Test Bank Answer Key
Chapter 7 Preparation and Review of a Real Estate Contract
TRUE/FALSE
1. The seller should be identified in a contract in exactly the way the seller holds title to the
real property.
2. It is not necessary for a contract to state consideration flowing from one party to another.
3. The contract should state the purchase price of the property.
4. It is not necessary for a contract to state the purchase price of the property.
5. Cash equivalents are certified funds, cashier’s check, or treasurer’s check.
6. A personal check is deemed a cash equivalent under a contract.
7. Marketable title and insurable title are the same thing.
8. Title that a prudent purchaser with full knowledge of all the facts would accept is known as
insurable title.
9. Title that a prudent purchaser with full knowledge of all the facts would accept is known as
marketable title.
10. A purchaser usually takes possession of the property at the time the contract is signed.
11. A purchaser usually takes possession of the property at the time of the closing of the contract.
12. The date the purchaser takes possession of the property is known as the closing date of
the contract.
13. The date on which the parties agree to perform all their promises under the contract is known as
the closing date.
14. Property taxes for the current year are generally prorated under a contract.
15. The closing costs of the sale are always paid by the seller.
16. The closing costs of the sale are always paid by the purchaser.
17. Absent a provision to the contrary in the contract, the risk of loss for destruction to the property
passes to the purchaser at the time the contract is signed.
18. Earnest money under a contract is always the down payment of the purchase price.
19. Money paid by the purchaser at the time the contract is signed is called earnest money.
20. All of the promises, conditions, and covenants contained in a contract are merged into the deed
of conveyance at time of closing and do not survive the closing of the sale.
21. Generally, contracts are freely assignable by purchaser and seller.
22. Free assignment of a real estate contract by purchaser and seller can be prohibited in
the contract.
23. “Time is of the essence” makes time limits set forth in a contract strictly enforceable.
24. If time is not of the essence, a party has a reasonable period of time after a date specified in a
contract to perform.
25. The failure to meet a condition precedent makes a contract unenforceable.
26. The law in most states prohibits parties from orally testifying about a written contract.
27. The law of the state where a contract is signed generally controls enforcement of a contract for
real property.
28. The law of the state where the real property is located generally controls enforcement of a
contract for real property.
29. It is necessary for real estate contracts to be witnessed, notarized, and recorded.
30. It is not necessary for real estate contracts to be witnessed, notarized, and recorded.
31. A purchaser’s right to inspect the property prior to closing is known as a “free look.”
32. The purchaser’s right to terminate the contract in the event the improvements are damaged
before closing is known as a “free look.”
33. A sworn statement of fact regarding a lease is known as a tenant estoppel letter.
34. Estoppel letters benefit the sellers of real property.
35. Estoppel letters benefit purchasers of real property.
36. Some states require the seller of residential property to make a full disclosure about the
condition of the property to the buyer.
37. The common law doctrine of caveat emptor means “let the seller beware.”
38. The doctrine of caveat emptor requires that a buyer bear the burden of examining and finding
any defects in the condition of improvements on real estate that he or she purchases.
SHORT ANSWER
1. Justin has entered into a contract to buy a home from Skylar. The contract contains no express
warranties concerning the condition of the home. After Justin buys the home from Skylar, he
discovers that the home’s foundation is cracked and the structure is unsafe. It will be expensive
to repair the problem. Can Justin make Skylar pay for the repairs? Explain your answer.
2. Stefanie has entered into a contract to purchase a shopping center from Ryan. The contract
requires that the closing take place on July 25. Stefanie encounters some problems with
obtaining a mortgage loan and the transaction does not close on July 25. Is Stefanie in default
on July 26? What issues may affect your answer?
3. Acme Investment has entered into a contact to purchase an office building from Good Office
Corp. The sales price is all cash to the seller. Prior to the closing, Acme assigns its rights under
the contact to Zebra Investments. Zebra shows up at the closing with the cash to buy the office
building. Zebra is a competitor of Good Office and Good Office does not want to sell the office
building to Zebra. Can Good Office refuse to sell to Zebra? What issues may affect your
answer?