ContractsIntermediateCalifornia Exam

Which of the following best describes 'novation' in a real estate contract?

AAdding a new party to an existing contract without releasing the original party

BSubstituting a new contract or party for an existing one, releasing the original partyCorrect

CCanceling a contract without any obligation

DTransferring a contract to a third party without the other party's consent

Why Substituting a new contract or party for an existing one, releasing the original party Is Correct

Answer B: Substituting a new contract or party for an existing one, releasing the original party

Novation is the substitution of a new obligation for an existing one, or a new party for an original party, with the agreement of all parties and the complete release of the original obligation or party.

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.

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Key Terms to Know

Purchase Agreement

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

Option Contract

A contract giving the buyer the right, but not the obligation, to purchase a property at a specified price within a specified time period.

Right of First Refusal

A contractual right giving a party the opportunity to match any offer received before the owner can accept it from a third party.

Listing Agreement

A contract between a property owner and a real estate broker that authorizes the broker to market and sell the property.

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