Promulgated Forms
TREC Privalages
PAGE 24: trec can suspend or revoke a license if they learn that a license holder drew a deed, note, deed of trust, will or other written document that transferred of affected the title to or an interest in land
TREC
PAGE 24: trec established the broker lawyer committee to write the language in the residential contract forms to help agents avoid the unauthorized practice of law. after the language is written and approved by trec, the contracts are published, or promulgated, and agents are required to use them whenever possible
Trec promulgated contract forms
PAGE 24: trec has promulgated contract forms for most residential transactions: •one-to-four family •new home incomplete, •new home completed •unimproved property •farm and ranch contract •condominium resale contracts note: trec does not have contracts for commercial properties or the sale of co-ops
Offers and delivery methods
PAGE 25: an offer can be communicated by phone, fax, e-mail, letter, or hand delivery.
offers
PAGE 25: texas recognizes the doctrine of imputed notice which means delivering an offer, etc. to the agent is the same as delivering it to their client
Counteroffer
PAGE 27: A counteroffer is a rejection of the offer received from the offeror coupled with a new offer from the other party
The Offeree's Power of Acceptance
PAGE 27: the offeree has the power of acceptance and can either do nothing, accept, reject, or propose a counteroffer
The process of offer/ counteroffer
PAGE 28: The process of offer / counteroffer will continue until one of the parties accepts or grows weary and withdraws from the negotiations
Acceptance
PAGE 28: acceptance of an offer occurs when the accepting party makes no changes to the offer they received.
Multiple Offers
PAGE 28: all multiple offers must be presented, but the order in which that is done is up to the agent receiving all the offers
Parties signed and acceptance has been communicated
PAGE 29: the offer does not become a contract until all parties have signed it and the acceptance has been communicated. communication can also be known as notification.
The 1-4 Family Residential Contract
PAGE 35: the one to four family residential contract (resale) is not used for condominium sales, but it may be used for a townhouse.
Accessories
PAGE 36: Accessories are not permanently installed or built-in items; but, if any of them are present, they are still part of the property and are conveyed to the buyer at closing
Exclusions
PAGE 36: Exclusions are items the seller wants to keep and they must be listed in the contract language as an exclusion. a good example would be a dining room chandelier. exclusions must be removed "prior to delivery of possession" to the buyer
Sales Prices
PAGE 36: The sales price is the sum of the down payment and the loan amount(s), so the down payment is always the difference between the sales price and the loan amount
3rd Party Financing
PAGE 38: third party financing includes both government loans and conventional loans and the loan program being used by the buyer should be explained on the third party financing addendum. third party financing is the most commonly used type of financing, but it is not to be used for seller financing or an assumption of an existing loan.
Buyer Approval
PAGE 39: buyer approval is deemed to have been optained when the terms of the loan in the addendum are available and the buyer has satisfied all the lender's requirements regarding the buyer's assets, income and credit history
Assumption
PAGE 41: an assumption occurs when a buyer assumes and takes over the payments on a seller's existing mortgage
Seller may request release of liability
PAGE 42: the seller may request a release of liability on the assumption, but the lender does not have to approve it. if the release is not obtained, the seller and the buyer are both liable for repayment of the loan
2 Biggest concerns in doing an assumption
PAGE 42: the two biggest concerns in doing an assumption are the seller's ongoing liability for repayment of the loan and the time needed to process the buyer's application (75-90 days)
Buyer can't qualify for reg 3rd party financing
PAGE 44: if a buyer cannot qualify for regular third party financing, they may consider the possibility of asking the seller to carry the financing for them. on the seller financing addendum, the buyer authorizes any credit reporting agency to furnish copies of the buyer's credit reports to the seller at the buyer's expense, but it is up to the seller to approve them for the loan. the interest rate is negotiable between the seller and the buyer.
Time is of the essence for performance
PAGE 53: Please note that time is of the essence for performance under paragraph 5 for both the delivery of the earnest money, option fee and the notice of termination when an option fee is paid on time.
Earnest money
PAGE 53: earnest money must be delivered to the escrow agent within 3 days after the effective date of the contract. earnest money is not a requirement to have a valid contract so the dollar amount of earnest is always negotiable between the parties. it can be in the range of 1% of the purchase price. technically it is an upfront deposit paid by the buyer to show they are serious about completing the purchase.
Chapter 2 quiz: Which of the following correctly defines a counteroffer? a. A rejection of the original offer coupled with a new offer b. The party to whom the offer is made c. The moment when an offer is presumed to have been delivered to the principal when it is delivered by the agent d. The right to purchase leased property by matching or bettering any offer before the property will be sold to someone else
a. A rejection of the original offer coupled with a new offer
Chapter 4 Quiz: Paragraph 7D(1) indicates that the buyer: a. Accepts the property As-Is b. Has been advised of the presence of wetlands in the area c. Has not received the Seller's Disclosure Notice d. All of these
a. Accepts the property As-Is
Chapter 4 Quiz: _____ has promulgated nine exceptions to title insurance policies a. Texas Department of Insurance b. Texas Real Estate Commission c. Texas REALTORS® d. Consumer Financial Protection Bureau
a. Texas Department of Insurance
Chapter 6 Quiz: Which statement regarding earnest money is INCORRECT? a. There is no standard amount prescribed, but is often 1% of the sale price. b. In Texas, earnest money is set at 6% of the sale price. c. Earnest money is not a legal requirement of a contract. d. Earnest money is a deposit paid upfront by the Buyer to show seriousness in intent.
b. In Texas, earnest money is set at 6% of the sale price. (in texas earnest money is negotiable)
Chapter 5 Quiz: Buyer Dale defaulted on a sales contract when he failed to apply for financing within the time period specified in the document. As the injured party, Seller Ling can choose to accept Dale's earnest money as _____. a. Specific Performance b. Liquidated damages c. Monetary damages d. Mediation
b. Liquidated damages
Chapter 4 Quiz: The Seller's Disclosure Notice should be completed by _____. a. The agent b. The seller c. The buyer d. The title company
b. The seller
Chapter 2 quiz: John and Bev made an offer on Fernando's 3-bed, 2-bath home. When does that offer become a contract? a. When it is accepted b. When it is accepted and communicated c. At the closing table d. After closing and funding
b. When it is accepted and communicated
In order for a buyer to purchase a property using VA Guaranteed financing, the buyer must receive a(n) _____, which establishes the value of the property. a. Direct endorsement b. Adjustable-rate c. Certificate of Reasonable Value d. Loan commitment letter
c. Certificate of Reasonable Value
Chapter 5 Quiz: Failure to meet a contractual deadline is _____. a. Casualty loss b. Abstract c. Default d. Mediation
c. Default
Chapter 6 Quiz: All of the TREC-promulgated contracts were drafted with identical provisions to the _____. a. Farm and Ranch Contract b. Condominium Contract c. One to Four Family Residential Contract d. New Home Contract (Incomplete Construction)
c. One to Four Family Residential Contract
Chapter 5 Quiz: What is TRUE of the Special Provisions paragraph in the TREC-promulgated forms? a. License holders are to insert legal statements into the paragraph. b. License holders must insert statements regarding leases, addenda, or amendments into the paragraph. c. Only factual statements and business details of the transaction should be inserted into the paragraph. d. All of these statements are true.
c. Only factual statements and business details of the transaction should be inserted into the paragraph.
Chapter 2 quiz: Bertha, a law school dropout is a licensed real estate agent who wants to make sure that she is providing her buyers with the best representation possible, so she drafts an iron-clad purchase contract for them. Bertha's sponsoring broker is horrified because Bertha is guilty of _____. a. Mortgage Fraud b. Conspiracy c. Unauthorized Practice of Law d. Fair Housing Violations
c. Unauthorized Practice of Law
Chapter 1 quiz: Tammy is interested in Jolene's property but wants to research the zoning laws before purchas- ing. She has an agreement in which she paid a fee of $100 to keep the property available for a preset price for 30 days, during which time Jolene cannot sell the property to another. Tammy, however, can change her mind if she likes. What kind of agreement is this? a. Bilateral b. Oral c. Option d. Void
c. option
Property includes: a. Land b. Accessories c. Improvements d. All of these are collectively referred to as property
d. All of these are collectively referred to as property
Paragraph 4 of the TREC-promulgated contracts addresses the disclosure of _____ affecting the property. a. Real estate license holder relationships b. Property owners associations c. Rollback taxes d. Leases
d. Leases
Chapter 1 quiz: If a contract has been entered into with a person who has been judged to be incompetent, that contract is considered _____ because that person never had the capacity to enter into it. a. Executed b. Valid c. Voidable d. Void
d. Void
Closing warranty deed
page 79: at closing the seller will sign a general warranty deed to transfer title to the buyer
At closing the buyer
page 79: at closing, the buyer will pay the sales price in good funds which is defined to be a cashiers check or a wire transfer to the escrow agent.
Closings
page 79: closing is agreed upon by the parties to be on or before a certain date
Valid Contract
s invalid from the beginning and does not affect the parties.
The effective date of the contract
that date the contract executed the contract
termination option
PAGE 53: the termination option is paid directly to the escrow agent, or title company, along with the earnest money. it is not a requirement for the contract, but when agreed upon and paid within 3 days of the effective date, it gives the buyer the unrestrcted right to terminate within a negotiated number of days. this is typically when the buyer will do their inspections. any notice of termination must be in writing and delivered to the seller no later than 5:00 pm on the final day of the option period as determined by the effective date and # of option period days negotiated.
Termination that turns into default
PAGE 54: If the buyer gives a notice of termination no later than 5:00 pm on the final day of the option period, they are entitled to a refund of their earnest money, but the option fee is never refundable. at closing the option fee will automatically be credited or applied to the sales price.
Valid option
PAGE 54: to create a valid option: 1) the appropriate blanks in paragraph 5 (a. & b) must be filled in, 2) the option fee must have been paid within 3 days of the effective date of the contract, and 3) the option fee must have been delivered to the escrow agent.
The Standard Texas Title Insurance Policy
PAGE 55: A STANDARD TEXAS TITLE INSURANCE POLICY DOES NOT INSURE AGAINST BOUNDARY ISSUES BUT SOMETIMES A LENDER REQUIRES THAT THE LANGUAGE BE AMENDED TO JUST READ SHORTAGES IN AREA. AN ENDORSEMENT TO THE STANDARD POLICY IS DONE TO MAKE THAT CHANGE.
The Owners Title policy
PAGE 55: THE OWNER'S TITLE POLICY CAN BE PAID FOR BY EITHER THE BUYER OR THE SELLER
non acceptable existing survey
PAGE 56: IF THE EXISTING SURVEY IS NOT ACCEPTABLE TO EITHER THE BUYER'S LENDER OR THE TITLE COMPANY, A NEW SURVEY WILL BE OBTAINED AT EITHER THE BUYER'S OR SELLER'S EXPENSE AS NEGOTIATED IN THE CONTRACT.
Sellers existing survey
PAGE 56: WHEN USING A SELLER'S EXISTING SURVEY, THE SELLER HAS TO PROVIDE A COPY OF THE SURVEY AND A NOTARIZED T-47 AFFIDAVIT TO THE BUYER AND THE ESCROW AGENT WITHIN AN AGREED UPON NUMBER OF DAYS AFTER THE EFFECTIVE DATE OF THE CONTRACT.
Objections Paragraph
PAGE 57: The objections paragraph is where the agent would list activities the buyer intends to use the property for, other than residential use. if the survey, commitment or exception documents show defects or encumbrances to those uses or activities, the buyer can notify the seller within _____ days of their objection. if the seller cannot cure the objection within 15 days, the buyer can terminate or they can waive their objection and continue with the purchase.
Escrow Agent
PAGE 88: the escrow agent is not a party to the contract. they perform two primary functions: escrow services and issuance of title insurance. the title company representative will open title on the property once they get a copy of the signed contract. paragraph 18
Federal Tax Requirements
PAGE 89: the federal tax requirements for properties sold by a foreign seller requires the buyer to withhold money from the seller's proceeds for capital gains tax. a seller with no social security number or green card (work visa) is considered a foreign person. the title company typically assists the buyer in collecting this money and sending it to the internal revenue service. paragraph 20
Federal Tax requirements for properties sold by a foreign seller:
PAGE 89: the federal tax requirements for properties sold by a foreign seller requires the buyer to withhold money from the seller's proceeds for capital gains tax. a seller with no social security number or green card (work visa) is considered a foreign person. the title company typically assists the buyer in collecting this money and sending it to the internal revenue service. paragraph 20
Consult an attorney before signing
PAGE 90: the contract language encourages both parties to consult their attorneys before signing. paragraph 23
Broker Information Page
PAGE 92: the broker information page allows for two types of sales: cooperative sales and in-house sales. in a cooperative sale there are two different brokerage companies involved in the sale, one firm who listed the property and another firm who is selling it. in an in-house sale, there is only one brokerage involved and they are handling both sides of the transaction
Executory
A contract is "executory" from the effective date through closing.
Paragraph 7G:
AGE 64: PARAGRAPH 7.G., if buyer is concerned about environmental matters affecting the property, a trec promulgated environmental addendum is available.
Chapter 1 quiz: The five essential elements that must exist for a real estate sales contract to be considered val- id and enforceable are legal purpose, competent parties, mutual assent, consideration, and _____. a.Signature of witnesses b. In writing c. Acknowledgment by a notary d. Recording in the county clerk's office
B. In writing
Addenda
Contract is an attachment that adds; PAGE 15: if the language on the addendum contradicts the language in the contract form, the addendum prevails
Anoffer becomes a contract when notified
Effective date is the date the buyer was notified of acceptance.
Steps to a Binding Contract
OFFER, ACCEPTANCE, COMMUNICATION
Condominium Documents
PAGE 103: the legal description is handled differently, there are provisions for the seller to provide condo documents and a resale certificate to the buyer within a negotiated number of days. sometimes there could also be a right of first refusal by the condo association or a member of the association. the resale certificate and the condo documents are prepared by the condo association. the condo resale certificate should be no more than 3 months old when delivered to the buyer.
Paragraph 3B Residential Condos
PAGE 104: under the sum of all financing in paragraph 3b you insert only the amount financed
Paragraph 6 Provisions
PAGE 105: there is no provision in paragraph 6 for a survey on a condominium contract
Page 109
PAGE 109: seller is supposed to complete all repairs prior to closing. if they don't, the buyer can extend closing up to 5 days to give them time to finish the agreed upon repairs, or they can exercise remedies in the default paragraph PAGE 109: under the broker or sales agent disclosure, remember that texas requires us to disclose anytime we are a party to the contract or anytime we are representing our spouse, parents or children, etc.
Ernest Money
PAGE 11: earnest money is not a requirement for a valid contract.
FOUND IN THE ACRONYM C-O-L-I-C:
PAGE 11: elements to have a valid contract are competent parties, offer and acceptance, legal purpose, in writing and consideration. please note that acceptance can also be known as mutual consent. (page 11)
Farm and Ranch Improvements
PAGE 123: windmills, tanks, barns, etc. are considered farm and ranch improvements because they are permanently built-in items. trucks and tractors are personal property
Surface leases must be disclosed
PAGE 127: surface leases must be disclosed to the buyer, any written agreements must be given to the buyer and oral agreements must be stated in the contract. the title policy makes an exception to these leases.
Consideration
PAGE 12: consideration is something of value given in exchange for a promise. it does not have to be money and it is definitely not the earnest money because earnest money is not a requirement to have a valid contract
Rollback taxes
PAGE 132-133: the biggest impact of rollback taxes occur whenever a developer buys farmland and then transforms it into a residential or commercial development. the rollback tax is imposed by the county whenever a property under an agricultural exemption has its usage changed so it no longer qualifies for the lower tax value. the buyer may be looking at 3 years of non-agricultural taxes plus penalty and interest.
Unilateral Contract
PAGE 13: unilateral contracts lack mutuality and an option contract is a good example of a unilateral contract. in this contract the seller has given the buyer the right to purchase the property at a preset price and terms for a period of time. the buyer has paid the seller some consideration up front, usually in the form of an option fee.
Amendments to contracts must be supported by consideration from both parties.
PAGE 14: amendments contracts are referred to as executory contracts once they have been signed by all parties and it has been communicated to all parties. it will be called an executory contract until it goes to closing where it should be finalized or fully executed.
Admendments= Changes
PAGE 15: amendments are used to change some of the original provisions in a contract form. common examples are: to change the sales price, change the closing date, request repairs or to remove some contingency
Assignment
PAGE 15: an assignment is a total transfer of the buyer's rights and liabilities under a contract. contracts for personal services are not assignable, such as the listing agreement or the buyer representation agreement.
Reasons for termination
PAGE 16: There are several ways contracts can be terminated and an example of partial performance is when the landlord allows a tenant to terminate a lease early without holding them liable for the balance of the term. an example of impossibility would be death of one of the parties, but it would not include death of the sales agent assisting parties in the transaction.
Prohibited uses:
PAGE 57: examples of some types of prohibited uses could be operating a day care center, parking an rv in view of the street, putting in a swimming pool in the back yard, etc. if the property is located in a certificated service area of a utility service provider, there may be special costs the buyer will have to pay to get water and sewer services, as well as a delay in reveiving those services to give time to construct the delivery lines to the property. utility service providers are businesses licensed by the texas commission on environmental quality and primarily operate in rural areas. an addendum is used to notify the buyer of this possibility.
Prospective Buyers
PAGE 58: there is a notice to prospective buyer which can be used to notify the buyer that they should either get an abstract of title and have it examined by an attorney or optain a policy of title insurance. trec requires license holders to give this advice in writing to all buyers. if using the trec promulgated contracts, the notice is already printed in the contract form and in the buyer representation agreement, so the separate notice is not necessary.
Utility service providers
PAGE 59: utility service providers are business licensed by the texas commission on environmental quality.
PID(public Improvement District)
PAGE 60: A public improvement district (pid) is a special taxing entity that was created at the request of the property owners in a given area. in order to create the pid, a vote of at least 51% of the property owners affected by the new tax is required. buyers purchasing property in a pid must be provided notice of the extra tax that is levied by either the county or the city who made the requested improvements to the area.
t-47 Affidavit
PAGE 61: When using the seller's existing survey, the seller is given a number of days to deliver the survey and a t-47 affidavit to the buyer and the title company. paragraph 6.c.1.
Prospective buyers complies with:
PAGE 62: notice to prospective buyer complies with the provision of the texas real estate license act that requires that license holders advise buyers to have an abstract examined or obtain title insurance.
Paragraph 7.F
PAGE 64: as a rule, seller is to complete any agreed repairrs and treatments prior to the closing date. paragraph 7.f.
Lenders required repairs exceed 5% of the sales price:
PAGE 64: if the lender-required repairs exceed 5% of the sales price, the buyer may terminate the contract and receive a refund of earneset money. seller must complete all agreed repairs prior to closing, or the closing date may be extended up to five days to complete repairs.
When a buyer concerned about toxic substances?
PAGE 64: when a buyer is concerned about toxic substances, etc. they should attach the environmental assessment, wetlands and threatened or endangered species addendum that allows them to do testing for any of these situations
Lead based paint
PAGE 71: for properties built before 1978, sellers must provide buyers with a lead based paint disclosure form required by federal law. the form discloses any knowledge the seller may have, gives the buyer copies of any reports on lead the seller may have, allows the buyer to waive a risk assessment for lead or to conduct one with 10 days after the effective date of the contract as well as terminate within 14 days if they discover dangerous levels of lead. the buyer must acknowledge receipt of any reports from the seller and also receipt of the federal booklet "protect your family from lead in your home"
environmental Addendum
PAGE 72: the environmental addendum should be used anytime the buyer is concerned about toxic substances on the property or the existence of threatened/endangered species or wetlands on the property. the buyer can terminate if the reports they receive show conditions that adversely affect their intended use of the property
RSC-3
PAGE 73: the rsc-3 form should not be attached to the contract as an addendum, but a copy of it should be retained in the records of the transaction after the buyer and seller have signed it. since both parties sign this form, if either company has a relationship with an rsc company, then both companies should use the form. take a copy of the form with you to closing so you make sure to get it signed.
TREC Rsc-2 form
PAGE 73: the trec form rsc-2 must be provided to buyers and sellers no later than closing to disclose that the brokerage has a relationship with the residential service company chosen by the buyer to provide the home warranty/residential service plan. any fee being received by the broker must be disclosed on the form as well as what the broker did to earn the fee.
Typical Expenses payable by the seller at closing:
PAGE 85: TYPICAL EXPENSES PAYABLE BY THE SELLER AT CLOSING INCLUDE PAYOFF AND RELEASES OF ANY LIENS AGAINST THE PROPERTY, RECORDING FEES, TAX CERTIFICATES AND PREPARATION OF THE DEED
Default Occurs when:
PAGE 86-87: a default occurs when either party to the contract fails to do what they promised. when that occurs, there is a breach of contract and the other party is injured and will therefore have remedies as stated in the contract. paragraph 15
Proration
PAGE 86: proration is the process of dividing up the ongoing expenses of ownership between the seller nd the buyer such as property taxes, hoa fees, rents, etc. they are usually prorated through the date of closing with the seller paying for that day. paragraph 13
Policy of the state of Texas is to mediate disputes before suing each other: (MEDIATION)
PAGE 87: the policy of the state of texas is to mediate disputes before suing each other. the cost of the mediation is shared between the seller and the buyer, but it does not waive either party's rght to sue the other party if they are unhappy with results of the mediation. paragraph 16
Earnest money
PAGE 88: at closing, the earnest money is applied first to the buyer's down payment and anything left over is applied to buyer's other expenses. any overage is refunded. paragraph 18
Escrow services happen whenever:
PAGE 88: escrow services happen whenever something of value, such as a deed or earnest money, is put into the custody of a third party to be retained by them until typically closing of the sale. paragraph 18
Offeror and offeree
The party making the offer is called the offeror. The party to whom the offer is made is the offeree. PAGE 27: "OFFEROR" IS THE PERSON MAKING THE OFFER AND THE "OFFEREE" IS THE PERSON THE OFFER GOES TO