California Real Estate Chapter 7

Interim occupancy agreement

"If possession will be transferred either before or after closing, the parties should execute a separate rental agreement"

Uniform Vendor and Purchaser Risk Act

"Law that determines who suffers the loss when property subject to a purchase agreement is damaged or destroyed before closing. Under the terms of the act, until either possession or legal title is transferred to the buyer, the risk of loss is the seller's. For example, suppose a home buyer is planning to move in a week before the closing date—a week before title is to be transferred. If the house is destroyed by an earthquake the day before the buyer moves in (takes possession), the seller bears the loss. The buyer can withdraw from the contract, and her deposit must be returned. But if the earthquake occurs after the buyer takes possession, then the buyer bears the loss; she still must complete the purchase."

License Identification Number

"Whenever a purchase agreement is used in a transaction that a real estate licensee is involved in as an agent, his license identification number must be disclosed in the purchase agreement. If he has a mortgage loan originator endorsement, his identification number from the Nationwide Mortgage Licensing System and Registry must also be disclosed in the agreement."

Implied warranty of habitability

**See Breach of Implied Warranty of Habitability

Renewal

A lease that creates a term tenancy may contain a provision that gives the tenant an option to renew the lease at the end of the term. Most renewal options require the tenant to give notice of his intention to exercise the option on or before a specific date. To renew a lease, the parties often sign a renewal agreement. But a lease may be renewed by implication rather than express agreement. When the tenant makes a lease payment after the lease has expired, and the landlord accepts the payment, that can be considered an implied renewal of the lease. In this situation, the renewal term is the same as the term of the original lease. However, there are two significant limitations on that rule. One is that the renewal term may not exceed one year (because the renewal is not in writing). The other is that when rent is payable monthly, renewal by implication creates only a month-to-month lease."

Actual eviction

Actual eviction involves the physical expulsion of a tenant from a property (for example, by changing the lock on an apartment door). "Occurs when the landlord actually expels the tenant from the property"

Time is of the Essence

Almost every purchase and sale agreement has a 'time is of the essence' clause. This means that failure to meet a deadline may be treated as a breach of contract. "Nearly all purchase agreements contain a "time is of the essence" clause. Thus, failure to meet any of the deadlines set in the agreement is a breach of contract."

Unlawful detainer

An unlawful detainer action is a lawsuit filed by a landlord to evict a tenant who is not paying the rent or is otherwise defaulting on the lease. "A court action brought by a landlord to evict a tenant." "If the tenant still fails to pay after receiving notice, the landlord may bring a court action for unlawful detainer to evict the tenant."

Vendee

The buyer Has equitable title Has the right to record the contract. This protects her equitable title by providing constructive notice of it.

Types of Listing Agreements

When a seller is required to pay a broker's commission also depends on the type of listing agreement they have. The three basic types of listing agreements in current use are: 1. the open listing, 2. the exclusive agency listing, and 3. the exclusive right to sell listing

Acceptable Offer

"A buyer is considered "ready and willing" if he makes an offer that meets the seller's stated terms. In the listing agreement, the seller sets forth the terms on which she wants to sell the property: price, closing date, financing arrangements, etc. If a buyer makes an offer that matches those terms, the broker is usually entitled to the commission—even if the seller decides not to accept that offer after all. When a buyer makes an offer on terms other than those set forth in the listing agreement, the seller can turn down the offer without becoming liable for the broker's commission. But if the seller accepts an offer, she generally is required to pay the broker's commission even if the offer did not match the terms set forth in the listing agreement."

Buyer-paid fee

"A buyer representation agreement may provide for a buyer-paid fee instead of a commission split. The buyer-paid fee might be based on an hourly rate, in which case the broker is essentially a consultant. Alternatively, the broker may charge a percentage fee, so that the commission is a percentage of the purchase price. A third possibility is a flat fee—a specified sum that's payable if the buyer purchases a property during the term of the representation agreement. Many buyer representation agreements provide that the broker will accept a commission split if one is available, but the buyer will pay the broker a fee if the purchased property was unlisted (for example, if the property was for sale by owner)."

Use of Land Contracts

"A land contract is used as an alternative to a mortgage or deed of trust in a seller-financed real estate transaction. The seller extends credit to the buyer and holds legal title to the property as security for the repayment of the debt, instead of having a lien as security. At one time, many sellers who offered financing to their buyers preferred to use a land contract instead of a mortgage or a deed of trust, because it was easier to reclaim the property if the buyer defaulted. However, because of changes in California law, vendees under a land contract now have rights of reinstatement, reimbursement, and redemption. As a result, land contracts have fallen out of favor; most sellers prefer to use a deed of trust for seller financing. One exception is the Cal-Vet program, which regularly uses land contracts to finance home purchases by veterans."

Transferring Leased Property

"A landlord can sell the leased property during the term of the lease, but the buyer takes title subject to the lease. This means the buyer must honor the lease for the remainder of its term. (There's an exception if the property is sold involuntarily. As we'll discuss shortly, the buyer at a foreclosure sale doesn't necessarily have to honor an existing lease.) The tenant can also transfer her leasehold estate to another party, through assignment, subleasing, or novation. The tenant has the right to assign or sublease without the landlord's consent, unless the lease provides otherwise. A novation always requires the landlord's consent."

Termination of a Lease

"A lease may be terminated by expiration; notice of termination; surrender; the landlord's breach of an implied promise; the tenant's failure to pay rent or unauthorized use of the premises; foreclosure; destruction of the premises; or condemnation."

Elements of a Listing Agreement

"A listing agreement must have all of the essential elements of a valid contract that were discussed in the previous chapter, including -competent parties, -offer and acceptance, -consideration, and -a lawful purpose Also, under the statute of frauds, a listing agreement must be in writing and must be signed by the seller. (If the property has more than one owner, only one of them has to sign the listing.) The broker usually also signs the listing agreement, although her signature is not strictly required. The broker gives implied consent to the terms of the agreement by starting to market the property. If there is no written listing agreement, the broker can't sue the seller for a commission, even though an oral agreement may have established an agency relationship between the broker and the seller. At a minimum, a listing agreement should include provisions that: 1. identify the property, 2. set acceptable terms of sale, 3. grant the broker authority, 4. determine the broker's compensation, and 5. state when the agreement will expire.

Terms of Sale

"A listing agreement should specify what the seller wants in the way of an offer. This includes how much money the seller wants for the property (the listing price) and any other terms of sale that matter to the seller. Any items that the seller wants to exclude from or include in the sale that wouldn't otherwise be excluded or included should also be noted in the listing agreement." "The seller can reject any offer that doesn't meet the terms of sale described in the listing agreement without becoming liable for a commission. However, if an offer is made that does meet those terms, and the seller rejects the offer, the broker may be entitled to a commission. Thus, it is very important for all of the essential terms of sale to be set forth clearly and fully in the listing agreement." -"The purchase agreement should set forth as clearly as possible all of the terms of the sale, such as the total purchase price, the amount of the downpayment, the method of payment, and what items are included in or excluded from the sale. Many purchase agreement forms include a preprinted checklist of the most common types of financing arrangements. But regardless of the form used, the financing arrangements should be fully described, including the type of loan the buyer intends to obtain, the principal amount, the interest rate, how the loan is amortized, and the term of the loan." If the seller is willing to pay discount points or other costs to help a buyer obtain a loan, the listing agreement should state the maximum amount the seller is willing to pay toward these costs. Most listing agreements also provide that the seller will pay for title insurance and certain other closing costs.

Condition of the Property

"A purchase agreement may include a variety of provisions concerning the condition of the property. The seller may warrant the condition of certain elements (such as the roof, plumbing, or appliances) in the purchase agreement, or the agreement may state that the property is being sold "as is." (Note that even if the property is sold "as is," there's a legal obligation to disclose all known material defects to the buyer.) The contract is also likely to address the buyer's right to inspect the property."

Able to Buy

"A ready and willing buyer is considered "able" if he has the capacity to contract and the financial ability to complete the purchase. The buyer must have enough cash to buy the property on the agreed terms, or else be eligible for the necessary financing."

Repairs and Improvements

"A tenant isn't ordinarily required to make any repairs to the leased property. However, the tenant must return the property to the landlord in the same condition as it was in at the beginning of the lease term, with allowances for normal wear and tear. The landlord is typically responsible for making necessary repairs to the common areas, such as stairs, hallways, or elevators. A residential landlord is required to maintain the property in habitable condition, as we'll discuss shortly. Neither the tenant nor the landlord is obligated to improve the property. The tenant may make improvements, which often can be removed by the tenant when the lease expires.

Use of the Premises

"A tenant's use of the leased property is restricted by law to legal uses. Many landlords place additional restrictions on the use of the property—for example, restricting commercial space to retail use. The restricting language in the lease must be clear, or the restrictions will be unenforceable. At a minimum, the lease should state that the premises are to be used only for the specified purpose and for no other. If there is no limitation in the lease, or if the language isn't clearly restrictive, the tenant may use the premises for any legal purpose."

Listing Agreements

"A written contract between a property seller and a real estate broker, authorizing the broker to find a buyer to purchase the property on the seller's terms. "The seller hires the broker to find a buyer who is ready, willing, and able to buy the property on the seller's terms "A listing agreement does not give the broker the authority to accept offers on behalf of the seller, or to transfer title to the seller's property." "Even though the listing agreement form is frequently filled out and signed by a salesperson working for the listing broker, the contract is between the seller and the broker (not the salesperson). Only a broker may directly contract with members of the public for brokerage services. A listing agreement creates an agency relationship between the broker and the seller. Agency carries with it a high level of responsibility. The broker is required to act in the best interests of the seller when acting as the seller's agent pursuant to their contract." A listing agreement creates an agency relationship between the broker and the seller, which means that the broker is required to act in the seller's best interests. In the listing agreement, the seller agrees to compensate the broker for his or her services.

Recording an Option

"An option agreement may be recorded to give third parties constructive notice of the option. In that case, if the optionee exercises the option, his interest in the property will relate back to the date the option was recorded, taking priority over the rights of intervening third parties. A recorded option that is never exercised creates a cloud on the optionor's title. The optionor should obtain a release from the optionee and record the release to remove the cloud."

Right of First Refusal

"An option shouldn't be confused with a right of first refusal, which gives a person the first opportunity to purchase or lease real property if and when it becomes available. For instance, a lease might give the tenant a right of first refusal to purchase the property if the landlord decides to sell it. Once the property owner offers the property for sale or receives an offer to buy from a third party, the holder of the right of first refusal must be given a chance to match the offer. If she doesn't want the property or is unwilling to match the offer, the property may be sold to someone else.

Requirements for a Valid Lease

"As with any contract, the parties to a lease must be competent and must mutually consent to its terms. Consideration (typically the rental payment) is also required. The amount of the rent and when it is due should be specified. Under the statute of frauds, a lease must be in writing if it's for longer than one year, or if it won't be fully performed within one year after the contract is made. Any lease that should be in writing but is not creates a periodic tenancy. A written lease must be signed by the landlord. Usually the tenant also signs the lease, but that isn't required. A tenant who takes possession of the property and pays rent is considered to have accepted the terms of the lease. Even so, it's best to have both parties sign. Also, since a lease is a contract pertaining to real property, an accurate legal description of the property should be included.

Requirements for a Valid Option

"Because an option is a contract, it must have all of the elements required for a valid contract, including consideration. The consideration may be a nominal amount—there's no set minimum. But some consideration must, in fact, pass from the optionee to the optionor; a mere statement of consideration in the agreement isn't sufficient. (There is an exception to this rule for lease/option agreements, where the provisions of the lease are treated as sufficient consideration to support the option.) An option agreement must be in writing; oral options are unenforceable. And since an option to purchase anticipates that a sale may take place, the underlying terms of the sale (price, financing, and so on) should be spelled out in the option agreement."

Security Deposit

"California law defines a security deposit as any payment, fee, deposit, or charge (including an advance payment of rent) paid by the tenant to secure the performance of the lease agreement. Such a payment is considered a security deposit no matter what the landlord and tenant call it. The total security deposit for a residential lease generally can't exceed twice the monthly rental payment for unfurnished units, or three times the monthly payment for furnished units. However, if the lease term is six months or longer, the landlord can require a deposit of six times the monthly payment or more, as long as it is designated as an advance payment of rent. Within 21 calendar days after a residential tenant vacates the leased property, the landlord must return the security deposit to the tenant, or send a letter explaining the reason for not returning any portion of the deposit. If the deposit or a written explanation isn't given to the tenant within the 21-day period, the landlord could be liable for a penalty of up to twice the amount of the security deposit, in addition to actual damages. Labeling a deposit "nonrefundable" (for example, "nonrefundable cleaning deposit") has no bearing on this requirement; the landlord must still return the payment or give a written explanation within 21 days. In fact, it's illegal to describe a deposit as nonrefundable in a residential lease. All or a portion of a tenant's security deposit may be withheld to cover unpaid rent, or to pay for cleaning the rental unit or repairing damage caused by the tenant. The tenant can't be charged for normal wear and tear, however."

Provisions in a Buyer Representation Agreement

"General characteristics of the property the buyer wants, the acceptable price range, the broker's duties, and the broker's compensation. The type of property that the buyer wants should be described in enough detail so that the contract accurately states the buyer's requirements. The buyer could become liable for the broker's compensation if the broker finds property within the stated price range that fits the description provided, even if the buyer doesn't want to purchase it. Sometimes a buyer hires a broker not to find property but to negotiate the purchase of a particular property that the buyer has already found. In that case, the buyer representation agreement should include a legal description of the property. The broker's duties listed in the contract may include: -locating properties, -preparing offers on the buyer's behalf and presenting them to sellers, -negotiating with sellers, -helping the buyer obtain financing, and -providing other guidance In an exclusive representation agreement, the broker usually agrees to make a reasonably diligent effort on the buyer's behalf. "The representation agreement is also likely to make it clear that the broker isn't prevented from working with other buyers during the term of the contract, or from showing other buyers the same properties she's showing this buyer. When the broker negotiates for the purchase of a property on behalf of this buyer, it won't be a breach of contract or a violation of the broker's duties if she also negotiates for the same property on behalf of another buyer at the same time."

Remedies for Default

"If the vendee pays the purchase price in full, but the vendor fails to transfer legal title to the property, the vendee can sue for specific performance of the contract. If the vendee defaults (for example, by failing to make the installment payments), the vendor can terminate the contract by sending the vendee the proper notice. The vendor must reimburse the vendee for the amount paid to the vendor under the contract. However, the vendee's reimbursement can be reduced by any damages that the vendor incurred, and by the fair market rental value of the property for the period the vendee was in possession." "The vendee has the right to cure the default and reinstate the contract. And once the vendee has paid a substantial portion of the contract price, he gains a right of redemption. If the vendee doesn't cure the default or redeem the property, then the vendor is entitled to retake possession. However, a recorded land contract is a cloud on the property's title; the vendor may need to obtain a quitclaim deed from the vendee or file a quiet title action to make the title marketable again."

Disclosures

"In California, a residential purchase agreement often has a provision concerning the transfer disclosure statement and other specific disclosures the seller may be required by law to provide. And certain required disclosures must be included in the contract itself. One example is a provision that explains how to access the "Megan's Law" database on the Internet. The database lists areas where registered sex offenders are residing."

Provisions in a Purchase Agreement

"In addition to provisions identifying the parties, describing the property, and establishing the terms of sale, a purchase agreement usually includes contingency clauses, warranties, disclosures, and provisions concerning title, escrow, closing, deadlines, the buyer's deposit, and the broker's compensation."

Breach of Implied Covenant of Quiet Enjoyment

"In every lease there is an implied covenant of quiet enjoyment. This is the landlord's implied promise that she will refrain from unlawfully interfering with the tenant's possession of the leased property, and that no third party will lawfully claim a right to possess the property. The tenant is guaranteed the exclusive possession and quiet enjoyment of the property. The covenant of quiet enjoyment is breached when a tenant is wrongfully evicted from the leased property. There are two types of eviction: actual and constructive." "If the landlord breaches the covenant of quiet enjoyment by wrongful eviction or in some other way, the tenant is relieved of her obligations under the lease and may treat it as terminated."

Escrow and Closing

"It's a good idea for a purchase agreement to include the arrangements for escrow. At the very least, the agreement should set the closing date for the transaction. Both parties must agree to the identity of the escrow agent; one party can't choose the escrow agent without the other's consent." Closing Agent: -Orders title insurance -Pays off liens -Prepares documents

Payment of Rent

"Most leases require the rent to be paid at the beginning of the rental period. In the absence of any rental payment provision, however, the rent is due at the end of the rental period. However, if the lease doesn't specify when the rent is to be paid, it isn't due until the end of the rental period. A landlord can't require a tenant to pay rent in cash unless the tenant's rent check has been returned, either because there were insufficient funds in the tenant's account or because the tenant stopped payment. In this situation, the landlord may give the tenant written notice that cash payments will be required for up to three months. A month-to-month tenant generally must be given 30 days' notice before a rent increase (or other change in lease terms) can take effect. For residential property with up to four units, if the rent increases more than 10% in a 12-month period, 60 days' notice is required."

Equitable title

"Once both the buyer and the seller have signed the purchase agreement, the buyer is considered to have equitable title to the property. This essentially means that, as a matter of fairness, a court would recognize that the buyer has an interest in the property, even though the seller still has legal title to it. If the seller breaches the contract, the court could issue an order of specific performance requiring the seller to deed the property to the buyer"

Option Rights

"The executed option gives the optionee a contract right, but it doesn't create an interest in real property. An option is not a lien, and also cannot be used as security for a mortgage or a deed of trust. If the optionor dies during the option period, that won't affect the rights of the optionee, who may still exercise the right to purchase or lease. The option contract is binding on the heirs and assignees of the optionor. An option can be assigned, unless the agreement includes a provision prohibiting assignment. There's an exception to this rule when the consideration provided by the optionee is in the form of an unsecured promissory note. In that case, the optionee must obtain the optionor's written permission before the option may be assigned." "Occasionally, when a real estate licensee takes a listing on a property, she also takes an option on the property. Before a licensee can exercise an option on a property that she has listed, the licensee must reveal to the seller, in writing, the full amount of the licensee's anticipated profit and get the seller's written consent to that profit."

Good Faith Deposit

"The purchase agreement should not only acknowledge receipt of the buyer's good faith deposit, it should also explain the circumstances in which the deposit will be refunded to the buyer or forfeited to the seller. In many cases, the deposit is treated as liquidated damages. In a transaction involving owner-occupied residential property with up to four units, a liquidated damages provision in a purchase agreement must be in boldface type and must be initialed by the parties. And the amount of the liquidated damages generally may not exceed 3% of the purchase price. It's common for a purchase agreement to provide that if the buyer defaults and the seller keeps the good faith deposit as liquidated damages, the broker is entitled to half of the amount retained by the seller (but no more than the broker would have collected if the transaction had closed). The form of the deposit should be stated in the contract. A check is usual, but another form of payment—such as a promissory note—may be used. The form of the deposit must be disclosed to the seller before he accepts the offer."

Conveyance and Title

"The purchase agreement should specify the type of deed that will be used to convey title to the buyer (ordinarily a grant deed). The contract usually also states that the title is free from undisclosed liens and encumbrances, and that the seller will pay for a title insurance policy protecting the buyer."

Procuring cause

"The real estate agent who is primarily responsible for bringing about a sale; the one who actually negotiates an agreement with the ready, willing, and able buyer." "The person who was primarily responsible for bringing about the agreement between the parties. To be the procuring cause, a broker (or one of his salespersons) must have personally negotiated the offer from the ready, willing, and able buyer and communicated the offer to the seller."

Rights and Responsibilities of Landlord and Tenant

"The rights and responsibilities of the parties during a tenancy are determined partly by the terms of their lease agreement and partly by the body of legal rules known as landlord-tenant law. The rules we'll discuss in this chapter are from state law. Note that some California cities have local laws that provide greater protection to tenants."

Requirements for a Valid Purchase Agreement

"The statute of frauds requires an agreement to buy and sell real property to be in writing and signed by both the buyer(s) and the seller(s). The basic requirements for a valid purchase agreement are fairly simple. The contract must: 1. identify the parties, 2.describe the property, 3. indicate the price and the method of payment, and 4. set a closing date, when title and possession are to be transferred However, most purchase agreement forms go into considerably more detail than that. It's important for the contract to clearly and accurately state everything that the parties have agreed to. In a real estate transaction, who is required to do what, and when they're required to do it, depends on the terms of the purchase agreement."

Failure to Pay Rent

"The tenant has a duty to pay rent as required by the terms of the lease. However, if the tenant fails to pay the rent, the leasehold estate is not automatically terminated. The landlord is required by statute to give notice of nonpayment to the tenant. If the tenant still fails to pay after receiving notice, the landlord may bring a court action for unlawful detainer to evict the tenant "If the court finds the tenant in default, it may issue a writ of possession, which requires the tenant to move out peaceably or else be forcibly removed by the sheriff. Although unlawful detainer actions are given priority on the court's docket, the process of legal eviction is often slow. However, landlords should be warned against taking matters into their own hands. A landlord who tries a "self-help" eviction (forcing the tenant out with threats, or by cutting off the utilities) instead of the legal process may end up defending a costly lawsuit."

Rights and Responsibilities of Vendor and Vendee

"While the vendee is paying off the contract, the vendor has the right to transfer or encumber the property without the vendee's consent. However, if legal title is transferred, the new owner takes title subject to the rights of the vendee under the land contract. If the vendor creates any liens against the property, the law requires the vendor to apply the vendee's contract payments to amounts due on the liens. This protects the vendee from the possibility that the vendor will default on the liens and lose the property through foreclosure." "The vendor must pay off any liens before delivering the deed to the vendee. The vendor is required to deliver clear, marketable title when the vendee pays off the contract. A land contract can't be recorded unless the vendor's signature has been acknowledged. The vendor can't prevent or prohibit the vendee from recording the contract. If, for some reason, a land contract isn't recorded, there are some additional statutory restrictions on the vendor's right to create liens. Unless the vendee consents to the liens, the vendor can't encumber the property with liens that add up to more than the unpaid contract balance. And the monthly payments on those liens can't total more than the vendee's monthly payment on the land contract. The vendee's main responsibility is to make the required installment payments to the vendor. The vendee is generally also responsible for keeping the property insured and paying the property taxes. In a land contract for residential property with up to four units, the vendor can prohibit prepayment only during the first 12 months following the sale." "(Prepayment refers to paying all or part of the amount owed before it's due.)" "After that point, the vendee has the legal right to prepay any or all of the contract price. So if the vendee wants to pay off the entire balance of the contract price a year after entering into the contract, the vendor can't refuse to accept the payment. The vendee has the right to encumber the property, although few lenders are willing to make loans with a vendee's equitable interest as the only security. The vendee may sell her interest in the property by assigning the right to receive the deed when the contract price has been paid in full. (However, the vendee will remain responsible for making the contract payments unless the vendor releases the vendee from liability.) The vendee also has the right to devise (will) her interest."

Notice of Termination

"With a periodic tenancy, either the landlord or the tenant may terminate the lease at any point by giving the other party proper notice of termination. The notice must be in writing. The required notice period is usually the same as the lease period. That means seven days' notice is required to end a week-to-week tenancy, and 30 days' notice is required to end a month-to-month tenancy. There's an exception to that rule: residential landlords generally must give 60 days' notice of termination to tenants who have lived on the property for a year or more."

Commission

(Brokerage fee) "The standard form of payment for a real estate broker" To be legally entitled to a commission, a listing broker must meet three requirements. The broker must: 1) have a written listing agreement with the seller, 2) have been licensed at the time brokerage services were provided, and 3) have fulfilled the terms of the listing agreement. "The commission is usually computed as a percentage of the purchase price (the price that the property is sold for), as opposed to the listing price." "In California, a broker can't sue a seller to collect a commission unless they had a written listing agreement. (Note that an oral agreement between brokers to split a commission is enforceable, even though an oral listing agreement is not.) The broker must also have been properly licensed at the time the brokerage services were provided. In addition, the broker must have fulfilled the terms of the listing agreement that establish under what circumstances the seller is obligated to pay the broker a commission." -"A provision stating the rate or amount of the broker's commission is another key part of every listing agreement. The commission is usually computed as a percentage of the purchase price. The commission rate or amount must be negotiable between the seller and the broker. In fact, it's a violation of state and federal antitrust laws for brokers to set uniform commission rates. Any discussion of commission rates among members of competing firms could give rise to a charge of price fixing" "A special law applies to listing agreements for one- to four-unit residential properties and mobile homes. If the broker uses a preprinted form for the listing agreement, it must state in boldface type that the amount or rate of the commission is not fixed by law and may be negotiated. The commission rate or amount can't be printed in the form—it must be filled in for each transaction." On the other hand, if a buyer makes an offer that does not match the terms spelled out in the listing agreement, then the seller can refuse it without owing the broker a commission. The buyer wasn't ready and willing to buy on the seller's terms.

Seller-Paid Fee

(Commission Split) Most common compensation arrangement for buyer's agents Under this arrangement, the buyer's broker receives a share of the listing broker's commission "At least in urban and suburban areas, most brokers belong to a multiple listing service (MLS), an organization of brokers who share information about their listings. In the listing agreement forms used by multiple listing services, the seller authorizes the listing broker to share the commission paid by the seller with other brokers. " "The standard MLS arrangement is for the listing broker to pay half of her commission to the selling broker. The selling broker is the broker who finds the buyer, or whose salesperson finds the buyer."

Option Agreements

(Contract to keep an offer open) "An agreement that gives one party the right to buy or lease the other party's property at a set price for a certain period of time." "An option agreement is essentially a contract to make a contract. It is sometimes called a contract to keep an offer open. An option agreement creates a right to buy or lease a specified property for a fixed price within a set period of time." "The parties to an option agreement are called the optionor and the optionee. In an option to purchase, the optionor is the seller and the optionee is the buyer."

Purchase Agreements

(Deposit receipt) (Purchase and sale agreement) usually a conditional agreement "A contract between a buyer and a seller of real property. Also called a purchase and sale agreement, a contract of sale, or a deposit receipt." "A purchase agreement is a written contract between a buyer and a seller that establishes all of the terms of the sale." "When a real estate seller accepts a buyer's offer to purchase the property, they enter into a purchase agreement." "In a residential transaction, the buyer's offer is usually prepared by filling out a standard purchase agreement form." "The buyer signs the form, which is then presented to the seller along with a good faith deposit. If the seller decides to accept the offer, she also signs the form, and the form then becomes the binding contract of sale. The form also serves as the buyer's receipt for the deposit. (For that reason, you may occasionally hear a purchase agreement referred to as a deposit receipt.)" "After a purchase agreement has been signed, there are still many details to be taken care of before the transaction can close: financing arrangements, inspections, a title search, and so on. As a legally binding contract, the purchase agreement keeps the buyer and the seller committed to the transaction while all of those tasks are performed. It protects both parties by providing legal recourse if either of them backs out of the transaction." Serves 3 functions 1. it is the buyer's offer to the seller 2. it is the buyer's receipt for the deposit 3. when signed buy the seller and returned to the buyer, it becomes a binding contract

Breach of Implied Warranty of Habitability

(Implied warranty of habitability) "In all residential leases, the landlord gives an implied guarantee that the premises meet all building and housing code regulations that affect health and safety on the premises. This is called the implied warranty of habitability. If the premises don't meet the code requirements and the tenant notifies the landlord of the defective condition, then the landlord must correct the problem within certain time limits prescribed by statute. If the landlord fails to make the required repairs, the tenant can terminate the lease. Or if the landlord takes legal action to evict the tenant for nonpayment of rent, the tenant can use the uninhabitable condition of the premises as a defense."

Open Listing

(Nonexclusive listing) Unilateral contract The seller agrees to pay the broker a commission if the broker finds a buyer, but the broker does not promise to put forth any effort to find a buyer. A seller can give an open listing to more than one broker at the same time. Only the broker who is the procuring cause of the sale will be entitled to a commission. "A type of listing that requires the property owner to pay a broker's commission only if the broker is the procuring cause of the sale." "Under an open listing agreement, the seller is obligated to pay the broker a commission only if the broker was the procuring cause of the sale." "An open listing is also called a nonexclusive listing, because a seller is free to give open listings to any number of brokers. If a seller signs two open listing agreements with two different brokers, and one of the brokers sells the property, only the broker who made the sale is entitled to a commission. The other broker isn't compensated for his efforts. Or if the seller sells the property directly, without the help of either broker, then the seller doesn't have to pay any commission at all. The sale of the property terminates all outstanding listings. The open listing arrangement has obvious disadvantages. If two competing brokers both negotiate with the person who ends up buying the property, there may be a dispute over which broker was the procuring cause of the sale. Also, because a broker with an open listing agreement is not assured of a commission when the property sells, he may not put as much effort into marketing the property, so it may take longer to sell. For the most part, open listing agreements are used only when a seller is unwilling to execute an exclusive listing agreement. Multiple listing services generally do not accept open listings."

Leases

(Rental agreement) "A contract in which one party (the tenant or lessee) pays the other (the landlord or lessor) rent in exchange for the possession of real estate. "A lease is both a method of conveyance and a contract. A lease conveys a less-than-freehold (leasehold) estate from the landlord (the property owner) to a tenant. The conveyance of an interest in real property through the terms of a lease is called a demise. The holder of a leasehold estate—the tenant—doesn't own the property, but rather has a right to exclusive possession of the property for a specified period of time. Sometimes the landlord (also called the lessor) and the tenant (also called the lessee) are said to be "in privity," which means they have a mutual interest in one property. A lease contract is sometimes called a rental agreement. It sets out the rights and responsibilities of the two contracting parties, the landlord and the tenant. Note, however, that certain covenants and terms are implied by law in all leases, whether or not they're written in the agreement. A lease usually creates either a term tenancy (Ex. a one-year lease) or a periodic tenancy (Ex. a month-to-month lease). A term tenancy terminates automatically at the end of the specified term, unless the landlord and the tenant agree to renew it. A periodic tenancy automatically renews itself at the end of each period, unless one of the parties gives the other notice of termination."

Amendments

(Rider) "After the buyer and seller have signed the purchase agreement, the terms of the contract can only be modified in writing. All parties who signed the original agreement must sign the amendment, or it will be unenforceable. An amendment may also be referred to as a rider. Don't confuse an amendment with an addendum. An amendment is a written modification that occurs after the parties have signed the purchase agreement. An addendum, by contrast, is an attachment added to the agreement prior to signature."

Safety Clauses

(protection clause) (protection period clause) PROTECTS the BROKER from parties who conspire to deprive the broker of a commission A safety clause entitles a listing broker to the commission if the seller sells the property during a specified period after the listing terminates to someone the broker had contact with while the listing was in effect. "A provision in a listing agreement that obligates the seller to pay a commission if the property is sold within a certain period after the listing expires to someone the broker negotiated with during the listing period. A safety clause is found in most listing agreements. Under this type of provision, the broker is entitled to a commission if the seller sells the property after the listing term expires to any person the broker negotiated with during the listing term. This protects the broker from parties who conspire to deprive the broker of a commission by waiting until the listing has expired before they sign a purchase agreement. The broker usually has to provide the seller with a list of the parties he negotiated with, and the list must be delivered to the seller on or before the listing's termination date. This lets the seller know whether she'll become liable for a commission if she sells the property to a particular buyer."

Contract to keep an offer open

**See Option Agreements

Deposit receipt

**See Purchase Agreements

Protection clause

**See Safety Clauses

Protection period clause

**See Safety Clauses

Lessee

**See Tenant

Broker's Compensation

A buyer's agent may be compensated with a retainer, a seller-paid fee or commission split, or a buyer-paid fee. Accepting compensation from a seller does not create an agency relationship between a buyer's agent and the seller. "A buyer representation agreement includes a promise to compensate the broker. Paid by: -Retainer -Seller-paid Fee -Buyer-Paid Fee The compensation must be negotiable, and if the buyer is seeking to purchase residential property with up to four units, the agreement must include a notice explaining that the compensation is negotiable. The agreement should specify the conditions under which the broker's compensation will be earned and how the compensation will be determined. There are a variety of ways in which a broker representing a buyer may be compensated. Most buyer representation agreements provide for payment by means of a commission split when the buyer purchases a home that's listed through a multiple listing service. MLS listing agreements authorize the listing broker to share the commission with other brokers. Typically, the listing broker will pay half of his commission to the broker who finds a buyer, regardless of which party that other broker is representing." "When a broker representing a buyer accepts a commission split, she's effectively being paid by the seller rather than by her own client, the buyer. Under California law, a broker's duties to her client aren't affected by which party pays her fee." -"Many purchase agreements also provide for the payment of the broker's commission. In most cases, this provision is merely a reaffirmation of the commission agreement set forth in the listing agreement. But if the broker has risked working under an oral or implied listing agreement so far in the transaction, such a provision in the purchase agreement will satisfy the requirement for a written listing agreement, in case the broker needs to sue the seller for the commission."

Contingency Clauses

A contingency clause makes a transaction dependent on the fulfillment of a specified condition. If the condition is not fulfilled, the transaction will terminate without liability for either party. "A contract clause which provides that unless some specified event occurs, the contract is null and void." "Most purchase agreements are conditional, or contingent. For example, it's common to condition a sale on the buyer's ability to obtain the necessary financing. If the buyer isn't able to obtain the financing after making a good faith effort to do so, she doesn't have to go through with the purchase; she can withdraw without forfeiting the deposit. Any and all conditions must be clearly stated in the purchase agreement. A provision setting forth a condition is called a contingency clause. A contingency clause should state exactly what must occur to fulfill the condition, and it should explain how one party is to notify the other when the condition has been either fulfilled or waived. There should also be a time limit placed on the condition (for example, if the condition isn't fulfilled or waived by January 15, the contract is void). Finally, the contingency clause should explain the parties' rights in the event that the condition isn't fulfilled or waived. If a real estate licensee believes that a condition imposed in a purchase agreement may affect the date of closing or the date the buyer can take possession of the property, the licensee is required to explain that to the parties. Failure to do so is a violation of the California Real Estate Law and may lead to disciplinary action" -Fulfillemtn -Time limit -Notification -Waiver -Rights -contingent on the buyer's ability to obtain financing -contingent upon receiving satisfactory results from inspection -contingent upon sale of buyer's current home -contingent on closing date

Land Contracts

A land contract is a financing agreement between a buyer (vendee) and a seller (vendor). The vendee takes possession of the property, but pays for it in installments. The vendor delivers the deed only when the vendee makes the final contract payment. "A contract for the sale of real property in which the buyer (vendee) pays the purchase price in installments. The vendee takes possession of the property, but the seller (vendor) retains legal title until the full price has been paid." "What we'll refer to as a land contract is also known by several other names: -real property sales contract, -real estate contract, -conditional sales contract, -installment sales contract, or -contract for deed Under a land contract, a buyer purchases property on an installment basis, rather than paying the seller the full purchase price all at once. The buyer takes possession of the property immediately, but the seller doesn't convey title to the buyer until the full price has been paid. The California statute concerning land contracts provides this specific definition: "...an agreement wherein one party agrees to convey title to real property to another party upon the satisfaction of specified conditions set forth in the contract and that does not require conveyance of title within one year from the date of formation of the contract." "The parties to a land contract are usually referred to as the vendor (the seller) and the vendee (the buyer)." "During the period in which the vendee is making payments on the contract, the vendor retains legal title to the property. The vendor doesn't deliver the deed to the vendee until the full purchase price has been paid. In the meantime, the vendee has equitable title to the property." In a land contract for residential property with up to four units, the vendor can prohibit prepayment for only 12 months following the sale. At any time after that point, if the vendee wants to pay off the entire balance of the contract price, the vendor is required to accept that payment.

Broker's Authority

A listing agreement authorizes the broker to find a buyer for the property and accept good faith deposits on the seller's behalf. The broker isn't authorized to accept an offer or transfer title to the seller's property. "The listing agreement sets forth the broker's authority to find a buyer for the property. The broker is usually also given the authority to accept and hold good faith deposits on the seller's behalf. The listing agreement usually also empowers the broker to receive good faith deposits from buyers. Because of this authorization, the broker is acting for the seller instead of the buyer when accepting a deposit. As a result, if the broker misappropriates the funds, it's the seller and not the buyer who suffers the loss. In the rare case where a broker is not given authority to accept deposits for the seller, if the prospective buyer gives the broker a deposit, then the broker is acting as an agent for the buyer in regard to the deposit. In this situation, the seller wouldn't be liable to the buyer if the broker were to lose or misappropriate the deposit." In the unsual case when a seller wants to grant the broker the authority to sell and convey the property, the seller should execute and record a power of attorney.

Net listing

A net listing is a listing agreement in which the seller sets a net amount she is willing to accept for the property. If the sales price is more than that set amount, the broker is entitled to keep the excess. Net listings are legal in California only if the commission amount is disclosed to the seller before she becomes committed to the sale.A type of listing in which the commission is any amount received from the sale over and above the "net" required by the seller." "Sometimes the amount of the broker's commission is determined in an unusual way. Under a net listing, the seller stipulates the net amount of money he requires from the sale of the property. The broker then tries to sell the property for more than that net amount. When the property is sold, the seller receives the required net and the broker keeps any money in excess of that amount as the commission." "Net listings can be open, exclusive agency, or exclusive right to sell listings. Whatever the type, net listings carry the potential for abuse; an unscrupulous broker could easily use a net listing to take advantage of a seller. In California, a broker who uses a net listing must reveal the amount of his commission to the seller before the seller becomes committed to the transaction. Failure to do so may result in disciplinary action." "Ex. The seller insists on getting $645,000 from the sale of her property. The broker sells the property for $678,000. $678,000 less the required $645,000 net equals $33,000. Thus, the broker's commission is $33,000. If the broker had sold the property for more, his commission would have been more. Likewise, if the broker had sold the property for less, his commission would have been less."

Novation

A novation is the substitution of a new lease obligation for an old one, or a new party for the original party. "A novation occurs when a new contract is created and the old contract is extinguished. When an existing lease is replaced either with a new lease between the same parties, or with a new lease between different parties, it has been novated. The purpose of a novation is to terminate the liability of the tenant under the original lease."

Property Description

A purchase and sale agreement must include a property description that identifies the property with certainty. A complete legal description is preferable Although a complete legal description isn't strictly required for the listing agreement, one should be used whenever possible. The address alone may not be an adequate description for an enforceable contract. "A listing agreement must identify the seller's property. The street address is useful, but it may not be enough to identify the property with certainty. It's a good idea to attach a legal description of the property to the listing agreement as an exhibit. Any pages attached to a contract should be dated and initialed by the parties, to show that the attachments are intended to be part of the agreement." -"The purchase agreement must describe the property with certainty. As with the listing agreement, a full legal description of the property isn't required. Even so, it's a good practice to always include the legal description. If it's too long to fit in the blanks on the form, a copy of the legal description should be initialed by the parties and attached to the purchase agreement as an exhibit."

Contact Information

A residential lease must contain the name, phone number, and address of: the owner (or the owner's agent); the property manager (if there is one); and the party receiving the tenant's payments. Alternatively, this information may be conspicuously posted at the rental property. "A residential lease must include: -the name, -telephone number, and -address of: -the owner or an agent of the owner; -the property manager, if there is one; and -the person or entity who will receive the tenant's rental payments. If there's no written lease, this information must be provided to the tenant in writing within 15 days after the rental agreement is made. Alternatively, the information may be posted in the building's elevators and in one other conspicuous place (or in two conspicuous places if there are no elevators)."

Earning a Commission

A seller is generally required to pay the listing broker a commission only if a ready, willing, and able buyer is found during the listing period. A ready, willing, and able buyer is one who makes an offer that meets the seller's stated terms and who has the financial ability to complete the purchase. "A listing agreement can make payment of the broker's commission dependent on any lawful conditions that are mutually acceptable to the broker and the seller." Ex. "The seller might ask to include a "no sale, no commission" provision in the agreement. This would make the broker's commission payable only if the transaction actually closes and the seller receives full payment from the buyer. If this condition isn't met due to circumstances beyond the seller's control (because the buyer couldn't obtain financing), the commission doesn't have to be paid. But if the condition isn't met because of the bad faith or fraud of the seller, the broker is still entitled to the commission. "Unless otherwise agreed, however, certain standard rules are followed regarding payment of the broker's commission. These include the rules concerning a ready, willing, and able buyer, and those concerning the three types of listings."

Termination Date

Any listing agreement should have a termination date. California law requires a termination date in an exclusive listing agreement. "A listing agreement should include a termination date: the date on which the listing will expire and the broker's authority to act on the seller's behalf will end. This is especially important for an exclusive listing, because the seller isn't really free to work with a different broker until the listing expires. In California every exclusive agency or exclusive right to sell listing agreement must have a definite termination date. This is a requirement of the Real Estate Law. Note that the law does not set either a minimum or a maximum limit on the length of the listing period"

Exclusive Agency Listing

Bilateral contract. In exchange for the seller's promise to pay a commission, the broker promises to exercise due diligence and make a good faith effort to sell the property. Under an exclusive agency listing, the seller must pay the broker's commission if anyone other than the seller finds a buyer during the listing period. "A type of listing that requires the property owner to pay the broker a commission when the property is sold during the listing term by anyone other than the seller. If the seller finds the buyer, the broker is not entitled to a commission." "In an exclusive agency listing, the seller agrees to list with only one broker, but retains the right to sell the property herself without being obligated to pay the broker a commission. The broker is entitled to a commission if anyone other than the seller finds a buyer for the property, but not if the seller finds the buyer without the help of an agent. In California, an exclusive agency listing must have a definite termination date; otherwise, the broker may be subject to disciplinary action. Seller sells: No commission Brokeror anyone else sells: Broker earns commission An exclusive listing requires due diligence on the part of the broker, while an open listing does not.

Constructive eviction

Constructive eviction occurs when a landlord allows a substantial interference with a tenant's possession of the leased property. This is a breach of the implied covenant of quiet enjoyment. "Occurs when the landlord causes or permits a substantial interference with the tenant's possession of the property. Ex., failure to provide heat in the wintertime has been found to result in constructive eviction."

Commission Without Closing

Generally, once a ready, willing, and able buyer has been found, the broker has earned the commission, whether or not the sale is ever completed. When failure to close is the seller's fault, the broker is still entitled to the commission (although the broker might decide not to demand payment). For example, once the seller accepts an offer, she still owes the broker a commission if the sale fails to close for any of these reasons: 1. the seller has a change of heart and decides not to sell; 2. the seller doesn't have marketable title; 3. the seller is unable to deliver possession of the property to the buyer; or 4. the seller and the buyer mutually agree to terminate their contract. "Unless specifically required by the listing agreement, it isn't even necessary for the buyer and the seller to execute a written purchase agreement in order for the broker to be entitled to a commission. It is enough if the buyer and the seller have reached an agreement as to the essential terms of the sale: -the price, -downpayment, -loan term, -interest rate, and -amortization If the seller backs out before the agreement is put into writing, the broker could still claim the commission. Sometimes the seller and the broker disagree as to whether the buyer located by the broker was in fact ready, willing, and able. In California, a court will presume that the buyer was ready, willing, and able if a written purchase agreement was signed. Since the seller accepted the buyer by entering into the contract, the seller has waived the right to claim that the buyer was unacceptable. This rule can be applied even if the buyer immediately defaulted because of financial inability to go through with the purchase. On the other hand, if no contract has been signed and the agreement between the buyer and the seller is still at the unwritten stage when it falls through, the broker is NOT entitled to a commission unless she can prove that the buyer was financially able to perform the contract." What if an offer comes in that meets all the seller's terms, but the seller decides not to accept it? In most cases, the seller is still obligated to pay the broker the commission, since there was a ready and willing buyer.

Sublease

In a sublease, a tenant grants someone else the right to possess the leased property for only part of the remainder of the lease term, or the right to possess only part of the leased property. "In a sublease, the original tenant transfers only part of his remaining interest. He may be giving the subtenant (the new tenant) the right to share possession with him, or the right to possess only part of the leased property. Or he may be giving the subtenant the right to possess the whole property, but for only part of the unexpired term." "The subtenant is liable for the rent to the original tenant, rather than to the landlord, and the original tenant is still liable to the landlord. This situation is sometimes referred to as a sandwich lease, because the original tenant is in the middle, sandwiched between the landlord and the subtenant."

Exclusive Right to Sell Listing

MOST PROTECTION for the broker Broker entitled to commission no matter who sells property Most frequently used listing Under an exclusive right to sell listing, the broker gets the commission if the property sells during the listing period. This is true no matter who found the buyer, even if it was the seller. "A type of listing that requires the property owner to pay the broker a commission if the property is sold during the listing term, no matter who sells the property." "Under an exclusive right to sell listing, the seller agrees to list with only one broker, and that broker is entitled to a commission if the property sells during the listing term, regardless of who finds the buyer. Even if the seller makes the sale directly, the broker is still entitled to the commission. In spite of the designation "exclusive right to sell," remember that this type of listing agreement doesn't actually authorize the broker to sell the property. As with the other types of listings, the broker is authorized only to submit offers to purchase to the seller." "The exclusive right to sell listing is preferred by most brokers, because it provides the MOST PROTECTION for the broker. It's the type of listing that's most commonly used. Like an exclusive agency listing, an exclusive right to sell listing requires a definite termination date."

Entry and Inspection

Residential landlords may enter the leased property to perform repairs, provide other services, or show the unit to prospective buyers or tenants. Except in an emergency, the landlord must give the tenant 24 hours' notice before entering. "Most leases give the landlord the right to enter and inspect the leased premises during the lease term. California law provides that a residential landlord may enter the premises in an emergency, or in order to make repairs or improvements, perform other services, or show the premises to prospective buyers or tenants. Except in an emergency, the landlord is generally required to give the tenant at least 24 hours' notice. The entry must be during normal business hours unless the tenant consents to a different time or has abandoned the property."

Surrender

Surrender occurs when the landlord and tenant mutually agree to terminate a lease before the scheduled end of the term. "A landlord and tenant may mutually agree to terminate a lease at any time. This is called surrender."

Selling broker

The broker who finds the buyer, or whose salesperson finds the buyer

Buyer Representation Agreements

To establish a buyer agency relationship, a buyer and a broker may enter into a written representation agreement. The agreement should state the term of the agency, the characteristics and price of the desired property, conditions under which the fee will be earned, who will pay the fee, and the agent's contractual duties. An agreement between a prospective property buyer and a real estate broker, in which the buyer hires the broker to find suitable property to purchase." "A written and signed agreement between a real estate buyer and a broker" Typically states: -characteristics of the property the buyer wants to find -a price range -the broker's duties -the broker's compensation "With this type of contract, a prospective buyer employs a broker to help her find and purchase a suitable property. As with a listing agreement, even though the buyer representation agreement form is likely to be filled out by a salesperson, the contract is between the buyer and the broker, NOT the salesperson, and it creates an agency relationship between the broker and the buyer " "Like a listing agreement, a buyer representation agreement can be exclusive or nonexclusive. Under the terms of an exclusive agreement, the broker may be entitled to compensation if the buyer purchases property during the term of the agreement, whether or not it's the broker who finds the property or negotiates with the seller." "To comply with the statute of frauds, a buyer representation agreement must be in writing and signed by the buyer to be enforceable. The term of the broker's relationship with the seller should be established in the contract. The Real Estate Law requires an exclusive buyer representation agreement, like an exclusive listing agreement, to specify a termination date."

Assignment

When a lease is assigned, the original tenant transfers her entire remaining leasehold estate to another person. "In an assignment, the tenant transfers the entire remainder of her leasehold estate." "The assignee becomes liable for paying the rent to the landlord (the original lessor) and the assignor (the original tenant) becomes secondarily liable for the rent. This means that the assignee has the primary responsibility for paying the rent, but the original tenant still has the duty to pay the landlord if the assignee doesn't."

Brokerage fee

**See Commission

Lessor

**See Landlord

Rental agreement

**See Leases

Writing requirement

Any lease for a term of more than one year must be in writing and signed by the landlord.

Expiration

"A lease for a specified term (a term tenancy) expires automatically at the end of the term. No notice of termination is required."

Net lease

"A net lease requires the tenant to pay the landlord a fixed rent, plus some or all of the operating expenses."

Listing Agreement

"An agreement between a property owner and a real estate broker, in which the owner hires the broker to find a buyer who is ready, willing, and able to buy the owner's property on the owner's terms."

Percentage lease

"Common in the commercial setting, especially for properties located in shopping centers. The rent is based on a percentage of the gross or net income from the tenant's business. Typically, the lease provides for a minimum rent plus a percentage of the tenant's business income above a stated minimum."

Condemnation

"Condemnation of property can also result in premature termination of a lease."

Foreclosure

"If a lien against the leased property is foreclosed on because the landlord has defaulted on a loan or other obligation, the foreclosure may terminate the lease. As a general rule, a foreclosure sale purchaser has to honor an existing lease only if it has higher priority than the foreclosed lien. However, under a federal law passed in 2009, someone who buys leased residential property at a foreclosure sale is required to honor the lease for the remainder of its term, unless the buyer herself intends to occupy the property as a personal residence. In that case, the buyer must give the tenant 90 days' notice before terminating the tenancy. A residential tenant who doesn't have a lease for a specific term (for example, if it's a month-to-month tenancy) is also entitled to 90 days' notice, whether or not the buyer is planning to move into the home herself."

Illegal or Unauthorized Use

"If the tenant uses the premises in an illegal manner (in violation of the zoning code, for example), the landlord may demand that the tenant cease the illegal activity or leave the premises. Also, if the tenant uses the premises in a manner not authorized by the lease, the tenant has violated the agreement and the landlord may terminate the lease."

Risk clause

"The parties may choose to apportion the risk of loss differently by including a risk clause in the purchase agreement."

Types of Leases

"There are 5 major types of leases: 1. the fixed lease, 2. the graduated lease, 3. the percentage lease, 4. the net lease, and 5. the ground lease. Sometimes called a "flat," "straight," or "gross" lease, a fixed lease provides for a fixed rental amount. The tenant is obligated to pay a fixed sum of money, and the landlord is obligated to pay all of the property's operating expenses: -utilities, -maintenance costs, -taxes, and -insurance This type of lease is most commonly used for residential apartment rentals."

Destruction of the Premises

"Unless there is a provision to the contrary, if the lease is for the use of the land and any buildings or other improvements on the land, or for the use of an entire building, the destruction of the building(s) won't necessarily terminate the lease. The destruction of a building doesn't prevent the use and enjoyment of the land, and therefore the purpose of the lease isn't frustrated. The tenant isn't relieved from the duty to pay the rent to the end of the lease period. If, however, the lease is only for a part of a building, such as an office, apartment, or commercial space, the destruction of the building frustrates the entire purpose of the lease, so the tenant will be released from the duty to pay rent."

Ground lease

"When a tenant leases land and agrees to construct a building on that land, it is called a ground lease. Ground leases are common in metropolitan areas; they are usually long-term, in order to make the construction of buildings worth the tenant's while."

Tenant

(Lessee) A person who occupies land or property rented from a landlord.

Landlord

(Lessor) The property owner

Graduated lease

(Step-up Lease) "A graduated lease is similar to a fixed lease, but it provides for periodic increases in the rent, usually set at specific future dates and often based on the Consumer Price Index or a similar cost-of-living index. These increases are made possible by the inclusion of an escalation clause. This type of lease is also called a "step-up lease."

Step-Up Lease

**See Graduated Lease

Commission Split

**See Seller-Paid Fee

Writ of possession

A writ of possession is a court order that requires a defaulting tenant to move out. "If the court finds the tenant in default, it may issue a writ of possession, which requires the tenant to move out peaceably or else be forcibly removed by the sheriff."

Signatures

A purchase and sale agreement must be signed by everyone who has an ownership interest in the property, and by all buyers. The spouses of any married parties should also sign. Like the original contract, any amendments must be in writing and signed.

Basic provisions

A purchase and sale agreement sets forth the purchase price and other terms of sale, the closing date, the type of deed that will be used to transfer title, and when the buyer will take possession of the property.

9. A provision in the purchase agreement states that it won't be a binding contract unless the buyer can obtain financing. This provision is called: A. a contingency clause B. a defeasibility clause C. a bump clause D. an escrow clause

A. a contingency clause

11. An option: A. can be assigned, unless otherwise agreed B. is a type of lien C. creates an interest in real property D. should not be recorded

A. can be assigned, unless otherwise agreed

14. An oral lease may be valid if it is for: A. one year or less B. two years or less C. three years or less D. four years or less

A. one year or less

2. The type of listing that provides for the payment of a commission to the listing broker only if she was the procuring cause of the sale is a/an: A. open listing B. exclusive agency listing C. exclusive right to sell listing D.net listing

A. open listing

10. Under a land contract, the vendee initially gets: A. possession but not title B. title but not possession C. possession and title, but not the right to transfer ownership D. the right to novate the contract without the vendor's permission

A. possession but not title

Exclusive listing

An exclusive agency or exclusive right to sell listing can only be given to one broker at a time. To claim a commission under an exclusive listing, the broker may be required to show that she exercised due diligence in trying to find a buyer for the property.

Option

An option to purchase gives the optionee the right to buy the property for a specified price during the option period, without creating any obligation to do so. If the optionee exercises the option before it expires, the optionor is required to convey the property on the agreed terms. The option agreement must be in writing and may be recorded.

6. All of the following are required for a buyer representation agreement except: A. the buyer's signature B. a legal description of the property C. consideration D. a termination date

B. a legal description of the property

4.The listing broker has negotiated an offer from a ready, willing, and able buyer that matches the seller's terms of sale set forth in the listing agreement. Which of the following is true? A. The seller is required to accept the offer and pay the listing broker a commission B. The seller is required to accept the offer, but not required to pay the listing broker a commission C. The listing broker has earned the commission, whether or not the seller accepts the offer D. The listing broker hasn't earned the commission unless this is an exclusive agency listing

C. The listing broker has earned the commission, whether or not the seller accepts the offer

1. The type of listing that provides for payment of a commission to the listing broker regardless of who sells the property is a/an: A. open listing B. exclusive agency listing C. exclusive right to sell listing D. net listing

C. exclusive right to sell listing

12. To be binding, a lease must be signed by the: A. broker B. beneficiary C. landlord D. tenant

C. landlord

15. When a tenant assigns a lease, the assignee (the new tenant) becomes: A. secondarily responsible for payment of the rent B. the subtenant C. primarily responsible for payment of the rent D. None of the above

C. primarily responsible for payment of the rent

8. A purchase agreement should state: A. only the purchase price, leaving the other terms to be worked out in the final contract B. the listing price as well as the purchase price C. the total purchase price, the method of payment, and the basic financing terms D. the seller's reasons for selling the property

C. the total purchase price, the method of payment, and the basic financing terms

Commission rate

The commission rate cannot be pre-printed on the listing agreement form, because it must be negotiable for each transaction. A listing form for residential property must state in bold type that the commission is negotiable.

Receipt for deposit

The contract form also serves as a receipt for the buyer's good faith deposit. The receipt provision should state whether the deposit is in the form of cash, a check, or a note.

7. A purchase agreement serves as: A. the buyer's receipt for the good faith deposit B. the buyer's offer to purchase C. a binding contract between the buyer and the seller D. All of the above

D. All of the above

13. When leased property is sold voluntarily, the lease: A. automatically terminates B. is breached by constructive eviction C. must be renegotiated by the tenant and the new owner D. is binding on the new owner

D. is binding on the new owner

3. The type of listing that provides for the payment of a commission that consists of any proceeds from the sale over a specified amount is a/an: A. open listing B. exclusive agency listing C. exclusive right to sell listing D. net listing

D. net listing

5. A safety clause provides that: A. the broker is entitled to a commission whether or not he is the procuring cause B. the buyer must share the cost of the broker's commission C. the seller warrants the safety of the premises D. the broker is entitled to a commission if the property is sold after the listing expires to someone the broker previously showed the property to

D. the broker is entitled to a commission if the property is sold after the listing expires to someone the broker previously showed the property to

Security deposits

The landlord can use a security deposit to cover any unpaid rent, to pay for cleaning, or to repair any damage. A residential tenant is entitled to a refund of any portion of the security deposit that is not used for those purposes within three weeks after the tenant moves out. A security deposit cannot be used to fix any reasonable wear and tear.

Use of rental property

The tenant's use of the rental property must be legal and comply with local zoning and private restrictions. It must also comply with any restrictions written into the terms of the lease.

Termination of land contract

If a vendee defaults on a land contract, the vendor may terminate the contract. However, the vendor must refund any payments previously made, less the cost of fixing any damage and the property's fair market rental value for the period of possession. The vendee has the right to cure the default and reinstate the contract.

Escalation clause

In a graduated lease, an escalation clause provides for a rent increase at certain intervals. The clause may call for a set increase, or an increase tied to a cost-of-living index. Provision for the automatic increase of the rent at periodic intervals

Taxes and insurance

In addition to making the required payments to the vendor, the vendee is usually required to pay the property taxes and insurance.

Brokerage fee provision

In signing a purchase and sale agreement form, a seller is usually also agreeing to compensate the real estate broker for services rendered.

Liquidated damages

There is usually a liquidated damages provision in a purchase and sale agreement, allowing the seller to keep the good faith deposit if the buyer defaults. Under California law, the seller of an owner-occupied home can keep no more than 3% of the sales price as liquidated damages.

Tenant Signature

Typically, a lease does not have to be signed by the tenant, even when it must be in writing. The tenant's possession of the property and payment of rent act as acceptance of the lease.

Legal and equitable title

Under a land contract, the vendor retains legal title to the property during the contract payment period. The vendee has equitable title, which includes the right to possess and enjoy the property.

"Ready, Willing, & Able Buyer"

" As a general rule, a listing agreement obligates the seller to pay the listing broker a commission only if a ready, willing, and able buyer is found during the listing period." How do we measure whether or not a buyer is "ready and willing"? In the listing agreement, the seller states a price and other terms of sale that would be acceptable. If someone offers to buy the property on those terms, that buyer meets the ready and willing requirement. But what if a buyer makes an offer without meeting the seller's terms, and the seller accepts it? In that case, the seller has to pay the broker's commission. The broker is generally entitled to payment if a buyer makes an offer on the terms set forth in the listing, or on any other terms the seller decides to accept. As a general rule, once a ready, willing, and able buyer has been found, the broker has earned the commission even if the sale never closes. If it was the seller who prevented the sale from going forward, the broker would have the legal right to demand payment, although she might choose not to.

Demise

"The conveyance of an interest in real property through the terms of a lease."

Rider

**See Amendments

Possession

"Possession of the property is usually transferred to the buyer on the closing date, but other arrangements can be made in the purchase agreement. If possession will be transferred either before or after closing, the parties should execute a separate rental agreement called an interim occupancy agreement."

Listing price

How much money the seller wants for the property

Retainer

"Some brokers collect a retainer when they enter into a buyer representation agreement, to ensure that their services won't go entirely uncompensated. A retainer is a sum of money paid up front, before services are provided. A retainer is usually nonrefundable, but it will be credited against any fee or commission that the broker becomes entitled to.

Payment

"A broker's commission is typically paid with a check, but if the seller and the broker agree, the commission payment can take the form of a -new promissory note, -an assignment of an existing note, or -an assignment of funds from the buyer to the seller. Ordinarily, the commission is the only compensation the broker receives. The broker doesn't present the seller with a bill for expenses incurred in selling the property, unless the seller specifically agreed to this arrangement in the listing agreement. It should be noted that a salesperson may only receive a commission from the broker she is licensed under. The salesperson can't accept any compensation from any other broker or agent, or directly from the seller. If the seller fails to pay the broker his commission, it's the broker who must sue the seller. The salesperson can't sue the seller, even though she's entitled to a portion of the broker's commission."

Identification of the Parties

"The buyers and the sellers must be properly identified in the agreement. Everyone who has an ownership interest in the property must sign the contract as sellers, and all parties (sellers and buyers) must have the capacity to enter into a contract. If the property being sold is owned as community property, both spouses must sign as sellers. If it's being acquired as community property, both spouses must sign as buyers."

"Multiple listing service (MLS)"

"An organization of brokers who share information about their listings."

Nonexclusive listing

**See Open Listing

Leasehold

A lease conveys a less-than-freehold estate

Privity

The Landlord and tenant have a mutual interest in one property.

Vendor

The seller Has legal title

Optionor

the one who grants the option right "The optionor is bound to keep the offer open for the period specified in the option agreement. He isn't allowed to sell or lease the property to anyone other than the optionee until the option expires."

Optionee

the one who is granted the option right "If the optionee decides to exercise the option (to buy or lease the property on the stated terms), she must give written notice of acceptance to the optionor. If the optionee fails to exercise the option within the specified time limit, the option expires automatically."