Chapter 6 Real Estate Contracts

Question 1

purchase agreement

Answer 1

A purchase agreement is the original agreement between the buyer and seller. Once the seller agrees to the offer and the buyer is informed of the seller’s acceptance, the purchase agreement is a legally binding contract.

Question 2

purchase agreement covers

Answer 2

than just the purchase price and closing date. It covers contingencies, various inspections, mandatory disclosures, and buyer’s rights to investigate the property, how the buyer will take title, damages and dispute resolution, escrow instructions, compensation to the brokers, and acceptance of the offer

Question 3

The Main Clauses Included in the Purchase Agreement

Answer 3

• Date of the agreement
• Financing terms
• Names and addresses of the parties to the contract
• Date and place of closing
• Description of the property
• Signatures of buyer and seller

•The consideration or price

Question 4

Offer

Answer 4

This paragraph shows the name of the buyer, describes the property to be purchased, the offered purchase price, and the closing date for escrow

Question 5

Finance Terms

Answer 5

This section addresses whether the purchase will be an all cash offer or an offer based on obtaining financing. If the buyer must obtain financing to complete the transaction, the finance terms should state if the purchase of the property is contingent upon the buyer’s ability to get financing

Question 6

Closing and Possession

Answer 6

This section covers the intent of the buyer to occupy the property as a primary residence, the date the seller (or tenant) will turn over possession of the property to the buyer, and if the buyer is allowed to take possession of the property prior to close of escrow

Question 7

Statutory Disclosures

Answer 7

seller is required by law to give a buyer several disclosures about the property and surrounding area, which may affect the buyer’s decision to purchase the property

Question 8

vesting

Answer 8

The manner in which a buyer takes title to real property

Question 9

Time Periods; Removal of Contingencies

Answer 9

Buyers and sellers are given specific amounts of time to meet the various conditions written in the contract

Question 10

Prorations

Answer 10

Since most real estate offices use the C.A.R. Purchase Agreement and Joint Escrow Instruction contract, this clause tells escrow the buyers’ and sellers’ wishes regarding the prorations (allocation) of property tax, interest, assessments, and any other charge normally prorated in escrow.

Question 11

Expiration of the Offer

Answer 11

If the offer is not accepted by the seller within the time frame, the offer is revoked and any deposit is returned to the buyer. A deposit may be refunded by agreement, judgment, or arbitration

Question 12

Acceptance of the Offer

Answer 12

Once the purchase agreement is accepted and signed by the seller, it becomes a legally binding contract. Death or incapacity does not automatically cancel a contract. After acceptance of the offer, if the seller dies or becomes incapacitated, the seller’s heirs must complete the sale.

Question 13

Termination of Offer

Answer 13

An offer may be terminated for a number of reasons. The buyer may withdraw the offer before the seller accepts it. Since the seller has not accepted the offer, there is no contract, so the buyer would get his or her deposit back. An offer ends when the time limit given in the offer for acceptance expires. If the buyer dies before the seller accepts the offer, the offer terminates. The original offer expires if the seller gives the buyer a counteroffer.

Question 14

counteroffer

Answer 14

is the rejection of an original purchase offer and the submission of a new and different offer. If a seller rejects the offer and submits a counteroffer, the original offer automatically terminates.

Question 15

option

Answer 15

contract to keep open, for a set period of time, an offer to purchase or lease real property

Question 16

Elements of a Valid Option

Answer 16

An option must be in writing and must have actual monetary consideration paid to the owner (optionor). The consideration may be in the form of cash, a check, or something else of value. In a lease option, payment of rent and the provisions of the lease are acceptable as the consideration.

Question 17

Tenancy

Answer 17

defined as the interest of a person holding property by any right or title. For example, an arrangement by formal lease or informal agreement in which the owner (landlord) allows another (tenant) to take exclusive possession of land in consideration for rent, is a type of tenancy

Question 18

reversionary right

Answer 18

The right of the landlord to reclaim the property is known as the

Question 19

lessee’s interest

Answer 19

less-than-freehold estate in real property

Question 20

lease can be described in any number of ways

Answer 20

as long as the names of the parties, description of the property, rent amount, and duration of lease are included.

Question 21

Facts About Leases

Answer 21

• If more than 1 year, must be in writing
• Signed by lessor (landlord)
• Lessee (tenant) does not have to sign lease
• Reversionary right belongs to the lessor
• Possessory right belongs to the lessee
• A rental is presumed to be month to month unless specified otherwise
• Agricultural lease limited to maximum of 51 years
• Urban lease limited to maximum of 99 years
• Mineral, oil, and gas leases are limited to a maximum of 99

Question 22

ground lease

Answer 22

lease for only the land

Question 23

proprietary lease

Answer 23

used in co-op apartment buildings

Question 24

residential lease

Answer 24

is used for all residential property including single-family homes, duplexes, and multiple-family dwellings

Question 25

Gross lease

Answer 25

A gross lease is also called a flat, fixed, or straight lease. The tenant pays an agreed-upon sum as rent and the landlord pays any other expenses such as taxes, maintenance, or insurance. Residential leases are usually gross leases with fixed, level payments, usually due on the 1st of each month.

Question 26

Net Lease

Answer 26

In a net lease, the tenant pays an agreed-upon sum as rent, plus certain agreed-upon expenses per month (i.e., taxes, insurance, and repairs). The benefit of a net lease to the lessor is that it creates a fixed income. Net leases are categorized as a single net (N) lease, a double net (NN) lease, or a triple net (NNN) lease.

Question 27

Percentage lease

Answer 27

A percentage lease is a lease in which the tenant pays a percentage of gross monthly receipts in addition to a base rent. Usually the higher the gross receipts, the lower the percentage rate. A percentage lease typically is used for retail stores in shopping centers or malls.

Question 28

maximum deposit allowed on an unfurnished property

Answer 28

may not exceed the amount of two months’ rent

Question 29

maximum deposit allowed on a furnished property

Answer 29

not more than the amount of three months’ rent.

Question 30

implied warranty of habitability

Answer 30

landlord to the tenant that the property will be maintained to meet bare living requirements.

Question 31

Pre-Move-Out Inspection

Answer 31

the rental unit, no earlier than two weeks prior to the termination of the tenancy. The landlord provides to the tenant a written notice of the right to inspect the premises within a reasonable time. The landlord also informs the tenant of his or her right to be present at the inspection. If no agreement can be made for the inspection time, the landlord must give the tenant written notice 48 hours prior of the time of inspection and then may proceed with the inspection whether the tenant is there or not. Based on the inspection, the landlord must give the tenant an itemized statement listing of any proposed repairs or cleaning. The cost of the cleaning and repairs is the basis for deductions taken from the security deposit.

Question 32

If the landlord refuses to make repairs

Answer 32

tenant may spend up to one-month’s rent to make repairs, and subtract the amount from the rent. The tenant may do this only two times in any 12-month period. A landlord may not retaliate by eviction or raising the rent for 180 days after this rent offset is used by the tenant to make lawful repairs

Question 33

Landlord Must

Answer 33

• provide habitable dwelling units.
• give 24-hours notice before entering.
• obey fair housing laws.
• give a 30-day written notice to the tenant before ending a month-to-month tenancy.
• return deposit within 21 days after tenant moves out.

Question 34

Tenant Must

Answer 34

• pay rent when due.
• give 30-days notice before ending month-to­-month tenancy.
• not interfere with the rights of other tenants.

Question 35

Tenant May

Answer 35

•make needed repairs twice yearly and deduct from rent.

Question 36

assignment

Answer 36

transfer of the entire leasehold estate to a new person

Question 37

Constructive eviction

Answer 37

is an implied eviction in which the landlord’s act or omission justifies the immediate departure of the tenant. A sale of the property during the term of the lease does not usually terminate the lease.

Question 38

unlawful detainer action or action in ejectment

Answer 38

The landlord has one legal remedy to remove a tenant—the eviction process using an

Question 39

The eviction process follows three main steps

Answer 39

1) serving an eviction notice to terminate the rental agreement, (2) obtaining a judgment against the tenant in an unlawful detainer action, and (3) evicting the tenant by the sheriff under a writ of possession.

Question 40

unlawful detainer action

Answer 40

awsuit to remove an unlawful holdover tenant (e.g. after the expiration of a 3-day or 30-day notice) and return the rental unit to its owner. The landlord may file an unlawful detainer action in the municipal court if a tenant ignores or fails to respond to the notification to pay or quit. This document lists the charges against the tenant, who then has 5 calendar days to respond after being served; otherwise, a default hearing is set.

Question 41

Termination of a Lease

Answer 41

• Expiration of the Term
• Mutual Agreement
• Violations of Terms and Conditions
• Destruction of the Premises
• Eviction

Question 42

writ of possession

Answer 42

is the legal document issued by the court commanding the tenant to leave the premises within five days. The 5 days begin to run once the sheriff, marshal, or registered process server posts the writ of possession on the property. Upon expiration of the 5 days, the sheriff physically removes the tenant and gives the landlord possession.