Free Contracts Practice Test — LicenseIQ

Question 1

Under an open listing, the seller owes a commission to:

Accepted Answer

Open listings are non-exclusive; only the procuring broker is paid, and the owner owes nothing for a self-sale.

Question 2

Which is the most common and desirable way a real estate sales contract terminates?

Accepted Answer

Contracts ideally end by performance. They can also end by mutual agreement, impossibility, operation of law, or breach.

Question 3

A property manager authorized to collect rents, sign leases, hire contractors and run the owner's buildings on an ongoing basis is typically a:

Accepted Answer

A general agent handles a range of matters in a continuing relationship (typical of property management). A listing agent is a special (limited) agent for one transaction.

Question 4

A licensee representing the seller who learns the buyer will pay more than the offer must:

Accepted Answer

Loyalty and disclosure require the seller's agent to share material information that benefits the client. The agent owes the buyer-customer no confidentiality.

Question 5

A mortgage lender offers a salesperson $200 for every client referred. Under RESPA this is:

Accepted Answer

RESPA prohibits kickbacks and unearned referral fees between settlement service providers and real estate licensees, even if disclosed.

Question 6

A seller says, 'I will pay any broker a 5% commission if they bring me a buyer.' This promise creates a(n):

Accepted Answer

In a unilateral contract only one party is bound (to pay if the act is performed); the other party has no obligation to act. Most real estate contracts are bilateral.

Question 7

A sales contract provides that if the buyer defaults, the seller keeps the earnest money as the full measure of damages. This is a:

Accepted Answer

Liquidated damages are a sum agreed in advance as compensation for breach - often the earnest money deposit.

Question 8

A buyer contracts to buy a home for $300,000, but it appraises at $290,000. The lender offers 75% LTV. What is the maximum loan?

Accepted Answer

LTV is applied to the LESSER of price or appraised value: $290,000 x 0.75 = $217,500. Using the $300,000 price ($225,000) is the common mistake.

Question 9

A licensee never signs a buyer agreement but repeatedly gives a buyer negotiating advice and acts on his behalf. An agency relationship may have been created by:

Accepted Answer

Implied agency arises from conduct; the agent then owes full fiduciary duties. Express agency is created by stated agreement, ideally in writing.

Question 10

Which event terminates a listing agreement by operation (force) of law?

Accepted Answer

Agency ends by performance, expiration, mutual agreement, or situationally by force of law (bankruptcy, condemnation), death or incapacity, destruction of the property, or breach.

Question 11

A buyer pays $10,000 for a 12-month option to buy a house for $250,000. During the option period:

Accepted Answer

The option binds only the optionor. The optionee may exercise or let it lapse (forfeiting the option money).

Question 12

Which is NOT an essential element of a valid contract?

Accepted Answer

The essential elements are offer and acceptance (mutual consent), consideration, competent parties and legal purpose. Notarization is not required for a contract to be valid.

Question 13

A contract clause stating that 'time is of the essence' means:

Accepted Answer

'Time is of the essence' makes performance by the stated dates essential; missing a deadline can be a breach.

Question 14

A seller refuses to close on a valid contract. Because each parcel of real estate is unique, the buyer may sue to force the sale through:

Accepted Answer

Specific performance compels the breaching party to perform; it is available because land is unique. The buyer could alternatively seek monetary damages.

Question 15

A listing agreement in which the broker earns a commission regardless of who sells the property is a(n):

Accepted Answer

In an exclusive right-to-sell listing, the listing broker earns a commission no matter who procures the buyer, even the owner. (Reclassified to section 6 / CORE.)

Question 16

A seller has already accepted an offer, and another buyer submits a higher offer. The listing agent should:

Accepted Answer

Listing agents must present all offers through closing, but should not give legal advice about the seller's obligations under the existing contract.

Question 17

A lender offers a 95% LTV loan. The buyer has $18,000 for the down payment. What is the maximum purchase price?

Accepted Answer

At 95% LTV the down payment is 5% of price. Price = $18,000 / 0.05 = $360,000; loan = $342,000.

Question 18

A contract signed by a 17-year-old buyer is generally:

Accepted Answer

Contracts with minors are voidable at the minor's option; the adult party remains bound. A contract with someone adjudged insane is void.

Question 19

Adding a new financing contingency to an existing sales contract is done by a(n) ____, while changing the existing closing date is done by a(n) ____.

Accepted Answer

An addendum ADDs new terms; an amendment changes existing terms. Both require agreement of both parties.

Question 20

A seller agrees with a broker that the seller will receive $200,000 and the broker keeps anything above that. The home sells for $240,000. This arrangement is a:

Accepted Answer

In a net listing the broker's fee is the excess over a set net ($40,000 here). It encourages the broker to underprice and is illegal in many states, including NJ.

Question 21

In an option to purchase, the seller who grants the option is the ____ and the option holder is the ____.

Accepted Answer

The seller (optionor) gives the option; the buyer (optionee) holds it. Only the optionor is bound during the option period, making it unilateral.

Question 22

After the buyer and seller sign a sales contract but before closing, the contract is:

Accepted Answer

A contract is executory while obligations remain to be performed; it becomes executed when fully performed (at closing).

Question 23

A contract that is missing an essential element, such as consideration, is:

Accepted Answer

Missing an essential element makes a contract void from the start. A voidable contract appears valid but may be canceled by one party.

Question 24

The federal law that prohibits price fixing, group boycotts, market allocation and tie-in agreements is the:

Accepted Answer

The Sherman Antitrust Act of 1890 prohibits conspiracies in restraint of trade, including these practices.

Question 25

Under a land contract (contract for deed), during the payment period the buyer holds:

Accepted Answer

In an installment/land contract the buyer has equitable title and possession; the seller keeps legal title until the final payment.

National real estate contracts practice test

1. Under an open listing, the seller owes a commission to:

2. Which is the most common and desirable way a real estate sales contract terminates?

3. A property manager authorized to collect rents, sign leases, hire contractors and run the owner's buildings on an ongoing basis is typically a:

4. A licensee representing the seller who learns the buyer will pay more than the offer must:

5. A mortgage lender offers a salesperson $200 for every client referred. Under RESPA this is:

6. A seller says, 'I will pay any broker a 5% commission if they bring me a buyer.' This promise creates a(n):

7. A sales contract provides that if the buyer defaults, the seller keeps the earnest money as the full measure of damages. This is a:

8. A buyer contracts to buy a home for $300,000, but it appraises at $290,000. The lender offers 75% LTV. What is the maximum loan?

9. A licensee never signs a buyer agreement but repeatedly gives a buyer negotiating advice and acts on his behalf. An agency relationship may have been created by:

10. Which event terminates a listing agreement by operation (force) of law?

11. A buyer pays $10,000 for a 12-month option to buy a house for $250,000. During the option period:

12. Which is NOT an essential element of a valid contract?

13. A contract clause stating that 'time is of the essence' means:

14. A seller refuses to close on a valid contract. Because each parcel of real estate is unique, the buyer may sue to force the sale through:

15. A listing agreement in which the broker earns a commission regardless of who sells the property is a(n):

16. A seller has already accepted an offer, and another buyer submits a higher offer. The listing agent should:

17. A lender offers a 95% LTV loan. The buyer has $18,000 for the down payment. What is the maximum purchase price?

18. A contract signed by a 17-year-old buyer is generally:

19. Adding a new financing contingency to an existing sales contract is done by a(n) , while changing the existing closing date is done by a(n) .

20. A seller agrees with a broker that the seller will receive $200,000 and the broker keeps anything above that. The home sells for $240,000. This arrangement is a:

21. In an option to purchase, the seller who grants the option is the and the option holder is the .

22. After the buyer and seller sign a sales contract but before closing, the contract is:

23. A contract that is missing an essential element, such as consideration, is:

24. The federal law that prohibits price fixing, group boycotts, market allocation and tie-in agreements is the:

25. Under a land contract (contract for deed), during the payment period the buyer holds:

Sources