Iowa Contracts
Practice Questions & Answers (2026)
Contract law questions on the Iowa real estate exam test both general contract principles and Iowa-specific transaction requirements. The Iowa Real Estate Commission tests how Iowa contract law applies to purchase agreements, counteroffers, contingencies, and earnest money disputes. Pay close attention to offer and acceptance mechanics, how counteroffers extinguish prior offers, and the specific timelines under Iowa law for earnest money handling and contingency resolution. These are areas where candidates who studied nationally often apply the right concept but the wrong IA-specific timeframe or rule.
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Iowa Contracts — Practice Questions & Answers
139 questions on Contracts from the Iowa real estate question bank. First 10 are free — sign up to unlock all 139.
Q1. Under Iowa contract law, an offer to purchase real estate may be revoked by the buyer:
Explanation
An offer may be revoked by the offeror (buyer) at any time before the offeree (seller) communicates acceptance. Once acceptance is communicated to the buyer, a binding contract is formed and unilateral revocation is not permissible.
Q2. A purchase contract contains a condition requiring the buyer to sell their current home before closing. This is known as a:
Explanation
A home sale contingency makes the purchase of the new property conditional upon the buyer successfully selling their current home. Sellers may accept such an offer with a 'kick-out clause' allowing them to continue marketing.
Q3. Novation in a real estate contract context means:
Explanation
Novation substitutes a new contract, party, or obligation for an existing one, with the consent of all parties. The original obligation is extinguished. For example, a lender may consent to substitute the buyer's name for the seller's on an existing mortgage.
Q4. Which of the following is an example of an executory contract?
Explanation
An executory contract is one in which one or both parties still have obligations to fulfill. A purchase agreement between signing and closing is a classic example of an executory contract.
Q5. In Iowa, a buyer who discovers fraud or misrepresentation AFTER closing may seek which of the following remedies?
Explanation
A buyer who discovers fraud or misrepresentation after closing may seek rescission (to undo the transaction) and/or monetary damages. Fraud vitiates contracts and may provide remedies even after closing.
Q6. A lease agreement for more than one year must be in writing under Iowa's Statute of Frauds. This requirement exists because:
Explanation
The Statute of Frauds requires leases longer than one year to be in writing because the written form reduces disputes over terms, provides a clear record, and ensures both parties have agreed to the same conditions.
Q7. Which of the following is NOT an essential element of a valid real estate contract in Iowa?
Explanation
Notarization is NOT required for a valid real estate purchase contract in Iowa. The essential elements are: mutual agreement (offer and acceptance), consideration, legal competency, legality of purpose, and must be in writing under the Statute of Frauds.
Q8. An Iowa buyer makes an offer of $185,000. The seller counters at $192,000. The buyer then offers $189,000. At this point:
Explanation
Each counteroffer terminates the previous offer. Once the buyer made a new offer of $189,000 (a counter to the seller's counter), the seller's $192,000 counteroffer was terminated. Only the $189,000 offer is currently active.
Q9. In Iowa, earnest money deposited with a real estate broker must be placed in:
Explanation
Iowa law requires brokers to place earnest money in a separate, federally insured trust or escrow account, completely separate from the brokerage's operating accounts. This prevents commingling and protects client funds.
Q10. A contract term stating 'time is of the essence' means:
Explanation
'Time is of the essence' is a legal term that makes all deadlines in the contract strictly enforceable. Failure to meet a deadline — such as a closing date — may constitute a material breach of contract, giving the other party remedies including termination.
Q11. Which of the following BEST describes an option contract in real estate?
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