Massachusetts Real Estate License Practice Test

What defines a reciprocal contract between two parties in real estate?

1. Earnest Money

2. Homestead

3. Bilateral Contract

4. Unconscionable Contract

The correct answer is: Bilateral Contract

A reciprocal contract in real estate refers to a situation where both parties involved make mutual promises to each other, creating obligations that are legally enforceable. This is characteristic of a bilateral contract, where each party agrees to perform certain actions or provide certain services in exchange for the actions or services of the other party. For instance, in a bilateral contract for the sale of real estate, the seller agrees to transfer the title to the property, while the buyer agrees to pay the purchase price. This mutual exchange of promises is what differentiates bilateral contracts from unilateral contracts, where only one party makes a promise that the other party can accept. The other options do not represent the concept of a reciprocal contract. Earnest money involves a deposit made by a buyer to demonstrate commitment but does not define the nature of the agreement itself. A homestead refers to a legal term concerning a dwelling used for residential purposes and offers certain protections but is not related to the contract type. An unconscionable contract refers to an agreement that is so one-sided or unfair that it shocks the conscience, which does not apply to the definition of a reciprocal contract.