Real Estate Contracts Flashcards

A buyer and seller have signed a purchase agreement. The buyer must still secure financing, and the seller must provide a clear title. At this stage, what is the status of the contract?

Answer: Executory

An executory contract is one in which one or more parties have not yet fulfilled all of their obligations. In this scenario, since the buyer's financing and the seller's delivery of a clear title are still pending, the contract is executory. An executed contract is one where all parties have fully performed their duties.

According to the Statute of Frauds, which of the following agreements MUST be in writing to be enforceable?

Answer: An agreement to purchase a parcel of real property

The Statute of Frauds is a legal doctrine that requires certain types of contracts, including those for the sale or transfer of an interest in real property, to be in writing to be enforceable. Leases for a term of one year or less are generally an exception to this rule.

A buyer includes a clause in their purchase offer that states, 'This offer is conditional upon the buyer obtaining a conventional loan for 80% of the purchase price at an interest rate not to exceed 5%.' This clause is an example of a(n):

Answer: Contingency Clause

A contingency clause is a condition or action that must be met for a real estate contract to become binding. This financing contingency makes the buyer's obligation to purchase the property dependent on their ability to secure a loan with specific terms, protecting them if they cannot get the required financing.

A seller offers a $5,000 bonus to any broker who brings a ready, willing, and able buyer to purchase their property. This is an example of what type of contract?

Answer: Unilateral Contract

A unilateral contract is a one-sided agreement where one party makes a promise in exchange for a specific action from another party. The seller (the offeror) is only obligated to pay the bonus if a broker performs the action of bringing a suitable buyer. The brokers are not obligated to look for a buyer. A bilateral contract involves mutual promises from both parties.

Which of the following is an essential element for a real estate contract to be valid and enforceable?

Answer: Consideration

For a real estate contract to be valid, it must contain several essential elements. These include offer and acceptance, competent parties, legal purpose, and consideration. Consideration is something of value exchanged between the parties, such as the purchase price for the property. While common, an earnest money deposit, notarization, and a professional appraisal are not strictly required for a contract to be valid.

A buyer has a contract to purchase a property. Before closing, the buyer transfers their rights and obligations under the contract to a new buyer. The seller agrees to release the original buyer from all liability and substitute the new buyer. This process is known as:

Answer: Novation

Novation is the substitution of a new contract for an old one, or the substitution of a new party for an original party. A key element of novation is that all parties must agree, and the original party is completely released from their obligations. An assignment, by contrast, transfers the rights but not necessarily the obligations, and the original party (assignor) may still retain some liability.