Real estate exam terms
24 terms, each with a plain definition, the term it is most often confused with, and how the license exam actually asks about it.
Transferring contract rights to another party, without release from liability
The assignor hands over their rights but generally remains secondarily liable if the assignee fails to perform. Many contracts and most leases restrict assignment or require the other party’s consent.
The lingering liability is the examinable point, and it is why a departing tenant who assigns a lease is often unpleasantly surprised.
A promise exchanged for a promise; both parties are bound
The ordinary shape of a real estate purchase contract and of an exclusive right-to-sell listing. Each side has undertaken something, so each side can be held to it.
Its counterpart is the unilateral contract, and an option is the standard real estate example of one.
Failure to perform an obligation the contract imposes, without legal excuse
The non-breaching party’s usual options are to sue for damages, to sue for specific performance, to rescind, or to accept a remedy the contract itself specifies such as liquidated damages.
Real estate is the home ground of specific performance, because no two parcels are identical and money is treated as an inadequate substitute for the land itself.
The thing of value each party gives to make a contract binding
It need not be money and need not be equal in value on both sides. In a purchase contract the consideration is usually the exchange of promises: the buyer promises to pay, the seller promises to convey.
Earnest money is not the consideration for a purchase contract, and the exam relies on people assuming it is. The deposit is evidence of good faith; the promises are the consideration.
A condition that must be met or waived for the contract to proceed
Financing, inspection, appraisal and sale-of-current-home are the common ones. A contingency does not perform anything by itself — it defines a circumstance in which a party may cancel and recover their deposit rather than be in breach.
A financing contingency does not obtain the loan and does not extend closing. It protects the deposit if financing on the stated terms does not appear.
A response that changes the terms, rejecting the original offer and making a new one
Any change to the terms — price, closing date, what stays with the house — rejects the offer and puts a fresh one on the table. Roles swap: the person who countered can now be accepted or rejected in turn.
The consequence people miss: the original offer is dead. A seller who counters cannot later go back and accept the buyer’s first offer if the counter is refused.
A buyer’s deposit evidencing good faith, held by a neutral party
Held in a trust or escrow account, never in the brokerage’s operating account, and applied to the purchase price at closing. What happens to it if the deal collapses is governed by the contract — usually by contingency provisions and a liquidated damages clause.
Two facts carry the questions: it is not what makes the contract valid, and mishandling it is one of the fastest routes to license discipline.
A clause raising a buyer’s offer automatically above competing offers
The offer states an increment, a ceiling and what proof of a competing offer the buyer requires before the escalation runs. It exists so a buyer can win a bidding contest without having to guess how high to open.
In a lease the same phrase means something else entirely — rent rising with taxes or operating costs. Context decides which is meant.
Price stays certain enough to be enforceable only because the ceiling and the increment are stated in advance. Read items for what triggers the escalation and what caps it.
A contract in which both parties have fully performed
A purchase contract becomes executed at closing, when the money and the deed have both changed hands. Until then it is executory, however many signatures are on it.
Colloquially "executing a contract" means signing one, and the exam uses that ambiguity on purpose. Signing makes a contract executory, not executed.
A contract in which something remains to be done
A signed purchase contract awaiting closing, a lease part-way through its term, an option not yet exercised. The contract is fully binding; it is simply not finished.
The period between contract and closing is the exam’s favorite illustration, and it is also when the buyer holds equitable title.
Seller financing where the seller keeps legal title until the price is paid
Also called a contract for deed or an installment land contract. The buyer takes possession and holds equitable title while paying the seller directly; legal title transfers only on the final payment. It is a financing arrangement dressed as a sale contract.
Who holds which title during the term is the question. Buyer: possession and equitable title. Seller: legal title as security.
An amount the parties agree in advance will settle a breach
Commonly the earnest money, forfeited to the seller if the buyer defaults. Agreeing the figure up front avoids a later argument about actual loss, and courts uphold it where it is a reasonable pre-estimate of harm.
A sum set high enough to punish rather than compensate risks being struck down as a penalty. That distinction — compensation against punishment — is what the exam is testing.
Substituting a new contract or a new party, releasing the original one
The word to look for is "released". A buyer who assumes a seller’s mortgage with the lender’s agreement to release the seller has achieved a novation; without that release, the seller stays on the hook.
Novation releases; assignment does not. That is the whole distinction and it is worth a mark almost every time it appears.
A proposal that becomes a contract if accepted on its terms
An offer can generally be revoked at any time before acceptance is communicated, even if it named a deadline — because the offeror received nothing in exchange for holding it open. It also lapses on expiry, on rejection, on counteroffer, and on the death or incapacity of either party.
Pay for the promise to keep an offer open and you have an option contract, which cannot be revoked. That distinction is the point of most items here.
A paid right to buy on set terms within a set period, with no obligation to buy
The optionee buys time, not property. The optionor is bound to sell if the option is exercised; the optionee may let it expire and lose only the option consideration. Developers use options to control land while they pursue zoning approvals.
The standard unilateral contract, and the standard exception to the rule that an offer can be revoked before acceptance.
Cancelling a contract and returning both parties to their prior positions
Rescission unwinds rather than compensates: deposits come back, obligations end, and the parties are put back where they started. It may be by mutual agreement or ordered by a court where a party was induced to contract by fraud or misrepresentation.
Distinguish from novation, which replaces a contract or a party, and from assignment, which transfers rights without ending anything.
A court order compelling a party to perform rather than pay damages
The remedy a buyer seeks when a seller refuses to close on a valid contract. It is available because the uniqueness of land means damages cannot buy the buyer an equivalent parcel.
The link to the physical characteristic of non-homogeneity is the reasoning behind the rule, and questions sometimes test the connection rather than the term.
The rule requiring certain contracts to be written and signed to be enforceable
It captures contracts for the sale of an interest in land, and in most states leases longer than a year. It is a rule about enforceability, not validity, and it exists to keep courts out of disputes about what two people said to each other years ago.
The lease cut-off is the state-by-state detail; the land sale rule is universal and is what the national portion tests.
A clause making every stated deadline a strict condition
With this clause, missing a date is itself a breach rather than a delay to be argued about. Without it, a court may allow performance within a reasonable time. It is one line of text and it changes the consequence of every other date in the contract.
Look for the clause and the deadline in the same fact pattern. Its presence is what turns "the buyer was two days late" into a breach.
A valid agreement a court will not enforce
The classic case in real estate is an oral agreement to sell land: the parties genuinely agreed and may perform it happily, but the Statute of Frauds means a court will not compel performance. A claim barred by the statute of limitations is unenforceable for a different reason.
Distinguish carefully from void. An unenforceable contract exists; a void one never did.
A promise given in exchange for performance; only one party is bound
An option contract is the standard example: the optionor must sell if the optionee exercises, but the optionee promised nothing and may simply let the option lapse. An open listing works the same way — the broker owes no duty to try.
Ask which party could walk away without breaching. If only one can, the contract is unilateral.
An agreement meeting every legal requirement, binding on both parties
The requirements are competent parties, mutual agreement — offer and acceptance — consideration, and a lawful object. Miss one and the agreement is void, voidable or unenforceable rather than valid.
Writing is deliberately not in that list. It is not an element of validity in general; it is a requirement the Statute of Frauds imposes on particular contracts, land sales among them, to make them enforceable.
An agreement with no legal effect from the beginning
Not really a contract at all — a nullity. An agreement to do something illegal is void, as is one signed by a person a court has already declared incompetent. Neither party can enforce it and nothing is needed to undo it.
The examinable ladder runs valid, voidable, unenforceable, void. Void is the only rung where nobody has any choice in the matter.
A contract one party may cancel and the other may not
It is valid and enforceable until the party with the right chooses to disaffirm. Contracts entered into by a minor, or under fraud, duress, undue influence or misrepresentation, are voidable by the party who was disadvantaged.
The trap is which party holds the option. It is always the injured or protected party — never the one who applied the pressure.
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