S8 Unit 2: Washington Purchase and Sales Agreement Provisions

Question 1

Residential Resale

Answer 1

This is the contract most people think of when they imagine a Real Estate contract

A buyer purchases a home that someone else lived in

It includes singe family & multifamily homes, condominiums, and cooperatives

Question 2

New Construction

Answer 2

This is brand new housing - the buyer may buy the home before it’s even constructed, specifying building materials and home details in the contract

Buyers may think that because the home is new, they don’t need representation, but it’s always recommended

I may come with a builders warranty, covering defects in construction and/or plumbing, electrical, HVAC systems, etc.

Question 3

Vacant Land Contract

Answer 3

This is used in the sale of undeveloped land (no improvements have been built upon it).

Often involves subdivisions, feasibility studies, and / or percolation tests

Buyers should be careful to check for zoning, since it may affect the buyer’s intended use of the property

Question 4

Commercial

Answer 4

This covers property used for business, such office buildings, malls, hotels, and theaters

An owner may employ a property manager to maintain building / grounds and negotiate leases with tenants

Buyers should check zoning/usage restrictions to make sure property will support their business type

Question 5

Contract for deed

Answer 5

This allows seller to provide buyer with financing

The seller keeps title until the loan is paid off. The buyer makes payments directly to seller

Buyer advantages include: lower down payment and closing costs, more flexible financing criteria, chance to improve credit score

Question 6

Lease purchase / Lease to own

Answer 6

a tenant agrees to purchase the property at a later date

Contract terms and conditions are negotiated at the time of the lease is signed

The tenant pays a down payment (which may or may not be refundable), which may be incorporated into the monthly rent payment

Question 7

Option Contact Basics

Question 8

option contract

Answer 8

is an offer to purchase a specific piece of real estate but without the obligation to buy it. An option contract gives the potential buyer, who is known as the optionee, the right to purchase the property of the seller, or optionor, at some time in the future. The option contract will spell out that timeframe, which is usually from one to three years.

Question 9

What makes an option contract different from a regular sales contract?

Answer 9

In a “regular” sales contract, both the buyer and seller are bound to carry out their contractual obligations. In an option contract, only the optionor (seller) is bound by the option contract; therefore, it is a unilateral contract. While the option gives the optionee (buyer) the right to buy the subject property, it does not require the optionee to buy it.

The optionee must pay an option fee (consideration) to the optionor, which can be for any amount that both parties agree to. If the optionee decides not to exercise the option to purchase the property, then the optionor gets to keep the option fee—and sell the property to someone else.

Question 10

What happens if the optionee decides to exercise the option?

Answer 10

If the optionee does exercise the option according to its terms and conditions, then a binding contract between the two parties is created. Once that happens, both parties are obligated to fulfill their contractual obligations: the seller sells, the buyer buys, and everyone lives happily ever after.

Question 11

Who uses an option contract, and when do they use it?

Answer 11

Option contracts are used in a variety of situations. Commonly, an option can be attached to a lease. It allows the lessee (renter) the option to purchase the property at the end of the lease term or within the timeframe noted in the option contract. This is usually known as a lease option, or a lease with an option to buy. This is often used to give the lessee time to come up with the money to purchase the property.

Question 12

What is a real estate licensee’s role in an option contract?

Answer 12

While a knowledgeable real estate licensee may have some insight into the option contract process, this is really an area for a real estate attorney. Therefore, as a licensee, your best bet is to advise your client to seek the advice of a real estate attorney who understands the ins and outs of option contracts

Question 13

Vacant Land Purchase and Sales Agreement in Washington

Question 14

Subdivisions

Answer 14

Often, when developing vacant land, a subdivision is involved. The developer will subdivide a large parcel of land into several lots. Subdivision development requires submission of a plat to the local planning commission, and the plat must be approved by the commission before development may begin.

A plat is a map of the development that shows property boundaries, existing or planned streets, easements, and utilities. Buyers of vacant land want assurances that the property can be subdivided, so if the plat hasn’t yet been approved, the sales agreement should specify that the offer is contingent on final plat recording by a contracted date

Question 15

Feasibility Period

Answer 15

Purchase and sales agreements for the conveyance of improved property often include a due diligence period. This period, usually called a feasibility study period with vacant land, will be much longer than with improved properties because the buyer has more homework to do. Buyers of vacant land must determine development and construction costs, building requirements and permitting processes, whether there are any environmental issues, municipal fees, and utility connections, among others. The buyer must perform this due diligence by the contracted deadline in order to reserve the right to terminate and receive a refund of earnest money deposited.

Question 16

Perc Test

Answer 16

In some areas of Washington, due diligence for vacant land involves a percolation test (usually called a perc test) to determine the water absorption rate of soil. The perc test is required in areas not served by a sewer system, prior to building a septic drain field.

Question 17

Where’s the Lead?

Answer 17

Lead is commonly found in:

Dust
Exterior/Interior Paint
Drinking Water
Soil

Question 18

Basic Provisions of a Purchase and Sales Agreement in Washington

Question 19

Parties

Answer 19

The parties to the agreement are the buyer and the seller. Each seller who has an ownership interest in the property must sign it, and each signer, whether buyer or seller, must be of the age of majority (18 or older

Question 20

Property

Answer 20

The property section of the purchase and sale agreement describes the property using a legal description, such as plat and block number. A legal description is preferred to a street address because it eliminates any ambiguity as to the property being transferred. Sometimes legal descriptions are quite long, and depending on the form your brokerage uses, you may have to attach an addendum to include the entire legal description.

Question 21

Purchase Price

Answer 21

The offered purchase price must be in the purchase and sales agreement, and it must include all moneys that will go toward the property purchase. This includes the earnest money deposit, down payment, loan amount, and the amount of seller financing (if used).

Question 22

Time Is of the Essence

Answer 22

The phrase “time is of the essence” is often used in purchase and sales agreements to put the parties on notice that Tuesday, December 1 doesn’t mean Wednesday, December 2, for instance. Missing a contracted deadline, unless the parties agree in writing to an extension, puts the errant party in default, and the transaction at risk. Among other deadlines, a purchase and sales agreement must include a deadline by which the seller must respond to the buyer’s offer. If the seller fails to respond by the stated deadline, the offer is void.

Question 23

Fixtures and Personal Property

Answer 23

A purchase and sales agreement must specify any items that the seller might ordinarily remove (such as a free-standing refrigerator) that will remain with the property, and any items that will be removed that would ordinarily stay (such as a light fixture or plantings).

Question 24

Earnest Money

Answer 24

Earnest money is the buyer’s deposit on the down payment. It’s also a show of good faith on the buyer’s part to complete the transaction. It should be provided with, or shortly after, offer acceptance, and it’s usually made out to the escrow agency that will handle the closing. The escrow company will retain the funds on the parties’ behalf until closing and may only disburse the funds upon the written request of both parties. The sales contract should specify how much earnest money the buyer will deposit, in what form (e.g., personal or cashier’s check, money order, or promissory note), where it will be deposited (e.g., the specific escrow office) and by when.