LESSON 6: THE SALES CONTRACT Flashcards
What is required for an offer to become a contract in real estate?
The offer must be in writing and signed by the buyers, with final acceptance in writing and signed by the sellers. Any changes must be initialed, and the acceptance must be communicated to the other party or their agent, making the contract effective.
How can the acceptance of a contract be communicated in the digital age?
Acceptance can be communicated through various methods like telephone, fax, in person, email, or even text.
What does Paragraph 1 of the One to Four Family Residential Contract (Resale) address?
Paragraph 1 identifies the parties involved in the contract, with the sellers’ names listed first, followed by the buyers. The buyer’s legal name must be used for deed preparation.
What should be considered when filling out Paragraph 1 (Parties) of the contract?
Ensure to use the exact names from the deed or tax roll information for the sellers, and the buyer’s full legal name should be used to prepare the deed unless instructed otherwise.
What information is included in Paragraph 2 (Property)?
Paragraph 2 includes the Lot and Block information and the property’s postal address. It is important to complete this information accurately to avoid complications during the transaction.
What does Paragraph 3 (Sales Price and Financing) specify?
This paragraph outlines the cash portion of the sales price, the financing details, and which addendum is used. The total sales price is the sum of the cash portion and financing.
What types of financing can be described in Paragraph 3 of the contract?
Financing types can include cash sales, third-party financing (e.g., FHA, VA, USDA loans), seller’s loan assumptions, or seller financing. Multiple addenda can sometimes be used for complex financing structures.
What is the purpose of Paragraph 5 (Earnest Money and Termination Option)?
Paragraph 5 defines the buyer’s option to terminate the contract during a specified period and the associated option fee. It also outlines the process for paying the option fee to the title company within 3 days after the contract’s effective date.
What happens if the option fee is not delivered within the 3-day period?
If the option fee is not delivered within the 3-day period, the termination option becomes void, and the buyer loses the right to terminate the contract.
What should be included in Paragraph 6 (Disclosures)?
Paragraph 6E includes the requirement for various disclosures about the property, as dictated by law. This ensures both the buyer and seller are aware of the property’s condition and any relevant legal updates.
What is the purpose of Paragraph 11 (Special Provisions)?
Paragraph 11 is for entering specific details about the sale that are not covered by other parts of the contract or standard forms. It is important to avoid adding prepared information or personal preferences here.
What is addressed in Paragraph 13 (Prorations)?
Paragraph 13 details which expenses (e.g., HOA assessments, taxes) should be prorated at closing, helping both parties estimate final costs. The closing agent usually calculates the actual prorations.
What does Paragraph 14 (Property Casualty Loss) cover?
This paragraph specifies the procedures if the property is damaged during the contract period. It addresses how the damage will be handled and whether the contract will still proceed.
What is outlined in Paragraph 15 (Default)?
Paragraph 15 discusses the consequences of a default by either party, including remedies like earnest money forfeiture, specific performance, or contract cancellation.
What are the remedies for breach of contract according to Paragraph 15?
Remedies for breach include specific performance (forcing the other party to perform), liquidated damages (forfeiting earnest money), unilateral or mutual rescission (cancellation of the contract with or without damages).
What does Paragraph 16 (Mediation) state about dispute resolution?
Mediation is optional but encouraged as a cost-effective way to resolve disputes before resorting to other legal actions.
What does Paragraph 17 (Attorney’s Fees) specify?
Paragraph 17 states that the losing party in a legal dispute related to the contract must pay the attorney’s fees of the prevailing party.
What should be included in Paragraph 21 (Notices)?
This section specifies the addresses and methods for delivering notices to the parties and brokers. It’s crucial to provide accurate contact details to ensure proper communication during the transaction.
What does Paragraph 22 (Addenda) address?
Paragraph 22 lists the common addenda that may be attached to the contract, such as disclosure forms. These addenda become part of the contract when checked and attached.
What is mentioned in Paragraph 23 (Consult an Attorney)?
This paragraph advises both parties to consult an attorney if desired, and provides space for the attorney’s information if they are involved in the transaction.
When does the effective date of the contract begin?
The effective date begins when both parties have signed the contract. This date starts the clock on the other dates and deadlines specified in the contract.
What is important when filling in the signature section of the contract?
The names of the parties should match those in Paragraph 1, and the signature can be done either in ink or electronically, as permitted by Texas law. Electronic signature solutions can be useful for compliance.
What information is required for the broker section of the form?
Broker contact details and agency relationships are disclosed, along with the payment agreement between the listing broker and selling broker.
What should be done if there’s an option fee in the contract?
The option fee must be receipted by the seller or listing broker, and if the buyer doesn’t request an option period, the section should be marked “n/a.”
Who acknowledges the earnest money receipt?
The Escrow Agent for the title company acknowledges the amount and form of the earnest money.
What is the rule regarding earnest money deposit?
The earnest money must be deposited with the escrow agent by the close of business on the third day after the contract is fully executed.
What must be chosen in Paragraph 6.A of the contract?
The buyer and seller must choose who will pay for the owner’s title insurance policy and who the issuer will be.
What is the T-47 Affidavit used for?
The T-47 Affidavit, which must be notarized, is delivered along with the survey to the title company if the seller’s existing survey is being used.
What might trigger the need for a new survey?
Changes like adding a pool, fence, or extension to the home may require a new survey.
What happens if there are objections to the title documents?
The buyer must state objections within the required time, or the objections will be waived.
What must the seller provide if there is an HOA?
The seller must provide all relevant HOA documents to the buyer, including management agreements and bylaws.
What must the seller provide to the buyer about taxing districts?
The seller must provide taxing information prior to the final execution of the contract.
What must be disclosed if annexation is pending for a property?
The seller must disclose any pending annexation of the property into a municipality.
What should buyers know about utilities in the property area?
Buyers should be aware of potential fees or delays for the hookup or transfer of services.
What does the contract state about public improvement districts?
The contract mentions that fees or costs may be associated with public improvement districts, and the buyer should contact local authorities.
Are there transfer fees in Texas for real estate transactions?
No, Texas does not currently assess transfer fees on real estate transactions.
What disclosure is required for properties in a propane gas system service area?
The seller must provide written notice to the buyer about the propane gas system and potential costs or delays in service.
What is the notice required when the property adjoins an impoundment of water with a storage capacity of at least 5,000 acre-feet?
The notice informs the buyer that the water level fluctuates due to water usage and/or drought or flood. This addition (2022) provides the notice without the need for a separate document.
What does Paragraph 7.a. of the contract confirm regarding the buyer’s right to inspect the property?
It confirms the buyer’s right to inspect the property and requires the seller to have utilities turned on for inspections.
When should the seller provide the Seller’s Disclosure to the buyer?
It’s best to get the disclosure before the contract for review. If not, check box #2 and fill in the number of days the seller has to deliver the disclosure to the buyer.
What must the seller provide in the Seller’s Disclosure?
The seller must provide all information required by the Texas Property Code regarding the condition of the property. The disclosure is not an addendum to the contract.
What is the Texas Property Code requirement for seller disclosures?
The seller must disclose all material facts regarding the property’s condition. This is legally required, and failure to disclose can result in legal consequences.
What does the law say about disclosing death or registered sex offenders?
The seller does not have to disclose death if natural, accidental, or by suicide. Similarly, the seller is not required to disclose the presence of registered sex offenders.
What are unlawful disclosures in real estate?
Sellers and licensees cannot disclose any information regarding the Fair Housing protected classes, including race, color, religion, sex, familial status, handicap, or national origin.
What are the exceptions to the disclosure requirement?
Certain transfers, such as those by court order, bankruptcy, or government entities, are exempt from disclosure. Other exceptions include sales of properties with minimal value or new residences.
What does Paragraph 7.D. (Acceptance of Property Condition) deal with?
It addresses accepting the property “as-is” or with certain repairs. Buyers still have the right to negotiate repairs or terminate based on inspections.
What is a Notice of Hazards?
While not a required form, it’s prudent to inform the buyer about hazards related to the property. It encourages the buyer to assess and evaluate potential risks.
What is a Home Warranty (Residential Service Contract)?
A Home Warranty can be purchased for the buyer, covering certain repairs and maintenance. The buyer may contribute to the cost of this warranty in the contract.
What is defined in Paragraph 8 regarding broker’s fees?
Paragraph 8 defines the broker’s fees and the split of fees between brokers. It also discloses the agency relationships.
When should the closing date be set, according to Paragraph 9?
The closing date should be set far enough into the future to allow for inspections, assessments, and financing, typically no less than 30 days for conventional loans.
Is time of the essence in the contract?
Only Paragraph 5 is a “time is of the essence” clause. The rest of the contract follows “reasonable time” guidelines, meaning slight delays might be acceptable.
What does Paragraph 10 (Possession) cover?
It outlines two options for possession: either upon closing and funding or before/after closing, with a temporary lease required if possession is before or after closing.
What should be done to ensure correct identification of the buyer and seller in the contract?
The buyer and seller must be clearly identified. The title company will check identity at closing. The buyer’s name should match the source of identity (e.g., driver’s license), and the seller’s name should match previous deed documents.
What should the seller provide to verify the correct name for the contract?
If available, the seller should provide documents from when they purchased the property. If those aren’t available, the tax rolls can be a good source.
What is a good idea if one party is a corporation?
A letter of authorization from the board of directors should be attached to avoid complications later and validate the signature.
How does the Uniform Electronic Transactions Act (UETA) impact contract signatures?
Electronic records, signatures, and contracts are legally recognized and enforceable. A contract cannot be denied enforceability solely because it is in electronic form.
What are the requirements of the Statute of Frauds for a contract to be valid?
The contract must be in writing, identify the subject of the agreement, contain essential terms, and be signed by both parties.
What does “writing” mean in the context of contracts today?
“Writing” includes electronic records, such as emails or texts, as confirmed by the St. John’s Holdings, LLC texting case.
What happens if a contract does not meet the Statute of Frauds requirements?
If the contract violates the Statute of Frauds, it can be voided by the party using the Statute of Frauds to cancel the agreement.
What exceptions exist for the Statute of Frauds?
Exceptions include specially manufactured goods, written merchants’ confirmations, admission in court, partial performance, and promissory estoppel.
What is the “specially manufactured goods” exception?
Custom-made goods that can be identified to the order are an exception, allowing the contract to be enforceable even without written confirmation.
How does the “written merchants’ confirmation” exception work?
A written confirmation of an agreement between two merchants, such as an invoice, satisfies the Statute of Frauds.
What is the “admission in court” exception?
A party may admit to a valid oral agreement, and the failure to meet Statute of Frauds requirements does not automatically render the contract void.
What does the “partial performance” exception allow?
If one party has partially performed, such as delivering part of the goods, the contract can still be enforceable for the delivered part.
What is “promissory estoppel”?
It is a legal principle used to prevent unfairness when one party relies on a promise, causing detriment, even if there is no formal contract.
What happens if there is a breach of contract in real estate?
A breach occurs when one party fails to perform, and the non-breaching party can pursue remedies, including partial performance, rescission, or damages.
What is “partial performance” as a remedy?
The non-breaching party may accept the partial completion of obligations instead of forcing full performance.
What is “unilateral rescission”?
The non-breaching party may refuse to perform due to the other party’s failure to meet obligations.
What is “mutual rescission”?
Both parties agree to cancel or rescind the contract.
What are “monetary damages”?
Monetary damages are awarded to compensate the non-breaching party for the breach, attempting to restore them to the position they would have been in if the breach had not occurred.
What are “punitive damages”?
Punitive damages are awarded to punish the breaching party for wrongful conduct and deter future misconduct.
What are “liquidated damages”?
Liquidated damages are predetermined amounts agreed upon by the parties in the contract. For these to be valid, the damages must be difficult to quantify, reasonable, and not a penalty.
What is “specific performance”?
Specific performance is a court-ordered remedy that compels the breaching party to perform exactly as agreed, often used in real estate contracts, as the property is unique.
