Contract Review & Risk Management Flashcards

A buyer submits an offer with an escalation clause. Which supporting item is most commonly required to verify the competing offer that triggers escalation?

Answer: A copy of the competing offer, often redacted

Escalation clauses commonly require proof of the bona fide competing offer before the price escalates.

What is the primary purpose of a kick-out clause in a contract contingent on the sale of the buyer's home?

Answer: To let the seller keep marketing and require the buyer to remove the contingency or release the contract if a better offer arrives

A kick-out clause protects the seller by allowing continued marketing while the home-sale contingency is pending.

The seller is a foreign person under FIRPTA and no exemption applies. What is the general withholding rate on the amount realized?

Answer: 15%

FIRPTA generally requires the buyer to withhold 15% of the amount realized when the seller is a foreign person.

In a short sale, which contract term is most important for the TC to track?

Answer: The contingency for written short sale approval from the seller's lender(s)

A short sale cannot close without written lienholder approval, so that contingency drives the timeline.

A buyer selects 'as-is' purchase terms. Which statement is most accurate?

Answer: The buyer generally may still inspect, and the seller typically must still disclose known material defects as required by law

'As-is' usually means no repairs, not freedom from disclosure laws or loss of inspection rights.

An occupied rental property is being sold subject to an existing lease. Which documents should the TC make sure are collected and reviewed?

Answer: Copies of leases, security deposit records, and any tenant estoppel certificates required by the contract

Leases, deposit records, and estoppels confirm the tenant obligations the buyer is assuming.

One seller signs the listing and purchase contract but the property is co-owned with a spouse in a state where both spouses must join in conveying the homestead. What is the risk?

Answer: The transaction may fail at closing if the non-signing spouse does not consent or sign

If all required owners don't sign, the seller may be unable to convey clear title.