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:

Accepted Answer

The deposit that the buyer provides when they sign an offer to purchase a property is called earnest money. It serves as a sign of good faith to the seller and shows that the buyer is serious about purchasing the property. The amount of earnest money can vary, but it is typically 5 to 10 percent of the purchase price. It is not the broker's commission, closing cost, or title insurance premium.

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:

Accepted Answer

Equitable title is generally considered to be created when the contract for sale is signed by both parties. This signifies that both the buyer and the seller have agreed to the terms of the sale, and the buyer obtains an equitable interest in the property, preventing the seller from selling the property to someone else even though the legal title has not yet been transferred.

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:

Accepted Answer

Kickbacks are unearned fees or money given to someone as an incentive for referring business. In the real estate industry, it is illegal for a lender or any other party to receive kickbacks such as rebates on title insurance premiums for recommending or requiring a specific service provider.

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?

Accepted Answer

Lenders often require that borrowers add 1/12 of their estimated tax bill to their required monthly mortgage payments in order to protect against a first lien on the mortgaged property in case the property owners fail to pay their taxes on time. This is also known as an escrow account, which ensures that taxes and other expenses are paid on time.

Question 5

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

Accepted Answer

When a party assigns their rights under a contract, they are still liable for any obligations that existed prior to the assignment. The assignee assumes the rights and obligations of the original party. Therefore, statement D is false. Statements A, B, and C are true.

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:

Accepted Answer

RESPA requires loan settlement information to be prepared on a special form known as the Closing Disclosure. This form must be given to the borrower at least three business days before the loan closing date, and it outlines all the fees, charges, and costs associated with the loan, including the interest rate, loan amount, and total closing costs. The purpose of the form is to ensure that borrowers have all the information they need to make informed decisions about their loans, and to prevent surprises or hidden fees at closing.

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):

Accepted Answer

Contracts with contingencies are agreements that contain conditions or requirements that must be satisfied before the contract can be completed. In this scenario, the buyer's ability to obtain financing is a contingency that must be met before the contract is finalized. Option A, contract assignment, refers to transferring a party's rights and obligations to another party. Option B, equitable title, refers to an interest in a property that falls short of legal ownership. Option D, uniform settlement statement, is a document that itemizes all fees and charges associated with a real estate transaction. None of these options accurately describe the situation presented in the question.

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?

Accepted Answer

Standard preprinted contract forms prepared and approved by Local Board of Realtors are considered the best as they are reviewed, updated and improved regularly to ensure they meet legal requirements and are fair to all parties involved in the transaction. Office supply firms and web sources of generic legal forms do not have the same level of expertise or knowledge of real estate law as the Local Board of Realtors. Sellers may have a biased interest in the contract terms.

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.

Accepted Answer

A power of attorney is a legal instrument that authorizes a person to act on behalf of a principal. This is commonly used for personal representatives and trustees who need to make decisions or engage in transactions on behalf of the principal. An assignment refers to the transfer of rights or interests in a property or asset, mutual assent refers to the agreement of both parties to a contract, and consideration refers to the exchange of something of value between parties. While these concepts may also be involved in a contract, they do not specifically authorize a party to act on behalf of a principal.

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:

Accepted Answer

Hazard insurance premiums are typically paid by the buyer and are not credited to them at closing.

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:

Accepted Answer

RESPA requires lenders to provide an estimate of loan costs (also known as a Good Faith Estimate) within 3 business days of receiving a loan application for a first mortgage loan that is insured or guaranteed by a federal agency or will be sold to a federally related secondary mortgage market agency.

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?

Accepted Answer

Contract terms refer to the specific arrangements agreed to by the parties, including the price, date of closing, and other important details of the real estate transaction. Contract conditions refer to requirements that must be met before the sale can be completed, while equitable title and contingency clauses are separate concepts related to the sale of real estate.

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?

Accepted Answer

The answer of The final step in a real estate...

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:

Accepted Answer

Suing for specific performance is a remedy typically available to buyers, not sellers. Sellers usually seek damages or retain deposits, while specific performance compels the buyer to complete the purchase.

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:

Accepted Answer

Broker commission is not an expense associated with the property itself, but rather a fee paid for the services of the broker. Therefore, it is not subject to proration at closing. The other options, prepaid rent, property tax, and mortgage interest, are all expenses associated with the property and are subject to proration at closing.

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?

Accepted Answer

The seller's consideration in a real estate transaction is the property they agree to transfer to the buyer. This is what the seller gives up in exchange for the purchase price, making it the consideration provided by the seller.

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?

Accepted Answer

The additional requirement that must be satisfied in a contract for sale of real estate is that it must be in writing. This is because of the statute of frauds, which requires certain contracts, including real estate contracts, to be in writing to be enforceable. The other four basic elements of a contract (mutual assent, consideration, offer and acceptance) apply to all contracts.

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.

Accepted Answer

Constructive notice is the legal doctrine that assumes that everyone has knowledge of what has been recorded in the public records. By recording documents, the public is put on notice of the interests in the property, providing constructive notice of an interest in real property. Mutual assent refers to the agreement between parties, consideration refers to the value exchanged in a contract, and simultaneous issue relates to the process of issuing title insurance.

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?

Accepted Answer

The answer of The laws of some states require that...

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?

Accepted Answer

Duress involves compelling a person to enter into a contract through the use of force or threats, which invalidates mutual assent.

Quiz 13: Contracts for Sale and Closing