ContractsIntermediateCalifornia Exam

A 'contingency' in a real estate purchase agreement is:

AA penalty clause for late closing, per standard contingency and disclosure practice
BA condition that must be satisfied for the contract to become bindingCorrect
CThe seller's right to cancel at any time, under standard California purchase contract terms
DAn addendum adding additional properties to the sale, as typically drafted in a residential purchase agreement

Why A condition that must be satisfied for the contract to become binding Is Correct

Answer B: A condition that must be satisfied for the contract to become binding

A contingency is a condition that must be fulfilled for the contract to proceed. Common contingencies include financing, inspection, and appraisal.

Exam Tip: Contracts

Contract questions frequently test the essential elements required for a valid contract. Remember: competent parties, mutual consent, lawful object, and sufficient consideration. Watch for void vs. voidable distinctions.

Key Contracts Terms in This Question

Contingency

A condition in a purchase contract that must be satisfied before the sale can proceed to closing.

Purchase Agreement

A legally binding contract between a buyer and seller that outlines the terms and conditions of a real estate sale.

Appraisal

A professional estimate of a property's market value prepared by a licensed or certified appraiser.

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