RES Real Estate Contracts & Transactions 2 — Questions and Answers
Question 1: What is an escrow account in real estate?
- A neutral third-party account that holds funds and documents until all conditions of the transaction are met (Correct answer)
- The buyer's personal savings account
- A government fund for property taxes
- A checking account owned by the real estate agent
Correct answer: A neutral third-party account that holds funds and documents until all conditions of the transaction are met
An escrow account is held by a neutral third party (title company, escrow agent) to safeguard funds and documents during the transaction, ensuring neither party can access them until all conditions are satisfied.
Question 2: What is a counteroffer in real estate negotiations?
- A response to an offer that changes one or more terms, rejecting the original offer and creating a new offer (Correct answer)
- An identical copy of the original offer
- A verbal agreement to the original terms
- A withdrawal from negotiations
Correct answer: A response to an offer that changes one or more terms, rejecting the original offer and creating a new offer
A counteroffer legally rejects the original offer and presents new terms. The original offeror can then accept, reject, or counter again. Each counteroffer extinguishes the previous offer.
Question 3: What is dual agency and what are the risks?
- When one agent or brokerage represents both buyer and seller, creating potential conflicts of interest (Correct answer)
- When two agents from different firms share a commission
- When an agent works in two different states
- When a property is listed with two brokerages
Correct answer: When one agent or brokerage represents both buyer and seller, creating potential conflicts of interest
Dual agency occurs when one agent (or agents from the same brokerage) represents both parties, which can compromise fiduciary duties. Most states require written disclosure and consent from both parties.
Question 4: What is a purchase money mortgage?
- A mortgage provided by the seller to finance part of the purchase price (Correct answer)
- Any mortgage used to buy a property
- A government-backed home loan
- A second mortgage from a bank
Correct answer: A mortgage provided by the seller to finance part of the purchase price
A purchase money mortgage (seller financing) is when the seller acts as the lender, allowing the buyer to make payments directly to the seller rather than obtaining a traditional bank mortgage.
Question 5: What is a home inspection contingency?
- A contract provision allowing the buyer to have the property professionally inspected and negotiate repairs or withdraw based on findings (Correct answer)
- A required government inspection before any sale
- An inspection of the buyer's financial records
- A visual check of the property by the listing agent
Correct answer: A contract provision allowing the buyer to have the property professionally inspected and negotiate repairs or withdraw based on findings
A home inspection contingency gives the buyer the right to have the property inspected by a professional. Based on findings, the buyer can request repairs, renegotiate the price, or withdraw from the contract.
Question 6: What is RESPA (Real Estate Settlement Procedures Act)?
- A federal law that requires disclosure of closing costs and prohibits kickbacks in real estate transactions (Correct answer)
- A state licensing requirement for real estate agents
- An environmental regulation for property development
- A tax law for capital gains on real estate
Correct answer: A federal law that requires disclosure of closing costs and prohibits kickbacks in real estate transactions
RESPA protects consumers by requiring lenders and settlement agents to provide clear disclosure of closing costs, prohibiting referral fees/kickbacks, and limiting escrow account deposits.
RES Real Estate Contracts & Transactions 2
What is an escrow account in real estate?