not required to buy but the seller was obligated to sell?

First right of refusal

An option

An Amendment

A contingency

Answer 146

An Option

Question 147

Contracts and Components:
Contingency:
Quiz:
A buyer must sell their current home before purchasing your seller’s home. What could an agent use to protect the buyer in case their house doesn’t sell?

A seller contingency

A buyer contingency

A boilerplate

An option

Answer 147

A Buyer Contingency

Question 148

Contracts and Components:
Contingency:
Quiz:
Buyer and Seller mutually agree to change an existing clause in their signed purchase agreement using a?

New purchase agreement

Addendum

Transcript

Contingency Clause

Answer 148

Addendum

Question 149

Contracts and Components:
Contingency:
Quiz:
Before the seller had a chance to review the offer, your buyer found a better home and removed their original offer. There was no recourse to either party because they chose to do what to their offer?

Rescind

Exercise an option

Novate

Terminate for Cause

Answer 149

Rescind

Question 150

Contracts and Components:
Contingency:
Quiz:
James signed an option to sell a piece of land to Hank. The option was for 18 months and was never recorded. James died 10 months after the option was signed and his heirs decided to sell the land to an investor. What rights does Hank have?

Hank can not do anything since James died

Hank can sue the investor who purchased the property

Hank can file a judgement lien against the property

Hank can sue the heirs who sold the property as they represented the estate of James

Answer 150

Hank can sue the heirs who sold the property as they represented the estate of James

Question 151

Contracts and Components:
Contingency:
Quiz:
The ____________________ is commonly used in commercial real estate to start the buying process?

Letter of Investment

Universal Agreements

Executory Offer

Letter of Intent

Answer 151

Letter of Intent

Question 152

Seller Net Proceeds Math:
Investor Dan has hired you to sell his duplex in Casa Grande. You have said the best way to get it sold is to offer it for sale at $135,000 and have the seller pay 3% towards buyer’s closing costs and offer a home warranty for $500 to the buyer as well. If you are to get 6% of the sales price, what will Dan Net? (Excluding all closing fees for the example here)

Answer 152

• $135,000 x .03 (buyers costs) =$4,050
• $135, 000 x .06 (commission) =$8,100
• $8,100+ $4,050 + $500 (warranty) = $12,650
• $135,000-$12,650 = $122,350
  ANSWER: Dan will net $122,350

Question 153

Seller Net Proceeds Math:
The Klein’s Family has enlisted your services to help them sell their home. Calvin has asked you to Net them $125,000 and they are going to pay you 7% commission to do so. What do you need to sell Calvin Klein’s house for?

Answer 153

• 100% (sales price)–7% (commission) = 93%
• $125,000 ÷ .93 (93%) = $134,409
• Work the problem backwards to check the math
  o $134,409 x .07 = $9409
  o $134,409-$9409 = $125,000
  ANSWER: The Calvin house needs to be sold for $134,409

Question 154

Seller Net Proceeds Math:
Douglas McArthur owns a parcel of land in Flagstaff that he is going to split and then sell off. He plans on splitting it into 3 pieces and selling each one for $50,000. He will hire you to sell them all but only if you can net him $135,000 after commissions. Assuming title and escrow fees are $3000, what is the commission you can offer him to net him his $135,000?

Answer 154

• $135,000 (net) + $3,000 (escrow) =$138,000
• $50,000 x 3 =$150,000
  o $138,000 ÷ $150,000 = .92
  o 100%-92% = 8%
• Work the problem backwards to check the math
  o $150,000 x .08 = $12,000
  o $12,000 + $3,000 = $15,000
  o $150,000-$15,000 = $135,000 Net to Seller
  ANSWER: The commission must be 8%

Question 155

Seller Net Proceeds Math:
You have a client who is selling their home in Phoenix. They have a loan balance of$202,000. Taxes owed are $918. Escrow and Title fees will be $2482 and commissions are 6%of the sales price. If they need to ‘net’ $78,000 what will they need to sell their home for?

Answer 155

• Taxes $918 + Escrow $2,482 + Payoff $202,000 =$205,400(Costs)
• $205,400 (costs)+ $78,000 (Net to Sellers) =$283,400
• $283,400 ÷ .94 (100%-6%) =$301,489
• Work the problem backwards to check the math:
  o $301,489 x 6% = $18,089 (commissions)
  o $301,489-$18,089 =283,400(Gross)
  o $283,400–$205,400 (Expenses) = $78,000 NET to Seller
  ANSWER: The seller must sell their home for $301,489

Question 156

Seller Net Proceeds Math:
Seller Judith has agreed to a net listing with you. She expressed that she is willing to accept any offer that nets her $240,000 after all costs and expenses. Escrow fee’s amount to $4250.Taxes are $1360. HOA prorated dues are $890. She won’t be offering a commission at all. What is the MINIMUM amount this house must sell for to get her the $240,000 NET and is this even legal?

Answer 156

• $4,250 (escrow) + $1,360 (taxes) + $890 (HOA) =$6,500.
• $240,000 + $6,500 = $246,500
  o YES this is legal in Arizona but agent will not receive any commission.
  ANSWER Agent can sell this property for ANY AMOUNT of money above$246,500 and can keep the amount over the $246,500!