Ch10-12

Unit 10: Real Estate Contracts

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

• a voidable contract.

• an offer.

• an implied contract.

• an executory agreement.

Answer explanation

The answer is an offer.

Offer and acceptance is essential for a valid contract. The seller has not accepted the terms of the offer made by the buyer. Therefore, the buyer has only signed and made an offer to purchase, but the document has no legal standing as a contract.

Unit 10: Real Estate Contracts

A written real estate contract is assumed to be the complete agreement of the parties because of the ________

• statute of frauds.

• parol evidence rule.

• rule of contracts.

• statute of limitations.

Answer explanation

The answer is parol evidence rule.

Under the parol evidence rule, a written contract takes precedence over oral agreements or promises.

Unit 10: Real Estate Contracts

Which of the following keeps an offer open?

• A counteroffer by the offeree

• An offer from a third party

• Death of the offeror before acceptance

• Revocation of the offer before acceptance

Answer explanation

The answer is an offer from a third party.

An offer from another party does not terminate an offer on the table; however, offers are terminated by revocation before acceptance, the death of the offeror before acceptance, and a counteroffer by the offeree.

Unit 10: Real Estate Contracts

A contractor has finished a home except for a few small details. The homebuyer and the contractor agree that the work is complete enough to consider the contract discharged. In this situation, the contractor is entitled to final payment based on _________

• specific performance.

• partial performance.

• operation of law.

• forfeiture.

Answer explanation

The answer is partial performance.

Partial performance of the terms, along with a written acceptance by the other party for whom acts have not been done or to whom money is owed. For instance, if the parties agree that performance is close enough to completion, they can agree that the contract is discharged even if some minor elements remain unperformed.

Unit 10: Real Estate Contracts

The buyer asked the real estate licensee to prepare an agreement to purchase because the buyer wanted to make an offer. With these instructions, the licensee _____________

• must refer the buyer to an attorney.

• should supervise the buyer filling out a preprinted form.

• reprints a previous contract and changes the details.

• is permitted to fill in the blanks of a preprinted form.

Answer explanation

The answer is permitted to fill in the blanks of a preprinted form.

To avoid the unauthorized practice of law, a real estate licensee is permitted to fill in the blanks of a preprinted form at the direction of the buyer.

Unit 10: Real Estate Contracts

A contract for an illegal purpose, such as setting up a business in a residential neighborhood, is considered ______________

• unenforceable.

• void.

• valid between the parties.

• voidable.

Answer explanation

The answer is void.

A contract must be for a legal purpose, even with all the other elements (consent, competent parties, consideration, and offer and acceptance). A contract for an illegal purpose or an act against public policies is void, not valid.

Unit 10: Real Estate Contracts

At the time a buyer was negotiating the purchase of a lot on which to build a new home, the seller represented that the soil was firm enough to support the construction of a building when, in fact, the seller knew it was not. This contract is __________

• voidable by the buyer because of fraud.

• void.

• voidable by the seller because of the mistake.

• voidable by neither party because no harm was done yet.

Answer explanation

The answer is voidable by the buyer because of fraud.

A voidable contract appears on the surface to be valid, but may be rescinded or disaffirmed by one or both parties based on some legal principle. In this situation, the buyer, but not the seller, is permitted to void the contract if so desired.

Unit 10: Real Estate Contracts

A buyer and a seller agree to the purchase of a house for $200,000. The contract contains a clause stating that time is of the essence. Which statement is TRUE?

• The closing must take place within a reasonable period before the stated date.

• 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 closing date must be stated as a particular calendar date, and not simply as a formula, such as "two weeks after loan approval."

• A "time is of the essence" clause is not binding on either party.

Answer explanation

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 means that the contract obligations must be performed within the specific time frames stated in the contract. A party who fails to perform on time is liable for breach of contract.

Unit 10: Real Estate Contracts

A lender agrees to release the first borrower from all financial obligations and let the second buyer be responsible for the repayment of the debt. This is an example of _________

• a novation.

• an addendum.

• a breach.

• an assignment.

Answer explanation

The answer is a novation.

Novation is the substitution of a new contract in place of the original one. For instance, when a real estate purchaser assumes the seller's existing mortgage loan, a novation occurs when the lender releases the seller and substitutes the buyer as the party primarily liable for the mortgage debt.

Unit 10: Real Estate Contracts

Pennsylvania's Plain Language Act requires that many consumer contracts _________

• include explanatory footnotes to explain the "legalese."

• be written in English and another language commonly spoken in that area.

• use short words and be written in the active voice.

• be written in English.

Answer explanation

The answer is use short words and be written in the active voice.

Pennsylvania's Plain Language Consumer Contract Act promotes the use of plain language and requires that many consumer contracts be written with short words, sentences, paragraphs, and in the active voice to avoid confusing the consumer.