14) RECP Chapter 14 Contracts for Sale of Real Estate [Complete]

vendee

A buyer of real estate

vendor

A seller of real estate

executory contract

A real estate sale contract; the signatories have yet to perform their respective obligations and promises

ownership transfer process

The three stages of a real estate sale:

-negotiating period

-acceptance of terms

-closing of the transaction

contract enforceability

The criteria a sales contract that can be upheld:

-be validly created (mutual consent, consideration, legal purpose, competent parties, voluntary act)

-be in writing (statute of frauds)

-identify the principal parties

-clearly identify the property (legal description)

-contain a purchase price

-be signed by the principal parties

offer and acceptance

The full and unequivocal acceptance of and offer

equitable title

The interest held by a vendee under a contract for deed or an installment contract; the equitable right to obtain absolute ownership to property when legal title is held in another's name.

earnest money

Deposit made by a buyer to fulfill the requirement of "consideration"; acts as evidence of good faith when the purchase agreement is signed; provides potential compensation if the buyer defaults AND offers security for the buyer (can for performance of the contract); should be held in escrow or trust, either at the brokerage or title company

contingency

A condition that must be met before a contract is enforceable [ex. finacning]

buyer default

The failure of a buyer to perform, entitling the seller to legal recourse, often stipulated in the contract and usually as "liquidated damages" via the earnest money deposit

seller default

The failure of a seller, such as by failing to deliver the deed; entitles the buyer to legal recourse, such as for specific performance, or for cancellation of the agreement and damages

types of real estate sales transactions

-Residential

-Commercial

-Foreclosure

-New Construction

-Sale of Land

-Exchange Agreement

*not a complete list

primary provisions/clauses in sale contracts

-Parties (must be identified, legal age, have capacity)

-Considerations (identify item of value for exchange)

-Property (identify the parcel, fixtures, and personal being sold)

-Legal description

-Prices

-Terms (loan types, amounts, rates, terms, repayment)

-Loan approval

-Earnest money deposit

-Escrow

-Closing and possession dates

-Conveyed interest/type of deed

-Title evidence

-Closing costs

-Damage and destuction

-Default

-Broker's representation and commission

-Seller's representations

secondary provisions/clauses in sale contracts

-Inspections

-Owner's association disclosure

-Survey

-Environmental hazards

-Compliance with laws

-Due-on-sale

-Seller financing disclosure

-Rental property/tenants rights

-FHA/VHA financing condition

-Flood plain/insurance

-Condominium assessments

-Foreign seller withholding

-Tax deferred exchange

-Merger of agreements

-Notices

-Time is of the essence

-Fax transmission

-Survival

-Dispute resolution

-C.L.U.E report

-Addenda

legal description clause

A contract statments describing a specific parcel of real estate complete enough for an independent surveyor to locate and identify it (primary provision/clause)

price clause

A contract statement of the final price, including the buyer's downpayment and earnest money (primary provision/clause)

terms clause

A contract statement of how the buyer will make the purchase through financing, including the loan amount, type, rate, term, and repayment plan (primary provision/clause)

loan approval contingency clause

A contract statement that states under what conditions the buyer can cancel the contract without default to recieve an earnest money refund (primary provision/clause)

earnest money clause

A contract statement that specifies how the buyer with pay the earnest money (such as in installments) and the amount (primary provision/clause)

escrow clause

A contract statement that provides for the custody and disbursement of earnest money

closing and possession dates clause

A contract statement of when the buyer will take possession and when the deed will be recorded --typically on the same day (primary provision/clause)

conveyed interest/ type of deed clause

A contract statement of what type of deed (for example, fee simple=general warranty) the seller will use to convey the property, and what conditions the deed will be subject to, such as easements, hoas, or encumbrances (primary provision/clause)

title evidence clause

A contract statement that the seller covenants to produce the best possible evidence of property ownership, commonly in the form of title insurance (primary provision/clause)

closing costs clause

A contract statement identifying which party will pay which closing fees; typically seller pays title and property-related costs and buyer pays financing-related costs (primary provision/clause)

damage and destruction clause

A contract statement stipulating the obligations of the parties in the event of harm to the property; may obligate the seller to repair and buyer to continue purchase if repairs are made, or the right for either party to cancel (primary provision/clause)

default clause

A contract statement that identifies remedies for buyers and sellers who do not meet their contract obligations (primary provision/clause)

broker's representation and commission clause

A contract statement that discloses the applicable agency relationships in the transcation and identifies the paying party (primary provision/clause)

seller's representation clause

A contract statement that expresses the seller's warranty that there will be no unsettled or unextinguished liens on the property at closing, and allows for buyer cancelation if found otherwise (primary provision/clause)

inspections clause

A secondary contract provision that stipulates the parties agreement fo inspection and remedial action based on findings

owner's association disclosure clause

A secondary contract provision that discloses the existance and obligation of a property association, such as an HOA

survey clause

A secondary contract provision that stipulates the parties agreement to a survey for financing requirements

environmental hazards clause

A secondary contract provision that notifes the buyer of hazards that could affect the use and value of the property

compliance with laws clause

A secondary contract provision that warrant there are no undisclosed buidling code or zoning violations

due-on-sale clause

A secondary contract provision that states the parties understand that loans survive the closing and may be called due by the lender, and that both parties agree to hold the other harmless for the consquences of an acceleration

seller financing disclosure clause

A secondary contract provision that state the parties agree to comply with applicable state and local disclosure laws concerning seller financing

rental property/tenants rights clause

A secondary contract provision that state the buyer acknowledges the rights of tenatns following closing

FHA/VA financing conditions clause

A secondary contract provision that provides the buyer with a contingency allowing cancelation if the price exceeds FHA/VA estimates of the property value

flood plain/insurance clause

A secondary contract provision that discloses to buyers if the property is in a flood plan and must carry flood insurace

condiminium assessments clause

A secondary contract provision that discloses assessments the owner must pay

foreign seller withholding clause

A secondary contract provision that the seller acknowledges that the buyer must withhold 15% of the purchase price at closing if the seller is a foreign person/entity, and that the withheld amount must be forwarded to the IRS

tax deferred exchange clause

A secondary contract provision for income properties only, in which the buyer and seller disclose their intentions to participate in an exchange and agree to cooperate in completing necessary procedures

merger of agreements clause

A secondary contract provision in which the buyer and seller state ther are no other agreements between the parties that are not expressed in the contract

notices clause

A secondary contract provision that stipulates how the parties agree on how they will give notice to each other and what they will consider delivery of notice

time is of the essence clause

A secondary contract provision in which the parties agree that they can amend dates and deadlines only if they both give written approval

fax transmission clause

A secondary contract provision in which parties agree to accept facsimile transmission of the offer, privded receipt is acknowledged and original copies of the contract are subsequently delivered

survival clause

A secondary contract provision that states the parties continue to be liable for the truthfulness of representations and warranties after closing

dispute resolution clause

A secondary contract provision that describes how disputes that arise under the contract are to be resolved, such as through arbitration as opposed to court proceedings

C.L.U.E. report clause

A secondary contract provision sometimes required by buyers that insists sellers provide a "Comprehensive Loss Underwriting Exchange" report, to disclose any insurance losses in the previous five years, so as to indicate there will be no insurance obstacles present in the purchase

addenda clauses

Any additional secondary contract provisions that are appended to the sales contract and become binding components of the overall agreements, such as radon or asbestos disclosures or a tenant's lease

optioner

A seller who gives a potential buyer the right to purchase a property for a stated prices and terms

optionee

A buyer to whom an option is given, but has no obligation to purchase the property

option-to-buy contract requirements

An option that allows a renter to accumulate down payment funds while paying rent to a landlord; in order to be valid, must :

-include actual, non-refundable consideration that is entirely separate from the purchase price

-include the price and terms of sale

-have an expiration date

-be in writing

-include a legal description

-meet general contract validity

*optionee holds equitable interest, but not as a right to the real property, only as a right to do something governed by contract law

*option should be recorded

*option is assignable unless the contract expressly prohibits

option-to-buy provisions

Common option-to-buy provisions, beyond required contract elements, include:

-how to deliver notice of election

-forfeiture terms

-property and title condition warranties

express contract

An oral or written contract in which theparties state the terms and show their intentions

bilateral contract

A binding and enforceable contract in which all parties promise to do or not do something for one another

implied contract

A contract that is inferred from the parties' actions and conduct

recission

The unmaking, cancellation, or termination of a contract so as to return the parties to the positions they occupied before the contract was made

novation

Substituting a new obligation for an old one or substituting new parties to an existing obligation

installment/land contract

A contract for the sale of real estate, under the terms of which the purchase price is paid in periodic installments by the purchaser who is in possession of the property evne though the title is held by the seller until an agreed-upon time

escrow contract

An agreement between a buyer, a seller, and an escrow holder setting forth rights and responsibilities of each, entered into when earnest money is deposited in a broker's escrow account (or title company)

real estate contract

A contract containing the complete terms of an agreement between a buyer and seller for the sale of a particular parcel or parcels of real estate; must have "offer and acceptance"

void contract

A contract having no legal force or binding effect (e.g., a contract entered into for an illegal purpose)

specific performance

A legal action to compel a party to enforce and carry out the terms of a contract

parole evidence rule

This rule states that, when the parties agree in writing, all previous verbal statements come together. A written contract cannot be changed or modified by parole (oral) evidence.