Certified Residential Appraiser Practice Exam

What type of contract is characterized by one party making a promise in exchange for a promise from another party?

1. Unilateral contract

2. Bilateral contract

3. Executed contract

4. Void contract

The correct answer is: Bilateral contract

A bilateral contract is defined by the mutual exchange of promises between two parties, where each party commits to perform a specific action or set of actions. This type of contract typically involves both sides agreeing to fulfill certain obligations, creating a reciprocal relationship. For example, in a bilateral real estate contract, one party (the seller) agrees to transfer ownership of property, while the other party (the buyer) promises to pay a specified amount in return. The foundational aspect of a bilateral contract is this mutuality of agreement; both parties are bound to perform their respective duties, which distinguishes it from a unilateral contract, where only one party makes a promise and the other party is not obligated to act. This principle of reciprocity is central to the enforceability of contracts and highlights the important role of mutual consent in contractual agreements. In contrast, executed contracts refer to agreements where both parties have fulfilled their obligations, while void contracts lack legal enforceability from the outset. Understanding the nature of bilateral contracts is crucial for those involved in real estate transactions, where such agreements are commonplace.