Chapter 11: The real estate sale agreement

condition subsequent

Condition that discharges an existing duty.

Oil tank inspection:

In order for the buyer to become affirmatively obligated to perform, an oil tank inspection may occur and the buyer must be satisfied with the results. Once these events have occurred, the buyer's obligation to perform ripens into an affirmative contract duty.

23. Selection of Service Providers

Inform buyer/seller referral of service by licensed does not guarantee performance of those providers. This section advises buyers/ sellers their right to select any service provider of their choice.

contingency

An event that may occur, a possibility.

Condition

An event, not certain to occur, unless it's non-occurrence is excused, before performance under a contract becomes due.

17. Prorations of Property Taxes and Other Items

Set forth the terms sounder which all applicable prorations shall be handled.

5. Addenda and Advisories

Situations where more information is required, additional addenda may be attached to the purchase and sale agreement. These addenda may relates to this offer being a back-up offer, whether either party has to go to a court of law to obtain approval of sale, the presence of an on-site septic system, and more.

13. Title and Vesting

Provides preliminary title report: requires that marketable title be conveyed by grant deed or assignment of seller's interest where applicable; requires disclosures of any other matter affecting title whether of record or not; and designated that buyers will receive a CLTA/ALTA owner's title insurance policy, with the instruction that if buyer chooses any further title coverage or endorsement, buyer will pay for any increase in cost.

practice of law:

Tax advice, rendering tax options on the tax implications of a 1031 exchange, counsel as to the legal meaning of legal documents or phrases within the document, rendering advice to how title should be taken, and advice that affects legal rights and duties.

Waiver

The act of voluntarily giving up or surrendering a right contained within the contract. It is a unilateral act with legal consequences.

18. Broker Compensation

The seller/buyer or both will agree to pay compensation to the broker. Section B: the roles of the brokers in the real estate transaction. It's purpose is to educate the parties as to the limitations of the brokers' role.

32. Acceptance of Offer

All parties in title must sign the acceptance or the acceptance will not be effective. The seller warrants the authority to execute the agreement, agreed to the terms of the agreement, confirms the agency relationships, confirms having read the agreement in full and acknowledges receipt of the copy of the agreement, and authorizes the broker to deliver a signed copy to buyer. The buyer will then date and initial receipt of the agreement with seller's acceptance. The contract specifies the agreement becomes binding when a copy of the signed acceptance is personally received by buyer or buyer's agent whether or not confirmed above; however, as previously stated, initialed confirmation as above; as previously stated, initialed confirmation of receipt by buyer should always be obtained. If the seller is making a counter offer, the boxes are checked indicating of a counter offer, by separate document, and is attached to the agreement and is presented to buyer.

30. Definitions

Definitions of terms of the agreement

8. Items included and excluded

A. Puts buyer and seller on notice that anything in the MLS listed as included or excluded will not apply unless reiterated. B. 1-6 sets forth all of the items to be included in the sale and provides additional space for items not stated, but to be included. C. Provides space to set forth any items excluded from sale.

27. Equal Housing Opportunity

Affirms transaction as compliance with all state and federal fair housing rules and regulations.

4. Sale of buyer's property

A. The sale is not contingent upon the sale of any property owned by the buyer. B. Contingency exists and references the contingency addendum that is to be attached as part of the agreement.

Important contingencies relating to a real estate transaction developed by REALTORS:

Buyer and property qualifying for financing, seller providing marketable title, professional inspection, lead-based paint disclosure and inspection, oil tank inspection contingency, review and approval of CC&R (conditions, covenants, and Restrictions of a homeowner's association)

6. Other terms

Entering transaction terms not pre-printed in the form.

14. Time periods; Removal of Contingencies; Cancellation Rights

It further delineates the rights and responsibilities of the seller in the event the buyer fails to perform as specified in the contract. All contingencies contained within the contract are not self-removing unless otherwise agreed to. Each contingency requires a written response by the buyer to remove the contingency or cancel the transaction and written cancellation by the seller giving the buyer a notice to perform within a specified time prior to cancellation. The dates and terms should never be taken lightly or presented to a client as "flexible." They are absolute, unless otherwise agreed to in writing by all parties to the transaction. Any release of funds requires the signature of all parties to the transaction, judicial decision, or arbitration award. A party is subject to a civil penalty of up to $1,000 for refusing to sign the release of no good faith dispute exists as to who is entitled to the deposit funds.

Condition Concurrent

Performance by both parties must be simultaneous.

Contingency relating to obtaining a land use zone change:

Require a long period of time such as nine months to one year.

Contingency relating to a home inspection:

Require a short period, such as five to ten business days.

condition precedent

The condition is a contingency that must occur before it triggers or ripens a contract duty.

2. Agency

The relationship between the licensees and their principals. Reminds licensees of their required agency disclosures and confirms the names of the licensees who are acting as the agent of the buyer, the agent of the seller or both as the buyer and seller.

16. Repairs

The guidelines for repairs to be made by seller prior to final verification of condition including, who shall make the repairs, how they shall be made, and requires the seller to provide the buyer with receipts from repairs made by others as well as a statement and date of any repairs performed by the seller.

20. Joint Escrow Instructions to Escrow Holder

The joint instructions of buyer and seller to the escrow holder in the transaction and further defines the roles and duties of the broker and parties to the transaction.

31. Expiration of Offer

The time within which the offer is open to the seller to accept as well as the dated signatures of the buyer; confirming the offer to purchase under the terms represented in the offer.

Ripening:

To close the transaction was qualified by the events that needed to occur. If the buyer does not perform, there is a breach of contract.

19. Representative Capacity

When either buyer or seller is represented by another party, an appropriate addendum should be attached to the purchase and sale agreement. This could be a representative of a corporation who is acting as the seller or buyer, or someone who has been granted the power of attorney from one of the parties. Addendum will also outline proof that the person has been granted authorization to act for a third party.

24. Multiple Listing Service

Authorized and directs brokers to report the sale as pending to MLS, upon closing, report the terms of the transaction as disseminated by the MLS to person/entities authorized to use the information on approved terms.

Courts generally categorized satisfaction in two ways:

1. Satisfaction based on the "taste, personal fancy, or personal judgment of a party to the contract. 2. Satisfaction based on an objective, reasonable person standard.

Buyer offer's to the seller, sell has three options:

1. Sign the purchaser's offer as written 2. Counter the purchaser's offer by changing and/or altering any terms of the offer. 3. Reject the off outright.

What two event must happen before the buyer becomes affirmatively obligated?

1. The buyer must personally qualify for the loan. 2. The property must qualify for the loan.

Three things can happen if the contingency is not satisfied?

1. Transaction will become void. The condition in question was not met by a certain date the transaction is cancelled. Licensee should try to avoid this result. Keep the transaction together, remaining two alternatives to cancellation are preferred. 2. Contingency should disappear as if it were satisfied. The result of the condition is satisfied and the buyer's duty to perform ripens into an affirmative obligation to close the transaction. 3. Agreement should be re-defined. A contingency is not removed, a mechanism should be in replace to resolve the problem raised by the non-removal. The buyer does not approve the inspection report, and does not remove the inspection contingency. The real estate sale agreement would have been drafted with a specific agreed upon amount that would have to be paid by the seller for repairs, with any amounts exceeding figure to be split equally between the buyer and seller. A predetermined method would have been in place to keep the transaction together even though the buyer was not satisfied with the inspection report.

9. Closing and Occupancy

A. Buyer declares whether they are to occupy the property as a primary residence or not. This declaration affects both the lending process and the necessary disclosures that must accompany the transaction. B. Set forth the date and time of delivery of occupancy to buyer and includes a caveat in case transfer of title and possession don't occur at the same time. If occupancy does not occur at the same time, a written agreement and consultation of insurance and legal professionals is recommended. C. If the seller is going to remain at the property after the close of escrow, this point recommends that the buyer and seller meet with legal counsel. It also recommends that the parties sign an addendum depending on whether the seller will remain in possession for less than 30 days or for more than 30 days after the close of escrow. D. If property is tenant-occupied (e.g., renters) set forth tenant vacation date with respect to the close of escrow if applicable . Further provides if the tenant is to remain in possession of the property or, if the occupancy is to be determined at a later date, places an occupancy agreement as a contingency on the sale. E. Seller assigns any assignable warranty rights to buyer for any items included in the sale and agrees to provide copies at closing. F. Seller agrees to provide the buyer with all keys, etc. to access and/or operate any included areas of the property and/or related systems. It further advises the buyer that any homeowner's association facility access keys, if applicable, may require a deposit.

3. Finance terms

A. Initial deposit- earnest money deposit amount is specified as well as whom the deposit is submitted, if not the agent submitted the offer; the form of earnest money tendered such as a check, promissory note etc.; an agreement to hold the earnest money uncashed until acceptance, after which deposit must be made within three business days or any other time frame is to be inserted in the blank provided; whether the earnest money will be held by the escrow holder or held in the broker's trust account. This paragraph is designed to disclose and obtain the agreement of all parties to the transaction as to the receipt and location of trust funds, and is part of the fiduciary duty of accounting. B. Increased deposit- if any further earnest money deposit is to be rendered, the amount and time are specified here. C. All cash offer- the purchase to be an all-cash purchase and requires time within which the buyer must provide the seller with written verification that sufficient cash funds are available to close the transaction. D. Loans- the amount of the loan, if any, is entered. Part 1 sets forth the terms of a first loan, if applicable, as those specifically desired by the buyer and limits and places a condition on the financing terms. Part 2 if there is a second loan involved in the transaction. Part 3 designated the time frame for the buyer to submit a list of repair to the seller for VA or FHA loans. When new financing is involved, the maximum interest rate the buyer is willing to pay should be stated, so that if interest rates increase dramatically, the buyer would not have to proceed with the purchase. E. Additional Financing Terms- if any additional, or other type of financing, is to govern the transaction, it is specified herein and is to be accompanied by the appropriate forms. F. Balance of Down Payment or Purchase Price- this amount represents the price offered, less any deposits given and the amount of any loans, seller financing, or assumptions, and represents the amount the buyer will bring to escrow within sufficient time to close the escrow as agreed upon. This amount does not include loan costs or other closing costs which will be in addition to the amount stated here. G. Purchase price(total)- the composite of A-F will be the purchase price. H. Verification of Down Payment and closing costs- set the time frame for the buyer(or buyer's lender) to send verification of the buyer's down payment to the seller. I. Appraisal Contingency and Removal- addresses the issue of the property appraising for the purchase price and whether that will be a contingency upon the sale. If so, it sets forth the time within which the contingency must be removed. J. Loan terms- provides the time within which buyer must make written application for the loan and provide the seller with lender letter of pre-qualification or pre-approval. Checking the box on part 4 removes obtaining a loan as a contingency. If a buyer subsequently relies on the loan to close that does not materialize, most likely the buyer will lose the earnest money deposit. K. Buyer stated Financing- seller is not required to cooperate with the buyer if the buyer decided to seek alternative funding than what is stated on the purchase and sale agreement. The buyer is still required to try and obtain loan funding as specified on the agreement if the buyer is trying to also obtain different funding.

7. Allocation of Costs

A. Inspections, reports, and certificates- set forth who will pay for inspections of wood pests and organisms, septic/private sewage disposal system, wells, and natural hazard zone disclosure report. B. Government Requirements and Retrofit- 1. Includes designating responsible party for smoke detector installation, carbon monoxide detector, and/or water heater bracing if required by law and requires seller prior to closing to provide buyer proof of compliance. 2.Designated responsible party for any other minimum mandatory retrofit standards, inspection, and reports, if required as a condition of closing under law. C. Escrow and title- 1.Designates who shall pay escrow fee and holder. 2.Specifies who shall pay owner title insurance and who shall issue the policy and designates the buyer as responsible for the lender's policy unless otherwise agreed in writing. D. Other costs- sets forth responsible party for county transfer fee, city transfer tax fee, HOA transfer fee, HOA doc prep fee, private transfer fee, and home warranty payer information. Line (8-9) are blank for additional interested costs if application.

11. Conditions of Property

A. Requires the seller to disclose all material facts and defects affecting the property, including any insurance claims made on the property over the past five years, as well as all other disclosures required by law. B. Advises the buyer to conduct thorough investigation of the entire property. C. Gives the seller notice of the buyer's right to inspect the property and provides for cancellation and/or further negotiation with respect to repair requests or other action based upon those inspections.

12. Buyer Investigation of Property and Matters Affecting Property

A. Set forth the inspection process as a contingency upon the sale; the time period for completion; prohibits the buyer from eliciting government inspection, unless required by law, without the seller's prior written consent. B. Provides that buyer shall, upon completion of all inspections, either remove the contingency or cancel the agreement. This is not a self-removing contingency or cancel the agreement. This is not a self-removing contingency wherein silence with ratify the contract. Further provides that complete copies of all inspection reports be given to seller, at no cost to seller, directs the seller to provide access for all inspections, and further directs seller to retain all utilities in working order until buyer possession of the property. C. Requires the seller to have working utility services during the inspection D. The buyer will be required to repair any damages to the property that occur because of the property inspection, and protects the seller from any liability due to injuries that occurred during the inspection.

10. Statutory Disclosures and Cancellation Rights

A. Statutory Disclosures- (1-7) to be delivered by the seller to buyer: Lead-based paint disclosure, Transfer Disclosure Statement (TDS), Natural Hazard Disclosure Statement (NHD), notice of knowledge or release of illegal controlled substance, notice of special tax and/or assessments or Melli-Roos obligations, and if seller has actual knowledge of any industrial or military ordnance location disclosure. B. Natural and Environmental Hazard- Disclosure requirements including earthquake guides, special hazard zones relating to earthquakes, floods, fires, seismic hazard zones, etc. c. Withholding Taxes- Requires the seller to give a disclosure to comply with withholding tax requirements. D. Megan's Law Database Disclosure- Directs the buyer to informational sources of registered sex offenders. E. Gas and Hazardous Liquid Transmission Pipelines- informational statement to notify the buyer where he or she can find information about the location of pipelines near the property. F. Condominium or Planned Development Disclosure- if not disclosed by the seller at time of acceptance, this section gets time limits to disclose if property is condo, in a PUD, or other common interest subdivision. Set time limits within which seller must provide buyer with HOA documents required by law, notice of pending claim or litigation against the HOA, designated parking and storage space, 12 months HOA minutes, HOA contact information, and any other HOA disclosures in the seller's possession.

1. Offer:

A. The name of buyer to be identified, the name placed here is the name in which title is to be taken. B. Property description: assessor's parcel number, county, and city will be inserted to identify the property that is subject to the offer. C. Total offered purchase price of the property expressed in words and in dollars. D. Close of escrow- expressed as a specific number of days following acceptance by the seller. As per the "time is of the essence," the transaction must close by the date/time contained in this subsection unless modified by a written agreement and signed by all parties to the transaction. Failure to modify the date in writing will render the contract void if not closed by the date specified or further modified. Escrow cannot close on a legal holiday, Saturday, or Sunday. E. The purchase and sale agreement- contract between the buyer and seller, not a contract between the listing real estate broker and the buying real estate broker.

25. Attorney Fees

Attorney fees to prevailing party in the event of any action proceeding or arbitration arising from the real estate agreement.

26. Assignment

Confirms the cannot assign his/her obligations in the contract to another without written approval from the seller.

15. Final Verification of Condition

Confirms the right of the buyer to have a final inspection of the property prior to closing. This right as a contingency to the sale and limits it to a confirmation of the condition and completion of any agreed work to be performed by the seller.

Additional contingencies that may arise in a common real estate transaction are as follows:

Sale and the closing of a buyer's property, Environmental hazard inspection contingency, inspection of books and records, review of leases/rental agreements, review of rent rolls, review of property service contracts, review of prior building permits affecting property, review of past uses of property, site studies, zone of use changes, approval of site and building plans, topographical surveys, soil testing

Sale agreement:

The buyer may have the property inspected by a professional of buyer's choice. If the inspection report shows a material defective condition in the property, buyer may terminate the transaction by delivery to seller the written disapproval of the inspection report within seven business days for mutual acceptance hereof. If buyer does not disapprove of an inspection report in writing within the seven business days, buyer shall be deemed to have accepted the conditions of the property.

29. Time is of the essence; Entire Contract; Changes

The contract represents the terms as the final agreement of the parties, if any provision is held to be ineffective or invalid, the remaining provisions stand unaffected, and any change must be in writing and signed by all parties to the agreement. Time is of the essence- the performance dates contained in the agreement are finite.

22. Dispute Resolution

The resolve most disputes arising from the Real Estate Agreement is through (A) mediation and (B) arbitration. All parties involved in the transaction, including licensee's, are subject to these dispute resolution procedures. Once agreed to, parties are not permitted to use traditional litigation procedures. Agreement is voluntary, because certain legal rights are voluntarily being surrendered, DRE and REALTORS taken definite position on the need for licensees to have the client thoroughly read the arbitration clause prior to initialing it.

21. Remedies for Buyer's Breach of Contract

The seller's legal remedies for keeping all or part of the buyer's earnest money deposit in instances where the buyer backs out of the deal after acceptance. It requires that both the buyer and seller include their initials to confirm they understand this section.

28. Terms and Conditions of Offer

The terms requiring specific initialing are part of the agreement only if initialed by all parties; asserts the seller's right to continue marketing the property and accept offers prior to notification of acceptance; affirms buyers had read and acknowledges receipt of copy of offer at time of signing; buyer one again acknowledges and confirms agency relationships; sets forth buyer's liability to the broker in the event of buyer default; and finally, permits signing in counterparts to constitute the whole.

The standard Residential Purchase Agreement form (CAR Form RPA-CA)

When working with a purchaser, all of the following blanks should be filled in as the wishes and directions of the purchaser. The purchaser will sign the agreement, the licensee will give a copy of the offer to the purchaser. The offer will be presented to the seller or the agent in a timely manner.