Oregon real estate licensing set 2

Buyer Commission Considerations

A buyer broker is required to show all properties meeting their buyer's stated parameters, regardless of the fee offered. Because the listing principal broker might not offer to pay any fee to a cooperating broker, it's good practice to enter into an agreement with each buyer that specifies the minimum fee the buyer broker will accept. With a properly drafted buyer broker agreement, if the minimum fee is not covered by the commission paid through the listing principal broker, the buyer owes the balance. Buyer Broker Agreement sample clause: Buyer agrees to pay to Broker a fee of 2.7% of the final sales price of the property, reduced by any fee paid by Seller or Seller's Principal Broker.

Variable Lease:

A variable lease allows for rent increases as the lease term progresses. There are two main methods for providing for future rent increases: Graduated Lease: At specific intervals, rent increases are provided for in advance. Indexed Lease: Future rent increases are tied to the future increases of a specific economic index, such as the Consumer Price Index (CPI).

Basic Elements to a Lease

All lease and rental agreements should address the following or contain the following clauses: A description of premises to be rented. A description of the lease term. Identification of lessor and lessee. A description of specific use of property allowed by the tenant. A warranty that the lessee will be able to possess the property without inference from the landlord or other tenants. A description of deposits that are to be held by the lessor to offset repairs or unpaid rent at the end of the lease term. Deposits are refundable if there are no justifiable offsets at the end of the lease term. A description of fees to be collected at the time of the execution of the lease. Fees are not refundable. An example of a fee would be a fee for credit verification. The amount of rent, escalation clauses or formulas for calculating rent. A description of the party responsible for repairs, which can be the landlord or the tenant, or split between the landlord and the tenant. In residential rental agreements most repairs are to be made by the landlord. In commercial leases, the landlord is responsible for repairs to the common areas and exterior of the building and major mechanical systems. The tenant is generally responsible for maintenance and repairs to the space occupied. A re-entry clause that allows the landlord to enter the leased premises to make repairs, to inspect the premises, and to show the premises for rent. Notice provisions for the tenant are usually required for landlord entry. Any assignment and sublease clauses that define the rights of a tenant to either assign the lease or to sublease the space. Usually, these clauses are written to provide for consent by the lessor, if either is allowed. Any options to renew that define the term for future renewal periods, the amount of rent in the future period, how the rental amount will be determined, and the number of future renewal periods that will be granted. Breach of lease or rental agreement clauses which determine the rights of both the lessor and lessee in the event of a breach. The general rights of both parties are: The landlord: May regain possession by a suit for eviction. May sue to recover past due or future rent. May sue for actual damages incurred due to tenant's breach. The tenant: May sue for damages incurred due to landlord's breach. May sue for constructive eviction if the space can no longer be occupied and thereby forces the tenant to leave the space. This would prevent the landlord from collecting future rents.

Net

Broker is paid amount above specified price. Consignment style

Real Estate Sale Agreements Other Names

Earnest Money Agreement; Receipt for Earnest Money Deposit; Earnest Money Deposit Agreement; Agreement for Purchase and Sale; and Real Estate Sales Agreement.

Earnest Money

In Oregon, when a real estate broker is involved, the real estate broker is required to collect an earnest money deposit or receive the buyer's promise to pay (a promissory note) an earnest money deposit when writing an offer for a client.

Commission

In the normal residential transaction, the listing principal broker contracts with the seller for a percentage of the sales price as compensation for the seller and buyer brokers. The seller pays this fee to the listing principal broker through escrow, usually from the proceeds of the sale. The listing principal broker then gives escrow instructions to pay the selling principal broker the fee agreed to between the two principal brokers.

Closing

Is the process whereby the parties to a real estate sale agreement, lease, right of first refusal, or option agreement, perform their respective obligations as set forth in their agreement. This process is also referred to as escrow or settlement. In the case of a real estate sale agreement, the buyer deposits funds into escrow and, if a lender is involved, the lender delivers loan documents to be executed by the buyer and the seller will execute a deed in favor of the buyer. When all of the terms of the escrow have been met, the buyer receives the deed to the property and the seller receives the amount of funds equal to the purchase price agreed to in the real estate sale agreement. The transaction is said to be closed when: the deed is recorded in the name of the buyer; and funds are made available to the seller.

requirements

It must be in writing (Oregon Statute of Frauds). It must set forth a definite expiration date. It cannot contain a provision requiring the person signing the agreement to notify the principal broker of the person's intent to cancel the listing after the stated specific expiration date. The listing cannot contain a provision subjecting the owner of the listed property to the payment of two or more commissions for one sale in the event the owner lists the same property with a second or subsequent principal broker after the termination of the preceding listing agreement. The listing agreement cannot contain any language that can be considered discriminatory under either federal or state fair housing laws. A listing agreement must also contain the following information or clauses: name of all parties in ownership (collectively known as the "Seller"); the name of principal broker; common description of the property, such as street address; the list price; terms and conditions of sale; the type of listing agreement (exclusive agency, exclusive right to sell, open, etc.); commission amount or other fee schedule within a reasonable certainty; responsibilities of the principal and the agent; description of how earnest money deposits will be handled in the event of forfeiture by a buyer; multiple listing service arrangements; authorization for the principal broker to accept an earnest money deposit on behalf of the seller; authorization for the principal broker to advertise, show, and to place a lock box and a sign on the property; attorney fees clause and dispute resolution procedures; the signatures of all parties with title interest in the property and that of the broker signing on behalf of the principal broker; and a clause acknowledging that a copy of the listing agreement was given to the principal at the time the principal signed the agreement.

The four different type of listing agreements are:

Open Exclusive agency Exclusive right to sell Net

Types of buyer agreements

Open agency exclusive agency Exclusive right

Escrow

Simply defined, a real estate escrow is a deposit of funds by the buyer for delivery to the seller, and deposit of a deed by the seller for delivery to the buyer, upon completion of the conditions specified in their real estate sale agreement. Settlement of escrow is referred to as the closing process (or "closing") and involves all of the necessary steps the escrow agent will take to "close" out the file. Once the escrow agent closes the file, the real estate transaction is said to be "closed." Most residential real estate transactions are closed in escrow by state licensed escrow agents. Commercial transactions, however, will be closed by either an attorney acting as a closing agent or by an escrow agent. Banks, savings and loan associations and other financial institutions sometimes act as the escrow agent in transactions where they provide financing. A real estate broker or principal broker can, but rarely do, act as closing agents.

In Oregon, the vendor (seller) and vendee (buyer) can negotiate and stipulate in the contract certain remedies in the event of default on the part of the buyer, with certain limitations. These are some of the available remedies:

Suit for Installments - If the vendee is in default on some payments, the vendor can sue for payment. Any resulting judgment would be a general unsecured lien on other property of the vendee. Forfeiture - Oregon Revised Statutes (ORS 93) allows a vendor to declare a forfeiture without court action. The vendor must mail the vendee, by certified and first class mail, a notice of default. The notice is to state both the amount and nature of the default, along with the date after which the buyer's rights will be extinguished for failure to cure the default. A notice must also be mailed to junior lien holders. The buyer and junior lien holders must be given at least 60 days but not more than 120 days notice. The actual number of days is based upon the amount of the remaining balance as a percentage of the original purchase price. If the default is cured with the statutory time limit, the contract is reinstated. If the default is not cured, the buyer's rights are extinguished. If the buyer's rights are extinguished, the seller records an affidavit stating that the default was not cured within the statutory time limit along with a copy of the notices. Once recorded, the affidavit becomes notice to the entire world that the buyer's interest in the property has been forever extinguished. Acceleration of Balance Due - If the vendee is delinquent with respect to the periodic payments on the contract, the vendor can give the vendee notice of the default and demand that all delinquent payments be brought current, along with all applicable late charges and reasonable attorney's fees and costs for preparing the notice, within a specified time. If the vendee does not bring the delinquent payments current, then the vendor has the option of accelerating the payment of the principal balance by requiring immediate payment of the entire remaining principal balance. The vendor can then institute a suit for payment of such balance, interest, late fees, and reasonable attorney's fees and costs. Strict Foreclosure - In the event of default, the vendor can file a court action for strict foreclosure. In this suit, the court will determine a reasonable length of time in which the vendee will have the right to pay off the remaining balance. If the vendee does not perform within the time allocated by the court, the court will issue a judgment in favor of the vendor. The vendor will then retake the property and retain all money paid by the vendee and all rights of the vendee in the property are forever extinguished. Judicial Foreclosure - The vendor could elect to foreclose the land sale contract as a mortgage. If this method is used, the vendee could be liable for any deficiency. The vendee can have redemption rights under this alternative. Specific Performance - The vendor, in a suit for specific performance, will ask the court for a judgment against the vendee in the amount of the remaining contract balance, including past due interest, late fees, and reasonable attorney's fees and costs. The vendor would ask for this remedy because the vendor does not want to re-take the property that was sold with the land sales contract. Instead, the vendor wants the value of the contract in cash. Any judgment granted in favor of the vendor by the court allows the vendor to execute the amount of the judgment against other property of the vendee.

Gross Lease

The lessee in a gross lease pays rent to the lessor in a fixed amount each rental period and the lessor pays all of the operating expenses. This is the most common type of lease for residential property.

Percentage Lease

The percentage lease usually provides for a fixed amount of rent to be paid as well as a percentage of the gross income of the lessee's business. This type of lease is frequently used in retail shopping malls as a method for the property owner to be compensated for their promotion of the entire mall, thereby attracting customers to all the retail tenants in the mall. The underlying portion of the percentage lease could be either a gross lease or net lease, depending on whether the lessee is to pay any of the operating expenses.

Options

The right of first refusal is a contractual right that gives one the option to enter into a business transaction with the owner of something according to specified terms, before the owner is entitled to enter into that transaction with a third party. In the case of real estate, the right of first refusal is accomplished through the use of an option contract. An option contract is a unilateral contract that gives one party the exclusive right to buy, sell, or lease a specific property, at a specified price, within a specific period. An option contract is unilateral because only one party is making a promise. The person giving the option (the seller) is the optionor. The person receiving the option (the buyer) is the optionee. The optionor is agreeing to sell the property that is the subject of the option to the optionee upon the specified terms agreed to in the option contract, but only if the optionee elects to do so during the option period. The optionee is buying the right to buy and no obligation to actually buy exists. The optionor, however, is required to sell if the optionee exercises the right to buy.

Exclusive right to sell listing

The seller employs just one principal broker. If the property is sold by another principal broker, the seller, or the listing principal broker, the listing principal broker has earned the commission.

Net Lease

The tenant pays a set amount of rent, along with some or all of the expenses for operating the building. Other expenses paid for by the tenant are insurance, property taxes, maintenance, repairs, and other selected operating expenses negotiated between the landlord and tenant. Net leases are typically used to shift the burden of escalating operating costs, such as taxes, from the lessor to the lessee. This type of lease is most often used for long-term retail, office, or industrial space. This type of lease is also referred to as net-net lease or triple-net lease. The more "nets" there are, the more types of operating expenses will be paid by the lessee.

Important Concepts

Upon communication of the seller's acceptance of the offer back to the buyer, a real estate sale agreement becomes a legally enforceable contract. The offer is not a contract until the seller accepts it in writing and communicates that acceptance back to the buyer. A buyer can revoke an offer any time before the seller's acceptance is communicated to the buyer (or buyer's agent). There is no penalty when the buyer revokes before communication of acceptance. An offer can be revoked before it becomes a contract. A rejection of the offer or a counter-offer by the seller or revocation of the offer by the buyer before communication of the seller's acceptance terminates the offer. When an offer to purchase is accepted by the seller, the buyer acquires a legal interest in the property. When a party has a legal interest in the property, but does not possess actual title to the property, that interest is known as equitable title. The buyer retains equitable title interest until the time of closing or the contract becomes void. If the contract becomes void, the buyer has no further interest in the property. If the transaction closes, the buyer receives a deed conferring legal title, known as actual title. In the case of a land sales contract, the buyer has equitable title until the debt is fully paid. The time is of the essence clause in a real estate sale agreement requires punctual performance of all terms that have specified dates. Any change in the buyer's offer by the seller, however slight, creates a counter-offer and nullifies the original offer, thereby relieving the buyer from any obligation to proceed. The same holds true for any change in a counter-offer. If the buyer rejects a counter-offer from the seller, and then the seller wants to accept the buyer's original offer, there is no contract, nor has any brokerage fee been earned. The original offer became a nullity (ceased to exist) when the counter-offer was made. Refundable earnest money deposit checks should be made payable to one of the real estate brokerages involved in the transaction that maintains a client's trust account, or to an escrow company. If a promissory note is used as a promise to pay earnest money on a future date, the following information is important to understand: The terms of a promissory note given as the promise to pay an earnest money deposit are negotiable between the buyer and the seller. A promissory note cannot be made payable at closing. Earnest money due at "closing" is not earnest money at all. If the transaction fails to close, the buyer will never have to give the earnest money, whose purpose is to protect the seller if the buyer fails to close the transaction. A promissory note cannot be made payable to an escrow company - it should be made payable to the seller. Escrow is a neutral third-party and cannot initiate a collection action against a party to the escrow. It is in the seller's best interest to have a promissory note for earnest money due and payable upon mutual acceptance of the offer. This Promissory Note for Earnest Money Deposit is due and payable within three calendar days from mutual acceptance of this offer. Unless otherwise specified in the agreement, unless a breach occurs, or unless the earnest money deposit is agreed to be nonrefundable, once the promissory note is redeemed, the earnest money is held in trust until closing for the benefit of the seller. At closing, the earnest money deposit is released to seller and credited to the buyer as part of the amount paid to the seller for the purchase price. The amount and form of the earnest money deposit is negotiated between the buyer and seller. There is no set amount required for earnest money. If the earnest money deposit is in the form of a check made payable to a brokerage trust account, it must be deposited into the principal brokers clients' trust account within three business days from mutual acceptance of the offer. Any provision in the earnest money agreement requiring the completion of an act before the contract is binding is referred to as a condition or contingency. When a seller is required to deliver a Seller's Disclosure Statement to the buyer, but fails to do so, the buyer can withdraw from the transaction any time up to the time of closing without forfeiting the earnest money deposit.

Open agreement

allows the seller to employ any number of principal brokers at the same time. However, the seller will only owe a commission to the principal broker who sells the property (the procuring cause of the sale). In addition, the open listing agreement allows for the seller to sell the property without owing any commission.

Escrow instructions

also referred to as the escrow agreement. Under OAR, the escrow agreement must be written instructions that are given to the escrow agent by each principal to the transaction. The escrow instructions constitute the contract between the escrow agent and the principals. All of the escrow instructions received by the escrow agent must be without conflict. This means that the escrow instructions from the principals to the escrow agent must be exactly the same. When there is a conflict in the escrow instructions, it must be resolved by the principals before the escrow agent can proceed.

Leases

gives a tenant an exclusive right to possess property not owned by the tenant. This right to possess is for a limited duration, as agreed to in the lease agreement. A lease does not give any ownership rights. The party who owns the property is called the lessor. The party who is leasing the property is called the lessee. The Oregon Residential Landlord Tenant Act statutorily defines the rules, rights, duties, and obligations of both the landlord and the tenant. The Oregon Residential Landlord Tenant Act applies to the leasing of houses, apartments or other property that is inhabited by a tenant or resident for residential purposes. The Act does not apply to commercial leases.

Typical Buyer Representation Clauses

identification of the parties; terms of agreement; target property description; exclusive v. non-exclusive representation; duration of the agreement; consent to show properties to other buyers; disclosed dual agency as a possibility; non-discrimination provisions; agent compensation method and terms; disclosure of potential conflict of interests; and dispute resolution.

Elements of listing agreement

includes the starting and ending dates of the contract, the asking price for the property, the types of financing the seller will accept (e.g., conventional loan, cash, seller financing), the amount of commission to be paid to the principal broker, the right to install a For Sale sign and lock box on the property, permission to advertise the property for sale and to publish interior and exterior photographs of the property on the Internet.

Closing statement

is a financial summary of the transaction. The closing statement reflects: Funds deposited into the escrow account for the benefit of the buyer and seller Charges paid by escrow for the benefit of the buyer or seller The net amount of funds the seller will receive from the transaction. This closing statement is also referred to as a settlement statement.

Escrow agent

is a neutral party who acts on behalf of the parties to the escrow. The parties to the escrow include the parties to the real estate transaction. The parties to the transaction are the seller and the buyer, not their real estate brokers. The parties to the escrow are referred to as principals of the escrow. When a loan is involved, the lender will also be a principal. An escrow agent is in a dual agency relationship with the principals and must remain neutral. This means that an escrow agent is not to engage in negotiations with or on behalf of any party to the escrow. If an escrow agent is presented with a conflict or disagreement, the escrow agent cannot proceed until the principals have resolved the conflict or disagreement. Escrow agents, as an agent of the principals, must also perform their duties by following the common law principles of fiduciary duties.

Land sales contract

is a seller financing agreement used when the seller finances the buyer's purchase of the seller's property. A land sales contract is known by many other names, including: Installment Sale Contract; Land Contract; and Contract for Deed. Even though the instrument is called a Land Sales Contract, the contract is used for raw land or improved real estate. It does not apply only to raw land as the name would suggest. There are two parties to a land sales contract: the seller, who is known as the vendor; and the buyer, who is known as the vendee. The land sales contract is the basis of the financing arrangement between the vendor and the vendee. The vendee takes possession of property and makes installment payments to the vendor. The vendor retains legal title to the property until the vendee has fulfilled the obligations under the contract. Until the vendee fulfills the contract, the vendee has equitable title to the property. Legal title refers to duties and responsibilities of maintaining property. The owner cannot benefit if the property value increases so there is no beneficial interest in the property. Equitable title refers to the enjoyment and benefit of the property without absolute ownership. In other words, the vendee has an equitable position in the property. From the vendee's perspective, the land sales contract is the least desirable method of seller financing. This is the case because the buyer does not receive title and cannot get title until all of the terms of the contract have been carried out, which can take many years depending on the terms of the contract. In a land sales contract, the vendor should deposit a deed into escrow transferring title to the property to the buyer with instructions to record the deed once the buyer has made all of the required payments. Land sales contracts are 100% negotiable between the vendor(seller) and vendee(buyer) and Oregon law does not require any specific terms or language to be included. While some preprinted land sales contract forms are available, real estate licensees should insist that the client hire an attorney to prepare the contract. An attorney will use their own terms and language in drafting the contract that best protects the interests of the client.

different types of leases are

lease for a definite period - The key factor to a lease for a definite period is that the time is definite and fixed. This means that at the end of the fixed period, the lessee must vacate. Most commercial leases are for a definite period. periodic lease - has no specific expiration date in the lease agreement. The rent (the lease payment) is paid in definite intervals, such as monthly. Each time the rent is paid, the lease is renewed for a like period. This means that when the rent is paid monthly, the lease is extended for a month. This extension of the lease happens because rent is due in advance of the occupancy period. Note: A residential lease written for a period of one year does not constitute a specific expiration date but rather the date the amount paid for rent becomes renegotiable. Because there is no specified end in a periodic lease agreement, both the landlord and the tenant are required to serve notice in order to end the lease. tenancy at will - when a tenant possesses the property for an indefinite period, but with the consent of the landlord. Either party can terminate a tenancy at will upon giving proper notice. holdover - occurs when a tenant wrongfully retains possession of the property after the lease term has expired.

exclusive agency

listing gives one principal broker the right to sell the property, but no commission is owed if the seller sells the property.