Real Estate Contracts & Agency — Printable Practice Pack

Answer key & explanations

1. 1. B — The inspection contingency allows the buyer to terminate the contract if the inspection reveals defects, providing a way for the buyer to exit the contract if the property's condition is unacceptable.
2. 2. A — An agency relationship is typically created by a written agreement, such as a listing agreement or a buyer's representation agreement, which outlines the scope of the agent's authority and the terms of the relationship.
3. 3. B — A counteroffer terminates the original offer, as it is a new proposal that replaces the original one.
4. 4. C — The earnest money deposit demonstrates the buyer's good faith and commitment to the purchase, and is typically held in escrow until the transaction is completed.
5. 5. B — The agent's fiduciary duty of obedience requires them to follow the lawful instructions of the buyer, as long as they are within the scope of the agency agreement.
6. 6. A — A special agency is created when a seller lists their property with a real estate agent, even if there is no written agreement, as the agent is authorized to perform a specific task on behalf of the seller.
7. 7. C — If the buyer is unable to secure financing, the contract is terminated, as the financing contingency was not met.
8. 8. A — The statute of frauds requires that a real estate contract be in writing and signed by both parties to be enforceable.
9. 9. A — The seller can sue the agent for damages, as the agent's breach of fiduciary duty may have caused harm to the seller.
10. 10. B — A counteroffer terminates the original offer, and the buyer can only accept the new terms presented by the seller.
11. 11. B — A special agent is authorized to perform a specific task or transaction, but has limited authority and cannot bind the principal to a contract.
12. 12. D — The acronym OLD CAR represents the fiduciary duties of a real estate agent, which include Obedience, Loyalty, Disclosure, Confidentiality, and Accountability.
13. 13. C — The agent's duty to the seller is to treat them honestly and fairly, and to disclose all known facts about the property, but not to disclose confidential information about their client.
14. 14. A — If the buyer is unable to secure financing, the contract becomes void and the buyer's earnest money is typically refunded, as the contingency was not met.
15. 15. B — If the deal falls through due to a contingency, the buyer typically gets their earnest money back, unless otherwise agreed upon in the contract.
16. 16. C — The agent must disclose that they represent the seller and not the buyer, to avoid any confusion or perceived conflict of interest.
17. 17. B — A special agent is authorized to perform specific, limited tasks on behalf of a principal, whereas a general agent has broader powers.
18. 18. A — If a buyer discovers a material defect, they can typically rescind the contract and get their earnest money back, depending on the terms of the contract and any applicable laws.
19. 19. C — A counteroffer terminates the original offer, as it introduces new terms that must be accepted or rejected.
20. 20. B — The buyer's agent has a fiduciary duty to act in the best interest of the buyer, which includes duties of obedience, loyalty, disclosure, confidentiality, reasonableness, and accounting.