Real Estate - Legal Aspects CHAPTER 8 SALE AND LEASE CONTRACTS

What does a right of rescission clause set forth?

It provides buyers the right, under certain conditions, to rescind the sale contract and re-claim their deposits if sellers fail to complete and deliver the property condition disclosure statement to buyers in a timely fashion. -Buyer must follow certain procedures and meet certain deadlines in order to legitimately effect the cancellation.

What does the escrow clause in a sales contract do?

It provides for the custody and disbursement of the earnest money deposit, and it releases the escrow agent from certain liabilities in the performance of escrow duties.

What does the term "leaseholder estate" refer to?

It refers to a lessee or tenant's ownership of a temporary right to exclusively possess land or property.

What paragraph in a CAR Residential Purchase Agreement has five sections that outline the joint instructions of the buyer and seller to the escrow holder and defines the roles of the parties in the transaction?

Joint Escrow Instructions to Escrow Holder

What clause talks about how a landlord is leasing a property and a tenant is taking possession of a property?

Leasehold clause

What term refers to a lessee's ownership of a temporary right to exclusively possess land or property?

Leasehold estate

What three options do the parties have on the purchase agreement for when the buyer will receive possession of the property?

Paragraph 9B provides the following options: -At 6pm (or another specified time) on the date of escrow -No later than a written in number of days after close of escrow -At a specific time on a specific date

Under Acceptance of Offer in a CAR Residential Purchase Agreement, which section states that brokers are not parties to the agreement?

Real Estate Brokers

When a seller receives an offer on his or her property, what action would free him or her to consider other offers and also frees the buyer to consider other properties or to make another offer on the same property?

Rejection

In a CAR Residential Purchase Agreement, the four sections that follow the confirmation of acceptance are real estate brokers, escrow holder acknowledgment, presentation of offer and

Rejection of offer.

What provision in a sales contract is the seller's written summary of the property's condition at the time of contracting for sale?

Residential property condition disclosure

According to the CAR Residential Purchase Agreement, tax bills issued after close of escrow will be handled directly between

Seller and buyer.

List the four paragraph titles on the CAR Counter Offer form.

Terms Expiration Offer Acceptance

List two items included in the Terms and Conditions of Offer paragraph.

Terms requiring specific initialing are only part of this agreement if initialized by all parties. Prior to notification of acceptance, seller has the right to continue marketing the property and accept another offer.

The Appraised Contingency

The variety of contingency clauses is endless and can be written for nearly any need. Following are the most common: *Appraised Contingency *Financing Contingency *Inspection Contingency *House Sale Contingency *Kick-Out Clause

Demising Clause

This clause talks about how the landlord is leasing the property and the tenant is taking possession of the property.

Describe the maintenance and repairs provision.

This is an important provision that would specify the maintenance required by the parties and detail who is responsible for repairs to the property. It may also address any required reporting procedures for the landlord to make repairs.

What paragraph in a CAR Residential Purchase Agreement states the contract represents the final terms of the agreement unless the parties make changes in writing?

Time of Essence; Entire Contract; Changes

CAR Residential Purchase Agreement Page 10

* Acceptance of Offer This paragraph contains a variety of information and must be completed carefully by all parties. It begins with a statement that the seller is the owner of the property and has the authority to execute the agreement. Seller authorizes broker to deliver a signed copy to the buyer. There is a box to be checked if the seller's acceptance is subject to an attached counteroffer. The date of that counteroffer must be included on the line provided. If a representative of the seller is signing the agreement, the appropriate box must also be checked, and the Representative Capacity Signature Disclosure (CAR Form RCSD) attached. There is then space for the date, seller's name, and seller signature. If an additional signature addendum is attached, the appropriate box under the signature section must be checked. There is also a short section for confirmation of acceptance. This is only initialed if the offer is accepted without a counteroffer. It shows that the buyer or buyer's authorized agent personally received a copy of the signed acceptance. The date and time the acceptance was received must be written in this section. However, this section states that confirmation of acceptance is NOT required to create a binding agreement; therefore, this section solely provides evidence that confirmation of acceptance has occurred. Following the confirmation of acceptance, there are four boxed-in sections that address real estate brokers, escrow holder acknowledgment, presentation of offer, and rejection of offer. There are various blanks in each section that must be completed by the appropriate parties, if applicable. *Real Estate Brokers - This section states the brokers are not parties to the agreement, all agency relationships are confirmed in paragraph 2, the buyer's agent acknowledges receipt of deposit, and the listing broker agrees to pay the cooperation broker. The selling and listing broker(s) must fill in the appropriate lines in this section, providing the names of the brokerage and agent, license numbers, and contact information. *Escrow Holder Acknowledgement - The escrow holder acknowledges receipt of a copy of this agreement, including a deposit if the appropriate box is checked. The escrow holder agrees to act as escrow holder in this transaction. The date of confirmation of acceptance should be written here, and information about the escrow holder, including name, license #, and contact information, must be provided. *Presentation of Offer - This section must be initialed by the person who presents the offer to the seller. The date the offer was presented must also be included. *Rejection of Offer - If the seller rejects this offer without making a counteroffer, the seller must initial this section and include the date of the rejection. The last requirement on this page is for the buyer to initial acknowledgment that Page 10 is part of this agreement.

Additional Contingencies and General Contingency Guidelines

*Title Contingency During the home purchase process the buyers will work with a title review company, who will research the title and generate a preliminary report that provides information about previous title transfers, liens, encroachments, and easements on the property. The issues in a title report may give the buyers a reason to reconsider the purchase. *Insurance Contingencies Mortgage lenders usually require a potential buyer to provide proof of the ability to acquire home owner's insurance. Subsequently, many home buyers include an insurance contingency in the contract. This contingency requires that the seller can prove that the house can be adequately insured. *Homeowner Association Documents Contingency Any buyer planning to move into an HOA development should insert a contract clause making the sale contingent upon receipt and approval of all HOA documents, rules, and fees. It is also wise for potential buyers to look at the financials of the HOA. *Home Business Contingency Being able to conduct business out of one's home has become a very important consideration over the past 15 years or so. Thus, a buyer who needs that option should specify that contingency in the sales contract. *General Contingency Guidelines The following list can help agents when working with contingencies: The fewer contingencies the more attractive the offer will be to the seller. If possible, limit the offer to a single contingency. Only carry out a contingency if absolutely necessary. Contingencies can be negotiated after the fact.

Options for the Seller on an Offer

-(1) The offer can be accepted which would make the offer a contract. The acceptance needs to be absolute, meaning the acceptance of all the terms of the offer by all the parties to the offer. Then the acceptance must be communicated back to the other party to make it an official contract. Failing to notify the other side of the seller's acceptance could cause a misunderstanding as to whether the offer is still an offer or is it now a contract. These misunderstandings are the licensee's responsibility to clear up. A call or text to the other salesperson would constitute notification with a signed contract to follow. -(2) The offer could be rejected. This action would free the seller to consider other offers, and it also frees the buyer to consider other properties or to make another offer on the same property. Rejection of one term is a rejection of the entire offer. If the seller wants to change one aspect of the offer that would be considered a counteroffer. -(3) The owner will make a counteroffer. The seller will change something in the original offer that was unacceptable to him or her. For example, if the buyer asked the seller to pay for the survey and the owner feels that should be an expense the buyer should incur, that new term of the offer would be conveyed in the counteroffer. A counteroffer is actually the seller making an offer to the buyer. The first offer the buyer made is now terminated and the seller is making a new offer to the buyer. If the buyer rejects the seller's offer, the seller has no right to accept the buyer's first offer because it has been rendered invalid. -Real estate salespeople work hard to get listings. They work hard to get a buyer interested enough to make an offer. Then the salesperson fails to get the offer accepted. The salesperson needs to take the presentation of offers to the seller as important business and have a strategy for presentation. Minor changes should not always be countered. -The seller is paying the salesperson to get the home sold and the offer the buyer has made would do that. Ridiculous offers are ridiculous, but decent offers should have the chance to be accepted. The salesperson is a third party and should give advice, but the decision ultimately lies with the seller. -(4) The sellers could also fail to act. Failing to act is just not making a decision at the present time. The sellers may want to think about it. They may have to figure out if the proceeds will be enough to satisfy the financial needs of the sellers. The sellers could fail to act as long as the other side allows it. The buyers have the right to withdraw their offer any time prior to the seller's acceptance. -Buyers are often upset by the fact that a seller has no obligation to respond to an offer. While this is true, it is best to encourage a seller to give written notice that the offer is unacceptable and invite the offeror to try again. The seller may even make suggestions as to what may be acceptable.

House Sale Contingency

-In an ideal situation a buyer has sold another property and with money in-hand is able to make a move. However in the real estate industry, selling, buying, and financing don't always match up. -A house sale contingency gives buyers a specified amount of time to sell their existing home in order to finance the new one. A house sale contingency can be difficult on the seller, who may pass up another offer while waiting for the contingency to be completed. -The seller should always retain the right to cancel the contract if the buyer's home is not sold within the specified number of days. There are two different ways to write a "sell" contingency: *A settlement contingency that does not allow the seller to accept any additional offers *A sale and settlement contingency with the right to continue marketing the property

CAR Residential Purchase Agreement Page 7

-Repairs Repairs made by the seller must be completed before the final verification of condition. Work may be completed by the seller or others, as long as the work complies with applicable laws. -Repairs must be performed in good, skillful manner with quality materials comparable to the existing materials. Additionally, the seller must: *Obtain invoices and paid receipts for repairs made by others prepare a written statement of what repairs were made and when they were made *Give buyer copies of invoices prior to final verification of condition -Prorations of Property Taxes and Other Items -Buyer and seller will prorate at close of escrow property taxes, special assessments, HOA dues, insurance premiums assumed by buyer, and payments on bonds and assessments. These will all be paid current and prorated on a 30-day month. Note - Tax bills issued after close of escrow will be handled directly between seller and buyer. -Brokers This paragraph has two sections that address broker compensation and scope of duty. -Compensation - Buyer and seller agree to pay compensation to the broker(s) as specified in separate written agreements between the broker and seller or buyer. Paragraph 18: Brokers (cont.) -Scope of Duty - Buyer and seller acknowledge and agree that broker: Does not decide the price buyer should pay or seller will accept *Does not guarantee the condition of the property *Does not guarantee the completion or accuracy of inspection, products, or repairsDoes not have an obligation to conduct an inspection of common areasIs not responsible for identifying defects on the Property UNLESS defects are visually observable by an inspection or known by the brokerIs not responsible for researching the title history and status of the propertyIs not responsible for identifying boundary lines or other items affecting titleIs not responsible for verifying square footage or other information provided on reports, the MLS, on the internet, and promotional materialsIs not responsible for determining the fair market value of the property or personal property included in the saleIs not responsible for providing legal or tax adviceIs not responsible for providing advice or information outside licensed real estate activities. -Buyer and seller agree to seek the appropriate assistance from professionals, if needed. -Representative Capacity If one or more of the parties is signing the agreement as a representative of another party, the appropriate disclosure must be provided (CAR Form RCSD), and paragraphs 31 and 32 must indicate this representative capacity. Within 3 days after acceptance of the agreement, the party will provide evidence that the party has the representative capacity stated. -Joint Escrow Instructions to Escrow Holder This paragraph has five sections that outline the joint instructions of the buyer and seller to the escrow holder and defines the roles of the parties in the transaction. The applicable portions of the purchase agreement constitute escrow instruction of the buyer and seller. Additionally, buyer and seller agree to execute additional instructions as provided by the escrow holder and will pay escrow holder, HOA, or any other fees as outlined in the agreement within 3 days (or another specified number). -A copy of this purchase agreement, including any counteroffer(s) or addenda must be delivered to the escrow holder within 3 days of acceptance (or another specified number of days). Buyer and seller grant the escrow holder the authority to open escrow. -Brokers are only part of escrow for the purpose of receiving compensation. Seller and broker assign the compensation agreed in paragraph 18 and instruct the escrow holder to distribute funds to brokers at the close of escrow.

Financing Contingency

-A financing contingency gives the buyer time to apply for and obtain financing for the purchase of the property. This provides important protection for the buyer, who can back out of the contract in the event he or she is unable to secure financing. -Typically, a financial contingency will state a specified number of days that the buyer has to obtain financing. If the buyer fails to comply with the financing terms of the contract, he or she must inform the seller, in writing, which terminates the contract. -In California, the contingency removal date itself is not what actually removes contingencies. Rather, it's a buyer's submission of the contingency removal form (NTP). If the contingency removal date is June 1, 2020 and no form has been submitted, that day can come and go and contingencies will still exist. -Contingencies will only be removed when the buyer submits the removal form; and that can happen before, on or after the removal date. Once the removal form is submitted, the sale can move forward. In California, the removal date can be thought of as the deadline for buyer to submit the removal form. If the buyer fails to submit the form by the date outlined in the contract, then the seller can take steps related to a buyer breach. This can include serving a notice to perform or seeking to cancel escrow. -On the sales contract, some buyers just enter the terms of the financial contingency based on getting a loan approved at prevailing rates at the time of the loan application. Other buyers are more sophisticated and actually write in specific loan terms. For example, a clause might read "... a 30 year loan not to exceed an APR of 6.5%." If the borrower cannot get a loan with such terms, the contract is terminated.

Leases

-A lease is both an instrument of conveyance and a contract between principal parties to uphold certain covenants and obligations. As a conveyance, a lease conveys an interest, called the leasehold estate, but does not convey legal title to the property. -The term 'leasehold estate' refers to a lessee's ownership of a temporary right to exclusively possess land or property. The Statute of Frauds requires a lease for a period of one year or longer to be in writing. Month-to-month lease agreements are not required by law to be in writing, but it is wise for all leases, regardless of the term, to be in writing. However, leases or rentals arranged by a property manager must be in writing regardless of the lease term. -The lease will either provide specific provisions regarding the responsibilities and rights of the lessee (the tenant) and lessor (the landlord), or there will be automatic provisions as a result of local law. In general, by paying the negotiated fee to the lessor, the lessee has possession and use of the leased property. Thus, the landlord cannot enter the property except under the conditions outlined in the lease agreement, and all other people are not allowed except through tenant invitation. -This right to possession by the tenant is sometimes called a leasehold interest. -Like other contracts, a lease becomes a binding agreement when the parties accept the terms of the agreement and communicate their agreement to the other party.

Sale and Settlement Contingency

-A sale and settlement contingency with the right to continue marketing means that the seller will continue to market the property to other potential home buyers. If another offer is made on the property and the seller wants to accept that offer, the buyer then has a certain time period, typically 24-48 hours, to remove the sale contingency attached to the first offer.

Kick-out Clause

-A sale and settlement contingency with the right to continue marketing, commonly called a kick-out clause, means that the seller will continue to market the property to other potential home buyers. -If a new offer comes in on the property and the seller wants to accept that offer, the buyer then has a certain time period, typically 24-72 hours, to remove the sale contingency attached to the first offer. -A kick-out clause provides a measure of protection against a house sale contingency. While the seller agrees to a house sale contingency, the seller can continue to market the property. Regardless of the type of "sell" contingency, MLS must be notified of this sale arrangement and it will then be noted on MLS reports. Subsequently, the majority of licensees will eliminate this property from the show list pool. This is simply because licensees don't want to take time to write an offer and then find out that the first buyer has lifted the sale contingency. -Sale and settlement contingencies are much more widely written than settlement contingencies, because less risk is taken by the seller. When deciding whether to accept an offer with a settlement contingency, a seller should determine whether the purchase agreement of the buyer's current home is strong and the buyers are well qualified. When the mortgage business is tight, it is very difficult to get a "bridge" loan; therefore, many more home settlement contingencies are written.

Sales Contract - Secondary Provisions

-A sale contract may contain numerous additional clauses, depending on the complexity of the transaction. -The following are some of the common provisions. Inspections. -The parties agree to inspections and remedial action based on findings. Owner's association disclosure. The seller discloses existence of an association and the obligations it imposes. -Survey. The parties agree to a survey to satisfy financing requirements. -Environmental hazards. The seller notifies the buyer that there may be hazards that could affect the use and value of the property. -Compliance with laws. The seller warrants that there are no undisclosed building codes or zoning violations. Due-on-sale clause. The parties state their understanding that loans that survive the closing may be called due by the lender. Both parties agree to hold the other party harmless for the consequences of an acceleration of the loan. -Seller financing disclosure. The parties agree to comply with applicable state and local disclosure laws concerning seller financing. The California Association of REALTORS® has a seller financing addendum form to be attached to a sale contract when the seller will be providing financing. -Rental property; tenants' rights. The buyer acknowledges the rights of tenants following closing. FHA or VA financing condition. A contingency allows the buyer to cancel the contract if the price exceeds FHA or VA estimates of the property's value. -Flood plain; flood insurance. Seller discloses that the property is in a flood plain and that it must carry flood insurance if the buyer uses certain lenders for financing. -Condominium assessments. Seller discloses assessments the owner must pay. -Foreign seller withholding. The seller acknowledges that the buyer must withhold 15% of the purchase price at closing if the seller is a foreign person or entity, and forward the withheld amount to the Internal Revenue Service. Certain limitations and exemptions apply. -Tax deferred exchange. For income properties only, buyer and seller disclose their intentions to participate in an exchange and agree to cooperate in completing necessary procedures. -Merger of agreements. Buyer and seller state that there are no other agreements between the parties that are not expressed in the contract. -Notices. The parties agree on how they will give notice to each other and what they will consider to be delivery of notice. -Time is of the essence. The parties agree that they can amend dates and deadlines only if they both give written approval. -Survival. The parties continue to be liable for the truthfulness of representations and warranties after the closing. -Dispute resolution. The parties agree to resolve disputes through arbitration, as opposed to court proceedings. Addenda. -Addenda to the sale contract become binding components of the overall agreement. The most common addendum is the seller's property condition disclosure. Other addenda include: financing, back-up contract, agency disclosure, asbestos/hazardous materials, liquidated damages, radon disclosure, flood plain disclosure, tenant's lease.

Settlement Contingency

-A settlement contingency can be put in place when a buyer has already accepted an offer on their current home, but has not closed. -This clause can protect buyers from losing any down payments if their own closing process falls through. -If the buyer's current home sale goes to close with no issues, the new contract moves forward as planned. -Under a settlement contingency, if a buyer's current home is held up or falls through for any reason, sellers are typically prohibited from accepting other offers, at least for a specified amount of time.

CAR Counter Offer

-After a seller receives an offer, one option the seller has is to make a counteroffer. The countering can go back and forth between the parties until an agreement is reached. The California Association of REALTORS® Counter Offer is a 1-page form often used by brokers in California. Let's look at this in more detail. -Counter Offer You'll notice at the very top of the page, next to the title of the form, there is a space to write the counteroffer number. For example, if the seller is countering to the original offer, this would be counteroffer 1. If the buyer is countering a seller's first counteroffer, this would be counteroffer 2. Before the first paragraph begins, the date must be provided, and the appropriate box must be checked to indicate if this is a counteroffer to a purchase agreement, another counteroffer (including the number), or other offer. The date of the referenced offer must be provided. Next the property address and names of the buyer and seller must be included. The counteroffer has four paragraphs that address terms, expiration, offer, and acceptance. We'll look at each of those paragraphs on the following page. * Terms This paragraph states all sections that require initials by all parties must be initialed by all parties to be part of this or any other counteroffer. Additionally, down payment and loan amounts(s) will remain proportional to the original offer, unless otherwise specified in writing. There are many lines to write the other terms of the offer and a box to check if an addendum or other document is part of the counteroffer. * Expiration This paragraph provides the expiration date of the offer. The party making the offer can withdraw the offer any time prior to acceptance. * Offer The buyer or seller affirms to making this counteroffer and acknowledges receipt of a copy. There is space for the signature and date of the party making the offer. * Acceptance The party accepting the offer signs this section and includes the date and time of acceptance. If the counteroffer is subject to another counteroffer, the appropriate box must be checked. There is also a spot for initials showing confirmation of acceptance by either the party who made the counteroffer or the party's authorized agent. The date and time must be included. This section states that a binding agreement is created when a copy of a signed acceptance is personally received by the maker of the counteroffer or the person's authorized agent.

Appraised Contingency

-An appraisal contingency protects the buyer by ensuring that the property is valued at a price that is close to what is being offered by the buyer. -Because most homes are purchased with a mortgage loan, if a property does not appraise for at least a specified amount, the borrower is not able to get the necessary money to make the purchase. The contract can then be terminated and, in many cases, any earnest money is returned to the buyer. -An appraisal contingency may include terms that allow the buyer to proceed with the purchase even if the appraisal is below a certain amount. Following are some of the most common ways to override an appraisal roadblock: *The seller might lower the sale price *The buyer might be able to put more money down *The cooperating licensees might reduce their compensation rate.

Inspection Contingency

-An inspection contingency gives the buyer the right to have the home inspected within a specified time period. This protects the buyer, who can cancel the contract or negotiate repairs based on the findings of a professional inspector. -A pre-sale home inspection is almost always a given in home sales today. In some cases, poor inspection results can actually break a transaction. A home inspection ensures that the buyer knows exactly what they're buying. -Once a purchase contract has been accepted, the buyer can then schedule a professional inspector. A typical home inspection includes a check of a house's structural and mechanical condition. Other tests can be ordered, such as a radon gas test or a wood-destroying insect inspection. -The American Society of Home Inspectors (ASHI) is just one professional organization that has standardized the home inspection process and has established what must be inspected. -Scheduling, completing, and reviewing a home inspection report usually takes longer than expected. To be safe, be sure to tell your buyers to write in a home inspection contingency period of at least 15-20 days. -The buyer is not just limited to one home inspection during the inspection period. For example, if the general home inspector notes that a fireplace flue needs attention, the buyer can hire a chimney expert to do a more detailed report. Of course, the buyer is responsible for any and all inspection fees.

When does an offer become a contract?

-An offer becomes a contract when the offer is accepted, that acceptance is communicated to the other party, and all signatures and initials are obtained from both parties.

CAR Residential Purchase Agreement Page 4

-Closing and Possession This paragraph has six sections that address closing and possession considerations. -This states the property will be the buyer's primary residence. If that is not true, the appropriate box must be checked. This section indicates when possession will be delivered to the buyer. There are three options (one must be completed):At 6pm (or another specified time) on the date of escrowNo later than a specified number of days after close of escrowAt a specific time on a specific date (information to be provided on this line). -Section 9C addresses if the seller will remain in possession after close of escrow. If this is the case, the parties are advised to sign the appropriate CAR form. Additionally, the parties are advised to consult with insurance and legal advisors, and the buyer is advised to discuss this with his or her lender since seller occupancy may affect the buyer's loan. -Tenant-occupied property must be vacant for at least 5 days (or another specified number) prior to close of escrow. If the tenant will remain in possession of the property, the appropriate box must be checked and CAR Form TIP should be completed. -At closing, seller agrees to assign buyer any assignable warranty rights for items included in the sale and deliver a copy of such warranties, if available. -Seller agrees to provide at closing all keys, passwords, and codes necessary to operate all locks, mailboxes, security systems, alarms, and other electronic devises included in the purchase. -Statutory and Other Disclosures (Including Lead-Based Paint Hazard Disclosures) and Cancellation Rights This is a lengthy paragraph with six sections that discuss a variety of disclosure information. -Paragraph 10A has 7 subsections: The seller agrees to provide the appropriate lead-based disclosures and other statutory disclosures and notices required by law. All required disclosures must be provided within the time specific in paragraph 14A.Any statutory disclosure is considered complete when the seller has responded to all questions, signed the seller's section, and the listing agent has completed and signed his or her appropriate section. Note - Disclosures do NOT relieve a buyer's broker from completing a visual inspection and any required disclosures.Buyer is prohibited by law to waive the right to statutory and lead disclosuresWithin the time specified in paragraph 14A, seller will provide buyer, unless exempt from providing a Transfer Disclosure Statement (TDS), a Seller Property Questionnaire (CAR Form SPQ). If exempt from the TDS, seller will complete a Supplemental -Contractual and Statutory Disclosure (CAR From SSD).Buyer must return signed copies of the lead disclosure, TDS, and other disclosures to seller within the time specified in paragraph 14B(1).If the seller or listing broker becomes aware of adverse conditions materially affecting the property before closing, the seller must provide a new or amended disclosure(s). This is not required if buyer knows of the adverse condition.Buyer has the right to cancel the contract by written notice within 3 days of delivery in person of any disclosure or amended disclosure discussed in paragraph 10A(1) if the disclosure or notice is provided after the purchase agreement is signed. -Natural and Environmental Hazard Disclosures and Other Booklets - Within the time specified in paragraph 14A, seller will deliver the following information, if required by law: *Earthquake guide and questionnaire, environmental hazards handbook, and home energy pamphlet *Disclosure if property is located in special flood hazard area, potential flooding area, very high fire hazard zone, state fire responsibility area, earthquake fault zone, and seismic hazard zone *Disclose any other zone as required by law -Withholding Taxes - Within time specified in paragraph 14A, seller will provide buyer an affidavit to comply with Federal and California withholding law (CAR Form AS or QS). -Megan's Law Database Disclosure - This section provides information regarding registered sex offenders and includes the Megan's Law Database website for the buyer to search if he or she chooses. Note - this section states that neither seller nor broker is required to check this site, and brokers are not experts in this area. -Notice Regarding Gas and Hazardous Liquid Transmission Pipelines - This section provides information on how to check the general location of gas and hazardous liquid pipelines. The notice advises any person who is interested in learning more should contact the local gas utility or pipeline operator in the area.

Contingencies

-Contingencies are an integral component of most purchase agreements. -A contingency clause refers to conditions attached to either an offer to purchase property or a counteroffer to purchase a property. A contingency must be met in order for a real estate contract to become binding. A contingency becomes part of a binding sales contract when both parties agree to the terms and sign the contract. -A contingency clause gives parties the right to back out of the contract if certain circumstances are not met. For example, if a buyer has 30 days to secure a mortgage loan and fails to accomplish that task, the contract becomes null and void. -Most contingencies have specific release dates, which means on or before a date, the buyer must notify the seller of completion. The release date can be thought of as the deadline for buyer to submit the removal form. -It is important for all parties to understand the details included in a contingency clause. Many a sales contract has drifted into hazardous water because a contingency was not fully recognized and followed. -If the conditions are met, the contract becomes legally enforceable and if a party backs out, he or she would breach the contract. Consequences vary from loss of earnest money to lawsuits.

Residential Purchase Agreement and Joint Escrow Instructions Page 1

-Date Prepared - At the very top of the agreement, before the paragraphs begin, the date the offer is prepared must be provided. 1. Offer The first paragraph is divided into five sections that address basic elements of the offer: -Buyer's name -Property information - This section includes blanks for the property address, city, county, zip code, and assessor's parcel number. -Purchase Price - The value must be provided in written and numeric form. -Close of Escrow - This must either be a specific date OR a specific number of days after acceptance of the offer. Parties - This section simply states that throughout the agreement, the term "parties" refers to the buyer and seller. Brokers are not parties to the agreement. 2. Agency This paragraph is divided into three sections: -Disclosure - The parties acknowledge receipt of Disclosure Regarding Real Estate Agency Relationships (CAR Form AD). -Confirmation - This section outlines the agency relationships in the transaction. The names of the listing and selling brokerages must be provided here. Additionally, the appropriate boxes must be checked to indicate how each agent represents each party. Note: If one agent is representing both the seller and buyer, that box must be appropriately checked. -Potentially Competing Buyers and Sellers - The seller and buyer both acknowledge receiving the CAR Form PRBS: Possible Representation of More than One Buyer or Seller - Disclosure and Consent. 3. Finance Terms This 11-section paragraph addresses various components of the purchase price and financing. The first statement in the paragraph says the buyer warrants all funds will be good when deposited with the escrow holder. -Initial Deposit - The amount of the initial deposit must be written here in numeric form. This section also indicates how that deposit will be provided. There are two options: *Buyer direct deposit with the escrow holder - Unless it will not be an electronic transfer, the appropriate box must be checked to indicate if the funds will be via a cashier's check, personal check, or other. This deposit must be complete within 3 business days after acceptance or as indicated in the blank provided. *Buyer deposit with agent - If the direct deposit is not with the escrow holder, this section must be checked and the appropriate information regarding the deposit must be provided. *Increased Deposit - Information on an additional deposit is provided here, including the amount and number of days after acceptance it must be provided. *All Cash Offer - This section must be checked if the offer is all cash. Written verification of funds is either attached to this offer or an additional box must be checked indicating that verification will be provided within 3 days of acceptance (or another specified number of days). *Loans(s)First Loan - Information on the first loan is provided here, including dollar amount, type of financing, type of loan, interest rate, and points. *Second Loan - A box must be checked indicating there will be a second loan, and the same information as the first loan must be provided.FHA/VA - If the first loan is FHA or VA, the buyer has 17 days after acceptance (or another date specified here) to provide the seller written notice of any lender-required repairs or costs the buyer wants the seller to pay. *Additional Financing Terms - There are blank lines for additional terms to be written on the contract. *Balance of Down Payment or Purchase Price - The balance of the down payment the buyer will provide the escrow holder is shown here. *Total Purchase Price - The numeric purchase price is provided here. Note: Both parties must initial the bottom of page 1. This is also required on the bottom of pages 2 through 8. The bottom of page 9 only requires the seller's initials, and the bottom of page 10 only requires the buyer's initials.

List three topics addressed in the Time Periods; Removal of Contingencies; and Cancellation Rights paragraph.

-How contingencies and other obligations are performed -Time periods for delivery of disclosures, conducting inspections, and removal of contingencies -Cancellation rights from both parties

Acceptance of an Offer

-If both parties agree to all of the details of the offers and counteroffers, acceptance is the final step that must occur before it can be called a contract. -Acceptance should be communicated as soon as humanly possible. Waiting even an hour can allow the buyer to move on. The salesperson should communicate by several means if possible. Call on the cell phone as the salesperson is leaving the house, text the person from the car, or email the parties from a smartphone. -Then the salesperson should send an original no later than the next day. An original is a contract with original signatures. There can be several originals as long as each one has original signatures. Electronic signatures can be used as long as both parties agree. -When the last initials and/or signatures are placed by both parties (the buyer and the seller), then the other side must be notified. It is now a contract. -Once the other licensee is notified that acceptance has occurred, the effective date of the contract will be written into the blank by one of the licensees and the process of preparing for the closing begins.

CAR Contingency For Sale of Buyer's Property

-The California Association of REALTORS® has standard form Contingency For Sale of Buyer's Property (Form COP) for use with house sale contingencies. As you may recall, Paragraph 4B of the CAR Residential Purchase Agreement must be checked if the contract is contingent on the sale of buyer's property. -Additionally, the contingency addendum must be attached to detail the terms and conditions of the contingency. *Contingency For Sale of Buyer's Property -This is a 1-page form that addresses the following components of a house sale contingency: What document the contingency addendum is attached to (e.g. purchase agreement, counteroffer, other) -Date of the document the contingency addendum is attached to -Property description -Names of buyer and seller Information on buyer's property for sale, including if it is currently in escrow or not -Length of contingency -Intent to cancel escrow for buyer's property -Seller right to cancel -Buyer right to cancel -Seller's right to continue offering the property/kick-out clause -Acceptance and signatures An important component of a sale of buyer's home contingency is if the seller can continue marketing the property until the contingency is removed. -Additionally, if the seller receives another offer, how is that offer handled in regards to the current contingency.

Lease Provisions

-The Law of Contracts governs the making, interpretation, and enforcement of leases. Consequently, the requirements for making a valid lease are the same as for making a valid contract. Exact lease forms vary depending on the type of lease (residential, temporary for seller, temporary for buyer, or commercial) and needs of the parties. -However, the covenants (agreements or promises) in the lease are very important. The following eight covenants are common in most leases. *Capacity to contract *Demising clause *Description of the premises *Clear statement of term *Specification of rent and how it is to be paid *In writing *Signatures *Delivery

Making an Offer

-The buying process starts with a real estate professional finding a buyer, showing that buyer houses, and then finding the one buyer who wants to make an offer. -The real estate licensee then sits down with the buyer and discusses the guidelines for the offer that will be taken to the seller or the listing agent. -The licensee for the buyer will go over each and every paragraph and fill in all the necessary blanks. Once the contract is completed, the salesperson will go over it again and then ask the buyer to sign the offer. -Any addendums should be added at this time with a cover letter that explains the buyer's position, including loan approval and the true interest of the buyer. -Once the buyer decides such items as offering price, closing date, and other issues on the form, the offer will be delivered to the seller or listing agent. Although some licensees would call it a contract, at this point it is only an offer.

List two general guidelines to follow when working with contingencies.

-The fewer contingencies the more attractive the offer will be to the seller. -If possible, limit the offer to a single contingency.

Description of Premises

-The lease must identify the property. This can be done by street address or any description that makes the property identifiable to the parties. It does not have to be a legal description, although that is the best format for a long-term lease

CAR Residential Lease or Month-to-Month Rental Agreement

-The most common form of real property lease is a residential rental agreement between landlord and tenant. While there is not a requirement to use a specific lease agreement form, the California Association of REALTORS® provides a lease agreement used by many landlords and property managers. The form is the Residential Lease or Month-to-Month Rental Agreement(CAR Form LR). -Residential Lease or Month-to-Month Rental Agreement As you look through the lease agreement, you'll notice the provisions we just discussed are included in the agreement. Additionally, since this lease agreement contains 49 paragraphs, there are also a variety of other specific provisions in the agreement that address the following: Move-in costs Late charge and returned checks Parking Storage Utilities Pets Condominium and planned unit development considerations Assignment and subletting Megan's Law database disclosure Insurance Damage to premises Representation/ agency relationships Compensation to broker Foreign language negotiation If your real estate activities involve the leasing of property, you should review this agreement thoroughly. We'll also be discussing the relationship between landlords and tenants in more detail in a future chapter.

How do the parties agree to resolve a dispute arising from the purchase agreement?

-The parties agree to mediate any dispute arising in relation to this purchase agreement before arbitration or court action.The parties can also choose, by initialing Paragraph 22B, to use binding arbitration if mediation does not resolve the issue.

What does a due-on-sale clause say?

-The parties state their understanding that loans that survive the closing may be called due by the lender. -Both parties agree to hold the other party harmless for the consequences of an acceleration of the loan.

Capacity to Contract

-The principal parties must be legally able to enter into the agreement; i.e., meet certain age, sanity, and other requirements. If not, the lease can be voided.

Describe the Final Verification of Condition provision.

-The provision gives the buyer the right to make a final verification of the property within 5 days (or another specified number) prior to the close of escrow. This is NOT a contingency of the sale, but is to confirm the property has been maintained, repairs have been completed (if agreed to), and seller has fulfilled other obligations under the purchase agreement.

Clear Statement of Term

-The term is how long the lease will last. -The lease must indicate the length. Usually the lease is written in annual terms; however, there is not a term limit. It's important for both parties to understand when the lease will expire. The parties can shorten the length of the lease by mutual agreement.

Why is it in a buyer's best interest to make the best offer possible?

-This gives the buyer the best chance of getting the home he or she wants. The danger is another buyer could get involved and limit the negotiating ability of the current buyer.

CAR Residential Purchase Agreement

-We'll first look in depth at the California Association of REALTORS® Residential Purchase Agreement and Joint Escrow Instructions. This is a 10-page purchase form often used by brokers in California. Residential Purchase Agreement and Joint Escrow Instructions

Presentation of a Counteroffer

-When the counteroffer is taken back to the buyer, he or she has the same four choices. The counteroffer can be accepted, rejected, another counteroffer made, or the buyers could simply fail to act. -The licensees will continue to communicate between themselves and the buyer and seller until a meeting of the minds occurs or an impasse is reached that cannot be resolved. -All offers and counteroffers should be in writing. Again, the real estate professionals should get their clients to make reasonable offers and the offer-counteroffer process should be limited. -The danger for the salesperson is an outside buyer could get involved and limit the negotiating ability of the current buyer. If the first buyer is the salesperson's client, now that buyer may no longer be in the race. -The salesperson should always think the first offer the buyer makes should be his or her best offer. This allows the buyer the best chance of getting the house he or she wants. Buyers of family homes want to fall in love with it. A long, dragged out offer situation can put a damper on the whole process.

Describe the process of making an offer.

-When there is a buyer who wants to put an offer on a house, the licensee sits down with the buyer to fill out a sales contract form. When the buyer has included all details, such as financing, closing date, and other considerations on the contract form, he or she signs the document, it is delivered to the seller or listing agent, and there is an offer.

What is a contingency clause?

A contingency clause is a condition attached to an offer to purchase property which must be met in order to make the purchase offer binding

What action could a seller take if he or she cannot make a decision regarding an offer?

A failure to act

What clause in a sales contract states under what conditions the buyer can cancel the contract without default and receive a refund of the earnest money?

A financing contingency clause

Within how many days after delivery of a disclosure can buyer cancel a CAR Residential Purchase Agreement Contract?

3

How many days does a seller have after acceptance, if not specified, to disclose if the property is a condominium or planned development?

7

Rent Amount and Payment

A rent clause stipulates the time, place, manner, and amount of rent payment. It defines any grace period that is allowed, and states the penalties for delinquency. In most cases, the lease agreement specifies payment in advance on a month-to-month basis.

What is a "kick-out" clause?

A sale and settlement contingency with the right to continue marketing a property after a contract has been accepted but not satisfied.

What type of contingency can be put in place when a buyer has already accepted an offer on their current home, but has not closed?

A settlement contingency

What are the two ways to write a "sell" contingency?

A settlement contingency and a sale and settlement contingency

Sales Contract - Primary Provisions

A typical residential sale contract contains the following types of provisions: Parties, consideration, and property. -One or more clauses will identify the parties, the property, and the basic consideration, which is the sale of the property in return for a purchase price. -There must be at least two parties to a sale contract: one cannot convey property to oneself. All parties must be identified, be of legal age, and have the capacity to contract. The property clause also identifies fixtures and personal property included in the sale. -Unless expressly excluded, items commonly construed as fixtures are included in the sale. Similarly, items commonly considered personal property are not included unless expressly included. -Legal description. A legal description must be sufficient for a competent surveyor to identify the property. -Price and terms. A clause states the final price and details how the purchase will occur. Of particular interest to the seller is the buyer's down payment, since the greater the buyer's equity, the more likely the buyer will be able to secure financing. -In addition, a large deposit represents a buyer's commitment to complete the sale. If seller financing is involved, the sale contract sets forth the terms of the arrangement: the amount and type of loan, the rate and term, and how the loan will be paid off. It is important for all parties to verify that the buyer's earnest money deposit, down payment, loan proceeds, and other promised funds together equal the purchase price stated in the contract. -Loan approval. A financing contingency clause states under what conditions the buyer can cancel the contract without default and receive a refund of the earnest money. If the buyer cannot secure the stated financing by the deadline, the parties may agree to extend the contingency by signing next to the changed dates. Earnest money deposit. A clause specifies how the buyer will pay the earnest money. It may allow the buyer to pay it in installments. Such an option enables a buyer to hold on to the property briefly while obtaining the additional deposit funds. *For example, a buyer who wants to buy a house makes an initial deposit of $200, to be followed in twenty-four hours with an additional $2,000. The sale contract includes the seller's acknowledgment of receipt of the deposit. -Escrow. An escrow clause provides for the custody and disbursement of the earnest money deposit and releases the escrow agent from certain liabilities in the performance of escrow duties. Closing and possession dates. The contract states when title will transfer, as well as when the buyer will take physical possession. Customarily, possession occurs on the date when the deed is recorded, unless the buyer has agreed to other arrangements. The closing clause generally describes what must take place at closing to avoid default. A seller must provide clear and marketable title. A buyer must produce purchase funds. Failure to complete any pre-closing requirements stated in the sale contract is default, and the aggrieved party has grounds to seek recourse. -Conveyed interest; type of deed. One or more provisions will state what type of deed the seller will use to convey the property, and what conditions the deed will be subject to. Among common "subject to" conditions are easements, association memberships, encumbrances, mortgages, liens, and special assessments. Typically, the seller conveys a fee simple interest by means of a general warranty deed. Title evidence. The seller covenants to produce the best possible evidence of property ownership. This is commonly in the form of title insurance. -Closing costs. The contract identifies which closing costs each party will pay. Customarily, the seller pays title and property-related costs, and the buyer pays financing-related costs. Annual costs, such as taxes and insurance, are prorated between the parties. Note that who pays any particular closing cost is an item for negotiation. Damage and destruction. A clause stipulates the obligations of the parties in case the property is damaged or destroyed. The parties may negotiate alternatives, including seller's obligation to repair, buyer's obligation to buy if repairs are made, and the option for either party to cancel. -Default. A default clause identifies remedies for default. Generally, a buyer may sue for damages, specific performance, or cancellation. A seller may do likewise or claim the earnest money as liquidated damages. -Broker's representation and commission. The broker discloses the applicable agency relationships in the transaction and names the party who must pay the brokerage commission. -Seller's representations. The seller warrants that there will be no liens on the property that cannot be settled and extinguished at closing. In addition, the seller warrants that all representations are true, and if found otherwise, the buyer may cancel the contract and reclaim the deposit. -Residential property condition disclosure The residential property condition disclosure is the seller's written summary of the property's condition at the time of contracting for sale. The disclosure is entered on state-approved forms. State legislation requires owners of previously occupied single family homes and buildings containing 1-4 dwelling units to provide the disclosure to prospective buyers if they are selling, exchanging, or optioning their property. Some exceptions and exemptions apply. When required, the disclosure must be transmitted to the prospective buyer no later than when the buyer makes an offer. -Right of rescission. Sellers who fail to complete and deliver the property condition disclosure statement to buyers in a timely fashion effectively give buyers a subsequent right under certain conditions to rescind the sale contract and re-claim their deposits. The buyer must follow certain procedures and meet certain deadlines in order to legitimately effect the cancellation. The buyer's right to cancel persists until closing or occupancy, whichever comes first. -Agent's responsibility. The residential property re-seller must comply with the property condition disclosure requirement, whether an agent is employed in the transaction or not. If an agent is involved in the transaction, the agent must disclose any and all material facts he or she knows or should reasonably know about the property, regardless of what the seller may have disclosed on the form. -Completing the form. A typical form requires the seller to affirm whether or not problems exist in any of the listed features and systems of the property. In denying that a problem exists, the seller claims to have no knowledge of a defect. If a defect does in fact exist, the seller can be held liable for intentional misrepresentation. A third possible response to a property condition question is that of "no representation." Here, the seller makes no claim of knowledge as to whether a problem exists. With this answer, the seller is no longer held liable for a disclosure of any kind relating to a particular feature, whether a defect is known or otherwise. Once the seller has signed the form and delivered it to the buyer, the buyer must acknowledge receipt and knowledge of the property condition disclosures, along with other provisions set forth on the form.

What four options does a seller have when presented with an offer?

Accept it Reject it Counteroffer Fail to act

What type of contingency protects the buyer by ensuring that the property is valued at a price that is close to what is being offered by the buyer?

An appraisal contingency

What type of contingency gives the buyer the right to have the home inspected within a specified period of time?

An inspection contingency

In Writing

Any lease for more than one year should be in writing. Oral leases for more than one year cannot be legally enforced in court. t is always better to have agreements in writing if a dispute ever arises. Also, all parties will then have one document to consult if any dispute arises during the lease agreement.

What clause in a CAR Residential Purchase Agreement states the agreement is contingent on a written appraisal of the property at no less than the purchase price?

Appraisal Contingency and Removal

What section under the Dispute Resolution provision of a CAR Residential Purchase Agreement states that if mediation does not solve a dispute, the parties agree to use a neutral, binding arbitration to decide the matter?

Arbitration and Disputes

If a seller agrees to repair items on the property, when must they be completed?

Before the final verification of condition

What is not a primary provision typically found in a residential sale contract?

Boundaries

What does the Selection of Service Providers paragraph state?

Brokers do not guarantee performance of any vendors, service, or product providers. Buyer and seller may select any providers of their choosing.

According to the Prorations paragraph, how will tax and other prorations be made?

Buyer and seller will prorate at close of escrow property taxes, special assessments, HOA dues, insurance premiums assumed by buyer, and payments on bonds and assessments. These will all be paid current and prorated on a 30-day month.

What does Paragraph 10A provide the buyer in regards to disclosure cancellation rights?

Buyer has the right to cancel the contract by written notice within 3 days of delivery in person of any disclosure or amended disclosure discussed in paragraph 10A(1) if the disclosure or notice is provided after the purchase agreement is signed.

List three provisions common in lease agreements.

Capacity to contract Description of the premises Specification of rent and how it is to be paid

What type of clause refers to conditions attached to either an offer to purchase property or a counteroffer to purchase a property?

Contingency

Who Pays Closing Costs?

Customarily, the seller pays title and property-related costs, and the buyer pays financing-related costs.

List the three topics discussed in the Agency paragraph.

Disclosure Confirmation Potentially Competing Buyers and Sellers

What information is included in the price and terms provision?

Final price, down payment, and financing informatio

Describe what the parties are agreeing to by initialing under Paragraph 21B.

If buyer defaults and cannot complete the purchase agreement, seller will retain the deposit paid by the buyer as long as it is not more than 3% of the purchase price. Any additional deposits made by the buyer require a separate written agreement regarding their applicability to liquidated damages.

Other Provisions

In addition to the eight common lease provisions, lease agreements may include a variety of additional provisions. *Use of the Premises A landlord can restrict the use of the property by including such restrictions or limitations in the lease. If no such limitations are written into the lease, the tenant may use the property for any lawful purpose, providing the tenant does not violate any deed restrictions. The opposite is often true with commercial leases. Instead of using the term "for any lawful purpose" a commercial lease may be written to say that the property can be used "for no other purpose" than what the lease stipulates. For example, a lease may say that the property can be used only as a real estate office. *Lease Renewals In most situations, a tenant can renew his or her lease only if the landlord agrees. Some leases may contain a clause that allows for automatic renewal. However, in most states there are no statutory rights to renewal. Because of this, many commercial lessees want their options written into the lease, so as to avoid problems once they have established themselves in a leased space. An option to renew is a lease provision that gives the tenant the right to extend the lease for an additional period of time and sets forth the terms for the renewed lease. *Plain Language Requirement Many states require that residential leases be written in clear language, understandable by the everyday person. The lease should be divided into sections with clear paragraph headings. *Security Deposit Many leases require tenants to provide a security deposit. This provision would address the amount of the security deposit, how it can be used, and the conditions in which it will be returned to the tenant at the end of the lease agreement. *Condition of the Property This provision would outline the condition of the property at the time the lease is executed. This is important if a tenant and landlord later disagree on the original condition of the property. *Maintenance and Repairs This is an important provision that would specify the maintenance required by the parties and detail who is responsible for repairs to the property. It may also address any required reporting procedures for the landlord to make repairs. *Rules and Regulations Many apartment complexes may have rules and regulations. This clause would usually state the tenant has received a copy of the rules and agrees to abide by them. *Landlord Entry This provision would address under what circumstances and with what type of notice the landlord would be allowed to enter the property. *Remedies for Breach of Contract This provision provides remedies if one of the parties breaches the contract. This is important for parties to understand as it outlines the parties' rights and procedures if a breach of contract occurs.

What financing term in a CAR Residential Purchase Agreement states that the buyer's qualification of the loan is a contingency of the agreement?

Loan Contingency

What section in a CAR Residential Purchase Agreement includes information regarding the first, second, VA or FHA loans?

Loans

Which section in a CAR Residential Purchase Agreement provides information regarding registered sex offenders and includes a website for the buyer to search?

Megan's Law Database Disclosure

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Note: The property address and date must be included on the top of pages 2 through 10. Paragraph 3: Financing Terms (cont.) -Verification of Down Payment and Closing - The buyer (or buyer's representative) will provide the seller within 3 days (or other specified number) after acceptance written verification of buyer's down payment and closing costs. If that information will be attached to the offer, the appropriate box must be checked. -Appraisal Contingency and Removal - This clause states the agreement is contingent on a written appraisal of the property at no less than the purchase price. This contingency must be removed by the buyer or the contract canceled within 17 days (or another specified number) after acceptance. Note - If the parties agree to NOT have an appraisal contingency, there is a box on the first line of this section that must be checked. -Loan Terms - This section contains 5 subsections:Loan Applications - Within 3 days (or another specified number) the buyer will provide the seller a letter from the buyer's lender stating the buyer is prequalified or preapproved for the loan detailed in section 3D. If the buyer already has the letter and plans to attach it to this offer, the appropriate box must be checked. -Loan Contingency - This states the buyer's qualification of the loan is a contingency of the agreement. If the appraisal contingency has been waived, failure of the property to appraise at the purchase value does NOT allow buyer to cancel the agreement if the buyer is otherwise approved for the loan. -Loan Contingency Removal - Within 21 days (or another specific number) after acceptance, buyer will remove the loan contingency. Note - removal of loan contingency does NOT automatically remove the appraisal contingency. -No Loan Contingency - This section must be checked if obtaining a loan is NOT a contingency of the agreement. Then, if the buyer is not able to secure the loan, the seller is entitled to the buyer's deposit and other legal remedies. -Lender Limits on Buyer Credits - Any credit provided to the buyer must be disclosed to the buyer's lender. The lender has the right to limit the amount of credit made to the buyer. -Buyer Stated Financing -This section states the seller is relying on the buyer's representation of the financing, and the seller is not required to cooperate if the buyer tries to obtain other financing. However, the buyer is not excused from the obligation to purchase the property even if alternative financing is not available. -Sale of Buyer's Property - This paragraph has two sections: *Part A states buyer's ability to obtain financing is NOT contingent on the sale of property owned by the buyer. *Part B states this agreement and buyer's ability to obtain financing IS contingent on the sale of property owned by the buyer. If this statement is correct, 4B must be checked and CAR Form COP must be attached to the offer. -Addenda and Advisories - This paragraph details what additional addenda and/or advisories are part of the agreement. *Addenda - Part A has a variety of CAR addenda prewritten; the addenda that are part of this offer must be checked. *Advisories - Part B has a list of advisory forms, and the advisories that are part of the agreement must be checked. Note: Buyer's Inspection Advisory (CAR Form BIA) is pre-checked as being part of the agreement. -Other Terms There is space here for additional terms to be included in the purchase agreement. -Allocation of Costs This paragraph has four sections that address various costs associated with the purchase of the property and outline which party is responsible for each cost. -Inspections, Reports and Certificates - There is space for information on specific reports associated with the property. Note- A disclaimer in bold font states that paying for a report does NOT obligate the same party to pay for any recommended work identified in a report.

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Paragraph 10: Statutory and Other Disclosures and Cancellation Rights (cont.) -Condominium/Planned Development Disclosures *Seller has 7 days after acceptance (or another specified number) to disclose if the property is a condominium or planned development. *If the property is a condo or planned development, the seller has 3 days after acceptance (or another indicated number of days) to do the following:Provide copies of any document required by lawDisclosure any pending claim or litigation against the HOAIssue a statement with parking information, including any designated spotsDeliver copies of the most recent 12 months of HOA minutesProvide the names and contact information for all HOAs governing the property. Note - Buyer's approval of all property disclosures is contingent on this agreement as outline in paragraph 14B(3). -Condition of Property Unless otherwise agreed to in writing, the property is sold "as is"; however, the buyer still has investigation rights associated with the property condition. The seller will maintain the property in the same condition and deliver it free of debris and personal property. Additionally, the following information is addressed in this section: -The seller must disclose known material facts and defects affecting the property within the time specified in paragraph 14A. -The buyer has the right to conduct inspections, and based on those inspections, the buyer can either cancel the contract or request the seller to make repairs. -Buyer is strongly advised to conduct inspections in order to determine the present condition of the property. -12. Buyer's Investigation of Property and Matters Affecting Property -The sale of the property is contingent on the buyer conducting inspections, at buyer's expense, within the time specified in 14B Without seller's prior written consent, buyer will not conduct intrusive inspections or inspections by any government employee or entity. -Seller will make the property available for buyer inspections. Buyer will complete the inspections, as specified in paragraph 14B, and either remove the contingency or cancel the agreement. Buyer will also provide the seller copies of all inspections. -Seller will maintain water, gas, and electricity for buyer's inspections and until possession is given to the buyer. Buyer agrees to repair any damages that occur as a result of inspections. Additionally, the buyer will not hold the seller liable for any injuries, claims, costs, and damages associated with inspections. -Title and Vesting Buyer will be given a preliminary title report within the time specified in paragraph 14, and buyer's review of the report is a contingency of the sale. Within 7 days of acceptance, the seller is obligated to provide the escrow holder a completed Statement of Information regarding the property's title. -Title is taken in its present condition, except for monetary liens and obligations the parties have agreed to in writing. -Seller must disclose all matters affecting title to buyer within the time specified in paragraph 14A. -Buyer will receive a grant deed at the close of escrow or assignment of seller's interest where applicable.

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Paragraph 13: Title and Vesting (cont.) -Buyer will receive a CLTA/ALTA owner's insurance policy. If buyer chooses any further title coverage, it will be at buyer's expense. -Time Periods; Removal of Contingencies; Cancellation Rights This is a vital paragraph of the contract that addresses the following topics: -How contingencies and other obligations are performed -Time periods for delivery of disclosures, conducting inspections, and removal of contingencies -Cancellation rights from both parties -Rights and responsibilities of the seller if buyer fails to perform -Effect of removal of contingencies The paragraph starts with a bold disclosure stating that all time periods in this paragraph can only be changed by mutual written agreement. Additionally, any removal of contingencies or cancellation of the contract must be made in good faith and in writing. The paragraph is almost a full page in length and has the following seven sections: -Seller has 7 days (or another specified number) after acceptance to provide buyer all reports, disclosures, and information required by seller as provided in this agreement. If seller does not deliver the required items, the buyer may cancel the contract after first delivering a Notice to Seller to Perform (CAR Form NSP). Paragraph 14: Time Periods; Removal of Contingencies; Cancellation Rights (cont.) -This section has four subsections:Buyer has 17 days (or another specified number) after acceptance to complete all inspections and approve all material provided by the seller in relation to the property, including statutory disclosures provided by the seller. -Buyer can request that seller makes repairs within the time specified in paragraph 14B(1). Seller is not obligated to agree or respond to the request. -By the end of the agreed upon time in 14B(1), buyer will provide the appropriate contingency removal or cancellation form. However, if the seller does not deliver required material in the time specified in section 14A, the buyer has 5 days (or another specified number) after delivery of the items or time specified in 14B(1) to remove the contingency or cancel the agreement.After the time specified in 14B(1) and before seller cancels, the buyer still has the right to remove remaining contingencies or cancel the contract. Once buyer's removal of contingencies is delivered to the seller, the seller may not cancel the agreement as outlined in 14C(1). -This section states the seller has the right to cancel the contract in the following situations: *The buyer does not provide a removal of contingencies or cancellation of contract within the specified time. *The buyer does not perform according to the contract. This includes, but is not limited to, providing financing requirements as outlined in paragraph 3, and returning disclosures as outlined in paragraph 10A(5). Note: The seller must first deliver Notice to Buyer to Perform (CAR Form NBP) before canceling the contract. -Paragraph 14: Time Periods; Removal of Contingencies; Cancellation Rights (cont.) Any notice to either the buyer or seller to perform under the agreement must be in writing, signed by all parties, and allow 2 days for the other party to take the applicable action. If buyer removes any contingency or cancellation rights, it is assumed buyer has completed all property investigations and review of disclosures, elected to proceed with the transaction, and assumed all liability for repairs pertaining to that contingency or cancellation right. -Buyer or seller may cancel this agreement for the other party not closing escrow. However, the party must first deliver a demand to close escrow that must be signed and give the other party 3 days to close escrow. If either party uses his or her rights to cancel the agreement, the parties agree to sign mutual instructions to cancel and release deposits. A party can incur a civil penalty for failure to sign cancellation instructions if no good faith dispute exists as to who is entitled to the funds. -Final Verification of Conditions Buyer has the right to make a final verification of the property within 5 days (or another specified number) prior to the close of escrow. This is NOT a contingency of the sale, but is to confirm the property has been maintained, repairs have been completed (if agreed to), and seller has fulfilled other obligations under the purchase agreement.

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Paragraph 20: Joint Escrow Instructions to Escrow Holder (cont.) -Upon receipt, escrow holder will provide seller and seller's broker buyer's deposit of funds. The escrow agent will notify all brokers if a deposit is not made as agreed to in the purchase agreement or if buyer or seller instructs the escrow holder to cancel escrow. -Any amendment to the purchase agreement that affects a responsibility of the escrow holder must be provided to the escrow holder within 3 days after execution of the amendment. -Remedies for Buyer's Breach of Contract This paragraph has two sections that address buyer breach of contract and liquidated damages. The whole paragraph is in bold font, and both the seller and buyer must initial under section 21B. -Any agreement between the parties specifying a remedy for failure of buyer to complete the purchase in violation of this agreement is invalid. -If buyer defaults and cannot complete the purchase agreement, seller will retain the deposit paid by the buyer as long as it is not more than 3% of the purchase price. Any additional deposits made by the buyer require a separate written agreement regarding their applicability to liquidated damages. -Dispute Resolution This provision of the agreement is divided into three sections: mediation, arbitration of disputes, and additional terms. It is extremely important as it addresses how disputes arising between the parties in relation to the purchase agreement will be resolved. -Paragraph 22: Dispute Resolution (cont.) Mediation - The parties agree to mediate any dispute arising in relation to this purchase agreement BEFORE arbitration or court action. Any mediation fees will be divided equally between the parties. -Arbitration and Disputes - If mediation does not solve a dispute, the parties agree to use a neutral, binding arbitration to decide the matter. There is a spot at the bottom of section 22B for the buyer and seller to initial agreement to this provision regarding arbitration. Initialing this section is voluntary.Before the line for the initials, there is a bold, capitalised notice stating that by initialing this section, the seller and buyer are acknowledging that disputes will be handled according to the provisions outlined in this section, and the parties are giving up their judicial rights regarding disputes related to the purchase agreement. -Additional Mediation and Arbitration TermsThe following issues are excluded from mediation and arbitration: judicial or non-judicial foreclosure; an unlawful detainer action; filing or enforcement of a mechanic's lien; and any issue within the jurisdiction of probate, small claims court, or bankruptcy court. -The following court action filings are NOT considered a violation of this paragraph: *To preserve a statute of limitations, to record notice of pending action, or to record a mechanic's lien.Brokers are not obligated to mediate or arbitrate unless they agree to do so in writing. *Any broker participating in mediation or arbitration is not deemed a party to the agreement.

Residential Purchase Agreement and Joint Escrow Instructions Page 3

Paragraph 7: Allocation of Costs (cont.) -Government Requirements and RetrofitPart 1 must be checked to indicate if the buyer or seller will pay for smoke alarm, carbon monoxide devise installation, and water heater bracing, if required by law.Part 2 addresses the following topics:Who will pay the cost of compliance with other mandatory government inspections and reportsWho will pay for compliance with government mandatory retrofit standardsThe buyer will be provided a copy of any government conducted inspection report. -Escrow and TitleEscrow - This section indicates who will pay the escrow fee and who the escrow holder is. It also states the parties will sign and return the escrow holder's general provisions within 5 days (or another specified number) after receipt of escrow.Title - The appropriate box must be checked showing if the buyer or seller will pay for the owner's title insurance policy discussed in paragraph 13E. It also indicates who will issue the policy and states the buyer is responsible for paying the lender's title insurance policy, unless otherwise agreed to in writing. -Other Costs - This section shows who will pay the county transfer fee, city transfer fee, HOA-related fees, private transfer fee, and home warranty. The majority of the 10 lines must be checked to indicate which party will pay each cost. Additionally, details on the home warranty (line 10) must be provided. Note - Buyer can waive the purchase of a home warranty plan by checking the appropriate box. -Items Included and Excluded from Sale Note to Buyer and Seller - This section says that although items may be included or excluded in the sale according to the MLS, flyers, or other promotional materials, in order to actually be included or excluded in this purchase agreement, the items must be listed in paragraph 8B and/or 8C. Items Included in SaleAll existing features and fittings attached to the property are included in the sale.There is a variety of prewritten items in this section that are automatically included in the purchase agreement, unless indicated otherwise.Additional items not automatically included can be written here.Existing integrated phone and home automation systems are included.Seller agrees to disclose information on any leased or liened items and systems.The seller warrants that all items included in the purchase price are owned by seller and will be transferred to the buyer without warranty. -Items Excluded From Sale - Audio and video components and other items, such as furniture, that are secured to the property by brackets are excluded from the sale. There is space to write additional contents to exclude from the sale. Additionally, the bottom of this section states that brackets attached to walls, floors, or ceilings for any component discussed in this section will remain on the property, unless the appropriate box is checked indicating otherwise.

What specific costs are addressed in Paragraph 7D?

Paragraph 7D addresses "Other Costs", including who will pay the county transfer fee, city transfer fee, HOA-related fees, private transfer fee, and home warranty.

What governs the making, interpretation, and enforcement of leases?

The Law of Contracts

When does the Statute of Limitations require leases be in writing?

The Statute of Frauds requires a lease for a period of one year or longer to be in writing. Month-to-month lease agreements are not required by law to be in writing, but it is wise for all leases, regardless of the term, to be in writing. However, leases or rentals arranged by a property manager must be in writing regardless of the lease term.

How does a buyer indicate the purchase agreement is contingent on the sale of his or her current property?

The box in Paragraph 4B must be checked, and the required CAR addendum detailing the contingency must be attached to the offer.

Delivery

The landlord must deliver the lease to the tenant and each party must have duplicate originals.

Signatures

The landlord must sign the lease to convey the leasehold interest. A tenant is not required to sign the lease, but it would be best to do so in order to enforce the terms of the lease.

What needs to happen to an offer in order for it to become a contract?

The offer must be accepted.

Who is responsible for initialing the Presentation of Offer section on Page 10 of the CAR Purchase Agreement?

The person who presented the offer to the seller

What does the buyer agree to do in Paragraph 3J(1) of the loan terms section?

Within 3 days (or another specified number) the buyer will provide the seller a letter from the buyer's lender stating the buyer is prequalified or preapproved for the loan detailed in section 3D.

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c * Selection of Service Providers Brokers do not guarantee performance of any vendors, service, or product providers. Buyer and seller may select any providers of their choosing. * Multiple Listing Service (MLS) This section allows broker to report to MLS a pending sale and information on the sale upon closing. * Attorney Fees If legal action occurs between the seller and buyer relating to this agreement, the prevailing party is entitled to attorney's costs from the non-prevailing party, except as outlined in section 22A. * Assignment Buyer must receive consent from the seller to assign any or all of buyer's interest in this agreement. Even with an assignment, the buyer is still obligated to the conditions of the agreement unless otherwise agreed to in writing. * Equal Housing Opportunity This provision states the property is sold in compliance with federal, state, and local anti-discrimination laws. *. Terms and Conditions of Offer This paragraph affirms the following terms and conditions of the offer: Terms requiring specific initialing are only part of this agreement if initialized by all parties. Prior to notification of acceptance, seller has the right to continue marketing the property and accept another offer. The parties have read and understand the offer. The parties agree to the confirmation of agency relationships. If the offer is accepted and buyer defaults, buyer may be responsible to pay broker compensation. The parties are allowed to sign separate but identical copies of the agreement, which will constitute one and the same writing. * Time of Essence; Entire Contract; Changes This paragraph states the contract represents the final terms of the agreement unless the parties make changes in writing. Time is of the essence means that the terms and times listed in the agreement are vital and cannot be ignored. * Definitions This paragraph defines important terms used in the purchase agreement, including acceptance, agreement, CAR form, close of escrow, copy, days, days after, days prior, deliver, delivered, delivery, electronic copy, electronic signature, law, repairs, and signed. *. Expiration of Offer This paragraph provides the time the offer is open to the seller to accept. This section has various blanks that must be completed: Name of person authorized to receive a copy of the signed offer (usually the selling agent) Specific day and time the offer must be received, unless agreeing to the prewritten "by 5:00PM on the third day after the offer is signed by the buyer" The appropriate box checked if the buyer is signing in a representative capacity Date and signature of buyer If an additional signature addendum is attached (CAR Form ASA) the appropriate box must be checked.