Unit 11 Flashcards Preview

Real Estate Pre-Licensure > Unit 11 > Flashcards

Flashcards in Unit 11 Deck (116):
1

An agreement between the parties to do or not to do something.

contract

2

Based on an old English law which was written to protect consumers from fraud. It says that all contracts must be in writing to be enforceable and that all leases for more than one year must be in writing to be enforceable. Enforceable means that the courts will hear the case. Nearly all real estate contracts are in writing.

Statute of frauds

3

provides a time frame which court cases must be filed on certain offenses. If the Statute of Limitations runs out, the case cannot be heard. For example, if a homeowner builds a fence and no one complains about the violation of the building restrictions, the court may rule that the time has passed for a case to be brought and will instruct that the fence will stay in place. Some offenses such as murder do not have a limitation on time but most civil cases do.

Statute of limitations

4

Certain essentials must be present to make a contract valid. These are:

Legally Competent parties; Offer and Acceptance; Consideration; Legality of Object

5

An offer to purchase is not a contract. When does an offer become a valid contract?

When an offer or counter offer is mutually agreed upon and the seller and/or buyer have signed and dated the final change, the offer becomes a valid contract.

6

Those individuals who are making the contract are of sound mind, are legally allowed to dispose of the property, and working without menace, duress or undue influence.

Legally Competent parties

7

There must be a genuine "meeting of the minds" in the contract by both parties to the contract. There must be a bonafide offer and a full acceptance on both sides of what is to be performed. The individuals must make promises "I will sell if you will pay." A contract does not exist until all parties have accepted and been notified of the acceptance.

Offer and Acceptance

8

Something legally sufficient for that which is being exchanged. It can be money, love and affection or other valuable goods which the parties equate to the same level as that being bargained for. Generally in real estate, it is either monetary or love and affection in family cases

Consideration

9

The purpose of the contract is to sell, list or rent in a legal fashion. A contract between parties for an illegal drug buy would not be valid. A contract for the sale of a property between competent parties, for consideration with offer and acceptance would be valid.

Legality of Object

10

Some contracts may have legal effect; others do not. The difference lies in whether a contract is:

valid, void, voidable, enforceable or unenforceable

11

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

valid

12

A contract that has no legal effect. One of the essential elements is missing or is corrupted. For example, a contract for buying illegal drugs is void since one of the elements in contracts is a legal purpose.

void

13

A contract that is valid on the surface but may be rejected by one of the parties due to an error or misinformation. Requires court action on the part of the injured party to correct the problem. An example of this is when property is sold by a person under duress who comes back later and claims duress. The court may void the contract if the person can prove that he was under duress. Also, although it is not illegal for a minor to sign a contract for real property, the contract would be voidable for any time during its execution by that minor.
If, however, the minor elects to perform on the contract, the contract remains valid and the other party cannot assert the minor's lack of age as a defense if they do not perform.

voidable

14

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

Enforceable

15

Means the contract may be valid between the parties (such as a handshake agreement), that all the essential elements are in place but the contract is not in writing. The courts will not hear the case: therefore, the courts cannot force performance of the contract by either side.

Unenforceable

16

To be valid and enforceable, a contract must contain:

The four essentials, be in writing, and all parts required signed and initialed as required by the parties.

17

Part of the consideration is paid in an earnest money deposit. This is not all of the consideration; it is only a good faith deposit to insure the seller that the buyer will honor his promises and complete the sale. A deposit or escrow is NOT required to create a valid contract.

Earnest Money

18

The interest a buyer has in a property between the time of acceptance (notification) of the contract and the actual closing. When the transaction closes, the buyer receives legal or actual title to the property. This becomes very important if the house were to burn in between the time the house was contracted for and when it actually closed. Most real estate contracts call for the seller to either rebuild the home the way it was with the insurance money or rescind the contract and give the buyer back his money. The buyer may also choose to have the insurance proceeds assigned to him and proceed with the purchase.

Equitable Title

19

This is the time when the title actually changes hands- after the delivery and acceptance phase of the deed. All the property rights are now in the hands of the buyer unless otherwise stated in the deed.

Actual Title

20

Types of Contracts include:

Bilateral; Unilateral; Expressed; Implied; Executory; Executed; Formal Contract; Informal Contract

21

This is a "two-way" contract where each party to the contract promises to do something. A good example of the bilateral contract is a sales contract. The seller promises to sell and the buyer promises to buy.

Bilateral contract

22

This is a "one way" contract in which as in the case of an option, the seller promises to sell if the buyer wants to buy the property at a later date. The buyer does not promise he will buy but he pays the seller option money for the right to make that decision when the time comes.

Unilateral contract

23

Is a contract, either oral or written, which contains specific terms and conditions. The purchase price or the date of loan approval, are examples. Almost all real estate contracts are expressed and put into writing to be enforceable.

Expressed contract

24

Is a contract which occurs by the actions of the parties (in other words, by the way people behave). When the passenger gets in a taxi, he implies by his actions, he will pay the driver of the taxi when he gets to his location. Many times, this type of contract is less than desirable in real estate since it will be a case of an agent implying by his behavior that he represents a seller when he legally represents a buyer in the transaction. If the wronged person can prove the case, the broker will not be able to collect his commission.

Implied contract

25

Is a contract in process. Something remains to be completed such as the issuing of the deed, or a contingency has not been met.

Executory contract

26

Is a contract completed. It is finished and all terms have been met and satisfied.

Executed contract

27

Was originally written under seal, meaning the wax seal of the parties. This has evolved into the written, signed contract by the parties, valid and enforceable.

Formal contract

28

An oral or Parol contract, usually not enforceable.

Informal contract

29

In the process of obtaining a contract, what negotiations must take place?

In an offer to purchase, the buyer offers his best price for the property and the seller agrees to the price or sends the offer back to the buyer with a counter offer. The seller (offeror) gives to the buyer (offeree) a counter offer. An offer is not a contract until it has been mutually agreed upon and signed by both parties.

30

Whoever is making the offer is the:

Offeror

31

Whoever is receiving the offer is the:

Offeree

32

An offer is not a contract until:

it has been mutually agreed upon and signed by both parties.

33

The ways an offer can be terminated are:

An offer is withdrawn by the offeror.
The time for an offer has passed and the offer is dead.
The death or insanity of either party.
A counter offer is given, making the first offer dead.
The offer is accepted and signed by both parties, creating a CONTRACT.
The offer is rejected by one party completely.
The property in question is destroyed.

34

Ways a Contract can be Terminated

Performance; Mutual rescission; Impossibility of performance; Operation of Law; Breach

35

meaning the contract is completed

performance

36

meaning both parties agree to cancel the contract

mutual rescission

37

Some type of catastrophe (i.e. an earthquake) hits the property and both parties agree to rescind the contract.

impossibility of performance

38

bankruptcy of either party or eminent domain of the property.

operation of law

39

one or the other or both of the parties have broken the promises made

breach

40

What could happen if one party has breached a contract and the other has not?

A remedy may be sought by the injured party.

41

What could happen if both parties have breached the contract?

A new contract may be written or both may rescind the contract.

42

a failure to perform the promises as agreed

breach of contract

43

If a breach occurs on one side of the contract, the injured party on the other side may wish to seek a remedy. The injured party may sue by any of three methods:

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

44

The seller, if he is the wronged party, may wish to accept ___________.

liquidated damages

45

would consist of any earnest money deposited for payment

liquidated damages

46

If the seller accepts liquidated damages, he may not sue for _____________.

Specific Performance

47

Is when a third person takes the place of one of the original people in the contract. All the rights and responsibilities remain with the original party to the contract, unless both parties agree to the assignment in writing.

Assignment of a contract

48

The giver of an assignment is the:

Assignor

49

The receiver of an assignment is the

Assignee

50

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

Novation

51

means conditions or terms yet to be performed

contingency - All contingencies must be met before a contract can be executed.

52

means the buyer will buy the house on the condition that he receives the loan applied for. All contingencies must be met before a contract can be executed.

financing contingency

53

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

mirror image

54

Also called qualified acceptance, this is an attempt by the seller or buyer to change the terms proposed by the other party.

counteroffer

55

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

time is of the essence

56

What are some typical time frames to be used or the party will be in breach of contract?

Inspection, loan application, closing date, possession of the property or loan approval.

57

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

Parol Evidence Rule

58

Florida sales associates are agents of their brokers. They are also “Independent Contractors” –meaning that they are not employees of the broker, but they have certain duties that they are expected to perform in order for the broker to properly supervise them. The associates also need to know what the broker will pay them and how the broker will support them in establishing and remaining in the real estate business. In order to understand the expectations of both parties, an ___________ is created.

employment agreement

59

An express contract between the sales associate and the broker.

employment agreement

60

Sales associates who are negotiating with a broker for employment should ensure that all areas discussed are in __________ so no misunderstandings of expectations on either side occur.

writing

61

the employment contract between the broker and the seller.
Generally, commissions are paid on the sale price, not on the list price.

Listing contract

62

The following items must be included in any written listing agreement:

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

63

Sets forth the terms under which a broker is employed to find a buyer for the owner's real property. It outlines the terms under which the seller will owe the broker a commission for his services.

listing agreement

64

In Florida, a listing agreement is allowed to be written or oral, but the majority of contracts are written. It is very hard to prove in a court that the seller has hired the broker if the listing is not in writing. Florida law also provides that a copy of the listing contract be given to the seller within ____ hours of signing.

24

65

An automatic renewal clause for extension of the listing is forbidden under Florida Law. If the broker is a single agent to the seller, he owes the seller fiduciary responsibility. If the broker is employed as a transaction broker, the seller is a customer and the broker has:

no fiduciary responsibilities

66

The types of Listing Agreements are:

open listing; exclusive or exclusive agency listing; exclusive right to sell contract; net listing

67

The seller retains the right to hire any number of brokers to sell his property. Whoever provides the seller with a ready, willing and able purchaser is entitled to a commission. If the seller sells the property without the broker, he pays no commission. This is considered a unilateral contract because the broker is the only one who must perform and the seller has no responsibility other than to pay the broker after performance. This type of listing benefits the seller only.

open listing

68

Only one broker is allowed to act on behalf of the seller but if the owner sells the property himself, no commission is paid to the broker. If the broker sells the property, he will be entitled to a commission. The seller must make the house available for the broker to show, provide entry, and inform the broker if there is a change in the property’s availability, and the broker must work to advertise and sell the property. This type of listing benefits the seller as the broker could lose money in marketing a property should a buyer walk up to the seller’s house and make an offer.

exclusive or exclusive agency listing

69

In this type of listing, the listing broker is always entitled to a commission regardless of who procures the buyer. It provides the most protection to the broker. If the owner of the property procures the buyer, the owner will be required to pay the listing broker. Both parties must perform in this type of listing – the seller has specific requirements that he must perform; such as having the property available for viewing by potential buyers, allowing a lockbox, informing the broker of any changes in the property’s status as well as the broker’s responsibility to advertise and sell. Because this type of listing is a bilateral agreement, it should be in writing.

exclusive right to sell contract

70

This is a type of listing that is illegal in most states and strongly discouraged in Florida by regulatory agencies.
This type of listing states that the seller will receive a certain amount of money from the sale. Any amount over the predetermined sales price guaranteed to the seller will be paid as commission to the broker. This can lead to inaccurate pricing and price gouging by brokers. Be sure to note that this listing specifies the money over a set sales price is given to the broker. It is not the same as seller's net, which is a math problem showing how much the seller makes from a sale.

net listing

71

In most listing contracts, the listing broker (or the cooperating broker) must set into play a series of events leading to the sale. The buyer must agree to purchase, and be able to pay. A buyer that meets this criteria is known as a ready, willing and able purchaser. If the buyer cannot obtain a loan, cannot complete the purchase, or refuses to close, then the buyer is not willing to make the purchase. Under these situations, is the broker entitled to a commission?

The broker is not entitled to a commission

72

If the seller refuses to close and the buyer is ready to close and has met all of the criteria of the listing agreement, is the broker entitled to a commission?

The broker is probably entitled to a commission.

Ready, Willing and Able Buyer = a Commission

73

What will terminate a listing agreement?

Fulfillment of the purpose of the listing - "The property sold!"
Expiration of the time as stated in the agreement - "Too late!"
Renunciation by the broker - "I quit!"
Revocation by the seller- "You're fired!"
Transfer of title by operation of law- "Seller is bankrupt!"
Mutual Consent- "Let's quit, this was a bad idea!"
Death or incapacity of either the seller or the broker*
Destruction of the property or a change in use by outside forces-" The property has been zoned commercial, now!"
Bankruptcy of the seller
Operation of law – "foreclosure"

74

An employment contract between the broker and the buyer. It spells out the terms of employment, of how a broker will find a home for the buyer and exactly who will pay the commission. This contract is very beneficial to a broker as it ensures that the buyer understands that he or she has duties to the broker as the broker has duties to him or her. Also, this agreement also has a Fair Housing statement that assures the buyer that the broker is working for him/her and following these laws making available all homes that they are eligible to purchase.

Buyer Brokerage Agreement

75

Like all contracts, the Buyer Brokerage Contract must be in writing and contain certain elements to be enforceable. The following elements are included:

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

76

is always a bilateral contract because it contains promises from both the seller and buyer.

sales contract

77

In a sales contract, the seller is called the ________.

vendor

78

In a sales contract, the buyer is called the ________.

vendee

79

The Vendee makes the offer, Vendor Accepts the offer and the sales contract is in effect once:

The contract is signed and delivered to all parties

80

The following information must be contained in a sales contract:

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

81

___________ is given by the purchaser to the seller as an indication of the purchaser's good faith. It is not required to create a valid contract.

earnest money

82

State and federal laws require that certain disclosure be made to the buyer prior to closing. These are:

Radon gas; Energy Efficiency brochure; Lead-based paint disclosure; Homeowner Association disclosure; Flood insurance disclosure; Condominium and cooperative disclosures, documents and FAQ’s. In sales within these unique residences, the buyer has a three day right of rescission upon receipt of all documents that apply to the condominium. These documents must be supplied by the seller and the buyer cannot waive this right. This right cancels after closing. Building Code Violation disclosure; any seller who has been cited for building code violations must disclose this to the buyer.

83

The seller of any home built before 1978 is required to sign a __________ and seller must disclose the presence of any known lead-based paint in the home.

Lead disclosure form

84

It is the responsibility of the Seller to disclose to the Buyer that they are purchasing a home in a community where, (a), there is a mandatory OR voluntary homeowners' association, or, (b) there are, or will be, recorded restrictive covenants governing the use and occupancy of properties in the community, or, (c), there are assessments. The disclosure must be given to the Buyer ______________________. If it is not given until after contract execution by the Buyer, the Buyer has the right to: This right cancels after closing.

before a sales contract is executed;

cancel the contract within 3 days of receipt of the disclosure, or prior to closing, whichever occurs first.

85

Most brokers utilize contracts provided by Florida Realtors, which are either:

FR/BAR or the Contract for Residential Sale and Purchase (CRSP-12)

86

This contract is an agreed upon contract between the State Association of REALTORS® and the Florida BAR association

FR/BAR

87

The Contract for Residential Sale and Purchase (CRSP-12) is a Florida Realtors _____________.

specific contract

88

What are the differences between the FR/BAR and CRSP-12?

FR/BAR contract riders should not be used for a CRSP contract and “C” addendums should not be used with FR/BAR contracts.

89

A contract that gives the optionee the right to purchase or lease real estate in the future. Many large discount chains buy the right to purchase a property in the future (for example on a busy corner) but want time to do research to see if the property meets the needs of that type of business. This type of contract is a unilateral contract in that the seller must sell the property if requested by the buyer, but the buyer need not buy the property.

An option

90

The seller of the option is the ________.

optioner - Optionor gives to the optionee an option

91

The buyer of the option is the ________.

optionee

92

Like all contracts, an option must contain:

a legal description of the property, the name of the optionor (seller), the purchase price and must have some reference to dates, either specific times or "reasonable" time.

93

the time the court believes is sufficient to complete the contract

reasonable time

94

The optionor must sell the property if desired by the optionee, but if the optionee does not wish to purchase the property, he may:

release the optionor from the sale

95

Although there are forms for a broker to use for an option, it is best that an _________ prepare these contracts as they may become very complex in protecting the parties involved.

attorney

96

In an ________________, the purchaser buys the property but does not receive complete title until the end of a time period. (For example, 5-10 years). The purchaser pays a certain amount of money each year and the seller retains the title until the final payment is made.

installment land contract

97

What are some advantages of an installment land contract?

The advantage to the sale for the seller is that he does not receive a large sum of money at one time, for which he may be taxed. Especially in large pieces of ground the amount can be very large and the seller may wish to spread the payment over 5-10 years in order to reduce the tax burden. The buyer may like the advantage of having the seller finance the loan, rather than seek such a large mortgage from a lender.

98

What are some disadvantages of an installment land contract?

The buyer does not get complete title until the final payment is paid so the seller is free to burden the property with a number of items until that time. A buyer may find that the property has been burdened with a mechanic's lien or that the oil rights have been sold while the purchaser had possession of the property but not complete title.
The seller has to count on the buyer being able to complete the sale at the time agreed upon. Unless the seller specifically requires that no assignment can be made, the buyer could sell his interest in the property to another without the seller's consent.

99

The Installment Land contract can also be called a __________.

Contract for Deed

100

When using a contract for deed (installment contract) it is best to use the services of an _________ to make sure that all the needs of the buyer and seller are met.

attorney

101

caveat emptor

let the buyer beware

102

The "______" provision does not release the seller from giving important information to the buyer.

as is

103

All licensees should check the property carefully and make every effort to _______________________.

disclose material defects to the buyer

104

the one responsible for the sale, and should be paid

Procuring Cause

105

In most cases, the ___________ would be the one who put the sale into effect by writing and negotiating the contract. Of course, if the buyers have a Buyer Brokerage agreement, there’s usually no question on the other side of the sale as to who should write the offer, as the buyers would understand that they have an obligation to their own broker and should be asked if they are working with another salesperson.

procuring cause

106

NATIONAL DO-NOT-CALL REGISTRY Established under the authority of the Federal Communication Commission, (FCC) in 2003 the Do-Not-Call-Registry is a list of telephone numbers for registered numbers of consumers that do not want to receive solicitation calls from telemarketers. Exempt from the law are:

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

107

A licensee may call a former client with whom they have done business in the previous ____ months. Or, if a consumer makes an inquiry, the licensee may call for up to three months after the inquiry. Licensees may call clients or customers with whom they have existing business relationships.

18

108

The fine for calls placed to consumers with numbers on the registry list may be up to _________.

$16,000

109

Brokers are required to have certain procedures in place to prevent penalty and law violation. A policy manual within the brokerage allows the broker what is known as “Safe Harbor” from being fined for a sales associate who violates these laws. Areas which must be written MUST include:

Training and policies in place with regard to list use and availability
Frequent access to the registry to update listed numbers
Documentation and records of the process for compliance procedures
How to document for calls made to consumers who ask that the brokerage not call them.

110

If a For-Sale-by-Owner has a registered number, calls may not be made to that number. However, if a sales associate has a qualified buyer who is interested in a For Sale by Owner home, he may:

call to arrange on behalf of the buyer, a showing – and negotiate a sale from there.

111

A database of all the listings of brokers who belong to the service. The brokers have agreed to share the commission with a Cooperating broker”. The listing broker must make the commission split or compensation that will be paid to the cooperating broker clear within the MLS. Most brokers belong to some type.

Multiple Listing Service

112

In most areas, the MLS is easily accessed by:

The internet and Florida Realtors has a shared MLS program that provides cooperation through almost all of the state MLS’s

113

_____________________ who belong to the National Association of REALTORS® are mandated by a specific Code of Ethics that discusses the REALTOR’S® duties to; Clients and Customers, the public, and fellow REALTORS.

Brokers and sales associates

114

Failure to Disclose – A sales associate who is protecting his customers and clients would always look to ensuring that the customer’s reputation be held in the best light. If a customer tells the associate not to disclose any certain items, the sales associate should immediately:

dismiss him or herself from being party to any sale that would be detrimental to the buyer or possibly cost the buyer in the future.

115

The failure to disclose, if a material fact on a property is known to the sales associate, can be construed as _____________.

mis-representation

116

Misrepresentation could lead to a charge of Fraud if the defect is costly to the buyer and can be proved in a court of law that the salesperson knew, or should have known (Culpable Negligence). The proper courses of action for any sales associate when something doesn’t look right, or if the seller has stated it to the associate, is to _________.

Disclose