Promulgated Contract Forms
What are the five essential elements of a valid and enforceable contract?
1. Competent parties 2. Offer and acceptance (mutual consent) 3. Legal purpose 4. In writing 5. Consideration COLIC
The person to whom an offer is made has several options when responding to the offer, which include:
1. Do nothing 2. Reject 3. Accept 4. Counteroffer
What are some concerns regarding assumptions?
1. Seller's liability. The seller, who is the original borrower on the loan assumed may continue to be liable, along with the buyer.
Seller's Temporary Residential Lease
Allows seller to stay at house after closing. Good for 90 days.
Buyer's Temporary Residential Lease
Allows the buyer to move in before closing. Good for 90 days
When does the offer become a contract?
An offer becomes a binding contract when all parties sign it, and the acceptance is communicated to the offering party . Communication is also referred to as notification
1-4 family residential contract PARAGRAPH 24
Consult an attorney - TREC rules prohibit real estate license holders from giving legal advice. Enter attorney contact information if applicable. The broker is responsible for ensuring that the effective date is filled in. All contracts must have an execution date filled in. The contract has many provisions that require compliance "within X days after the effective date of this contract..." Failure to enter an execution date can obviously cause considerable problems when trying to determine if a party is in compliance
Where are broker's fees found?
Found in listing agreement
right of first refusal
Gives the tenant the right to purchase the leased property by matching or bettering any offer before the property will be sold to someone else
Residential Condominium Contract PARAGRAPH 3.B.
The sum of all financing from all sources. Insert only the amount actually being financed
Short Sale Addendum
This document is used when Seller is unable to sell property at or above what Seller owes the lender. The seller is requesting that the lender "short" themselves on what is owed.
T-47 Residential Real Property Affidavit
Used when using existing survey. The seller is given a number of days to deliver the survey and affidavit to the buyer and the title company. The affidavit must be signed in the presence of a notary. If the use of an existing survey is anticipated, listing agents should have the affidavit completed when the listing is taken. The contract states that both the affidavit and survey must be delivered within the negotiated number of days
Default
When a party to a contract fails to perform under the contract.
When would you use seller financing addendum?
When the credit score is not good, so you will be charged higher interest rate
1-4 family residential contract PARAGRAPH 9.2.(B)
Buyer is to bring "good funds" to closing. Good funds is described as a cashiers check or wire transfer. Title companies may accept a small personal check from a buyer. Check with the title company for their policy.
1-4 family residential contract PARAGRAPH 6(B)
COMMITMENT- the title company has 20 days from the date that they receive the contract to furnish a commitment to the buyer for title insurance. This paragraph also provides for an automatic extension of the delivery period for up to 15 days or 3 days prior to closing if the commitment cannot be delivered within the 20 days allowed
1-4 family residential contract PARAGRAPH 24
CONSULT AN ATTORNEY - TREC rules prohibit real estate license holders from giving legal advice. Enter attorney contact information if applicable. The broker is responsible for ensuring that the effective date is filled in. All contracts must have an execution date filled in. The contract has many provisions that require compliance "within X days after the effective date of this contract..." failure to enter an execution date can obviously cause considerable problems when trying to determine if a party is in compliance
What are some common amendments?
Changes to the closing date; changes to the sales price, down payment and/or amount financed; repairs that the seller agrees to perform; removal or waiver of contingencies
Texas Real Estate Broker-Lawyer Committee
Created to draft and revise contract forms capable of standardization for use by real estate license holders. Has 13 members. 6 members are licensed brokers appointed by TREC, and 6 members are licensed attorneys appointed by the president of the State Bar. 1 public member is appointed by the governor.
1-4 family residential contract PARAGRAPH 23
TERMINATION OPTION - while no mention is made of inspections in this paragraph, the option period is the time allowed for inspections that Buyer may want. For a valid option to exist, the following are required: 1. All of the blanks must be filled in 2. The option fee must be paid within 3 days after the effective date of the contract 3. Buyer must pay the option fee directly to Seller or the listing broker Please note, any notices under this paragraph are required to be provided by 5pm on the specified date. Also, option fee is not refunded and number of days could be negotiated.
Farm and Ranch Contract PARAGRAPH 2(C)
Describes accessories, which, while not necessarily permanently installed or built-in, are commonly conveyed to Buyer in the sale. Accessories include the typical residential items. Examples would include: hunting blinds, game feeders, livestock feeders, fuel tanks, irrigation equipment, pressure tanks, corrals, gates, chutes, etc. Farm and ranch accessories to be conveyed are indicated by checking the appropriate boxes.
1-4 family residential contract PARAGRAPH 2(C)
Describes accessories, which, while not necessarily permanently installed, or built-in, are commonly conveyed to the buyer in the sale. Examples would include: window air conditioning units, stove, fireplace screens, curtains and rods, blinds, windows shades, draperies and rods, door keys, mailbox keys, above ground pool, swimming pool equipment and maintenance accessories, artificial fireplace logs
1-4 family residential contract PARAGRAPH 5
EARNEST MONEY- is a "deposit" paid upfront by Buyer to show that he or she is serious in his or her intent. There is no standard for the dollar amount of earnest money, but it is often in the range of 1% of the purchase price. Time is of the essence for this paragraph. Not required to be a part of the contract. It is a choice. Earnest money is negotiated.
Environmental Assessment, Threatened or Endangered Species and Wetlands Addendum PARAGRAPH A
ENVIRONMENTAL ASSESSMENT- this box is checked if Buyer wishes to obtain an environmental assessment. The addendum states the buyer "may obtain" the assessment. An example of an environmental assessment would be a site assessment to determine the likelihood of toxic substances on the site
1-4 family residential contract PARAGRAPH 18(A)
ESCROW- the escrow agent is not a party to the contract, and has no liability for the performance of either party. The title company performs two primary functions: escrow services and title insurance. Escrow services are performed when something of value, such as a deed, money, or written instrument, is put into the custody of a third person to be retained until the occurrence of a contingency or performance of a contract. The title company is the escrow agent, the trusted third party that will receive and hold a deed signed by the seller. They will also have the buyers earnest money and loan funds released to them by the lender
1-4 family residential contract PARAGRAPH 18(B)
EXPENSES - earnest money is applied first to the cash down payment and then to Buyer's expenses. Any excess is refunded to Buyer. If closing fails to occur, the escrow agent will require a signed release of all escrow funds from all parties. The title company has the right to deduct from the earnest money the amount of unpaid expenses incurred on behalf of the party receiving the earnest money
Farm and Ranch Contract PARAGRAPH 2(A)
Enter the legal description and address of the property to be conveyed. If the property is described by metes and bounds, attach the description to the contract
1-4 family residential contract PARAGRAPH 20
FEDERAL TAX REQUIREMENTS- a seller who has no social security card or green card is considered a foreign person. The escrow agent will withhold from the sales proceeds an amount sufficient to comply with applicable tax law and deliver the same to the IRS. The contract says the buyer has an obligation to do this, but in reality, the escrow agent provides this service
Multiple Offers
If a broker receives more than one offer, all offers must be presented to the seller unless instructed otherwise by seller. No offer has a priority of presentation over another. The broker should submit all offers promptly
1-4 family residential contract PARAGRAPH 16
MEDIATION- buyer and seller agree to mediate in the event that the parties have a dispute that cannot be settled through informal discussion. The cost of mediation is shared equally between Buyer and Seller. Mediation does not in any way imply a waiver of the right to file a suit if a party is unhappy with the results of mediation
1-4 family residential contract PARAGRAPH 6(D)
OBJECTIONS - Buyer may object to any matters that might prohibit a certain use or activity of the property, such as the installation of a satellite dish, operating a business out of the home, or parking of an RV within view of the street. Whatever the intended use of the property, it must be listed here. If the buyer is using the property for a residence only, many license holders insert the words "residential use" in this paragraph
Loan Assumption
Occurs when a buyer assumes and agrees to pay the sellers existing mortgage
Environmental Assessment, Threatened or Endangered Species and Wetlands Addendum PARAGRAPH B
This box is checked if Buyer is concerned that there may be threatened or endangered species or their habitat on the site. The penalties for taking (Example: killing, capturing, disturbing) an endangered plant or animal, or destroying its habitat are substantial
Farm and Ranch Contract PARAGRAPH 2(B)
This includes the improvements, which are all man-made additions to the land, including the house, garage, and other permanently installed and built-in items. Included in the improvements are the usual residential improvements and specific farm and ranch improvements. Examples would include: windmills, tanks, barns, pens, fences, gates, sheds, and etc.
Notice to Prospective Buyer
This notice complies with the provision of the Texas Real Estate License Act that requires that license holders advice buyers to have an abstract examined or obtain title insurance. All of the TREC promulgated contracts have this notice in paragraph 6 in the title notice section. This form could be used when TREC contract is not being used or could be used anytime that the broker wants the buyer to acknowledge receipt of this advice
Sometimes a provision in an addendum contradicts a provision in the main body of the contract. In such a case, the provision in the addendum prevails. (True or false?)
True
Stigmatized
A property where there has been a murder or alleged haunting
1-4 family residential contract PARAGRAPH 7(A)
ACCESS, INSPECTIONS, AND UTILITIES - Seller permits Buyer access to the property at reasonable times for inspections. Seller will turn on utilities and leave utilities on during the time covered by this contract. The inspector is to be a TREC licensed inspector or another person otherwise allowed by law. This would seem to allow engineers and other professionals to perform inspections even if they are not licensed by TREC
Addendum for sellers disclosure of lead-based paint and lead-based paint hazards PARAGRAPH D
BUYER'S ACKNOWLEDGEMENT- buyer will verify in the checkbox that he or she has received copies of all the information mentioned above, and has received a copy of the pamphlet "Protect Your Family From Lead in Your Home." This pamphlet is avail email in English and Spanish
Addendum for sellers disclosure of lead-based paint and lead-based paint hazards PARAGRAPH C
BUYER'S RIGHTS - buyer to indicate whether buyer waives the right to conduct a risk assessment or inspection. Otherwise, the buyer may have the property inspected within 10 days of the effective date of the contract
1-4 family residential contract PARAGRAPH 15
DEFAULT- When a party to a contract fails to perform under the contract. Failure to perform is also commonly referred to as "breach of contract." When a party is in default or breach, the other party is known as the "injured party." In responding to default, the injured party has a number of options available to them. The options are somewhat different depending on whether the buyer or the seller is in default.
1-4 family residential contract PARAGRAPH 2(D)
Enter exclusions to the sale. If an item is to be excluded, give it a name and a location. For example, "dining room chandelier" would be an adequate name and location. Excluded items are to be "removed priory to delivery of possession."
Straw Buyer
Is a person who is used to buy property in order to conceal the actual owner
Blockbusting
Is any attempt to induce panic selling in a neighborhood for financial gain
Conventional Loan
Is best described as any loan that is not a government loan
Good funds
Is described as a cashiers check or wire transfer
third party financing
Is divided into two broad categories: government loans and conventional loans
Void Contract
Is invalid from the beginning and does not affect the parties
Unimproved Property Contract PARAGRAPH 6.E.(6)
PROPERTY LOCATED IN A CERTIFICATED SERVICE AREA OF A UTILITY SERVICE PROVIDER- Utility Service Providers are businesses licensed by the Texas Commission on Environmental Quality. They are not taxing authorities like utility districts, but do charge for water and sewer services, primarily in rural areas. They have been assigned an exclusive service area (territory) by the State of Texas. If property is located in a Certificated Service Area of a Utility Service Provider, a disclosure to Buyers that there may be a charge for turning on or connecting water and sewer services is required by the Texas Water Code. Buyer should also verify that utility service is currently available at the property.
An offer can be communicated by
Phone, fax, email, letter or hand delivery
Disclosure of Relationship with Residential Service Company
Residential Service Companies are commonly referred to as home warranty companies. Buyers always have the right to purchase a home warranty, and Seller often contributes to some or all of the cost. If a residential service company pays a broker any compensation, the compensation must be paid in exchange for services actually rendered by the broker to the company. The compensation must be an amount that does not exceed the reasonable value of the services. The disclosure form should not be attached to the contract as an addendum, but the form should be retained in the transaction records maintained by the broker as evidence that the disclosure was provided
Addendum for sellers disclosure of lead-based paint and lead-based paint hazards PARAGRAPH B
SELLER'S DISCLOSURE - select the correct box to check that either they do or do not know of lead-based paint or lead-based paint hazards. Likewise, indicate if the seller has provided the buyer with reports, or if the seller had no reports or records pertaining to lead-based paint or lead-based paint hazards
1-4 family residential contract PARAGRAPH 12
SETTLEMENT AND OTHER EXPENSES- buyers and sellers expenses and settlement costs are stated. Even though printed in the form to be paid by one party or the other, they are negotiable.
Imputed Notice
under this concept, an offer is presumed to have been delivered to the principal when it is delivered to the agent
What are the 3 phases of a contract?
1. Executed - signing and communication establish the effective date 2. Executory period - 45 to 60 days from effective date to closing 3. Fully executed - closing - a contract is "fully" executed when all parties have performed
TREC has promulgated forms for most residential properties, including:
1. One-to-four family contract (resale) 2. New home contract (incomplete construction) 3. New home contract (completed construction) 4. Unimproved Property contract 5. Residential Condominium Contract (Resale) 6. Farm and Ranch Contract
In a one- to-four family residential contract the heading of the contract contains:
1. The date the contract form was approved by the commission. License holders must take care to use only the most current version of a contract form. Failure to use the most current version is a violation of the License Act. 2. The title of the form reveals its intended use. The contract form is the One-to-four family residential contract (resale). One to four means that it can be used for single family properties, duplexes, triplex properties and four-unit buildings. A building with 5 or more living units would be considered to be a commercial transaction. It is also used for resales only. A new home contract would be used on new home sales. This form is not to be used for condominium, but may be used for the sale of a townhouse
Third Party Financing Addendum PARAGRAPH 2
APPROVAL OF FINANCING - this paragraph gives the buyer a specific number of days in which to obtain credit approval. The number of days allowed for credit approval varies but sufficient time should be allowed. For the purposes of this addendum, time is of the essence. This means that if the buyer has been given twenty days in which to obtain approval, the approval must be obtained within the allotted twenty days
addendum
An attachment that adds or further describes the rights and duties of the parties
Government loans
Are insured or guaranteed by the US government and are made by lenders. Are often either FHA or VA lons
Voidable Contract
Is one that cannot be enforced against one or more of the parties. Example would be contracts entered into with minors
Unforceable Contract
Is one that cannot be enforced due to some flaw in the contract, passage of time, or other issues that make enforcement impossible
Valid Contract
Is one thst meets all of the requirements of law
Addendum for sellers disclosure of lead-based paint and lead-based paint hazards PARAGRAPH A
LEAD WARNING STATEMENT- states that if you are about to buy a residential dwelling that was built before 1978, you are being notified with this addendum that the property may present to the buyer exposure to lead found in paint
1-4 family residential contract PARAGRAPH 7(E)
LENDER REQUIRED REPAIRS AND TREATMENTS - Lender required repairs, if any, are a negotiated expense item between the parties. If the lender repairs exceed 5% of the sales price, the buyer may terminate the contract and receive a refund of earnest money. Seller must complete all agreed to repairs prior to closing, or the closing date may be extended up to 5 days to complete repairs
1-4 family residential contract PARAGRAPH 4
LICENSE HOLDER DISCLOSURE - states that a license holder who has a familial relationship with a party to the transaction must disclose this information to the other parties before entering into a contract
1-4 family residential contract PARAGRAPH 13
PRORATION - is the process of dividing ongoing expenses between the buyer and the seller at closing. Prorations are generally calculated through the day of closing for taxes, maintenance fees and rents, if any, that the seller pays for on the closing day. Tax prorations may be calculated to take into consideration any change in exemptions that will affect the current year's taxes
Unimproved Property Contract PARAGRAPH 6.E.(7)
PUBLIC IMPROVEMENT DISTRICTS - a Public Improvement District (PID) is a special taxing entity established by area property owners to enhance a neighborhood or commercial district. The creation of a PID requires a vote of at least 51% of the property owners affected by the new tax. Some local jurisdictions have set a threshold for approval in excess of 51%. If the property is situated in a PID, notice must be provided to Buyer informing him or her of the tax.
Farm and Ranch Contract PARAGRAPH 13
Prorations and rollback taxes. 13(A) Prorations - taxes for the current year, interest, maintenance fees, assessments, dues and rents will be prorated through the Closing Date. 13(B) Rollback taxes - if this sale or Buyer's use of the Property after closing results in the assessment of additional taxes, penalties or interest (Assessments) for periods prior to closing, the Assessments will be the obligation of Buyer. If Assessments are imposed because of Seller's use or change in use of the Property prior to closing, the Assessments will be the obligation of Seller. Obligations imposed by this paragraph will survive closing.
Information About Brokerage Services (IABS) Form
Texas law requires all real estate license holders to give the following information about brokerage services to prospective buyers, tenants, sellers and landlords.