ROCKWELL FUNDAMENTAL QUESTIONS AND ANSWERS
RATED A+
✔✔A buyer and seller enter into a purchase and sale agreement that specifies that the
buyer has 45 days to obtain financing. Through no fault of the buyer, it becomes
impossible to obtain a loan commitment from a lender within the prescribed period; so
the seller agrees to give the buyer an extension. The real estate agent should have both
the buyer and the seller sign a/an: - ✔✔Amendment
The amendment would amend the agreed-upon closing date to accommodate the
delay. An addendum would be a part of the original contract, not a later modification.
✔✔In most real estate transactions, the buyer is the: - ✔✔offeror
The buyer is typically the offeror, since the buyer's completed purchase and sale
agreement (before it is signed by the seller) serves as an offer to purchase.
✔✔The type of deed specified in most purchase and sale agreement forms is a: -
✔✔general warranty deed
The most commonly specified deed in purchase and sale agreement forms is the
general warranty deed, which offers the greatest protection to the buyer.
✔✔An earnest money deposit: - ✔✔can be any amount the parties agree upon
The amount for an earnest money deposit varies according to local custom, but may be
any amount that both parties agree on.
✔✔The purchase and sale agreement includes a financing contingency clause, for the
benefit of the buyer. Three weeks after signing the agreement, the seller receives notice
that the buyer is backing out of the transaction. The seller will be required to return the
buyer's earnest money deposit if the buyer: - ✔✔applied for financing and was turned
down
The buyer is only entitled to have the deposit refunded if the contingency clause was
not fulfilled in spite of a good faith effort to get it fulfilled. If the buyer is withdrawing from
the transaction without having made a good faith effort, or withdrawing even though the
contingency has been fulfilled, he forfeits the earnest money.
✔✔The purchase and sale agreement includes a contingency clause for the benefit of
the buyer. It is clear now that the contingency will NOT be met by the closing date. The
contingency clause can be waived by: - ✔✔the buyer
A contingency clause can be waived by the party that it was intended to benefit, if that
party chooses to go ahead with the transaction.
,✔✔The buyers want to make an offer to purchase a home, but they don't want to be
bound to the contract if they are unable to obtain the necessary financing. What should
they do? - ✔✔Include a financing contingency
A financing contingency in the purchase and sale agreement would say something like,
"If, through no fault of the buyer, the necessary financing cannot be obtained, the
earnest money shall be refunded in full and this agreement shall terminate."
✔✔Once a sales contract is signed by the parties, the buyer immediately receives: -
✔✔Equitable title
A buyer receives equitable title to the property once the sales contract has been signed.
✔✔Which of the following items does not need to be included in a purchase and sale
agreement? - ✔✔Copy of the deed
A copy of the deed is not required to be included in a purchase and sale agreement.
✔✔An offer to purchase real property: - ✔✔must be in writing because of the statute of
frauds
The statute of frauds is a state law that requires certain contracts to be in writing; this
generally applies to transfers of real property.
✔✔Transfer of possession: - ✔✔Normally takes place at closing
On the closing date, the deed is delivered to the buyer and all appropriate documents
are recorded.
✔✔When completing a purchase and sale agreement form, a real estate agent must
meet the same standard of care as: - ✔✔an attorney
An agent filling out a purchase and sale agreement form is held to the same standard of
care as an attorney, so he may be liable for damages caused to either party because of
his breach of duty.
✔✔P enters into a purchase and sale agreement with Seller H. Shortly thereafter, a title
search reveals that H will not be able to deliver marketable title to P because there are
some title defects that cannot be corrected. P demands, in writing, that her earnest
money deposit be returned immediately. Which of the following is the proper course of
action for the brokerage? - ✔✔Notify the seller of the buyer's demand
The brokerage must send the seller a written notice that the buyer has demanded
release of the deposit. If the seller doesn't object, the brokerage must release the funds
,to the buyer. If the seller does object, the brokerage will have to file an interpleader
action and let a court resolve the issue.
✔✔If the full legal description of a property is too long to fit on the form, the agent
should: - ✔✔attach a separate sheet with the full description
When the legal description is lengthy, the licensee should prepare a full description on a
separate sheet of paper and reference the attachment in the space provided in the
purchase and sale agreement for the legal description. The licensee should never just
fill in the street address; it is not a legally adequate description.
✔✔In a typical residential sales transaction, if there was no mention of a possession
date, possession would be given: - ✔✔at the time of closing
Title transfers on the day of closing, and that would be the date the buyer would be
entitled to possession, unless otherwise agreed.
✔✔If a buyer makes an offer to purchase a house and sets no deadline for the seller's
acceptance: - ✔✔the offer terminates if not accepted within a reasonable time
An offer is not indefinite; it terminates after a reasonable time (although the definition of
a "reasonable time" may vary from one court to another).
✔✔The date on which the seller receives the proceeds of the sale, the deed is delivered
to the buyer, and all documents are recorded is called the: - ✔✔Closing date
On the closing date, the proceeds of the sale are disbursed, the deed is delivered to the
buyer, and all appropriate documents are recorded.
✔✔A binding contract exists: - ✔✔After the seller signs the form signed by the buyer
and returns it to the buyer
The buyer's signature turns the form into an offer to purchase, and the seller's signature
turns the form into a binding contract.
✔✔Despite a good faith effort, the buyer was unable to obtain financing on the terms
spelled out in the contingency clause. As a result: - ✔✔The purchase and sale
agreement terminates and the earnest money is refunded.
A financing contingency protects the buyer from being liable for damages in the event
he is unable to obtain the necessary financing.
, ✔✔The prohibition against the unauthorized practice of law prohibits a real estate agent
from: - ✔✔completing a purchase and sale agreement form for a transaction in which
the agent is not representing either party.
A real estate agent may prepare routine purchase and sale agreements using
standardized forms that were originally drafted by lawyers. A real estate agent may not
go beyond that, however, by writing additional clauses or by offering a legal opinion
regarding the document.
✔✔A bump clause: - ✔✔Permits a seller to keep the property on the market pending
fulfillment of a contingency.
The purpose of the bump clause is to enable a seller to wait until a contingency is
fulfilled before having to sell the property.
✔✔Most mortgages and deeds of trust contain provisions relating to all of the following
except: - ✔✔Forfeiture
Forfeiture is a remedy that is limited to land contracts. However, most mortgages and
deeds of trust contain acceleration clauses, and require that taxes and insurance are
paid on the property and that the property is adequately maintained.
✔✔An increase in the demand for residential rental property could be caused by an
increase in: - ✔✔Mortgage interest rates nationwide
As interest rates increase, fewer home purchasers are willing or able to pay the cost of
financing their purchase. The result is that they rent properties until interest rates
decline.
✔✔A borrower offers both real property and chattels as security for his mortgage debt.
What kind of mortgage is this? - ✔✔Package
A package mortgage includes both real and personal property as collateral. (Chattels is
another term for personal property.)
✔✔Which of the following applies to foreclosure under a deed of trust? - ✔✔Nonjudicial
foreclosure
Foreclosure under a deed of trust does not require the involvement of a court. Instead,
the designated trustee is authorized to sell the property if the trustor defaults.
✔✔Randall takes out a loan to purchase both a farm and agricultural equipment. The
mortgage used to secure this loan would be a/an: - ✔✔Package mortgage
RATED A+
✔✔A buyer and seller enter into a purchase and sale agreement that specifies that the
buyer has 45 days to obtain financing. Through no fault of the buyer, it becomes
impossible to obtain a loan commitment from a lender within the prescribed period; so
the seller agrees to give the buyer an extension. The real estate agent should have both
the buyer and the seller sign a/an: - ✔✔Amendment
The amendment would amend the agreed-upon closing date to accommodate the
delay. An addendum would be a part of the original contract, not a later modification.
✔✔In most real estate transactions, the buyer is the: - ✔✔offeror
The buyer is typically the offeror, since the buyer's completed purchase and sale
agreement (before it is signed by the seller) serves as an offer to purchase.
✔✔The type of deed specified in most purchase and sale agreement forms is a: -
✔✔general warranty deed
The most commonly specified deed in purchase and sale agreement forms is the
general warranty deed, which offers the greatest protection to the buyer.
✔✔An earnest money deposit: - ✔✔can be any amount the parties agree upon
The amount for an earnest money deposit varies according to local custom, but may be
any amount that both parties agree on.
✔✔The purchase and sale agreement includes a financing contingency clause, for the
benefit of the buyer. Three weeks after signing the agreement, the seller receives notice
that the buyer is backing out of the transaction. The seller will be required to return the
buyer's earnest money deposit if the buyer: - ✔✔applied for financing and was turned
down
The buyer is only entitled to have the deposit refunded if the contingency clause was
not fulfilled in spite of a good faith effort to get it fulfilled. If the buyer is withdrawing from
the transaction without having made a good faith effort, or withdrawing even though the
contingency has been fulfilled, he forfeits the earnest money.
✔✔The purchase and sale agreement includes a contingency clause for the benefit of
the buyer. It is clear now that the contingency will NOT be met by the closing date. The
contingency clause can be waived by: - ✔✔the buyer
A contingency clause can be waived by the party that it was intended to benefit, if that
party chooses to go ahead with the transaction.
,✔✔The buyers want to make an offer to purchase a home, but they don't want to be
bound to the contract if they are unable to obtain the necessary financing. What should
they do? - ✔✔Include a financing contingency
A financing contingency in the purchase and sale agreement would say something like,
"If, through no fault of the buyer, the necessary financing cannot be obtained, the
earnest money shall be refunded in full and this agreement shall terminate."
✔✔Once a sales contract is signed by the parties, the buyer immediately receives: -
✔✔Equitable title
A buyer receives equitable title to the property once the sales contract has been signed.
✔✔Which of the following items does not need to be included in a purchase and sale
agreement? - ✔✔Copy of the deed
A copy of the deed is not required to be included in a purchase and sale agreement.
✔✔An offer to purchase real property: - ✔✔must be in writing because of the statute of
frauds
The statute of frauds is a state law that requires certain contracts to be in writing; this
generally applies to transfers of real property.
✔✔Transfer of possession: - ✔✔Normally takes place at closing
On the closing date, the deed is delivered to the buyer and all appropriate documents
are recorded.
✔✔When completing a purchase and sale agreement form, a real estate agent must
meet the same standard of care as: - ✔✔an attorney
An agent filling out a purchase and sale agreement form is held to the same standard of
care as an attorney, so he may be liable for damages caused to either party because of
his breach of duty.
✔✔P enters into a purchase and sale agreement with Seller H. Shortly thereafter, a title
search reveals that H will not be able to deliver marketable title to P because there are
some title defects that cannot be corrected. P demands, in writing, that her earnest
money deposit be returned immediately. Which of the following is the proper course of
action for the brokerage? - ✔✔Notify the seller of the buyer's demand
The brokerage must send the seller a written notice that the buyer has demanded
release of the deposit. If the seller doesn't object, the brokerage must release the funds
,to the buyer. If the seller does object, the brokerage will have to file an interpleader
action and let a court resolve the issue.
✔✔If the full legal description of a property is too long to fit on the form, the agent
should: - ✔✔attach a separate sheet with the full description
When the legal description is lengthy, the licensee should prepare a full description on a
separate sheet of paper and reference the attachment in the space provided in the
purchase and sale agreement for the legal description. The licensee should never just
fill in the street address; it is not a legally adequate description.
✔✔In a typical residential sales transaction, if there was no mention of a possession
date, possession would be given: - ✔✔at the time of closing
Title transfers on the day of closing, and that would be the date the buyer would be
entitled to possession, unless otherwise agreed.
✔✔If a buyer makes an offer to purchase a house and sets no deadline for the seller's
acceptance: - ✔✔the offer terminates if not accepted within a reasonable time
An offer is not indefinite; it terminates after a reasonable time (although the definition of
a "reasonable time" may vary from one court to another).
✔✔The date on which the seller receives the proceeds of the sale, the deed is delivered
to the buyer, and all documents are recorded is called the: - ✔✔Closing date
On the closing date, the proceeds of the sale are disbursed, the deed is delivered to the
buyer, and all appropriate documents are recorded.
✔✔A binding contract exists: - ✔✔After the seller signs the form signed by the buyer
and returns it to the buyer
The buyer's signature turns the form into an offer to purchase, and the seller's signature
turns the form into a binding contract.
✔✔Despite a good faith effort, the buyer was unable to obtain financing on the terms
spelled out in the contingency clause. As a result: - ✔✔The purchase and sale
agreement terminates and the earnest money is refunded.
A financing contingency protects the buyer from being liable for damages in the event
he is unable to obtain the necessary financing.
, ✔✔The prohibition against the unauthorized practice of law prohibits a real estate agent
from: - ✔✔completing a purchase and sale agreement form for a transaction in which
the agent is not representing either party.
A real estate agent may prepare routine purchase and sale agreements using
standardized forms that were originally drafted by lawyers. A real estate agent may not
go beyond that, however, by writing additional clauses or by offering a legal opinion
regarding the document.
✔✔A bump clause: - ✔✔Permits a seller to keep the property on the market pending
fulfillment of a contingency.
The purpose of the bump clause is to enable a seller to wait until a contingency is
fulfilled before having to sell the property.
✔✔Most mortgages and deeds of trust contain provisions relating to all of the following
except: - ✔✔Forfeiture
Forfeiture is a remedy that is limited to land contracts. However, most mortgages and
deeds of trust contain acceleration clauses, and require that taxes and insurance are
paid on the property and that the property is adequately maintained.
✔✔An increase in the demand for residential rental property could be caused by an
increase in: - ✔✔Mortgage interest rates nationwide
As interest rates increase, fewer home purchasers are willing or able to pay the cost of
financing their purchase. The result is that they rent properties until interest rates
decline.
✔✔A borrower offers both real property and chattels as security for his mortgage debt.
What kind of mortgage is this? - ✔✔Package
A package mortgage includes both real and personal property as collateral. (Chattels is
another term for personal property.)
✔✔Which of the following applies to foreclosure under a deed of trust? - ✔✔Nonjudicial
foreclosure
Foreclosure under a deed of trust does not require the involvement of a court. Instead,
the designated trustee is authorized to sell the property if the trustor defaults.
✔✔Randall takes out a loan to purchase both a farm and agricultural equipment. The
mortgage used to secure this loan would be a/an: - ✔✔Package mortgage
