Chapter 10 Concepts

Question 1

The Sales Contract

1) Common Name for it

2) Who approved of this contract?

Answer 1

1. In North Carolina the most common title is Offer to Purchase and Contract.
2. NCBA/NCAR 2-T Offer to Purchase and Contract (see Offer to Purchase) approved jointly by the North Carolina Bar Association and the North Carolina REALTORS®

Brokers are expected to know which standard form is appropriate for a given scenario and, when it is appropriate, to refer a consumer to an attorney to have a suitable contract drafted.

Question 2

1) What is the most important document in the sale of real estate and why?

2. What issues are addressed in a real estate sales contract?

Answer 2

1. The contract of sale is the most important document in the sale of real estate because it sets the parameters of the agreement between the buyer and the seller and establishes their legal rights and obligations. It is more important than the deed itself because the contract, in effect, dictates the contents of the deed.
2. Issues to be addressed in a real estate sales contract are price, terms, legal description of the property, kind and condition of the title, form of deed the seller will deliver, kind of title evidence required, who will provide title evidence, and how defects in the title, if any, are to be eliminated. The contract must state all the terms of the agreement and spell out all contingencies and/or conditions.

Question 3

Uniform Electronic Transactions Act (UETA)

Answer 3

A uniform state act providing a legal framework for electronic transactions giving electronic signatures and records the same validity and enforceability as manual signatures and paper-based transactions.

The statute defines an electronic signature as “an electronic sound, symbol, or process attached to, or logically associated with, a record and executed or adopted by a person with the intent to sign the record.”

Question 4

What is needed to form a valid real estate transaction?

Answer 4

-an offer made

-an acceptance of that offer

-communication of the acceptance to the other party (the offeror).

Question 5

What is an offer?

Answer 5

Anyone who makes an offer to purchase property is known as the offeror—the person making the offer. Anyone who receives an offer is known as the offeree

Question 6

What is contingency?

Answer 6

In other words, the offeror is saying to the offeree, “This is my offer, if the following conditions or contingencies can be met.”

Question 7

Acceptance

Answer 7

occurs when the offeree signs the offer without making any changes to it, thereby evidencing his acceptance and willingness to be bound by and perform all terms of the offer.

If no contract is ever formed, the full earnest money is returned to the offeror

Question 8

The Counteroffer

Answer 8

when the offeree receives the offer and makes any change to that offer, it constitutes a counteroffer, which is a rejection of the first offer. When the counteroffer takes place, the original offer cannot be revived. The offeree also cannot later reconsider and accept the original offer. It has been rejected; it no longer exists.

Question 9

Methods of Communicating Offers and Acceptance

Answer 9

most acceptable way is to communicate in writing. the offeror signs the written offer and communicates it to the offeree, and the offeree signs the written offer, denoting acceptance. When the acceptance is properly communicated back to the offeror, a contract is formed.

oral, by telephone, voicemail, in person, or by personal delivery of the written acceptance by the offeree or by another person on behalf of the offeree. Communication to either party’s agent is deemed communication to that party.

Question 10

Mailbox Rule

Answer 10

If an acceptance is placed into the mail service to the other party or that party’s agent, it is considered as having been delivered when mailed, not necessarily when actually received

The parties cannot revoke the offer once the acceptance is mailed because it is now a contract.

The mailbox rule is only effective to create a contract.

Question 11

Termination of Offers

Name 5 ways to terminate an offer

Answer 11

-if the offeree rejects the offer and/or creates a counteroffer;

-if the offeree fails to accept within the prescribed time stipulated in the offer;

-within a reasonable time, if a time of acceptance is not prescribed;

-prior to acceptance, if the offeror communicates a revocation of the offer; or

-by the death of the offeror or offeree.

**remember that an offer is not a contract, which is terminated in other ways

Question 12

An argument for a substantial deposit is that earnest money will be _______ toward the purchase price if the buyer goes forward with the purchase, and it is the seller’s sole and exclusive remedy for a ______ by the buyer after the expiration of the due diligence period.

Answer 12

-credited

-breach

Question 13

While initial earnest money may be paid in several ways including personal bank check, earnest money that comes at a later date must be immediately ________ such as official bank check or wire transfer by a time is of the essence date.

Answer 13

-available funds

Question 14

If the parties insist on suing each other for the earnest money, the party that loses the lawsuit will have to pay the attorney fees and legal costs of the ________ party as well as the party’s own expense of the suit.

Answer 14

-winning

Question 15

The escrow agent identified by name to hold the earnest money in trust is usually a ________ firm, a title company, or an attorney.

Answer 15

-real estate

Question 16

The _________ name should be entered as escrow agent, not the name of the individual broker within the firm. If earnest money is paid by check, the check should be made payable to firm serving as escrow agent with a note on the check’s memo line as to the purpose of the funds. Escrow agents can sign for receipt of initial earnest money on the NCBA/NCAR 2-T OPC.

Answer 16

-real estate firms

Question 17

The handling of trust money, such as earnest money, is strictly regulated by North Carolina License Law and NCREC Rule 58A.0107. Earnest money must be deposited in a ______ account held in an insured bank or savings and loan association legally conducting business in North Carolina within ______ banking days of contract formation.

Answer 17

-trust

-three

Question 18

Once a contract is achieved, the disbursement of the earnest money is clearly determined by the terms of the NCBA/NCAR 2-T OPC. If parties dispute how the funds should be disbursed, the escrow agent is ________ from making an independent decision on who is to receive the funds

Answer 18

-prohibited

Question 19

The only ways to resolve the disputed funds issues are parties agree in writing on how to disburse funds, court rules in lawsuit, or with written _________ notice to the parties by the escrow agent, funds can be transferred to Clerk of Superior Court of the county in which the property is located.

Answer 19

-90 day

Question 20

Effective date (in the sales contract)

Answer 20

-the date that contract was formed, is defined as when the last offeree to sign the offer or initial the last change communicates this action to the last offeror.

Question 21

Buyer’s due diligence process

Answer 21

An extensive, but not necessarily exhaustive, list of activities that should be performed during the due diligence period is outlined to guide the buyer in their investigation of the property.

-Like financing and appraisal conditions during this time

-If buyer cant satisfy all questions or concerns, buyer can request an extension but the seller is not obligated

-Any repair agreement should be in writing and be considered an addition to the contract.

-It should be noted that this contract form does not have a separate financing contingency. A contingency is a provision in a contract that requires a certain act to be done or a certain event to occur before the contract becomes binding; it is a condition of the contract.

-Written notice of termination required from the buyer to the seller prior to extermination period

The buyer should heed the approved notice information that specifies what is considered an acceptable method of communication of notice.

• The mailbox rule does not apply for the delivery of termination of contract; the mailbox rule is only applicable to the creation of a contract. Although not required by the contract, a prudent real estate broker would obtain and retain proof of delivery of the notice.

Question 22

Delay in settlement/closing (in the sales contract)

-NCBA/NCAR 2-T OPC has limited the time parameters for a reasonable time after the stated Settlement Date to a _______ grace period that the nondelaying party agrees to wait for the delaying party to close the transaction

-On the 15th day after the stated contract settlement date, the nondelaying party has the ___________ right to terminate the contract and enforce any legal remedies for the breach of the contract by the delaying party.

Answer 22

-14-day

-unilateral

Question 23

-Because brokers are __________ from drafting legal contract clauses or addenda, the use of other NCBA/NCAR addenda is highly recommended

Answer 23

-prohibited

Question 24

FHA/VA Financing Addendum (2A4-T) (in the sales contract)

Answer 24

-The addendum allows the borrower to terminate the NCBA/NCAR 2-T OPC without forfeiture of any monies if the property does not appraise for at least the purchase price specified in the NCBA/NCAR 2-T OPC.

-If the buyer will be using either FHA-insured or VA-guaranteed mortgage loans to purchase the property, this addendum is required

Question 25

Buyer Possession Before Closing Agreement Addendum (2A7-T) (in the sales contract)

-Among other things, the provisions of this agreement address rent, pets, insurance, and responsibility for payment of expenses, utilities, repairs, and maintenance. This agreement is not to be used for possession for longer than _______ days nor in connection with a lease purchase or lease option contract.

-The agreement wisely suggests that possession not be granted until the due diligence period has expired.

Answer 25

14

Question 26

Lead-Based Paint or Lead-Based Paint Hazard Addendum (2A9-T) (in the sales contract)

Answer 26

-Under the federal disclosure requirements of the Residential Lead-Based Paint Hazard Reduction Act of 1992, a residential seller must disclose what he/she knows about the presence of lead-based paint in the property and must provide any known reports about lead-based paint hazards in the property.

-The listing agent must initial on the second page that the seller has been advised of her obligations to comply with the act. The buyer may utilize or waiver a 10-day risk assessment period to determine the buyer’s willingness to proceed with the purchase of the property.

Question 27

All Known offers must be _________

Answer 27

-presented

Question 28

can work with one offer or the seller may ask some or all buyers to submit their ___________ offer.

Answer 28

-highest and best

Question 29

contrary to belief, there is no ________ on multiple offer siituations.

Answer 29

-priority

Question 30

A listing agent can assist the seller in reviewing the different terms in order to choose the best offer for that particular seller. Once an offer is accepted, the seller may consider a ________ offer.

Answer 30

-backup

Question 31

In a multiple-bid situation, buyer brokers often inquire about the terms of other offers. However, ____________, a practice in which a homeseller’s real estate agent discloses prices and terms of an offer to competing buyers in an effort to get higher bids, is strictly prohibited. Commission Rule A.0115 prohibits brokers from sharing the price or other material terms in offers with competing parties without the express authority of the offering party (the buyer). Generally, there is no advantage to a buyer in sharing their offer’s terms with competing buyers.

Answer 31

-shopping offers

Question 32

A ________ is not required to disclose a multiple offer situation. However, in accordance with the REALTORS® Code of Ethics, REALTOR® members will obtain a seller’s consent in response to inquiries from buyers or cooperating brokers before disclosing the existence of other offers.

Answer 32

-broker

Question 33

The fact that there are multiple offers on a property is not considered a material fact that must be disclosed. However, if one of the offering parties is notified of the existence of a competing offer, then ____ offering parties must receive the same notification. This maintains a level playing field for all offerors.

Answer 33

all

Question 34

An offer becomes a binding contract when the offeree accepts the exact terms and conditions of the offer and the acceptance is properly communicated back to the offeror.

True Or False?

Answer 34

True

**Acceptance occurs when the offeree signs the offer without making any changes to it. If the acceptance is properly communicated back to the offeror, a binding contract is formed.

Question 35

Installment Land Contract

Answer 35

A contract for the sale of real estate financed by the seller whereby the purchase price is paid in periodic installments by the purchaser, who is in possession of the property even though legal title is retained by the seller until a future date, which may not be until final payment. Also called a contract for deed or land contract.

Question 36

Installment Land Contract Advantages and Disadvantages

1) Advantage for Seller

2) Advantage for the Buyer

Answer 36

1) Adv. For the Seller:

-income tax benefit from receiving the sales price in installments over several years instead of in a lump sum

-Seller retains title

-If buyer defaults you can forfeit the deal. Forfeiture means that all the monthly payments the buyer has made are forfeited as well as all rights in the property.

-Finally, the land contract may be the only way to make property desirable and/or attainable to buyers when interest rates are high or institutional loans are hard to obtain.

2) Adv. for The Buyers

-If the buyer has a poor credit rating, a history of foreclosures or bankruptcies, or marginal income

-The down payment and the closing costs are usually lower than in institutional financing arrangements

-The purchaser also has the tax advantages that come with ownership of real estate

There is no standard approved form for an installment land contract, and it is never appropriate to use the Standard Form 2T for an installment land contract;

Question 37

Option to Purchase Real Estate

1) What are the two considerations?

Answer 37

• the option fee when the option is given and
• the agreed-on sales price when the option is exercised. The option fee is normally nonrefundable if the option is not exercised.

Question 38

An option is enforceable by only one party—the optionee—making it a ________ contract. Because the seller is _________ from selling the property to anyone else during the option period, it would probably be in the optionor’s best interest to clearly terminate the optionee’s rights by using the term time is of the essence regarding the option date.

Answer 38

-unilateral

-prohibited

Question 39

The option fee is normally ________ if the option is not exercised. The optionee must decide, within the specified time, either to exercise the option right (to buy or lease the property) or to allow the option right to expire.

Answer 39

nonrefundable

Question 40

Requirements of North Carolina Options

All options for real property are required to be in _______ under the statute of frauds. Under the Connor Act, an option must be recorded to be enforceable against the claims of third parties.

Answer 40

-writing

Question 41

preemptive right

Answer 41

-gives a party the first right to purchase real property

Question 42

The major difference between an option and a preemptive right is which _________ has the ________ to initiate the sale or lease: the buyer/tenant initiates an option, while the seller/landlord initiates an agreement for a preemptive right.

Answer 42

party

power

Question 43

There are several forms of preemptive rights, but the two most common versions are the

Answer 43

right of first refusal and the right of first opportunity to purchase.

Question 44

Right of first refusal

Answer 44

is created when a property owner promises to give the contracting party the first chance to buy the property or to match the bona fide offer of a third party, should the owner decide to sell sometime in the future. Rights of first refusal are commonly found in leases.

Note that with a right of first refusal, the property owner does not promise to sell the property at all—merely promises that should the decision be made to sell, the other party will get the first opportunity to buy. This is different from the option, where the owner promises to sell should the optionee choose to buy.

Question 45

Right of first opportunity to purchase

Answer 45

is a preemptive right agreement that endeavors to avoid some of the vague legalities of the right of first refusal. If the property owner decides to sell the property, the seller must offer to sell the property to the party with the right of first opportunity to purchase for a designated price.

If the offer is declined, the seller may now sell the property for a specified period of time to a third party for the designated price.

Question 46

Right of first opportunity to purchase

The agreement may allow the owner to sell for a percentage of the designated price (e.g., 90% or higher of the designated price). If the owner ______ sell to a third party during the specified time, the process begins anew with owner offering to sell the property to the right holder for a designated price.

Answer 46

-does not