Real Estate Contracts & Practice - Earnest Money Agreements

Buyer's offer

After buyer signs the earnest money agreement, transaction considered offer until seller accepts agreement and acceptance is communicated to buyer If no time period for acceptance is stipulated, offer will lapse after reasonable time If purchaser gives broker 5 days to secure acceptance of offer, purchaser can withdraw offer before 5 days have past Purchaser may terminate offer and have deposit refunded even though seller has orally approved offer Purchaser may not withdraw offer after proper notification of seller's acceptance, but may withdraw offer any time before that (e.g., before offer presented to seller, after acceptance but before notification) Buyer has no right to sue if seller does not accept offer Broker must submit all offers received to seller immediately until seller accepts one To create valid contract, acceptance of written offer must be in writing within time period specified in offer accepted offer contains signatures of buyer and seller

Equitable title

After contract of sale is executed, until closing buyer has equitable title

Time is of the essence

Concept concerning performance Significant and binding on both buyer and seller Punctual performance of terms required of principals to contract Most likely found in earnest money receipt All time is of the essence deadlines set by contract must be met by stated deadline (not 24 hours or 48 hours after deadline; not "as soon as possible")

Contingency

Depending on something not certain Provision in offer to purchase that requires completion of a certain act before contract is binding, e.g., buyer qualifying for loan, buyer selling home Contract conditional upon buyer's ability to obtain leases in advance is enforceable

Earnest money agreement

Legally enforceable contract immediately upon seller's acceptance and communication of acceptance to buyer Must be signed by buyer and seller, but not by broker If personal property used as down payment, receipt should show dollar value and state bill of sale will be given

Liquidated damages

Liquidated damages clause found in earnest money agreement Amount predetermined by parties to agreement as to total amount of compensation a party should receive in the event the other party breaches a specified part of the contract Agent and seller may keep earnest money if buyer defaults

Sales agreement (earnest money agreement):

Must be in writing, signed by persons to be held to contract (buyer and seller), have legal object, have offer and acceptance, have competent parties, be supported by consideration, contain accurate description of property Does not need time period for seller's acceptance, street address, earnest money deposit, acknowledgment, recordation, witnessing by disinterested party, signature of wife of seller, initials of broker or attorney Binding on heirs, so if seller dies before signing closing papers, transaction is still valid

Earnest money

Part of consideration offered to seller, but not the consideration for sale of property Money deposited by purchaser at time of signing earnest money or sales contract If offer does not provide for earnest money deposit, broker should present offer as contract will be formed on acceptance without existence of deposit Amount determined by agreement of parties Check should be payable to broker If note, it is in seller's best interest to have note payable on seller's acceptance If seller unable to provide marketable title, return entire amount of earnest money deposit to buyer Buyer may revoke offer any time before seller's acceptance communicated to him and obtain full refund of deposit

Risk of loss or damage

Unless agreement to contrary, before legal title or possession passes to buyer as owner, risk of loss or damage falls on seller unless agreement to contrary, as soon as buyer receives legal title or possession as owner, risk of loss or damage falls on buyer