23.1 - Purchase & Sale II Flashcards
(14 cards)
What two conditions must exist for a real-estate sale to close?
The deal must be acceptable to both parties and create gains from trade (price lies between buyer’s & seller’s reservation prices).
Define “reservation price” (RP) for buyer vs. seller.
Buyer RP: Highest price they are willing to pay. Seller RP: Lowest price they are willing to accept.
Why is real-estate bargaining an “incomplete-information” game?
Each side does not know the other’s RP, so must infer it through offers, counter-offers, and market signals.
What are the three major determinants of bargaining power?
(i) Outside options (competing buyers / substitute homes). (ii) Ability to wait (deadlines). (iii) Personal/emotional factors (e.g., seller cares about buyer’s intended use).
Why do buyers commission property inspections before firming up a contract?
To uncover physical or environmental defects, validate price, satisfy lender/insurer, and decide whether to waive contingencies.
What is the role of the mortgage lender’s appraisal?
Confirms the value supports the loan; lender may deny financing if the home appraises too low.
Give four specialty tests an insurer or lender might require.
Termite & pest • Mold • Radon gas • Asbestos (others: lead paint, structural/engineering).
What is an Environmental Site Assessment (ESA)?
Research into environmental risks on/near a property: • Phase I: Desktop & historical review. • Phase II: Soil/water sampling for contamination.
Why do Phase I ESAs look at neighbouring parcels?
Contamination can migrate; past uses on adjacent lots (e.g., gas station) may pose risks or cleanup costs.
What is the seller’s general legal duty regarding disclosure?
Must disclose material defects or issues they know about; if disclosed and buyer proceeds, buyer normally loses later legal recourse.
List five common contract contingencies tied to inspection/disclosure.
Home inspection * Financing * Insurance * Permits/zoning * Engineering/structural review.
Give five types of “stigmatized property.”
Criminal stigma (drug den) * Violent-death stigma * Debt stigma (collectors) * Phenomena stigma (“haunted”) * Public stigma (famous film house).
Do stigma disclosure rules vary by state?
Yes — states differ widely; some mandate disclosure of violent deaths, others do not.
What is the market impact of stigma on value?
Stigmatized properties often trade below comparable sales due to buyer aversion and limited demand.
