Real Estate Contracts & Agency 3 — Questions and Answers
Question 1: A purchase and sale agreement becomes binding when:
- The buyer signs it
- Both parties sign and communication of acceptance is received (Correct answer)
- The earnest money clears the bank
- The title company is notified
Correct answer: Both parties sign and communication of acceptance is received
A contract is formed upon mutual assent, meaning both parties must sign and acceptance must be communicated back to the offeror.
Question 2: 'Time is of the essence' in a real estate contract means:
- The property must close quickly
- All deadlines in the contract are strictly binding (Correct answer)
- The agent must respond within 24 hours
- Inspections must be done immediately
Correct answer: All deadlines in the contract are strictly binding
A 'time is of the essence' clause makes all dates and deadlines in the contract strictly enforceable; missing a deadline constitutes a material breach.
Question 3: A right of first refusal gives a party the:
- Right to set the listing price
- Opportunity to match any offer before the property is sold to another (Correct answer)
- Right to purchase at a discount
- Right to inspect before listing
Correct answer: Opportunity to match any offer before the property is sold to another
A right of first refusal requires the owner to offer the property to the holder of the right before accepting any third-party offer.
Question 4: Assignment of a real estate contract transfers the:
- Title to the property
- Contractual rights and obligations to a third party (Correct answer)
- Listing to another broker
- Mortgage to a new lender
Correct answer: Contractual rights and obligations to a third party
Assignment allows the original contracting party to transfer their rights under the contract to a third party, though the assignor may remain liable.
Question 5: A bilateral contract in real estate is one where:
- Only one party makes a promise
- Both parties make promises to each other (Correct answer)
- The government is involved
- No consideration is exchanged
Correct answer: Both parties make promises to each other
A bilateral contract involves mutual promises — both parties are legally obligated to perform, as in a typical purchase and sale agreement.
Question 6: Liquidated damages in a real estate contract are:
- Court-awarded punitive penalties
- A pre-agreed amount payable upon breach, often the earnest money (Correct answer)
- Broker commissions owed at default
- Funds held in escrow for repairs
Correct answer: A pre-agreed amount payable upon breach, often the earnest money
Liquidated damages clauses specify in advance the remedy for breach (commonly the earnest money deposit), avoiding lengthy litigation to calculate actual damages.
Real Estate Contracts & Agency 3
A purchase and sale agreement becomes binding when: