Real Estate Exam 3

Real Estate Contract

A contract between both parties of the transaction, while the buyer does their due diligence and arranges finances if necessary

Express Contract

When the parties to the contract either write or say their intentions

Implied Contract

When the actions of the parties serve to form the contract

Bilateral Contract

A promise exchanged for a promise. I will do X and you will do Y

Unilateral Contract

A promise exchanged for a performance

Forbearance

An agreement not to do something

Valid

A contract that meets all requirements of law, its binding on both parties

Voidable

A contract that is binding to only 1 party

Void

Not a contract at all and binding of neither party

Unenforceable

Was once valid but now isn’t

Competent Parties

Legal contracting age, cannot be intoxicated, cannot have been ruled mentally incompetent by the court

Essentials of a Valid Real Estate Contract

Competent Parties, Mutual Agreement, Lawful Objective, Consideration, In Writing

Mutual Agreement or “Meeting of the Minds”

Agreement and understanding from both parties, and contractual intent, cannot be present if it includes fraud, innocent misrepresentation, mistake, or duress

Fraud

Intentionally deceiving another party or failing to disclose important information in order to get agreement, the wronged party can rescind the contract

Innocent Misrepresentation

Accidentally deceiving another party, the wronged party can rescind the contract as well, but they don’t have to

Mistake

An ambiguity in negotiations or mistake of material fact. Two reasonable people can come to different conclusions

Duress

Threatening someone into signing a contract means that there could be no meeting of the minds

Lawful Objective

Contract must be for a legal purpose. The courts cannot be called to enforce a contract by ordering someone to break the law

Consideration

Each party to a contract is supposed to give something in order to get what they receive, including two different types

Valuable Consideration

Money or anything worth money

Good Consideration

A gift based on love and affection for another

In Writing

Statute of Frauds demands all contracts dealing with the sale of land or an interest in writing in order to be valid. The Uniform Commercial Code requires the sale of all pesonalty valued over $500 be in writing, this includes real estate contracts

Discharge of Contracts

Full Performance, Assignment, Novation, Mutual Rescission, Unlawful Objective, Death

Assignment

One party can assign their rights or obligations under the contract to another party, although the original party remains liable for performance. This cannot be assigned if the contract contains personal obligation.

Novation

Substitution of a new contract between the existing or new parties or the substitution of a new party into an existing contract

Mutual Rescission

If both parties agree to cancel the contract before it ends

Unlawful Objective

If the purpose of the contract becomes illegal

Death

If the deceased party was the only one that could fulfill the contract obligations

Leases

A contract transferring rights of use and possession in exchange for rental payments.

Contents of Leases

Identify landlord and tenant, identify property, conveyance of right to use, term of lease, amount of rent and payment details, duties and obligations of both parties, signatures

Types of Estates in Land

Estate for Years, Estate from Period to Period, Estate at Will, Estate at Sufferance

Do you need a lease in writing?

No, because it doesn’t deal with transfer of ownership

Estate for Years (or Fixed Period)

Specified starting and ending date

Estate from Period to Period

There is a specific start date but not a specific end date. If one party wants to end the contract you have to give a period of notice (typically a month)

Estate at Will

When the tenant and landlord agree to the terms that allow the tenant to stay in the property without a written agreement. Can end at any time with sufficient notice

Estate at Sufferance

The tenant doesn’t have permission to possess the property and doesn’t pay rent. This happens when a lease expires or is evicted and they don’t leave the property

Holdover Tenant

Tenant that remains in the property after the end of a lease regardless of if they have the landlord’s permission to do so

Classification by Payment

Gross lease, net lease, net-net lease, net-net-net lease, fixed-rent lease, step up lease, reappraisal lease, percentage lease, index lease

Gross Lease

Tenants pays monthly rent and the landlord agrees to pat all expenses associated with the property from that rent, including utilities, property taxes, utilities, property insurance)

Net Lease

Tenant pays monthly rent and also the tenant agrees to pay operating expenses associated with the property

Net-Net Lease

Tenant pays monthly rent and also agrees to pay operating expenses and either property insurance or property taxes

Net-Net-Net Lease

Tenant agrees to pay monthly rent along with operating expenses, property insurance, and property taxes

Fixed-Rent Lease

The amount of rent is fixed for the duration of the lease

Step Up Lease

The amount of rent is fixed for the initial part of the term then adjusts upward by a predetermined amount

Reappraisal Lease

The increase in rental payment is based on the increase in value of the property as determined by the appraisal

Percentage Lease

There is a base rent amount specified plus the tenant has to pay some percentage of sales over a specific threshold

Index Lease

The increase in rental payments is based off of some specified index that measures cost of living often the Consumer Price Index

Agency

One person gives another perosn the right to act on their behalf

Types of Agencies

Universal, General, Specific

Prinicpal

The one who gives authority to act on their behalf

Universal Agency

Agent can transact matters of all types of the principal’s behalf

General Agency

Agent can bind the principal in a particular trade or business

Special Agency

Agent can perform a specific act or transaction

What is a fiduciary relationship?

It is when an agency is created, it means the agent has a fiduciary duty to the principal to act at the highest standard for the principal

Fiduciary Duty

Must be faithful to the principal, exhibit trust and honesty and exercise good business judgement

How Fiduciary Duties relate to real estate

Faithful performance, loyalty to principal, protecting the owners interesr, reasonable care, accounting for funds received

Faithful Performance

The agent must obey all legal instructions given by the principal apply best efforts and diligence to carry out the objectives of the agency and perform those duties personally

Loyal to Principal

Essentially making sure your client gets the best deal possible

Ex: The client wants to sell for $300k but the property is actually worth $500k you need to tell them the proper value

Protecting the owner’s interest

Keeping private info that the seller gives you private

Reasonable Care

It’s the broker’s responsibility to inform the principal of all knowledge and material facts about property and to take care of all property entrusted to him by the principal

Accounting for Funds Received

Broker cannot deposit funds received as earnest money into a personal account as these funds must be placed in a trust account of some variety

Broker

A person licensed to act independently in conducting a real estate business. They bring together buyers and sellers of real estate and usually participates in negotiations

Sales Person

A person employed by a real estate broker to list and negotiate the sale, exchange, or lease of real property for others. CAN ONLY WORK UNDER A LICENSED BROKER

Listing Agreements

An agreement between an owner and a broker that the broker and their staff will try to find a ready, willing and able buyer or tenant ti satisfy the conditions in the listing

Types of listings

Exclusive right to sell, exclusive agency, open, net, advanced fee, advance cost

Exclusive Right to Sell Listing

No matter who sells the property during the listing period the listing broker gets his commission

Exclusive Agency Listing

Similar to Exclusive Right to Sell, except if the owner sells the property without the broker they do not need to pay a commission

Open Listing

An owner can give an open listing to as many brokers as they like and the one to sell the property earns the commission

Net Listing

A variation of open listing, exclusive agency listing, or exclusive right to sell. The owner states how much they want for the property and agrees to pay the broker any amount above that figure as commission

Advanced Fee Listing

The broker gets an advance deposit from the seller to cover a standard hourly fee plus out of pocket expenses, this forces the seller to be more realistic about the asking price

Advance Cost Listing

Similar to Advance Fee Listing except that only out of pocket expenses are charged against the up front deposit

Buyer Brokerage

It’s becoming increasingly common for someone looking to buy a home to employ a broker fro the purpose of finding a suitable home for them

Multiple Listing Service (MLS)

Allows brokers to show each others properties and split commission via a prearranged contract if they sale the property

Franchise Office