Deck 13: Contracts for Sale and Closing

Question 1

When a buyer signs an offer to purchase a property, the broker receives a monetary amount from the purchaser of 5 or 10 percent of the purchase price. This deposit is commonly referred to as the:

A) commission
B) earnest money
C) closing cost
D) title insurance premium

Answer 1

B

Question 2

The distinction between legal title and equitable title is an important concept in the contract for sale of real estate. When the buyer obtains equitable title, the seller can no longer sell the property to someone else, even though the legal title has not officially passed on. In the contract for sale process, the creation of equitable title occurs when:

A) The contract for sale is written.
B) The contract for sale is signed.
C) The contract terms are orally agreed upon.
D) Each party is deemed legally competent.

Answer 2

B

Question 3

While fee splitting between cooperating real estate brokers is permitted, RESPA explicitly prohibits such actions as rebating part of the title insurance premium to the lender who recommended or required the title insurance. These unearned fees are commonly referred to as:

A) commissions
B) kickbacks
C) damages
D) specific performance dues

Answer 3

B

Question 4

If property owners fail to pay their taxes in a timely fashion, this can create a first lien on the mortgaged property. In order to protect against this, lenders often require that borrowers add what fraction of their estimated tax bill to their required monthly mortgage payments?

A) 1/12
B) 1/6
C) 1/4
D) 1/2

Question 5

In general, most contracts - including a real estate contract - can be assigned. All of the following statements regarding assignment are true EXCEPT:

A) Any type of personal performance contracted by one party cannot be assigned without that party's permission.
B) Land contracts are not assignable without the owner's permission
C) If buyers of real estate assign the contract, the new buyers may pay the agreed upon price and obtain title to the property.
D) When buyers assign their rights to someone else, they escape liability under the original contract.

Question 6

Placed under the umbrella of the Consumer Financial Protection Bureau as part of the Dodd-Frank Act of 2010, the Real Estate Settlement Procedures Act (RESPA) requires loan settlement information to be prepared on a special form known as the:

A) Closing Disclosure
B) Servicing Agreement
C) "Your Home Loan Toolkit" booklet
D) Certificate of occupancy

Question 7

Contracts for sale may contain sections that cause implementation of the contract to depend on the successful completion of some prior action such as the buyer's ability to obtain financing on specified terms. This type of contract is commonly referred to as a(n):

A) contract assignment
B) equitable title
C) contract with contingencies
D) uniform settlement statement

Question 8

Since the issues in many transactions are similar, brokers often use standard preprinted contract forms. Generally, the best standard form contracts are those prepared and approved by which of the following parties?

A) Office supply firm
B) Seller
C) Local Board of Realtors
D) Web source of generic legal forms

Question 9

While the principal parties to a transaction must be legally competent for a contract to be valid, it is possible for a party acting on behalf of a principal to obtain this legal right. In order for personal representatives and trustees to be authorized to act on behalf of a principal, a legal instrument commonly referred to as ____________ must be in place.

A) assignment
B) power of attorney
C) mutual assent
D) consideration

Question 10

At the closing, the buyer will be credited for a number of costs that have been paid up-front (or will be paid after closing) as well as a number of prorated expenses that account for the period of time during which the seller occupied the house. All of the following items detailed in the closing costs involve credits that are commonly passed on to the buyer EXCEPT:

A) Earnest money
B) Hazard insurance premiums
C) Property taxes
D) Mortgage interest

Question 11

In accordance with RESPA, whenever a buyer obtains a new first mortgage loan from a chartered or insured lender, when the loan is insured by the FHA or guaranteed by the VA, or when the loan will be sold to one of the federally related secondary mortgage market agencies, an estimate of loan costs must be provided by the lender within:

A) 3 business days
B) 5 business days
C) 30 calendar days
D) 90 calendar days

Question 12

The successful conveyance of real estate depends on a well-formed contract for sale since the contract dictates the rights and type of deed involved, as well as choreographs the entire transaction. Which of the following features of the contract for sale refers to the arrangements agreed to by the parties, such as price and date of closing?

A) Contract terms
B) Contract conditions
C) Equitable title
D) Contingency clause

Question 13

The final step in a real estate transaction is the closing. In most closings, which party is responsible for seeing that the closing is completed successfully?

A) Escrow agent
B) Lender
C) Selling Broker
D) Listing broker

Question 14

When a party in a contract fails to perform (e.g. breach of contract, nonperformance, or default) the other party has a variety of remedies. All of the following are remedies that an aggrieved seller may pursue EXCEPT:

A) Sue for damages.
B) Retain the earnest money deposit as liquidated damages.
C) Agree to rescission of the contract.
D) Sue for specific performance.

Question 15

Since the seller often has utilized the property for a portion of the year in which the transaction is being made, certain costs associated with the property will be prorated at the closing. All of the following items are subject to being prorated EXCEPT:

A) Broker commission
B) Prepaid rent
C) Property tax
D) Mortgage interest

Question 16

Both parties to a valid and enforceable contract must provide consideration. In a contract for the sale and purchase of real estate, which of the following depicts the seller's consideration?

A) A meeting of the minds with the buyer.
B) The option to present a counteroffer.
C) The property to be given up.
D) The money or goods that constitute the purchase price.

Question 17

Any contract, whether it is for the sale of real estate or some other entity, must contain five basic elements. However, any contract for the sale of real estate must adhere to two additional requirements. Which of the following contract elements is an additional requirement that must be satisfied in a contract for sale of real estate that isn't necessarily a part of other contracts?

A) No defects to mutual assent
B) Consideration
C) Offer and acceptance
D) Written form

Question 18

Recording documents in the public records informs anyone who may have a potential interest in a property of both the owner and lender. In so doing, it provides what is commonly referred to as ____________ of an interest in real property.

A) mutual assent
B) constructive notice
C) consideration
D) simultaneous issue

Question 19

The laws of some states require that real estate brokers provide buyers and sellers with a list of estimated closing costs before signing a contract for sale. At the closing, it is typically which of the following party's responsibilities to pay the full premium for an owner's title insurance policy?

A) Buyer
B) Seller
C) Lender
D) Broker

Question 20

In certain circumstances, mutual assent between the contracting parties may be broken, thus invalidating the contract. Which of the following defects to mutual assent involves compelling a person to act by the use of force?

A) One of the parties is under duress.
B) One of the parties is under undue influence.
C) One of the parties is under menace.
D) One of the parties is committing fraud.

Question 21

Suppose that you just sold a property that has annual property taxes of $2,427.22. If the closing occurred on March 13ᵗʰ, calculate your share (Seller's share) of the total property taxes. For this problem, assume that we are dealing with a 365 day calendar year.

A) $482.26
B) $1990.17
C) $1,996.96
D) $2,479.22

Question 22

While many closings are conducted as a live event in which both buyer and seller parties are present, a number of states have moved towards the practice of escrow closings as the primary mode of real estate transaction. Based on your understanding of an escrow closing, all of the following parties are able to be an escrow agent EXCEPT:

A) Bank
B) Attorney
C) Broker
D) Grantor / Grantee

Question 23

Certain closing costs will be prorated to account for the period of time during which the seller occupied the house. If a transaction is scheduled to close on May 17 (136 days into a 365-day year), calculate the amount that the buyer will be credited if the particular closing cost in question is estimated to be $1,000 for the entire year.

A) $182.19
B) $372.60
C) $624.66
D) $1000

Question 24

When a borrower (the buyer) applies for a loan, the lender will provide him/her with which of the following forms that includes details pertaining to specific loan information and an estimate of expenses that the borrower is likely to incur at the closing?

A) Kickback agreeement
B) Loan estimate
C) "Your Home Loan Toolkit" booklet
D) Certificate of occupancy

Question 25

Since hazard insurance premiums are paid up-front, the buyer will have to reimburse (credit) the seller a portion of the premium at the closing. Suppose that the insurance policy's coverage began on December 15ᵗʰ of the prior year and the property transaction is set to close on March 16ᵗʰ of a 365-day year. The premium paid originally by the seller was $250. If the coverage will expire as of the end of day December 14ᵗʰ in the current year, what is the dollar amount that the buyer must credit the seller?

A) $0.00
B) $62.33
C) $187.67
D) $250.00

Question 26

If a property transaction is scheduled to close on May 14ᵗʰ, calculate the individual tax responsibility for the buyer if the total tax owed at the end of the year is $5,000. For this problem, assume that we are dealing with a 365 day calendar year.

A) $0.00
B) $1,821.92
C) $3,178.08
D) $5,000.00

Question 27

Since property taxes are paid in arrears, the buyer will be responsible for paying them after closing. Suppose that the closing date on the home for sale is February 28ᵗʰ of a leap year (e.g., 2012, 2016, etc.). How many calendar days would the seller be responsible for when calculating his/her share of the property tax owed for the year in which the home was sold?

A) 58 days
B) 59 days
C) 307 days
D) 308 days

Question 28

Which of the following contract elements is an additional requirement that must be satisfied in a contract for sale of real estate that isn't necessarily a part of other contracts?

A) Competent parties
B) Consideration
C) Legal objective
D) Proper description of the property

Question 29

Suppose that you decide to purchase a property that has annual property taxes of $2,427.22. If the closing occurred on March 13ᵗʰ, calculate your share (Buyer's share) of the total property taxes. For this problem, assume that we are dealing with a 365 day calendar year.

A) $482.26
B) $1990.17
C) $1,996.96
D) $2,479.22

Question 30

When the seller in a contract for sale fails to perform (e.g. breach of contract, nonperformance, or default), the buyer has a variety of remedies. One such remedy is to appeal to the court to force the defaulting seller to carry out the contract. This remedy is most commonly referred to as suing for:

A) Damages.
B) Earnest.
C) Recission.
D) Specific performance.