PSI New Jersey Real Estate State Practice Exam

What kind of contract is being referred to if a buyer and seller have agreed on a price and both signed a written agreement with a cancellation clause?

1. Executed contract

2. Exclusively written contract

3. An executory contract

4. Non-binding agreement

The correct answer is: An executory contract

The situation described fits the definition of an executory contract. An executory contract is one where the parties have made an agreement that has yet to be fully performed; in this case, while the buyer and seller have agreed on a price and signed a written agreement, certain actions still need to occur for the transaction to be complete, such as transferring the title and completing the sale. The cancellation clause indicates that there are conditions under which either party can withdraw from the agreement, further emphasizing that the contract has not yet been fully executed. In contrast, an executed contract would imply that all terms have been fulfilled, which is not the case here since performance is still pending. An exclusively written contract isn't a term typically used in real estate lingo, and a non-binding agreement would suggest that the contract lacks legal enforceability, which contradicts the fact that both parties signed a binding agreement. Thus, calling this an executory contract is accurate as it encapsulates the ongoing obligations present in a deal that is not yet completed.