Texas Real Estate Broker Exam — All Questions

A seller receives an offer and returns it with the price raised by $10,000 and everything else unchanged. In contract terms, the seller has made:

• a.An acceptance that binds the buyer, because only the price was changed and nothing else
• b.An option contract
• c.A counteroffer that rejects the original offer✓
• d.A unilateral contract, because only the seller has promised anything at the new price

Changing any material term, such as the price, is a counteroffer. A counteroffer rejects the original offer and becomes a new offer that the original offeror (the buyer) may accept or reject. There is no binding contract until one party accepts the other's terms exactly and communicates that acceptance. This is why a broker must train agents to track which offer is currently open, since multiple counteroffers can create confusion about the actual terms on the table.

A 16-year-old signs a contract to buy a house. How is that contract best classified?

• a.Void from the start
• b.Voidable at the minor's option✓
• c.Fully valid and enforceable
• d.Unenforceable by either party

A contract with a minor is generally voidable at the minor's option, meaning the minor may disaffirm it, while the adult party is bound unless the minor chooses to cancel. This differs from void (no legal effect at all, such as an illegal purpose) and from unenforceable (valid but barred from court enforcement, such as an oral land-sale contract). Capacity of the parties is one of the essential elements a broker should verify before funds move.

A seller signs a listing that owes the broker a commission if the property sells during the term no matter who finds the buyer, even the seller. This is a:

• a.Exclusive right-to-sell listing✓
• b.Exclusive agency listing, which pays the broker no matter who finds the buyer
• c.Open listing
• d.Net listing, under which the broker keeps a fixed six percent of the sale price

An exclusive right-to-sell listing pays the listing broker a commission if the property sells during the term regardless of who procures the buyer, including the owner. In an exclusive agency listing, the owner may sell it themselves without owing a commission. An open listing is nonexclusive and pays only the broker who actually procures the buyer. A net listing (banned in many states) sets the broker's pay as any amount above a net figure to the seller. The exclusive right-to-sell gives the broker the most protection.

A buyer breaches a signed purchase contract on a unique property, and the seller wants a court to force the buyer to complete the purchase. Which remedy is the seller seeking?

• a.Liquidated damages measured by the seller's actual loss
• b.Rescission, which forces the buyer to complete the purchase
• c.Novation
• d.Specific performance✓

Specific performance is a court order compelling a party to carry out the contract as agreed. It is available in real estate because each parcel of land is considered unique, so money damages may not be an adequate substitute. Liquidated damages is a pre-agreed sum (often the earnest money) the injured party keeps instead. Rescission cancels the contract and returns the parties to their starting positions. Novation substitutes a new contract or party for the original.

Under the statute of frauds, why must a contract for the sale of real estate generally be in writing to be enforceable?

• a.Because an oral agreement to sell land is automatically void from the moment it is made, so neither party can ever ratify or enforce it
• b.Because the statute requires certain contracts, including land sales, to be written and signed to be enforceable✓
• c.Because only written contracts contain consideration
• d.Because the buyer cannot take possession under an oral agreement

The statute of frauds requires that certain contracts, including those for the sale of an interest in real estate, be in writing and signed by the party to be charged in order to be enforceable in court. An oral land-sale contract is not automatically void; it is unenforceable, meaning a court will generally not enforce it if a party objects. Consideration can exist in oral contracts too. Written form is what makes the agreement enforceable, which is why brokers document terms carefully.

Substituting an entirely new contract for an existing one, or replacing one party with another and releasing the original party, is called:

• a.Assignment
• b.Rescission
• c.Novation✓
• d.Ratification

Novation is the substitution of a new contract or a new party for an old one, with the original obligation extinguished and the original party released. It differs from assignment, where a party transfers its rights but generally remains secondarily liable unless released. Rescission cancels the contract and restores the parties. Ratification is approving an act that was not originally authorized. Brokers see novation when a lender formally releases the original borrower and substitutes a new one on an assumed loan.

A listing agreement is signed by an agent on behalf of the brokerage. Legally, who is the seller's contract with?

• a.The brokerage (the broker), not the individual agent✓
• b.The individual agent personally, because the agent signed the listing
• c.Both the agent and the seller's attorney
• d.The multiple listing service

A listing agreement, like a buyer-broker agreement, is a contract between the client and the brokerage; the individual licensee signs on the broker's behalf. This is why listings belong to the broker and remain with the firm if the agent leaves, and why the broker is ultimately responsible for performing the agreement's duties. Understanding that the client contracts with the firm, not the salesperson personally, is central to how a broker supervises and stands behind the office's obligations.

A contract states that 'time is of the essence.' What is the effect of this clause?

• a.The parties may extend any deadline informally by oral agreement without amending the contract
• b.The contract no longer has a fixed closing date that either side must meet
• c.Only the seller must meet deadlines
• d.The stated deadlines are strict and must be met exactly✓

A 'time is of the essence' clause makes the contract's deadlines strict, so a party who fails to perform by the stated date can be in breach even if only slightly late. It applies to both parties, not just one, and does not eliminate a closing date; it enforces it. Without such a clause, courts may allow a reasonable time to perform. Brokers should flag these clauses so clients and cooperating agents meet every date, because missing one can jeopardize the transaction.

A broker reviews a purchase agreement during file review. Which set of elements must be present for the agreement to be a valid contract?

• a.Offer, acceptance, earnest money, and a recorded deed
• b.A licensed broker, an appraisal, financing, and a survey
• c.Written form, notarization, witnesses, and a closing date
• d.Competent parties, mutual assent, lawful object, and consideration✓

A contract needs competent parties, mutual assent (a valid offer and acceptance), a lawful object, and consideration; a real estate contract must also be in writing to satisfy the statute of frauds. Earnest money is customary evidence of good faith but is not an element, and a deed is the instrument that conveys title after the contract is performed. Notarization and witnesses matter for recording documents, not for contract formation. An appraisal, financing, and a survey are transaction steps a contract may require, not elements that make it enforceable.

A seller was adjudicated legally incompetent by a court and has a guardian. Without the guardian's involvement, the seller signs a listing agreement. That agreement is:

• a.Enforceable as long as the broker acted in good faith
• b.Voidable, so the guardian may choose to enforce it
• c.Valid unless and until a court sets the agreement aside
• d.Void, because the seller lacked legal capacity✓

Once a court has adjudicated a person incompetent and appointed a guardian, that person can no longer contract, so agreements signed without the guardian are void rather than merely voidable. Voidable describes contracts a party may elect to disaffirm, such as one signed by a minor or under duress, where assent is impaired but legal capacity has not been judicially removed. Treating the listing as valid until challenged, or as rescued by the broker's good faith, ignores that the seller had no power to create it. The guardian, with any required court approval, is who can list the property.

A property owner signs an agreement to pay an unlicensed person a commission for finding a buyer, which state law forbids. That agreement is best described as:

• a.Void from the outset because the object is unlawful✓
• b.Unenforceable only if the owner objects in writing
• c.Valid, because both parties freely and knowingly agreed
• d.Voidable at the owner's option after closing

An agreement whose object is unlawful is void from the beginning; a court will not enforce it for either side, and no later ratification cures it. Paying an unlicensed person for brokerage services is exactly such an unlawful object where state law prohibits it. Calling it voidable understates the defect, since voidable means one party could elect to cancel an otherwise effective contract. Unenforceable describes a valid agreement a court will not enforce, such as an oral land sale, and does not turn on the owner objecting. Free and knowing agreement cannot make an illegal purpose lawful.

A buyer and seller sign a contract, each genuinely believing it covers a different one of the seller's two adjacent lots. What is the most likely legal result?

• a.No meeting of the minds occurred, so either party may rescind✓
• b.The buyer must accept whichever lot the seller intended
• c.The seller may choose which of the two lots to convey
• d.A court will order the sale of both lots at the stated price

When each side attaches a different meaning to a basic term, here which parcel is being sold, there is no meeting of the minds. This mutual mistake of material fact means either party may rescind, and courts commonly grant that relief. Letting the seller pick a lot, or forcing the buyer to take the lot the seller had in mind, would enforce terms one party never agreed to. Ordering both lots sold rewrites the bargain entirely. Contrast unilateral mistake, where only one party is mistaken; that ordinarily does not excuse performance unless the other side knew of and exploited the error.

An in-home caregiver persuades a frail, dependent client to sign a sale contract on terms far below market value. The resulting contract is most likely:

• a.Valid, since the client signed it voluntarily
• b.Void, because a caregiver may never buy property
• c.Voidable by the client for undue influence✓
• d.Unenforceable only if the price was fraudulent

Undue influence arises when someone in a position of trust or dominance overcomes the free will of a dependent person, and the resulting contract is voidable by the influenced party. The client had legal capacity, so the agreement is not void; capacity and free assent are separate requirements. Nothing makes a caregiver categorically unable to buy, though the relationship shifts the burden of showing the bargain was fair. Calling the signature voluntary misses the point, since dependence rather than force is what taints assent. A below-market price by itself is not fraud, so limiting relief to fraudulent pricing looks at the wrong defect.

An affiliated licensee tells a buyer a roof is five years old, having never checked, and it turns out to be fifteen. The licensee did not know the truth. This is:

• a.Actual fraud, because the statement was false
• b.Negligent misrepresentation of a material fact✓
• c.Puffing, since roof age is only an opinion
• d.A latent defect that only the seller must disclose

Stating a specific fact without knowing whether it is true, and being wrong, is negligent misrepresentation; the licensee had a duty either to verify the age or to say it was unverified. Actual fraud requires knowledge of the falsity or a reckless disregard for the truth intended to deceive, which these facts do not show. Roof age is a verifiable fact, not an opinion, so puffing does not apply; puffing covers non-factual sales talk. A latent defect is a hidden physical problem the seller knows of, whereas the issue here is the licensee's own unverified statement, and the supervising broker shares that exposure.

A party waits so long to sue on a properly formed written contract that the applicable limitations period has run out. The contract is now best described as:

• a.Valid but unenforceable now that the limitations period ran✓
• b.Void, treated as though it had never been formed at all
• c.Voidable at the defending party's later election
• d.Still fully enforceable in any civil lawsuit filed later

Once the limitations period runs, the contract remains valid but a court will not enforce it if the defending party raises the defense. That is the textbook meaning of unenforceable. Void would mean the agreement never had legal effect, which is untrue of a properly formed contract. Voidable means a party may elect to cancel because of a formation defect such as minority, duress, or undue influence, not because time passed. Saying it stays fully enforceable ignores the defense entirely. Limitations periods are set by each state, so brokers track claim deadlines through counsel rather than assuming any single national figure.

A signed purchase agreement obligates the seller to convey the property and the buyer to pay the price. In contract classification, this agreement is:

• a.Bilateral, since each party gives a promise✓
• b.Unilateral, because performance occurs at closing
• c.An implied contract created by the parties' conduct
• d.Unilateral, since only the buyer promises to pay

A purchase agreement is bilateral: a promise is exchanged for a promise, the seller promising to convey and the buyer promising to pay. A unilateral contract is a promise exchanged for an act, such as an option, where only the optionor is bound until the other side performs. Saying only the buyer promises misreads the seller's obligation, and the fact that performance happens later at closing affects whether the contract is executory, not whether it is bilateral. An implied contract arises from conduct rather than words, but here the parties wrote and signed express promises.

A purchase contract has been signed by both parties, but closing has not occurred and neither side has yet fully performed. The contract is properly called:

• a.Executed, because both parties have signed it
• b.Void until the deed is actually delivered
• c.Executory, because performance is still owed✓
• d.Unilateral, since only the buyer still performs

A contract that is signed but not yet fully performed is executory, because performance remains owed on both sides. It becomes executed when both parties have completely performed, which in a sale generally happens at closing when the deed and the funds change hands. Signatures alone do not make a contract executed, a confusion caused by the everyday phrase executed a document. The agreement is not void before the deed is delivered; it binds both parties immediately. And it remains bilateral, since each party made a promise the other can enforce.

A tenant whose written lease expired keeps paying monthly rent and the landlord keeps accepting it, with nothing said. The continuing arrangement is best classified as:

• a.An implied contract created by the parties' conduct✓
• b.An express contract renewed by the parties on the original written terms
• c.A void arrangement with no legal effect
• d.An option the tenant may exercise later to renew the expired lease

Continuing to pay and accept rent after a written lease ends creates an implied contract, one formed by conduct rather than by spoken or written words; most states treat it as a periodic tenancy on the prior terms. It is not an express renewal, because neither party stated or wrote new terms. It is certainly not void, since both sides are giving and receiving value the law recognizes. And it is not an option, which would require a separate right supported by consideration. Managers should paper holdovers promptly to avoid later arguments about what the implied terms actually are.

A buyer's written offer says it remains open until Friday. On Wednesday, before the seller accepts, the buyer notifies the seller in writing that the offer is withdrawn. The result is:

• a.The offer stays open because Friday has not arrived
• b.The seller may still accept it before Friday ends
• c.The buyer owes the seller damages for withdrawing
• d.The offer is revoked and cannot be accepted✓

An offer may be revoked at any time before acceptance is communicated, even when it states a date it will remain open, unless the offeree paid consideration to hold it open, which would make it an option. Because the buyer communicated the withdrawal on Wednesday, nothing was left for the seller to accept on Thursday or Friday. The stated deadline caps how long the offer can survive; it does not obligate the offeror to leave it open. And a buyer who lawfully revokes owes no damages, because no contract ever came into existence.

An offer states that it expires at 5 p.m. Tuesday. The seller signs it at 9 a.m. Wednesday and returns it. The buyer no longer wants the property. What exists?

• a.An enforceable option supported by the offer
• b.A binding contract, since the seller signed
• c.A valid contract if the buyer takes possession
• d.A counteroffer the buyer may accept or reject✓

An offer terminates automatically when its stated time expires, so nothing remained for the seller to accept. The seller's late signature operates as a new offer, which the buyer is free to accept or reject. No binding contract arises merely because the seller signed, and taking possession would not resurrect an offer that had already lapsed. Nor is this an option, since an option requires separate consideration to hold the terms open for a period. Brokers should track offer expirations closely, because a lapsed offer bearing a signature invites disputes about whether a deal exists.

A buyer submits a written offer and dies that evening. The next morning the seller signs the offer, not knowing of the death. What is the status of the agreement?

• a.Binding on the buyer's estate exactly as signed
• b.No contract, since death terminated the offer first✓
• c.Voidable only by the estate's representative
• d.Valid, because the seller signed in good faith

Death or legal incapacity of the offeror terminates the offer by operation of law, even when the offeree has not learned of it. Because the acceptance came after the death, no contract formed and the estate is not bound. The seller's good faith and lack of knowledge do not change the rule, since the power of acceptance simply no longer existed. Nor is this a voidable contract the personal representative might affirm, because there is no contract to affirm. Contrast the situation after a contract has been formed: death then does not cancel it, and the estate must perform.

A seller signs a buyer's offer but locks it in a desk drawer and tells no one. Two days later the buyer withdraws the offer in writing. Which statement is correct?

• a.A contract formed the instant the seller signed the offer
• b.No contract formed without communicated acceptance✓
• c.The buyer's withdrawal is a breach of the agreement
• d.The seller may enforce the contract after telling the buyer

Acceptance is effective only when it is communicated to the offeror in a manner the offer permits. A signature kept secret in a drawer forms nothing, so the buyer's withdrawal before any communication was valid and no contract exists. Signing alone does not create the agreement, which is why the buyer's withdrawal cannot be a breach. Telling the buyer afterward comes too late, since the offer was already revoked. This is why offices require prompt delivery of signed documents and keep time-stamped records showing exactly when an acceptance was transmitted to the other side.

A buyer's written offer sets out price and terms but names no expiration date or time. The seller asks the listing broker how long she has to accept it.

• a.It is void, because an offer must always state a deadline
• b.It expires automatically at the close of the next business day
• c.It stays open for a reasonable time under the circumstances✓
• d.It stays open until the buyer cancels it in writing

An offer that names no deadline does not last forever. The power of acceptance ends after a reasonable time, measured by the type of property, market conditions, and how the parties have been communicating, and it ends sooner if the buyer revokes or the seller rejects. Silence about timing does not make the offer void, since a time for acceptance is not an essential term of the agreement. Waiting for a written cancellation misreads the rule, because an offer can lapse on its own and a revocation only has to be communicated. Nothing fixes the cutoff at the next business day. Brokers avoid the whole argument by having every offer state an expiration date and time.

A seller rejects a buyer's offer outright, then reconsiders an hour later and signs the same offer form. The buyer refuses to proceed. What is the legal position?

• a.The seller's signature revived the original offer
• b.The buyer is bound because nothing changed
• c.The contract is voidable at the seller's option
• d.Rejection ended the offer, so the signing is a new offer✓

A communicated rejection terminates the offer immediately, and the offeree cannot revive it by signing later. The seller's signature amounts to a new offer back to the buyer, who is free to walk away. The signature therefore revived nothing, and the buyer is not bound merely because the printed terms are unchanged. Describing the result as voidable at the seller's option is backwards, since there is no contract for the seller to cancel. This trap appears often in fast-moving multiple-offer situations, so brokers should document exactly when a rejection was communicated and by whom.

A seller sends signed counteroffers to two different buyers at the same time, neither containing a first-acceptance clause. Both buyers accept and deliver. The seller's exposure is:

• a.The seller may pick whichever buyer offers more
• b.Only the first counteroffer sent is enforceable
• c.Neither contract binds, since both cannot close
• d.Two binding contracts on the same property✓

Sending two signed counteroffers without a clause making acceptance subject to the seller's further approval, or limiting the deal to the first buyer who accepts, can bind the seller to two contracts on one property. That is the real exposure, and the seller will breach one of them. The order in which they were transmitted does not automatically make only the earlier one enforceable. The practical impossibility of closing both does not void either. And the seller cannot simply take the higher price once both have accepted. Brokers train agents to counter one buyer at a time.

A seller already has an accepted contract and wants to sign a second buyer's offer as a backup. What is the correct way for the broker to handle that second offer?

• a.Sign it outright, which creates a second binding sale
• b.Accept it in a backup position behind the first contract✓
• c.Hold it unsigned and unanswered until closing occurs
• d.Return it, since a seller may hold only one offer at a time

A backup offer should be accepted expressly in a backup position, contingent on termination of the primary contract, so the priority between the two is documented. Signing it outright creates a second binding contract on one property and near-certain liability. Holding it unsigned and unanswered fails the duty to present offers and leaves the seller unprotected if the first deal collapses. Backup offers are common and not prohibited, and no rule limits a seller to a single offer on the table. Putting the backup position in writing is what protects both the seller and the broker.

After a seller accepts a contract, a cooperating agent delivers a higher offer to the listing broker before closing. What should the listing broker do with that offer?

• a.Refuse it, because the property is under contract
• b.Present it to the seller and explain the existing contract✓
• c.Hold it until the first contract falls through
• d.Advise the seller to cancel and take the higher price

The broker's duty is to present all offers to the seller promptly until closing, unless the seller has given written instructions otherwise. The seller, not the broker, decides what to do with a later offer. Refusing it or holding it back substitutes the broker's judgment for the client's and invites a claim. Advising the seller to cancel and take the money swings too far the other way, since encouraging a breach of the existing contract can expose the seller and the firm to liability. Present the offer, explain that a binding contract exists, and recommend legal advice.

A buyer and seller sign a purchase agreement, but the buyer never delivers the earnest money the contract calls for. What is the effect on the contract's validity?

• a.No contract exists, since earnest money is consideration
• b.The contract is void until the deposit is received
• c.The contract is valid; the failure is a breach✓
• d.The contract becomes voidable by the buyer alone

Earnest money is customary evidence of a buyer's good faith, but it is not an element of a valid contract; the parties' mutual promises supply the consideration. The agreement therefore stands, and failing to deliver the promised deposit is a breach the seller may act on under the contract's default provisions. The contract is not void for want of a deposit, and treating it as voidable by the buyer would reward the party who failed to perform. Brokers should confirm deposits actually arrive, because a missing deposit is an early signal of a buyer who may not close.

A transaction closes normally with no disputes. What determines how the earnest money the broker has been holding in trust is finally applied at settlement?

• a.The seller, since the deposit secured performance
• b.The listing broker, who earned the commission first
• c.The escrow officer, applying whatever local custom requires
• d.The purchase contract's terms, credited as it directs✓

The purchase contract controls the deposit. It typically directs that the earnest money be credited to the buyer at closing, and it also governs disposition if the transaction fails, so the broker follows those written terms rather than anyone's preference. The listing broker has no claim to the deposit as commission, which is paid under the listing agreement out of the seller's proceeds. Local custom cannot override written contract terms. And the seller is not entitled to the funds simply because the deposit secured the buyer's performance. Trust funds move only as the contract or a court directs.

An option agreement recites payment of $10 as the only consideration for a six-month option on a $400,000 property. A court will most likely find that there is:

• a.No contract at all, because a court will find $10 grossly inadequate for a six-month option on a $400,000 property
• b.An unenforceable promise lacking mutual assent
• c.A revocable gift the owner may withdraw at will
• d.Valid consideration, since courts test presence not adequacy✓

Courts ask whether consideration exists, not whether it is adequate, because parties are free to strike their own bargain. A recited $10 supports an option, and the option binds the owner so long as the money was actually paid. Calling $10 grossly inadequate confuses adequacy with presence. It is not a gift, because something of value was exchanged for the promise to hold the property open. Mutual assent is present as well, so the promise does not fail for that reason. The practical caution is that recited but unpaid consideration can be attacked, so confirm the money changed hands.

An owner grants a buyer a paid 90-day option to purchase. Before the option is exercised, which statement correctly describes the two parties' obligations?

• a.Both the owner and the buyer must complete the sale
• b.The buyer must buy, but the owner may withdraw
• c.Neither party is bound until closing takes place
• d.The owner is bound; the buyer need not buy✓

An option is unilateral until it is exercised: the optionor is bound to keep the offer open for the stated term, while the optionee has purchased the right, not the duty, to buy. The owner therefore cannot sell elsewhere or withdraw, and the buyer may simply let the option lapse. Saying both must complete the sale describes an ordinary bilateral purchase contract, not an option. Reversing the roles, with the buyer bound and the owner free, states the rule exactly backwards. And it is wrong that neither is bound, because the paid consideration binds the owner immediately.

A tenant holds a right of first refusal rather than an option on the leased building. What practical difference does that create for the tenant's ability to buy?

• a.The tenant may buy at any time at a set price
• b.The tenant needs no consideration to enforce it
• c.The tenant alone decides whether the owner may ever sell
• d.The tenant may buy only after the owner gets an offer✓

A right of first refusal is passive: it gives the holder a chance to buy only when the owner decides to sell and receives a bona fide offer, usually on those same terms. An option is active, letting the holder buy at a preset price whenever the holder chooses during the term, which is why buying at any time at a set price describes the option instead. Both rights generally require consideration to be enforceable, so needing none is wrong. And a right of first refusal does not let the tenant block a sale; it only routes the sale through the tenant first.

An owner whose building is subject to a tenant's right of first refusal receives a bona fide $600,000 offer from a third party and wants to accept it. The owner must first:

• a.Give the tenant the chance to match it✓
• b.Sell to the third party at the offered price
• c.Ask the tenant to bid higher than the offer
• d.Wait to sell until the lease term ends

Because the owner has received a bona fide offer and is willing to accept it, the tenant's right is triggered: the owner must give the holder an opportunity to buy on those same terms, normally within a notice period set by the agreement. Selling straight to the third party breaches the right and exposes the owner to suit. Asking the tenant to bid higher misstates the mechanism, which is matching the offer rather than outbidding it. And the right operates whenever a sale is proposed, not only after the lease ends. Brokers should check leases and title for these rights before marketing.

A buyer purchases under an installment land contract, taking possession and paying the seller monthly. Until the final payment is made, how is title to the property held?

• a.The buyer holds legal title, seller holds a lien
• b.Title stays in escrow with no record owner at all
• c.A neutral trustee holds legal title for both parties until the last installment
• d.The seller keeps legal title; the buyer holds equitable title✓

Under an installment land contract, also called a contract for deed, the seller retains legal title as security while the buyer takes possession and holds equitable title, receiving the deed only after the final payment. Reversing that, with the buyer holding legal title and the seller a lien, describes an ordinary purchase-money mortgage instead. No trustee is involved; a trustee holding title for the parties is the deed of trust arrangement. And title does not sit ownerless in escrow, since the seller remains the record owner throughout. Buyers under these contracts should record their interest to protect it.

A buyer under a contract for deed defaults after several years of payments. Which remedy concept does the seller typically pursue, and why has it become contested?

• a.Judicial foreclosure, the only remedy ever available
• b.Forfeiture, which courts increasingly limit✓
• c.Rescission, which restores the parties to the start
• d.Specific performance to compel the payments

Contracts for deed traditionally allow the seller to declare a forfeiture, keeping both the payments and the property, which is what made them attractive to sellers. Courts and legislatures increasingly restrict that remedy, often requiring foreclosure-like procedures once a buyer has built substantial equity, so the outcome is contested and varies by jurisdiction. Saying judicial foreclosure is the only remedy ever available overstates the trend. Rescission would return the payments, which is not what the defaulted-on seller wants. Compelling payment is theoretically possible but rarely practical. Brokers should route these transactions to counsel.

Immediately after both parties sign a purchase contract, but well before closing, what interest does the buyer hold in the property being sold?

• a.Legal title, subject only to the seller's lien
• b.No interest at all in the property until the deed is delivered and recorded
• c.Equitable title under the doctrine of equitable conversion✓
• d.A leasehold interest during the escrow period

On signing, the doctrine of equitable conversion gives the buyer equitable title: the right to obtain legal title by performing, an interest the buyer can protect and that passes to the buyer's heirs if the buyer dies. Legal title stays with the seller until the deed is delivered, so crediting the buyer with legal title is wrong. The buyer holds far more than nothing before closing, which is why a seller cannot simply sell the property to someone else. And the buyer has no leasehold, since occupancy before closing exists only under a separate written agreement.

A house under contract is destroyed by fire two weeks before the scheduled closing. What most directly determines which party bears that loss?

• a.The buyer always bears it, holding equitable title
• b.The seller always bears it, holding legal title
• c.The risk-of-loss clause the contract contains✓
• d.The lender bears it under its hazard insurance policy

The contract governs first. Well-drafted purchase agreements contain a casualty or risk-of-loss provision stating who bears the loss, whether the buyer may cancel, and how insurance proceeds are applied. Only when the contract is silent do state doctrines fill the gap, and those doctrines differ, some placing the risk on the buyer who holds equitable title and others on the seller who holds legal title and possession, so neither always rule is correct. The lender's hazard policy protects the lender's collateral rather than the parties' bargain. Brokers should read the casualty clause before advising anyone.

A buyer with a financing contingency applies promptly, supplies every document requested, and is still denied a loan. The buyer timely notifies the seller. What follows?

• a.The seller may still sue for specific performance
• b.The buyer forfeits the deposit for not closing
• c.The buyer may cancel and recover the deposit paid✓
• d.The buyer must instead pay cash to close the sale

A financing contingency protects a buyer who applies in good faith and cooperates but still cannot obtain the loan; on timely written notice, the buyer may cancel and the earnest money is returned as the contract directs. Forfeiture would apply only if the buyer failed to pursue financing diligently or missed the notice deadline. The seller cannot compel performance where a stated condition of the contract genuinely failed. And nothing requires the buyer to substitute cash, since the contingency defines the financing the buyer had to obtain. Brokers should keep application dates and denial letters in the file.

A contract price is $520,000 and the appraisal comes in at $495,000. The lender will finance 80% of appraised value, and the buyer had planned to put $104,000 down. The extra cash needed is:

• a.$5,000
• b.$20,000✓
• c.$25,000
• d.$124,000

Take it in steps. The lender funds 80% of the lower appraised value: 0.80 x $495,000 = $396,000. The buyer still owes the contract price, so total cash due is $520,000 - $396,000 = $124,000. The buyer planned $104,000, so the additional cash is $124,000 - $104,000 = $20,000. Check it another way: the loan shrinks by 80% of the $25,000 appraisal gap, and 0.80 x $25,000 = $20,000, the same figure. Treating the full $25,000 gap as the shortfall ignores the 80% ratio, $5,000 comes from applying 20% to the gap, and $124,000 is total cash rather than the extra amount.

A contract gives the buyer ten days to inspect and provides that failure to deliver written objection within that period waives the contingency. The buyer objects on day twelve. Most likely:

• a.The objection is timely
• b.The seller must repair the defects
• c.The buyer may cancel and recover the deposit anyway
• d.The contingency was waived by the deadline✓

Contracts commonly make a contingency self-executing: if the buyer does not deliver a written objection or notice within the stated period, the contingency is waived and the buyer must proceed. Objecting two days late does not revive it, and the difficulty of scheduling inspections is not a legal excuse. The seller has no repair obligation, because the contingency that would have supported a repair request is gone. And the buyer cannot cancel and recover the deposit on inspection grounds after waiver. Brokers calendar every contingency deadline and confirm delivery of objection or removal notices in writing.

A seller accepts an offer contingent on the buyer selling a current home, with a kick-out clause. A second buyer then submits a strong offer. What may the seller now do?

• a.Accept both offers and close with whichever performs
• b.Cancel the first contract immediately, since the kick-out clause makes it terminable at will
• c.Notify the first buyer, who must remove the contingency or release✓
• d.Do nothing until the first buyer's own home has actually sold and closed

A kick-out clause lets the seller keep marketing and, when a better offer arrives, give the first buyer notice; that buyer then has a stated time to remove the home-sale contingency and proceed, or to release the contract. The seller cannot simply cancel without giving the notice, because the first contract is binding. Accepting both offers outright would create two contracts on one property. Doing nothing wastes the very protection the seller bargained for. The broker must deliver the notice exactly as the contract specifies, since a defective notice leaves the seller bound to the first buyer.

A condominium buyer's contract allows cancellation within a set review period after the association documents are delivered. The buyer reads them and dislikes a pet restriction. The buyer may:

• a.Cancel only if the restriction was never disclosed
• b.Cancel any time before the closing date arrives
• c.Demand the rules be amended
• d.Cancel within the review period stated✓

An association document review contingency gives the buyer a defined window after delivery of the governing documents to read them and cancel on the grounds the contract allows, including restrictions the buyer finds unacceptable. Whether the restriction was disclosed earlier is beside the point, since the review period exists precisely so the buyer can study the documents. The buyer cannot force the association to amend rules that bind every owner. And the right is not open-ended until closing; it expires when the review period ends. Many states add a statutory, non-waivable cancellation right running from delivery of the documents, so brokers confirm both the contract's clock and the state's.

A buyer offers $400,000 with an escalation clause beating any bona fide competing offer by $3,000, capped at $425,000. A verified competing offer of $424,000 arrives. The buyer's price becomes:

• a.$425,000✓
• b.$427,000
• c.$403,000
• d.$424,000

Apply the clause step by step. The escalation beats the verified competing offer by $3,000: $424,000 + $3,000 = $427,000. The clause caps the price at $425,000, and a cap controls whenever the escalated figure exceeds it, so the buyer's price is $425,000. Check: $425,000 sits above the competing $424,000 and below the uncapped $427,000, which is exactly what a cap is designed to do. The $427,000 figure ignores the cap, $424,000 merely matches instead of beating the competing offer, and $403,000 comes from escalating over the buyer's own $400,000 rather than over the competing offer.

A listing broker receives an offer containing an escalation clause. What is the principal risk the broker must manage before advising the seller to accept that offer?

• a.Escalation clauses are illegal under federal law
• b.Proving the competing offer is bona fide and verifiable✓
• c.The clause silently converts the offer into a binding option
• d.The seller must accept the highest offer received

The clause only works if the competing offer that triggers it is genuine, so the broker's main task is confirming that offer is bona fide and can be documented in whatever manner the contract requires. Escalating a price against an unverifiable or manufactured offer invites fraud claims against the seller and the firm. Escalation clauses are not illegal under federal law, and they do not turn an offer into an option, which would require consideration to hold terms open. No rule compels a seller to take the highest number; sellers weigh terms, financing, and certainty of closing.

A seller lists a home as is and knows the foundation has a serious hidden crack. May the seller stay silent about the crack because of the as-is language?

• a.Only if the buyer specifically asks about the foundation
• b.Yes, as-is language shifts every risk to the buyer entirely
• c.Yes, provided the buyer was given an inspection period
• d.No; known material defects must still be disclosed✓

An as-is clause tells the buyer the seller will not make repairs; it is not a license to conceal. Known material defects, especially latent ones the buyer cannot see, must still be disclosed, and both the seller and the licensee can face misrepresentation or fraud claims for hiding them. Saying as-is shifts every risk overstates what the clause does. Giving the buyer an inspection period does not cure nondisclosure of a hidden defect an inspection might never reveal. And the duty to disclose a known material defect does not wait for the buyer to ask the right question.

A buyer assigns a purchase contract to an investor, and the seller has not released the buyer. If the investor fails to close, who may the seller hold liable?

• a.Only the investor, as the current contract party
• b.Neither, because assignment discharged the contract
• c.Both, since the assigning buyer remains secondarily liable✓
• d.Only the buyer, since the assignment was invalid

An assignment transfers the assignor's rights and delegates the duties, but the assignor stays secondarily liable unless the other party grants a release, which would make the arrangement a novation. Because the seller never released the buyer, the seller may look to the investor and to the original buyer. Blaming only the investor ignores that continuing liability. Assignment does not discharge the contract, so it is wrong that no one is answerable. And the assignment was not invalid merely because it occurred; it is effective unless the contract forbids it. Assigning away rights is not assigning away risk.

A purchase contract states that it may not be assigned without the seller's written consent. The buyer assigns it anyway to a business partner. The seller's position is that:

• a.The assignment is valid because contracts are assignable
• b.The seller may treat the assignment as a breach✓
• c.The seller must accept the partner as the new buyer
• d.The original buyer is fully released from it

A non-assignment clause is enforceable, so assigning in violation of it is a breach and the seller may pursue contract remedies or refuse to recognize the assignee. The general principle that contracts are assignable yields to an express prohibition the parties negotiated. Nothing obliges the seller to accept a substitute buyer, because the seller bargained for this buyer's performance and creditworthiness. And the original buyer is certainly not released, since release requires the seller's agreement through a novation. Brokers should read the assignment language before telling an investor client that a contract can be flipped.

A seller breaches and refuses to convey. The buyer no longer wants the property but has provable out-of-pocket losses. Which remedy best matches what this buyer wants?

• a.Specific performance compelling the seller to convey
• b.Reformation of the contract's written terms
• c.Compensatory damages for the losses actually proven✓
• d.Forfeiture of the seller's earnest money deposit

Compensatory damages put the injured party where performance would have left them, covering provable out-of-pocket losses, which fits a buyer who has moved on from the property. Specific performance would force the conveyance, the opposite of this buyer's goal. Reformation only corrects a writing that fails to reflect what the parties actually agreed, and no drafting error appears here. Deposit forfeiture runs against a defaulting buyer, not a defaulting seller, so there is no seller deposit to keep. Because electing one remedy can bar inconsistent ones, a client should choose deliberately and with counsel.

A purchase contract fixes liquidated damages at $150,000 on a $400,000 sale, though a seller's actual loss from a buyer breach would plainly be far smaller. A court will likely:

• a.Strike it down as an unenforceable penalty✓
• b.Enforce the sum, since both parties freely agreed
• c.Enforce it only if the seller actually resold lower
• d.Convert the clause into a valid option agreement

Liquidated damages must be a reasonable pre-estimate, made at signing, of the harm a breach would cause. Here the sum is 37.5% of the price, because $150,000 / $400,000 = 0.375, far beyond any plausible estimate of a seller's loss, so a court treats it as a penalty and refuses to enforce it, leaving the seller to prove actual damages. Free agreement does not rescue a penalty clause. Whether the seller later resold for less goes to actual damages, not to the clause's validity when written. And nothing turns a damages clause into an option.

A signed contract mistakenly states the wrong lot number, though both parties clearly intended the same parcel. Which remedy corrects the document to match the true agreement?

• a.Reformation, correcting the writing itself✓
• b.Rescission, unwinding the entire agreement
• c.Novation, substituting a brand new contract
• d.Specific performance of the wrong lot

Reformation is the equitable remedy that corrects a written document so it expresses what both parties actually agreed, which is exactly the fix for a scrivener's error in a lot number. Rescission would cancel a deal both parties still want. Novation substitutes a new contract or a new party and is unnecessary when the underlying bargain is sound and only the paperwork is wrong. And specific performance of the mistaken description would enforce the error rather than repair it. Brokers reduce this risk by checking legal descriptions against the title work before the parties sign anything.