Real Estate Practice Unit 12

Front 1

Purchase agreement

Back 1

Also known as the 'deposit receipt' and acts as the receipt for earnest money the buyers give to secure an offer. Once signed by both parties it becomes a legally binding contract between buyers and sellers.

The purchase agreement includes all terms of the sale, including agreements about financing. Buyers and sellers are bound by the contract when the buyers receive notification of the sellers’ acceptance of the offer, without any changes. The purchase agreement may become the actual escrow instructions

Front 2

Escrow instructions

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Written directions, signed by buyers and sellers, detailing the procedures necessary to close a transaction. Escrow instructions also give direction to the escrow agent on how to proceed

Front 3

Money deposit

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Upon writing a purchase agreement for real property, buyers usually give an earnest consideration as a sign that they are serious about making the offer

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Consideration

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Buyers’ deposit in the form of cash, a personal check, cashier’s check, promissory note, money order, or other form usually for 1-3% of the purchase price of the property. Something promised, given, or done that has the effect of making an agreement a legally enforceable contract. The check is payable to an escrow company or the listing broker. If the sellers accept the offer, the buyers’ check is deposited into an escrow account or into the broker’s trust account within three business days after receiving it

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Contingencies

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Statements that define the terms of an agreement and give the other party cause to void an offer if the terms are not met. Usually, they benefit the buyers rather than the sellers. Buyers want to make sure they get what they pay for and that no surprises surface that may affect their decision to buy

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Easement contingency

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For example, if the contract states that the sale is contingent upon negative findings of an easement and an easement is found to exist, this contingency could allow the buyers to back out of the offer

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Contingencies that affect title include

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Covenants, Conditions, and Restrictions (CC&Rs); rights; stipulations; and agreements or other conditions of record that affect the property such as the existence of a common wall, encroachments, and easements

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Financing Contingency

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A very common contingency that is dependent on the buyers’ ability to obtain financing at favorable terms

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Contingent on Condition of Property

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One of the most common reasons why a home sale falls apart is because of adverse property conditions discovered during inspections

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Transfer Disclosure Statement (TDS)

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Specific written disclosure that should be made and given to prospective buyers of one-to-four dwelling units. It should disclose facts about the particular piece of property that could materially affect the property’s value and desirability

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Contingent on Home Inspections

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Another common type of contingency is the contingent upon satisfactory completion of inspection. The most commonly requested inspections include those for hidden defects, pest inspections, water and sewage system inspections, and the presence of radon or mold. The contingency should outline the inspections the buyers want performed, the dates of completion, and outlined consequences if a problem is found

Front 12

Contingent on the Sale of Another Home

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Buyers and sellers can create contingencies on the sale of a home other than the subject property. Buyers can make an offer on another property contingent upon the sale of their current home. On the other hand, it is possible for sellers to create a contingency based on their ability to find a suitable replacement property to live in after the sale of their current home

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Proration

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The process of distributing or dividing the expenses or income between the sellers and the buyers usually up to the date of closing or the date of possession. The most common items that are prorated include real property taxes, interest on loans, insurance premiums, rent or assessments, and sewer charges

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Early Move-In

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Allows the buyers to take possession of the property prior to the close of escrow

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Interim Occupancy Agreement—Form IOA

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A written early occupancy agreement. Should be completed and signed by the sellers (as landlord), the buyers (as tenant), the listing agent (representing the sellers) and the selling agent (representing the buyers)

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Signing of the Contract

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Be sure the signatures of all buyers, sellers, and salespeople are on the contract. Also, every purchase contract prepared or signed by a real estate salesperson must be reviewed, initialed, and dated by the salesperson’s broker within five working days after preparation or signing by the salesperson, or before the close of escrow, whichever occurs first. Remember that the offer is not a contract until the seller accepts it

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Accepting a Counteroffer

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The accepting party must notify the offeror of acceptance so that the offer or counteroffer will be valid. Up until the point of notification of the sellers’ acceptance, the buyers are free to withdraw the offer. It is important that the party who created the offer receive a signed copy of the other party’s written acceptance for it to be valid. If possible, personally deliver the acceptance to the offeror. However, you may also mail or fax the acceptance

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After Acceptance of Offer

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Once the sellers agree to the offer and the buyers are informed of the sellers’ acceptance; the deposit receipt is a valid, non-rescindable, binding contract. Once all parties execute, or sign, the deposit receipt, it becomes a bilateral contract