INTRODUCTION
Learn to go into the purchase agreement in more depth and learn to fill out correctly so enforceable and can be understood. Art is to make it simple for everyone to understand, but be clear and accurate.
PREPARATION
5 reasons to prepare good purchase agreements
• Reputation
Good reputation will make other agents want to work with you. Competent and cooperative
• Client
You can service your client best with an accurate and proper contract. Being clear about responsibilities and expectations.
• Professional competency
High degree of skill and accuracy in transaction and clear and accurate contracts will give brokers confidence. Means writing a document that will withstand the scrutiny of an attorney.
• Legal competency
Licensee tested on good contract making and ability to explain to client.
• Time considerations
An agent must be able to clearly and efficiently write the contract accurately the first time.
Be as specific as possible. A contract written with ambiguities that can be interpreted differently by the parties, will most likely fall out of escrow. The agreement between the parties must be reflected. Terms should be realistic and attainable. Use language such as “not to exceed”. Consult a checklist such as Purchase Agreement Checklist.
FINANCING TERMS AND CONDITIONS
• All Cash
i) Cash down-payment to be $_____ including the above deposited.
ii) Buyer to deposit an additional $_____ in escrow as part of purchase price. (upon removal of contingencies on or before ten days from date hereof; upon obtaining new loan commitment; upon signing of escrow instructions; etc.)
• New First Trust Deed
i) Subject to buyer obtaining, at his expense a new first loan of approximately $_____ with interest not to exceed _____% per annum , payable in not less than _____ years.
ii) Any differences in the approximate new loan shall be adjusted by cash or second trust deed.
When quoting number of points a seller may pay on FHA or VA, disclose what factors may increase points paid. Appraisal may be lower, required work requiring permit fees or market changes.
Assumption Of Existing Loan
i) Buyer shall assume, or take over, the 1st or 2nd trust deed of record of approximately $_____ payable $_____ per month, including _____% interest.
Cal-Vet (California Veterans)
This purchase is subject to buyer obtaining new Cal-Vet financing of not less than seller to carry back $_____ at_____% interest per annum, payable $_____ per month, with the balance of purchase price to be paid in cash. Both the buyer and the seller will be expected to pay their own, normal closing costs.
New Trust Deed
1) Buyer to execute a note payable to the seller secured by a 1st trust deed (or 2nd, 3rd and any subsequent trust deed) in the amount of $_____, or more, payable per month, including _____% interest per annum on the unpaid balance, all to be due in (?) years.
2) Buyer to execute a note payable to the seller secured by a 1st trust deed (or 2nd, 3rd and any subsequent trust deed) for the balance of the purchase price, less the down-payment, and new or existing loan payable at 1% (or more) of original amount per month, including _____% interest per annum on the unpaid balance, all due in _____ years.
“Subject To” Existing Loan
1) The buyer shall purchase “subject to” the the existing 1st or 2nd trust deed of record of approximately $_____ payable $_____ per month, including _____% interest.
Any difference in the lenders statement will be adjusted by cash or in the second trust deed.
All Inclusive Trust Deed (AITD)
Also called a wraparound mortgage, junior instrument that wraps the existing loans. Lower on the totem pole. Trust deeds recorded first get paid back 1st. Here is the correct wording.
$_____ down payment including the deposit. The buyer is to execute a promissory note in favor of the seller secured by an all-inclusive deed of trust in the amount of $_____
payable at $_____ per month including principal and interest at the rate of _____% per annum. Impounds should be paid as well, whenever applicable.
Land Contract
A land contract note shall be payable:
1) Interest only at the rate of _____% per year in the sale tax year, payable as monthly or quarterly installments, or to be paid all at one specific date.
2) Commencing on January the 1st or any other determined date, 1% of the original principal amount (or more) per month, including _____% interest on the unpaid balance continuing until the balance is paid in full, or from 60 months from close of escrow at which time the entire balance shall be due and payable.
3) In addition thereto, the buyer shall make a principal reduction payment of $_____ on January 1, 20XX.
Alienation
1) The trust deed shall contain an alienation clause.
2) If buyer conveys or transfers title, the entire balance of this note and trust deed shall become due and payable should the beneficiary disapprove of the new buyer.
Prepayment penalty clause
Can’t be used in conjunction with the statement: “Or more” as this gives the buyer the option to pay more. This clause guarantees the lender their full interest.
1) Privilege is reserved of making partial payments of $_____ or any multiples thereof on said principal sum and any payment date before maturity without penalty.
2) Privilege is reserved of paying this note in full upon any interest payment date after one year (or any time specified) and before maturity upon giving the the holder thereof_____ days written notice of intention to pay this note.
3) Privilege is reserved of paying this note in full at any time.
4) Privilege is reserved of paying in full at any time up to one year from date hereof by payment of principal, accrued interest and_____ days unearned interest
5) After _____ year(s) from date hereof, privilege is reserved of paying this note in full without penalty of any kind.
FHA and VA loans
These loans require specific notice provisions. Best way to solve is to attach a form with required text. Terms can be written as follows:
Buyer To Obtain FHA 203B Owner-Occupant Loan:
$_____ as loan proceeds, conditioned upon buyer’s ability to obtain a first loan secured by subject property in that amount, to be insured by FHA for _____ years, payable at approximately $_____ per month, including interest at _____ percent per annum, including FHA mortgage insurance, taxes, fire and other hazard insurance. Buyer to pay 1 percent of loan origination fee, initial reserve, and normal closing costs. The seller is to pay no more than XX points and to comply with FHA requirements for structural pest control certification and repairs if any. (Buyer/Seller)_____ to pay for FHA appraisal.
Buyer to Obtain VA Loan
$_____ as loan proceeds, subject to the buyer’s ability to obtain a first loan secured by subject property in that amount to be guaranteed by the Veterans Administration for _____ years, payable to approximately $_____ interest at _____ percent per annum, and taxes, fire and other hazard insurance. The seller is to furnish the VA appraisal and pay all normal closing costs, all escrow fees and points as required by lender.
Adjustable Interest Rate
$_____ as loan proceeds, subject to the buyer’s ability to obtain from _____ (institutional lender) an “adjustable interest rate” loan in that amount secured by subject property, payable at $_____ monthly including principal and interest at close of escrow at the rate of _____% per annum. Buyer to pay loan setup fees not to exceed XX points.
Subordination
THe trust deed shall contain a clause that must be approved by the title company and lender, providing that said trust deed shall be subordinated to a new institution loan not exceeding $_____ for not less than _____ years, bearing not more than XX% interest per annum.
Free and Clear
The seller agrees to deliver the property free and clear of all encumberances, including payoff penalty, if any, liens, binds, and assessments of record or pending assessments, except as noted herein.
Impound Account
1. Buyer to reimburse seller the amount held by lender as impound account.
2. Seller to transfer impound account to buyer with no reimbursement.
Partial Release Clause
1. The deed of trust is to contain a release clause providing that upon payment of $_____ plus accrued interest on said amount the beneficiary shall execute a partial reconveyance of the property, or a portion of the property, to be released from deed of trust covering same.
2. So long as the trustor shall not be in default concerning the covenants contained herein or with respect to the payments due on the promissory note secured hereby, a partial reconveyance may be had and will be given on parcels of not less than XX square feet, or parcels containing not less than _____ front footage of the property hereinbefore described from the lien or charge hereof payment of an amount to apply on the principal of said note: based on the rate of $_____ for each square foot or front footage.
Purchase Agreement Checklist
Are all the terms clear and complete?
If creating a deed of trust payable to the seller, have you considered:
• A down payment sufficient to secure a second?
• Name of beneficiary as “additional insured” on the fire policy?
• Term, if due before normal maturity?
• Request for Notice Of Default on first Trust Deed?
• Payment greater than 1 percent of face value per month?
• “Due on sale” clause?
• Buyers credit?
• The interest rate?
• Are there any changes to the normal closing costs for the buyer or seller?
• If a structural pest control inspection is necessary, is the certification completed with limitation for expenditures by the seller, if required?
• Which party will pay for the appraisal?
• What other repairs must be completed, and which party will pay for the repairs?
• What personal property will be included or excluded?
• Has a provision been made for the rental of the property if possession is not granted on escrow?
• What other certifications must be obtained? Who will pay for these inspections?
• Has there been any written disclosure of any deficiency affecting the property of the structure which might adversely affect the use or enjoyment of the property or structure?
• Do both the buyer and the seller completely understand all costs they will incur, the payments they must make and any estimated net revenue to be received from this transaction?
LANGUAGE FOR NON-FINANCIAL TERMS AND CONDITIONS
Purchase option
This option made this_____ day of _____ by and between______, hereinafter called “seller”, and ____ hereinafter called “buyer”. In consideration of the sum of $_____ paid by the buyer to the seller, the receipt of which is hereby acknowledged, the seller hereby grants to the buyer the exclusive option to purchase the following described property.
Said option may be exercised anytime prior to 5:00 P.M. pacific Standard Time by delivering written notice of exercise of this option addressed to the seller at
Said written notice shall be deemed delivered to seller within_____ hours of the depositing thereof postage-prepaid, certified mail, at any U.S. Post Office in the State of California.
The purchase price shall be $_____ payable as follows:
Within two business days from the day of delivery of notice of exercise of this option to the seller, the buyer shall open an escrow at any escrow company on the following terms and conditions and the the seller and buyer shall immediately do same:
1. The escrow terms shall be for _____ days.
2. At the opening of escrow, the buyer shall deposit therein $_____ as a deposit on the accounts of the purchase price.
3. The seller shall furnish and pay for a policy of title insurance, showing title vested in the buyer free and clear of bonds, liens, assessments, and encumbrances of record except as noted herein.
4. The seller and buyer shall pay their usual escrow costs and fees.
5. Possession shall be given to the buyer at close of escrow.
6. Taxes, insurance premiums, interest and rents, if any, shall be prorated to the close of escrow. Security deposits, if any shall be given to the buyer at the close of escrow.
Should the buyer exercise the option to purchase the subject property provided for herein, the seller agrees to pay a real estate commission to the brokerage in the sum of $_____
Primary Title Report
This escrow is contingent upon the buyers approval of C.C. & R’s and preliminary title report within _____ days of the buyers receipt of same. Escrow holder is authorized and instructed to order preliminary title report and C.C. & R’s immediately. Upon receipt of same, the escrow holder shall forward to the buyer the preliminary title report and copy of C.C. & R’s via registered mail with return receipt requested. In the event buyer has not advised escrow holder of his disapproval of same within _____ days of his receipt of same, this contingency is null and void. The buyer shall pay all cancellation costs of this escrow.
Right to Exchange
1. Should the seller desire to exchange the subject property, the buyers agrees to cooperate and purchase the subject property from the sellers assignee.
2. The seller intends to enter into a tax-deferred exchange of the sellers property. If prior to the date set for close of escrow, the seller locates property which the seller desires to acquire, the buyer agrees to do all acts reasonably necesarry to assist in obtaining said property to be exchanged for the subject property, provided that the buyers liability is not increased above the purchase price herein provided. If the seller does not locate such property prior to close of escrow, both parties shall proceed with the sale herein provided for.
Release Clause
If the seller accepts a second offer, the buyer shall, within_____ hours of notice hereof, remove all contingencies or this agreement shall be void. Said notice is to be given through registered mail.
Counteroffers
If the seller makes a counter offer involving only minor changes, write it on the front of the deposit receipt and have the seller initial the changes and sign at the bottom of the offer. Remember to allot time for acceptance. If involved, fill in the counteroffer form. Fill in the commission on the front of the deposit receipt.
The offer on the reverse side is accepted subject to the following changes:
1. Sales price to be $_____
2. Down payment to be $_____
This counteroffer expires ____ days from the date hereof..
Dated:_____
The above counteroffer is accepted.
Dated_____
Seller_____
Seller_____
Buyer_____
Buyer_____
(Another option is to write new DR and have seller sign.)
Inspection, Equipment & Appliances
The seller agrees that at the time occupancy of the property is delivered, the heating, sewer, plumbing, and electrical systems, including the water heater and any built-in appliances and equipment, as well as all outside locks and window hardware, shall be in good working order, that the grounds shall be maintained and free of debris and that there shall be no broken show or window glass, with the exception of the following:
If in the reasonable opinion of a qualified technician any of the above conditions need to be repaired or corrected, the buyer shall furnish seller a copy of said technician’s inspection report within 3 business days from date occupancy is delivered.
In the event the seller fails to make the repairs and or corrections in accordance with said report within 5 business days from the receipt of said report, the seller herewith authorizes the escrow holder to disburse to the buyer against bills for such repairs and/or corrections a total sum not to exceed $_____
THe seller agrees to leave said sum in escrow to be disbursed to the buyer or returned to the seller not later than 8 business days from the date of occupancy.
Sale and Leaseback
1. The seller agrees to execute the attached lease in favor of the buyer and deposit same into escrow.
2. The seller agrees to lease property for_____ years at $_____ per month.
General Inspection
1. The buyer has inspected the property and is purchasing the same “as is”.
2. Subject to the buyers right to inspect and disapprove the property in writing within_____ hours from time of acceptance.
Roof Inspection
The buyer may choose to have the roof inspected by a licensed general or roofing contractor. If in the reasonable opinion of such contractor the roof is in need of repair, the buyer shall furnish the seller a copy of the inspection report within 15 days from acceptance.
In the event the seller fails to notify the buyer within 5 days of receipt of said report that seller agrees to make such repairs, the buyer may terminate all rights and obligations of the parties hereunder.
consent of an Attorney
The offer is pending upon the seller’s attorney’s approval.
Structural Alterations
All structural additions, alterations, and replacements of the dwelling completed during the sellers ownership were completed under an appropriate construction permit or other authority in accordance with an ordinance regulation, EXCEPT:
NOTE: This is a requirement for all residential property up to four units. If sale or exchange, disclosure in writing before transfer of title. Before execution of contract in a real property sales contract or land contract. Seller liable otherwise.
Covenants, Conditions & Restrictions
1. Subject to the buyers right to disapprove of C.C. & R’s within _____ hours receipt thereof.
2. Subject to the buyers right to disapprove within _____ hours receipt thereof C.C.& R’s that affect the buyer’s right to use the property (to construct an apartment house; to build commercial, or multiple residential purposes; etc.)
Termite Report
Most DR have this included.
1. The seller is to furnish a recent termite report, by a state-licensed pest control operator, showing on the property no visible signs of infestation, fungi, or dry rot in any accessible area.
2. The seller shall furnish as his/her expense a current termite report to be ordered by the broker showing the accessible portions to be free of visible evidence of infestation caused by wood destroying insects, fungi and or dry rot. Seller shall pay all corrective work recommended, but not for preventative work.
Warranty
The seller agrees to furnish buyer a Home Maintenance Warranty, to be paid for by to become effective _____ immediately upon date of closing_____on_____for a period of_____. Said warranty to be issued by _____ a home maintenance warranty company in accordance with it’s terms and conditions. Said warranty to be delivered to the buyer upon date of closing.
Soil Report
Subject to the buyers right to disapprove, a soil report to be obtained and paid for by the buyer within _____ days from date of acceptance. The buyer shall be given the right to enter property for such purpose.
Building Code
1. The seller warrants that there are no building code violations.
2. The seller has no prior or current knowledge of any building code violation.
SPECIAL CONSIDERATIONS FOR INCOME AND BUSINESS PROPERTIES
Rental Statement
1. The seller shall execute a rental statement within _____ hours and deliver the rental statement to the broker showing all income to be represented.
2. Subject to the buyer’s right to inspect and disapprove rent statement within _____ hour’s receipt thereof.
Zone Change
1. Subject to the buyer obtaining at his own expense zoning. Seller agrees to sign all papers necessary to effectuate this zone change. Buyer to apply for said zoning within _____ days after acceptance of this offer.
2. Close of escrow to be _____ days after all the appropriate agencies approve the subject property as ___ zone.
Leases
1. The buyer is purchasing property subject to the existing leases, which shall be assigned to him or her by the seller.
2. Subject to the buyers right to inspect and disapprove leases within hours receipt thereof.
3. Seller shall continue to lease vacancies during the escrow period.
4. Any leases negotiated during the escrow period shall be subject to the approval of buyer.
Possession
1. Possession of property to be delivered to the buyer at close of escrow or on (enter appropriate date here)
2. As a memorandum of understanding between the parties hereto, and with which the undersigned the broker is not to be concerned, possession of subject property will be given to the buyer at close of escrow or on _____
3. The seller is to deliver the property free of tenancies at the close of escrow, allowing for the buyer to have full use.
Insulation Disclosure
Federal Trade Commission requires insulation performance on all new homes prior to sale. Listing brokers, of new homes, should be aware:
1. Exterior walls will be insulated with a given insulation to certain thickness in inches which, according to the manufacturer, will yield an R-value of insulation.
2. Interior walls will be insulated with (state type of insulation) to a thickness of (state thickness of insulation) inches which, according to the manufacturer, will yield an R-value of _____.
Advance Rents
Advance rents, any security deposits and cleaning fees, if any shall be assigned to the buyer and adjusted in cash, or trust deed to the seller.
Personal Property
1. The seller shall furnish an inventory and bill of sale for all personal property included in purchase price.
2. The seller shall issue bill of sale for the following personal property included in the sales price: _____ _____
3. The seller shall furnish an inventory and bill of sale for all personal property included in purchase price. Buyer shall have the right to disapprove of same within _____ hours receipt thereof.
Maintenance
1. The seller agrees to maintain the building in good condition and repair during the escrow period.
2. During escrow period, the seller agrees to pay all escrow charges.
Title
1. Subject to the seller acquiring a clear title to the property.
2. The buyer reserves right to vest title in a corporation, limited partnership, or any other entity he/she determines.
3. Should title vest other than the buyer, the seller reserves right to approve vestee.
Sale of Other Property
This agreement is conditioned upon the close of escrow number _____ with _____ Escrow Company, under an agreement dated _____ 20__, with_____ (name of buyer) pertaining to the property described _____ (insert address here) Said escrow is set for closing not later than ____, 20__. If this condition is not satisfied, the buyer may, at the buyers election, by notice in writing to the seller, waive this condition or cancel this agreement. If no such notice of cancellation is given within _____days of the date set herein for close of escrow, this condition shall be deemed waived.
Income and Expense Statement
1. The seller shall execute an income and expense statement within_____ hours after accepting the offer and deliver this statement to the broker showing verifiable revenue and expenses as of the date of acceptance.
2. Subject to the buyer’s right to inspect and disapprove the income and expense statement within _____ hours receipt thereof.
Approvals
THe buyer shall disapprove leases; rents; personal property inventory; revenue and expense statement within _____ hours of receipt thereof or they shall be deemed approved.
Illegal Rents
1. The seller represents that structure such as guest house; patio; room addition; converted garage were built with a permit and are legal structures.
2. The seller does not represent structures or building as being legal rental units; guest house, etc. and it is understood by all parties concerned the buyer is purchasing subject property “as is”.
OTHER CONSIDERATIONS
Flood Insurance
If your property is in ’special flood hazard’ area, as designated by Federal Insurance Administration and insurance is available from National Flood Insurance Insurance Program, you must carry it. Coverage to be the remainder of the loan or maximum limit, whichever is less.
Owning or buying in flood hazard area should be aware of NFI program expanded by Federal Disaster Protection act. Qualified areas can qualify for subsidies. Special flood hazard area = 1% chance of flooding within a year, or once every 100 years.
2 programs available
Regular= $185,000 on dwelling and $60,000 on contents.
Emergency = $35,000 on dwelling and $10,000 on contents.
Disclosure responsibility rests on lender. Courts will likely decide that high flood risk is a latent defect with the property and must be disclosed by seller. Sellers agent is liable for two reasons, first, as representative, second, as an expert who should disclose the flood insurance program and the ramifications of qualifying and not.
In order to sell the seller must have the appropriate flood insurance. Premiums collected in monthly amounts.
Not all areas checked by FIA, call (800) 638-6620 to find out.
Special Studies Zones Act
The Alquist-Priollo Special Studies Zones Act has 2 important provisions affecting licensees concerning earthquakes.
1. If property is in “special studies” zone must be disclosed.
2. If plans to build in “special studies” zone, a geologic report on surface faults is required by building department
Geologic Reports Referring To New Construction Are Not Required
• When the new structure will not contain humans.
• Mobile homes.
• If previous reports have been made.
• If report waived
• SFR, wood-frame, not more than 2 stories high. Unless part of development of +4 units.
• Additions or alterations not exceeding 50% of value of existing structure.
Disclose the “special studies zone” on…
• Escrow instructions
• Deposit receipt
• Listing agreement
Alquist-Priollo relates only to earthquakes. Other geological disclosures may be required. Check local laws and rules.
Agents must disclose matter which may affect the purchase, such as this. Most agents use CAR form Special Studies Zones and Flood Hazard Disclosure. Check off what applies to the property and deliver the addendum to be read and signed by the buyer. Obtain a receipt! Otherwise you are in violation of the law.
Some properties are exempt from geo. reports, however the disclose must still be made to prospective buyer. Determine if property is in Special Studies Zone, check with city or county planning director.
Soft Prices
Listing agent is sellers agent and has fiduciary responsibility. Any agents (sub-agents) working under the listing agent, are responsible to seller. Only if agent has power of attorney can he/she suggest less favorable options to seller.
Best Prevailing Rate
Sometimes buyers agents will write an offer contingent on the buyer getting the best financing rate.
“Contingent on the buyer obtaining financing at the best prevailing interest rate.”
If the buyer feels they did not receive the best rate, they can back out of the sale. Not always good for either.
If the contract is contingent on buyer’s financing, it should specify the terms.
Terms include:
• Minimum Principal Amount
• Minimum Term Of The Loan
• Maximum Interest Rate
• Maximum Loan Charges
The buyer has ‘implied obligation’ to exert ‘diligent good faith’ effort to obtain specified loan. Maximum interest is important, as it allows buyer to cancel sale if interest rate offered is bad.
If the wording ‘prevailing rate of interest’ is understood between the parties, it can be used. Other than that it’s an example of an ambiguous contract.
If a licensee, acting on behalf of the seller, writes an ambigious PA, the ambiguity is likely to go against the seller. When writing out the conditions of the financing and using ‘prevailing’, additional definition of the type of loan may help create a well written PA. e.g. When assuming, the loan and the lender are already defined.
In a rising rate market, it’s best the buyer place the maximum rate slightly higher than the prevailing rate. If buyer lists a maximum rate and can’t perform, the seller should be notified and he/she can decide wether or not to re-negotiate.
Avoid ‘prevailing rate’ where possible and use maximum interest rate instead. Make sure all phrases/words clearly defined.
Broker Responsibility for Information Furnished by Owner
When taking a listing check all information offered by seller and check facts where possible. Any discrepancy, and the agent could be held liable. If the untruths are hard to check or there would seem no reason to doubt the sellers information, the courts will most likely side against the seller. If however the facts could be easily checked and the broker did not attempt to verify, the court will go against the broker.
Always make a visual inspection and check facts where necessary.
Agents can protect themselves with California Civil Code 1102, a form used in the transfer of fewer than 4 units. The document states:
Seller nor agent is liable for discrepancies, provided they had no personal knowledge or error. If provided by public agency or licensed professional and the seller/agent used used due diligence to verify.
When more than 1 agent involved… agent who obtained the offer is responsible for delivery of disclosure to buyer.
Late amendments to the disclosure (after the offer), buyer has 3 day (5 if by mail to back out of the deal).
Failure to submit/supply disclosures in of itself shouldn’t stop transfer. Negligent/willful will put broker at risk and liable for damages.
Records of compliance must be kept for 3 years.
Usury
Claiming or charging a higher rate of interest allowable by law.
When a seller takes back a second on a property he/she is not in violation of the law if they charge more that the allowable rate. Proposition 2 1979 limit at 10%
10% for family, personal and household. Real estate including… purchase, construction or improvement: Usury is 10% or Federal Reserve Bank of San Francisco’s bank rate plus 5%. If agent puts the deal together…is limited only by what the buyer will pay.
Seller must hold purchase money and deed of title without transferring to 3rd party. This behavior keeps seller outside of the usury law as the courts deem it to be a sale and not a loan.
A sale is a transfer of property for money. A loan is deliver of money under contract to return with interest/or not.
Some sale transactions fall under the usury guidelines such as promissory notes from buyer to seller that include a loan. e.g. If the buyer cannot secure a large enough loan to cover the purchase of the home and the seller does not want to carry, the seller can sell a second deed of trust to a third party and get ‘cashed out’. The discounted second note could feesibly be 17%. This could be regarded by the courts to be a loan if the loan was prearranged. If not prearranged the usury law might not apply.
To avoid problems, suggest against charging more that the usury allows. Also avoid:
i) A prearanged note takeover by a 3rd party in favor of seller before transfer consumated.
ii) If it looks prearranged: Note is moved to 3rd party soon after close of escrow.
Disclosures
Disclosure of lenders rights to accellerate loan (call the loan early or require full payment) protects the agent and executes fiduciary responsibilities to client.
Caution clients to the lenders right to do this. Insert a clause to this effect in:
• Purchase contract
• The note
• Deed of Trust
“As Is” Sale
Transfered to buyer in current condition, with no guarantees seller will correct any problems.
A buyer is expected to show due diligence with visual inspections, but invisible problems… repeat plumbing issues, leaky roof, un-permited structure, etc a seller should disclose.
Seller has affirmative duty to disclose. Sellers agent must do same under ‘fair dealings with 3rd parties’, failure to do so results in liability. It’s been said that the buyer should be able to more forward on the deal based solely on that broker and seller disclose.
“As is” statement must be accompanied by a list of known deficienties in the home. e.g. The buyer has personally inspected the property and is aware that the residence has a roof that leaks and will need to be repaired or replaced. Without disclaimer the “as is” is worthless.
Fraud is knowingly suppressing facts. Section 10101 of the Business and Professions Code states that accusations against licensees must be filed 1 year after date of discovery or 3 years after occurance, whichever is later.
Proving that Compensation is Earned
As agent you have to prove you were employed by one of the parties. Usually the seller, as they pay commission. Must be in writing, Listing agreement is sufficient defining:
• Terms of employment
• Names of parties
• Detailed property description
• Price, terms of sale
• Conditions
• Listing length
• Form compensation takes
• When paid
Generally there is no commission paid if the house is not sold, regardless of expenses incurred. To satisfy the agreement the broker must produce a buyer, ready, willing and able. If the broker sells the home and the seller refuses to pay, the broker must show the court that the transaction completed and that he/she (broker) was instrumental in the ‘procuring cause’ of the sale.
The CDRE defines ‘procuring cause’ as a series of events, without break in continuity, results in agents employment. Ending in a buyer. Based on equity and fair play.
The sellers broker has done his duty when he has produced a buyer and entered the seller and buyer into a binding contract. The buyer must be willing and able and agree to the terms laid out by the seller. Only after the binding PA is accepted is the deal complete. It’s not enough to place the buyer on the path of purchase. A seller may even sell a property to the same buyer, at the same price negotiated with the buyer for no commission if the broker did not complete the first go round. Upon completion of valid contract broker is owed his/her commission even if deal is not consumated. The brokers job is to bring together the agreement of the seller and buyer and get the buyer to commit to terms where he/she would be liable for damages. Page 238
If the broker finds a buyer and the seller insists on writing the offer… the mere fact he/she writes the offer shows the broker has done their job, even if the sale fails due to seller error. When making the offer the seller releases the broker (with commission) from the property.
The first broker to obtain legitimate buyer is due the commission. (Procuring the cause of the sale). If the buyer changes the terms of the sale and the seller accepts, the agent is due commission. If a deal falls through and another agent convinces the buyer to reconsider, the second agent is the cause of procurement.
Open listing or no listing poses a danger as another broker could step in at a later date and sell your prospective buyer a home.
2 brokers soliciting the same buyer… the seller cannot choose which broker may receive commission. The agent procuring the sale is the one due the commission.
When brokers compete in an open listing senario the seller is not allowed to step in and decide. The brokers must fight it out. Attempting the write their own PA will not let the seller off the commission.
Due-On-Sale-Clauses
Also known as alienation provision found in mortgage instrument, trust deed or note allows lender to to require remaining balance on the loan to be paid upon sale, transfer conveyance or further encumbrance.
Initially this clause was in place to stop buyers with bad debt to assume a loan. Now it’s a vehicle to impose higher interest rates on the new buyer. This has stopped sellers offering buyers to assume their loan at lower interest rates as an incentive.