Sect 18: The Selling Process in WA
What is a purchase agreement?
A binding, written contract entered into by a potential property buyer and the property seller
Which of these correctly defines a contingency?
A condition that must be met before the sales contract is complete and enforceable.
The excise tax is calculated using two tax rates. What are they?
A state rate and a local rate
Joe Dunlap is buying a house from Jenny Shaker for $230,000. They're only two weeks from closing when Joe finds out he's been laid off from his job. He and Jenny agree that it's best to cancel the contract, because without a job, Joe won't get approved for his loan. Jenny has a back-up contract on the property, so she moves ahead with that new buyer. Which remedy is being used?
Mutually rescind the contract
Kendra enters a contract to sell her home to Madge. After the inspection, Madge insists that Kendra replace the roof, which is damaged. Kendra refuses, and the parties agree to cancel the deal. Of what is this an example?
Mutually rescinding the contract
In order for performance of contract to occur, the parties to the contract must meet the terms of the contract in a timely manner. What phrase is often used in contracts to convey the need for the parties to proceed in good faith and not unduly delay the process?
"Time is of the essence."
The Buyer's Side of the Transaction Before Closing
- Complete the loan application and provide all documentation to the lender Review the loan estimate form - Work with the lender to schedule an appraisal (if financing) - Retain an attorney, if desired or if required - Review home inspection results and negotiate repairs - Contact utility, garbage, cable, and phone companies as necessary - Change address at Post Office - Meet insurance requirements - Walk through the property - Ensure that all requested repairs have been made - Wrap up current lease or mortgage - Order and review survey, if applicable - Verify settlement statement accuracy - Review seller's deed - Obtain evidence of title - Review and sign finalized loan documents
Steps in the transaction process:
1. Deposit earnest money 2. Begin title work 3. Complete inspection 4. Perform appraisal 5. Obtain homeowners insurance 6. Obtain loan approval 7. Obtain the payoff amount of any existing mortgages 8. Obtain the funds to cover the closing costs 9. Perform the actual closing 10. Record the change of ownership
What three types of information are generally covered in a purchase and sale agreement?
1. The. amount of the purchase offer 2. The earnest money deposited 3. The buyer's financing contingencies
How long are Washington licensees required to keep copies of real estate forms on file?
3 years
Manage the transaction:
- Guide the seller through the transactional process. - Present offers and discuss possible responses. - Deposit earnest money (i.e., an amount the buyer pays to show commitment to purchase the seller's property) according to the agreement. - Prepare the seller's net sheet, which is an estimate that the seller's agent prepares to show how much money the seller will walk away with if the seller accepts the buyer's offer. - Prepare necessary transactional paperwork, obtain signatures, and provide copies to parties. - Negotiate offers and counter-offers with buyers/their representatives on the seller's behalf. - Negotiate repairs, if needed. - Provide a list of reputable contractors if needed; obtain estimates for repairs, if permitted. - Assist the seller in scheduling contractors for repair work, if needed. - Work with the buyer's representative to verify the loan progression and satisfaction of any contingencies. - Work with the title company (the business used to determine clear ownership and facilitate the closing) to provide appropriate documents in a timely manner. - Track the transaction through closing. Retain copies of all paperwork.
Elements of a Purchase and Sale Agreement
- Names of the transaction parties: The real estate contract must include the legal names of the parties to the transaction—the buyer and seller. The parties are sometimes referred to as the vendor and vendee, but this is more common in a land contract. (Note: The licensees acting on behalf of or assisting the buyer and/or seller are not parties to the contract.) - Property description: This must include the legal property description and the street address. For example, the Northwest MLS form includes the legal description as an attachment (Exhibit A). Purchase price: This is the price being offered for the property, and this part of the contract must include the method of payment (i.e., financing, cash, or a combination of the two). - Closing date: This is the date the buyer will receive the deed and the seller will receive the sales proceeds. A specific date must be listed. It's important to take into consideration the timing of financing, contingencies, and any other considerations—such as liens and repairs— when setting a closing date. - Date of possession: This section states that the closing/conveyance/possession occurs on the closing date (unless otherwise stated in the contract), with the title conveyed in fee simple (unless otherwise stated). - Financing contingencies: This states whether or not the purchase is contingent upon the buyer obtaining financing, as well as the length of the financing term, the type of financing allowed, and whether a financing addendum is attached. - Earnest money receipt: This identifies the amount and form of earnest money, its due date(s), to whom it must be paid, and the requirements for refunding the earnest money if the transaction isn't completed. "Time is of the essence" statement(s): In a real estate contract, this phrase means that the parties agree to procee
The Seller's Side of the Transaction Before Closing
- Perform all negotiated repairs - Maintain property in good condition - Work with buyer and buyer's broker to schedule appraisal, inspections, and walk-through - Meet all terms of the sales agreement - Work with closing agent as necessary to secure lien payoff information - Work with broker to verify that buyer financing is in order or review proof of funds - Retain attorney, if desired - Work with title company to clear up any title deficiencies - Review settlement statement
Consummation of Contracts
- Seller and buyer: Close on the sale agreement - Buyer and lender: Close on mortgage loan commitment - Buyer and title representative:Close on their contract - Seller: Closes on contract with listing agent - Seller and buyer agents: Close on their cooperative brokerage agreement - Agents' brokers: Close on their compensation agreement
The Day of Signing
- The buyer and seller sign all closing documents and consummate all contracts. - The buyer pays the balance of the sales price in the form of a cashier's check, certified check, or a wire transfer.
Prior to closing
- The parties ensure that the conditions/contingencies of the purchase agreement have been met. - A title search is performed on the property to see if any liens or other encumbrances exist. - The buyer obtains a binder for insurance coverage on the home. - The buyer's agent, attorney, or lender contacts the buyer and tells the buyer how much money to bring to closing. - The buyer and the buyer's agent perform a final walk-through to make sure the property is in the same condition as it was in at the beginning of the transaction process.
Which three of these does a contingency normally include?
1. A deadline for a removal of the condition. 2. Who is responsible for the accompanying actions or costs involved. 3. The actions necessary to remove the condition.
Jasmine and Tony Disnee sign a sales contract with seller Britney to purchase her two-bedroom house. In the contract, the Disnees agree to pay $10,000 of their earnest money when the contract is accepted, and another $20,000 two weeks later. Two weeks pass, and they don't make the second payment. Britney rescinds the contract, keeping the earnest money. Which two remedies are being used?
1. Accept liquidated damages 2. Rescind the contract unilaterally
hich tasks would the buyer perform prior to closing? Select the three that apply.
1. Complete a final walk-through 2. Review hazard insurance policy meets requirements 3. Set up utlilties 4. Review the settlement statements
Which tasks would the buyer perform prior to closing? Select the three that apply.
1. Complete a loan application 2. Obtain a home inspection 3. Obtain an appraisal
Sales Contract Transaction Process
1. Deposit Earnest Money: The buyer writes a check for the deposit that secures the offer. 2. Begin Title Work: A title officer performs a title search to make sure there are no clouds on the title. 3. Complete Inspections: The buyer will arrange for any inspections on the property, including pest inspections. 4. Perform Appraisal: The lender will order an appraisal, which will be used to determine the value of the property for the purpose of obtaining a loan. 5. Obtain Homeowners Insurance:The buyer finds and secures homeowners insurance. 6. Obtain Loan Approval: The lender will inform the title company that the loan request has been approved. At this time, a closing appointment will be scheduled. 7. Obtain Payoff of Existing Mortgage: The closing agent will send notice to the seller's lender asking for full payment of the existing mortgage. 8. Obtain Closing Costs: The buyer must obtain a cashier's check, wire transfer, or a certified check in the amount due at the time of closing. 9. Perform Closing: All of the required title and loan papers will be signed by the buyer. Depending on the type of closing, the seller may have already signed all the necessary paperwork. 10. Record the Change of Ownership: The county records the property deed, as well as the mortgage or deed of trust if the buyer obtained financing.
Addendum
Addition to terms of a contract
Close on the cooperative brokerage agreement
Agents for seller and buyer
Close on the compensation agreement according to the terms of the independent contractor agreement
Agents' brokerage firms
Consideration
An exchange of something of value, even a promise to do or not do something
If the property does not appraise at or above the sales price, the buyer can terminate.
Appraisal Contingency
Before the transaction closed, Beauford substituted his cousin, Sylvester, as the buyer. He reserved his right to do so in the offer. Unless the contract between Beauford and the seller releases Beauford from his obligations, if Sylvester fails to perform, Beauford is obligated to do so. Is this an example of performance, assignment, or novation?
Assignment
One of the original parties transfers rights to a different party but may still be liable for obligations.
Assignment
What's a licensee's role in the title search process?
Explain the purpose of the title search to the buyer.
Licensee Bonita has just submitted an MLS listing with photos for her client. Which of the following steps will she need to complete next?
Expose the property to prospective buyers using a tailored marketing plan.
When a breach of contract occurs, the aggrieved party can remedy the situation in a number of ways. Let's see if you can identify which remedy is being used in the scenarios that follow. Bobby has signed a real estate contract with Zeke to purchase Zeke's three-bedroom cabin. Bobby's put down $20,000 in earnest money. However, three weeks later, Bobby finds out his company is relocating him and he has to back out of the contract. Zeke gets to keep that $20,000 from the earnest money, so he's not exactly crying into his beer. Which remedy is being used?
Accept liquidated damages
If, under the terms of an agreement, a buyer is supposed to put down an earnest deposit of $15,000, but actually only puts down $10,000, which the seller accepts in order to complete the sale, what is the seller doing to remedy the breach of contract?
Accepting partial performance
Megan finds herself in a breach of contract situation. While the other party met some of his obligations, some were not met. Megan thinks it would cost a lot of time and money to sue the other party. Thus, she decides to accept the work that has been done and call it good. Of what is this an example?
Accepting partial performance
Licensees are required by law to present the pamphlet on Washington real estate agency and provide the required agency disclosures to prospective clients. When should you do this?
At the initial meeting
Earnest money belongs to the seller.
F, Earnest money funds are held in trust by a third party pending the outcome of a transaction.
The buyer's broker must deposit the earnest money check immediately into the proper trust account.
F, Earnest money funds are typically deposited after the seller has accepted the offer.
When must a Washington licensee explain agency to a potential client?
Before the consumer waives any agency rights, consents to dual agency, or signs an offer or agency agreement
Close on the mortgage loan commitment
Buyer and lender's attorney
Close on the title insurance contract
Buyer and title company rep
Martha and Jeb are making offers on several properties, hoping to get one. Because they're only looking for one property, it's acceptable for their brokerage firm to hold a single earnest money check to bind all the offers.
F.
Specific performance
Meeting of all terms of the contract
Amendment
Change to terms of the contract
Funds kept in escrow are released when the buyer, seller, and their mortgage lenders are satisfied that all _______ have been met.
Conditions
Protects the buyer's earnest money in the event the buyer is unable to obtain financing.
Mortgage Contingency
When is the excise tax due?
When the deed is recorded
Which of these statements about earnest money is true?
Disbursal of earnest money depends on the terms of the contract.
Which component of a purchase offer could be referred to as a "down payment on the down payment"?
Earnest money
Statute of frauds
Generally requires that certain contracts be in writing to carry legal force
In addition to using an amendment form to note and date each change to the original contract, what else should an agent do?
Have all parties sign the amendment.
Georgina is an escrow agent who's holding funds for several transactions. Which of these statements about how she'll disburse these funds is true?
If the transaction doesn't close, Georgina will disburse the earnest money as instructed by the parties or according to state law.
Allows the buyer to terminate if an issue arises during the inspection that cannot be successfully negotiated.
Inspection Contingency
If the buyer is unable to obtain insurance for a specific amount, the buyer can terminate and receive a refund.
Insurance Contingency
Washington law requires all real estate licensees to provide information about agency relationships to prospective clients. Which of the following forms can licensees use to present this information?
Law of Real Estate Agency pamphlet
Purchase agreement
Legal written agreement between a buyer and seller that states the purchase price and other terms of understanding by which real property will be transferred
Partial performance
Meeting most, but not all, terms of the contract
Sheldon has worked hard to create a marketing plan tailored to his client's property, to hold open houses and arrange showings, to help his client stage the property so that it appeals to buyers, and, finally, to negotiate a deal with a buyer and the buyer's broker. His client has now accepted the offer. Has Sheldon completed what is needed for the commission check to be sent to his broker?
No, Sheldon still needs to complete the transactional activities of the selling process.
An original party is replaced with a new party, and all rights and obligations belong to the new party.
Novation
Now that you know what performance, assignment, and novation of a contract are, let's see if you can recognize examples of each in the scenarios that follow. Brad has accepted an offer in a new town. He gets his lender to allow him to substitute a new borrower for the loan. With everyone in agreement, Brad is relieved of his responsibility for the loan. Is this an example of performance, assignment, or novation?
Novation
What's the key difference between assignment and novation of a contract?
Novation releases the original party from all obligations, while assignment does not.
Gordon is busy preparing transactional paperwork for the property his client is selling. What activities accompany this duty?
Obtain signatures and provide copies to the parties.
At which point in the residential selling process does the real estate professional prepare a comparative market analysis?
Obtaining the listing
Both parties have met all the terms agreed to in the contract.
Performance
Millicent and her neighbor, Tommy, agree to swap houses. Because they both hate to move, they also agree to leave all of their furnishings behind, but take their personal belongings. Both parties do exactly what they say, and they don't even have to do a change of address—they simply install a vacuum mail chute between the two houses. Is this an example of performance, assignment, or novation?
Performance
Sue Ellen has a contract to buy Roger's house, which she has always admired, when Roger decides he's ready to move to a senior living community. After Roger finds a suitable senior apartment and moves, Sue Ellen writes a check for the agreed-upon amount, and Roger transfers the deed to her. What is happening in this scenario?
Performance
Licensee Jonathan signed a listing agreement with a new client. Which of these actions should Jonathan plan to perform next, before he publishes the listing on the MLS?
Prepare a features list.
At which point in the residential selling process does scheduling a photographer take place?
Preparing for listing
At what stage of the residential sales process would the listing broker typically obtain tax and property boundary information
Preparing for the listing to go active
To whom are licensees in Washington required to give information about available agency relationships?
Prospective clients
Sabrina is meeting with prospective buyer clients for the first time. Before she can enter into a buyer agency relationship with them, what does Washington law require her to do?
Provide them with information about agency relationships.
George has closed a transaction. Which final step must he complete as part of the typical residential sales process?
Retain copies of transactional paperwork.
The buyer has made the offer to purchase based on her current property selling.
Sale Contingency
Close on the sale agreement
Seller and buyer
Close on the listing agreement
Seller and seller's agent
An estimate of how much money the seller will walk away with. Generally prepared by the seller's representative
Seller's net sheet
Cleaning and decorating a home to make it appealing to buyers
Staging
is the seller responsible for paying the excise tax?
Yes
Lloyd thinks he has purchased an investment property, but the seller refuses to deliver the title to him. Lloyd has met all of his obligations per the written contract that he and the seller signed. He decides to take the seller to court in an effort to force her to hand over the title. Of what is this an example?
Suing for specific performance
What's is the purpose of a contract addendum?
Supplements information in the contract
Earnest money funds are also referred to as escrow funds.
T.
The funds that a buyer brings to closing must be provided in the form of a cashier's check, a certified check, or a wire transfer.
T.
"Time is of the essence" in a real estate contract means two things: that the parties won't unduly delay the process and what else?
That they will proceed in good faith
You're meeting with prospective clients Georgette and Stanley White for the first time. What does Washington law require you to provide to them at this particular meeting?
The Law of Real Estate Agency pamphlet
Contingencies normally include the responsible party's name, the deadline for the contingency removal, and ______.
The actions required for removal
Who's responsible for disbursing escrow funds at closing?
The escrow agent. The escrow agent manages the escrow account. In most states, the escrow agent is the title company. In some states, a broker may serve as an escrow agent.
In an ideal real estate transaction, what happens to the buyer's earnest money?
The money will be subtracted from the final amount the buyer must bring to closing.
In Washington, the broker must keep all completed real estate forms on file for a minimum of ______________.
Three years
Kathleen is a Washington broker. How long must she keep completed transaction files?
Three years
ow long must Washington brokers maintain completed transaction files?
Three years
Gail was supposed to close on her new home by the end of May, but she kept asking the sellers if they could push the closing date back. Soon the summer was over, and she still hadn't closed. Gail was guilty of not adhering to which aspect of the contract?
Time is of the essence
Garrett wanted to move his real estate closing to a date after his wedding. His broker and attorney encouraged him not to do it because of which contract clause?
Time is of the essence
The business used to determine clear ownership and possibly to facilitate the closing
Title Company
What's the correct way to use an amendment to a contract?
To change the original contract's terms
What is the purchase and sale agreement's purpose?
To identify the terms and conditions under which a seller will transfer a property to the buyer
Erica presented an offer to her seller client, and after a bit of negotiating with the buyer and buyer's broker, the offer was accepted. Which one of these activities will Erica be taking care of at this point in the sales process?
Verify progression of the loan through the buyer's broker.
Assignment
When the contractual obligation is transferred from one person to another; if the assignee cannot fulfill the terms, the assignor is responsible for following through, unless otherwise noted in the contract.
Purchase and sale agreement
also known as a purchase contract, sales contract, or offer to purchase—is a detailed document that outlines how a piece of real estate will transfer from the seller to the buyer. In the contract, the sale terms and conditions, as well as both parties' legal rights and obligations, are established.
Contingencies
are conditions that must be met before the purchase and sale agreement is complete and enforceable. They usually include: The actions necessary to remove the condition A deadline for its removal Who is responsible for the accompanying actions or costs involved. Mortgage contingency, appraisal contingency, and inspection contingency.
Amendment
is a modification made later to the terms of an already-accepted contract. For example, if your buyers need to extend the closing date beyond the contracted date, this would require an amendment to the original terms. Once signed by the parties, an amendment becomes a part of the sales contract, and carries the same legal weight as if it had been there from the beginning.
Addendum
is a supplemental document that's attached to the original contract before contract acceptance. It explains or expands upon points in the contract and indicates additional requirements that aren't clear in the contract. An addendum is executed with and is considered part of the original contract once it's signed by the parties involved.
Which of the following requires that contracts for the sale of real estate be in writing?
statute of frauds "get it in writing"
