Chapter 8 - Real Estate Sales Contracts Flashcards
Purchase Contract
- Provision for the buyer’s earnest money deposit
- The buyers offer to purchase
- The acceptance of the offer by the seller
- Provisions for the payment of a brokerage commission
Earnest Money Deposit
Money that accompanies an offer to purchase as evidence of good faith
- No laws govern size or need for one (Amount is negotiable)
-Court ordered sales - Normally 10%
Date of Possession
Closing Date
Deposit Money
Money held in escrow
Downpayment
Loan Conditions
Protects buyers from losing deposit money if he cannot get a loan
Loan Commitment Letter
A written agreement that a lender will make a loan
Uniform Vendor and Purchase Risk Act
- If neither possession nor tile has passed and there is destruction ( ex. tornado) to the property, the seller cannot enforce the contract and the buyer is entitled to his money back
- If the damage is minor and promptly repaired, the contract is still enforceable
- If either possession or title HAS passed, the buyer is not relieved of his duty to pay the price, nor is he entitled to a refund of money already paid.
Time is of the essence
The time limits of a contract must be faithfully observed or the contract is voidable by the non-defaulting party
Amendatory Language
Government required clauses in FHA and VA contracts
Rider
Any addition annexed to a document and made part of the document by reference (Addendums or attachments)
Binder
Short purchase contract used to secure a real estate transaction until a more formal contract can be signed
Installment Contract
Method of selling and financing property whereby the seller retains title but the buyer takes possession while making payments
- Used when buyer doesn’t have the money and cannot borrow it
- Most commonly used to sell vacant land
Equitable Title
The right to demand that title be conveyed upon payment of the purchase price
Lease-Option Contract
Lease with the option to buy
Allows the tenant to by the property at preset price and terms for a given period
Popular in soft-real estate markets
May create income tax issues
Contract must be water-tight from the beginning
Unilateral
Right of First Refusal
The right to match or better an offer before the property is sold to someone else
Tenant can veto any negotiations
Exchange Agreements
No need to pay income taxes
I’ll give you this property for that property
Tax-Deferred Exchange
A sale of real property in exchange for another parcel of real estate to effect a nontaxable gain
- Apply to investment property only
- 3 transactions: 2 conveyances & 1 escrow agreement with a QI
Qualified Intermediary (QI)
The 3rd party escrow agent used in tax-deferred exchange
Delayed Exchange
Property is exchanged for a right to receive property at a future date
A formal real estate contract, prepared at the outset by an agent using prepared forms, may be idenitified as
- Purchase Contract
- Offer and Acceptance
- Purchase Offer
Property taxes, rent, loan interest and other items paid in advance, may be divided between the parties to the contract by the process of
Proration
Typically, physical possession of the property is given to the buyer
the day of close of escrow (Settlement/closing)
A contract of sale called for loan closing cost to be paid entirely by the seller. Was this an enforceable provision of the contract?
Yes, because the loan closing cost is negotiable
A buyer signed a contract to purchase real property from the seller, subject to the buyer’s ability to secure a loan for a part of the purchase price within thirty days. After diligent effort, the buyer was unable to secure the loan within the specific time. This contract is
voidable by the buyer
If a seller fails to carry out his obligation under a typical residential contract of sale, the buyer can
- Sue for specific performance
- Rescind the contract
- Sue for monetary damager
The phrase “time is on the essence” in a sales contract means that the
time limits specified in the contract must be faithfully observed or the contract is voidable
Mr. and Mrs. Snell enter into a real estate contract with no contingencies with Mr. and Mrs. Garcia. If Mr. Garcia dies before settlement takes place, what would happen?
Should a party to a sales contract die after its execution but before performance is completed, the contract remains binding on the other party and upon the estate of the decedent
A letter of intent is
one which creates no liability.
- It is not an agreement to enter into a contract and is not binding to either party
Who should be represented by an attorney at the meeting for the purpose of preparing a formal contract as provided for in a binder?
Seller and buyer
- There is generally no need for the agent to have legal representation
Traditionally installment contracts used for the purchase of real estate has favored the
Vendor (Seller)
A well-written installment contract will include language which specifies:
- Responsibility for maintenance
- Payment of taxes and insurance
- Casualty loss
A purchaser’s right to acquire legal title to real property under the terms of a valid purchase agreement is known as
Equitable Title
Equitable title can
be transferred by sale
A buyer and seller enter into a purchase contract for the sale of the seller’s residence. From the moment the contract was signed by both parties, the
The seller retains the legal title, but the buyer now holds an equitable interest in the property.
The seller may not void the contract.
Under the terms of a lease with option to buy, the tenant is given the right to purchase the property
At any time during the option period at a preset price
A lease-option tends to favor the
Optionee because the open may or may not be exercised by the optionee and the optionor has no choice but to accept the optionee’s decision
Landlord Larry and tenant Tee entered into an agreement in writing which gave Tee the right to match any valid offer which Larry might receive for the purchase of the property. Did this agreement constitute a lease-option on the property?
No, because the elements of an option to buy were not present.
When an owner-occupied dwelling sells for a profit, which has been owned for 24 months, taxes on the gain are
Not due - because it has been owned for 24 months
1984 Tax Reform Act requires that the designated property to be exchanged be
- Identified within 45 days of the original closing
- That title be acquired within 180 days of closing
- The property be received before the designating party’s tax return is due
Wade wants to trade up to a larger property and at the same time defer that capital gain in his present property. He wants Tom’s property and would like to trade directly with Tom. However, Tom wants cash, not Wade’s property. John has cash and wants Wade’s property. How can this be done.
- Wade trades with Tom who in turn sells to John.
- John buys Tom’s property and trades with Wade
Lead based paint disclosure is required for all homes built prior to
1978
