Pop Quiz Questions 7.1 Flashcards

Real Estate, Chapter 6, Section 7 (Types of Real Estate Contracts), Pop Quiz Questions 7.1 Flashcards Frank gives Stella an option to buy his house. Stella, as the

optionee, is obligated to:A. exercise the option at the end of

the option periodB. apply for a zoning change, if one is necessary in order to use the property in the way Stella wantsC. pay consideration for the option rightD. record the option

• Frank gives Stella an option to buy his house. Stella, as

the optionee, is obligated to:Select your answer

below:A.exercise the option at the end of the option

periodB.apply for a zoning change, if one is necessary in order to use the property in the way Stella wantsCorrectC.pay consideration for the option rightD.record the option If a party has an option to buy a piece of property, that

person:A. is obligated to purchase the property at the end

of the option periodB. must pay off all of the seller's existing liens on the propertyC. can take out a loan on the property, in the seller's nameD. paid consideration for the option

• Consideration must be paid for an option.

Martha gave Hannah the right to purchase her vacant lot for $65,000. Hannah paid Martha $1,200 for this right.

Hannah is the:A. mortgagorB. mortgageeC. optionorD.

optionee

• Martha gave the option to Hannah, so Martha is the

optionor and Hannah is the optionee. (As a general rule, an "-ee" is someone who receives something; an "-or" is someone who gives something.) Two parties enter into an option agreement, scheduled to end in December. However, in October the optionee decides he doesn't want to buy the property. What should the parties do in order to terminate the option?A. Complete a formal statement of novationB. Exercise the option's contingency clauseC. File an interpleader action so a court can void the contractD. Nothing; the option will expire automatically

• Answer D is the only answer that makes sense here.

Answer A doesn't apply since novation is replacing a contract (or party) with a new one. Answer B is wrong because there's no 'contingency clause' related to extinguishing an option in an option contract. Answer C is wrong because there's no basis for voiding the contract and anyway that step is unnecessary and expensive. That leaves D.An optionee's rights can be assigned under all of the

following circumstances, EXCEPT when the:A. option

money is $10 or lessB. option money is in the form of a promissory noteC. optionor has diedD. optionee has died

• If the option money is in the form of a promissory note

(in other words, the option hasn't been paid for yet), the optionee cannot assign it.A buyer and seller agree upon an option to purchase, with a 60-day option period. When should the parties agree upon the purchase price?A. Any point between the signing of the option agreement and closingB. At closingC. Before signing the option agreementD. When the buyer decides to exercise the option

• An option agreement should contain all of the details

that a purchase and sale agreement would contain. Once the option agreement is exercised, the option agreement serves as the sale contract.X and Y execute a properly drawn up option agreement for X to purchase Y's commercial property. X gives $5 in

consideration. The option is:A. unenforceableB. validC.

voidD. voidable

• An option agreement, because it is a contract, must

include consideration. The consideration can be a nominal amount (like $5), but it must actually be given to the optionor. In other words, it can't be merely a recitation of consideration in the contract document, without actual payment.

A letter of intent:A. contains all terms and conditions of a

contractual agreementB. is generally bindingC. is used regularly in small residential transactionsD. sets out basics prior to negotiation

• A letter of intent is not a contract and isn't binding. It's

just a preliminary statement that lays out parameters for negotiation of a contract.

The optionee in an option to purchase real estate:A. has no

obligation to purchase the propertyB. is the prospective seller of the propertyC. must purchase the property, but may do so at any time within the option periodD. is limited to a refund of the option consideration as a matter of right if the option is exercised

• The optionee (buyer) has no obligation to purchase the

property that is the subject of the option contract. However, the optionor (seller) is entitled to keep the consideration in exchange for granting the option.

An option:A. transfers title immediately when it is signed by

both partiesB. transfers legal title (but not equitable title) when it is signed by both partiesC. sets a time limit to keep an offer openD. does not include the basic terms of the contract (such as the sale price); those are to be determined later

• An option basically keeps an offer open for a set period

of time.

In an option:A. no consideration is requiredB. the seller is

the optionee and the buyer is the optionorC. the seller must apply the option money to the purchase price if the optionee exercises her optionCorrectD. the option agreement must clearly state all the terms and conditions of the sale

• The option agreement also serves as the sales contract

once the option is exercised, so all terms and conditions of the sale need to be included in the option agreement.Option money is ordinarily not applied to the purchase price; it's an incentive that the seller keeps regardless of whether the sale happens.An option to buy property has been exercised. At that point,

it becomes a/an:A. bifurcated contractB. unilateral

contractC. executed biennial contractD. executory bilateral contract

• Once the optionee agrees to complete the purchase

(exercises the option to buy), the agreement becomes bilateral and both parties are obligated to perform.A contract gives a person the right to purchase property for a particular price within a certain timeframe. This contract is

a/an:A. land contractB. lien agreementC. sale-leasebackD.

option

• An option to purchase is an agreement that gives one

party the right to buy the other party's property at a set price within a set period of time.Of the following types of contracts, which one is a unilateral contract?A. Escrow instructionsB. Exclusive right-to-sell listingC. LeaseD. Option

• An option is a unilateral contract; in other words, only

one party is obligated to act. Exercising the option creates a bilateral purchase and sale contract.