Unit 2: Sales Contracts and Purchase Agreements

The sales contract is an important document that you'll need to understand completely. You probably know a lot about it already, though. For instance, what's the purpose of the sales contract?

Identify the terms and conditions under which a seller will transfer a property to the buyer.

Which of the following statements best describes a sales contract?

A legally binding, written contract between a property's potential buyer and seller

The sales contract between buyer Milton and seller Tom has been signed. Whose responsibility is it to keep track of all of the buyer contingency deadlines?

Milton and his agent

Lena's buyer client Mindy is making an offer on Joe's house. Which party decides how much earnest money to offer?

Mindy

An addition to an existing document

addendum

May be added without changing the other terms already agreed to in the sales contract

addendum

The short sale ______ specifies that the sale is contingent on the approval of the seller's lender, and identifies a deadline for lender approval of the buyer's offer.

addendum

Your brokerage firm uses pre-printed sales contract forms, but your seller, Marcus, wants to add some language about staying in the house and renting from the buyer for a month after closing. What should you use to add this information?

addendum

Your buyer, Billy, wants to make an offer on the craftsman house he saw today, but he wants the sellers to start the paperwork for a tax reassessment before closing. This isn't part of the standard sales contract in your area. What will you use to accomplish this request?

addendum. The request to start the reassessment process isn't part of the standard contract, so to include that request language in the contract, you'll need to use an addendum.

You and a seller client are reviewing the terms of the sale on which your client and the buyer have settled.

agreement

A change to an existing document

amendment

A common ________ to the sales contract is an extension of the contract period. This often happens if sellers need additional time to make required repairs, or it may be the result of buyer financing issues.

amendment

Changes the original terms of the sales contract

amendment

Repairs or maintenance negotiated between the buyer and seller during the contract period would be documented in an _________ to the initially accepted contract.

amendment

Contract clause that, if the property doesn't appraise at or above the sales price, the buyer is allowed to terminate

appraisal contingency

As a seller's agent, it's your responsibility to _____ while preparing the sales contract

assist the seller in evaluating the contract and its terms, and to discuss with your client possible responses to the offer.

A condition of an offer; all contingencies must be satisfied or removed before a transaction can close

contingency

Ex. If a repair issue arises that's more than the buyer is willing to take on, the ______ will allow the buyer to negotiate repairs, a sales price reduction, or terminate, receiving a refund of the earnest money. This must be accomplished during the inspection period.

inspection contingency

if the buyer can't obtain insurance for a specific amount, the buyer can terminate and receive a refund of any earnest money deposited.

insurance contingency

What type of agreement accounts for commission to be paid and includes the seller's permission for marketing the property?

listing agreement

A clause written into a sales contract that allows the buyer to cancel and receive back the buyer's deposit in the event that the buyer cannot obtain a loan commitment

mortgage contingency

Ex. Perry's sales contract includes a _______. Although he attempted to obtain a loan, his lender would not make a loan commitment. Because of the ______ clause, Perry can terminate and receive a refund of his deposit.

mortgage contingency

You and a buyer client are filling out the sales contract in the hope of buying the house of the buyer's dreams.

offer

Breanna Arthur and her agent, Burt Samuels, submitted an offer to purchase a property to John and Kathy Simone and their agent, Don Flores. John and Kathy Simone is the

offeree

Breanna Arthur and her agent, Burt Samuels, submitted an offer to purchase a property to John and Kathy Simone and their agent, Don Flores. Breanna Arthur is the

offeror

Brynn's listing agent told potential buyers that all offers on Brynn's property would be considered at 5 p.m. on May 3. By that date and time, there were four offers. The persons making these offers are the ______.

offerors

Identifies the date by which the seller will turn over the property to the buyer.

possession

Which residential sales contract provision specifies the date by which the buyer will have unfettered access to the property?

possession

outline the terms and conditions of the agreement, as well as the legal rights and obligations of all parties to the transaction.

provisions

A buyer's ability to continue with a transaction is dependent on the buyer's current home selling first

sales contingency

Ex. Sellers are often reluctant to accept contingent offers, and when they do, they usually reserve the right to continue to market and show the property to other buyers.

sales contingency

A distressed homeowner sells a property for less than is owed; requires lender approval

short sale

Ex. Tallah did a _______ on her home; she owed $240,000 and it only brought $225,000. Her lender may pursue the difference in a deficiency judgment.

short sale

licensee's role in sales contracts

1. Never form the agreement without first consulting with your clients about how the agreement should be formed. 2. Don't go beyond filling in the blanks. 3. Never use non-standard language in the agreement or associated documents, such as addenda or amendments. 4. Never give legal advice.

What's the role of the mortgage contingency in a sales contract?

Documents the type of and timeline for financing, and outlines what to do if financing falls through.

We're almost finished with our discussion of the sales contract's provisions. What's the purpose of the mortgage contingency provision?

Establish if the sale of the property depends on the buyer obtaining mortgage financing. The mortgage contingency lets the seller know if the property purchase is contingent upon the buyer obtaining a loan, but it also gives the buyer the opportunity to terminate the agreement and not lose the earnest money deposit should the lender reject the loan application.

(T/F) As long as a contingency is removed prior to closing, there is no requirement to document their removal in writing by a specified date.

F

Contract clause that allows the buyer to terminate if an issue arises during the inspection that can't be successfully negotiated

inspection contingency

(T/F) Buyers must act in good faith in the use of contingencies, or they may lose their right to receive a refund of their earnest money deposit in the event of termination.

T

(T/F) In an offer that's contingent on the sale of the buyer's current home, even if their home doesn't sell by the agreed-upon deadline, the buyer has the option to remove the contingency and proceed with the sale.

T

(T/F) It is the buyer's and buyer's agent's responsibility to keep track of all contingency deadlines and ensure they are not missed.

T

(T/F) Sellers are often reluctant to accept offers contingent on the sale of another property, and when they do, they usually reserve the right to market and show the property to other buyers.

T

(T/F) With an appraisal contingency, the buyer can use the fact that the property hasn't appraised to terminate and receive a refund of the earnest money.

T

(T/F) You can confer with your client about how the agreement should be formed and the appropriate price to offer, based on your market research.

T

The _______ addendum is one of the most common addenda

inspection

Which of the following statements about the number of contingencies in a sales contract is true?

The inclusion of numerous contingencies makes it less likely that the buyer's offer will be accepted.

As a buyer's agent, it's your responsibility to _____ when preparing sales contract

describe the provisions of the sales contract before your clients sign it. You should also provide your clients with alternatives for how the contract could be formed, an appropriate offering price (based not on the list price, but on your research of comparables), and options for how the earnest money should be structured (in amount and type). It's also important to discuss options for terms, such as closing date, deadline to respond, date of possession, and any contingencies, such as financing, inspection, and appraisal.

Provides assurance to the seller that the buyer intends to go through with the sale.

earnest money

Identifies which items are to remain with the property.

fixtures and personal property