Ch. 20 - Agreement of Sale

What does Pennsylvania law require a licensee to prepare for a buyer that will show them their costs to close the transaction? A worksheet showing estimated costs to close An amortization schedule A good faith estimate An appraisal

A worksheet showing estimated costs to close

Agreement of Sale

A written agreement or contract between seller and purchaser in which they reach a "meeting of minds" on the terms and conditions of the sale. The parties concur; are in harmonious opinion. Purchase price Deposit or escrow money Closing date Personal property to be included or excluded from the sale Financing Inspections Any contingencies with their associated dates

What do we call a document attached to and made a part of the original contract at the time it is prepared and submitted to the principals? A servicing note An acceleration clause An addendum A contingency

An addendum

What contingency allows the buyer time to get and study inspections of the property? A mortgage contingency An insurance contingency An inspection contingency A property sale contingency

An inspection contingency

When can an offer to purchase be withdrawn? Before closing After acceptance After commissions are paid Any time before acceptance

Any time before acceptance

What section of the ASR explains that the agreement is binding and is not transferable unless consent is given by the seller? Assignment Governing Law, Venue and personal Jurisdiction Recording Representations

Assignment

What does a good purchase price offer with a large earnest money deposit let the sellers know? That the buyers have good credit That the buyers are very interested That the buyers will have a large down payment That the buyers can afford the loan

That the buyers are very interested

Who has the right to inspect all escrow records and funds? The primary broker NAR HUD The Commission

The Commission

What entity issues a highway occupancy permit?

The Department of Transportation

Uniform Electronic Transactions Act (UETA)

The UETA applies to real estate sales contracts and allows e-signatures to be as legally binding as pen-and-ink signatures, often referred to as a wet signatures.

What Act applies to real estate sales contracts and allows e-signatures to be as legally binding as pen-and-ink signatures? The Fair Housing Act After acceptance The Uniform Electronic Transactions Act The Marketable Record Title Act

The Uniform Electronic Transactions Act

What is it called when a housing association has the right to purchase a unit before any other parties have access to negotiations?

The association has a right-of-first refusal.

To whom should a licensee give the earnest money deposit? The escrow agent The title company The broker The lender

The broker

What entity must be the one to sign the purchase and sale agreement of an estate?

The executor of the estate

When a property is being sold as part of an estate, who must sign the purchase and sale agreement? The advisory board The executor of the estate The trustee The agent

The executor of the estate

In most cases, who presents an offer to purchase to sellers? The listing agent The broker The buying agent An attorney

The listing agent

What rule states that a written contract takes precedence over oral agreements or promises? The rule of consideration The rule of severability The provisions rule The parol evidence rule

The parol evidence rule

What acts as the receipt for an earnest money deposit? The check itself A certificate of deposit The service fee The purchase and sale agreement

The purchase and sale agreement

Who bears the risk of any loss to the property before settlement and what happens if a property is destroyed?

The seller bears the risk of any loss due to fire or other casualties. If the property is destroyed and not replaced prior to settlement, the buyer can accept the property in its current condition along with insurance proceeds or terminate the contract and have the earnest money refunded.

To avoid fraud charges, what two contract elements must be met?

The statute of frauds requires that any offer to purchase a property must be in writing and signed by the buyers.

When a property is being sold as part of a trust, who must sign all the appropriate documents? The seller The trustee The beneficiary The executor

The trustee

PA license law has specific requirements for the mortgage contingency clause;

The type of mortgage The mortgage principal The maximum interest rate of the mortgage The minimum term of the mortgage The deadline for the buyer to obtain the mortgage The nature and extent of assistance that the broker will render to the buyer in obtaining the mortgage

What is the purpose for the Inspection Contingency paragraph in the ASR?

This section establishes terms for inspections and re-inspections.

What sale agreement clause prohibits a buyer from assigning the property to a third party while under contract?

Under the Assignment clause, the seller is not allowed to assign or lease the property to a third party.

What paragraph in the ASR explains that if the buyer fails to inspect and/or repair the condition of the property in the time allowed, the buyer gives up his or her rights? Home Warranty Buyer's Due Diligence/Inspections Change in Buyer's Financial Status Waiver of Contingencies

Waiver of Contingencies

Section 35.324 of the Pennsylvania law has set deadlines for when a broker must deposit earnest money into an escrow account.

--A broker must deposit the earnest money into an escrow account by the end of the next business day following its receipt in the real estate office where the escrow records are maintained. --If the broker receives a check for the earnest money with an offer to purchase, the broker may refrain from depositing the money into an escrow account until the offer is accepted. But then the broker must deposit the check into an escrow account within 1 business day of acceptance of the offer.

Licensees are not authorized to practice law. The consequences of giving legal advice;

--Criminal prosecution, punishable by up to one year in prison and a $2,500 fine --Disciplinary action by the Real Estate Commission, which could result in a fine, license suspension or revocation --Lawsuit filed by the injured party, which could result in a monetary damages award

Gaining Acceptance- other things to look at;

--Earnest money amount. Does the deposit amount show that the buyers are very serious? --Type of financing. Does the buyer have a large down payment or, even better, is it a cash sale? --Contingencies. Is the contract contingent on the sale of another home or an appraisal amount or is it free of those potential stumbling blocks? --Closing/possession date. Do the dates give the sellers the flexibility they need to find their next home?

But what happens if the transaction terminates and the funds ARE in dispute?

--Section 35.327 of Pennsylvania law states the if there is a dispute between the parties over who should receive the money being held in escrow, the broker must keep the money in escrow until the dispute is resolved. --chance of resolving it without legal action, the broker, after giving 30 days' notice to the parties, can petition the county court to take over the funds and distribute the money to the rightful claimant.

Inspection Contingency

--allows the buyer time to get and study inspections of the property. The buyer could order inspections for termites or other pests, hazardous substances, mechanical systems, sewage systems or structural defects. --covered in detail in the ASR document.

contingency

--is a condition that must be satisfied before the agreement is fully enforceable. A contingency contains three aspects: 1)The actions that will satisfy the contingency 2)The time frame in which the actions must be performed 3)Who will pay the costs, if any The common types of contingencies include: Mortgage Inspection Insurance Property sale

Addenda

--is a document attached to and made a part of the original contract at the time it is prepared and submitted to the principals. -- An addendum has the ability to overrule the original terms of the agreement. Addendums can be very powerful because they override the language that was in the contract before the addendum was attached. --Settlement of Other Property Contingency (SOP) --Sale & Settlement of Other Property Contingency Addendum to Agreement of Sale (SSP) --Sale & Settlement of Other Property Contingency (With Right to Continue Marketing) Addendum to Agreement of Sale (SSP-CM) --Sale & Settlement of Other Property Contingency (With Right to Continue Marking and Timed Kickout Clause) Addendum to Agreement of Sale (SSP-TKO) --Seller's Reply to Proposed Agreement of Sale for Buyer's Property or Buyer's Financial Ability to Proceed (SRA)

A mortgage contingency

--is designed to protect the buyer's earnest money until he or she has a loan commitment from the lending institution --In Pennsylvania, the mortgage contingency is not a separate document, but rather is contained in the ASR document as you saw earlier in this chapter.

Proof of Homeowners' Insurance

--is documentation (usually requested by a lender) that indicates that the buyer has secured a homeowners' insurance policy that will cover the property being purchased from the date of the transaction close.

Property Sale Contingency

--states that the purchase is contingent on the sale of the buyer's home. -- This helps the buyer by assuring that he or she will not end up owning two homes, but it's not always beneficial to the seller. Often a seller will agree to this contingency with the stipulation of a "kick-out" or "back-out" clause.

Sale & Settlement of Other Property Contingency (With Right to Continue Marketing) Addendum to Agreement of Sale

-Buyer acknowledges that the seller can continue to market his or her property to other prospective buyers. -if seller accepts an offer from another buyer, the first buyer's agreement is terminated -sellers right to market the property ends if the seller approves in writing the terms and conditions of an agreement of sale for the buyer's

What is covered in Paragraph 12. Buyer's Due Diligence/Inspections?

-Seller will provide access for inspection and will have utilities turned on during inspections. The buyer may make two pre-settlement walkthroughs of the property to be sure the property condition is as the agreement requires. Both the buyer and seller will have access to inspection reports. -All inspections are non-invasive, unless otherwise agreed in writing. -For all elected inspections, the buyer will complete the inspections in the contingency period, obtain the reports, and then accept the property, terminate the agreement, or submit a written corrective proposal to the seller.

Earnest Money

-buyer makes an offer, he or she accompanies the offer with a deposit -usually given as a check, but occasionally a buyer will give a cash deposit -is a good faith gesture that shows the seller that the buyer is serious about the offer and intends to carry out the terms of the contract -not mandatory. -The earnest money belongs to the buyer until the offer is accepted. If the offer is not accepted, the money is returned to the buyer. -broker must deposit the earnest money he or she receives into an escrow account in a federally or state-insured bank or depository.

Change in Terms Addendum to Agreement of Sale (CTA)

-designed to change the terms of the ASR. -Repairs--seller must make. -Seller Assist--change to the amount of funds provided by the seller for the purchase. -Purchase Price--change in the listing price. -Acceptance & Settlement--changes to the dates. -Mortgage Terms--lists changes to terms of the mortgage that the buyer is seeking from a lender. This includes the type of mortgage, mortgage amount, name of the mortgage lender(s), loan-to-value ratio, and date for the buyer to deliver documentation. -Time Periods--date changes to any part of the ASR. -Other-- write-in additional changes.

Escrow Account Rules;

-federally or state-insured bank or depository -rent-deposit those monies into a rental management account that is separate from the escrow account -If the buyer gives the deposit to the listing broker rather than the selling broker, the listing broker will handle the escrow.

Preparing an Offer

-including purchase price, amount of earnest money deposit, how the buyers will pay the price, and the date they want to close.

Sale & Settlement of Other Property contingency (With Right to Continue Marking and Timed Kickout Clause) Addendum to Agreement of Sale

-inform the seller that if the seller accepts the ASR, the buyer will list his or her property for sale (if it's not already listed). -Buyer acknowledges that the seller can continue to market his or her property to other prospective buyers -If the seller receives a good offer from a different prospective buyer with acceptable terms, the seller will notify the first buyer of the acceptance of the new offer and the intent to terminate the existing buyer's offer.

Sale & Settlement of Other Property Contingency Addendum to Agreement of Sale

-inform the seller that if the seller accepts the ASR, the buyer will list his or her property for sale (if it's not already listed). -listing price and term for the contingent property. -The section also details what the buyer may do if the seller rejects the buyer's agreement of sale. -If the terms of the addendum cannot be met, the buyer will receive all deposit monies back.

Post-Settlement Possession Addendum to Agreement of Sale

-opposite of a PRE in that in applies to the seller rather than the buyer. -allows the seller to remain on the property after the closing date. -same sections as PRE

Settlement of Other Property Contingency

-the buyer's property is under contract and that a settlement date will occur on or before the settlement date listed. -buyer's settlement does not occur by the indicated date or terminates, the seller has the option to terminate the agreement and return the deposit monies to the buyer. Buyer and seller can extend the contract if both agree. -seller the right to terminate the Agreement if the buyer's mortgage commitment is conditioned upon the sale and settlement of the buyer's property.

Notice of Termination of Agreement of Sale

-used by the buyer or seller to terminate an agreement of sale. -The buyer or seller notes what part of the agreement or terms have become problematic. -Parties are advised to seek legal counsel before termination, to determine liability, if any. -followed by a notice which states that the termination is not contingent on the parties signing an Agreement of Sale Release or an agreement regarding the distribution of the deposit money.

Seller's Reply to Proposed Agreement of Sale for Buyer's Property or Buyer's Financial Ability to Proceed

-used by the seller to reply to any PAR Sale and Settlement of Other Property Contingency Addendum. 1)Buyer's Agreement of Sale provides space for the seller to accept or reject the buyer's request for acceptance of a property sale contingency. 2)Buyer's Financial Ability to Proceed provides space for the seller to accept or reject the buyer's proof of financial ability to proceed with the transaction.

Pre-Settlement Possession Addendum to Agreement of Sale (PRE)

-used when the seller allows the buyer use of the property prior to the actual closing date. It is not a lease. -covers up to 14 days of occupancy only. -Purpose--explains intent of the PRE. Designed to allow the buyer to move in personal property and/or make repairs to the property. -Possession Date -Occupancy Fee--buyer pay, in advance any fees that the buyer charges per day, for the privilege of early occupancy. -Deposits--buyer will pay the seller a deposit fee (space to enter amount) which will be added to the amount credited to the seller upon closing. -Property Inspection. The buyer indicates if he or she will not make a pre-settlement inspection. -Utilities-- buyer indicates what utilities he or she will pay for during the pre-settlement period. -Pets- indicates if pets are allowed on the property during the pre-settlement -Maintenance. The buyer agrees to maintain the property in acceptable conditions -changes to property -property insurance -entry -buyer's default -assignment -etc

The FIRPTA section of the ASR states that certain buyers of property held by foreign entities must withhold what percent of the sale proceeds for federal tax payments? 15 22 28 33

15

What is the rule regarding when a broker must deposit earnest money?

A broker must deposit the earnest money into an escrow account by the end of the next business day following its receipt in the real estate office where the escrow records are maintained.

Section 35.326 of the Pennsylvania law prohibits commingling or misappropriation of funds

A broker must not commingle the principal's money or other property with his own. However, a broker may deposit money into his or her escrow account to cover any service charges the bank may assess to this account.

What account should a broker use to deposit escrow rent monies?

A broker should deposit rents received into a rental management account that is separate from the broker's escrow and general business accounts.

What is the true meaning of a counteroffer?

A counteroffer is in effect a rejection of the original offer and submitting a counteroffer gives the buyers a way out.

What must be included in a sale agreement for a property built prior to 1978? A mold disclosure An environmental hazard disclosure A radon disclosure A lead-based paint disclosure

A lead-based paint disclosure

What do many states require the licensee to attach to the agreement of sale to identify a property? The street address A zoning classification A legal description A survey

A legal description

What type of contingency is designed to protect the buyer's earnest money until he or she has a loan commitment from the lending institution? A property sale contingency An inspection contingency A mortgage contingency An insurance contingency

A mortgage contingency

Why is not always a good strategy to present a really low-ball offer?

A price that is too low can cause the sellers to reject the offer outright.

Into what type of an account should a broker deposit rent that he or she receives as a property manager? An interest bearing account An escrow account A money market account A rental management account

A rental management account

What does it tell the seller, if a buyer puts down $500 on $800,000 property?

A small earnest money deposit shows that the buyers are not very serious.

A purchase and sale agreement must also do the following:

Identify the parties to the contract. Describe the property to be transferred. Give the offering price. State the method of payment. Describe how utilities will be paid. Provide for settlement of taxes, insurance and any liens. State the type of deed and condition of the title. List any liens or encumbrances that the buyer will assume. Outline and explain any contingencies. Set a time for delivery of title and possession. lead-based paint disclosure for property built prior to 1978 and a sewage facilities disclosure.

According to section 35.325 of Pennsylvania law, an escrow account must:

Be maintained in a Federally- or State-insured bank or recognized depository. Designate the broker as trustee. Provide for the withdrawal of funds without prior notice. Be used exclusively for escrow purposes

In a community property state if the buyer or seller is married, whose signatures should be on the contract? The husband The husband, the wife and any children over 18 The wife Both spouses

Both spouses

Sale price is the most important aspect of the agreement but not the only one. Other important terms the sellers should consider include:

Closing costs Fixtures and appliances Furniture Move date and leaseback deals Repairs Financing contingencies Home warranty

What is it called when a real estate broker mixes his or her client's funds with his or her personal funds? Commingling Dispersing Incorporating Conjoining

Commingling

Section 604 also states these escrow account must indicate;

Date received From whom the money was received Date deposited Dates of withdrawals Other pertinent information concerning the transaction

In Pennsylvania, where are financing contingencies handled? In the mortgage documents On the property addenda In the standard agreement of sale On the settlement statement

In the standard agreement of sale

What happens to a purchase and sale agreement once it is signed by both buyers and sellers? It becomes noncontingent. It becomes a binding contract. It becomes a voidable contract. It becomes a counteroffer.

It becomes a binding contract.

What does it mean when a buyer waives his or her rights?

It tells the seller that the buyer has declined to exercise his or her rights regarding some particular aspect of the agreement.

What are the most common buyer's contingencies?

Mortgage Inspection Insurance Property sale

What document is used to terminate an agreement of sale?

Notice of Termination of Agreement of Sale (TER)

What paragraph on the ASR deals with local government housing compliances? Seller Representation Notices, Assessments and Municipal Requirements Assignment Governing Law, Venue and Personal Jurisdiction

Notices, Assessments and Municipal Requirements

Typically, when a buyer defaults on an agreement, what happens to the earnest money?

Often when a default occurs, it is decided that the sellers will keep the earnest money deposit as damages.

What is a licensee's duty to seek other buyers, when the seller has already accepted another offer?

Pennsylvania law states that a licensee is not obligated to seek additional offers when his or her client is subject to an existing contract.

What is the most important aspect of a sales agreement? A home warranty Price Closing costs Fixtures

Price

Why is it not a good idea for a licensee to present an offer to purchase over the phone? They need to be available for signatures. It's unlawful. Price is only one aspect of the big picture. They cannot reject an offer over the phone.

Price is only one aspect of the big picture.

What is documentation that indicates that the buyer has secured a homeowners' insurance policy that will cover the property being purchased from the date of the transaction close? A home warranty Proof of homeowners' insurance An appraisal A survey

Proof of homeowners' insurance

Article 13 of the REALTORS® Code of Ethics & Standards of Practice states that:

REALTORS® shall not engage in activities that constitute the unauthorized practice of law and shall recommend that legal counsel be obtained when the interest of any party to the transaction requires it.

What paragraph of the ASR explains that it is not to be part of any public record? Representations Governing Law, Venue and Personal Jurisdiction Special Clauses Recording

Recording

What should a licensee do if buyers have questions about the legal implications of any of the provisions on a purchase contract? Refer them to the broker. Answer the questions to the best of his or her ability. Ask the title company for answers. Refer them to a real estate attorney.

Refer them to a real estate attorney.

Why should you avoid making an offer over the phone to your sellers?

Sellers cannot accept an offer over the phone, but they can certainly reject one. Do whatever it takes to avoid a telephone presentation.

What type of buyers are most attractive to a seller?

What type of buyers are most attractive to a seller?

When can a broker claim the interest on an escrow account? When it's in escrow for over 6 months When he or she is a lessor When the Commission gives permission When he or she is the designated agent

When he or she is a lessor

An e-signature has the same legal standing as: an invalid signature. a pen-and-ink signature. an implied contract. an oral contract.

a pen-and-ink signature.

According to the ASR, loan-to-value ratio is explained based on value determined by: a lender. a broker. a surveyor. an appraiser.

an appraiser.

Generally, when a buyer makes an offer it is accompanied by a deposit which is known as: a down payment. a certificate of deposit. earnest money. a demand deposit.

earnest money.

The ultimate goal of the real estate licensee

is to market a seller's property successfully or to find an appropriate property for a buyer. When this happens, the licensees bring together the buyer and the seller to culminate the transaction.

In PA real estate agents can fill out preprinted forms for leases or sale agreements as long as: they have permission from NAR. an agency relationship is in place. they do not charge a fee for it. the broker gives permission.

they do not charge a fee for it.