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OR Real Estate practice questions

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Question 1Real Property Ownership and Land Use

Which right in the bundle of real property rights allows an owner to build above the surface of the land, subject to zoning and other lawful limits?

  1. Subsurface rights
  2. Littoral rights
  3. Riparian rights
  4. Air rights Correct answer.

Explanation

The bundle of rights that accompanies fee ownership includes the surface, the minerals and groundwater below it, and the space above it. Air rights permit vertical development, but they are limited by zoning, aviation easements, and nuisance principles.

Question 2Real Property Ownership and Land Use

Two unrelated investors take title to a rental duplex as tenants in common, with one contributing 70 percent of the price and the other 30 percent. Which statement correctly describes their ownership?

  1. All co-owners must take equal one-half shares regardless of what they contributed.
  2. Only married couples may hold title as tenants in common.
  3. Each owner's undivided share passes to heirs at death. Correct answer.
  4. The surviving co-owner automatically takes the deceased owner's share.

Explanation

Tenancy in common lets co-owners hold separate undivided interests that need not be equal and that carry no right of survivorship. Each interest may be sold, mortgaged, or devised by will, so a deceased owner's share passes to that owner's heirs or devisees.

Question 3Real Property Ownership and Land Use

Which feature distinguishes a joint tenancy from a tenancy in common?

  1. The right of survivorship passes a deceased co-owner's share to the survivors. Correct answer.
  2. A joint tenancy may be created without satisfying any of the unities.
  3. Only spouses may create a joint tenancy.
  4. Co-owners may hold unequal shares under a joint tenancy.

Explanation

A joint tenancy requires the four unities of time, title, interest, and possession, and it carries the right of survivorship. When one joint tenant dies, that interest is extinguished and the remaining joint tenants hold the property free of it.

Question 4Real Property Ownership and Land Use

Riparian rights attach to land that:

  1. is used for commercial fishing in coastal waters.
  2. lies along the shore of an ocean or large lake.
  3. borders a river or stream. Correct answer.
  4. overlies a defined groundwater basin.

Explanation

Riparian rights arise from contact with a watercourse such as a river or stream. Rights tied to the shore of an ocean, sea, or lake are described as littoral rather than riparian.

Question 5Real Property Ownership and Land Use

An owner buys a unit in a recorded condominium project. What does the owner actually hold?

  1. Fee title to the unit plus an undivided share of the common elements Correct answer.
  2. A proprietary lease from the association for a fixed term of years
  3. An interval ownership limited to one week each year
  4. Shares of stock in the association plus a proprietary lease

Explanation

Condominium ownership combines individual fee simple title to the unit with an undivided interest in the common elements, held as tenants in common with the other unit owners. The owners also belong to the owners' association that maintains the common elements.

Question 6Real Property Ownership and Land Use

The authority of state and local government to regulate the use of privately owned land for the public's health, safety, and general welfare is known as:

  1. Police power Correct answer.
  2. Escheat
  3. Eminent domain
  4. Taxation

Explanation

Police power is the government's inherent authority to regulate private conduct and property use without paying compensation, as through zoning, building codes, and health regulations. It is one of the four governmental powers over real property, along with eminent domain, taxation, and escheat.

Question 7Real Property Ownership and Land Use

A tenant fastens a bookcase to the living room wall with screws and trim molding so that it fits the room's built-in alcove. On the fixture question, a court would decide ownership primarily by reference to:

  1. the presumed intention of the parties, shown by annexation and adaptation. Correct answer.
  2. whether the bookcase matches the color of the walls in the unit.
  3. the original cost of the bookcase, as shown by the tenant's receipt.
  4. the date the bookcase was purchased relative to the lease start date.

Explanation

Courts apply three tests to decide whether an item has become a fixture: the manner of annexation, the adaptation of the item to the real property, and the intention of the parties. Intention is usually controlling, and permanent attachment plus a custom fit strongly suggests the item is part of the realty.

Question 8Real Property Ownership and Land Use

A tenant farms under a one-year lease and plants winter wheat. The tenancy ends through no fault of the tenant before the crop is ready to harvest. The growing crop generally:

  1. passes automatically to the holder of a mortgage on the land.
  2. belongs to the landlord in every case, because crops are part of the realty.
  3. may be harvested by the tenant as emblements. Correct answer.
  4. must be plowed under when the lease expires.

Explanation

Emblements are annual crops cultivated by a tenant. When a tenancy ends through no fault of the tenant, the tenant may re-enter to harvest those crops, because the tenant planted and cultivated them in reliance on the leasehold.

Question 9Real Property Ownership and Land Use

A restaurateur leases commercial space and bolts a walk-in refrigerator to the floor to run the business. At the end of the lease, the tenant generally:

  1. may remove the refrigerator if removal does not substantially damage the premises. Correct answer.
  2. must leave the refrigerator in place because it is attached to the floor.
  3. must leave the refrigerator but may deduct its value from the final rent.
  4. forfeits the refrigerator to the landlord as a fixture of the realty.

Explanation

Items installed by a commercial tenant for use in its trade are trade fixtures, which remain the tenant's personal property. The tenant may remove them before the lease ends provided removal does not cause substantial damage to the premises, and must repair any damage that is caused.

Question 10Real Property Ownership and Land Use

An easement appurtenant:

  1. benefits a particular person and ends when that person dies.
  2. benefits a particular parcel and passes with title to that parcel. Correct answer.
  3. must be recorded within one year of its creation to be enforceable.
  4. gives its holder the right to possess and exclude others from the land.

Explanation

An easement appurtenant attaches to a dominant parcel and burdens a servient parcel, so it runs with the land when either parcel is transferred. Because it benefits the land rather than a person, it does not expire when the original owner dies.

Question 11Real Property Ownership and Land Use

To acquire an easement by prescription over a neighbor's driveway, the claimant's use must generally be:

  1. open, notorious, hostile, and continuous for the statutory period. Correct answer.
  2. continuous and hostile, but lasting only one year.
  3. permissive, occasional, and confirmed in a signed writing.
  4. exclusive, with payment of all property taxes for five years.

Explanation

A prescriptive easement arises from use that is open, notorious, hostile to the owner's rights, and continuous for the period set by statute, which in Oregon is ten years. Unlike adverse possession of the fee, a prescriptive easement does not require exclusivity or payment of property taxes.

Question 12Real Property Ownership and Land Use

A landowner verbally tells a neighbor, "You may cross my field to reach the lake this summer, but I can take that back anytime." This arrangement is best described as:

  1. a covenant running with the land that binds later owners.
  2. an easement appurtenant that runs with both parcels.
  3. an easement by prescription, because the neighbor has used the path.
  4. a license, which is revocable and conveys no interest in land. Correct answer.

Explanation

A license is permission to use another's land for a stated purpose; it is revocable, personal to the licensee, and creates no interest in real property. It normally ends when the licensor revokes it, dies, or transfers the land, or when the licensee exceeds its scope.

Question 13Real Property Ownership and Land Use

An owner wants to build a detached garage that would sit two feet inside the required side-yard setback in a residential zone; garages are an allowed use in that zone. The owner should apply for:

  1. a conditional use permit, because a garage is not allowed in the zone.
  2. a variance, because the owner seeks relief from a dimensional standard. Correct answer.
  3. a nonconforming use permit, because the garage is a new structure.
  4. a zone change, because the garage is a different use of the land.

Explanation

A variance grants relief from a dimensional or bulk standard such as a setback, lot coverage, or height limit when strict application causes hardship. A conditional use permit, by contrast, authorizes a use that the ordinance allows in the zone only after discretionary review.

Question 14Real Property Ownership and Land Use

A machine shop has operated lawfully in an area for twenty years. The city then rezones the area to residential. The shop:

  1. must end immediately when the new zoning ordinance takes effect.
  2. may continue as long as it is not abandoned or improperly expanded. Correct answer.
  3. is any use allowed only after the planning commission approves it.
  4. may be expanded as a matter of right to any size the owner wants.

Explanation

A use that was lawful when it began but no longer conforms to current zoning is a legal nonconforming use and is constitutionally protected against immediate forced termination. Local ordinances typically allow it to continue while restricting expansion, requiring a conditional use permit for enlargement, and treating extended discontinuance as abandonment.

Question 15Real Property Ownership and Land Use

In a cooperative apartment building, the residents typically own:

  1. stock in the building corporation plus a proprietary lease. Correct answer.
  2. a life estate in a unit, with the remainder to the association.
  3. fee title to a unit plus an undivided interest in the common areas.
  4. a recorded timeshare interest in a specific unit for one week each year.

Explanation

A cooperative is owned by a corporation that holds title to the whole building; each resident buys shares of stock and receives a proprietary lease for a specific unit. Because the resident owns personal property (shares) rather than realty, cooperative financing and taxation differ from condominium ownership.

Question 16Real Property Ownership and Land Use

How does a specific lien differ from a general lien?

  1. A specific lien attaches to all of the debtor's real and personal property.
  2. A specific lien may be enforced only by the federal government.
  3. A specific lien is always involuntary and created by operation of law.
  4. A specific lien attaches only to one identified parcel of property. Correct answer.

Explanation

A specific lien secures a debt with one identified property, as a mortgage or deed of trust does. A general lien reaches all of the debtor's property, real and personal, as with a judgment lien or federal tax lien.

Question 17Real Property Ownership and Land Use

Over many years a river slowly deposits silt along the bank of a riparian owner's land, creating a new strip of dry ground. This process and its effect on title are:

  1. avulsion, and title to the added strip remains with the state.
  2. erosion, and the owner loses title to the newly added strip.
  3. accretion, and the riparian owner gains title to the gradual addition. Correct answer.
  4. reliction, and the owner gains title only after recording a new deed.

Explanation

Accretion is the gradual and imperceptible addition of land by water action, and the riparian owner takes title to the addition without a new deed. By contrast, avulsion is a sudden change of a watercourse, which leaves boundaries where they were, and reliction is the gradual exposure of land as water permanently recedes.

Question 18Real Property Ownership and Land Use

A married couple wants to take title to a new home in a way that gives the survivor automatic ownership if one of them dies. Which form of co-ownership should they use?

  1. Tenancy in common, which gives spouses survivorship by operation of law.
  2. Joint tenancy, which includes survivorship and is available to the couple. Correct answer.
  3. Community property, which Oregon requires for married couples.
  4. Tenancy by the entirety, which Oregon allows only for married couples.

Explanation

Joint tenancy supplies the right of survivorship when the four unities are present, and it is available to any eligible co-owners, including spouses. Oregon is a separate-property state that does not use community property, and the tenancy by the entirety form is not part of Oregon practice.

Question 19Real Property Ownership and Land Use

A landowner wants to withdraw water from a creek for irrigation in Oregon. The right to do so is generally determined by:

  1. the equal-sharing rule, under which all riparians share regardless of use dates.
  2. prior appropriation, under which the earliest beneficial use has senior priority. Correct answer.
  3. prescription, under which ten years of use creates a permanent right.
  4. the reservation doctrine, under which the federal government owns all water.

Explanation

Oregon administers most surface water and groundwater through a permit system based on prior appropriation, in which the priority date is the date of the earliest beneficial use. Older riparian uses that predate the 1909 water code may still be recognized, but new uses require a water right permit from the Oregon Water Resources Department.

Question 20Real Property Ownership and Land Use

A city proposes to expand its urban growth boundary onto adjacent farmland to accommodate projected growth. The expansion must be justified primarily by reference to:

  1. the federal Clean Water Act and its wetland permit program.
  2. the recorded subdivision plat and its dedication of streets.
  3. the statewide planning goals, applied through the city's acknowledged comprehensive plan. Correct answer.
  4. the county assessor's current tax lot map and appraisal records.

Explanation

Oregon's statewide land use planning program requires cities and counties to adopt comprehensive plans and implementing ordinances consistent with the statewide planning goals, and the plan must be acknowledged by the state. An urban growth boundary change must be shown to be needed and must comply with goals on farmland protection and efficient development.

Question 21Agency Relationships and Fiduciary Duties

Which of the following is a fiduciary duty an Oregon real estate licensee owes to a client?

  1. Scheduling the final walk-through
  2. Loyalty Correct answer.
  3. Ordering the appraisal
  4. Locating a lender for the client

Explanation

Oregon licensees owe the classic fiduciary duties of care, obedience, loyalty, disclosure, confidentiality, and accounting. Loyalty requires the agent to place the client's interests ahead of the agent's own. The other listed items are ordinary services a brokerage may perform, not fiduciary duties.

Question 22Agency Relationships and Fiduciary Duties

A buyer tours a listing with the seller's agent but has no written agency agreement with that agent. In Oregon, the buyer is the agent's:

  1. subagent
  2. principal
  3. client
  4. customer Correct answer.

Explanation

Oregon requires a written agency agreement before a licensee represents a buyer or seller, so a buyer who has signed nothing is a customer. A customer is entitled to honesty, fair dealing, and disclosure of material facts, but not to fiduciary duties. Subagency has been eliminated in Oregon.

Question 23Agency Relationships and Fiduciary Duties

Which document does the Oregon Real Estate Agency publish to explain agency relationships to consumers?

  1. The Seller's Property Disclosure Statement
  2. The Exclusive Right to Sell Listing Agreement
  3. The earnest money receipt
  4. The Initial Agency Disclosure Pamphlet Correct answer.

Explanation

The Oregon Real Estate Agency prepares the Initial Agency Disclosure Pamphlet, which explains the types of representation and the duties involved. Licensees deliver it to consumers early in the relationship. The other documents serve unrelated purposes in a transaction.

Question 24Agency Relationships and Fiduciary Duties

In Oregon, a licensee becomes a buyer's or seller's agent only after:

  1. the party signs a written agency agreement Correct answer.
  2. the party pays a retainer or fee
  3. the party promises orally to work with the licensee
  4. the licensee has shown the party at least one property

Explanation

Oregon requires a signed written agency agreement before a licensee may act as the agent of a buyer or seller. Showing property, oral assurances, and payment alone do not create representation. Without the writing, the party remains a customer.

Question 25Agency Relationships and Fiduciary Duties

An Oregon licensee's duty to keep a client's confidential information:

  1. ends when the listing agreement expires
  2. applies only during the term of a listing
  3. ends when the transaction closes
  4. continues after the agency ends Correct answer.

Explanation

Confidentiality outlives both the closing and the agency agreement. After the relationship terminates, the licensee still may not reveal or misuse the former client's confidential information. Only the client can authorize disclosure.

Question 26Agency Relationships and Fiduciary Duties

Under the duty of disclosure, a seller's agent must:

  1. screen offers by the buyer's financial strength
  2. withhold offers the seller is likely to reject
  3. present every offer to the seller promptly Correct answer.
  4. open only offers at or above list price

Explanation

The duty of disclosure obligates the agent to transmit every offer promptly, however low or unattractive. The seller, not the agent, decides which offers to accept or reject. Screening or withholding offers breaches the agent's fiduciary duty.

Question 27Agency Relationships and Fiduciary Duties

A brokerage represents the seller, and a buyer working with the same brokerage wants to make an offer. The firm may act as a disclosed limited agent only if:

  1. the buyer consents in writing
  2. the principal broker notifies the Oregon Real Estate Agency
  3. the seller consents in writing
  4. all parties consent in writing Correct answer.

Explanation

Disclosed limited agency arises when a brokerage represents both sides, including when two licensees of the same firm represent different parties. Oregon permits it only with the informed written consent of all parties. Consent by one side, or notice to the Agency, is not sufficient.

Question 28Agency Relationships and Fiduciary Duties

When acting as a disclosed limited agent, the licensee must:

  1. treat both parties fairly and remain neutral Correct answer.
  2. let an unlicensed assistant handle the negotiations
  3. share each party's confidential information so both are informed
  4. advocate for the party paying the larger share of the fee

Explanation

A disclosed limited agent may not advocate for either side and must deal fairly with both parties, presenting all offers and material facts. Confidential information of one party may not be passed to the other. Advocacy or favoritism is inconsistent with limited representation.

Question 29Agency Relationships and Fiduciary Duties

A seller's agent knows the basement floods each spring. The seller says to keep it quiet. The agent must:

  1. follow the instruction, because obedience is a fiduciary duty
  2. withdraw from the listing without explanation
  3. disclose the flooding to prospective buyers Correct answer.
  4. stay silent but urge the buyer to order an inspection

Explanation

Neither the duty of confidentiality nor the duty of obedience authorizes concealing material facts about the property. Oregon licensees must disclose known material defects to prospective buyers. Concealment exposes both the seller and the licensee to liability.

Question 30Agency Relationships and Fiduciary Duties

A seller offers a buyer's agent a $5,000 bonus if the sale closes. For the agent to accept it, the agent must:

  1. split the bonus with the listing brokerage
  2. disclose the bonus to the buyer and obtain the buyer's consent Correct answer.
  3. obtain only the principal broker's approval
  4. say nothing, because the seller is not the agent's client

Explanation

Loyalty bars a licensee from accepting compensation from a party whose interests may conflict with the client's without full disclosure and informed consent. A bonus that could influence the agent's advice must be disclosed to the buyer. Silence creates an undisclosed conflict of interest.

Question 31Agency Relationships and Fiduciary Duties

A licensee who has listed a home decides to buy it herself. Before making an offer, she must:

  1. have a relative submit the offer
  2. let the listing expire and then buy it
  3. disclose her interest in writing to the seller Correct answer.
  4. have another licensee present the offer without her name

Explanation

A licensee who wants to acquire property she represents must disclose in writing to the seller that she is a licensed broker and intends to buy the property. The seller then decides whether to proceed. Buying through a relative or concealing her identity leaves a conflict undisclosed.

Question 32Agency Relationships and Fiduciary Duties

A seller orders her agent not to show the home to buyers of a certain religion. The agent should:

  1. refuse, since obedience extends only to lawful orders Correct answer.
  2. comply, because obedience is owed to the client
  3. tell the seller to give the instruction in writing
  4. comply but note the instruction in the file

Explanation

The duty of obedience requires the agent to follow the client's lawful instructions. An instruction to discriminate on the basis of religion violates fair housing law and may not be followed. The agent should decline and explain the legal limits.

Question 33Agency Relationships and Fiduciary Duties

Which service may a seller's agent provide to an unrepresented buyer without creating an agency relationship?

  1. Negotiating price on the buyer's behalf
  2. Giving a blank sale form and explaining the steps Correct answer.
  3. Telling the buyer how much to offer
  4. Reviewing the buyer's finances to set a price

Explanation

Ministerial acts such as supplying forms, explaining the steps of a transaction, and providing factual information do not create an agency relationship with an unrepresented buyer. Giving advice, setting a price, or negotiating for the buyer would. The agent still owes the buyer honesty and disclosure of material facts.

Question 34Agency Relationships and Fiduciary Duties

A licensee receives a $5,000 earnest money check payable to the brokerage. The licensee must:

  1. deposit it in the brokerage's general operating account
  2. hold it in a desk drawer until closing
  3. deposit it promptly in the brokerage's trust account Correct answer.
  4. endorse it to the seller at once

Explanation

The duty of accounting requires a licensee to safeguard money belonging to others and place it in the brokerage's trust account as required by rule, or with an approved neutral escrow. Using client funds for the agent's or firm's expenses is conversion. Prompt deposit protects both the client and the licensee.

Question 35Agency Relationships and Fiduciary Duties

Toward an unrepresented buyer, the seller's agent owes:

  1. confidentiality about the buyer's finances
  2. honesty, fair dealing, and disclosure of material facts Correct answer.
  3. a duty to negotiate the lowest possible price for the buyer
  4. the same fiduciary duties owed to the seller

Explanation

An unrepresented buyer is a customer, not a client. The seller's agent must deal honestly, disclose known material facts, and refrain from misrepresentation, but owes fiduciary duties only to the seller. The agent does not negotiate against the seller's interest.

Question 36Agency Relationships and Fiduciary Duties

In Oregon, when a cooperating licensee brings a buyer to another firm's listing, that cooperating licensee:

  1. represents both parties by operation of law
  2. owes fiduciary duties to the seller
  3. does not represent the seller Correct answer.
  4. automatically becomes a subagent of the seller

Explanation

Oregon does not use subagency; a cooperating licensee who works with a buyer does not become the seller's agent. That licensee either represents the buyer under a written agency agreement or works with the buyer as a customer. Fiduciary duties arise only from a written agency agreement.

Question 37Agency Relationships and Fiduciary Duties

Two licensees affiliated with the same brokerage represent the seller and the buyer in one transaction. Which statement is correct?

  1. Only the principal broker becomes a limited agent, so the two licensees may advocate freely
  2. Oregon prohibits this arrangement in every case
  3. The firm may act as a disclosed limited agent with written consent Correct answer.
  4. Consent may be given orally when the offer is written

Explanation

Oregon permits disclosed limited agency, including in-house transactions in which licensees of one firm represent both sides. Every party must give informed written consent, and each licensee must protect the confidences of his or her own client. Advocacy for either side is inconsistent with limited agency.

Question 38Agency Relationships and Fiduciary Duties

A buyer client says, "Offer $400,000, but I would pay up to $450,000 - don't tell the seller." The buyer's agent should:

  1. refuse to submit the offer until the buyer authorizes disclosure
  2. tell the listing agent privately, off the record
  3. hint at the higher figure so the deal will close
  4. present the $400,000 offer and keep the ceiling confidential Correct answer.

Explanation

The buyer's negotiating ceiling is confidential information that the agent may not reveal, even though disclosure might help close the transaction. The agent presents the offer as instructed and may not hint at the higher figure. Only the buyer can authorize sharing it.

Question 39Agency Relationships and Fiduciary Duties

A licensee with no written agency agreement shows a buyer homes for three weekends and advises on pricing. In Oregon, the licensee has:

  1. no agency was created, and the licensee may have broken the rules Correct answer.
  2. created an implied agency relationship that legally binds the buyer
  3. become a subagent of every seller whose listing was shown
  4. created a disclosed limited agency with the sellers involved

Explanation

Representation in Oregon requires a written agency agreement, and no implied agency arises from a licensee's conduct alone. Without the writing, the buyer remains a customer. Acting as though the buyer were a client can violate the agency statutes and rules.

Question 40Agency Relationships and Fiduciary Duties

A buyer asks her agent whether visible foundation cracks are structural. The agent is not an engineer. The duty of care requires the agent to:

  1. say nothing so the buyer cannot rely on the answer
  2. assure the buyer the cracks are cosmetic to keep the deal alive
  3. share known facts and refer the buyer to a qualified inspector Correct answer.
  4. give an opinion, since the agent has toured many homes

Explanation

The duty of reasonable care includes recognizing the limits of the licensee's expertise. The agent should disclose what she actually knows and recommend that the buyer retain a qualified inspector or engineer. Unfounded assurances about structural condition invite liability.

Question 41Real Estate Contracts

Which of the following is an essential element of a valid real estate contract?

  1. A lawful objective Correct answer.
  2. A title insurance commitment issued before closing
  3. A licensed appraiser's valuation of the property
  4. An inspection contingency approved by the buyer

Explanation

A contract requires mutual assent, consideration, capacity, and a lawful purpose. Appraisals, title commitments, and inspection contingencies are transaction features the parties may negotiate, but none is needed for the contract itself to be valid.

Question 42Real Estate Contracts

Under Oregon's statute of frauds, an agreement for the sale of real property must be:

  1. Recorded with the county clerk before it binds
  2. In writing and signed by the party to be charged Correct answer.
  3. Approved in writing by the listing broker
  4. Notarized by both the buyer and the seller

Explanation

ORS 93.020 requires a writing subscribed by the party against whom enforcement is sought before an interest in real property may be created or transferred. Notarization and recording affect proof and priority among third parties, not whether the contract is valid between the parties.

Question 43Real Estate Contracts

In an Oregon residential sale, earnest money is best described as:

  1. A penalty the buyer forfeits whenever any contingency fails
  2. A nonrefundable fee retained by the listing broker in every case
  3. A deposit that immediately transfers legal title to the buyer
  4. Good-faith consideration credited to the price at closing Correct answer.

Explanation

Earnest money is the buyer's consideration demonstrating seriousness of intent. It is held in trust under the sale agreement and applied to the purchase price at closing unless the buyer defaults and the contract allows the seller to keep it.

Question 44Real Estate Contracts

A seller receives a signed buyer's offer and responds by signing a counteroffer at a higher price. Before the buyer answers, the seller tries to accept the buyer's original offer. The seller's attempted acceptance is:

  1. Ineffective, because the counteroffer rejected the original offer Correct answer.
  2. Effective, because the original offer remained open until the buyer rejected it
  3. Effective, because signing a counteroffer does not alter the original offer
  4. Ineffective unless the seller first gave written notice of withdrawal

Explanation

A counteroffer is both a new offer and a rejection of the offer it responds to, so the original offer is terminated. Once terminated, the original offer cannot be revived by a later attempted acceptance.

Question 45Real Estate Contracts

Which transfer of residential property is exempt from Oregon's seller's property disclosure statement requirement?

  1. A duplex sold by an investor who has never lived there
  2. A 1970s ranch house sold by an owner-occupant
  3. A trustee's sale following a foreclosure Correct answer.
  4. A condominium sold through a licensed broker

Explanation

ORS 105.464 exempts transfers that are not voluntary arm's-length sales, such as foreclosure and trustee's sales, court-ordered transfers, gifts, and transfers between co-owners. Ordinary resales, rentals, and broker-assisted condominium sales remain covered.

Question 46Real Estate Contracts

An Oregon sale agreement states that if the buyer defaults, the seller may retain the earnest money as agreed damages. A court will enforce this clause only if:

  1. The seller proves actual damages that exceed the deposit
  2. The buyer was represented by a licensed real estate broker
  3. The clause was separately notarized by both parties
  4. It reasonably forecasts damages that are hard to estimate Correct answer.

Explanation

A valid liquidated damages clause must be a reasonable forecast, made when the contract is formed, of the harm a breach would cause where actual damages are difficult to prove. A sum that does not meet that test is an unenforceable penalty.

Question 47Real Estate Contracts

A sale agreement says the buyer's duty to close depends on obtaining a loan at no more than 6.5% interest. This provision is best described as:

  1. A condition precedent to the buyer's performance Correct answer.
  2. An option to purchase
  3. A liquidated damages clause
  4. An anticipatory repudiation

Explanation

A condition precedent is an event that must occur before a party's duty to perform arises. If financing on the stated terms cannot be obtained, the buyer's duty to close never becomes due and the buyer may terminate under the contingency.

Question 48Real Estate Contracts

A seller signs an agreement giving a buyer the right to buy the property within 60 days for $400,000. To keep that offer open and irrevocable for the full 60 days, the agreement must:

  1. Include a liquidated damages clause for the seller's default
  2. Provide that the buyer forfeits the price if it does not close
  3. Be recorded in the county deed records before the period begins
  4. Be supported by consideration paid for the option Correct answer.

Explanation

An option is a contract to keep an offer open, so it needs consideration, although even a small sum recited as paid will usually suffice. Without consideration the arrangement is merely a revocable offer that the seller may withdraw.

Question 49Real Estate Contracts

In an Oregon land sale contract (contract for deed), the seller generally:

  1. Must record a deed of trust within ten days of signing
  2. Transfers marketable title to the buyer immediately
  3. Delivers a warranty deed at signing and takes back a mortgage
  4. Keeps legal title until the buyer completes payments Correct answer.

Explanation

Under a land sale contract the buyer receives equitable title and possession while the seller retains legal title, delivering the deed only when the contract price is paid. On default the seller's remedies are governed by the contract rather than by foreclosure of a deed of trust.

Question 50Real Estate Contracts

A buyer assigns a sale agreement to a third party who assumes the buyer's obligations. The original buyer is released from liability only if:

  1. The earnest money is transferred to the assignee
  2. The seller agrees to a novation releasing the original buyer Correct answer.
  3. The assignee pays all cash at closing
  4. The assignment is recorded in the county records

Explanation

An assignment transfers the assignor's rights, and an assumption makes the assignee liable, but the assignor remains bound on its promises. Only a novation, to which the seller agrees, substitutes the new party and discharges the original buyer.