Unit 7: Contingencies, Addenda, and Amendments
In which type of loan would the seller have the right to void the contract?
The answer is seller financing. Under the Seller Financing Addendum, the seller can terminate the contract if the seller determines that the buyer's credit is unacceptable.
Which of the following uses an LTV higher than 95%?
The answer is VA loans. VA loans use a 100% LTV.
A buyer's risk of losing the earnest money if unable to obtain financing can be addressed with
The answer is a financing contingency. Because of the difficulty of obtaining financing today, it has become even more important that a sales contract be contingent on the buyer being able to obtain the financing as described in the sales contract. Without a financing contingency, the buyer is at risk of losing the earnest money deposit if unable to provide financing.
A contingency that particularly deals with financing issues is
The answer is a loan contingency. If a contract has no contingency on the purchaser being able to obtain a mortgage loan, the purchaser would lose the earnest money deposit if unable to secure financing. The contract should describe the general form of financing within reasonable expectations of its availability.
In general, contingencies in a sales contract create
The answer is a voidable contract. Seller and buyer must be made aware that contingencies are voidable.
An addendum is
The answer is additional information given in the offer. An addendum is any additional material that is part of the original agreement. If an addendum is needed, it is ideal to have it added to the original contract form during the offer stage.
An amendment
is a change to the original agreement.
Cancer is known to be associated with
radon
The Addendum for Property in a Propane Gas System Service Area is
a required disclosure to give information to any buyer that is considering buying a property serviced by a propane distribution system.
Contamination from underground storage tanks is
addressed by EPA regulations.
Paragraph 2 of the TREC Amendment to Contract addresses which of the following issues?
Additional repairs not listed in the contract
When is the seller to provide the required HOA restrictions to the buyer?
At a time agreed upon by both parties
Of the choices below, which one requires a Short-Sale Addendum?
The answer is Freddie Mac. Freddie Mac provides a short-sale addendum form that is required of all servicers of Freddie Mac loans.
What happens with earnest money and the option fee in an Addendum for Back-up Contract?
The Addendum for Back-up Contract states that in the event the first contract terminates, the backup contract becomes primary. The option fee and earnest money for the backup contract are handled as if the contract were moving forward. There are two effective dates in a back up contract, the one in the backup contract, which is handled just like any other contract, and the amended effective date, which starts when the buyer receives notice of termination of the first contract.
What type of information is not included in the Seller Financing Addendum?
The amount of earnest money
If a lender agrees to make a loan based on an 80% LTV, what is the amount of the loan if the property appraises for $114,500 and the sales price is $116,900?
The answer is $91,600. The loan must be calculated using the lesser of the sales price or the appraised value. $114,500 × 80% = $91,600.
To make a change to a contract,
The answer is an amendment must be used. In order to make any changes to the contract, a separate written amendment must be incorporated into the original contract and signed by all the parties.
An appraisal contingency is closely tied to the
The answer is financing contingency. Due to the lender-required LTV, an appraisal contingency is connected to the loan contingency.
The backup offer addendum
The answer is should address what happens when the primary contract becomes void. The backup offer addendum should state in the event the primary contract becomes void, the backup contract becomes primary.
An inspection contingency allows for
The answer is testing for the presence of lead-based paint. Lead-based paint as well as termites, wood-boring insects, structural and mechanical systems, sewage facilities, and radon or other toxic materials may be covered in an inspection contingency.
The buyer and seller are negotiating an offer. During the final stages of negotiations, the buyer crosses out part of the paragraph that states the seller has the right to continue to show the property and receive, negotiate, and accept back-up offers, and the seller agrees. What are the implications?
The answer is the change should be initialed in the margin by the buyer prior to the presentation to the seller. All changes and additions are usually initialed in the margin or on the rider by both parties when a contract is signed.
A buyer and seller enter a contract for the sale of a three-bedroom residential property. Shortly after the contract is in place, the buyer has an inspection done. As a result of the inspection, the buyer wants the seller to fix the fence and replace the garage door opener. The seller agrees. How should the parties proceed?
The answer is the parties must use an amendment form. If a change is made after all parties have signed off, a separate amendment must be prepared requiring the signature of all parties.
A buyer would like to place an offer on a property but doesn't have good credit. Which of the following is a logical next step?
The broker could find out if the seller is willing to provide financing for the buyer; if the seller agrees, they could fill out a seller financing addendum.
Under Texas state law, a purchaser is given six days to review the condominium association documents. On the second business day, the purchaser is called out of town on a family emergency and does not return until after the sixth day has passed. Which of the following is TRUE?
The purchaser is bound to the contract without the right to object to the condominium association documents.
A buyer and seller enter a contract for the sale of a three-bedroom residential property. Shortly after the contract is in place, the buyer has an inspection done. As a result of the inspection, the buyer wants the seller to fix the fence and replace the garage door opener. The seller refuses. How should the parties proceed?
The repairs do not become part of the sales agreement.
The termination of the sales contingency can affect
both the seller and the buyer.
Once a contract has been agreed upon and signed by all parties,
changes must be addressed through the use of an amendment.
An amendment
changes the contract.
A special type of addendum that has become popular due to current difficult times in the real estate market is a
short sale addendum.
A backup addendum
should state that in the event the primary contract becomes void, the backup contract becomes primary.
An amendment must include
the signatures of the parties, address of the property, and the date of final acceptance of the amendment.
If the parties change their original promises on an amendment and decide they want to make a change to the closing date,
they can do so as long as both parties agree to the changes.
