LCAR Unit 18 - Sales Contracts - 14th Edition

The Real Estate School
SALES CONTRACTS
UNIT 18
Page 337
DISCLOSURES
• Consumer Notice – Explains
agency relationships and is
reviewed at the initial meeting
Page 338
DISCLOSURES
• Seller’s Property Disclosure –
Seller has a duty to disclose any
known defects that threaten
structural soundness or personal
safety
Page 338
DISCLOSURES
• Seller’s Property Disclosure (cont’d)
• Buyers have the responsibility to discover problems or issues
that are important to them
• Licensees are obligated to
disclose known costs
associated with selling or
buying property before
their clients enter into an
agreement
Page 338
DISCLOSURES
• Material Facts – Information that is significant to a person and
that person’s ability to make an informed decision
• Property conditions
• Health concerns
• Property use
Page 338
DISCLOSURES
• Latent Defect – Hidden structural defect that would not be
discovered by ordinary inspection
• Violations of zoning
• Building codes
Page 338
DISCLOSURES
• Stigmatized Properties – Properties that society has found
undesirable because of events that occurred there
Issue is not a physical defect but a perception
Page 339
DISCLOSURES
• Stigmatized Properties (cont’d)
• Milliken v. Jacono (2014 PA Supreme Court case) – Psychological stigmas
on a property are not material defects that reduce the value of the
property thus do not require seller disclosure
Page 339
DISCLOSURES
• Estimated Statements of Closing Costs – Licensees are required
to provide buyer and seller with written estimated statements of
closing costs before signing an agreement
Page 339
DISCLOSURES
• Uniform Condominium Act and Uniform Planned Community
Act – Require a seller to furnish copies of the development’s
declaration, bylaws, and rules and regulations of the association
for buyer’s review
• Buyer has five days
to review documents
Page 339-340
DISCLOSURES
• Opinion versus Fact
• Consumer must be aware of whether licensee is sharing an
opinion or stating a fact
• Fraud is the intentional
misrepresentation of a
material fact in such a
way as to harm or take
advantage of another person
Page 340
DISCLOSURES
• Opinion versus Fact (cont’d)
• Misrepresentation is an unintentional misstatement or
omission
• If a buyer relies on licensee’s
statement, the licensee is
liable for damages that
result
Page 340
DISCLOSURES
• Opinion versus Fact (cont’d)
• Puffing – An exaggeration of a property’s benefits
Page 340
AGREEMENT OF SALE
• A real estate sales contract contains the
complete agreement between a buyer of
real estate and a seller
• Offer to Purchase – Prepared and
signed by Buyer
• Agreement of Sale – Offer is accepted
and signed by the Seller
Figure 18.1
(Page 346-359)
Page 341
AGREEMENT OF SALE
• Preparing a Contract
• Licensees are permitted to prepare contracts by filling in the
blanks on standard PAR forms
L H L
Page 341
AGREEMENT OF SALE
• Preparing a Contract (cont’d)
• Licensees must avoid the unauthorized practice of law by not
altering wording or drafting clauses that could injure parties or
create liability for themselves
• All parties to a contract must be
given the opportunity to secure an
attorney before signing a contract
Page 341
AGREEMENT OF SALE
• Preparing a Contract (cont’d)
• Basic requirements to form a legally binding contract:
• Offer and acceptance
• Consideration
• Legally competent parties
• Legality of object
• Reality of consent
Page 342
AGREEMENT OF SALE
• Offer – Licensees help prospective buyers prepare an offer to
purchase
• Offer is signed by the buyer and
presented to the seller by the licensee
Page 342
AGREEMENT OF SALE
• Earnest Money – Evidence of the buyer’s intention to carry out the
terms of the contract
• Broker deposits the
check in a special
account as required by
law
Page 342
AGREEMENT OF SALE
• Earnest Money (cont’d)
• Deposit amount is a matter to be agreed on by the parties
• Deposits should be an amount sufficient to:
• Discourage the buyer from defaulting
• Compensate seller for taking property off the market
• Cover expenses seller incurs if buyer defaults
Page 342
AGREEMENT OF SALE
• Commingling – Mixing
earnest money with
broker’s personal
funds (illegal)
• Conversion – Using
earnest money
funds for personal use
(illegal)
Page 342
AGREEMENT OF SALE
• All deposits may be kept in
one account and broker
must maintain full,
complete, and accurate
records of all deposits
Page 342
AGREEMENT OF SALE
• The account may or may not pay interest
• Must deposit funds by the end of the
next business day following receipt
by broker
• Check may be held until
offer is accepted
Page 342-343
AGREEMENT OF SALE
• Wire transfers are becoming increasingly popular in today’s
fast-paced world
• Use of apps and programs also are becoming more common
to transfer money
AGREEMENT OF SALE
• Binder – States the essential
terms of the offer in a shorter
document and acknowledges that
the licensee has received the
purchaser’s deposit
Page 343
AGREEMENT OF SALE
• Counteroffer – Any change by the seller to the terms of the offer
proposed by the buyer
• The original offer ceases to exist
• Offer/Counteroffer may be withdrawn at any time before it has
been accepted
• Licensees must present all
offers and counteroffers in
a timely manner
Page 343
AGREEMENT OF SALE
• Acceptance – Occurs when a buyer or seller agrees to the offer or
counteroffer of the other party
• An offer is not considered accepted until
the person making the offer has been
notified of the other party’s acceptance
• Electronic transmission constitutes
acceptance
Page 343-344
AGREEMENT OF SALE
• Equitable Title – Buyer does not
receive legal title until delivery
and acceptance of deed which is
evidence that a property has
transferred
Page 344
AGREEMENT OF SALE
• Destruction of the Premises – Once the parties form the
agreement of sale, the buyer bears the risk of any
damage/destruction of the property
• In practice, the PAR
Standard Agreement of
Sale states otherwise
Page 344
AGREEMENT OF SALE
• Parts of an Agreement of Sale
• Names of Seller and Buyer • Provisions for pro-rations
• Legal description • Provisions in the event of damage or
• Type of deed offered destruction
• Consideration and financial • Provisions for default
arrangements • Contingencies
• Provisions for closing • Date and signature of parties
• Possession of property • Agency disclosure statement
• Provisions for title evidence
Page 344-345
AGREEMENT OF SALE
• Additional Provisions
• Personal property left behind • Closing instructions
• Real property removed • Special assessments
• Transfer of warranties • Pre-settlement walkthrough
• Identification of leased equipment • Documents to be provided
• Appointment of closing agent
Page 345
AGREEMENT OF SALE
• Contingencies – Additional conditions that must be satisfied
before a sales contract is fully enforceable
• Contingences create a
voidable
contract if they are rejected
or not satisfied
Page 360
AGREEMENT OF SALE
• Contingencies (cont’d)
• Include the following three elements:
1. Actions necessary to satisfy the
contingency
2. Time frame within the action must be
performed
3. Who is responsible for paying any costs
Page 360
AGREEMENT OF SALE
• Example of a ‘BAD’ contingency
“This agreement is contingent upon

living room being painted.”
Page 360
AGREEMENT OF SALE
• Mortgage Contingency – Protects the buyer’s earnest money
until a lender commits the mortgage funds
• Type of mortgage • Deadline for commitment
• Amount of mortgage • Nature and extent of Broker
assistance
• Maximum interest rate
• Minimum term
Page 360
AGREEMENT OF SALE
• Inspection Contingency – Allows the buyer to obtain certain
inspections of the property
• Wood-boring insects • Sewer and water
• Lead-based paint • Radon
• Structural
• Mechanical systems
Page 360
AGREEMENT OF SALE
• Property Sale Contingency – Allows the buyer to make the
sales contract contingent on the sale of their current home
• Insurance Contingency – Allows the buyer to make the sales
contract contingent on obtaining affordable homeowner’s
insurance
Page 360
AGREEMENT OF SALE
• Amendments and Addendums
• Amendment – A change or modification to the existing content
of the contract
• Must be initialed or
signed by all parties
• Example: Changing
settlement date from
90 to 60 days
Page 360
AGREEMENT OF SALE
• Amendments and Addendums (cont’d)
• Addendum – Provision added to an existing contract without
altering the content of the original
• Must be signed by all parties
• Example: An agreement to
split costs of repairing items
discovered in a home inspection
Page 360
AGREEMENT OF SALE
• Disclosures – License law in Pennsylvania requires that an
agreement contain disclosures when prepared by licensees
• Capacity in which the Broker is operating
• Purpose of the Real Estate Recovery Fund
• Statement of the zoning classification of the property
• Access to a public road may require a highway occupancy
permit
Page 361
AGREEMENT OF SALE
• Disclosures (cont’d)
• Lead-based paint disclosure for properties built prior to 1978
• Sewage facilities disclosure
• If time-share, condominium, or planned community the right
for Buyer to rescind
Page 361
AGREEMENT OF SALE
• Steps to Limit Liability – Who is my client?
• Consumer Notice – Document explains the various options
available regarding agency
• Agreement of Sale (page 1)
outlines exactly who the
parties to the transaction
are and what role (if any)
the agents and broker
take on
Page 361
AGREEMENT OF SALE
• Time is of the Essence
• If either party fails to follow the particular timeframes, that party
may be considered to be in default
Page 362
OTHER AGREEMENTS
• Option is a unilateral contract by which an optionor (owner)
gives an optionee (purchaser or lessee) the right to buy or lease
property at a fixed price within a stated period of time
Page 363
OTHER AGREEMENTS
• Options on commercial real estate frequently depend on some
specific conditions being fulfilled, such as obtaining a zoning
change or a building permit
Page 363
OTHER AGREEMENTS
• Installment Contracts – The seller retains legal title to the
property while the buyer takes possession and acquires equitable
title
Page 363
OTHER AGREEMENTS
• Installment Contracts (cont’d)
• Buyer gives seller a down payment and pays monthly
installments of principal and interest over a number of years
• Buyer pays real estate taxes, insurance, and repairs which is
similar to terms of a net or land lease
Page 363
OTHER AGREEMENTS
• Installment Contracts (cont’d)
• Seller is not obligated to execute and deliver a deed until all the
terms of the contract have been satisfied
• Sellers, buyers, and licensees
should consult an attorney when
contemplating an Installment
Sales Contract
Page 363

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The Real Estate School

Issue is not a physical defect but a perception

“This agreement is contingent upon

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