Certified Residential Appraiser Practice Exam

What characterizes a bilateral contract?

1. Agreement between multiple parties without promises.

2. One party promises to perform a service.

3. Two parties have exchanged promises.

4. Neither party has made a promise yet.

The correct answer is: Two parties have exchanged promises.

A bilateral contract is characterized by the exchange of promises between two parties. Each party commits to fulfilling an obligation, creating mutual obligations that establish a legally binding agreement. For example, in a real estate transaction, one party agrees to sell a property while the other agrees to pay a certain amount for it. This reciprocal exchange is fundamental to a bilateral contract, as both parties' promises are essential for the contract's validity and enforceability. The other options do not correctly define a bilateral contract. For instance, simply agreeing without promises would imply a lack of commitment, which is not applicable in this context. Similarly, if only one party promises to perform a service, it describes a unilateral contract instead, where only one party bears the obligation. Lastly, stating that neither party has made a promise yet suggests that no contractual agreement exists, negating the essence of a bilateral contract, which is built on mutual promises.