Study guide

Contracts — Key Facts

Contracts is the single biggest slice of the national exam — roughly one question in six. Examiners love testing whether you can tell a valid contract from a voidable one, what happens when a buyer counters an offer, and which remedy applies when a deal falls apart. Master the essential elements, the status vocabulary (void, voidable, executory, executed), and how options work, and you bank points on the questions almost everyone else finds tricky.

Essential Elements

Offer + acceptance + consideration + capacity + legal purpose = valid contract. Earnest money is customary, NOT required.
Statute of frauds: real estate sale contracts must be in writing to be enforceable.
Any change to an offer = rejection + counteroffer (mirror image rule).

Contract Status

Void = no legal effect. Voidable = one party may cancel (e.g., a minor's contract). Unenforceable = valid but can't be enforced in court.
Executory = obligations remain. Executed = fully performed by all parties.
Options are unilateral until exercised: optionor is bound, optionee has a right but no obligation.

Breach & Remedies

Liquidated damages = predetermined amount (often earnest money) as sole remedy.
Specific performance = court orders the sale to go through, rather than awarding money.

Key vocabulary: Contracts glossary (25 terms)

Practice Contracts

Every Freehold question shows why the right answer is right — and cites its source.

Which of the following is NOT required for a valid real estate sales contract?

An earnest money deposit
Mutual agreement between the parties
Legally competent parties
Consideration

Show answer & explanation

An earnest money deposit — A valid contract requires offer and acceptance, consideration, legally competent parties, and a lawful purpose. Earnest money is customary evidence of good faith but is not legally required for validity.

Source: PSI National Real Estate Exam Content Outline §7 Contracts

Under the statute of frauds, a contract for the sale of real estate must be:

Notarized by a public official
In writing and signed to be enforceable
Recorded in the county records
Prepared by a licensed attorney

Show answer & explanation

In writing and signed to be enforceable — The statute of frauds requires contracts conveying an interest in real estate to be in writing and signed by the party to be bound in order to be enforceable in court. Recording and notarization are not enforceability requirements.

Source: PSI National Real Estate Exam Content Outline §7 Contracts

When a seller responds to a buyer's offer by changing the price, the seller has:

Accepted the offer with conditions
Created an option contract
Rejected the original offer and made a counteroffer
Kept the original offer open while negotiating

Show answer & explanation

Rejected the original offer and made a counteroffer — Any change to an offer's terms operates as a rejection of the original offer and creates a new counteroffer. The original buyer is then free to accept, reject, or counter the new terms.

Source: PSI National Real Estate Exam Content Outline §7 Contracts

In an option contract to purchase real estate, which party is legally bound to perform?

Both the optionor and the optionee
Neither party until closing
The optionee who paid the option fee
Only the optionor who granted the option

Show answer & explanation

Only the optionor who granted the option — An option is a unilateral contract: the optionor must sell at the agreed terms if the option is exercised, while the optionee has the right, but no obligation, to buy during the option period.

Source: PSI National Real Estate Exam Content Outline §7 Contracts

A signed purchase agreement in which the buyer's financing and inspections are still pending is best described as:

An executory contract
An executed contract
A voidable contract
An implied contract

Show answer & explanation

An executory contract — An executory contract is one in which obligations remain to be performed, such as satisfying financing and inspection contingencies before closing. Once fully performed at closing, the contract becomes executed.

Source: PSI National Real Estate Exam Content Outline §7 Contracts

Freehold is an independent study resource and is not affiliated with, endorsed by, or sponsored by PSI, Pearson VUE, or any state real estate licensing board or commission. Freehold does not guarantee passage of any licensing exam.