RE174 CH6 Real Estate Contracts

A real estate broker must retain all records for a minimum of

3 years. The retention period runs from the date of closing a transaction or, if not closed, from the date of the listing.

Liquidated damages are typically limited to blank percent of purchase price in the event of buyer default.

3% - of purchase price in event of buyer default

Procuring Cause

The agent who is the procuring cause of a sale is the agent who initiated an uninterrupted series of events that led to the sale. Under open listings and exclusive-agency listings, an agent who was the procuring cause of the sale is entitled to a commission

Options

an option is a contract to make a contract. generally option to purchase forms provide the method of exercising the option, include any agreed upon sales terms, and contain provisions for escrow and delivery of title as well as for brokerage fees.

A contract to make a contract

is an option need not be exercised must have had consideration

Broker A gave his friend B $500 because B told him that C was ready to sell a property. Broker A's Action

is ok

privity of contract

the relationship between contracting parties

Besides listing contracts, other agreements that have relevance between the principal and the agent include the following:

1) Advance fee addendum to listing: this agreement sets forth activities for which the agent is to be compensated as well as the fee to be paid in advance. 2) Advance costs addendum: this addendum covers costs to be advanced to cover expected broker outlays. 3) Listing modification: this agreement allows changes to the listing without an entire new agreement. 4) Loan broker listing agreement: This listing gives the loan broker the right to obtain a loan for a prospective borrower. 5) Seller's net: This is a statement from the agent that shows what the owner will have after all costs, payments, and expenses.

The real estate purchase contract is generally the buyer's offer to purchase. Additional forms of interest include the following:

1) Contingency removal: when signed by the buyer, this simple form will remove contingencies from the offer. 2) Interim occupancy agreement: This agreement allows the purchaser early possession of the premises as a tenant, not as a buyer. 3) Counteroffer: Rather than modify an offer, a party can counter an offer with a separate counteroffer form. The advantage of a counteroffer form is that it helps to reconstruct the events clearly. 4) Seller financing disclosure statement: This statement, which is provided to both buyer and seller, warns parties of the effect of terms and provides full disclosure. 5) Release of contract: by signing a release agreement, the parties can agree to cancel an agreement. 6) Mortgage loan disclosure statement: this form is required when the broker is arranging credit while acting as a mortgage loan broker. 7) Exclusive authorization to lease or rent: this is the listing agreement for rentals. 8) Residential lease agents should not attempt major modifications of lease forms because of their liability for errors and omissions, as well as because it could be the unuathorized practice of law. The use of preprinted forms for other than simple residential leases is dangerous because they are unlikely to reflect the intent of both parties. 8) Broker-salesperson contracts: often, contracts specify independent contractor status rather than employee-employer relationships. 9) a great many disclosures are required by state and federal law. while many disclosures are included in standard forms, the failure of forms to include required disclosures does not excuse a broker from liability.

Types of listings are as follows:

1) Exclusive right-to-sell listing: this listing provides that the broker is entitled to a commission if the listing broker or any other broker or the owner sells the property. 2) Exclusive Agency Listing: the listing makes the broker the owners' exclusive agent. The broker is entitled to a commission if the listing broker or any other broker sells the property, but the owners can sell the property themselves without being obligated to pay a commission. 3) Open Listing: This is a nonexclusive listing whereby brokers are entitled to a commission only if they are successful. 4) Oral Listing: Generally, a verbal real estate listing is unenforceable because of the statute of frauds. The owners might waive statute of frauds protection if they encourage a broker to continue to work on a listing after it has expired. 5) Buyer listing: Such listings can be of various types, but the agency is with the buyer. 6) Net listing: A net listing can be any of the preceding listing types. Net refers to the broker's commission, which is all monies over a net price for the owner.

There are two types of exclusive sale listings:

1) exclusive right-to-sell listings 2) exclusive agency listings

good faith

1. A term describing an individual's legitimate and honest efforts to meet his or her obligations in a given situation. 2. An act performed on the basis of trust and with no intent to misrepresent or defraud.

Listings require all the elements of a valid contract to be enforceable. They are

1. Mutual Consent 2. Consideration 3. Legal Purpose 4. Competent Parties

Records of a real estate broker must be retained for

3 years

Estimated Buyers costs

By using this disclosure form, the broker is protected against later allegations that the buyer was misled regarding financial requirements for purchase.

Cancellation of contract - Car form CC-11

Cancellation of Contract, Release of Deposit and Joint Escrow Instr. can be used as a joint release

The real estate agency agreement is known as the

Listing.

Exclusive Listings

Most listings are exclusive listings, in which the owner makes the agent the owner's exclusive agent to procure a buyer and agrees to pay a commission should the agent succeed. Exclusive listings are bilateral, mutual exchange of promises.

Seller's Net

Often, sellers do not understand the effect of escrow costs, prorations, prepayment penalties, title insurance costs, seller's points, and other matters. Estimated Seller's Net Sheet forms allow the agent to estimate teh seller's actual net after loans, liens, costs and fees are deducted from the sale price.

Counter offer - CAR CO-11. When separate forms are signed and dated individually for each counter offer, it is called multiple offers. THE CAR has created a from for this situation

SMCO seller multiple counter offer is designed to provide for the process of the sequence of negotiations and the final agreement will be clear.

Real Estate Purchase Contract

The California Association of REALTORS - CAR has prepared several real estate purchase contract forms. Fig 6.3

Exclusive authorization and right-to-sell listing, the owner agrees to pay a commission to an agent if the agent, any other agent, or the owner procures a buyer in accordance with the price and terms of the listing, or for any other price or terms that the owner accepts. True or False

True, with an exclusive authorization and right-to-sell listing, the owner agrees to pay a commission to agent regardless of who procures a buyer.

hold-harmless clause

a contract provision whereby one party agrees to indemnify and protect the other party from injuries or lawsuits arising out of the particular transaction. Such clauses are usually found in leases in which the lessee agrees to "indemnify, defend and hold harmless" the lessor from claims and suits of 3rd persons for damage resulting from the lessee's negligence on the leased premises.

An acceptance that varied from the original offer on a material term is called

a counter offer, which is a rejection of the original offer.

no loan, no commission

a listing agreement requiring that escrow be closed and title transferred before an agent is entitled to a commission

Open listing

a listing given to any number of brokers who can work simultaneously to sell the owner's property. The first broker to secure a buyer who is ready, willing and able to purchase at the terms of the listing earns the commission. In case of a sale, the seller is not obligated to notify any of the brokers that the property has been sold. Unlike an exclusive listing, an open listing need not contain a definite termination date. the listing terminates after a reasonable time, usually whatever is customary in the community. Either party can, in good faith, terminate the agency at will.

loan broker listing

a mortgage loan broker's contract with a buyer to obtain a loan

safety clause

a safety clause may be contained in a listing. It provides that a broker is still entitled to a commission for a set period of time after the listing has expired if the property is sold to a prospect, who was introduced to the property by the broker, during the period of the listing.

The safety clause in a listing protects an agent as to

a sale after listing expires

Listing Agreement

a written employment agreement between a property owner and a real estate broker authorizing the broker to find a buyer or a tenant for certain real property. Listing can take the form of open listings, net listings, exclusive-agency listings, or exclusive-right-to-sell listings. the most common form is the exclusive-right-to-sell listing.

Exclusive-authorization-and-right-to-sell listing

a written listing agreement appointing a broker as the exclusive agent for the sale of property for a specified period of time. The listing broker is entitled to a commission if the property is sold by the owner, by the broker or by anyone else.

exclusive agency listing

a written listing agreement giving a sole agent the right to sell a property for a specified time, but reserving to the owner the right to sell the property himself without owing a commission. The exclusive agent is entitled to a commission if he or she personally sells the property or if it is sold by anyone other than the seller

Under an exclusive-agency listing, the owner might be encouraged to subvert the blank's efforts

agent's. Problems arise as to who really was the procuring cause of a sale when agent had contact with owner's buyer. Many brokers refuse exclusive-agency listings.

advance fees

an "advance fee" is any fee which is claimed, demanded, charged, received, collected or contracted for as consideration any of the following: 1) a listing, advertisement, or offer to sell or lease property or a business opportunity - other than a newspaper advertisement. 2) the referral to a real estate licensee 3) soliciting borrowers or lenders 4) negotiating a loan, regarding real estate or a business opportunity

interim occupancy agreement

an agreement allowing a buyer to take possession of a property as a tenant prior to close of escrow.

cooperating broker fee agreement

an agreement between brokers specifying the commission split should the cooperating broker sell a property listed by the listing broker.

advance fee addendum

an agreement specifying services for which an agent or broker will be compensated including a provision for payment of an advance fee.

buyer listing

an agreement where a buyer agrees to pay a commission if a broker locates a property that the buyer purchases

Procuring cause need not be shown for

an exclusive authorization and right to sell listing

Listing forms to lease or rent, CAR Exclusive Authorization to Lease or Rent - Form LL are similar to sale listing agreements. When a landlord accepts a deposit on a rental from a prospective tenant, the landlord could be entering a lease agreement unless it is clear it is only an blank to rent and not an agreement to rent.

application

Interim occupancy agreement

at times, a buyer will be given possession before closing. It must be fully understood that the buyer's position is as a renter and not as a buyer taking early possession. Interim Occupancy Agreement such as CAR form 10A-11 makes it clear that the buyer is in possession as a renter.

The CAR form includes a confirmation of acceptance and agreement if the broker is to pay cooperating blank blank

broker compensation

A listing is an agency contract whereby a principal, usually the property owner, appoints an agent, a real estate blank, to perform some task.

broker. a listing is an agency

Buyer listings

can be exclusive; the broker has the sole right to locate property for the buyers. In a buyer exclusive -agency listing, the buyers can locate property for themselves, but the broker is the exclusive agent. In an open buyer listing, the broker is given nonexclusive authorization to locate property.

If a party to a listing refuses to release funds when there is no good-faith dispute, the party may be subject to

civil damages subject to $1,000

An enforceable listing requires all EXCEPT

compensation agreement. requires legal purpose, competent parties and mutual consent.

Some option forms provide for option extensions upon the payment of additional

consideration

An offer to purchase which depends on something happening in the future refers to a

contingency. Offers to purchase often are contingent on something happening, such as receiving an appraisal for a stated amount or more, obtaining a loan to stated specifications, or the sale or purchase of another property. The most common contingency is an offer contingent on financing.

Options are contracts to make blank whereby optionees have an irrevocable right to make a contract if they wish to do so.

contracts

Advanced costs

differ from advance fees in that they are paid to the agent to cover cash outlays in carrying out the agency.

Advance Fee addendum - or forms

especially listings involving larger residential, commercial, or industrial property where a great deal of professional effort and expense will be required before a sale.

A finder's fee agreement sets forth the conduct of the blank and the compensation. It protects both the blank and the finder.

finder, broker

Estimated buyer's costs - CAR EBC-11

form provides for the purchaser's signature. The agent is therefore protected against later allegations that the buyer was misled about the cash requirements for purchasing property.

due diligence

generally, due diligence refers to the care a reasonable person should take before entering into an agreement or a transaction with another party.

If "as is" is to be enforceable as to defects discovered later, full disclosure is important, and the buyer should be given not just the right, but also the responsibility to

inspect.

A hold-harmless clause would be found in a

listing agreement

A buyer's listing authorizes an agent to

locate properties for buyer consideration

Listing agreements must contain a statement that the amount or rate of commission is

negotiable between seller and broker. Listing agreements must contain the following statement in ten-point boldface type: "Notice: The amount or rate of real estate commissions is not fixed by law. They are set by each Broker individually and may be negotiable between seller and Broker."

two agents had valid sale listings on the same property. the property was sold but neither agent was entitled to a commission because

neither was the procuring cause; the listings were open listings; the sale was made by another.

A type of listing where the agent's commission consists of all money received over a stated amount is called a

net listing. Net listings refer to the commission payment only and provide that all money received over a stated or net amount shall be the agent's commission.

Open listings are

nonexclusive listings. they may be offered to one or more brokers.

Open Listings

nonexclusive listings; they may be offered to one or more brokers. The broker who earns the commission is the first agent to bring the owner an offer that meets the terms of the listing or that the owner accepts.

An agent neglected to fill in any commission amount in a listing. After successful sale the agent would be entitled to

nothing

In open listings and exclusive agency listings, blank cause is often an issue.

procuring cause. The agent may not be entitled to a commission if the agent failed to initiate an uninterrupted series of events that led to the sale.

Exclusive-agency listings usually require the owner notify the agent of any sale and identify the

purchasers. They usually also prohibit the owner from offering the property at a lower price than that offered by the agent.

Net Listings

refer to the commission payment only and provide that ll money received over a stated or net amount will be the agent's commission. Although legal in california, agents should be aware that the seller is likely to allege fraud or misrepresentation should the sales price result in a commission that is greater than customary.

Unlike exclusive listings, open listings do not need a definite blank date.

termination

Exclusive listings must have a definite

termination date. The absence of a termination date on an exclusive listing also subjects the agent to disciplinary action that could include suspension or revocation of the agent's license.

procuring cause

the cause originating a series of events that lead directly to the intended objective; in a real estate transaction the procuring cause is the real estate agent who first procures a ready, willing, and able buyer.

Exclusive agency listing

the named broker is the exclusive agent for the owner, and earns commission even if other agents procure the buyer. The owner however can sell the property without any obligation to pay a commission.

burden of proof

the obligation to prove the truth or falsity of a fact

An exclusive listing is a bilateral contract because

the principal agrees to pay a fee and the agent agrees to use due diligence.

What entitles the listing agent to a commission for a sale made after the listing expired?

the safety clause. This clause customarily provides that the owner is obligated to pay a commission if a sale is made within a stated period after expiration of the listing to any person the agent negotiated with and whose name was furnished in writing to the owner within 3 days after the expiration of the listing.

"As Is" Clause

this clause usually refers to the buyer accepting the property in its present condition. If conditions have been hidden, the seller will be liable. Seller should make a full disclosure of all defects known to the seller and state that additional defects, which the seller is unaware of, maybe found.

Oral listings

though listings of real property is required to be in writing to be enforceable, one exception may exist. If, after a listing expires, the owners encourage the broker to continue to work on the sale of the property, the owners may have waived their rights to claim statute of frauds as a defense against paying a commission. The doctrine of estoppel might apply.

Generally, a verbal real estate listing is blank because of the statute of frauds.

unenforceable

What type of contract is an open listing?

unilateral since only the owner, principal, needs to sign it and any agent can procure a buyer. The agent makes no promise to use diligence to obtain a buyer. By procuring a buyer the agent accepts the owner's promise to pay a commission.