Unit 11 Quiz Questions

Question 1

Which of these is an example of a unilateral contract?

a. Lease
b. Agreement of sale
c. Option
d. Listing agreement

Answer 1

Option

In a unilateral contract, only one party is obligated to perform. The option or/owner of the property must sell at the agreed-upon price only if the optionee decides to buy.

Question 2

A seller accepted all the terms that the buyer offered, making only one small change in the amount of the earnest money. At that point, there is

a. an offer.
b. a counteroffer.
c. an acceptance.
d. an executed contract.

Answer 2

A counteroffer

Proposing any deviation from the terms of the offer is considered a rejection of the original offer and is called a counteroffer.

Question 3

After making an offer but prior to receiving any response from the seller, a buyer decided against buying a particular lot. The buyer called the agent and said, “Withdraw my offer.” The
buyer’s action is called a

a. counteroffer.
b. rejection.
c. breach of contract.
d. revocation.

Answer 3

Revocation

The buyer may revoke the offer any time before being notified that the seller has accepted the offer.

Question 4

A real estate broker announces to the firm’s sales associates that the top-selling sales associate each quarter will receive a $1,000 bonus. This constitutes an

a. implied bilateral contract.
b. express unilateral contract.
c. implied unilateral contract.
d. express bilateral contract

Answer 4

Express unilateral contract

The offer of a bonus to the top-selling sales associate each quarter is an express contract because the broker clearly stated the offer to the sales associates. It is a unilateral contract
because the broker is obligated to keep the promise, but the sales associates are not obligated to perform.

Question 5

A buyer makes an offer on a house, and the seller accepts in writing. What is the current status of this relationship?

a. The buyer and seller do not have a valid contract until the seller delivers title at closing.
b. The buyer and seller have an express, bilateral executed contract.
c. The buyer and seller have an express, bilateral executory contract.
d. The buyer and seller have an implied, unilateral executory contract.

Answer 5

The buyer and seller have an express, bilateral executory contract.

Because the seller has promised to sell and the buyer has promised to buy, it is clearly a bilateral contract. It is express because they expressed their intentions in writing. The
contract is executory because the sale has not yet closed.

Question 6

A buyer offers the full $215,000 asking price for a house. The offer contains this clause: “Possession of the premises on August 1.” The seller is delighted to accept the offer and signs the contract. First, however, the seller crosses out “August 1” and replaces it with “August 3,” because of a business trip scheduled for the first of the month. The seller immediately books a moving company. What is the status of this agreement?

a. Because the seller changed the date of possession rather than the amount of the offer, the
seller and buyer have a valid contract.
b. The seller has accepted the buyer’s offer. Because the reason for the change was out of the
seller’s control, the change is of no legal effect once the seller signed the contract.
c. The seller has rejected the buyer’s offer and made a counteroffer, which the buyer is free
to accept or reject.
d. While the seller technically rejected the buyer’s offer, the seller’s behavior in scheduling
movers creates an implied contract between the parties

Answer 6

The seller has rejected the buyer’s offer and made a counteroffer, which the buyer is free to accept or reject.

Even changing the smallest of terms, for whatever reason, constitutes a rejection and counteroffer that the other party is not under obligation to accept.

Question 7

A real estate contract that is entered into by a person who is under the age of contractual capacity generally is

a. unenforceable.
b. void.
c. voidable.
d. valid.

Answer 7

Voidable

A contract entered into with a minor is voidable by the minor

Question 8

A buyer wants to take over the seller’s mortgage. The lender releases the seller from the obligation, substituting the buyer as the party liable for the debt. This arrangement is called

a. an assignment.
b. a novation.
c. a conversion.
d. a consideration.

Answer 8

An assignment

A transfer of the responsibilities under a contract that releases the original party from further obligation is called an assignment

Question 9

A buyer and a seller enter into a sales contract for the sale of a home. The seller backs out of the deal at the last minute, and the buyer suffers a financial loss of $1,500 as a result and must rent a home in which to live. Unless provided otherwise by the contract

a. the buyer may sue the seller for specific performance, forcing the sale of the home to the
buyer.
b. the buyer may sue the seller’s agent for damages to recover the $1,500 loss.
c. the seller is not liable because the buyer should not have incurred the $1,500 cost before
the sale.
d. the buyer may sue the buyer’s agent for the $1,500 loss and rent paid.

Answer 9

the buyer may sue the seller for specific performance, forcing the sale of the home to the buyer.

In this case, the seller breached the contract without legal excuse. The buyer is likely to be successful in suing the seller for specific performance, for the $1,500 loss, and for the cost of rent
as a hardship; however, many contracts limit the remedies available to the parties.

Question 10

On March 7, a buyer and a seller execute a contract for the purchase of the seller’s property. Closing is set for June 10. On April 15, the property is struck by lightning and destroyed by the
resulting fire. If the Uniform Vendor and Purchaser Risk Act has been adopted by the state in which the property is located, which party bears liability for the loss?

a. Under the act, the buyer and the seller share the loss equally.
b. Under the act, the seller bears the loss alone.
c. The act does not apply. The buyer bears the loss alone, as the holder of equitable title.
d. Under the act, neither the buyer nor the seller bears the loss. A state fund covers the loss.

Answer 10

Under the act, the seller bears the loss alone

In states that have adopted the Uniform Vendor and Purchaser Act, the seller remains responsible for the property until the day of closing.

Question 11

A buyer makes an offer to buy a seller’s house. Pursuant to this offer, the buyer is obligated to perform only if the buyer is first able to sell a condominium. This is an example of

a. a mortgage contingency.
b. an option contingency.
c. a time-is-of-the-essence contingency.
d. a property sale contingency.

Answer 11

A property sale contingency

A property sale contingency protects a buyer who must sell a property in order to buy the seller’s property.

Question 12

A valid real estate sales contract needs

a. offer and acceptance.
b. no consideration.
c. an earnest money deposit, held in an escrow account.
d. unrelated parties.

Answer 12

Offer and acceptance

Earnest money is an optional term in a contract, not a requirement. The essential elements of a contract are offer and acceptance, consideration, and legally competent parties.

Question 13

A 14-year-old comes into a brokerage office and says, “I want to make an offer on this property. Here is a certified check for 10% of the asking price. Please help me with the paperwork.” Why should the broker be concerned?

a. Because one of the parties is a minor, the contract is voidable.
b. The earnest money deposit must be at least 20% of the asking price when a minor is
involved in the transaction.
c. The sales contract may be disaffirmed by the minor.
d. The sales contract will be void.

Answer 13

Because one of the parties is a minor, the contract is voidable

If it is discovered that a party is not legally competent, the contract is voidable at the option of the person who lacks competency.

Question 14

In case the buyer decides not to buy on a whim, the contract may provide that the earnest money is there as

a. actual damages.
b. nominal damages.
c. punitive damages.
d. liquidated damages.

Answer 14

Liquidated Damages

Liquidated damages limit the compensation available to the injured party should a breach of contract occur.

Question 15

The buyer and seller agreed to a closing date of September 7 and that time is of the essence. Which of these is the closest meaning of the phrase?

a. The date of closing may only be delayed by one day at a time.
b. If closing is not held on September 7, there is an automatic extension built in.
c. Closing must be on or before September 7.
d. If either party gives notice, the date can be moved back.

Answer 15

Closing must be on or before September 7th

Time is of the essence requires that the contract be completed during that time frame; otherwise, the party who fails to perform on time is liable for breach of contract.

Question 16

Which of these is typically a factor in determining the amount of the earnest money deposit?

a. Whether it is an amount sufficient to cover the broker fees
b. Whether it is an amount equal to the standard down payment on a mortgage loan.
c. Whether it is an amount sufficient to compensate the seller for taking the property off the market
d. Whether it is an amount equal to the interest that would have been earned on an investment equivalent to the property value

Answer 16

Whether it is an amount sufficient to compensate the seller for taking the property off the market

Broker fees are not the focus when the parties are working out an agreement concerning the earnest money deposit. An important factor is determining an amount sufficient to
compensate the owner for taking the property off the market.

Question 17

If a property owner is threatened with violence to force a sale of the property for a low price, the contract is voidable because there is lack of

a. consent.
b. discharge.
c. consideration.
d. offer and acceptance

Answer 17

Consent

Because a contract must be entered into by consent as a free and voluntary act of each party, a contract made under duress deprives a person of that ability. The contract is voidable by
the injured party

Question 18

If a contract seems to be valid, but neither party can sue the other to force performance, the contract is said to be

a. voided.
b. breached.
c. rescinded.
d. unenforceable.

Answer 18

Unenforceable

An unenforceable contract may appear to be valid; however, neither party can sue the other to enforce performance. An oral contract for the sale of real estate is unenforceable in a
court of law because it must be in writing. The parties may still proceed and complete a transaction, but both are in a very risky position

Question 19

What is minimum consideration in a valid contract?

a. One dollar
b. Any item that can be appraised with a market value
c. Specified goods or services
d. Anything the parties agree is good and valuable

Answer 19

Anything the parties agree is good and valuable

The parties must agree that the consideration is good and valuable. The courts do not consider whether the consideration is adequate.

Question 20

If a contract does NOT contain a time or date for performance, it should be executed within

a. a reasonable time.
b. one week.
c. two weeks.
d. one month.

Answer 20

A reasonable time

Interpretation of what is a reasonable time depends on the situation; however, courts have sometimes declared contracts invalid if they did not contain a time or date for performance.

Question 21

If a seller allows a buyer to back out of a contract, returns the earnest money to the buyer, and both are back to the positions they held before the contract, the contract has been

a. cancelled.
b. rescinded.
c. assigned.
d. executed.

Answer 21

Rescinded

Rescission allows both parties to return to their original positions before the contract, so any monies exchanged must be returned.

Question 22

When is an offer considered to be accepted?

a. When the broker notifies the buyer that the seller has accepted the offer
b. When the buyer gives a signed receipt to the broker to show the buyer has received the
acceptance
c. The moment the seller accepts the buyer’s offer
d. One business day after the offer is accepted and signed by the seller

Answer 22

When the broker notifies the buyer that the seller has accepted the offer

Buyer notification is the key. It is not an accepted offer until the buyer is notified, and there is no lag time after that point.

Question 23

Additional conditions that must be satisfied before a sales contract is fully enforceable are called

a. binders.
b. amendments.
c. addenda.
d. contingencies

Answer 23

Contingencies

A contingency is any additional condition that must be satisfied before a sales contract is fully enforceable. A binder is a short version of a sales contract that is used until a more complete
version is prepared. Amendments are changes to the existing content of a contract.

Question 24

The amount of the earnest money in a sales contract should

a. cover any expenses the buyer might incur if the seller defaults.
b. discourage the buyer from walking away from the agreement.
c. pay the broker’s commission.
d. pay for any required inspections

Answer 24

Discourage the buyer from walking away from the agreement

The amount of earnest money should be sufficient that the seller feels reassured that the buyer is committed to the purchase. Earnest money is not used to pay for inspections or the broker’s commission

Question 25

The term statute of limitations is BEST described as the limitation on the

a. time period in which parties to a contract may bring a lawsuit to enforce their rights.
b. parties’ ability to demand a “time is of the essence” clause in a sales contract.
c. amount of damages that can be claimed in the event of breach.
d. broker’s right to a commission

Answer 25

Time period in which parties to a contract ay bring a lawsuit to enforce their rights.

Every state limits the time during which parties to a contract may bring a legal action to enforce their rights. Rights not enforced within the applicable time period are lost.

Question 26

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

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

Answer 26

a bilateral contract.

The answer is a bilateral contract. A bilateral contract is a legally enforceable agreement under which two parties exchange promises to do something for each other.

Question 27

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. Implied
B. Unenforceable
C. Void
D. No contract

Answer 27

Unenforceable

The answer is unenforceable. The parties may like to do business this way and proceed to carry out their oral agreement. There is no law against it; however, under the Statute of Frauds, an oral agreement for the sale of real property is unenforceable.

Question 28

A contract is said to be bilateral if

A. one of the parties is a minor.
B. the contract has yet to be fully performed.
C. only one party to the agreement is bound to act.
D. both parties to the contract exchange binding promises.

Answer 28

both parties to the contract exchange binding promises

The answer is both parties to the contract exchange binding promises. When both parties to a contract are bound by it, 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 contract made with a minor is usually voidable by the minor

Question 29

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

Answer 29

Executory

The answer is executory. A contract is executory when its terms have not yet been carried out. When the contract’s terms have been fulfilled, it is said to be executed.

Question 30

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 30

Void

The answer is void. A contract is void when a consideration is not stated because consideration is an essential element of a contract

Question 31

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. Money damages
B. New contract
C. Deficiency judgment
D. Transfer of the property

Answer 31

Transfer of the property

The answer is transfer of the property. The buyer wants the seller to do what was promised in the sales agreement: convey the property. The buyer wants the seller to perform the specific actions as agreed.

Question 32

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. have both parties initial or sign in the margin near each change.
B. write a letter to each party listing the changes.
C. have each party write a letter to the other approving the changes.
D. redraw the entire contract.

Answer 32

have both parties initial or sign in the margin near each change

The answer is have both parties initial or sign in the margin near each change. All parties must initial or sign the changes. To draw a new contract would be to invite a new round of negotiation. Letters approving all changes might then be treated as part of the contract, but such a cumbersome procedure is seldom used.

Question 33

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. Equitable
B. Voidable
C. Escrow
D. Contract

Answer 33

Equitable

The answer is equitable. Upon formation of the agreement of sale between the seller and the buyer, the buyer received equitable title. Upon later delivery and acceptance of the deed, the buyer will also receive legal title—sometimes called actual title.

Question 34

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

A. a contingency.
B. a reservation.
C. a warranty.
D. a consideration

Answer 34

A contingency

The answer is a contingency. The contract is said to be contingent upon the attorney’s approval. If the contingency is not satisfied—if the attorney doesn’t approve—the contract is null and void.

Question 35

A real estate broker uses earnest money placed in the company trust account to pay for the rent owed on the brokerage’s office. Using escrow funds for this purpose is

A. illegal, unless the client has approved the expenditure.
B. legal if the trust account is reimbursed by the end of the calendar month.
C. legal if the seller gives consent in writing.
D. illegal.

Answer 35

illegal

The answer is illegal. Earnest money does not belong to the brokerage and must be placed in an escrow (trust) account. To convert that money for personal use is illegal, regardless of any plan to later reimburse the account. It doesn’t make any difference if there remains enough money in the trust account to cover immediate client needs.

Question 36

An option to purchase binds which of the following parties?

A. Buyer only
B. Seller only
C. Neither buyer nor seller
D. Both buyer and seller

Answer 36

Seller only

The answer is seller only. The potential buyer (optionee) who purchases an option to purchase is not bound to purchase the property. Should the optionee decide to exercise the option, the option or (seller) is bound to proceed with the sale in keeping with all the details contained in the option.

Question 37

A buyer and a seller enter into a real estate sales contract. Under the contract’s terms, the buyer will pay the seller $2,000 a month for 10 years. The seller will continue to hold legal title, while the buyer will live in the home and pay all real estate taxes, insurance premiums, and regular upkeep costs. What kind of contract do the buyer and seller have?

A. Option contract
B. Contract for mortgage
C. Unilateral contract
D. Land sales contract

Answer 37

Land sales contract

The answer is land sales contract. This arrangement has a variety of names: contract for a deed, land contract, installment contract, land sales contract, and more. Its most important characteristic is that no deed is given to the buyer (vendee) until all the payments in the contract have been made, although some states give the buyer an equitable interest in the property after a specified period of successful payments

Question 38

The purchaser of real estate under an installment contract

A. generally pays no interest charge.
B. receives title immediately.
C. is not required to pay property taxes for the duration of the contract.
D. has only an equitable interest in the property’s title

Answer 38

Has only an equitable interest in the property’s title

The answer is has only an equitable interest in the property’s title. The purchaser (vendee) holds equitable title during the executory period, while the seller (vendor) retains legal title

Question 39

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

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

Answer 39

In writing to be enforceable

The answer is in writing to be enforceable. A statute of frauds calls for real estate sales contracts to be in writing. Such statutes do not address who writes the agreements or on what forms they are written. Earnest money is not an essential feature of a contract of sale, although it is often mistakenly said to be.

Question 40

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.
B. not able to counter the counteroffer.
C. bound by whichever offer is lower.
D. relieved of the original offer.

Answer 40

Relived of the original offer

The answer is relieved of the original offer. When the original offer is rejected by the seller, it ceases to exist. The buyer may accept or reject the seller’s counteroffer, or make a counter to the counteroffer.

Question 41

A buyer makes an offer to purchase certain property listed with a real estate professional and leaves an escrow deposit with the real estate professional to show good faith. The real estate professional should

A. immediately apply the deposit to the listing expenses.
B. put the deposit in an account, as provided by state law.
C. give the deposit to the seller when the offer is presented.
D. put the deposit in the real estate professional’s personal checking account.

Answer 41

put the deposit in an account, as provided by state law.

The answer is put the deposit in an account, as provided by state law. Most states require real estate professionals to place earnest money and other funds held in trust in a specified account used only for such money. Real estate professionals who mix the company’s money with deposits and trust funds are guilty of commingling funds.

Question 42

While suffering from a mental illness that caused delusions, hallucinations, and loss of memory, a person signed a contract to purchase real estate. Which statement regarding the contract to purchase is TRUE?

A. The contract is voidable.
B. The contract is void.
C. The contract lacks consent.
D. The contract is fully valid and enforceable.

Answer 42

The contract is voidable

The answer is the contract is voidable. A person suffering from a mental illness may either declare the contract void or hold the seller of the real estate to the contract. That is to say, the contract is voidable, but only by the person who is mentally ill.

Question 43

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 provided an earnest money check for $5,000. 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, there is

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

Answer 43

An offer

The answer is an offer. A written offer to buy property—an offer that has not been seen or acted upon by the property owner—is simply an offer. Even if the offer had been for full price, no contract would yet exist and the offeror would have no claim on the offeree.

Question 44

A buyer and a seller agree on a purchase price of $300,000 for a house. The contract contains a clause stating that “time is of the essence.” Which statement is TRUE?

A. The closing must take place within a reasonable period before the stated date.
B. A “time is of the essence” clause is not binding on either party.
C. The closing date must be stated as a particular calendar date, and not simply as a formula, such as “two weeks after loan approval.”
D. If the closing date passes and no closing takes place, the contract may be rescinded by the party who was ready to settle on the scheduled date

Answer 44

If the closing date passes and no closing takes place, the contract may be rescinded by the party who was ready to settle on the scheduled date

The answer is if the closing date passes and no closing takes place, the contract may be rescinded by the party who was ready to settle on the scheduled date. “Time is of the essence” refers to the settlement date. If one party fails to go to settlement by that date, the other party may rescind (cancel) the contract

Question 45

A buyer signs a contract under which he is given the right to purchase a property for $230,000 anytime in the next six months. The buyer pays the current owner $3,000 at the time the contract is signed. Which of the following BEST describes this agreement?

A. Contingency
B. Option
C. Installment
D. Sales

Answer 45

Option

The answer is option. The buyer has purchased an option. The $3,000 is the option price. If the option isn’t exercised within the three-month option period, the option will lapse.