Topic 2 - Real Estate Contracts

Termination of contracts

-By performance -By partial performance with written acceptance -Substantial performance -Impossibility of performance -Death -Mutual agreement of the parties to cancel -Operation of law -By accord and satisfaction -By novation -By destruction of property -By bankruptcy -By statute of limitations (Expiration of time) -Due to fraud or misrepresentation -Breach of contract -Rescission

REQUIREMENTS OF LISTING AGREEMENTS

1. The listing agreement must be in writing. 2. There must be a legal description of the property. 3. The listing agreement must have a definite termination date. 4. The lot size should be indicated. 5. The square footage of all buildings and improvements on the property should be given. 6. The listing agreement must show the broker's fee. 7. The type of deed that the seller will deliver must be included. 8. All personal property (movables), if any, should be listed. Verbal agreements as to personal property that will remain with the house are not enforceable.

WAYS TO TERMINATE A LISTING

1. When the property is sold. Listing terminates at closing. 2. Mutual agreement between the broker and owner. 3. Death of broker or seller. 4. The listed property is destroyed. 5. Bankruptcy of seller.

BILL OF SALE:

A bill of sale is used only if personal property is included in the conveyance of the property.

unilateral contract.

A contract in which only one party is obligated is called a

An Option

A contract in which the owner gives a purchaser the right to purchase within a specified time period is called

voidable by the harmed party

A contract signed under duress is Duress is any type of force whether psychological or physical. The person who is being forced into the contract has the right to terminated the contract.

A. executory contract

A contract which has been signed but all the terms of the contract have not yet been met is said to be a/an

True

A listing agreement is an example of special agency

Specific performance contract

A monetary deposit is required which accompanies the offer to purchase. If either party fails to meet contractual obligations, he has several choices for recourse:

owner financing.

A purchase money mortgage is used in

bilateral contract.

A sales contract is an example of a/an:

A. Installment sale. B. contract for deed. C. In Louisiana, bond for deed. D. all of the above. correct

A type of owner financing in which the seller retains the title to the property until the final payment is made is called

Void Contract

A void contract is actually no contract at all. It has no legal effect and is not binding on either party.

PERFORMANCE OF THE CONTRACT

Actual performance of the contract takes place at the sale closing. The time and place of the final transfer of property are to be included in the sales contract.

option.

An example of a unilateral contract would be a/an:

True

Another term for "offer and acceptance" is "meeting of the minds"

an executory contract.

Billy Buyer and Sally Seller have signed an agreement stating that Billy will buy Sally's house. They are scheduled to close the sale in 3 weeks. This is an example of:

A. Yes, in most states an offer is revocable up until the time it is accepted by the seller. B. No, in Louisiana an offer is binding and irrevocable. Both answers are correct

Can an offer that has been made but not yet accepted by the seller be revoked by the buyer? Select one:

Contingencies:

Conditions that must be satisfied before a sales contract is fully enforceable

Constructive fraud

Constructive fraud is committed with no intent to harm, mislead or misrepresent.

Written Contracts

Contracts for the sale of real estate are required to be in writing to be enforceable.

liquidated damage

Earnest money is also known as:

Protection or safety clause:

Exclusive Right to Sell Listing Agreements contain a clause that entitle the real estate broker to a commission after the listing expires or is canceled. This applies only in the event a buyer who was introduced to the property by the listing broker purchases the property after the listing has been withdrawn or expired. The broker, to comply with the terms of the listing agreement, typically needs to send notice with each buyer's name within a certain number of days to the seller.

Defects in contracts

Fraud Mistakes Undue Influence Duress Menace

One

How many people must sign a unilateral contract?

credit to buyer, nothing to seller

How would the buyer's deposit be listed on the closing statement?

Void

If a contract is not legal and is not binding on either party it is said to be

DELIVERY OF POSSESSION

If no other date is specified, possession of the property takes place at the act of sale. If the buyer occupies the property before the specified date, he must pay rent to the seller.

lesion beyond moiety.

In Louisiana, if a property is sold for less than half of the market value at the time of sale, the seller or his heirs can sue to rescind the sale for up to one year from the time of the sale under the concept of

Revocation

In most states, an offer to purchase may be revoked at any time prior to acceptance by the seller. However, in Louisiana, once an offer is presented to the seller, it can not be revoked if it contains the clause "This offer is binding and irrevocable". In this case the offer must run its course.

At any time prior to acceptance by the seller.

In the Common Law states an offer to purchase may be revoked when?

consideration.

In the other 49 states a contract must be accompanied by:

exclusive agency listing

In what type of listing does the seller hire one broker but retains the right to sell the property himself without paying a commission to the broker?

The purchase agreement is voidable by Johnny.

Johnny is 17 years old but has a job and wants to buy a house. He signs a purchase agreement to buy his grandmother's house. Which of the following statements is TRUE?

MENACE

Menace is the actual threat to commit duress.

True

Mistakes must be mutual if the contract is to be voidable. A mistake by one party does not invalidate a contract.

PROPERTY CONDITION DISCLOSURE

Most states require the seller to disclose any known defects in the property to prospective buyers. The disclosure statement is NOT a warranty by the seller.

debit to buyer, credit to seller.

On the closing statement the buyer's new loan would be listed as?

Exclusive right to sell

Only one broker is hired as the agent in this type of listing agreement and he is given the exclusive right to sell the property. Regardless of who actually sells the property, the seller must pay the broker a commission. This is the most common and popular type of listing agreement for brokers and sellers alike.

Exclusive agency

Only one broker is hired to act as the exclusive agent of the principal. The seller, however, can still sell his property himself and not pay a commission to the broker. The agreement must be in writing and signed and must have a termination date

Oral Contracts

Oral contracts are valid but unenforceable.

null and relatively null.

The Louisiana terms for void and voidable, respectively are

Agency coupled with an interest

The agent is given an interest in the property being sold.

buyer agency

The buyer may contract with a broker to find property for the buyer. In this type of representation, the buyer is the client. This is known as:

laches

The concept that one may lose his legal rights if he inexcusably fails to exercise them within a reasonable time is known as:

A. offer and acceptance. B. consideration (or cause in Louisiana). C. legal capacity and legal objective. D. the date. (right answer)

The essential elements of a valid contract include all of the following EXCEPT

SALES CONTRACTS (PURCHASE AGREEMENTS)

The real estate sales contract is basically an agreement between a buyer and a seller to convey real estate. It spells out the precise terms of the agreement and specifies the kind of title conveyed, type of deed, liens and encumbrances, manner of payment, and amount of commission.

Withdraw the counter offer before it is accepted and then accept the second offer.

The seller received an offer on his home and sent a counter offer to the buyer. While the buyer was considering the counter offer, the seller received a higher offer with better terms. The seller's agent advise him to:

Open listing

The seller retains the right to employ as many brokers as he wants to try to sell his property, but is only obligated to pay a commission to the one who actually finds a ready, willing and able buyer. If the seller sells his property himself, he is not obligated to pay a commission. For that reason this type of contract is considered to be unilateral.

novation

The substitution of one party to the contract for another party, or the replacement of a new obligation for an old one is called

Mistakes-of-fact

These are errors regarding the facts of a contract, for example, a misunderstanding as to the location of a parcel of land being conveyed.

Mistakes-of-law

These occur when a party, in full knowledge of the facts, comes to an erroneous conclusion as to their legal ramifications.

In Louisiana, this type of contract is called "Bond for Deed".

This is a type of owner financing in which the owner retains title to the property until the debt for it is paid off.

Specific Performance Deposit:

This means that if either party withdraws from the contract, the other party can sue to have the terms of the contract performed. Example: Mr. Buyer signs a purchase agreement for a house owned by Mr.Seller. Mr. Buyer gives an earnest money deposit of $2000 with the contract. The contract is accepted and signed by both parties. Later Mr. Seller decides he doesn't want to sell his house. Mr. Seller must return the $2000 deposit plus pay Mr. Buyer $2000.

Net listing clause:

This means that the broker may legally accept as his commission all proceeds of the sale in excess of the net price specified by the principal. For example: A seller lists his house stating that he wants to get $50,000 for the house. The broker finds a buyer who pays $80,000 for the house. The seller gets $50,000 and the broker gets the remaining $30,000. Net listings are illegal in some states.

TIME IS OF THE ESSENCE

This means that the contract must be performed within the time limit specified. A party who fails to perform on time is liable for breach of contract.

Rescission

To "rescind" a contract is to cancel or annul the contract.

Joint listings

Two agencies jointly listing the same property for sale and working together to find a buyer.

rescision.

Under certain conditions one party to a contract may cancel or terminate the contract. This is known as:

In the sale of real estate, when does the title transfer from the seller to the buyer?

Upon delivery and acceptance of a deed.

Give it to the listing broker in a timely fashion

What should the buyer's agent do with earnest money or deposit given with a purchase agreement?

equitable title

What type of interest, if any, does a purchaser have in a property he has contracted to buy, but the sale has not yet been executed?

Equitable title.

What type of title does the buyer hold when he has signed a purchase agreement but the sale has not closed?

when the buyer is notified that the seller has accepted the offer.

When a buyer submits an offer to purchase, at what point is he obligated to the contract?

when the seller accepts the offer.

When a buyer submits an offer to purchase, at what point is he obligated to the contract?

partial performance

When one party has substantially performed to the terms of the contract but has not completed every detail exactly as the contract, this is known as:

escape clause

When selling contingent upon buyer selling his house, this clause protects the seller from having to keep his house off the market for an extended period of time.

in favor of, against

When there is a dispute over a contract or an item in the contract, it must be interpreted according to the intent of the parties involved. If there is a discrepancy as to the intent of the parties to the contract, the intent will be interpreted ________ the person who wrote the contract, and __________ the other party. If a pre-printed form was used it will be interpreted against the party who provided the form.

exclusive right to sell listing

Which type of listing is the best one to ensure the broker a commission?

Specific performance contract (he has several choices for recourse:)

a. He may sue for rescission of the contract relieving all parties of their original contractual obligations, and returning valuable considerations to the owners. b. He may sue for damages to receive compensation for money lost in the breached contract. c. He may sue to have sale completed. This is called specific performance.

bilateral contract

both parties promise to perform as stated in the contract. An example is a real estate sales contract.

Contingency Clauses

clauses specifying provisions and conditions which must be met before an agreement is binding. If the contingencies are not met, the contract will not be valid. An example would be ability to obtain financing.

executory contract

contract is one which has not been completed or fulfilled. All of the terms of the contract have yet to be met.

Duress

exerted upon a person to force him to act against his own will. Duress includes physical force, property damage and confinement.

Actual fraud

fraud is committed when there is intent to deceive

contract is unenforceable

if its terms cannot be enforced by the courts. Illegal contracts are both void and unenforceable.

Protection Clause

insures that the broker will receive a commission if his client buys the house within a certain time period after the listing agreement has expired.

OPTIONS

is a contract in which the owner, or optionor, gives a prospective purchaser, the optionee, the future right to buy the owner's property at a fixed price within a specific period of time. EX: Stevens, the optionor, sells an option to Thomas, the optionee, for $1,500. This option gives Thomas sixty days to decide whether or not to buy a parcel of mountain land for $20,000. The next week a gold deposit is found on the property. The land is now worth hundreds of thousands of dollars, but because of his option contract, Thomas is able to purchase it for $20,000.

voidable contract

is a contract that may still be binding, but is flawed.

LISTING AGREEMENT:

is a legally binding contract between a property owner and a real estate broker. It is also an employment contract, that is, employment of the broker by the principal to find a ready, willing and able buyer for his property.

A contract

is a legally enforceable promise or set of promises between competent parties, upon legal consideration, to do or abstain from doing some legal action.

The multiple listing

is a special type of exclusive right to sell listing that has become increasingly popular in recent years. Unlike the typical exclusive right to sell, the multiple listing can involve a great many brokers working to sell a single listed property. The exclusiveness of the listing lies in the fact that the principal formally lists his property with only one broker who is known as the listing agent.

The lease-purchase option

is a variation of the option in which the renter, or lessee, of a piece of property is given the option of purchasing the leased property at a later date. If he buys the property, part of his previous rental payments may be applied to the purchase price, if so agreed.

BUYER REPRESENTATION AGREEMENTS

is an agreement between the broker and the buyer. The buyer contracts with a broker to find property for the buyer. In this type of representation, the buyer is the client. The agreement should describe the type of property that the buyer is looking for and should state how the commission is to be paid.

LEASES

is both a contract and a conveyance.

implied contract

is formed by the actions or conduct of the party.

executed contract:

is one in which all the parties have met all the terms and conditions of the contract. The contract is completed.

Valid Contract

is one that is binding and enforceable.

Earnest money contract

is required along with the offer to purchase. The buyer customarily puts down a cash deposit with his offer to prove his intent to carry out the terms of the contract. If the buyer should default, the seller may retain the __________ deposit as liquidated damages.

Undue influence

is the use of one's power or authority to force another person to enter into an agreement against his will.

Multiple listing clause:

means that the broker is a member of a multiple listing service and must share the listing with all other members of MLS.

unilateral contract

one party makes a promise with the hope that it will motivate another party to do something. In a __________ only one party is obligated. An example is an option to buy.

Reserve clause

seller reserves right to sell to certain parties and not pay a commission to the broker.

Termite Clause

states that the seller has inspected the property for termite damages and has remedied any damage found. Riders: Any other added clauses.

Conditional Acceptance:

the buyer states that he will accept the terms of the purchase agreement contingent on certain conditions. This is essentially a counteroffer which must be accepted or rejected by the seller.

express contract

the terms are communicated in words. The words in an express contract can be either written or spoken.

If a contract is not legal and is not binding on either party it is said to be

void