Chapter 8- Real Estate Sales Contracts

Vendor

The seller of property.

Practicing Law

There has been an ongoing controversial issue btw brokers and lawyers on who can and should draw up contracts. Lawyers maintain that it is practicing law and brokers argue they need something immediate to close a sale. The resolution has come in the form of accords btw the brokerage industry and legal profession. In most states, courts have ruled that an agent is permitted to prepare purchase, installment and rental contracts provided it is limited to filling in only blank spaces on a preprinted form approved by an attorney. If the form requires extensive changes and riders, it should be drafted by an attorney.

Additional conditions

This is where any personal property would be listed associated with the selling price, or where the buyer has the condition; property inspected by a professional inspector

Loan conditions

This space is left to add conditions and agreement not provided for elsewhere in a preprinted contract. E.G. Rather than risk losing his deposit money, the buyer makes his offer subject to obtaining a 96,000 loan on the property. To further protect himself he states the terms on which he must be able to borrow (at 5% for 30 years ect).

Closing Agent

a number of states use escrow agents to handle the closing. The purchase contract has a line provision to state the agent and instructions (sets the closing date for the transaction). Normally finding the lender is most time consuming, this usually takes 30-60 days. If using an attorney, broker or other person, their name and closing date would be listed here. At the closing meeting, the buyer, seller, their attorneys, the lender and the title company rep would be present to conclude the transaction.

Options Contract

aka Right of first refusal. In contrast to a bilateral contract, the option contract is unilateral. Once the contract is executed, the buyer has a right to purchase the property but with no obligation to do so. In return for the option to purchase the buyer must pay consideration to the seller for the contract to be enforceable.

Riders

are any addition annexed to a document and made a part of the document by reference. It is usually written, typed or printed on a separate piece of paper and stapled to the document (also known as addendums or attachments, they must be initialed).

Prorating

deals with the question of how certain ingoing expenses, such as property taxes, insurance, and mortgage interest, will be divided btw the buyer and seller.

The Binder

is a short form contract used primarily in the northeastern US. The purpose is to hold a deal together until a more formal purchase contract can be drawn by an attorney and signed by the buyer and seller. Professor said it is not enforceable.

Earnest Money Deposit

is money that the buyer submits with his offer. This money shows the buyer's earnest intentions and is kept by the seller should the buyer fall through. Except with court ordered sales (usually a 10% requirement), no law governs the size of the deposit or even the need for one, therefore, the deposit is always negotiable. Note that earnest money, by itself, is not consideration. Consideration in a bilateral contract for sale is the mutual promises the parties make to each other.

Possession

is the day that the property will be turned over to the buyer. As a rule it is the same day as the closing. If either party wants possession after or before closing then the usual procedure is to arrange for a separate rental agreement. Possession is when stated in the contract.

Termite inspection

is what the buyer asks for at the sellers expense to ensure that the property is termite and dry rot free.

Notification

is when acceptance is indicated. It states that Sebrina Schwaab employed the x company and agrees to x commission for brokerage services and the amount of sales commission to be paid at closing (Sebrina signs and dates it). The last step is to have the seller sign and date the notification.

Time is of the Essence

means that the time limits set by the contract must be faithfully observed or the contract is voidable by the non-defaulting party. Also, lateness may give cause for an action for damages.

Installment Contracts

(aka; For sale by owner, land contract, conditional sales contract, contract for deed or agreement of sale). Is a method of selling and financing property where by the seller retains title but the buyer takes possession while making the payments. Used when the buyer cannot secure a loan or has insufficient funds to purchase outright. The buyer has all the rights and privileges of an owner. The seller has 2 options: 1)Deliver a deed to the buyer at closing and collect a promissory note and mortgage secured by the property. 2)Enter into an installment contract wherein the buyer makes the required payments to the seller before the seller delivers a deed to the buyer.

Historically if the vendee railed to make all the payments on time, the seller (vendor) could rescind the contract, retain payments already made as rent and retake possession of the land.

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Lease with an option to buy

Allows the tenant to buy the property at a preset price and terms for a given period of time. It is a unilateral contract until the option is exercised and then it becomes a bilateral contract.

Acceptance

For an offer to become binding, the seller must accept everything in it. The rejection of even the smallest portion of the offer is a rejection of the entire offer. If the seller wishes to keep negotiations going, he makes a counter offer.

Property damage

It begins by addressing the question of property destruction btw the contract signing and the closing date. Fire, wind, rain, earthquake, or other damage does occasionally occur during that period of time. It states who is responsible, and could give the buyer a reason to break the contract. Note this does not prevent the buyer from accepting the damaged property.

Vendee

The buyer of property.

What is the purpose of a real estate contract :

The main purpose (reason) is that the buyer needs time to ascertain that the seller is, in fact, legally capable of conveying title.

Equitable Title

The right to demand that title be conveyed upon payment of the purchase price. During the period beginning with the buyer and seller signing the contract and the seller delivering the deed, the buyer is said to hold equitable title to the property. Used to convey property rights to heirs or to sell one's interest in property.

Buyer default

When the contract is signed, if the buyer fails to carry out his obligations, the seller has 3 choices: 1)Release the buyer and return his deposit in full, 2)Sue the buyer for specific performance, 3)Sue the buyer for damages suffered.

Purchase contract - (also known as deposit receipt, offer and acceptance, purchase offer or purchase and sales agreement)

has four key parts: 1)Provision for the buyer's earnest money deposit, 2)The buyer's offer to purchase. 3)The acceptance of the offer by the seller, 4)Provisions for the payment of a brokerage commission.