Affiliate Broker Tennessee (TN PSI) National Practice Exam `

Which option best describes a bilateral agreement in real estate?

1. One party makes a promise

2. Both parties exchange mutual promises

3. No promises are exchanged

4. Only one party is obligated

The correct answer is: Both parties exchange mutual promises

A bilateral agreement in real estate is characterized by both parties exchanging mutual promises. In this type of contract, each party is obligated to fulfill a specific promise or duty to the other party. For example, in a real estate sales agreement, the seller promises to transfer ownership of the property, while the buyer promises to pay the agreed-upon price. This mutual exchange of promises is what defines a bilateral agreement and establishes a binding legal obligation for both parties involved in the transaction. In contrast, the other options do not accurately reflect the nature of a bilateral agreement. If only one party makes a promise, it describes a unilateral agreement where one party is obligated, but not the other. An agreement where no promises are exchanged would not qualify as a contract, as contracts inherently involve commitments. Therefore, the correct understanding of a bilateral agreement rests on the mutual obligations created by the exchange of promises between both parties.