Certified Residential Appraiser Practice Exam

What is the primary component needed for a binding contract in a healthy market?

1. Informed Consent

2. Consideration

3. Written Document

4. Notarized Signature

The correct answer is: Consideration

Consideration is a fundamental element needed for a binding contract under contract law. It refers to something of value that is exchanged between the parties involved. In the context of real estate and a healthy market, consideration represents the price paid for a property or the value of services exchanged in the transaction. Without consideration, a contract cannot be enforced because it lacks the essential element of a bargained-for exchange most contracts require. While informed consent, a written document, and a notarized signature can contribute to the enforceability and clarity of a contract, consideration is the core element that distinguishes a legally binding agreement from one that is merely a promise or an intention to engage in a transaction. In real estate transactions, both parties must deliver and accept consideration for the contract to hold legal weight and offer protection to both parties involved. Understanding this concept is critical for appraisers and others in the real estate profession when assessing the validity and enforceability of agreements within a healthy market.