The Sales Contract

Client

Anyone who has an agency relationship with a license holder

ministerial act

A ministerial act is an act performed in a prescribed manner and in obedience to a legal authority, without regard to one's own judgment or discretion.

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.

Buyer's Closing Costs

The buyer's closing costs include 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.

deed

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

Legal Description

A legal description is a description of a property that is distinct and precise enough to distinguish it from all other properties. Having a legal description ensures that you: Market the right property Ensure the deed has a legal description when it's conveyed

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

option

An 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.

Designated Agent

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

Listing Broker

Represents the seller

Repairs and Replacements

Say that during the due diligence period, the buyer asks for leaks to the air conditioning system to be fixed. Under this clause, the repairs would need to be done before closing.

Selling Broker

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

Personal

This last category is a bit vaguer. This is a college roommate, a friend from high school, a former fling, etc.

Property Identification

You need to know what property the contract is for! So here you provide the address and Tax Parcel ID of the property being sold.

Selling Broker

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

Closing Attorney

Specifically, this paragraph: Gives the name of the closing attorney Makes it clear that the closing attorney represents the mortgage lender States that: 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.

Right to Inspect Property

The buyer (and/or their representatives) can enter the property after giving the seller notice and wander all about to inspect, examine, appraise, and survey the property. The seller has to have all relevant systems on (utilities, equipment) for the buyer to test. If the buyer wants to test the washing machine, or the alarm system, or to make sure the property doesn't have any rodent or roach friends, now is the time. This clause also clears the seller from any harm if the buyer hurts themselves during the inspections. The buyer also needs to leave the property as they left it.

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. Also, the seller pays the closing attorney for preparing documents that "cure" the title of any defects (more on that later in the course), and for any costs that result from the seller not attending the closing in person.

Duty to Inspect Neighborhood

The buyer not only needs to inspect the property, but also the neighborhood. Is there anything they find objectionable? For example, a buyer might not want to live next to a cemetery. The contract also points the buyer to a resource to learn if any sex offenders live nearby.

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.

No Agency Relationship

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.

Title Examination

This clause spells out the buyer's right to make sure the title is lookin' good. 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 has been granted), the buyer can terminate the contract without penalty through written notice.

Holder's Protections

This clause states that the holder can't be sued around their disbursement decisions.

Business

This is anyone you (or your partner) have done business with (including past clients), or are currently doing business with. This can be real estate business, a separate or past career, or any current or past side hustle.

Purchase and Sale

This is just the shortened agreement at its most basic. this clause states that the buyer is buying the property and the seller is selling the property under the conditions in the contract.

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.

Familial

This is your child, step-sister, cousin, partner, etc.

Timeline of Earnest Money Deposit

This section gives a timeline. 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).

Buyer's Entitlement to Earnest Money

This section spells out the scenarios in which the buyer gets their earnest money back. Keep in mind that these scenarios will vary contract by contract. Here, the buyer gets the earnest money back under any of these conditions: The parties don't enter into a binding agreement. The contract does not satisfy a contingency. The contract terminates because the seller defaulted. The contract terminates because of some other right to terminate that a party uses.

pro·rate

allocate, distribute, or assess pro rata. "bonuses are prorated over the life of a player's contract"

Drug Registry

If the buyer thinks the property may have been used as a meth lab, they are directed to consult the National Clandestine Laboratory Register. ( "Clandestine" means secret or hidden.)

Closing Costs Clause

If the seller is contributing anything towards closing costs, that amount goes here.

"As-Is"

If there is no due diligence period, then the property is sold "as is." These are transactions in which the seller decides beforehand that they will not agree to any repairs on the property and that the property will be sold in the condition as is. These two little words, "as is," seem to place all the risk of the purchase on the buyer. It's not that simple. If a seller deliberately does not disclose a defect to the buyer, then the seller could be held responsible in the future. The "as is" clause does not protect the seller in this situation.

Title Warranty

In this clause, the seller warrants (or promises) that at closing, they will convey the property's "good and marketable" title to the buyer via deed.

Caveat emptor

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. 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.

sales contract

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.

good and marketable" title

A "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. The 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).

title

A 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.

Title Insurance

A title policy, also known as title insurance, protects lenders (and buyers, depending on the policy) from financial losses related to title issues. Unlike other types of insurance that protect against future events, a title policy insures against problems that occurred before the time of purchase but are discovered after closing. This clause is stating that the lender will calculate the title insurance coverage based on the highest possible coverage.

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.

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.

Lead-Based Paint

It's common to see a lead-based paint disclosure included in sales contracts. Lead-based paints were used in the U.S. until 1978, when it was discovered that lead poisoning posed a serious health risk. So, if a home is being sold that was built prior to 1978, a lead-based paint disclosure (the "exhibit" in this clause) should accompany the contract.

Reasonable Interpretation

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. If a party takes issue with the proposed disbursement, they have a specified number of days to let the holder know. If they object outside that time period, the objection is waived. The holder can decide to ignore the objection and disburse as originally planned. The holder needs to send notice in this case, too.

due diligence period

The point of the due diligence period is for the buyer to be 100% sure they want to go through with the purchase. During this time period (which is also known as the option period), the buyer can get inspections and environmental reports, check the zoning of the property, and verify deed restrictions. Or they can just sit around and think about whether or not they want the property. The buyer can choose to terminate the contract without consequences during the time period the parties have agreed to.

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.

Exercise of Option; Amendments

This clause is another reminder of what a due diligence period consists of, and how the buyer can address any concerns during the period.

Seeking Experts

This clause makes explicit that buyers and sellers need to rely on relevant experts for things like inspection, appraisals, and mortgages; and that this expertise is not a responsibility of the brokers or agents.

Designated Agency

This clause makes sure that everyone knows and consents to the fact that a designated agent will only represent their assigned party.

Closing and Possession Clause

This clause specifies the closing date and when possession of the property transfers to the buyer. Notice that the closing date and transfer of possession can be the same date, but they don't have to be.

Warranties Transfer Clause

This clause states that the seller will transfer any relevant warranties or contracts to the buyer. This includes things like a warranty for the washing machine, warranty for the air conditioning system, contract with the exterminator, etc. If there is any cost involved with the transfer, the buyer needs to pay it.

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.

Holder of Earnest Money

This space is for the name of the person who holds the earnest money, which are funds paid to confirm or commit to a contract. They let the seller know that the buyer is serious about entering into a contract to buy the property being offered. When the contract is executed, the earnest money will often be applied toward the closing costs. The license holder needs to take care not to deliver the earnest money before the offer has been officially accepted

fi·du·ci·ar·y

involving trust, especially with regard to the relationship between a trustee and a beneficiary. "the company has a fiduciary duty to shareholders"

prom·ul·gate

promote or make widely known (an idea or cause). "these objectives have to be promulgated within the organization" put (a law or decree) into effect by official proclamation. "in January 1852 the new Constitution was promulgated"