Free Arkansas Real Estate License Real Estate Contracts Questions and Answers — Questions and Answers
Question 1: According to the Arkansas Statute of Frauds, which of the following agreements related to real estate MUST be in writing to be enforceable?
- A month-to-month residential lease.
- A contract to purchase a property that will close in 6 months. (Correct answer)
- An agreement between two brokers to share a commission.
- A seller's verbal promise to include the patio furniture with the sale.
Correct answer: A contract to purchase a property that will close in 6 months.
The Arkansas Statute of Frauds requires that contracts for the sale of land, or any interest in land, must be in writing to be enforceable. A contract to purchase a property, regardless of the closing date, falls directly under this statute. Month-to-month leases are generally exempt, agreements between brokers are separate from the real estate contract itself, and personal property promises should be in writing but aren't governed by the Statute of Frauds for real property.
Question 2: A buyer in Arkansas makes an offer on a home that includes a financing contingency. The contingency states the buyer must obtain a loan within 30 days. On day 28, the buyer's loan is denied. What is the most likely outcome?
- The buyer forfeits their earnest money to the seller.
- The seller can sue the buyer for specific performance.
- The contract is automatically void, and the earnest money is returned to the buyer. (Correct answer)
- The seller is required to offer owner financing to the buyer.
Correct answer: The contract is automatically void, and the earnest money is returned to the buyer.
A financing contingency protects the buyer if they are unable to secure a loan under the specified terms and within the agreed-upon timeframe. If the buyer acts in good faith but fails to meet the contingency, the contract is typically rendered void, and they are entitled to a refund of their earnest money.
Question 3: A seller accepts a buyer's full-price offer. Before the agents can deliver the signed acceptance back to the buyer, another, higher offer comes in. According to Arkansas Real Estate Commission regulations, what is the listing agent's obligation?
- The agent must ignore the second offer as a contract already exists.
- The agent must present the second offer to the seller, who may consider it as a backup. (Correct answer)
- The agent can reject the second offer on behalf of the seller.
- The agent must tell the second offeror about the terms of the first offer to encourage a higher bid.
Correct answer: The agent must present the second offer to the seller, who may consider it as a backup.
AREC regulations state that the acceptance of an offer does not remove the broker's obligation to present additional offers as they are received. The seller can be notified of the new offer and may choose to accept it as a backup offer in case the first contract does not close. It would be a violation of the agent's duties to the first buyer to simply ignore the existing accepted offer, and it would violate confidentiality to disclose the terms of one offer to another potential buyer.
Question 4: Which of the following is an essential element required for a real estate contract to be valid and enforceable in Arkansas?
- An earnest money deposit.
- A signature from a notary public.
- Consideration (e.g., the sale price). (Correct answer)
- A professional home inspection.
Correct answer: Consideration (e.g., the sale price).
For a contract to be legally enforceable in Arkansas, it must contain several essential elements, including: legally competent parties, a legal purpose, a valid offer and acceptance, and consideration. Consideration is the price or thing of value exchanged. While earnest money, notarization, and inspections are common and often wise, they are not strictly required for the contract itself to be considered valid.
Question 5: A seller in Arkansas breaches a valid and enforceable real estate sales contract by refusing to close. Which of the following is a remedy the buyer could pursue?
- File a complaint with the Arkansas Real Estate Commission to force the sale.
- Sue the seller for punitive damages.
- Sue the seller for specific performance. (Correct answer)
- Place a mechanic's lien on the property.
Correct answer: Sue the seller for specific performance.
Because real estate is considered unique, a buyer may sue for specific performance, which is a court order compelling the breaching party (the seller) to perform their obligations and complete the sale as agreed in the contract. The AREC handles licensing matters, not contract enforcement. Punitive damages are rarely awarded in contract cases, and a mechanic's lien is for those who provide labor or materials to improve a property.
Question 6: A buyer submits an offer to purchase a home in Little Rock. The seller is not satisfied with the price and writes in a higher price, initials the change, and signs the document. What is the status of the contract at this point?
- A valid contract has been formed.
- The original offer is terminated, and the seller has created a counteroffer. (Correct answer)
- The buyer is now legally obligated to accept the new price.
- The original offer remains valid, and the seller's change is a separate offer.
Correct answer: The original offer is terminated, and the seller has created a counteroffer.
When a party to a contract changes the terms of the original offer, it constitutes a rejection of that offer and the creation of a new offer, known as a counteroffer. The original offer is no longer valid. The original offeror (the buyer) now has the power to accept, reject, or counter the seller's new offer.
Free Arkansas Real Estate License Real Estate Contracts Questions and Answers
According to the Arkansas Statute of Frauds, which of the following agreements related to real estate MUST be in writing to be enforceable?