Real Estate Council of Alberta Fundamentals Practice Exam

In the context of fraud, what does the term "Contract Kiting" refer to?

1. Submitting false financial documents

2. Using two contracts with different price agreements

3. Manipulating property appraisal values

4. Creating fictitious buyers

The correct answer is: Using two contracts with different price agreements

Contract kiting refers to the practice of using two contracts with different price agreements, typically to conceal the true terms of a transaction from lenders or other parties involved. This method creates a misleading representation of the sale price of a property, which can be used to secure higher financing amounts or to mislead others about the financial viability of the purchase. In essence, the person engaging in contract kiting has one contract that reflects a lower sale price to avoid scrutiny, while another contract reveals a higher price that may be intended for negotiating terms or securing funding. This deceptive practice is primarily aimed at taking advantage of lenders’ or other stakeholders' reliance on official documentation for decision-making. The other choices focus on distinct fraudulent activities, such as submitting false financial documents or manipulating appraisals, which do not specifically encapsulate the core concept of contract kiting. Thus, the correct answer captures the essence of this particular fraudulent scheme within real estate transactions.