Sales contract
What is the main purpose of earnest money?
Earnest money shows that the buyer is highly interested in the property and is willing to close the sale. It is essentially a deposit that a buyer makes to show that they are making the offer in good faith and are serious about their offer
The legal description clause gives the seller four different ways to give a legal description. What are these?
1. 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. 2. Describe the property: use the county's land records to describe the property by either it's deed book & page number or lot & block numbers 3. Give condo unit information
What are the ways that a notice can be delivered?
1. in person 2. by courier 3. by mail 4. by fax
All notices must be...
1. in writing 2. legible 3. signed by the party giving the notice
What elements need to be included in a purchase agreement?
1. it needs to include a clause identifying the property 2. it needs a legal description that describes the property that is distinct & precise enough to distinguish it from all other properties 3. Title Warranty/Title examination clause/Title insurance clause 4. Purchase price clause 5. Closing cost clause 6. closing & possession clause
What are the types of sales contracts?
1. residential contract of sale 2. commercial contract of sale 3. foreclosure contract of sale 4. contract of sale for new construction 5. contract of sale for land 6. exchange agreement
The earnest money can be disbursed under what 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
A clause in the sales contract that states that the holder of earnest money can't be sued around their disbursement decisions
Holder's protections clause
Who conducts closings in Georgia?
As of 2005, only attorneys can conduct closings in the state of Georgia. However, brokers must make sure that all parties get a copy of the closing statement
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.
What does a sales contract have to have?
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
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 clause in the purhcase agreement will state something like "the following special stipulations, if conflicting with any exhibit or preceding paragraph shall control:"
The special stipulations under the brokerage information
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.
In this clause, the seller warrants (or promises) that at closing, they will convey the property's good & marketable" title to the buyer via deed
Title warranty
T/F - In Georgia, the purchase price of the property and method of payment must be in a sales contract.
True
Which of these parties is advised to take precaution by caveat emptor? a. buyer b. seller c. agent d. title agent
a - Caveat emptor is a Latin phrase meaning "let the buyer beware." It is used to mean the buyer is expected to do their due diligence when purchasing property.
If a broker is used in a transaction, what clause will be included in a purchase agreement?
a brokerage information clause
a clause that usually states: all notices given hereunder shall be in writing, legible, and signed by the party giving the notice. in the event of a dispute regarding notice, the burden shall be on the party giving notice to provide delivery"
a notice clause in the sales contract (purchase agreement)
a contract used in the sale of real property that outlines the responsibilities of the parties and terms of the sale
a sales contract
What is a "good & marketable" title?
a title that is free from significant encumbrances or defects that might otherwise prevent a purchaser from enjoying or eventually selling the property
As a license holder, you cannot do all of the following except: a. close a transaction b. prepare legal documents c. charge a fee for your completion of real estate forms d. provide legal options e. all
all - Georgia law prohibits all of these items as a license holder
Why shouldn't you 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?
because language like that can make a contract void.
The title company hired by the buyer runs a title search. The title search reveals unpaid taxes on the property. The seller is not able to pay the unpaid taxes by the closing date. What can the buyer do in this situation? Why?
because of the the title examination clause written out in the purchase agreement, the buyer can terminate the contract without penalty
The state property transfer tax, the cost to search title & tax records and prepare deed are all cost that are typically covered by the _______ a. buyer b. seller c. lender d. mortgage broker
buyer
a selling broker represents the...
buyer, also known as the buyers agent
a phrase used to mean the buyer is expected to do their due diligence when purchasing property
caveat emptor - meaning "let the buyer beware"
this is anyone who has an agency relationship with a license holder
client
a party to the transaction with whom the license holder does not have an agency relationship
customer
an official document that shows the owner has the legal title to the property
deed
Why is the sales contract often the most important document in a real estate transaction?
it establishes the details of the agreement between the buyer and seller and identifies their legal rights and obligations
As a listing agent, why is it important that you have the seller provide a legal description?
it insures that you market the right property, & ensures the deed has a legal description when its conveyed.
When you see a capitalized word in a contract, the contract writer is indicating what?
it is indicating that the capitalized term has a specific definition - To see the term's specific definition for the contract, look for where the capitalized term first appeared in the contract. It will often appear in quotation marks there
As an agent representing a buyer, why would you want to advocate for a long option period?
it's important because the buyer needs to hire an inspector, and do any other test they feel necessary before the option period is up. -if any issues comes up during the inspection, the buyer will need time to either attempt to negotiate an extension on the option period or cancel the transaction
This clause gives authority to this contract, only this contract, and only what is written within this contract.
modification and assignment clause
The mortgage lender hasn't been able to turn in final paperwork because the buyer has been late with their documents. Can the closing date be extended?
no - because this is the buyer's fault, the closing date cannot be extended
This gives on party the right to perform a non-obligatory action within a time period (i.e. terminating a contract or the right to refusal).
option
time during which buyers have the most leverage to make the contract "right
option period
What is the purpose of a purchase agreement?
purchase agreements exist to facilitate a sale of property.
This is a clause that should be included in the purchase agreement that should state the purchase price. This clause may also specify the method of payment
purchase price clause
a clause states that even after closing, certain things will still be required or remain true.
survival clause
T/F - Georgia law states that a license holder may complete a contract form that has been prepared by legal counsel by filling out the blanks provided
t
T/F - The "as is" clause is based somewhat on caveat emptor. The only difference is that the seller should also beware that they are disclosing all known defects in the property.
t
T/F - 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 judgement to another client
t
T/F - the purchase agreement will outline commission information (i.e. who pays commission, who receives commission, commission splits, etc)
t
t/f - the estimates disclosure states that the closing date can be extended if the buyer has not yet received estimates or disclosures that they need in order to close
t
This is a clause in the sales contract that states that the seller will transfer any relevant warranties or contracts to the buyer
warranties transfer clause
What is the point of the due diligence period?
- it is for the buyer to be 100% sure that they want to go through with the purchase
What does the actual earnest money clause outline?
- it will give details about the earnest money (how it will be paid & when) - how the earnest money will be applied - in what scenarios the buyer gets the money back
What if the pristine, lovely property that the buyer has been promised isn't delivered to them in that condition (i.e. there is trash everywhere)? is there anything in the sales contract that outlines this situation?
- yes - there will typically be a risk of damage to property clause included in the purchase agreement. The only exception to this is if it is stated in the purchase agreement
How does Georgia deal with sales contracts?
-Georgia does not promulgate contracts. This means there is no standard sales contract that all real estate transactions must use. Often, a sales contract is prepared based on local customs and practices, so it's important for a real estate agent to be familiar with how contracts are used in the market in which they are doing business
What does the closing attorney clause state that makes it clear that the closing attorney represents the mortgage lender?
-The buyer can choose their closing attorney, but if the lender rejects that choice, the buyer must pick another closing attorney whom the lender does find acceptable. -The closing attorney will represent the lender in any transaction where the buyer is getting financing. - If the buyer does not get a loan, the closing attorney represents the buyer.
How should earnest money be handeled?
-earnest money should not be deposited before the offer is fully accepted - earnest money is to be held in a special trust or escrow account
What is the purpose of the closing attorney clause?
-it gives the name of the closing attorney - it makes it clear that the closing attorney represents the mortgage lender
What is the purpose of the phrase "time is of the essence" being included in a purchase agreement
-this phrase communicates to parties of a contract that they must perform their contractual duties by a specific date and time in order to avoid a breach of contract
Manderlay Mansion was built in 1975. It is being sold to Rebecca. What is TRUE? a. the mansion will not be subject to a due diligence period b. rebecca should ask for the property to be sold "as is" c. the seller will be required to pay the earnest money d. a lead-based paint disclosure should accompany the sales contract
D
This clause mandates that both parties act in a cooperative and timely fashion.
Duty to cooperate
In Georgia, you can use the rectangular survey method to write a legal description
F - Georgia does not use the rectangular survey method. you would need to use metes & bounds or the recorded plat
T/F - a purchase agreement does not need to have a clause identifying the property
F - Purchase agreements exist to facilitate a sale of property. So, every good purchase agreement needs to have a clause that properly identifies what is actually being sold.
T/F - a sales contract will always include a "time is of the essence clause"
F - a contract COULD include the phrase Time is of the essence. but does not have to
T/F - only five amendments can be made during the option period
F - there is no limit to the umber of amendments that a contract can have
What clause would this most likely be? "The following shall survive the closing agreement: (1) the obligation of a party to pay a real estate commission (2) any warranty of title (3) the section on condemnation
Survival of agreement clause
T/F - Any good purchase agreement will include a clause making it explicit that buyers and sellers need to rely on relevant experts for things like inspections, appraisals, and mortgages
T
T/F - Notice that the closing date and transfer of possession can be the same date, but they don't have to be. For instance, this clause could put the closing date as May 3rd and the transfer of possession as May 6th.
T
T/F - The earnest money can also be disbursed if the holder makes a "reasonable interpretation" of the agreement. 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.
T
T/F - 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
T
T/F - Until the delivery of the notice of acceptance, the buyer has the right to rescind their offer.
T
T/F - if a home was build before 1978, the sales contract should include a lead based paint clause
T
T/F - in an interpleader action/lawsuit, legal expenses are paid from the earnest money. Whoever loses must pay the winner's court fees
T
T/F - title warranty or promise) is that the title is good and marketable EXCEPT FOR any of those listed issues (zoning, easements, condominium rules, leases, and other encumbrances specified in the contract)
T
T/F - unlike other types of insurance that protect against future events, a title policy insures against problems that occurred before the time of purchase buy are discovered after closing
T
T/F - the closing date can be extended if the buyer's mortgage lender or the closing attorney has not finished their task by closing
T - as long as the buyer isn't to blame for the delay
T/F - 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
T - because some things survive in the purchase agreement, even after closing.
T/F- In Georgia, using the street address is not enough to be a legal descritpion
T - the address is actually looked at as an informal way of describing land
T/F - a broker can be authorized to accept notice for a client
T - there is typically a clause in the purchase agreement that states the broker can accept notice for a client
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 the seller of the damage, can take the amount of time specified in the contract to decide if they want to continue with the purchase
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 time, then the contract is null and void and a new one will have to be created.
This just means that there does not have to be one contract with everyone's signatures. Maybe the buyer and seller, for whatever reason, can't be in the same place at the same time for signing. The buyer and their agent can sign one copy of the contract. The seller and their agent can sign another. These different "counterparts" still equal one contract
The governing law and interpretation clause - this is the "multiple counterparts" that is covered in this clause
What is a good practice when choosing a closing date?
When choosing a closing date, it is important to make sure there is a proper amount of time allowed for performance (the fulfillment of contractual obligations).
During the inspection, a buyer finds out that there is a cemetery on their road. They would like to back out of the contract. do they have the right to do so?
Yes - during the due diligence period, they are allowed to back out for any reason
A license holder works for a brokerage that represents both buyer & seller; this license holder provides a limited range of fiduciary duties to both
dual agent
Funds paid to confirm or commit to a contract
earnest money
T/F - if a seller does not accept an offer, the offer will stand until it is rejected.
f - sales contracts have a time limit clause. if the offer is not responded to by the specified time, the offer will expire
t/f - the standard earnest money amount is 20% of the purchase price
f - the standard amount of earnest money is 1%
When might a seller decline earnest money?
if they want to reserve the right to sue the buyer for defaulting - Earnest money counts as full settlement of all claims
Where in the purchase agreement would you find information about how much of the purchase price is going to be covered by the down payment, & earnest money deposit?
in the purchase price clause in the purchase agreement
this is when the party who has accepted an offer or counteroffer to buy or sell has communicated acceptance of that offer to the party who made it AND has delivered it properly according to the Notices section.
the binding agreement date
What does the title examination clause do for a buyer?
the buyer can examine the title evidence, get a survey of the property, and give the seller a list of title objections any time before closing. if the seller cannot address the buyer's title objections by closing (unless an extension was granted), the buyer can terminate the contract without penalty through written notice
A title search revealed that a seller had unpaid property taxes and that a neighbor had a claim to part of the property. The seller quickly paid the taxes - he had no idea they were unpaid! - but realized it would take longer to resolve things with the neighbor, as he also did not know about the neighbor's claim. What can the buyer & seller do in this situation?
the buyer could back out of the contract with no issues, or the buyer & seller could agree to extend the closing date so that the seller could have a little extra time to resolve things
A clause included in the Purchase agreement that specifies the closing date and when possession of the property transfers to the buyer
the closing & possession clause
a listing broker represents....
the seller
What is an interpleader action or lawsuit?
this happens if there is an earnest money dispute which can't be resolved. The holder can get the court to decide who gets the money. This is called an interpleader action or lawsuit
What is an option payment?
this is when the buyer gives the seller a specified amount of money for giving them the option to terminate the agreement during the due diligence period. This money is non refundable
What would be included in the sales contract in the event property is being coveyed "as is'
this would mean there is no due diligence period, and an "as is" clause would be included in the sales contract.
an abstract concept that includes someone's ownership rights to a specific piece of real property
title
This clause in a purchase agreement that spells out the buyer's right to make sure the title is clean.
title examination
This protects lenders (and buyers, depending on the policy) from financial losses related to title issues
title insurance
T/F - 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.
true
t/f - A sales contract can also be called a purchase agreement, purchase contract, or purchase and sale agreement
true
T/F - the closing date outlined in the purchase agreement can be extended if the seller cannot satisify valid title objections
true - if the objection can be satisficed through payment or bonds, & don't prevent the title from being good & marketable