Real Estate - Level 7, Chapter 2 - The Sales Contract

different interests

A seller and a prospective buyer may have different interests. For example, a seller most likely wants to sell their property for the maximum profit while a buyer most likely wants to buy it for the least amount of money.

Confidentiality in Dual Agency

A seller can still expect their listing agent to comply with the fiduciary duty of confidentiality in a listing agency relationship. As long as the information is not a material fact to the buyer, the listing agent should not disclose any information to the buyer that may harm the seller's ability to negotiate.

survival

A survival clause states that even after closing, certain things will still be required or remain true. *Why does this matter? Well, say that the buyer, a year after closing, discovered that there was lead in the paint, even though the seller disclosed no such thing. The buyer can still go after the seller for misrepresentation, even though closing has happened, the buyer has moved in, and there has been nary a peep from the buyer until now to express dissatisfaction.

purchase price clause

Along with the purchase price, the sales contract may specify the method of payment. For example, how much of the purchase price is covered by the down payment, earnest money deposit, and so forth. ***Like the legal land description, the purchase price of the property and method of payment MUST be in a sales contract. It cannot say something like "Purchase price to be determined."

As a license holder, you CAN NOT:

Close a transaction Prepare legal documents Charge a fee for your completion of real estate forms Provide legal opinions

Delivery of Notice of Binding Agreement Date

Either party or their broker can deliver it to the other party. Once this notice is delivered, the party receiving the notice needs to sign and return it to the other party. Everyone should be notified by this point about when the Binding Agreement Date is.

e-sign intent is important:

Electronic signatures, like traditional ink signatures, are only valid if each party intended to sign. Kate's intent was not to make the offer, so the paperwork was null and void.

Examples of Addenda:

Conventional Loan Contingency Addendum FHA Loan Contingency Addendum Lead-Based Paint Addendum Legal Description Loan Assumption Addendum Seller's Property Disclosure Statement Survey of Property as Exhibit

a sales contract MUST:

Include the names of the parties involved Identify the subject property Be signed by the parties bound by the contract Contain evidence of intent to convey ownership interest Contain the terms of the sale State the purchase price

Earnest Money: Disputes and Protections

Interplead Your Case If there is an earnest money dispute which can't be resolved, the holder can get a court to decide who gets the money. This is called an interpleader action or lawsuit. Legal expenses can be paid from the earnest money. Whoever loses must pay the winner's court fees.

What is a good practice in choosing the closing date?

It is important to make sure there is a proper amount of time allowed for performance.

timeline of earnest money deposit

It varies from contract to contract, but generally the deposit of earnest money happens within five days of the Binding Agreement Date (that is, when the contract is signed).

Consent to Dual Agency

It's important for the seller to be aware of dual agency. If a brokerage represents buyers, it is possible that the listing broker may represent a potential buyer who shows interest in the property. And in that case, the listing broker will owe both fiduciary duties to the prospective buyer and the seller. Let's break down what that means through the remaining dual agency clauses.

disclosure rules

Just like for all other real estate transactions, a listing broker acting in dual agency will need to comply with dual disclosure rules.

Who conducts closings in Georgia?

ONLY ATTORNEYS conduct closings!

application of earnest money

Often, earnest money gets applied towards the expenses that the buyer pays at closing.

designated agent

Only the named agent represents buyer or seller; offers a full range of fiduciary duties to the client

selling broker

Represents the buyer, also known as the buyer's agent

listing broker

Represents the seller

Types of Sales Contracts

Residential Contract of Sale Commercial Contract of Sale Foreclosure Contract of Sale Contract of Sale for New Construction Contract of Sale for Land Exchange Agreement

A hurricane destroys a large portion of a house prior to closing. The sales contract has a "risk of damage to property" clause. What can the buyer do?

The buyer, after receiving notice from seller of damage, can take the time specified in the contract to decide if they want to continue the purchase.

estimates and disclosures

The closing date can be extended if the buyer has not yet received estimates or disclosures that they need in order to close. The buyer and seller only get one extension of the closing date each!

mortgage lender and closing attorney

The closing date can be extended if the buyer's mortgage lender or the closing attorney hasn't finished their tasks by closing, as long as the buyer isn't to blame for their delay.

title objections

The closing date can be extended if the seller cannot satisfy valid title objections, except for those that: 1. Can be satisfied through payment or bonds 2. Don't prevent the title from being good and marketable

What is TRUE about legal descriptions in a sales contract?

The contract can include language which puts off the legal description until closing. *Don't ever use a contract that says things like, "legal description to be provided within two weeks of signing" or "legal description to be provided before closing." Language like this can void the contract. Get that legal description in the contract!

What is the time limit of an offer?

The contract will have a time and date at which the offer expires. If the seller does not accept the offer before that, the contract is null and void.

reasonable interpretation

The earnest money can also be disbursed if the holder makes a "reasonable interpretation" of the agreement. 1. The holder first needs to give notice to all parties about why they are disbursing the money and who gets that money. This needs to be done within the number of days specified in the contract. 2. If a party takes issue with the proposed disbursement, they have a specified number of days to let the holder know. 3. If they object outside that time period, the objection is waived. 4. The holder can decide to ignore the objection and disburse as originally planned. The holder needs to send notice in this case, too.

dual agency consent

The seller has the option to not consent to dual agency. If an agency situation changes to dual agency, the listing agent would be wise to get written confirmation from the seller that they understand how the agency relationship is changing.

earnest money amounts

The standard earnest money amount is about 1% of the purchase price, or a few thousand dollars. However, it can be as much or as little as the buyer wants. An offer with more earnest money will generally be more attractive to a seller.

Georgia Statute of Limitations

The statute of limitations for written contracts under seal is 20 years. If they aren't under seal, the statute of limitations is six years.

rights of broker

There are a couple of scenarios here: 1. Defaulting party not represented by a broker: Here, the defaulting party must pay liquidated damages equal to the amount any involved broker(s) would have received had the transaction closed. 2. Defaulting party represented by a broker: Broker has no remedies beyond their written agreement about commission.

Brokerage Information: Material Relationships

This can be state-specific, but generally, a material relationship is one of a familial, business, or personal nature between a broker and a client that would impair the ability of the broker or affiliated licensees to exercise fair and independent judgment relative to another client. 1. familial 2. business 3. personal

Brokerage Information: Ministerial Acts

This clause basically ensures that the buyer and seller know that if they are not represented by a broker, that broker does not look out for their interests. Essentially, this clause ensures that a buyer or seller knows when they are a customer and not a client.

selling broker

This clause describes the relationship between the selling broker (or buyer's agent) and the buyer

listing broker

This clause does the same work as the previous clause, only now for the Listing Broker. Essentially, these two clauses are spelling out the brokerage relationships (and resulting levels of fiduciary duties) between all the parties. Important stuff!

duty to cooperate

This clause mandates that both parties act in a cooperative and timely fashion.

Attorney Review Contingency

This clause will give the attorneys a certain amount of time to look over the contract and grant their approval or disapproval.

Contract Rescission Rights in Georgia:

Two Acts, the Georgia Time-Share Act and the Georgia Land Sales Act, require that the sales contracts in these situations (that is, for timeshares and for certain kinds of subdivisions) provide contract rescission rights to purchasers.

a broker works FOR

a client

a broker works WITH

a customer

Modifications to a contract can occur:

at any time between contract date and closing

Brokerage Information: Special Stipulations

at the end of the contract, is where the broker can add any special stipulations. (I strongly encourage you to get an attorney's help in writing these!) Each stipulation is a specific requirement. For example, if a buyer wants a carpet replaced in the home at the seller's expense, this stipulation would go in this space.

mutual rescission

both parties agree to cancel the contract.

business

business partner, past and present

Which of these parties is advised to take precaution by caveat emptor?

buyer

familial

child, step sister, cousin, etc.

personal

college roommate, ex-boyfriend, etc.

option

gives one party the right to perform a non-obligatory action within a time period (e.g,. terminating a contract or the right of first refusal). Here, it refers to how the buyer has the option to terminate during this period, but isn't obligated to do so.

condemnation

government agencies or related agencies such as railroads or utilities can take the title to real property without the owner's consent through eminent domain.

Extension of Deadlines

if a deadline lands on a Saturday, Sunday, or federal holiday, it still must be met. No extensions. The only exception is the closing date.

attorney's fees

In any litigation or arbitration, including about commission claims, the loser has to pay reasonable attorney fees for the winner.

earnest money

*Funds paid to confirm or commit to a contract *can be held by a number of different parties: attorneys, brokers, or anyone with trust powers.

ministerial acts

*a sellers broker can provide a buyer with lists of hospitals, real estate market information, identifying property for lease, preparing documents, assisting parties to locate professionals (like surveyors, inspectors, etc), churches, malls, schools, etc. *must disclose any issues in the home - if there's a water issue, the broker does not have to test the water, but can provide the buyer with information for testing facilities or refer the client to the local health dept. *MINISTERIAL ACTS are services performed without compensation; they facilitate an action insuring all parties are well-informed and have access to information necessary to make transaction decisions; WITHOUT COMPROMISING broker exclusivity conditions.

How to prevent contingency abuse:

1. Be very clear 2. Contain an expiration date 3. Explicitly require diligence and effort to fulfill the obligation (If the contingency isn't specific about who does what when, parties can take advantage.)

common ammendments

1. Change the price, down payment, or loan amount 2. Request that the seller perform repairs and/or treatments listed in an addendum 3. Change the closing date 4. List an amount of money seller will pay of buyer's closing costs 5. Extend the option period through an additional payment of option money 6. Terminate the option period 7. Extend the period of time the buyer has to terminate the contract

Notices can be delivered:

1. In-person 2. By courier, overnight delivery service, or certified or registered U.S. mail 3. By email 4. By fax

Contract to Closing:

1. Keep an open line of communication with all the parties. 2. Make sure that all relevant parties have a copy of the signed contract: the buyer, the seller, the brokers, the lender, and the closing attorney. 3. Remind your client that "time is of the essence" means exactly that. If you represent the buyer, and they do an inspection, find termites, and then decide to terminate but wait until AFTER the due diligence period is over, well, they are gonna be out of luck. 4. Follow up on loan applications. 5. Prep parties on what will happen at closing. If they want to read all the relevant documents, they can, but have them do it before closing. They won't have time at the closing itself. 6. Give parties cost and net worksheets ahead of closing, as these will approximate closing costs. 7. Go to the closing. You aren't required to do this, but it's nice.

What is true of Georgia contract law?

1. The Georgia Time-Share Act and the Georgia Land Sales Act require that certain sales contracts provide contract rescission rights to purchasers. 2. Only attorneys can close transactions. 3. Agents cannot charge for the preparation of forms.

Appraisal contingency

A contingency in a sales contract that the property must appraise at a value that is equal to or greater than your offering price.

termination under contingencies

A contingency should state within itself how and when termination is communicated.

Manderlay Mansion was built in 1975. It is being sold to Rebecca. What is TRUE?

A lead-based paint disclosure should accompany the sales contract.

dual agent

A license holder works for a brokerage that represents both buyer and seller; this license holder provides a limited range of fiduciary duties to both

customer

A party to the transaction with whom the license holder does NOT have an agency relationship

Georgia Condominium Act

According to this Act, the sales contract for a condominium needs to disclose that: 1. Oral representations cannot be relied upon as correctly stating the representations of the seller. 2. The buyer should refer to the required documents in the Disclosure package to learn about correct representation. *In addition, the Act states that the buyer has at least seven days after receiving all parts of the Disclosure package to terminate the contract without penalty.

client

Anyone who has an agency relationship with a license holder

proration

Anything that can't be terminated by the date of closing, like solid waste fees or utility bills, will be prorated as of the date of closing. This clause also spells out various responses in case appeals over tax bills affect proration.

The legal description clause gives the seller four different ways to give a legal description. Sellers can do any of the following:

Attach an exhibit - In this instance, "exhibit" is referring to an attachment to the purchase agreement. The seller is agreeing to include a separate document to the purchase agreement. Describe the property - Use the county's land records to describe the property by either its: Deed book and page number Lot and block numbers Give condominium unit information - This option is obviously only for condominiums

Buyer's Entitlement to Earnest Money

Here, the buyer gets the earnest money back under any of these conditions: 1. The parties don't enter into a binding agreement. 2. The contract does not satisfy a contingency. 3. The contract terminates because the seller defaulted. 4. The contract terminates because of some other right to terminate that a party uses.

A sales agreement states that if an agreement is terminated due to the buyer's default, and the earnest money is disbursed to the seller, this constitutes liquidated damages in full settlement of all claims of the seller against the buyer. Evaluate.

If the seller wants to reserve the right to sue the buyer for defaulting, they should not accept the earnest money.

Typically, sales contracts will also include:

Mortgage details The deposit amount When and where the closing of the transaction will take place Inclusions and exclusions (what is included in the sale of the property) A section regarding inspection Acceptance procedures and deadlines Property disclosures

Many years ago, Listing Agent Sara had a passionate affair with Jerry, a local shop owner. Now, she is representing him as a seller in a real estate transaction. Does she need to disclose their past relationship to the other parties?

Sara needs to disclose the material relationship between her and Jerry.

what happens if earnest money check doesn't clear?

Say an attorney is the holder of earnest money. They must wait until the check clears the buyer's bank before any return of the money to the buyer. If the check doesn't go through, or if the money is not paid according to the specified deadline, the holder must give notice to the buyer and seller. The buyer then will have a few days (it varies from contract to contract) to fix the problem and pay the earnest money. If the buyer fails to pay the earnest money, the seller can, after the time specified in the contract, terminate the contract. If they don't terminate in a timely fashion, they lose the right to do so.

delivery of notice

So, when is a notice officially " delivered and received"? Of the below, it's whatever happens first: 1. The party actually receives the notice (for example, if an agent hand-delivers a notice to the accepting party) 2. The delivery service drops the notice off at the party's address (for example, if a courier leaves the notice at the accepting party's home) 3. The notice has been sent via email or fax, per the transmission's accompanying time stamp

A real estate sales contract can include a provision that allows for the transfer of personal property. True or False

TRUE - A sales contract can include a provision that states any personal property that will or will NOT be transferred at the same time as the real property. Next Page

seller's closing costs

The buyer can use the seller's closing costs for any transaction costs or expenses unless the buyer's mortgage lender prohibits it. If that happens, the seller gets the unused amount back.

option payment

The buyer gives the seller a whopping $10 (or some other specified, basically symbolic amount) for giving them the option to terminate the agreement during the due diligence period. This money is nonrefundable. A contract may also specify that the buyer will give the seller more offer money upon the offer date or within a certain amount of days from the Binding Agreement Date.

earnest money - disbursement

The holder of earnest money can disburse under any of these conditions: 1. The property closes. 2. There is a written agreement subsequent to the contract about the earnest money. 3. Any arbitration over the earnest money is settled. 4. The parties fail to enter into a binding agreement (in these cases, the agreement itself is a good one - no one disputes its formation or enforceability - but for some other reasons, the parties decide against the agreement.) *Who gets the earnest money (buyer or seller) depends on which of the above situations happens.

disbursement to seller

The holder will disburse the earnest money to the seller if they make a reasonable interpretation that the buyer has defaulted, and the holder sends the required notice. *In this case, once the holder has disbursed the earnest money, it becomes the liquidated damages and fully settles all claims of the seller against the buyer.

option money

The option money is essentially payment to the owner for the right to enter the property and perform any inspections or due diligence necessary within a specified amount of time. This check is made out to the seller, and the seller can cash it immediately.

What is a financing contingency?

This is a section of the contract that makes the sale contingent on the buyer obtaining an adequate mortgage loan.

notice of termination

This is more of the same about how the due diligence period works. The only piece of new information is that the buyer must notify the seller with a notice of termination if they decide to terminate during the due diligence period. If there is no notice, then the seller can assume that the buyer is, in fact, buying.

Governing Law and Interpretation Clause -Multiple Counterparts

This just means that there does not have to be one contract with everyone's signatures.

Jill is buying a house. The purchase contract states that earnest money will be disbursed to her if the seller defaults. What does that mean?

This means that the "good faith money" that Jill paid will get returned to her if the seller does not perform their contractual obligations.

option money and purchase price

This part of the contract specifies whether or not the option money is applied toward the purchase price at closing.

a sales contract

is a contract used in the sale of real property that outlines the responsibilities of the parties and terms of the sale. It can also be called a purchase agreement, purchase contract, or purchase and sale agreement. I'll use the terms interchangeably to get you used to them.

contingency

is a provision within a contract that makes performance conditional upon the occurrence of a stated event; until the contingencies have been fulfilled, the contract is voidable or unenforceable.

good and marketable title

is a title that is free from significant encumbrances or defects that might otherwise prevent a purchaser from enjoying or eventually selling the property.

deed

is an official document that shows the owner has the legal title to the property.

due diligence period

is for the buyer to be 100% sure they want to go through with the purchase.

title

is not something you can hold. It's an abstract concept that includes someone's ownership rights to a specific piece of real property.

exhibits and addendums

need to be listed here and then attached to the contract.

Unilateral Rescission

one party decides to rescind, the other party is notified, and whoever needs to return payments does so.

title insurance

protects lenders (and buyers, depending on the policy) from financial losses related to title issues.

Inspection Contingency

provides that the buyer may obtain certain inspections of the property and may cancel the contract if the inspections indicate an unsatisfactory or unsafe property condition

No Promulgated Sales Contracts in Georgia

sales contracts are drawn up by LAWYERS, not REALTORS

buyer's closing costs

the state property transfer tax; the cost to search title and tax records and prepare the deed; and all other closing costs, except as provided in the contract.

modification of dispursement

they need to send a new notice with their reasoning in order to do this.