Real Estate Part 1 Unit 20 Flashcards

Real Estate Part 1 Unit 20 Flashcards What are the results of an option contract being recorded?Equitable interest in the property is created.List five items that are required for an option contract.Non-refundable considerationPrice and terms of saleOption expiration dateLegal description of the propertyMust be in writing The contract that should include any potential options credits applied from monthly rent payments, how and when the option fee will be paid, the time frame or deadline for the option to expire, and if the option fee is refundable or not is the option.In determining a fair option fee, which of the following should not be considered?The buyer's employment history If a tenant in a lease option breaches the lease agreement, what does the landlord need to do?Send the tenant notice that the option is being terminated Optionincludes all contract requirements plus option fee, option credits, how option fee paid, if option fee is refundable Termination of optionFor best chance of successful option, optionee should have good credit worthiness and committed to buying property; landlord should be committed to selling; tenant's income should be high enough to cover expensesIf tenant defaults on lease, landlord can terminate option according to terms in contractLandlord must send tenant notice of intent to terminate or intent to waive termination for breach of contract Using ambiguous terminology or language in the lease, option, or purchase agreement that resembles another of the contracts tends to muddy the waters if things go wrong.What is an important legal characteristic of an option to buy agreement?The optionor must perform if the optionee takes the option, but the optionee is under no obligation to do so.Which contract should include a provision that the optionor continue to make his/her regular mortgage payments and maintain all insurance?Lease agreement List four things an option does to the advantage of the optionee.The optionee is under no obligation to purchase the property.The optionee can prevent the sale of property to another party while raising funds to buy the property him/herself.The optionee has access to the property during the option period.The optionee can establish good credit and set up financing for the future purchase while living in the home.Leaseincludes terms to be followed until option is exercised; may include security deposit; length of rental period, rental rate, how rent is paid, what happens to security deposit at end of

lease, late fees, etc.Lease should include provision for landlord to continue paying regular mortgage payments Which of the following characterizes an option agreement?A unilateral agreement.

In exchange for the right of option, the optionee pays the optionor valuable consideration.The option must require the optionee to pay a specific consideration that is separate from the purchase price.Purchase agreementincludes terms and conditions related to actual purchase of property; completed only when option is exercised; should be negotiated at time option contract signed; should not be signed until option is exercised; should include purchase price, items to be included and excluded, home inspection requirements, financing and title insurance details.The clause that provides that the optionor is entitled to the consideration if the option term expires falls under that terms?Forfeiture terms Name four items the options contract should include.Option fee, options credits, how and when option fee is paid, whether or not option fee is refundable Which of the following should NOT be considered when determining a fair option fee?Cost of a title searchTenant's credit ratingLength of option termLocal property value appreciation rate Cost of a title search How does an option benefit commercial property acquisition?The option gives the commercial buyer time to research zoning, space planning, building permits, environmental impacts, and other issues prior to purchasing without losing the property to another buyer during the option period.Which term cannot change over the option period?The option must be in writingThe property sale priceTerms of the saleAll of the above All of the above Which of the following is a good example of a unilateral contract?An option to buy What are the results of an option contract being recorded?The optionee creates equitable interest in the property.Option contract common provisionsWhen, where, and how to deliver notice of electionForfeiture termsProperty and title condition warrantiesHow option consideration will be applied toward purchase price To be valid and enforceable, the option-to-buy mustinclude a legal description of the property.Forfeiture terms providethat the optionor is entitled to the consideration if the option term expires.Contract requirementsName of optionorActual, non-refundable considerationPrice and terms of saleExpiration dateIn writingLegal description of propertyMeet general contract validity requirements Lease, option, purchase agreementKeep contracts separateLanguage of contracts can determine outcome Additional contract considerationsShort option period to prevent agreement from looking like a land contractRecorded option creates equitable interest for optioneeUnrecorded option simplifies remedies for optionee default on leaseOption is assignable unless otherwise prohibited within contractIf tenant defaults

between exercising option and closing on purchase, landlord can evict or terminate contract. Including related language in contract protects landlord.Option fee compensates landlord from keeping property off the market.If option fee too high, option can be viewed as land contract due to tenant's substantial equity in the propertyFair option fee determined by current value and anticipated future value of property, value appreciate rate, tenant's credit, risks to landlord, and length of option term A lease option should actually consist of _____ contract(s).three What are the three contracts necessary in an option-to-buy?Lease agreement, option contract, purchase agreement