Sell My House Real Estate Contracts and Closing 1 — Questions and Answers
Question 1: What is earnest money in a real estate transaction?
- The down payment made at closing
- A good-faith deposit the buyer makes when submitting an offer (Correct answer)
- The fee paid to the buyer's real estate agent
- A refundable inspection fee
Correct answer: A good-faith deposit the buyer makes when submitting an offer
Earnest money is a deposit that signals the buyer's serious intent to purchase and is typically applied toward the down payment or closing costs at settlement.
Question 2: What is a contingency in a real estate purchase contract?
- A penalty clause for late closing
- A condition that must be met for the sale to proceed (Correct answer)
- The seller's right to accept a backup offer
- A clause setting the final sale price
Correct answer: A condition that must be met for the sale to proceed
Contingencies protect both parties by allowing the contract to be voided without penalty if specific conditions — like financing or inspection — are not satisfied.
Question 3: What does 'closing costs' refer to in a home sale?
- The final listing price negotiation
- Fees and expenses paid at settlement to complete the transaction (Correct answer)
- The cost of moving out of the home
- The seller's agent commission only
Correct answer: Fees and expenses paid at settlement to complete the transaction
Closing costs include title insurance, attorney fees, transfer taxes, lender fees, and other expenses paid by buyers and sellers at settlement.
Question 4: What is a seller's disclosure statement?
- A document listing the home's asking price history
- A legally required document where sellers reveal known defects or issues with the property (Correct answer)
- The seller's proof of mortgage payoff
- A marketing document prepared by the listing agent
Correct answer: A legally required document where sellers reveal known defects or issues with the property
Seller disclosure laws in most US states require sellers to inform buyers of known material defects to prevent fraud and protect all parties.
Question 5: What happens to earnest money if a buyer backs out of a deal without a valid contingency?
- It is automatically refunded to the buyer
- The seller typically keeps the earnest money as liquidated damages (Correct answer)
- It is split equally between buyer and seller
- It is held in escrow indefinitely
Correct answer: The seller typically keeps the earnest money as liquidated damages
When a buyer defaults without a valid contingency, the earnest money typically goes to the seller as compensation for taking the home off the market.
Question 6: What is a title search and why is it required in a home sale?
- A marketing analysis of comparable home titles
- An examination of public records to verify the seller legally owns the property and there are no liens (Correct answer)
- A background check on the buyer
- An appraisal of the property's fair market value
Correct answer: An examination of public records to verify the seller legally owns the property and there are no liens
A title search ensures the seller has clear ownership and that no unpaid liens, judgments, or claims exist that would cloud the transfer of ownership to the buyer.
Sell My House Real Estate Contracts and Closing 1
What is earnest money in a real estate transaction?