Real Estate License Contracts 3 — Questions and Answers
Question 1: Liquidated damages in a purchase contract typically refer to:
- Damages awarded by a jury
- A predetermined sum agreed to in advance (Correct answer)
- The buyer's loan amount
- Punitive penalties
Correct answer: A predetermined sum agreed to in advance
Liquidated damages are a sum the parties agree in advance to be paid if one party breaches.
Question 2: If a seller breaches a real estate sales contract, the buyer may seek 'specific performance,' which means:
- Monetary compensation only
- A court order forcing the seller to convey the property (Correct answer)
- Cancellation of the contract
- Return of double the earnest money
Correct answer: A court order forcing the seller to convey the property
Specific performance is an equitable remedy compelling the breaching party to complete the agreed sale.
Question 3: An 'option contract' gives the holder the right to:
- Force the owner to buy their property
- Purchase property within a set time for a set price (Correct answer)
- Lease the property indefinitely
- Receive the commission
Correct answer: Purchase property within a set time for a set price
An option contract grants the right, but not the obligation, to buy at a fixed price within a time period.
Question 4: A contingency in a purchase agreement is best described as:
- A penalty clause
- A condition that must be met for the contract to proceed (Correct answer)
- The earnest money deposit
- A type of deed
Correct answer: A condition that must be met for the contract to proceed
A contingency is a condition (such as financing or inspection) that must be satisfied for the contract to close.
Question 5: Time is of the essence in a contract means:
- Deadlines are merely suggestions
- Parties must perform exactly by the stated dates (Correct answer)
- The contract has no expiration
- Closing can be postponed freely
Correct answer: Parties must perform exactly by the stated dates
This clause makes the stated deadlines strict, and failure to perform on time is a breach.
Question 6: Earnest money is best described as:
- The full purchase price
- A good-faith deposit showing the buyer's serious intent (Correct answer)
- The agent's fee
- A loan from the seller
Correct answer: A good-faith deposit showing the buyer's serious intent
Earnest money is a deposit demonstrating the buyer's sincere intention to complete the purchase.
Question 7: Which of the following would make a contract 'void' rather than 'voidable'?
- Misrepresentation by one party
- An illegal purpose (Correct answer)
- A party who is a minor
- Undue influence
Correct answer: An illegal purpose
A contract for an illegal purpose is void from the start and has no legal effect.
Real Estate License Contracts 3
Liquidated damages in a purchase contract typically refer to: