Ch. 10 - sales contracts and related procedures
If the Greens pay a due diligence fee of $1,000, the fee is generally nonrefundable.
True
Prior to closing, the property being sold by Melissa and Juan to the Greens is materially damaged during a fire. If the Greens decide to terminate the contract, they will be entitled to a refund of the earnest money but not the due diligence fee.
True
Under Paragraph _______ of the Offer to Purchase and Contract, the buyer has the right to terminate the contract for any or no reason.
4(g) - To exercise this right to terminate, the buyer must deliver a written notice of terminationto the seller before expiration of the due diligence period
The due diligence period expires at __________ on the date entered on the Offer to Purchase and Contract.
5:00 p.m.
Paragraph _____ of the Offer to Purchase and Contract includes the following seller representations that the buyer may rely on when deciding whether to enter into the contract:
7
If the Greens provide proper written notice to terminate during the due diligence period, they will be entitled to a refund of the earnest money deposit and the due diligence fee.
False - If the buyers provide a written termination notice by the date and time specified, any earnest money deposit will be refunded to the buyers. The due diligence fee is not refunded.
If Jack J. and Jill J. Green want to make an offer on the property owned by Melissa O. Black and Juan O. Blue, Jr., what should broker Owen enter in the Offer to Purchase and Contract as the buyer?
Jack J. Green and Jill J. Green
According to Commission Rule A.0112(a), a broker acting as an agent in a real estate transaction must not use a preprinted offer or sales contract form unless the form describes or specifically requires the entry of the following information:
Names of the buyer and seller Legal description of the real property sufficient to identify and distinguish it from all other property Itemization of any personal property included in the transaction Purchase price and manner of payment Any portion of the purchase price that will be paid by a promissory note, including the amount, interest rate, payment terms, whether or not the note is to be secured, and any other material terms contained in the promissory note Any portion of the purchase price that is to be paid by the assumption of an existing loan, including the amount of the loan, costs to be paid by buyer or seller, interest rate and number of discount points Amount of earnest money, if any, method of payment, name of broker or firm that will serve as escrow agent, acknowledgment of earnest money receipt by the escrow agent, and criteria for determining disposition of the earnest money, including disputed earnest money Any loan that must be obtained by the buyer as a condition of the contract, including amount and type of loan, interest rate and number of discount points, loan term, who will pay loan closing costs, and a condition that the buyer will make every reasonable effort to obtain the loan General statement of the buyer's intended use of the property and a condition that such use must not be prohibited by private restriction or governmental regulation Amount and purpose of any special assessment and the responsibility of the parties for any unpaid charges Date for closing and transfer of possession Signatures of the buyer and the seller Date of offer and acceptance
There are several bookcases in the living room in Melissa and Juan's house. Jack and Jill, who are interested in buying the house, are not sure how the bookcases are attached or if they will be included in the sale. If Melissa and Juan intend to keep the bookcases and do NOT want them to be included in the sale, where should they indicate their intentions?
Paragraph 2(d)
If Melissa and Juan agree to include a stand-alone refrigerator with the sale of their house, where should this be indicated in the Offer to Purchase and Contract?
Paragraph 3 - where personal items go
Under Paragraph 6 of the Offer to Purchase and Contract, the buyer is responsible for the following financial obligations:
Proposed special assessments Costs associated with any loan obtained by the buyer Charges by any owners' association related to the buyer's future use of the property and for providing required information to the buyer's lender Costs for determining restrictive covenant compliance Costs associated with any appraisal, title search, title insurance, document preparation and recording, and deed recording
__________ refers to the allocation of certain expenses, real estate taxes, or rents between the buyer and the seller.
Proration
Broker Rita works for PDQ Realty, and Rita's buyer client is interested in property that is listed with TLC Realty. TLC is offering a commission of 2.5% to any cooperating broker. In the offer to purchase and contract, Rita includes a provision stipulating that TLC will pay PDQ a commission of 3%. This act is prohibited by Commission Rule A.0112(b).
True
Contingencies are conditions that must be satisfied before a contract is fully binding and enforceable. If the conditions are not met, a party can withdraw without liability for breach of contract.
True
If Melissa and Juan fail to comply with their contractual obligations, the Greens will be entitled to a refund of the earnest money deposit and the due diligence fee.
True
If the Greens decide to go forward with the sale, even though the property was materially damaged, the Greens are entitled to relevant insurance proceeds from the sellers.
True
If the Greens want to terminate the contract after the due diligence period expires, they may lose the earnest money deposit.
True
If the buyer does not terminate the contract, and the transaction closes, closing constitutes acceptance of the property in its existing condition, unless otherwise specified in writing.
True
In real estate, a short sale takes place when an owner sells their house below its mortgage value. This typically happens when the owner is under financial distress and is behind on mortgage payments. The owner is obligated to sell their home to a third party, while the proceeds of the sale go to the lender. The lender must approve the short sale before it happens.
True
It is important to note that a repairs agreement does not affect the buyer's right to continue to conduct due diligence during the due diligence period. If the seller completes the requested repairs, the buyer may still terminate the contract for any or no reason before expiration of the due diligence period and be entitled to a refund of the earnest money deposit.
True
An ___________ tax is a tax based on the assessed value of an item, such as real estate or personal property. The most common ad valorem taxes are property taxes levied on real estate. The Latin phrase ad valorem means "according to value."
ad valorem
affix
attach something to real estate in a permanent way, including planting trees and shrubs
Because the risk of loss remains with the seller until "closing" (i.e., recordation of the deed), the seller should not cancel any existing insurance coverage until the seller has confirmed that the deed has __________-
been recorded.
A ___________ is a contract between a homeowner and a home warranty company that covers the costs associated with repairing or replacing specific systems and components of a home for a specified period of time.
home warranty
If a buyer fails to provide the due diligence fee or the initial earnest money deposit by the date specified in the contract, or if a check is not honored by the financial institution, the buyer is given ____________ day after receiving a written notice to deliver cash, official bank check, electronic transfer, or wire transfer.
one banking
Any clause in the contract that is intended to be observed, kept, or performed after closing will ________ the closing and remain binding until observed, kept, or performed.
survive
If the buyer fails to deliver the required funds, the seller may ___________ the contract upon written notice to the buyer.
terminate
If Jack and Jill Green want to make an offer on the property owned by Melissa Black and Juan Blue, how should broker Owen identify the property?
with the street address and the legal description wrong answer: with either the street address or the legal description
___________ refers to the buyer's opportunity to investigate and inspect the property and the transaction, during a due diligence period, and decide whether to proceed with or terminate the transaction.
Due diligence - The buyer may want to hire a home inspector to examine and assess the condition of the property, including systems and components of the structure. If the buyer plans to obtain a third-party loan to acquire the property, the buyer's lender will require an appraisal before approving the loan.
If Jack and Jill Green pay a due diligence fee of $1,000, the fee belongs to the Greens until settlement.
False
In the Offer to Purchase and Contract, Melissa and Juan disclose that there is a proposed special assessment in the amount of $2,000. Who is most likely to be responsible for paying this assessment?
Jack and Jill, the buyers - The buyers are responsible for any proposed special assessments, and the sellers are responsible for confirmed special assessments.
Broker Oliver's buyer client, Patricia, wants to purchase property from a builder, and the sale will involve the construction of a new single-family dwelling prior to closing. Which NCAR/NCBA offer to purchase and contract form would be most appropriate?
Offer to Purchase and Contract—New Construction (Form 800-T) - The Offer to Purchase and Contract—New Construction (Form 800-T) is used if the seller is the buyer's builder and the sale involves the construction of a new single-family dwelling prior to closing.
If the buyer fails to provide proper notification, the buyer is bound by the terms of the contract. The buyer may still terminate but would be subject to the loss of the earnest money deposit as liquidated damages.
True
If the buyer provides a written termination notice by the date and time specified, any earnest money deposit is refunded to the buyer.
True
If the delaying party is the buyer, the seller is entitled to the earnest money deposit. If the delaying party is the seller, the buyer is entitled to a refund of any earnest money deposit and due diligence fee and reimbursement for reasonable costs incurred in conducting the due diligence.
True
Paragraph 2(b) identifies any items that are fixtures but are leased or not owned by the seller and, therefore, are not included in the sale.
True
The Offer to Purchase and Contract may not be assigned without written consent from all parties. If the contract is assigned, it will be binding on the assignee and the assignee's heirs or successors. Assignment refers to the transfer of rights or interests under a contract to another party.
True
The contract is binding on the parties (the buyer and the seller) and their respective heirs, successors, and assigns.
True
The due diligence period in North Carolina is a negotiated period of time during which a buyer has the opportunity to conduct their "due diligence" before deciding to move forward with the purchase of the home.
True
The fee, if any, belongs to the seller upon the effective date of the contract and is typically nonrefundable. However, if the transaction proceeds to closing, the fee is credited to the buyer. If the buyer decides to terminate the transaction, the fee is typically retained by the seller.
True
The seller must: Execute and deliver a general warranty deed conveying fee simple marketable and insurable title free of liens, encumbrances, or defects—except for current year ad valorem taxes, utility easements, and covenants, conditions, or restrictions that do not materially affect the value of the property.
True
To obtain a legal description of the property, broker Owen could contact the listing broker or get a copy of the seller's recorded deed.
True
most closings in North Carolina are handled by attorneys.
True
the buyer authorizes the lender, real estate agents, and closing attorney to disclose certain information to the parties to the transaction, the real estate agents, and third parties, as specified in the contract.
True
the buyer's obligations under the contract are not contingent upon the buyer obtaining the desired financing. If the due diligence period expires, the buyer is obligated to purchase the property, whether or not he is financially able to do so.
True
is the due diligence period negotiable?
Yes
Representation
a statement of fact that is made to influence a person's decision to enter into a contract. Paragraph 5 of the Offer to Purchase and Contract includes the following buyer representations that the seller may rely on when deciding whether to enter into the contract:
In the transaction involving the sale of Melissa and Juan's house to the Greens, who is most likely to conduct the closing?
an attorney
_________ refers to completion of the legal steps necessary to transfer title from the seller to the buyer and requires the deed to be recorded.
closing
A __________ special assessment is one that has been formally approved prior to settlement.
confirmed
Jack and Jill are responsible for all of the following financial obligations EXCEPT (they are buyers)
confirmed special assessments. - sellers are responsible for this wrong answers: deed recording. / costs associated with the loan. / appraisal.
A ___________ is a provision in a contract that makes the parties' rights and obligations dependent on the occurrence (or nonoccurrence) of a specified event.
contingency
The ___________ is the agreed-upon amount that the buyer pays the seller for the right to terminate the contract for any reason or for no reason during the due diligence period. The amount of the fee, which is negotiable, is entered in the second line of Paragraph 1(d). However, like earnest money, a due diligence fee is not a requirement for forming a valid contract.
due diligence fee
The Offer to Purchase and Contract requires Melissa and Juan to deliver what type of deed?
general warranty deed
Earnest money is a deposit from a prospective buyer to show that she is serious about an offer.
True
the contract allows for settlement to be delayed for up to ______ days. In this case, the delaying party will not be considered in breach of contract.
14
In Paragraph ___________, Conduct of Transaction, the parties agree that any action related to the contract may be conducted by electronic means.
20
There are numerous matters that the buyer should address during the due diligence process including, but not limited to the following:
Loan qualification and approval / Property inspections / Review of documents / Appraisal - for financing purposes / Survey / zoning / flood hazards
If Jack J. and Jill J. Green want to make an offer on the property owned by Melissa O. Black and Juan O. Blue, Jr., what should broker Owen enter in the Offer to Purchase and Contract as the seller?
Melissa O. Black and Juan O. Blue, Jr.
The intended use of the Vacant Lot/Land Offer to Purchase and Contract Standard Form 12-T, as stated at the top of the form, is as follows:
This contract is intended for unimproved real property that Buyer will purchase only for personal use and does not have immediate plans to subdivide. It should not be used to sell property that is being subdivided unless the property has been platted, properly approved, and recorded with the register of deeds as of the date of the contract. If Seller is Buyer's builder and the sale involves the construction of a new single-family dwelling prior to closing, use the standard Offer to Purchase and Contract—New Construction (Form 800-T) or, if the construction is completed, use the Offer to Purchase and Contract (Form 2-T) with the New Construction Addendum (Form 2A3-T).
A buyer's broker who wishes to receive a commission split from the listing broker must negotiate the compensation arrangement in a separate agreement.
True
According to Commission Rule A.0112(a)(2), a preprinted offer or sales contract form must include a legal description of the real propertysufficient to identify and distinguish it from all other property.
True
An (additional) earnest money deposit refers to the payment of any subsequent earnest money deposit (i.e., more than five daysafter the effective date of the contract).
True
An offer to purchase and contract is an agreement between the buyer and the seller. A real estate broker is not a party to the contract.
True
Any earnest money deposit is held by the escrow agent named in the contract. The escrow agent could be a real estate brokerage firm (often the listing firm), a law firm, or another entity.
True
Closing does not occur at the same time as settlement-as settlement always occurs before closing-and closing and settlement may occur on different days.
True
Ernest money is / is not a requirement for forming a valid contract.
is not
Broker Anthony's buyer client, Brenda, is interested in purchasing Colin's house, which is listed by broker Dawn. What information is NOT required to be included in the offer if Anthony uses a preprinted offer to purchase and contract form?
name of the closing attorney wrong answers: Brenda's intended use of the property / Brenda's right to inspect the property / itemization of any personal property included in the transaction
what paragraph in a contract is about fixtures?
paragraph 2
Unless otherwise specified, _________ of the property is delivered at closing.
possession
In the Offer to Purchase and Contract, ________ is defined as the execution and delivery to the closing attorney of all documents (e.g., deed, settlement statement, and deed of trust) necessary to complete the transaction and the closing attorney's receipt of all funds.
settlement
A __________ is one in which the proceeds from the sale are not sufficient to pay the balance owed on the property. In a short sale, the seller will not be able to convey marketable and insurable title without the lender's consent.
short sale
In the Offer to Purchase and Contract, __________ refer to charges by a governmental authority (other than ad valorem taxes) or by an owners' association (other than regular dues), which may become a lien on the property.
special assessments
Broker Manual works for ABC Realty. Manual's buyer client is interested in a house that is listed with broker Natalie, who works for XYZ Realty. If Manual uses a preprinted offer to purchase and contract form, the offer should include a provision stipulating that ABC Realty's commission will be paid by XYZ Realty.
False - A broker acting as an agent in a real estate transaction must not use a preprinted offer or sales contract form containing any provision concerning the payment of a commission or compensation to any broker or firm.
According to the Offer to Purchase and Contract, the following items are prorated, with the seller responsible for the prorated amounts through the date of settlement:
Ad valorem taxes on real property and recurring governmental service fees levied with such taxes are prorated on a calendar year basis. Ad valorem taxes on personal property for the entire year are not prorated and are paid by the seller unless the personal property is conveyed to the buyer, in which case, the personal property taxes are prorated on a calendar year basis. Rents, if any, for the property will be prorated. Owners' association dues and other like charges are prorated.
If a metes and bounds description is needed for the offer, broker Owen could complete the description and attach it to the contract as an exhibit.
False - A broker should consult an attorney if a metes and bounds description is needed.
Elena is interested in purchasing Graham's property. If the offer is drafted by Elena's attorney, the offer must include the information listed in Commission Rule A.0112(a).
False - Commission Rule A.0112 applies to preprinted offer and sales contract forms used by brokers. The requirements would not apply to a contract that is drafted by an attorney for one of the parties.
Common contingencies in residential real estate sales contracts include, but are not limited to:
Financing contingency. The sales contract may be contingent on the buyer obtaining financing on agreeable terms, including the amount borrowed, the type of mortgage or deed of trust, the maximum interest rate, the loan term, etc. Appraisal contingency. The buyer may want to make the contract contingent on the property appraising at (or above) the purchase price. Inspection contingency. The sales contract may be contingent on the buyer obtaining certain inspections of the property. Inspections can include those for structural and mechanical systems, wood-destroying insects, lead-based paint, and radon, just to name a few. Sale of other property contingency. Buyers often make the sales contract contingent on the sale of other property. This protects the buyer from owning two homes at the same time and helps ensure the availability of cash for the purchase.
Closing is the date of recordation of the deed and the deed of trust, if any. The following legal steps to transfer title to property from the seller to the buyer must be completed before the deed can be recorded:
Settlement (defined above) Completion of a satisfactory title update Closing attorney's authorization to disburse funds
Which of the following would NOT be considered a material fact that a buyer's agent must disclose to the seller?
The buyer previously terminated a contract to purchase another property during due diligence. wrong answers: There is an outstanding judgment against the buyer. / The buyer must sell other property in order to purchase the seller's property. / The buyer must obtain a loan in order to purchase the property.
Any personal property that will be included in the sale and conveyed to the buyer (at no value) is listed in Paragraph 3, Personal Property. Examples might include curtains and window air conditioning units.
True
Jack and Jill hire a home inspector to examine the home owned by Melissa and Juan. On August 20, Jack and Jill submit a written Due Diligence Request and Agreement asking Melissa and Juan to repair some damaged exterior siding. Melissa and Juan agree to do so, and they sign the agreement. The repairs are completed on August 25. If the due diligence period will expire on September 15, Jack and Jill can still terminate the contract even though the sellers completed the requested repairs.
True
Paragraph 2(a) provides a detailed list of specified items that are considered fixtures and are included in the sale of the property unless specifically excluded elsewhere in this paragraph.
True
Paragraph 7(b) indicates if the property is a residential property that was built prior to 1978. If yes, the Lead-Based Paint or Lead-Based Paint Hazard Addendum (NCAR/NCBA Standard Form 2A9-T) must be attached.
True
Proration is the allocation or dividing of certain money items at the closing
True
Real estate brokers are expected to understand and explain all contract provisions to the parties. However, they cannot provide legal advice and should advise the parties to consult an attorney if they have any legal questions.
True
Refrigerators are also typically considered personal property unless the refrigerator has been adapted to the property, such as a unit that is built into the cabinetry and would require removal of such to retrieve the refrigerator unit.
True
the total of all amounts entered in the second through the eighth lines must equal the purchase price entered in the first line in the contract
True
Broker Vivian's buyer client, William, is interested in purchasing Yvette's house, which is listed by broker Zach. If Vivian uses a preprinted offer to purchase and contract form, the offer must identify the brokers involved in the transaction, their firms, and the party each broker and firm represents.
True - A preprinted offer to purchase and contract form used by a broker must include the identity of the real estate agents and firms involved in the transaction and the party each agent and firm represents.
Unless the seller and the buyer agree otherwise, the property is sold "as is" in its current condition. The parties may negotiate for repairs. If they do so, the buyer should ensure that all negotiations are completed before expiration of the due diligence period.
True - If the seller agrees to make any repairs requested by the buyer, the agreement must be in writing, signed by both parties, and added to the contract.
If a broker working with a buyer knows that the buyer must sell or lease other property in order to purchase the property, this is also a material fact that must be disclosed to the seller.
True - Paragraph 5(b) indicates whether the buyer must sell or lease other property to qualify for financing or to complete the sale.
A contract must identify the parties to the contract (i.e., the seller and the buyer).
True - The parties should be identified by first name, middle initial, and last name, along with any suffix (e.g., Jr.).
The Greens need to obtain a loan in order to purchase the property. If their loan is not approved, they may terminate the Offer to Purchase and Contract without liability for breach of contract
during the due diligence period.
If the property is not in substantially the same or better condition at closing, reasonable wear and tear excepted, the buyer may terminate the contract. The buyer would be entitled to a refund of any __________ deposit.
earnest money / If the buyer does not terminate the contract, the buyer is entitled to receive relevant insurance proceeds, in addition to the property.
The ____________ is when the offer becomes a binding contract. To create a binding contract, there must be mutual assent (also called mutual agreement or a "meeting of the minds"), which generally involves an offer, acceptance of the offer, and communication of the acceptance to the offeror.
effective date
An initial earnest money deposit refers to any earnest money paid to the escrow agent with the offer or within __________ days of the effective date of the contract.
five days
A __________ is an item that starts out as personal property but becomes real property through one of several methods:
fixture / Physical attachment to real property Close association with real property (such as the keys to a house) Adoption (such as curtains that were custom-made for an unusual window size or shape) Agreement between the parties involved Intention of the person affixing the item
During the due diligence period, the Greens can terminate the Offer to Purchase and Contract for which of the following reasons?
for any of these reasons, or for no reason at all all the reasons: only if the property is located in a Special Flood Hazard Area / only if the home inspector has identified some recommended repairs / only if the Greens fail to qualify for a loan
A ____________ special assessment is one under formal consideration but not yet approved as of settlement.
proposed
A contract ________ is a stipulation within a contract, legal document, or a law. A contract provision often requires action by a specific date or within a specified period of time.
provision
