Ch. 9 - Real Estate Contracts

Escrow

An escrow clause provides for the custody and disbursement of the earnest money deposit. It releases the escrow agent from certain liabilities in the performance of escrow duties.

In what section of a sales contract would you find information regarding the acceptable use of funds by the escrow agent? Escrow paragraph Paragraph 6.C.2 Section 2, HUD paragraph Financing paragraph

Escrow paragraph

Earnest Money Deposit (EMD)

A clause specifies how the buyer will pay the earnest money. It may allow the buyer to pay it in installments. Such an option enables a buyer to hold on to the property briefly while obtaining the additional deposit funds.

What is a contingency? What is the most common contingency?

A contingency is a condition that must be met before the contract is enforceable. The most common contingency concerns financing.

Default

A default clause identifies remedies for default. Generally, a buyer may sue for damages, specific performance, or cancellation.

Loan Approval

A financing contingency clause states under what conditions the buyer can cancel the contract without default and receive a refund of the earnest money.

Implied contract

An implied contract is an unstated or unintentional agreement that may be considered to exist when the actions of any of the parties suggest the existence of an agreement.

Which contract provision allows for the transfer of the contract to another person? Assignment of a Contract Operation of Law Transfer Clause Execute Clause

Assignment of a Contract

If the seller fails to deliver the deed at closing, the seller would be what?

In default

A contract for deed is also known as what?

Land contract

What sales contract section allows the buyer to include items that have no other paragraph addressing them? Open Provisions Special Provisions Outstanding Provisions Allowable Provisions

Special Provisions

Title evidence

The seller covenants to produce the best possible evidence of property ownership. This is commonly in the form of title insurance.

A contract is valid only if it meets all of the following five criteria: Competent parties Mutual agreement Lawful objective Consideration In writing

True

Contracts may also be classified as being: Oral or written Express or implied Unilateral or bilateral Executed or executory

True

In terms of validity and enforceability, a court may interpret the legal status of a contract in one of four ways: Valid Valid but unenforceable Void Voidable

True

True or False: There are many types of contracts, including: Real estate contracts Sale and lease contracts/option agreements Mortgage contracts Listing and representation contracts

True

Sales Contracts

a legal contract for the purchase of property by a buyer from a seller for an agreed upon value in money.

Contract

an agreement between two or more parties who, in a "meeting of the minds," have pledged to perform or refrain from performing some act.

Listing Agreement

is a contract between a property seller and a broker.

Executed Contract

is one that has been fully performed and fulfilled. Here, neither party bears any further obligation.

Valid contract

is one that is legally enforceable by virtue of meeting certain requirements of contract law. If a contract does not meet the requirements, it is not valid. The parties cannot resort to a court of law to enforce its provisions.

Express contract

one in which all the terms and covenants of the agreement have been clearly stated and agreed to by all parties, whether verbally or in writing.

Bilateral Contract

one in which both parties promise to perform their respective parts of an agreement in exchange for performance by the other party.

Voidable contract

one which initially appears to be valid, but is subject to cancellation by a party to the contract who is believed to have acted under some kind of disability. Only the party who claims the disability may cancel the legal effect of the contract.

Unilateral Contract

only one party promises to do something, provided the other party does something. The latter party is not obligated to perform any act. However, the promising party must fulfill the promise if the other party chooses to perform.

Void contract

an agreement that does not meet the tests for validity.

What is the status of TREC promulgated forms A licensee must use the form as directed, unless exemptions are met. A licensee is not required to use the form. A broker decides how the form is to used by his/her company. A licensee must pay a fee to the TREC each time the form is used. YOU ANSWERED INCORRECTLY Forms that have been approved by TREC are not required to be used by licensees. Forms that have been promulgated by TREC must be used by licensees in the transaction for which it was designed.?

A licensee must use the form as directed, unless exemptions are met.

Concerning contracts of deed, Texas A. has no standardized contract for deed prohibits contracts of deed has a standardized contract for deed and a certain form sanctioned by associations and agencies considers contracts of deed to be unenforceable

A. has no standardized contract for deed prohibits contracts of deed

What does the Statute of Limitations require that parties to a contract who have been damaged or who question the contract's provisions do? Act within a statutory period. Select a specific, limited course of action for recouping their losses. Arbitrate prior to taking court action. Wait a statutory period before they may take legal action.

Act within a statutory period.

What section of a sale contract describes the ramifications of the property being damaged or destroyed prior to closing? Status Loss Loss of Assets Casualty Loss Readjustment Settlement

Casualty Loss

Which section of the sales contract speaks to the fact that a licensee can't give legal advice?

Consult an attorney

What is one advantage of a contract for deed? Gives the seller certain tax benefits. Typically provides the seller with a larger down payment. Allows the broker to collect a commission prior to he actual sale. Allows the closing to occur without a capital gains tax assessment.

Gives the seller certain tax benefits.

Buyer Bill has agreed to pay for a computer system after all hardware has been installed and operational. What type of contract does Bill hold? Executory Lateral Executed Open Option

Executory

What two primary purposes does a contract for deed serve for a seller?

It facilitates a sale that might otherwise be impossible. It may give the seller certain tax benefits.

The guardian for a mentally incompetent party enters into an oral contract with another party to buy a trade fixture. What is true about this contract? It does not meet validity requirements. It is possibly valid and enforceable. It must be in writing to be valid. It is unenforceable.

It is possibly valid and enforceable.

What does the escrow clause in a sales contract do?

It provides for the custody and disbursement of the earnest money deposit. And it releases the escrow agent from certain liabilities in the performance of escrow duties.

Conveyed Interest; Type of Deed

One or more provisions will state what type of deed (for example, general warranty, special warranty) the seller will use to convey the property, and what conditions the deed will be subject to.

In a contract for deed situation, what must a person do who wishes to convert his or her interest in the property into a legal title?

Pay the seller the full amount due on the contract for deed, or deliver a promissory note equal to the balance due that contains the same due date, interest rate, and late fees as the contract

In what paragraph would you find the buyer's right to an inspection?

Property condition

What is the term in the sales contract that allows division of some expenses between buyer and seller?

Prorations

Valid but Unenforceable

State laws declare that some contracts are enforceable only if they are in writing. If in writing, the courts can require all parties to the contract to comply with all obligations under such contract. These laws apply to the transfer of interests in real estate. Therefore, an oral contract may meet the tests for validity. However, if it falls under the laws requiring a written contract, the parties will not have legal recourse to enforce the terms of the contract. Here are two examples of contracts that may be valid but not enforceable: Oral long-term lease (that is, more than one year) Oral real estate sales contract Note that such contracts, if valid, remain so even though not enforceable. This means that if the parties fully execute and perform the contract, the outcome may not be changed.

What does a right of rescission clause set forth?

The buyer's right under certain conditions to rescind the sale contract and re-claim their deposits if sellers fail to complete and deliver the property condition disclosure statement to buyers in a timely fashion. The buyer must follow certain procedures and meet certain deadlines in order to legitimately effect the cancellation.

closing costs

The contract identifies which closing costs each party will pay. Customarily, the seller pays title insurance and property-related costs. The buyer pays financing-related costs. Annual costs, such as taxes and insurance, are prorated between the parties.

Closing and Possession Dates

The contract states when title will transfer, as well as when the buyer will take physical possession. Customarily, possession occurs on the date when the seller receives funds from the sale, unless the buyer has agreed to other arrangements.

What is an important legal characteristic of an option to buy agreement? The potential buyer, the optionee, is obligated to buy the property once the option agreement is completed. The optionor must perform if the optionee takes the option, but the optionee is under no obligation to do so. The contract can be executed at no cost to the optionee. It is a bilateral agreement.

The optionor must perform if the optionee takes the option, but the optionee is under no obligation to do so.

What is an important legal characteristic of an option to buy agreement? The potential buyer, the optionee, is obligated to buy the property once the option agreement is completed. The optionor must perform if the optionee takes the option, but the optionee is under no obligation to do so. The contract can be executed at no cost to the optionee. It is a bilateral agreement.

The optionor must perform if the optionee takes the option, but the optionee is under no obligation to do so.

What happens when a seller makes a counteroffer to a buyer's original offer?

The original offer terminates and the counteroffer becomes a new offer

What is the definition of "time is of the essence"?

The parties agree that they can amend dates and deadlines only if they both give written approval.

Buyer Representation Agreement

the document a prospective buyer signs once he or she decides to work with a buyer's agent at a particular brokerage.