Section 8: The Sales Contract in Texas

Because the way in which title is taken can have significant legal and tax consequences, what does Keira advise Donny and Linda to do?

Seek professional advice on the manner of taking title.

Russel Maverick likes to get things done quickly, so when he decided to buy Kent Regent's property, he asked Kent if he'd be willing to take a promissory note for the difference between the down payment and the purchase price that he would pay off in installments. Kent agreed. What type of financing is this?

Seller financing

Why does Keira select the One to Four Family Residential Contract (Resale) form to use for Donny and Linda's situation?

The home that Donny and Linda are interested in is not a new build; it has been sold before.

Is the signed sales contract legally binding?

Yes

How does earnest money differ from the down payment?

-Earnest money can be lost if the buyer defaults on the contract, whereas the down payment cannot. -Earnest money is paid up front, whereas the balance of the down payment is paid to the settlement agent at settlement.

Earnest Money Deposits

-If the buyer is putting earnest money down, the buyer must specify the exact amount in the Earnest Money section of the TREC residential resale contract. -Buyers don't have to put earnest money down. -The earnest money is credited against the buyer's closing costs at settlement.

Default of Contract Situations

-If the seller fails to perform or comply with any of the contract's terms and conditions, the buyer has the right to pursue all legal remedies, including specific performance and/or monetary damages, against the seller. -The seller's options are an either/or. Either terminate the contract and receive liquidated damages in the form of earnest money, or sue for specific performance

When, how, and to whom must the license holder disclosure be given?

-In writing -To the other party -Before entering into the sales contract

Settlement Costs and Transfer Charges: Buyer

-Loan-related fees -Appraisal fees, credit reports, and final compliance inspection fees -Insurance fees

Which of the following statements about obtaining a property survey for the title company and lender is true?

An existing survey may be used if it's accompanied by a Residential Real Property T-47 affidavit.

When is the balance of the down payment due?

At closing

When is the seller required to deliver possession of the property to the buyer?

At closing

Licensees are required by law to present information about brokerage services to prospective clients. In Texas, licensees can use the Information about Brokerage Services form to explain the types of agency relationships that prospective clients have available to them. At what point should licensees have the agency discussion?

At the initial interview

Under the terms of the TREC One To Four Family Residential Contract (Resale) , what recourse do buyers have if a seller is unable to deliver the title commitment and exception documents to the buyer within the allotted time, due to factors beyond the seller's control?

Buyers can terminate the contract and have their earnest money refunded.

Land

Contains the legal description of the property, as well as the property's street address

Title notices

Draws the buyer's attention to various items that could affect title, if applicable to the property

In which section of the TREC One To Four Family Residential Contract (Resale) do buyers indicate the amount of earnest money they are putting down?

Earnest Money section

When there's a residential lease associated with the sale of the property, the seller must return the security deposits to the tenants before closing and give them 30 days' written notice to vacate the premises.

False -The seller must turn over security deposits to the buyer at closing. Responsibility for the security deposits then rests with the buyer, who must send each tenant a signed statement saying that the new property owner has received a security deposit in their name for a specified amount.

Which of the following actions can result in the negation of a sales contract?

The seller wasn't truthful about the condition of the property in the property disclosure form.

Where would the sellers, who are party to the Kellermans' transaction, look to determine their specific obligation with regard to paying the brokers' fees?

Listing agreement

Carol and her husband, Mick, have decided that instead of taking out a loan to help finance their property purchase, they are going to take up where the seller left off on the seller's current mortgage. What type of financing is this?

Loan assumption

Nick, a Texas license holder, is helping his son, Peter, locate a home he can afford to buy and is acting as Peter's agent. Peter has found a property that he wants to make an offer on. Which of the following statements regarding this situation is true?

Nick is required to disclose his relationship to the seller in writing prior to the parties entering into the contract.

Rick is representing a business in a sales transaction. Rick owns 3% of the business. Is Rick required to provide a written license holder disclosure notice to the other party in the transaction?

No, because Rick does not own more than 10% of the business.

Gary, the seller, has a list of repairs from the buyer that he has agreed to make. Per the TREC One To Four Family Residential Contract (Resale), when must Gary have the repairs completed?

Prior to closing

Texas license holder Norman is meeting with prospective buyer clients, Andy and Sandy Silk, for the first time. Before Norman and the Silks enter into a buyer agency relationship, what is Norman required by Texas law to do?

Provide the Silks with the Information about Brokerage Services form.

Residential service contracts

Provides the option to the buyer to purchase a home warranty

Reggie has thoroughly reviewed the sales contract with his clients, the Arnolds, and has confirmed that they understand all of the terms and provisions. What should Reggie do next?

Recommend that the Arnolds review the sales contract with an attorney before signing it.

Abstract or title policy

Recommends that an attorney review the abstract or title policy.

Offer to purchase, sales agreement, contract of purchase and sale, and purchase agreement are other names for the ______.

Sales contract

Sales Price

Specifies the amount of the buyer's offer, including the down payment and any financing.

Possession

Specifies when the seller will relinquish the house to the buyer

Tide waters

States that a specific addendum must be attached to the contract if the property abuts tidal waters.

Public improvement districts

States that if the property is part of a public improvement district, the buyer is required to pay an assessment

Annexation

States that if the property lies outside the municipality limits, the seller must notify the buyer of possible annexation.

Certified service area

States that properties located in specific utility service areas may be subject to special costs or charges

Broker's fees

States that the brokers will be compensated according to their respective agency agreements

Environmental matters

States that the buyer's intended use of the property may be affected by environmental hazards or habitat concerns

Water level fluctuations

States that the level of the water source that adjoins the property may vary

Representations

States that the seller affirms and must comply with all covenants, representations, and warranties or be in default of contract.

Commitment

States that the seller agrees to provide a commitment for title insurance

Access and inspections

States that the seller must give the buyer access to the property and allow inspections

Statutory tax districts

States that the seller must provide a signed notice if the property is situated in a special tax district.

Objections

States the buyer's objections to defects, exceptions, or encumbrances to title found in the survey or seller's title commitment

Lender-required repairs

States the conditions under which lender-required repairs must be made

Completion of repairs

States the conditions under which the seller will complete repairs and remedies for non-compliance

Lead-based paint disclosure

States the requirement for a lead-based paint disclosure for properties built before 1978

Which of the following require that contracts for the sale of real estate be in writing?

Statute of frauds

Settlement Costs and Transfer Charges: Seller

-Releases of existing liens -Certain charges associated with VA financing if the buyer is a veteran

The Escrow Agent

-The escrow agent is not liable for the performance or non-performance of any party to the contract

Earnest Money and Closing Activities: Occurs if no closing

Unpaid expenses incurred on behalf of the party receiving the earnest money are deducted from the earnest money prior to disbursement.

Transfer fees

States that the buyer may be obligated to pay a private transfer fee

After explaining the various brokerage services to Donny and Linda, Keira covered the buyer representation agreement, which outlines the scope of the agent's and buyer's working relationship. When discussing the buyer representation agreement with her clients, what does Keira explain about her role as their agent?

-As Donny and Linda's agent, Keira's role would be to negotiate on their behalf. -As Donny and Linda's agent, Keira would owe them her undivided loyalty.

A Closer Look at Casualty Loss

-From the date of signing, up to the day of closing, the seller is responsible for maintaining the condition of the property. -In the event the property is damaged or destroyed prior to closing, the seller is required to restore the property to its previous condition before the closing date. -If the seller fails to repair the damage by the required date, the buyer can extend the time for performance up to 15 days, which automatically extends the closing date. -If the seller fails to repair the damage by the required date due to circumstances beyond their control and the buyer accepts the property in its damaged condition, the buyer is covered by the seller's insurance policy, with the seller covering the deductible.

Another document that is used as part of reviewing title and uncovering potential issues is the survey. What options does the buyer have with regard to obtaining a survey that the title company and lenders will accept?

-The buyer can accept an existing survey from the seller. -The buyer can obtain a new survey at their own expense. -The buyer can have the seller provide a new survey at the seller's expense.

Sales Contract Preparation Dos

-With your buyer's input, fill in all of the blanks that apply to this specific transaction and write N/A in those that do not apply. -You confer with your client about how the agreement should be formed and the appropriate price to offer based on the comparables research you've done. -You and the buyer agree that you need to add an addendum to the agreement. You write up the addendum using standard language, and have your broker review it. -You discuss the options for terms and any contingencies with your client as you complete the form. -You describe the provisions of the sales contract to your client and ensure she understands them before she signs the document. -After completing the sales contract, you recommend to the buyer that she review the contract with an attorney before signing it.

You're clear on when the seller's disclosure is required, but what about the seller's lead-based paint disclosure? When is the seller required to present that disclosure to the buyer?

For any residential property built before 1978

Propane gas system

States that a specific addendum must be attached to the contract if the property is located in a propane gas service area

Repairs to the Property

-Neither the seller nor the buyer is obligated to make lender-required repairs. -If the cost to perform lender repairs exceeds 5% of the sales price, buyers can terminate the contract and receive a refund of their earnest money. -The repairs must be made under permit by a licensed professional or a tradesperson in the field. -If the seller doesn't make agreed-upon repairs prior to closing, the buyer can take any remedy offered by default, or extend the closing date up to five days to allow the seller to complete the repairs.

Prorations

-Taxes -Rent -Assessments against the property -Association dues -Maintenance fees

Closing Section

-The buyer sets the closing date. -The conveyance of title is done through a general warranty deed. -Both the seller and buyer must provide documents at closing that are needed to close the sale and issue title insurance. -The funds for the sale price are given by the buyer to an escrow agent. The escrow agent can't be one of the brokers to the transaction, but it may be an escrow company, a title company, a trust company, or an attorney.

which of the following situations could result in default of contract?

-The buyer's loan application is rejected by the lender, and the buyer doesn't let the seller know. -The property is damaged after contract acceptance and the seller fails to complete the repairs by closing.

If, at the start of the earnest money demand process, one of the parties refuses or fails to sign the initial release for earnest money within seven days of receiving the request, that party can be liable for damages and what else?

-The earnest money -Attorney fees -Court costs

Earnest Money and Closing Activities: Occurs at closing

-The earnest money is applied to the buyer's down payment. -The earnest money is applied to the buyer's expenses.

The Sales Contract by Any Other Name

-The offer -Offer to purchase -Contract of purchase and sale -Purchase agreement

Title Commitment

-The seller has to provide the title commitment to the buyer within 20 days of the title company receiving a copy of the sales contract. -The buyer must pay for the title company to make copies of and deliver the title commitment and exception documents. -The deadline is automatically extended for up to 15 days or up to three days before closing, whichever comes sooner. -If the seller fails to deliver the title commitment and exception documents at the end of the extension period, the buyer may terminate the contract.

The Title Policy

-The seller is responsible for providing the buyer with a title insurance owner policy. -The amount of the title insurance must equal the purchase/sales price.

Seller's Disclosure and Property Acceptance

-Unless a seller is exempt, if the seller fails to deliver the disclosure to the buyer, the buyer can terminate the contract at any time prior to closing. -If the buyer receives the seller's disclosure after making an offer, the buyer can terminate the contract for any reason within seven days after receiving the notice or prior to the closing, whichever comes first. -Buyers can also ask the seller, at the seller's expense, to make repairs and treatments. -Buyers always have the option to have an inspection performed, even if they check the "Buyer accepts the Property As Is" option.

If Donny and Linda were to have a dispute with their seller, which of the following would they be required to do?

-Use mediation to resolve the dispute -Split the cost of the mediation with the seller

When is the license holder disclosure required for a sales transaction?

-When the license holder is acting on behalf of a business entity in which the licensee owns more than 10% -When the license holder is a direct party to the transaction -When the license holder is acting on behalf of a trust and is the trustee, or the spouse or close relative of the licensee is a beneficiary of the trust -When the license holder is acting on behalf of a spouse or close relative

Earnest Money Demand Process

1. Either party or the escrow agent initiates the release of earnest money by sending the release to each party. 2. If either party fails to execute a release of the earnest money, the party who executed the release can make a written demand for the money. 3. The escrow agent provides a copy of the written demand for the escrow money to the party who did not submit the demand. 4. The party who did not submit the demand for the escrow money has 15 days to send a written objection to the escrow agent. 5. If the escrow agent receives no written objection, the escrow agent releases the money to the demanding party.

Per the Objections paragraph, the buyer and the buyer's lender are given a certain amount of time to review the title commitment, exceptions documents, and survey, and object in writing to any defects, exceptions, or encumbrances to title they may find. Within how many days of receiving the objections does the seller have to cure them?

15 days

Within how many days after the title company receives a copy of the signed sales contract is the seller required to deliver commitment for title insurance to the buyer?

20

How long are licensees and brokers required to keep copies of records pertaining to brokerage services?

4 years

Why is it so important that the legal description be captured correctly in the sales contract?

A mistake in the legal description may lead to more or less land being conveyed to the buyer than was intended.

Lydia has opted to have the seller reimburse her for insurance that protects her if something goes wrong with any of the home's major systems or appliances. ______ provides this type of insurance.

A residential service contract

Items that aren't attached permanently to the real property but are assumed to belong to the house, such as draperies, fireplace inserts and screens, and above-ground swimming pools, are referred to in the Property section of the TREC residential One to Four Family (resale) contract as ______.

Accessories

When a sales contract doesn't cover the terms needed by the parties, which of the following actions is a licensee allowed to take?

Add a standard addendum using standard language.

Special provisions

Identifies provisions that the seller or buyer wishes to see added to the contract

Closing

Identifies when closing will occur and the actions that need to occur prior to closing

Seller's disclosure notice

Identifies whether or not the buyer has received a copy of the seller's property condition disclosure

Memberships in POAs

Identifies whether the property is subject to mandatory property ownership association membership and assessment fees.

Title policy

Identifies who will pay for the title insurance policy and what types of exceptions are acceptable to the buyer

Accessories

Includes items that aren't attached, but must remain with the house unless explicitly excluded

Exclusions

Includes items that either the seller wants to retain or which the buyer wants the seller to remove

Survey

Includes options for obtaining professional measurements and boundaries of the property

Improvements

Includes the house, the garage, and anything attached or permanently installed in the house itself

License Holder Disclosure

Indicates if a licensee is a party to the transaction.

Property condition acceptance

Indicates if the buyer accepts the property as-is or if the buyer requires the seller to make repairs

Loan Assumption

Indicates that the buyer is assuming the seller's current loan.

Third Party Financing

Indicates that the purchase of the property is contingent upon the buyer securing a loan, and that the funds will not come from the seller.

Seller Financing

Indicates that the seller is helping with the financing.

Earnest Money

Indicates the amount of money the buyer is putting down up front as a show of good faith.

What's a residential service contract?

Insurance for the buyer against major systems and appliance issues

According to the TREC residential One to Four Family (resale) contract, what recourse does a buyer have if a seller is unable to complete agreed-upon repairs and treatments prior to closing?

The buyer can extend the closing date up to five days to allow the seller to complete the repairs.

What does it mean when a Texas buyer accepts a property "as is"?

The buyer is accepting the property in its current condition with any and all defects and without warranty.

Which of the following statements about a buyer accepting a property in "as-is" condition is true?

The buyer retains the right to have the property inspected.

What is the sales contract?

The buyer's documented offer to the seller to purchase the home.

Let's Get This Party Started

The people who are entering into the agreement are referred to in the Parties section as the parties to the contract. The party who agrees to sell and convey the property is the seller. The party who agrees to purchase the property is the buyer.

Why are the buyer and seller asked to initial each page of the sales contract?

To prevent the substitution of any pages by either party

What's the purpose of the earnest money deposit?

To show the seller that the buyer is serious and intends to go through with the purchase