California Real Estate Practice Exam

An "installment sale" contract is which of the following?

1. A real property sales contract in which a seller agrees to convey title to real property to the buyer, after the buyer has met certain conditions specified in the contract.

2. Does not require conveyance of title until after one year.

3. Will allow a seller to "stretch out" his tax liability over a longer period of time, thereby reducing the effective tax paid on a capital gain realized.

4. All of the above.

The correct answer is: A real property sales contract in which a seller agrees to convey title to real property to the buyer, after the buyer has met certain conditions specified in the contract.

An "installment sale" contract refers specifically to a real property sales contract where the seller agrees to transfer title to the buyer only after certain conditions have been fulfilled, typically involving installment payments over a period of time. This structure allows the buyer to gain possession and use of the property while continuing to pay off the purchase price. The characteristics of an installment sale can vary; however, the defining feature is that ownership is not transferred until all contractual obligations, such as payment, are satisfied. This method is beneficial for both parties, as it can provide the buyer with the ability to acquire property with less upfront capital and allows the seller to receive payments over time. In the broader context of the options provided, while there are elements in the other choices that touch upon important aspects of an installment sale—such as potential tax benefits and conveyance timelines—these characteristics do not fully encapsulate the primary definition of an "installment sale" contract. The foundational aspect is the agreement concerning title conveyance based on fulfilling specific conditions, making the first option the most accurate and appropriate answer to the question.