Contracts
Contracts are the biggest single topic: with agency they fill Pearson VUE area IV (16 questions), and PSI gives contracts alone 19% of the exam. Most questions are scenarios about whether a contract exists, what kind it is and what happens on breach.
80 questions in 2 hours 30 minutes, 56 to pass. 9 of the 80 questions come from contracts, and every answer is explained.
Or try the free contracts drillWhen a buyer transfers contract rights to a third party but stays liable for performance, the transfer is a
What to know about contracts
- A valid contract needs mutual assent (offer and acceptance), legally competent parties, consideration, a lawful purpose and voluntary agreement. Real estate contracts must also be in writing under the Statute of Frauds, except leases of one year or less in most states.
- Express contracts are stated in words; implied contracts arise from conduct. Bilateral contracts exchange promises (a sales contract); unilateral contracts exchange a promise for an act (an option, an open listing).
- Executed means fully performed; executory means something remains to be done. A signed sales contract awaiting closing is executory.
- Valid contracts are enforceable. Void contracts never existed (illegal purpose, incompetent party). Voidable contracts can be rescinded by one party (a minor, fraud, duress, undue influence) but are valid until disaffirmed. Unenforceable contracts are valid between the parties but a court will not enforce them (an oral sale of land).
- An offer ends by acceptance, rejection, counteroffer (which is a rejection plus a new offer), revocation before acceptance, lapse of time, or death or incapacity of either party before acceptance. Acceptance must be communicated to the offeror.
- Earnest money shows good faith; it is not required for a valid contract. If the contract names the deposit as liquidated damages, the seller keeps it as the sole remedy for buyer default.
- Remedies for breach: compensatory damages, liquidated damages, rescission (undo the deal and restore the parties) and specific performance (a court orders the seller to convey, because land is unique). Punitive damages are rare in contract law.
- Contingencies make performance depend on an event (financing, inspection, sale of the buyer’s home). The protected party may waive its own contingency. Time is of the essence means deadlines are strict.
- Equitable title: once a sales contract is signed the buyer holds equitable title and the seller keeps legal title until closing. An option gives the optionee the right, not the duty, to buy during a period for consideration. A land (installment) contract lets the buyer possess while paying, with the seller holding legal title until paid.
- Assignment transfers a party’s rights to another (the assignor stays liable unless released); novation substitutes a new contract or party and releases the old one. Electronic signatures are valid under E-SIGN.
Pearson VUE outline area IV: 9 of the 80 scored national questions in our mock come from this topic. The notes state principles that hold in every state; state-specific rules are in the California, Texas and Florida guides.
Drill contracts, then sit the full exam
80 questions in 2 hours 30 minutes, 56 to pass. 9 of the 80 questions come from contracts, and every answer is explained.
Or try the free contracts drillCommon questions
What happens when a buyer makes a counteroffer?
The counteroffer rejects the original offer and replaces it with a new offer. The original offeror becomes the offeree and may accept, reject or counter again; the first offer cannot be revived by later acceptance.
What is specific performance?
A court order requiring the breaching party to perform the contract as written. It is available in real estate because every parcel is unique and money damages may not make the buyer whole.
80 questions in 2 hours 30 minutes, 56 to pass. 9 of the 80 questions come from contracts, and every answer is explained.
Or try the free contracts drillMore real estate exam topics
- Property ownership and estates · 9 of 80
- Legal descriptions and land use controls · 6 of 80
- Valuation and appraisal · 11 of 80
- Agency · 7 of 80
- Practice of real estate and fair housing · 10 of 80
- Property disclosures and environmental issues · 9 of 80
- Financing and settlement · 7 of 80
- Transfer of title · 5 of 80
- Real estate math · 7 of 80
Free contracts drill · National mock exam · California exam · Texas exam · Florida exam
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