7: Contracts Practice Test (50/102 Questions)

The buyer contracted to purchase a house dies before closing. The status of the purchase agreement is:

• A. Valid and to be fulfilled by the buyer’s heirs.

• B. Still in effect as the buyer’s intention was clearly expressed.

• C. Terminated by the death of the principal.

• D. Binding if the listing agent can find a buyer to assign the contract.

C

In the event a buyer fails to perform on a valid purchase agreement, the seller may be allowed to keep the earnest money deposit as:

• A. Compensatory Damages

• B. Contract Compensation

• C. A Listing Refund

• D. Liquid Damages

D

A contract is said to have been discharged if:

• A. All its terms and conditions have been met.

• B. One party is unable to perform as promised.

• C. The contract is not yet closed.

• D. Most of the basic terms have been accomplished.

A

You have entered into a contract to buy a house and the seller changes her mind. You still want to buy the house, for what do you sue?

• A. Monetary damages

• B. Rescission

• C. Completion

• D. Specific performance

D

During contract negotiations, the broker falsely assures the buyer that the property is zoned and suitable for a multi-family dwelling. Prior to closing, the buyer learns that the zoning prohibits this use of the property. By law, this contract is:

• A. Valid and binding on all parties

• B. Voidable by the buyer

• C. Voidable by all parties

• D. Assigned to the broker

B

Mr. Stevens is offering his house for sale. Broker Eva tells Mr. Stevens that she can sell the house. Broker Eva brings a buyer whose terms are agreeable to Mr. Stevens. After closing, Mr. Stevens refuses to pay broker Eva a commission. Broker Eva can:

• A. Report Mr. Stevens to the local MLS

• B. File a lien against Mr. Stevens for the amount of the commission

• C. Sue Mr. Stevens for breach of contract

• D. Do nothing.

D

A contract that depends on the actions of the parties as evidence of a contract is referred to as:

• A. Unilateral

• B. Implied

• C. An option

• D. Expressed

B

An option is an example of what kind of contract?

• A. Implied and bilateral

• B. Implied and unilateral

• C. Expressed and bilateral

• D. Expressed and unilateral

D

A contract to do something illegal is:

• A. Voidable
• B. Valid if signed
• C. Void
• D. Executory

C

The best word to describe a situation in which someone takes over the contractual obligations of another in a contract is:

• A. Novation
• B. Assignment
• C. Unenforceable
• D. Dual agency

B

What type of title do buyers have when they sign a land contract?

• A. Invalid
• B. Exclusionary
• C. Equitable
• D. Implied

C

A buyer who will only purchase the home if the inspection results are satisfactory has placed what in the contract?

• A. A contingency clause
• B. A sale-on-demand clause
• C. An inspection addendum
• D. A deed restriction

A

A party's failure to fulfill its promises under a contract or to prohibit the other party from performing the terms of the contract is known as:

• A. A backup offer.
• B. Breach of contract.
• C. Mutual assent.
• D. Specific performance.

B

Lester signs a contract to buy Kathy’s house. The contract is conditional on Kathy installing a new carpet throughout. Kathy installed the carpet at a cost of $12,500. Before closing, Lester tells Kathy that he does not want to buy the house. Kathy sues Lester for $12,500 and wins. The court awarded her:

• A. Collateral damage.
• B. Compensatory damages.
• C. Liquidated damages.
• D. Punitive damages.

B

The sales contract between homeowner Peyton and buyer Eli indicates a March 1 closing date. The contract contains a “time is of the essence” clause. On the morning of March 1, Peyton calls and tells Eli that it will be a few days before he can transfer the title. As of March 2, this sales contract is:

• A. Invalid.

• B. Void.

• C. Voidable by Eli.

• D. Voidable by Peyton.

B

Paul has a buyer-broker agreement with Mary. She has agreed to pay him a 2.5% commission for finding her a house. He showed her 16 different houses, but when she settled on the one she wanted, she submitted her offer directly to the listing agent and bypassed Paul in order to avoid paying his commission. What is Paul’s best recourse?

• A. Record a lien against Mary’s property.

• B. Submit to an arbitration hearing with the local board of REALTORS®.

• C. Sue the listing agent for his 2.5% of the sales price.

• D. Sue Mary for breach of contract.

D

The time period for the enforcement of a contract is established by the Statute of:

• A. Frauds.

• B. Lis Pendens.

• C. Limitations.

• D. Parol Evidence.

C

Ned has a signed agreement to buy Tim’s car. The day before the title transfer, Ned calls Tim and says that he has changed his mind; instead, his sister Fay would like to buy the car on the same terms. Tim substitutes Fay’s name for Ned’s on the agreement. This is an example of:

• A. Assignment.
• B. Novation.
• C. Rescission.
• D. Tender offer.

A

Craig sues Randy for specific performance. Craig is seeking:

• A. Compensatory damages.
• B. Enforcement of the contract.
• C. Monetary damages.
• D. Transfer of rights.

B

When a court orders someone who has breached a contract to perform as agreed rather than pay damages, it is known as:

• A. Full performance.
• B. Novation.
• C. Reformation.
• D. Specific performance.

D

Betty signs a listing agreement with Wealthy Real Estate Company. The company sells her house and she pays the promised commission; therefore, all terms of the contract have been met. This contract is now:

• A. Discharged.
• B. Liquidated.
• C. Mitigated.
• D. Rescinded.

A

If upon receipt of an offer to purchase under specified terms, the seller makes a counteroffer, the prospective buyer is:

• A. Bound by the original offer.
• B. Bound by the agent's decision.
• C. Bound to accept the counteroffer.
• D. Released from the original offer.

D

The phrase “meeting of the minds” refers to:

• A. Consideration.
• B. Legal intent.
• C. Offer and acceptance.
• D. Two or more parties to a contract.

C

A condition in a purchase contract states that the agreement depends on the property passing a home inspection and radon gas test. This is called a:

• A. Contingency clause.

• B. Counteroffer.

• C. Tender offer.

• D. Time is of the essence clause.

A

Tom agrees to buy Gary’s house with a contingency that he put in new kitchen appliances. Tom puts down a $5,000 earnest money deposit and Gary installs the new kitchen appliances. After this, Tom backs out of the deal. Their contract contained a clause stating, “If the buyer breaches the contract, he forfeits the earnest money deposit.” This is an example of:

• A. Compensatory damages.

• B. Liquidated damages.

• C. Rescission.

• D. Specific performance.

B

Tom hires broker Mary to help him find a house. He agrees to a 180-day contract. After 30 days and 42 houses, Mary tells Tom she will not show him any more houses since he is clearly not interested in buying anything. Which is LEAST likely to be an option for Tom?

• A. Renegotiate the contract with Mary and offer a greater commission if she shows him more houses.

• B. File a complaint against Mary with the state real estate commission.

• C. Sue Mary for breach of duties to her client.

• D. Sue to compel Mary to honor the contract and show him more houses.

A

The Michigan state law that requires all real estate contracts to be in writing to be enforceable by the courts is the:

• A. Doctrine of part performance.
• B. Parol evidence rule.
• C. Specific performance.
• D. Statute of frauds.

D

Melissa went to the dry cleaner and dropped off her gray wool coat to be cleaned. When the clerk accepted the coat, Melissa and the dry cleaning operation had just entered into what type of contract?

• A. Complete.
• B. Expressed.
• C. Implied.
• D. Unilateral.

C

Paula is selling her house. She changes the terms proposed by the buyer in the sales contract. This creates a(n):

• A. Counteroffer.
• B. Modification agreement.
• C. Notification of acceptance.
• D. Offer and acceptance.

A

Broker Bryan represents a seller under an exclusive listing agreement. He receives two offers for the seller's property at the same time — one from an agent in his office and one from an agent affiliated with a cooperating broker. What should Bryan do?

• A. Submit the higher offer first; if it is not acceptable, look at the other one.
• B. Submit the offer from his agent first and let the seller decide on it before looking at the other offer.
• C. Submit the offer from the cooperating agent first and let the seller decide on it before looking at the other offer.
• D. Submit both offers at the same time and allow the seller to make a decision after looking at all of the facts.

D

If the seller changes the terms proposed by the buyer in the sales contract, he or she creates a(n):

• A. Alternative offer.

• B. Counteroffer.

• C. Modification agreement.

• D. Notification of acceptance.

B

Which of the following prevents any and all current and prior agreements from being admitted in court given the presence of a written contract?

• A. Doctrine of part performance.

• B. Parol evidence rule.

• C. Rule of genuine assent.

• D. Statute of frauds.

B

Ken and Joe are out at a bar drinking. During the evening, Ken writes a note on a cocktail napkin, agreeing to sell his car to Joe for $500. After they both sign, Ken pockets the money and hands over the keys. The next day, Ken has no idea where his car is and how he came to have $500 in his wallet. Was this a valid contract?

• A. Yes, both parties signed the contract.

• B. Yes, both parties fulfilled the terms of the contract.

• C. No, it was written on a napkin.

• D. No, Ken was incapacitated.

D

Agent Lenny and his client Hannah have just signed an open listing agreement that will pay Lenny a 6.5% commission only if he finds a willing and able buyer for Hannah’s house, but he has no specific obligation to do so. Which best describes the current agreement?

• A. Expressed, bilateral, executed.

• B. Expressed, bilateral, executory.

• C. Expressed, unilateral, executory.

• D. Implied, bilateral, executed.

C

Which of the following is not an essential element for a valid and enforceable contract?

• A. Consideration.
• B. Discharge.
• C. Legal purpose.
• D. Mutual assent.

B

Belinda’s toy poodle went missing, so she offered her neighbor $500 if he found and returned her dog. This is an example of a:

• A. Bilateral expressed contract.
• B. Bilateral implied contract.
• C. Unilateral expressed contract.
• D. Unilateral implied contract.

D

Jerry agreed to purchase a used tractor from Tim for $15,000. Later, Jerry discovered that Tim was planning to steal the tractor from the local farm supply store. This contract is:

• A. Invalid.
• B. Unenforceable.
• C. Void.
• D. Voidable.

C

Agent Kelly, eager to get her first listing, talks her elderly neighbor, Ann, into signing an agreement that would pay Kelly a 10% commission if she finds a buyer. Kelly finds a buyer, and the sale concludes. Kelly wants her commission, but Ann’s family contests, saying that Ann, diagnosed with dementia, was coerced. Is Kelly likely to get her 10% commission?

• A. Yes, the property was transferred, and the contract was successfully executed.
• B. Yes, Kelly performed as indicated in the listing agreement.
• C. No, the listing agreement is void.
• D. No, the listing agreement is voidable by Ann.

A

Kyle is selling off his 200-acre farm. Neighboring farmer Beth tells Kyle that she would like to buy a 40-acre parcel that abuts her property. They shake hands. This oral contract is most likely:

• A. Unenforceable.
• B. Valid.
• C. Void.
• D. Voidable.

A

If a buyer refuses to go ahead with a purchase of property for which he has signed a contract, what usually happens to the earnest money?

• A. It is returned to the buyer.
• B. It is kept by the seller
• C. It is kept by the seller, less the broker’s commission.
• D. The title company holds it.

B

The valuable consideration necessary to make a contract valid must be .

• A. Money.

• B. Something tangible.

• C. Something specifically offered in exchange for something else.

• D. Something of equal value with whatever is received in exchange.

C

The necessary condition of mutual consent may be found lacking in a contract if .

• A. The two parties did not discuss every possible interpretation of the contract’s provisions.

• B. The offer that was accepted is vague.

• C. One party did not have the legal authority to sign the contract.

• D. The agreement is unwritten.

B

A contract that conveys an interest in real estate must .

• A. Contain a legal description of the property.

• B. Be written on a form approved by the state bar association.

• C. Be either nuncupative or holographic.

• D. Be recorded within three days to be enforceable.

A

A party sells a summer cottage appraised at $100,000 to a stranger for $50,000. The seller's family wants to challenge the validity of the sale contract. The most apparent weakness of the contract that they might be able to attack is the .

• A. Illegality of the contract's intent.
• B. Insufficiency of the consideration exchanged for the property.
• C. Lack of consent on the part of the seller's family.
• D. Lack of good faith on the part of the buyer.

B

An oral contract to sell mineral rights is performed by both parties. Six months later, the seller has second thoughts and wants to reclaim the rights under the Statue of Frauds. What is the likelihood that the seller will succeed?

• A. Nil, because the Statute of Frauds is irrelevant to a contract that has been performed.
• B. Good, because an oral contract to convey a real estate interest is unenforceable under the Statute of Frauds.
• C. Good, because the contract is voidable.
• D. Nil, because the buyer committed no fraud.

B

How much time does a seller have to accept a buyer's offer?

• A. Forty-eight hours from the time of the offeror's signing of the offer.
• B. Twenty-four hours from the time of the offer's delivery to the seller.
• C. As long as the seller wants.
• D. A 'reasonable' time, or until the expiration date on the offer.

D

A buyer submits an offer to a seller and then dies in a car accident. Before learning of the buyer's death, the seller accepts the offer. Which of the following is true?

• A. The seller can force the buyer's estate to go through with the purchase.
• B. The buyer's death terminated the offer.
• C. The seller must make a new offer with the same terms to the buyer's heirs.
• D. The buyer's heirs have the option to enforce the contract.

B

Which of the following contracts can be assigned to another party?

• A. An exclusive listing agreement.
• B. An exclusive agency agreement.
• C. A contract for the sale of a house.
• D. An employment contract between a broker and a salesperson.

C

An implied contract may be deemed to exist if .

• A. The parties do not disavow an express contract that has expired.
• B. The parties act as if there is a contract.
• C. An offering party does not receive written notice that the offer has been rejected.
• D. The parties promise to perform their part of the agreement if the other party performs.

B

Which of the following is an executory contract?

• A. An expired lease.

• B. A sale contract before closing.

• C. A recorded sale contract.

• D. An option to buy after it is exercised.

B

A bilateral contract is one in which _____.

• A. Both parties promise to do something in exchange for the other party’s performance.

• B. Both parties receive equal consideration.

• C. Both parties agree to perform a service.

• D. One party promises to do something if the other party performs first.

A

A home seller signs a listing agreement with a broker and the next week decides not to sell and revokes the listing. Which of the following is true?

• A. The seller has no contractual obligations to the broker.

• B. The contract remains in full force until the expiration date.

• C. The broker may have a claim for damages.

• D. The seller cannot sign a listing agreement with another broker.

C

A breach of contract is _____.

• A. A termination of the contract by the mutual consent of the parties.
• B. Financial damage suffered by a party because another party has nullified a contract provision.
• C. A lawsuit to force a party to discharge the contract.
• D. The failure of a party to perform according to the terms of the contract.

D

What is rescission?

• A. The act of withdrawing an offer before it has been accepted.
• B. The act of nullifying a contract.
• C. The act of declaring a contract unenforceable.
• D. The act of modifying the terms of an offer.

B

In a suit for damages by reason of default, the damaged party may claim liquidated damages if _____.

• A. The contract stated a specific amount due to a damaged party.
• B. The contract stated that a defaulting party could not profit from the contract.
• C. The defaulting party owns property that can be foreclosed to pay the damages.
• D. The contract stated that a damaged party could take legal action to enforce the contract.

A

In addition to creating contractual obligations, a listing agreement creates _____.

• A. An agency relationship with fiduciary obligations.
• B. A general partnership with financial obligations.
• C. A joint venture.
• D. A temporary business entity subject to corporation regulations.

A

The scope of authority granted by a listing agreement generally allows the agent to _____.

• A. Create contractual obligations for the client.

• B. Determine the selling price between the client and the customer.

• C. Hire inspectors, architects, and other individuals to prepare the property for marketing.

• D. Advertise and show the property.

D

If a married couple owns a property that is for sale, and only one of them signs a sale contract, what is the legal status of the contract?

• A. The contract is invalid.

• B. The contract is unenforceable.

• C. The contract may be valid.

• D. The contract is executed.

C

Which of the following is an essential element of a valid contract for the sale of real estate?

• A. Price based on a certified appraisal.

• B. Signature of the listing broker.

• C. Offer and acceptance.

• D. Social Security numbers of seller and buyer.

C

A contingency in a sale contract is _____.

• A. A promise by the buyer or seller to perform a specific action.
• B. A condition that, if unmet, renders the contract unenforceable.
• C. One of several alternative actions that the buyer or seller may take to satisfy contract requirements.
• D. An optional, unilateral action that either party may take at the request of the other party.

B

A buyer signs an earnest money agreement and gives it to the broker who showed her the property she is buying. After leaving the broker's office, she reconsiders and decides she prefers a different property. How long does she have to take back her offer?

• A. Until the seller communicates acceptance of the offer.
• B. Twenty-four hours.
• C. She can take it back anytime, but must forfeit the earnest money.
• D. She cannot take it back until after the expiration date of the offer.

A

What is a contract?

• A) A legally enforceable agreement between two or more parties
• B) A document that conveys title to real property
• C) A mortgage document
• D) A lease agreement

A

Which of the following is NOT an essential element of a valid contract?

• A) Offer and acceptance
• B) Consideration
• C) Legal capacity
• D) Notarization

D

What is an offer?

• A) A promise to do something
• B) A proposal to enter into a contract
• C) An acceptance of a contract
• D) A rejection of a contract

B

What is acceptance?

• A) A promise to do something

• B) A proposal to enter into a contract

• C) An agreement to the terms of an offer

• D) A rejection of a contract

C

What is consideration?

• A) Something of value given in exchange for something else

• B) The love and affection between family members

• C) The legal description of a property

• D) The type of contract being used

A

What is legal capacity?

• A) The ability to understand the terms of a contract

• B) The ability to enter into a legally binding agreement

• C) Both a and b

• D) Neither a nor b

C

Which of the following individuals would NOT have legal capacity to enter into a contract?

• A) A minor
• B) A person under the influence of drugs or alcohol
• C) A person who has been declared mentally incompetent
• D) All of the above

D

What is a void contract?

• A) A contract that is legally binding
• B) A contract that is not legally binding from the outset
• C) A contract that can be voided by one or both parties
• D) A contract that has been fully performed

B

What is a voidable contract?

• A) A contract that is legally binding
• B) A contract that is not legally binding from the outset
• C) A contract that can be voided by one or both parties
• D) A contract that has been fully performed

C

What is a valid contract?

• A) A contract that complies with the Statute of Frauds
• B) A contract that is not legally binding
• C) A contract that can be voided by one or both parties
• D) A contract that has been fully performed

A

What is a bilateral contract?

• A) A promise in exchange for a promise

• B) A promise in exchange for an act

• C) A contract between two parties

• D) A contract involving real estate

A

What is a unilateral contract?

• A) A promise in exchange for a promise

• B) A promise in exchange for an act

• C) A contract between two parties

• D) A contract involving real estate

B

What is an express contract?

• A) A contract that is stated in words, either oral or written

• B) A contract that is implied by the actions of the parties

• C) A contract that is created by a court order

• D) A contract that is illegal

A

What is an implied contract?

• A) A contract that is stated in words, either oral or written

• B) A contract that is implied by the actions of the parties

• C) A contract that is created by a court order

• D) A contract that is illegal

B

What is a purchase agreement?

• A) A contract between a buyer and seller for the sale of real estate
• B) A contract between a landlord and tenant
• C) A mortgage document
• D) A lease agreement

A

What is earnest money?

• A) Money paid by the buyer to the seller to show good faith
• B) Money paid by the seller to the buyer
• C) Money paid by the lender to the seller
• D) Money paid by the buyer to the real estate agent

A

What is a contingency in a contract?

• A) A condition that must be met before the contract is binding
• B) A promise made by one party to the other
• C) The legal description of the property
• D) The closing date

A

Which of the following is a common contingency in a purchase agreement?

• A) Financing contingency
• B) Inspection contingency
• C) Appraisal contingency
• D) All of the above

D

What is specific performance?

• A) A legal remedy that requires a party to perform the terms of a contract
• B) A legal remedy that cancels a contract
• C) A legal remedy that awards damages to a party
• D) A legal remedy that requires a party to pay a fine

A

What is rescission?

• A) A legal remedy that requires a party to perform the terms of a contract
• B) A legal remedy that cancels a contract
• C) A legal remedy that awards damages to a party
• D) A legal remedy that requires a party to pay a fine

B

What is a counteroffer?

• A) An acceptance of an offer
• B) A rejection of an offer
• C) A new offer made in response to an offer
• D) A modification to an existing contract

C

What is the Statute of Frauds?

• A) A law that requires certain contracts to be in writing
• B) A law that prohibits fraud in real estate transactions
• C) A law that regulates agency relationships
• D) A law that governs property disclosure

A

Which of the following contracts must be in writing to be enforceable?

• A) Contracts for the sale of real estate

• B) Contracts that cannot be performed within one year

• C) Contracts for the sale of goods over a certain value

• D) All of the above

D

What is an assignment?

• A) The transfer of rights and obligations under a contract to another party

• B) The cancellation of a contract

• C) The modification of a contract

• D) The performance of a contract

A

What is novation?

• A) The transfer of rights and obligations under a contract to another party

• B) The substitution of a new contract for an old one

• C) The modification of a contract

• D) The performance of a contract

B

What is a breach of contract?

• A) The fulfillment of the terms of a contract

• B) The violation of the terms of a contract

• C) The cancellation of a contract

• D) The modification of a contract

B

What is a liquidated damages clause?

• A) A clause that specifies the amount of damages to be paid in case of a breach

• B) A clause that requires a party to perform the terms of a contract

• C) A clause that allows a party to cancel a contract

• D) A clause that modifies the terms of a contract

A

What is an option contract?

• A) A contract that gives one party the right to buy or lease a property at a specified price within a certain time

• B) A contract that requires one party to sell or lease a property

• C) A contract that allows one party to cancel a contract

• D) A contract that modifies the terms of a contract

A

What is a land contract?

• A) A contract for the sale of real estate where the seller finances the purchase

• B) A contract between a landlord and tenant

• C) A mortgage document

• D) A lease agreement

A

What is an equitable title?

• A) Legal title to the property

• B) The buyer's interest in a property under a land contract

• C) The seller's interest in a property under a land contract

• D) The lender's interest in a property

B

What is a right of first refusal?

• A) The right to buy a property before it is offered to anyone else

• B) The right to refuse to sell a property

• C) The right to cancel a contract

• D) The right to modify a contract

A

What is a lease option?

• A) A lease that gives the tenant the option to buy the property

• B) A lease that requires the tenant to buy the property

• C) A lease that allows the landlord to cancel the lease

• D) A lease that modifies the terms of the lease

A

What is an offer to purchase?

• A) An offer made by a seller to a buyer

• B) An offer made by a buyer to a seller

• C) An acceptance of an offer

• D) A counteroffer

B

What is a multiple listing service (MLS)?

• A) A database of properties for sale

• B) A service that provides real estate appraisals

• C) A service that provides home inspections

• D) A service that provides mortgage loans

A

What is a listing agreement?

• A) A contract between a buyer and seller

• B) A contract between a broker and seller

• C) A contract between a broker and buyer

• D) A contract between two brokers

B

What is an exclusive right-to-sell listing?

• A) A listing where the seller can sell the property themselves without paying a commission

• B) A listing where the broker is guaranteed a commission regardless of who sells the property

• C) A listing where the seller can list the property with multiple brokers

• D) A listing that is illegal

B

What is an exclusive agency listing?

• A) A listing where the seller can sell the property themselves without paying a commission

• B) A listing where the broker is guaranteed a commission regardless of who sells the property

• C) A listing where the seller can list the property with multiple brokers

• D) A listing that is illegal

A

What is an open listing?

• A) A listing where the seller can sell the property themselves without paying a commission

• B) A listing where the broker is guaranteed a commission regardless of who sells the property

• C) A listing where the seller can list the property with only one broker

• D) A listing that is illegal

A

What is a net listing?

• A) A listing where the seller receives a net amount after the broker's commission is deducted

• B) A listing where the broker receives a net amount after the seller's expenses are deducted

• C) A listing where the seller sets the listing price

• D) A listing where the broker sets the listing price

A