Promulgated Contracts Exam
Requirements of a valid option
1. All of the blanks in Paragraph 23 must be filled in. 2. The option fee must be paid within three days after the effective date of the contract. 3. Buyer must pay the option fee directly to Seller or the listing broker. Do not pay the option fee to a third party, such as a title company. Buyer probably does not have a valid option if the fee is paid to anybody other than the listing broker or Seller. The option fee may or may not be credited to the sales price at closing.
Requirements of a valid contract
1. Competent parties 2. Offer and acceptance (mutual consent) 3. Legal purpose 4. In writing (when required by law) 5. Consideration
Addressing environmental concerns - TREC forms
ENVIRONMENTAL ASSESSMENT, THREATENED OR ENDANGERED SPECIES AND WETLANDS ADDENDUM A.ENVIRONMENTAL ASSESSMENT: Buyer, at Buyer's expense, may obtain an environmental assessment report prepared by an environmental specialist.
Mediation vs arbitration or lawsuit
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 Arbitration is one form of what is commonly known as Alternative Dispute Resolution. It's a process where both sides come together and agree to follow and respect the decision of the arbitrator. This is one route you can try instead of filing a lawsuit and going to court to resolve a dispute VS Lawsuit: a claim or dispute brought to a court of law for adjudication
Accessories in the real estate contract - definition, features, disposition
PARAGRAPH 2.(C) Describes accessories, which, while not necessarily permanently installed or built-in, are commonly conveyed to the buyer in the sale Window air conditioning units, stove, fireplace screen, curtains and rods, blinds, window shades, door keys, mailbox keys, above ground pool, swimming pool equipment and maintenance accessories, artificial fireplace logs, and controls: garage door, entry gates, and other accessories and improvements
What are good funds?
PARAGRAPH 9.B.(2) Buyer is to bring "good funds" to closing. Good funds is described as a cashier's check or wire transfer. Title companies may accept a small personal check from a buyer. Check with the title company for their policy
The parties to the contract specifically as noted in paragraph 18.A.
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: be in default. Unless expressly prohibited by written agreement, Seller may continue to show escrow services and title insurance. Escrow services are performed when something of value, such the Property and receive, negotiate and accept back up offers. as a deed, money, or written instrument, is put into the custody of a third person to be retained until
Items to be retained by the Seller as specified in the contract
Paragraph 2.D EXCLUSIONS: The following improvements and accessories will be retained by the seller and must be removed prior to delivery of possession ______________________
The T-47 affidavit - purpose and use
T-47 = RESIDENTIAL REAL PROPERTY AFFIDAVIT When using the seller's existing survey, the seller is given a number of days to deliver the survey and a T-47 affidavit to the Buyer and the title company. The T-47 must be signed in the presence of a notary. If the use of an existing survey is anticipated, listing agents should have the T-47 completed when the listing is taken. The contract states that both the T-47 and the survey must be delivered within the negotiated number of days.
Fair Housing terminology and prohibited acts
The following activities are expressly prohibited: • Refusing to sell, or rent to, deal or negotiate with any person • Discriminating in the terms or conditions for buying or renting • Discriminating by advertising that housing is available only to persons of a certain race, color, religion, sex, or national origin, those who are not handicapped, or adults only • Denying availability of property, when it is available • Stating different terms and conditions for lending • Denying use of services; including MLS, or any other service related to selling, buying, or renting housing • Steering (also known as channeling, is taking buyers or renters to, or away from, a particular area based on the race, religion, etc.) or blockbusting (any attempt to induce panic selling in a neighborhood for financial gain.)
Purpose of the Notice to Prospective Buyer form
This notice complies with the provision of the Texas Real Estate License Act that requires that license holders advise 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 Notices section. This form could be used when a TREC contract is not being used or could be used anytime that the broker wants the buyer to acknowledge receipt of this advice.
The purpose and use of Paragraph 6
Title policy, (title) commitment, and endorsements https://www.hoodhomesblog.com/contracts/title-policy-and-survey/
Possible responses or actions upon the receipt of an offer
1. Do nothing - An offeree is under no legal obligation to respond to any offer. Doing nothing is obviously a less than desirable response but is an option nonetheless. 2. Reject - An offer may be rejected without explanation or comment. This is also a less than desirable response because it does not invite further negotiations. A variation is the "reject with invitation to resubmit," where the offeree rejects the offer but provides suggestions to the offeror that might be acceptable to the offeree. 3. Accept - Acceptance of a contract must include full acceptance of the entire offer without change. Any change, no matter how minor, becomes a counteroffer. 4. Counteroffer - A counteroffer is made when a party changes an offer in some way and communicates the change to the other party. The counteroffer is actually a two-step process: the rejection of the original offer coupled with a new offer
Closing costs or settlement expenses
12. SETTLEMENT AND OTHER EXPENSES: A. The following expenses must be paid at or prior to closing: (1) Expenses payable by Seller (Seller's Expenses): (a) Releases of existing liens, including prepayment penalties and recording fees; release of Seller's loan liability; tax statements or certificates; preparation of deed; one-half of escrow fee; and other expenses payable by Seller under this contract. (b) Seller shall also pay an amount not to exceed $ to be applied in the following order: Buyer's Expenses which Buyer is prohibited from paying by FHA, VA, Texas Veterans Land Board or other governmental loan programs, and then to other Buyer's Expenses as allowed by the lender. Initialed for identification by Buyer and Seller TREC NO. 20-14 Contract Concerning Page 6 of 10 2-12-18 (Address of Property) (2) Expenses payable by Buyer (Buyer's Expenses): Appraisal fees; loan application fees; origination charges; credit reports; preparation of loan documents; interest on the notes from date of disbursement to one month prior to dates of first monthly payments; recording fees; copies of easements and restrictions; loan title policy with endorsements required by lender; loan-related inspection fees; photos; amortization schedules; onehalf of escrow fee; all prepaid items, including required premiums for flood and hazard insurance, reserve deposits for insurance, ad valorem taxes and special governmental assessments; final compliance inspection; courier fee; repair inspection; underwriting fee; wire transfer fee; expenses incident to any loan; Private Mortgage Insurance Premium (PMI), VA Loan Funding Fee, or FHA Mortgage Insurance Premium (MIP) as required by the lender; and other expenses payable by Buyer under this contract. B. If any expense exceeds an amount expressly stated in this contract for such expense to be paid by a party, that party may terminate this contract unless the other party agrees to pay such excess. Buyer may not pay charges and fees expressly prohibited by FHA, VA, Texas Veterans Land Board or other governmental loan program regulations. 13. PRORATIONS: Taxes for the current year, interest, maintenance
Requirements for buyer approval according to the TREC Third Party Financing Addendum
2. APPROVAL OF FINANCING: Approval for the financing described above will be deemed to have been obtained when Buyer Approval and Property Approval are obtained. Time is of the essence for this paragraph and strict compliance with the time for performance is required. A. BUYER APPROVAL (Check one box only): This contract is subject to Buyer obtaining Buyer Approval. If Buyer cannot obtain Buyer Approval, Buyer may give written notice to Seller within days after the effective date of this contract and this contract will terminate and the earnest money will be refunded to Buyer. If Buyer does not terminate the contract under this provision, the contract shall no longer be subject to the Buyer obtaining Buyer Approval. Buyer Approval will be deemed to have been obtained when (i) the terms of the loan(s) described above are available and (ii) lender determines that Buyer has satisfied all of lender's requirements related to Buyer's assets, income and credit history. This contract is not subject to Buyer obtaining Buyer Approval.
Paragraph 20 - Federal Tax Requirements
20. FEDERAL TAX REQUIREMENTS: If Seller is a " foreign person," as defined by Internal Revenue Code and its regulations, or if Seller fails to deliver an affidavit or a certificate of nonforeign status to Buyer that Seller is not a "foreign person," then Buyer shall withhold from the sales proceeds an amount sufficient to comply with applicable tax law and deliver the same to the Internal Revenue Service together with appropriate tax forms. Internal Revenue Service regulations require filing written reports if currency in excess of specified amounts is received in the transaction.
Paragraph 22 - features, numbers of days
22. AGREEMENT OF PARTIES: This contract contains the entire agreement of the parties and cannot be changed except by their written agreement. Addenda which are a part of this contract are (check all applicable boxes):
Paragraph 23 - features, numbers of days/time
23. TERMINATION OPTION: For nominal consideration, the receipt of which is hereby acknowledged by Seller, and Buyer's agreement to pay Seller $ (Option Fee) within 3 days after the Effective Date of this contract, Seller grants Buyer the unrestricted right to terminate this contract by giving notice of termination to Seller within days after the Effective Date of this contract (Option Period). Notices under this paragraph must be given by 5:00 p.m. (local time where the Property is located) by the date specified. If no dollar amount is stated as the Option Fee or if Buyer fails to pay the Option Fee to Seller within the time prescribed, this paragraph will not be a part of this contract and Buyer shall not have the unrestricted right to terminate this contract. If Buyer gives notice of termination within the time prescribed, the Option Fee will not be refunded; however, any earnest money will be refunded to Buyer. The Option Fee will will not be credited to the Sales Price at closing. Time is of the essence for this paragraph and strict compliance with the time for performance is required. While no mention is made of inspections in this paragraph, the option period is the time allowed for inspections that Buyer may want. Recall that in Paragraph 7.D Buyer is purchasing the property "as is." Because of this, the Buyer is strongly urged to obtain inspections. Based upon the inspection findings, Buyer can simply proceed to closing, attempt to negotiate repairs with the seller, or terminate the contract. If Buyer chooses to terminate under the option, they will receive a refund of earnest money, but will not receive a refund of the option fee. The option fee is the consideration paid to Seller for taking the property off the market for a period of time while Buyer decides whether or not he or she wants to finalize the purchase of the property. Please note, any notices under this paragraph are required to be provided by 5 p.m. on the specified date
TREC Form RSC-2 - purpose and use requirements
A license holder must use TREC Form RSC-2, Disclosure of Relationship with Residential Service Company, to disclose to a party to a real estate transaction in which the license holder represents one or both of the parties any payments received for services provided for or on behalf of a residential service company licensed under Texas Occupations Code Chapter 1303. A broker or sales agent is often paid a fee for providing advertising and other services on behalf of a residential service company that are separate and apart from the typical services they provide as an agent in a real estate transaction. A license holder is not required to use the form if a residential service company is not paying the license holder a fee. However, if the license holder or the sponsoring broker is paid for advertising services unrelated to any one transaction, the license holder must disclose such payments to the client. For example, if a brokerage firm is paid $100 per month for advertising, the agent must disclose that payment in any transactions in which the license holder acted as an agent in the payment period. 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.
When does an offer become a contract
Acceptance of an offer means that the accepting party does so with no change to the contract whatsoever. Any change, no matter how trivial, turns the offer into a counteroffer. A contract for the sale of real estate must be in writing and signed by the parties to be charged with performance in order to be enforceable. Agents should take care that they make no representations as to acceptance of an offer until all parties have signed, and the acceptance has been communicated. In determining whether or not there was an effective acceptance of the contract, the points generally considered are those of intent, the manner of acceptance, and the timeliness of the acceptance, and whether or not that acceptance was unconditional. There must not have been any jest or proposed change in the offeree's mind or in the manner in which he accepted the offer. The offeree must also have been the party to whom the offer was made and not someone who simply overheard the offer being made.
Common amendments to the original contract
As a transaction progresses, amendments to the original contract may be needed. Common amendments include: • 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
Lead Paint - disclosures, dates, timing, buyer's rights, seller's responsibilities
Every purchaser of any interest in residential real property on which a residential dwelling was built prior to 1978 is notified that such property may present exposure to lead from lead based paint that may place young children at risk of developing lead poisoning. 1. Buyer waives the opportunity to conduct a risk assessment or inspection of the Property for the presence of lead-based paint or lead-based paint hazards. 2. Within ten days after the effective date of this contract, Buyer may have the Property inspected by inspectors selected by Buyer. If lead-based paint or lead-based paint hazards are present, Buyer may terminate this contract by giving Seller written notice within 14 days after the effective date of this contract, and the earnest money will be refunded to Buyer.
The broker's responsibility in handling multiple offers on a single property
If a broker receives more than one offer, all offers must be presented to the seller unless instructed otherwise by the seller. No offer has a priority of presentation over another. The broker should submit all offers promptly. For example, if a license holder receives an offer at 9 a.m. and presents it to the seller and then receives a second offer at 3 p.m. (before the seller has accepted the first offer), the license holder has the duty to submit the later offer to the seller. In the same example, if the agent representing the second buyer is aware that multiple offers have been received, the listing agent should notify the agent representing the first buyer that multiple offers have been received. The same would be true regardless of the number of offers. The listing agent should keep the terms and conditions confidential so as not to give one buyer a significant negotiating advantage over another. A broker is obligated to place the client's interest first and is also obligated to treat other parties to the transaction honestly.
TREC contract forms and their uses
If the license holder properly uses TREC-promulgated forms, the unlawful practice of law issue is more easily avoided. The use of a form by license holders, which was prepared and approved by a licensed Texas attorney for the particular transaction involved or a form prepared by the property owner or prepared by an attorney and required by the property owner, is also authorized. TREC has promulgated sales contract 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 TREC has two promulgated lease forms: 1. Buyer's Temporary Residential Lease - for use when the buyer occupies the property for no more than 90 days prior to closing. 2. Seller's Temporary Residential Lease - for use when the seller occupies the property for no more than 90 days after closing
Paragraph 4 - disclosure of agency coupled with an interest and family relationships
LICENSE HOLDER DISCLOSURE: Texas law requires a real estate license holder who is a party to a transaction or acting on behalf of a spouse, parent, child, business entity in which the license holder owns more than 10%, or a trust for which the license holder acts as trustee or of which the license holder or the license holder's spouse, parent or child is a beneficiary, to notify the other party in writing before entering into a contract of sale. Disclose if applicable: .
Items typically prorated/ the proration process
PARAGRAPH 13. PRORATION: 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.
Farm and Ranch Contract - crops, accessories, improvements - definitions
PARAGRAPH 2.B IMPROVEMENTS: (1) FARM and RANCH IMPROVEMENTS: The following permanently installed and built-in items, if any: windmills, tanks, barns, pens, fences, gates, sheds, outbuildings, and corrals. (2) RESIDENTIAL IMPROVEMENTS: The house, garage, and all other fixtures and improvements attached to the above-described real property, including without limitation, the following permanently installed and built-in items, if any: all equipment and appliances, valances, screens, shutters, awnings, wall-to-wall carpeting, mirrors, ceiling fans, attic fans, mail boxes, television antennas, mounts and brackets for televisions and speakers, heating and air-conditioning units, security and fire detection equipment, wiring, plumbing and lighting fixtures, chandeliers, water softener system, kitchen equipment, garage door openers, cleaning equipment, shrubbery, landscaping, outdoor cooking equipment, and all other property owned by Seller and attached to the above described real property. PARAGRAPH 2.C. ACCESSORIES: (1) FARM AND RANCH ACCESSORIES: The following described related accessories: (check boxes of conveyed accessories) portable buildings hunting blinds game feeders livestock feeders and troughs irrigation equipment fuel tanks submersible pumps pressure tanks corrals gates chutes other: _ __ PARAGRAPH 2.D. CROPS: Even though Seller has the right to harvest right up to the delivery of possession, some Sellers may want to have the right to harvest after closing. For example, a cotton crop may not be ready to harvest at the time of closing, and since Seller has a significant investment in the crop, he may want the right to harvest some time after closing. If Buyer gives Seller this right, make sure Buyer is covered by a separate agreement for this operation. Buyer and Seller must agree as to how Seller will leave the land, including who will shred the stalks, plow the ground, and other issues.
Paragraph 24 - use and timing
PARAGRAPH 24. CONSULT AN ATTORNEY: TREC rules prohibit real estate license holders from giving legal advice. Enter attorney contact information if applicable. Some states require that an attorney represent the parties. In other states (like Texas), representation is optional. If one or both of the parties are being represented by an attorney, the attorney's contact information is generally included in the contract. The execution date follows Paragraph 24. When the last party signs and acceptance has been communicated to the other party's agent, the date of final acceptance is filled in. 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.
Paragraph 5 - features
PARAGRAPH 5. EARNEST MONEY: 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. Insert the amount of earnest money and the name and address of the title company. If additional earnest money is required, enter the amount and the number of days. Time is of the essence for this paragraph
Number of days for the title company to deliver the title commitment
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
Lender required repairs as addressed in the sales 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.
TREC rules regarding the buyer's use of inspectors
Property condition is one of the more important considerations when purchasing residential real estate. All TREC-promulgated contracts stipulate that the buyer is purchasing the property "as is." Paragraph 7A. ACCESS, INSPECTIONS AND UTILITIES: Seller shall permit Buyer and Buyer's agents access to the Property at reasonable times. Buyer may have the Property inspected by inspectors selected by Buyer and licensed by TREC or otherwise permitted by law to make inspections. Any hydrostatic testing must be separately authorized by Seller in writing. Seller at Seller's expense shall immediately cause existing utilities to be turned on and shall keep the utilities on during the time this contract is in effect.
Short sale vs foreclosure vs Deed in lieu of foreclosure
SHORT SALE 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. For example, if Seller's loan balance is $175,000, but the market value is $150,000, Seller is asking the lender to accept $25,000 less than the existing loan balance. In A(1), Buyer is informed that Seller's net proceeds at closing will not be enough to pay off Seller's mortgage loan. In A(2), Seller requires the lienholder's consent to sell and requires the lender to accept Seller's net proceeds as the satisfaction of the mortgage loan. The lender is also to give the seller an executed release of lien against the property in recordable format. DEED IN LIEU OF FORECLOSURE A deed in lieu of foreclosure is an option taken by a mortgagor—often a homeowner—usually as a means to avoid foreclosure. It is a step that's usually taken only as a last resort, when the property owner has exhausted all other options, such as a loan modification or a short sale. There are benefits for both parties, including the opportunity to avoid time-consuming and costly foreclosure proceedings.
Provisions of an addendum vs the original contract - which prevails
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. For example, some contract forms provide that the seller will provide to the buyer a general warranty deed at closing. An attached addendum may provide that the seller will provide to the buyer a special warranty deed at closing. In such a case, the seller will provide the special warranty deed because the addendum requires one
A party used to conceal the identity of a buyer
The Straw Buyer is a person who is used to buy property in order to conceal the actual owner. The straw buyer does not intend to occupy the property or make payments and often deeds the property to the other individual immediately after closing. The straw buyer is usually compensated for the use of his or her identity.
Broker-Lawyer Committee duties and purpose
The Texas Real Estate Broker-Lawyer Committee was created to draft and revise contract forms capable of standardization for use by real estate license holders. These contract forms expedite real estate transactions and reduce controversies while containing safeguards adequate to protect the interest of the principals to the transaction. The Broker-Lawyer committee has 13 members. Six members are licensed brokers appointed by TREC, and six members are licensed attorneys appointed by the president of the State Bar. One public member is appointed by the governor.
Assignment and when is it possible/not possible
The assignment of a contract transfers all of the rights related to the contract to another party known as an assignee. The assignee assumes primary liability for performance under the contracts, and the assignor, unless released, remains secondarily liable. Unless otherwise provided in the contract, most contracts are assignable; however, there are some exceptions. Contracts for personal services are not assignable. Therefore, a buyer's representation agreement or listing agreement would not be assignable. Mortgages generally have a clause that prohibits assignment (assumption) without prior approval. Purchase contracts are not assignable if they are contingent upon the buyer obtaining credit or some other contingency that makes assignment impossible. Unless otherwise prohibited, leases are assignable, and the new lessee is bound to the original terms of the lease
The effective date of the contract
The date on which the last party signed "Contract effective date" means the date agreed upon by the parties for beginning the period of performance under the contract.
Use of the Third-Party Financing Addendum
The most common form of mortgage financing is through third-party lenders such as banks, mortgage companies, and other lending institutions. Third party financing is divided into two broad categories: government loans and conventional loans. Government loans are insured or guaranteed by the U.S. Government and are made by lenders. Government loans are often either FHA or VA loans. A conventional loan is best described as any loan that is not a government loan.
Paragraph 3.B. - contents
The sum of all financing from all sources. Insert only the amount actually being financed.
Broker/seller commission agreements
These fees are most commonly found in the listing agreement between the broker and seller, and the buyer representation agreement between the broker and buyer. Fee sharing agreements between brokers may be by a written agreement or through participation in a Multiple Listing Service (MLS).
Loan assumption - features and requirements
When a purchaser assumes an existing mortgage, the original borrower is not necessarily released from on-going liability for repayment. If the seller does not receive a release of liability, the buyer assuming the loan "joins the original borrower" on the note, leaving both with liability for repayment of the loan. If this is the case, the seller could be liable for repayment of the loan if the purchaser defaults. The TREC Promulgated form, Release of Liability on Assumption of FHA, VA or Conventional Loan (TREC No. 12-2) is used to make a contract contingent on the lender releasing the seller upon the assumption by the buyer. When negotiating an assumption, a license holder representing the seller would be wise to suggest that the contract include the release contingency
Imputed Notice - definition/example
an offer is presumed to have been delivered to the principal when it is delivered to the agent.
Loan origination vs assumption
loan assumption occurs when a buyer assumes and agrees to pay the seller's existing mortgage. Loan origination is the term used to describe the process that occurs when a buyer obtains a mortgage loan from a lender. It involves several stages, starting with the loan application by the borrower, the submission of appropriate documentation, the lender's assessment of the application and the final granting of the loan
