Humber/Ontario Real Estate Course 4 Exam Practice

What does an escape clause allow in a real estate agreement?

1. The buyer to terminate the agreement if their existing home does not sell.

2. A third-party room inspector to conduct additional evaluations.

3. The seller to continue marketing the property while holding a conditional offer.

4. Either party to cancel the agreement without penalty.

5. The seller to offer lower sale prices under conditional offers.

6. Both seller and buyer to engage in separate sales negotiations concurrently.

The correct answer is: The buyer to terminate the agreement if their existing home does not sell.

An escape clause in a real estate agreement provides specific conditions under which a party can terminate the agreement without incurring penalties. In the context of real estate transactions, it often serves to protect the buyer in situations where they have a contingency related to the sale of their existing home. If their home does not sell within a specified timeframe, the escape clause allows the buyer to back out of the agreement for the new property, thus safeguarding them from being financially obligated for two properties at once. This clause is particularly important in the competitive real estate market where buyers may need to sell their current homes to afford the new purchase. It provides them with the flexibility to manage their transactions concurrently and reduces the risk of committing to an agreement that they cannot fulfill if their prior sale does not go through. The other choices do not accurately reflect the typical function of an escape clause. For instance, while third-party inspections can be part of real estate agreements, they are not directly related to an escape clause. Similarly, allowing the seller to continue marketing the property while under a conditional offer is a separate concept known as a "dual agency" or "conditional acceptance," and not directly associated with an escape clause.