Essential Guide to Real Estate Contracts

ESSENTIAL GUIDE TO REAL ESTATE CONTRACTS Mark Warda Attorney at Law

SPHINX PUBLISHING ®

AN IMPRINT OF S OURCEBOOKS, I NC.® NAPERVILLE, I LLINOIS

Copyright © 2001 by Mark Warda Cover design © 2001 by Sourcebooks, Inc.® All rights reserved. No part of this book may be reproduced in any form or by any electronic or mechanical means including information storage and retrieval systems—except in the case of brief quotations embodied in critical articles or reviews, or in the case of the exercises in this book solely for the personal use of the purchaser—without permission in writing from its publisher, Sourcebooks, Inc.®

This book was formerly titled How to Negotiate Real Estate Contracts. We have updated or changed the forms, statutes, and information in addition to changing the title to ensure that it is the most current as of the time of publication. First Edition, 2001 Published by: Sphinx® Publishing, An Imprint of Sourcebooks, Inc.® Naperville Office P.O. Box 4410 Naperville, Illinois 60567-4410 630-961-3900 Fax: 630-961-2168 http://www.sourcebooks.com

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. From a Declaration of Principles Jointly Adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations

This product is not a substitute for legal advice. Disclaimer required by Texas statutes.

Library of Congress Cataloging-in-Publication Data Warda, Mark. Essential guide to real estate contracts : with forms / Mark Warda. p. cm. -- (Legal survival guides) Includes index. ISBN 1-57248-159-5 1. Vendors and purchasers--United States--Popular works. I. Title. II. Series. KF665.Z9 W368 2001 346.7304'363--dc21

2001040005

Printed and bound in the United States of America. VHG Paperback — 10 9 8 7 6 5 4 3 2 1

CONTENTS

USING SELF-HELP LAW BOOKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi CHAPTER 1: PREPARING YOUR OWN CONTRACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Using a Broker Printing Your Contract

CHAPTER 2: USING AN ATTORNEY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Cost/Value Analysis Finding the Right Attorney Attorney Mistakes Using This Book and an Attorney “Deal-Killers” Regular Investors

CHAPTER 3: THE BUYER’S POSITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Finding Good Deals How Much to Pay Contingencies Buyer’s Brokers Seller’s Disclosures

CHAPTER 4: THE SELLER’S POSITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Tying Up Your Property Contingent Liability Disclosures Selling “As Is” Buyers Moving in Early Refund of Deposit

CHAPTER 5: FEDERAL AND LOCAL LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Federal Laws

essential guide to real e state contracts

Local Laws State Radon and Indoor Air Quality (IAQ) Contacts

CHAPTER 6: OVERREACHING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 CHAPTER 7: BASIC CLAUSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Parties and Agreement Purchase Price Conveyance Property Description Other Agreements F.H.A./V.A. Insulation Clause Lead-Based Paint Clause

CHAPTER 8: RECOMMENDED CLAUSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Acceptance Agreement for Deed/Contract for Deed Allocation of Purchase Price Approval Arbitration Assignment Attorney’s Fees Broker’s Fee Closing Date and Place Condominium—1 Condominium—2 Default Engineering Reports Environmental Conditions Existing Mortgages (Deeds of Trust) Expenses Financing Contingency F.I.R.P.T.A. Ingress and Egress Inspection Investment Leases Lien Affidavit Maintenance Personal Property iv

contents

Plumbing and Electrical Possession Prorations Purchase Money Mortgage Radon Recording Restrictions and Easements Risk of Loss Roof Severability Special Assessments Survey Survival of Contract Termites Title Defects Title Evidence Violations Water Access Wraparound and Second Mortgages Zoning and Ordinances

CHAPTER 9: CREATIVE CLAUSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 Deposit Downpayment Mortgage (Deed of Trust) Clauses Explanation Credits Unpaid Rent Examination of Books F.H.A./V.A. Fees Sale of Other Property Perc Test Presentation of Contract Distribution of Proceeds Rezoning

CHAPTER 10: THE ART

OF

NEGOTIATING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139

Best/Least Need, Not Position Understanding the Other Side v

essential guide to real estate contracts

Emotional Involvement with the Deal Taking It Personally The Best Supportable Position Turning the Tables The Last Shot

CHAPTER 11: SIGNING THE CONTRACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 Witnesses Notary

CHAPTER 12: BACKING OUT

OF THE

DEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147

Contingencies Sellers Default Attorney’s Fees

CHAPTER 13: RESCUING THE DEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151 Financing Property Defects Encroachments Termites Judgments Boundary Disputes

CHAPTER 14: THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155 Using an Attorney Examine All Closing Documents Buyer’s Concerns Seller’s Concerns

CHAPTER 15: AFTER

THE

CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161

Seller Financing Defects in the Property Zoning and Building Codes Title Problems Bills

GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 APPENDIX A: LEAD-BASED PAINT PAMPHLET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 APPENDIX B: FORMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187 INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211

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USING SELF-HELP L AW B O O K S

Before using a self-help law book, you should realize the advantages and disadvantages of doing your own legal work and understand the challenges and diligence that this requires. THE GROWING TREND

Rest assured that you won’t be the first or only person handling your own legal matter. For example, in some states, more than seventy-five percent of divorces and other cases have at least one party representing him or herself. Because of the high cost of legal services, this is a major trend and many courts are struggling to make it easier for people to represent themselves. However, some courts are not happy with people who do not use attorneys and refuse to help them in any way. For some, the attitude is, “Go to the law library and figure it out for yourself.” We at Sphinx write and publish self-help law books to give people an alternative to the often complicated and confusing legal books found in most law libraries. We have made the explanations of the law as simple and easy to understand as possible. Of course, unlike an attorney advising an individual client, we cannot cover every conceivable possibility.

COST/VALUE ANALYSIS

Whenever you shop for a product or service, you are faced with various levels of quality and price. In deciding what product or service to buy, you make a cost/value analysis on the basis of your willingness to pay and the quality you desire.

essential guide to real estate contracts

When buying a car, you decide whether you want transportation, comfort, status, or sex appeal. Accordingly, you decide among such choices as a Neon, a Lincoln, a Rolls Royce, or a Porsche. Before making a decision, you usually weigh the merits of each option against the cost. When you get a headache, you can take a pain reliever (such as aspirin) or visit a medical specialist for a neurological examination. Given this choice, most people, of course, take a pain reliever, since it costs only pennies; whereas a medical examination costs hundreds of dollars and takes a lot of time. This is usually a logical choice because it is rare to need anything more than a pain reliever for a headache. But in some cases, a headache may indicate a brain tumor and failing to see a specialist right away can result in complications. Should everyone with a headache go to a specialist? Of course not, but people treating their own illnesses must realize that they are betting on the basis of their cost/value analysis of the situation. They are taking the most logical option. The same cost/value analysis must be made when deciding to do one’s own legal work. Many legal situations are very straight forward, requiring a simple form and no complicated analysis. Anyone with a little intelligence and a book of instructions can handle the matter without outside help. But there is always the chance that complications are involved that only an attorney would notice. To simplify the law into a book like this, several legal cases often must be condensed into a single sentence or paragraph. Otherwise, the book would be several hundred pages long and too complicated for most people. However, this simplification necessarily leaves out many details and nuances that would apply to special or unusual situations. Also, there are many ways to interpret most legal questions. Your case may come before a judge who disagrees with the analysis of our authors. Therefore, in deciding to use a self-help law book and to do your own legal work, you must realize that you are making a cost/value analysis. You have decided that the money you will save in doing it yourself

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outweighs the chance that your case will not turn out to your satisfaction. Most people handling their own simple legal matters never have a problem, but occasionally people find that it ended up costing them more to have an attorney straighten out the situation than it would have if they had hired an attorney in the beginning. Keep this in mind if you decide to handle your own case, and be sure to consult an attorney if you feel you might need further guidance. LOCAL RULES

The next thing to remember is that a book which covers the law for the entire nation, or even for an entire state, cannot possibly include every procedural difference of every county court. Whenever possible, we provide the exact form needed; however, in some areas, each county, or even each judge, may require unique forms and procedures. In our state books, our forms usually cover the majority of counties in the state, or provide examples of the type of form that will be required. In our national books, our forms are sometimes even more general in nature but are designed to give a good idea of the type of form that will be needed in most locations. Nonetheless, keep in mind that your state, county, or judge may have a requirement, or use a form, that is not included in this book. You should not necessarily expect to be able to get all of the information and resources you need solely from within the pages of this book. This book will serve as your guide, giving you specific information whenever possible and helping you to find out what else you will need to know. This is just like if you decided to build your own backyard deck. You might purchase a book on how to build decks. However, such a book would not include the building codes and permit requirements of every city, town, county, and township in the nation; nor would it include the lumber, nails, saws, hammers, and other materials and tools you would need to actually build the deck. You would use the book as your guide, and then do some work and research involving such matters as whether you need a permit of some kind, what type and grade of wood are available in your area, whether to use hand tools or power tools, and how to use those tools. ix

essential guide to real estate contracts

Before using the forms in a book like this, you should check with your court clerk to see if there are any local rules of which you should be aware, or local forms you will need to use. Often, such forms will require the same information as the forms in the book but are merely laid out differently, use slightly different language, or use different color paper so the clerks can easily find them. They will sometimes require additional information. CHANGES IN THE LAW

Besides being subject to local rules and practices, the law is subject to change at any time. The courts and the legislatures of all fifty states are constantly revising the laws. It is possible that while you are reading this book, some aspect of the law is being changed. In most cases, the change will be of minimal significance. A form will be redesigned, additional information will be required, or a waiting period will be extended. As a result, you might need to revise a form, file an extra form, or wait out a longer time period; these types of changes will not usually affect the outcome of your case. On the other hand, sometimes a major part of the law is changed, the entire law in a particular area is rewritten, or a case that was the basis of a central legal point is overruled. In such instances, your entire ability to pursue your case may be impaired. Again, you should weigh the value of your case against the cost of an attorney and make a decision as to what you believe is in your best interest.

x

INTRODUCTION

No document is more important to a real estate transaction than the sales contract. All of the terms of the deal are controlled by the wording of the contract. The expenses at closing, the prorations, what property is included in the deal, as well as the price and payment terms are all decided when the contract is signed. Many parties think the main concern when buying property is the price, but seasoned buyers and sellers know that other terms can be even more important. With creative financing you can agree to pay tens of thousands of dollars more for a piece of property and actually save money in the long run. And with the right incentive you can buy property with little or no money down. Unfortunately, most contracts are drafted on the first form found in the drawer, on whatever the office supply store has in stock, or on the form provided by the real estate broker. Often a buyer pays thousands of dollars in extra expenses because he uses a form designed for a seller’s benefit. Many times a seller gives more to a buyer than he intended simply because that is what the printed form said. Many people do not consult an attorney until after they have signed the contract. By then it is too late to improve the deal. When buying or selling real property, you should keep in mind that there are in most cases no fixed rules as to who should pay for what. It

essential guide to real estate contracts

does not matter that buyers always pay for the documentary stamps (or transfer tax) in your county. It does not matter that sellers always select their own title agent. It does not even matter that everywhere in the country taxes are prorated. Unless there is a specific law on the subject, and there rarely is, you are free to make or accept any offer that suits you. This book sets out in Chapters 1-6 basic information you should know about contracts, buyers, sellers, attorneys, and laws. It explains the different clauses found in real estate contracts and tells you which ones are best when you are buying or selling in Chapters 7-9. Varied versions of each clause are given so that you can choose the one most suitable to your deal. The rest of the chapters give you tips on negotiating and information on the closing. Some sample forms are provided in Appendix B covering a spectrum of needs. Most likely one of the forms will cover whatever deal you are putting together. To add additional clauses to them you can use the ADDENDUM TO CONTRACT form provided in this book. (see form 6, p.205.) On more complicated deals you may want to put together your own contract created from the clauses provided in this book. To help you understand legal terms, there is a glossary before Appendix A. Most of the italicized words throughout the text can be found in there. Laws vary from state to state and some clauses in this book may not be allowed in certain areas. In some states an approved contract may be required. However, in many cases you can add your own terms with an addendum to the contract. Before using a contract you have drafted for yourself, you should have it reviewed by an experienced real estate attorney to be sure that it is legal and enforceable in your state and that it does what you intend it to do.

xii

PREPARING YOUR OWN CONTRACT

1

While million-dollar deals are usually put together clause by clause, in most smaller deals people use whatever contract form is handy. Usually this is the form provided by the real estate broker. While this often results in the buyer paying for things he could have avoided, it sometimes costs the seller money, too. To make the best deal on any real estate purchase or sale you should be sure that every clause in your contract is in your best interest. Unfortunately, the high cost of lawyers’ fees makes it financially prohibitive to have this done for many deals. This book is designed to help you understand the meaning of each clause in a real estate contract and how to use different clauses to make the best deal. Since most law schools today teach mainly theory, after reading this book you may know as much about drafting real estate contracts as most law school graduates.

USING A BROKER While in some cases a real estate commission may be more than the services are worth, using a real estate broker can save you money and time. An experienced broker will know what items in the contract can be negotiated and how to negotiate them. But occasionally a real estate broker will insist on using his own form in presenting an offer. This form may not be in your interest and could end up costing you thousands of dollars. Review your broker’s contract carefully and see if every clause

essential guide to real estate contracts

is in your best interest. If not, discuss with the broker the possibility of using your own form. Some brokers do not like this. Some larger firms require that their own approved forms be used. The problem with using your form is they do not know what is in it that might cause them liability and if they do not understand it they will have to pay their attorney to review it. Do not give in. A professional real estate agent will present all offers. If the one you are using refuses to present your offer on your contract, find a new agent. In some areas a real estate agent may be disciplined for refusing to present an offer. As will be discussed on page 26, some states have laws requiring certain forms to be used. Some areas may have forms that have been “recommended” or “approved” by some group of lawyers or real estate agents. If a form is said to be required by law, be sure that this is the case. And if so, you will most likely be able to amend the terms with an addendum. If a form is merely “recommended” or “approved” by some group they can not force you to use it. In at least one case a contract drafted by a group of lawyers and real estate agents was held to be unenforceable. CONFLICT OF INTEREST

Under long term principles of agency law, real estate brokers were in most cases considered to be agents of the seller because the seller paid their commission. This caused problems since many buyers thought their agent was working for them and disclosed their negotiation strategy to the agent. The agent however, was required by law to disclose this information to the seller by whom he would be paid. Example: If a potential buyer told an agent “I’ll pay $100,000 if I have to, but let’s offer $90,000” the agent was required to divulge this to the seller. Of course many lawsuits resulted. Today most states have laws allowing more flexibility in the relationship of real estate brokers to the parties in the transaction. In addition to traditional brokers there are buyers’ brokers and transaction brokers.

2

preparing your own contract

BUYER’S BROKER

As discussed in Chapter 3 on page 13, in many areas of the country there are real estate brokers working as buyers’ brokers who only represent buyers of property. Buyers’ brokers usually have their own contracts that are written in the interest of the buyer. These are much better than the forms provided by the seller’s broker. However, they may not be as good as a contract you draft for yourself. Even when working with a buyer’s broker, do not be afraid to suggest clauses you wish to add to the contract. Changing a few terms can save you thousands of dollars. Keep in mind that every broker’s first interest is in protecting him or herself. Often the broker’s forms will have clauses that protect the broker at the expense of the buyer or seller. Be sure you understand these and do not feel that they are overly risky for you before accepting them.

TRANSACTION BROKER

Because of the conflicts that have come up in the relationship between buyers, sellers, and brokers, some states have allowed brokers to work under the designation of transaction broker. This is a broker who helps the parties put a transaction together but is not the agent of either side. When working with a broker be sure that you know the nature of your relationship with him or her. Do not disclose your negotiating strategy unless you know that the broker is working in your interest.

PRINTING YOUR CONTRACT You may be told that adding your clauses to a printed form contract will make them stand out and that they will not be accepted by the other party. One way to solve that is to have your contract typeset so that your terms are all part of the form. With desktop technology, typesetting is relatively inexpensive today. The cost should only be between $20 and $50 for a two page contract. This is nothing compared to what you can save by using this contract.

3

essential guide to real estate contracts

One investor had his own contract form printed up and put the words “Approved Form” at the top. When he presented it to sellers, often they, and even their attorneys, would look only at the terms typed in the blanks, and not read the fine print. Only when it came time for closing did they realize what horrible deals they had made. Putting such a title at the top of your contract is not recommended since, if it ever went to court, it could be held to be false and misleading. But typesetting your clauses would make them look a lot more standard than typing them onto another contract.

4

USING AN A T TO R N E Y

2

The purpose of this book is to provide legal information to you at a reasonable cost and to give you more control of your legal affairs. If you understand real estate contracts, then you can buy and sell property much more quickly and profitably than if you have to ask your attorney to look over everything you do.

COST/VALUE ANALYSIS In deciding to rely on this book rather than a $150-an-hour attorney, you should make a cost/value analysis of the situation. The same analysis should be done when deciding to buy or sell a piece of property. If you have owned several homes and successfully negotiated the purchase and sale of them without an attorney, and you are now buying another, you can probably handle it yourself (and use the information in this book to save thousands of dollars on the price). But if you have always used an attorney or have never purchased property before and are now about to buy a 300-unit apartment complex, you should weigh the cost of using an attorney against what you could lose if you make a mistake. One factor that will control your decision is the quality and experience of the attorneys you know. If the only attorneys you have used have been arrogant and obnoxious and billed you for much more than the value of the services they provided, then you will probably avoid them at all costs. But if you know a congenial attorney who works efficiently and bills fairly, then you will probably be more likely to consult him.

essential guide to real estate contracts

FINDING THE RIGHT ATTORNEY The problem is, how do you find the latter type of attorney. The best way is through a referral from a friend. If someone you know is happy with the service they received from an attorney, you probably will be too. If you cannot locate one through a friend, you can ask people who work at title insurance companies or real estate brokers’ offices. They work with real estate attorneys every day and know which ones are competent and easy to work with. If you do not use a personal referral, you can use telephone, newspaper ads or a bar association referral service if one is available in your area. However, this is like playing the lottery and you are as likely to get a bad one as a great one. One thing to look for when hiring an attorney for a real estate transaction is experience in real estate matters. While all attorneys can legally handle any type of matter, not all are competent to do so. Example: Once a real estate lawyer reviewed a real estate transaction handled by a criminal lawyer. No deed had ever been prepared and the mortgage was prepared with the names in the wrong positions. The attorney explained that he thought that the mortgage also acted as a deed. YOUNG ATTORNEYS

INVESTOR ATTORNEYS

6

A young attorney just out of law school can offer conscientious service and enthusiasm at a reasonable fee, but the sad truth is that most law schools do not teach students how to handle real estate closings. They concentrate on old statutes. The only way for new lawyers to learn about real estate transactions is through experience and self-motivated study. The best attorney to use for a real estate deal is one who actively invests in real estate himself. Such an attorney will have learned about the subject out of personal interest and for personal gain and will most likely be an expert. Joining a club or association of real estate investors is often a good way to meet attorneys who are investors.

using an attorney

ATTORNEY MISTAKES Our legal system is so complicated that it is sometimes impossible, even for lawyers and judges, to know the law. A committee of the Florida Bar and the Florida Board of Realtors® drafted a real estate contract for use in the state and the Florida Supreme Court ruled that part of it was unenforceable. The California Supreme Court was overruled by the United States Supreme Court. If state supreme court judges misinterpret the law, your lawyer may do the same.

USING THIS BOOK AND AN ATTORNEY If you want to put together your own deals but are afraid to commit yourself to a large transaction without an attorney, you can use this book to get started, and put together a contract that suits your needs. Then you can have it reviewed by your attorney before you sign it. Rather than paying for ten or twenty hours of drafting and negotiating, you can hire him or her for an hour or two to review the document with you.

“DEAL-KILLERS” Once you have found an attorney who has experience with real estate, you should be careful not to let him become a “deal-killer.” Real estate agents are well aware of attorneys who prefer to find enough faults with a deal to convince their clients not to go through with it. One reason this may happen is because a dead deal poses no liability for the attorney, but one that closes may cost him plenty if he made a mistake. And, unlike brokers, attorneys get paid whether the deal closes or not. To avoid having your deal killed by your attorney, first you should know as much as possible about the legalities of the deal to begin with. Next, decide exactly what advice you are seeking from him or her.

7

essential guide to real estate contracts

In most cases you will want an attorney to check the validity of your contract and the correct completion of the closing documents. In some cases the attorney may interject opinions as to whether the price is too high or too low or whether the deal is a good business decision. Such opinions go beyond legal advice and you should decide ahead of time if this is what you are seeking.

REGULAR INVESTORS If you buy and sell property regularly you have more opportunities to run into legal problems. One way to avoid this is to prepare a master contract that you always use. In fact you should have two master contracts, one for buying and one for selling. Since you will be using these regularly, it would be wise to have a real estate attorney review them to be sure there will be no problems with local laws. If your attorney is uncomfortable with some of the clauses, be sure to find out if they actually present a legal problem or if the discomfort is just because your attorney has never seen them before or is being extra careful. Attorneys are generally conservative and afraid to use new clauses that have not been tried in court. Do not let that stop you from putting together a good contract. If your attorney says a clause you want to use is invalid or illegal in your jurisdiction, then you should ask for the specific law or case that says so. Then you should find out if the law is still valid. If your attorney says a clause must be researched, be sure you understand what this will cost. If the cost is prohibitive, then you should ask if it would be possible to hire a law student to do some research. You can also do some research yourself. There are books on the market that explain how to do legal research. If you cannot find one at a local bookstore or library contact the publisher of this book for more information.

8

THE BUYER’S POSITION

3

FINDING GOOD DEALS Usually, the only way to get a good deal on a piece of property is to negotiate. Sellers who offer properties for sale usually do not offer bargains, and those who do usually find buyers immediately. There are a lot of people, including many professionals, keeping an eye on the real estate market.When a property comes on the market at a bargain price, it is usually snapped up quickly. There are exceptions, of course. Even the multiple listing services occasionally contain bargains. These are properties that have been passed over due to some superficial defect, but which are real bargains. For example, many investors never look at listings of one bedroom properties since they are so hard to sell. But a one bedroom house in a great neighborhood on a large lot might double in price with a small room addition. Other than these bargains waiting to be plucked, the way to get a good deal on a property is to negotiate. There are many aspects to the sale of a property and while the seller may be firm on some of them, others may be negotiable. The three main areas to negotiate in a real estate deal are:

essential guide to real estate contracts

PRICE

Price is obviously the first concern. Usually the price is the most important thing the seller considers. If he gets his price he will feel successful, even if you get concessions on other points which more than compensate you for paying a higher price.

TERMS

The terms of the deal are where most of the profit can be made. A highly inflated price can be compensated for if the seller will hold the financing at a bargain rate. Even if the seller will not hold the financing, you may be able to convince him to enter into a lease/option agreement, to delay taking part of his proceeds, or to allow assumption of his existing loan.

PROPERTY

If the seller needs cash and won’t negotiate price or terms, possibly you can get more property included in the deal to make it worthwhile. The owner might include the appliances in the deal, or possibly a vacant lot next door, or even his car or boat. If repairs are needed, the seller may agree to have them done or do them himself. (Be sure the seller is qualified to do the repairs if he wants to do them himself. You don’t want him to learn roofing on your dream house!) Example: The seller demands $100,000 for his property and won’t consider a cent less, even though it is worth only $90,000. If the seller will hold the financing at a lower-than-market rate then you may be able to save even more than $10,000 in interest and loan fees. Example: The seller’s price is a little more than you can afford. Try to get the seller to include the appliances or furniture in the sale. That will help your budget and let the seller get the price he was set on. Example: The seller wants a fair price for his property, but you just don’t have the down payment. See if the seller will give you a lease/option for a year or two, allowing a credit of part of your rent toward the down payment. Say the fair rent is $500 a month. Offer to pay $600 a month of which $200 is a credit toward the deposit. After two years you will have a credit of $4800.

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the buyer’s position

HOW MUCH TO PAY The appraising of real property is taught as if it were a science with formulas and values, but in most cases it is an art. Except in large developments and condominiums where units are nearly identical, each property has its own unique characteristics. Two houses by the same builder may appear identical but they may differ in the direction they face, the trees on the property, the quality of the landscaping, the age of the appliances, the proximity to high-voltage power lines, or any number of factors. The first criteria that will determine what you should pay for a property should be whether you are buying it for a home or for investment. If you are buying a home you will probably be more concerned with the livability of the house and the neighborhood and the location in relation to your job or schools. If you find a property that ideally suits your needs you will probably be willing to pay a little more for it, especially if you have been looking for a long time. If you are looking for a property for investment, either for appreciation or cash flow, you will be concerned with the quality of the house and the neighborhood, but even more concerned with the price. Your ultimate profit on a property will in most cases be determined by what you originally paid for it. Many investors realize that most of the profit is made in buying, not selling. Before making an offer on a property you will need to become familiar with the values of properties in the area you are considering. As explained in Chapter 1, do not rely on a real estate broker who is an agent of the seller to advise you if a price is fair. The law requires him or her to represent the seller. To learn about values of properties you should plan to spend a lot of time looking at listings, viewing houses and reading the real estate ads. Some people spend every weekend, month after month, looking at properties. Unless you work seven days a week at a high paying job, the 11

essential guide to real estate contracts

time is well spent. Familiarity with values will allow you to locate the best property and to know a bargain when you see it.

CONTINGENCIES When signing a contract to purchase a property it is important to put some contingencies in the agreement.These are clauses that allow you to get out of the deal if it does not suit your need (for example, if you cannot get a loan at good terms, or if the property turns out to have problems you didn’t notice). Most of the buyers’ clauses in the book include contingencies. The financing clause allows the buyer to specify the terms of the loan being sought. If no loan is available at that rate, then the buyer does not have to buy the property. Similarly, the termite clause and the inspection clause allow the buyer to back out if the property turns out to have problems which the seller is unwilling to correct. There is also an approval clause that allows a buyer to make the contract contingent upon approval of his or her spouse, partner, or attorney. As explained in Chapter 8, where a contract gives a buyer too easily a way out, a court may rule that the contract is not enforceable against the seller either. If the property is located in an area subject to disasters such as flooding, you might want to check how vulnerable it may be. You can check flood zones as well as other disasters such as earthquakes, hurricanes, and tornadoes at this web site: http://www.esri.com/hazards/makemap.html If you are a first time buyer, do not panic at such thoughts. Remember that every house has an owner and if there is a real risk you can usually buy insurance to cover it.

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the buyer’s position

BUYER’S BROKERS If you do not have the time to become familiar with properties, then you can hire what is called a buyer’s broker. This is a real estate agent who works for you rather than the seller. The concept of a buyer’s broker is a somewhat new one but it is gaining acceptance rapidly. One reason for the rapid acceptance is the growing number of lawsuits against real estate agents. Because the buyer’s broker represents the buyer and uses his or her efforts to protect the buyer’s interests, the buyer’s broker is usually paid by the buyer. But when negotiating with a seller, the buyer’s broker attempts to adjust the selling price or the amount of seller’s broker’s commission to compensate the buyer for this additional expense. In some cases the seller’s broker will fight this attempt and try to keep the full seller’s commission for himself. This often kills the deal. Fortunately, buyer’s brokers are becoming more widely known and used. Once all parties realize that this system protects all of them from liability and does not cost any more in commissions than the existing system, everyone will want to do business this way.

SELLER’S DISCLOSURES In recent years sellers have been held liable in more and more cases when property is sold with a known defect. In some states laws have been passed requiring disclosure and in others, court cases have made it clear that sellers will be held liable if proper disclosure was not made. Even where voluntary disclosure is not required, a buyer is protected if a seller fails to disclose when asked. For this reason, a buyer can protect himself by asking the seller about every possible aspect of the property. If the seller says he knows of no defects and after the closing you find out the seller lied,you may be able to hold him liable for repairs. 13

essential guide to real estate contracts

The questions should be asked carefully. Example: If you ask "Are there any plumbing problems?" the seller might be safe in saying no if there was a recent problem that he "fixed." The sewer was clogged but he rodded it two weeks ago. If you ask "Have there been any plumbing problems?" he should tell you about any which he had and fixed. If the fix turns out not to have worked, you would have less protection from the first question than from the second if the seller did not explain the drain problem. A DISCLOSURE ADDENDUM TO CONTRACT FOR PURCHASE ESTATE is included in the appendix. (see form 7, p.206.)

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OF

REAL

THE SELLER’S POSITION

4

For a seller, the negotiating starts with the pricing of the property when it is placed on the market. If you get three full-price offers the first day your property is on the market, you know it was priced too low. One way to be sure not to sell too cheap is to start out high and see what offers come in. Many a seller has been shocked to see a property he made a good profit on sell for even more just a few months later. The problem of reaching for the sky is that you may scare off potential buyers. If your property is worth $90,000 and you want to see if you can get $100,000 by listing it at $110,000, you might miss out on all the people who are only looking at properties priced under $100,000. The first decision you must make is whether you want to sell as soon as possible, or to wait for the best price. If you have been transferred out of town and need to buy a new house you will need a quick sale more than the investor who would like to turn over one of his properties to buy another.

TYING UP YOUR PROPERTY One goal of your contract should be to close the deal as quickly as possible. The longer the wait the more likely it is that something will go

essential guide to real estate contracts

wrong. The buyer might find a better deal, the city might decide to widen the road, or your roof might start to leak. Time is money and the longer you must wait for payment the more money you lose. Some investors like to set the closing six months or a year away while they earn interest on their money, or look for someone else to sell the property to at a profit (called a flip). Beware of clauses in contracts presented by buyers that give too much time for contingencies. The contract should of course have a set closing date, also called the settlement date, but you should also put time limits on any contingencies. If the buyer wants his contractor to inspect the property, require that this be done in five days. If the sale will be contingent on the buyer getting a loan, require that he obtain a firm commitment within a certain time period and at the going rate. What you do not want to have happen is to get a contract with a distant closing date and have it fall through at the last minute.

CONTINGENT LIABILITY Another important goal of the contract is to be sure that you do not have any contingent liability once the closing is over. As explained in Chapter 5, state laws may put some liability on you after the closing, but you should not take any more possible liabilities upon yourself in the contract. If you sign a contract that says that the “seller warrants the air conditioning is in good condition” you could be liable months after the closing if the compressor goes out. It would be much better to say that the air conditioning will be “in working order on the date of closing.” The best time to schedule the inspection is a few days before the closing date so that there would be time to complete any needed repairs and the closing would not have to be delayed.

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the seller’s position

DISCLOSURES In recent years the legal principals that apply to real estate sales have changed from caveat emptor (buyer beware) practically to caveat vendor (seller beware). Court cases and laws in most states have held sellers liable for undisclosed defects in properties. Where a seller intentionally hides a known major defect the liability is most likely (such as covering up termite damage), but some cases have even held sellers liable for unknown minor defects (such as remodeling done by a prior owner without a permit). To protect themselves from liability many real estate brokers require sellers to complete a long disclosure statement that asks questions about the age and condition of every imaginable aspect of the property. Unless such a disclosure is required by law in your state, or your property is flawless, submitting to such a disclosure may not be in your best interest. Example: If you have signed a statement in writing that all systems on your property are in good working order, and something breaks down shortly after closing, the buyer’s attorney may think he can get a jury to believe you lied and that you must have known of the defect. By not making such a statement you avoid this possibility. Even when you must answer questions about every aspect of a property, you should be sure not to make any statements which are broader than necessary. Example: Unless you are a plumber, you should not be required to say the plumbing is in good condition. How do you know it is not about to break down? The most you can say is that you do not know of any current problems with it. Sellers whose properties need considerable work and who do not wish to list every possible flaw sometimes try to avoid disclosure by selling to a relative or friend who is not so familiar with the property, and then 17

essential guide to real estate contracts

letting that person sell the property with a truthful disclosure that he or she knows of no defects. However, courts can look at the totality of a transaction and could still hold such a person liable if it appeared that a fraud had taken place. In any case, you should not say or sign anything untrue about the condition of the property. It is best to say as little as possible about the condition, and then only to disclose what your actual knowledge is.

SELLING “AS IS” Stating in the contract that the property is being sold “as is” has long been an iron-clad protection for sellers against claims after the sale. However, it no longer offers complete protection. In several states buyers have successfully sued even when they have bought property “as is.” A clause that specifies which specific items the “as is” clause applies to is usually even stronger than a general “as is” statement. In one California case, the clause “buyer agrees to waive termite clearance and to absolve the seller of any warranty, accepting the house as is” did not protect the seller against a lawsuit for termite infestation and damage. Even in states where “as is” clauses are respected by the courts they will not protect a seller against major problems that have been intentionally concealed.

BUYERS MOVING IN EARLY Occasionally a buyer will want to move into the property, if it is vacant, prior to closing because of an early sale of his house or to avoid motel bills when moving to a new town. In most cases this can work out well, with the buyer paying rent to offset any mortgage expenses the seller may have.

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the seller’s position

However, some sellers have had bad experiences with buyers who discovered unexpected problems with the property and then attempt to back out of the deal. You will have to decide whether you want to take this risk after meeting the buyers. In any case, the rent should be at least equal to the amount of interest the buyers will be paying once their loan goes through. There should also be an adequate deposit against damages. If the buyers intend to make any alterations or improvements to the property, the situation becomes even more complicated. If they tear out a wall and then leave, the cost of the repair could be high. If they put in a pool and back out, you should not have to pay them for it or be liable for any liens on the property for the work. Another problem with buyers moving in early is that if the sale does not close, it may be difficult to get them out. In some cases the purchase contract would give the buyer much greater rights than a mere lease and you may have to use an expensive court action such as an ejectment or a foreclosure, rather than a tenant eviction, to get them out. To protect yourself, you should use a separate rental agreement with a separate security deposit for the buyer’s use of the property. It should clearly state that the parties agree that their relationship is governed by landlord-tenant law. The contract for purchase should set a definite closing date and provide that if the sale is not completed by that date the contract is void. Even with these protections, there is no guarantee that a buyer with a clever lawyer would not be able to stay in the property a long time. To be sure you are protected you should have an experienced real estate attorney draw up the agreement.

REFUND OF DEPOSIT One scam that has been occasionally used on property sellers and real estate agents is to give a personal check as a deposit on a real estate

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essential guide to real estate contracts

offer. Then, when the offer is (expectedly) rejected, request an immediate refund of the deposit. The refund check is then cashed before the deposit check bounces. When accepting a check as a deposit, be sure it is understood that the check must be collected before a refund is made.

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FEDERAL AND L O C A L L AW S

5

The laws governing real estate have changed more in the last few years than they have in the last few centuries. Old legal doctrines such as caveat emptor (buyer beware) and sanctity of contract have been abandoned in favor of policies that allow courts to protect people from themselves and find someone with money to pay for each injury. While the purpose of this book is to help you draft the best contract for your interest, it must be understood that there are laws that may overrule your contract. More about how an excessively strong contract can work against you is contained in the next chapter. This chapter discusses laws which may affect your contract rights. Some examples of new developments in the law that affect the sale of real estate are: l

In Vermont a seller of property was found guilty of manslaughter when the buyers of his house died from carbon monoxide poisoning caused by a defective driveway defroster.

l

In New York a seller of property was forced to take it back when the buyer convinced an appeals court that the house was haunted.

l

In Florida the sellers of a house were liable for expensive repairs because they did not disclose a leak in the roof.

essential guide to real estate contracts

The basic laws controlling the purchase and sale of real estate are old laws that originated in England hundreds of years ago. However, because each state has its own statutes and court cases, the legal rights of buyers and sellers and the validity of certain clauses may vary from state to state. Also, our federal government has passed numerous laws in recent years that control real estate sales. The following are some of the most important laws that affect the sale of real estate. Keep in mind, though, that new laws are being passed every day somewhere in this country and you should find out if any of them affect what you want to do.

FEDERAL LAWS LEAD-BASED PAINT DISCLOSURE

In 1996, the Environmental Protection Agency and the Department of Housing and Urban Development issued regulations requiring notices be given to buyers of rental housing built before 1978 that there may be lead-based paint present and that it could pose a health hazard to children. This applies to all housing except housing for the elderly or zero-bedroom units (efficiencies, studio apartments, etc.) It also requires that a pamphlet titled Protect Your Family from Lead in Your Home, be given to prospective buyers. The recommended LEAD-BASED PAINT DISCLOSURE FORM is included in this book. (see form 9, p.208.) The pamphlet is also included. (see Appendix A, page 171.) The rule is contained in the Federal Register, Volume 61, Number 45, March 6, 1996, pages 9064 through 9088. More information, and copies of the pamphlet can be obtained from the National Lead Information Clearinghouse at 800-424-5323. The information can also be obtained on the world wide web at: http://www.nsc.org/ehc/ehc.html

FHA/VA LOANS

22

If a purchase will be financed by a loan guaranteed by the Federal Housing Authority or the Department of Veterans Affairs (formerly

federal and local laws

known as the Veterans Administration) then certain language must be included in the contract. An FHA/VA clause is included on page 49. DISCRIMINATION

Since the Civil Rights Act of 1964, it has been illegal to discriminate in the sale of real estate based upon race, sex, religion, or nationality. (United States Code,(U.S.C.) Title 42, Sections 3601-17.) Even policies that do not clearly discriminate, but have the effect of discriminating are illegal under this law. The following are the basic rules under the law. Penalty. A victim of discrimination under this section can file a civil suit, a HUD complaint, or request the U.S. Attorney General to prosecute. Damages can include actual losses and punitive damages of up to $1000. Limitation. The complaint must be brought within 180 days. Exemptions. This law does not apply to single family homes if the owner owns three or fewer; if there is no more than one sale within twenty-four months; if the person does not own any interest in more than three at one time; and, if no real estate agent or discriminatory advertisement is used. It also does not apply to a property that is owneroccupied if it has four or fewer units. Coercion or Intimidation. Where coercion or intimidation is used to cause discrimination, there is no limit to when the action can be brought or to the amount of damages.

THE CIVIL RIGHTS ACT

The Civil Rights Act, Section 1982 is a law similar to the above statute, but where the above applies to any policy that has a discriminatory effect, this law applies only where it can be proved that the person had an intent to discriminate. (U.S.C., Title 42, Sec. 1982.) Penalty. Actual damages plus unlimited punitive damages. Limitation. None. Exemptions. None.

ENVIRONMENTAL HAZARDS

To avoid having taxpayers pay for the cleanup of the environment, Congress has passed the Comprehensive Environmental Response,

23

essential guide to real estate contracts

Compensation, and Liability Act (CERCLA or Superfund). (U.S.C., Title 42, Secs. 9601-9657 (1982).) This law puts the cleanup burden on property owners even if they are innocent of causing any pollution. Example: If you buy a piece of property and later find out it is contaminated with pollutants, you may be personally liable for the cleanup. If the property only cost you $50,000 and the cleanup cost is $500,000, you can still be forced to pay for the cleanup out of your other assets. There is no way you can wipe out this liability, even through bankruptcy. Putting the property in a trust or corporation will not protect you, and even if you sell the property, you may be held liable many years later just for having owned the property once in the past. Because of this, it is important to avoid buying property unless you are sure it is free of contamination. In a residential subdivision there is less of a risk than on a busy highway where a toxic factory might have existed in the past. However, if toxic waste travels underground to a residential property, the owner is still liable for cleanup. The risk of serious pollution on most properties is small so there is no point in avoiding buying real estate altogether for this slight risk. Rather you should shop wisely. You can protect against liability by finding out who the former owners were and by having an environmental audit done on the property. This is expensive and may make the property not worth buying. FOREIGN BUYERS

Federal tax law requires buyers of real property to withhold taxes from the proceeds of purchases from foreign persons or companies. If this is not done, then the buyer may be liable for paying the tax personally. To avoid the liability, the seller should obtain a non-foreign person affidavit from the seller. If the seller is a foreign person and cannot provide such an affidavit, then the buyer should consult an attorney or tax specialist.

RESPA

24

The Real Estate Settlement Procedures Act (U.S.C., Title 12, beginning with Sec. 2601.) contains federal rules that apply to many residential

federal and local laws

closings. One requirement is that the closing statement be done on the form approved by the Department of Housing and Urban Development (HUD-1).This law will be of concern to the attorney or title agent who handles the closing of your transaction. INTERSTATE LAND SALES

To attempt to eliminate fraud in interstate sales of land, Congress passed the Interstate Land Sales Full Disclosure Act. (U.S.C., Title 15, beginning with Sec. 1701.) This law requires full disclosure of certain information by those who are selling vacant land.

TAX LAWS

An explanation of all of the tax ramifications of a real estate transaction is beyond the scope of this book, but anyone buying or selling real estate should be aware of the following possible tax aspects of the deal. Primary residence. The Taxpayer Relief Act of 1997 includes a real tax break for homeowners who sell at a profit. Under this law, as long as you have lived in your home two of the last five years, the first $250,000 of profit is tax free ($500,000 for married couples).There is no longer the requirement that the proceeds be rolled over into a more expensive residence. It is expected that this will allow many empty-nesters to move into more manageable smaller homes. Installment sales. In some cases a seller can be taxed in the year of sale for income that has not been received. Tax-free exchanges. Under Section 1031 of the Internal Revenue Code you may trade one piece of property for like-kind property without paying any tax on the transaction. Passive income. Under the Tax Reform Act of 1986, losses of over $25,000 from a real estate investment may only be deducted against other passive income. Depreciation. You may depreciate the value of the building (but not the land) on investment property over a set number of years, from your taxable income.

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essential guide to real estate contracts

Personal property. Personal property can be depreciated faster than the building. If personal property is included with an investment property, you may want to assign more of the purchase price to those items. Research. If you feel that any of these rules may apply to you, you should research the matter further before signing a contract. For example, to avoid tax on the sale of your residence, you must have lived in the property for two of the previous five years. (What a shame it would be if you had only lived there twenty months and signed a contract forcing you to close within three months.) For exchanges to qualify as taxfree, the properties must comply with strict IRS rules. Specialized rules. There are more specialized rules concerning lowincome housing, interest deduction limitations, construction interest deduction, historic renovations and tax exempt bonds. Check with a knowledgeable tax advisor or consult a tax guide for more information.

LOCAL LAWS Some states require certain forms to be used for real estate transactions. Other states require certain clauses to be included in such contracts. Some local governments such as cities and counties have their own rules. These laws may change at any time and it would be impossible for a book of this type to be up-to -date for every locality. Therefore it is important for you to verify that your contract complies with your local laws. One way to do this is to consult an attorney who specializes in real estate law or an active real estate broker. Another way is to obtain copies of real estate contracts used in your area from brokers and office supply stores. Be sure to ask if there are any addendum forms available. Laws that you might not ever conceive, of do exist, so be sure to do a thorough check of which laws might apply. The following are some laws that exist in some areas. 26

federal and local laws

ENVIRONMENTAL LAWS

Some states have laws requiring sellers to disclose information about environmental hazards. Such hazards would include asbestos, lead, radon, urea-formaldehyde insulation and underground storage tanks. Most states do not require sellers to have their properties tested for these hazards, but they must disclose any hazards of which they are aware. (Check the state-by-state list on page 30. These agencies may be able to provide you with guidance on legal requirements. For this reason you may want to think about testing your house for lead paint, asbestos, or other materials, because if they are found and you fail to disclose the fact you risk charges of concealment and misrepresentation. If you do not do any testing, then you will have nothing to disclose. While such disclosures may scare away some potential buyers and make it harder to sell the property, in the long run they may prove to be a protection for sellers. Like the warnings on cigarette packages, they may protect sellers from costly lawsuits if the buyer is injured sometime in the future. It can be expected that these laws will get stricter and that before long all properties may have to be inspected before they are sold. For this reason, it is a good idea to check out a property when buying it so that you are not stuck with paying for a big problem when you decide to sell. NOTE: Some states require certain language in the radon clause or other notice. Be sure to check if your state has such a requirement. There is a list of each state’s contact on page 30.

KNOWN DEFECTS

In over thirty states, there are voluntary disclosure forms used for informing buyers of known defects in a property. Each year similar bills are filed in several states and soon all states may have them. In some states the proposed disclosure applies to commercial properties as well as residential. In California the form is mandatory and in Maine it is mandatory only if a real estate broker is used in the sale. In many states, real estate brokers require disclosure forms from sellers to protect themselves from liability.

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essential guide to real estate contracts

As with environmental hazards disclosures, these forms can protect the seller from future lawsuits. Remember that you need only disclose known defects. If a neighbor or former owner told you about some possible problem on the property but you have never experienced the problem yourself you do not actually know of it. Of course if you take apart a wall and find termite damage you should not patch it up and pretend you never saw it. If the buyer can prove the patch was fresh you can be liable for misrepresentation. In some states, if something on the property is found to be inherently dangerous then the seller can be held liable for any injuries caused by it. If you do not know about some aspect of the property, admit it. A disclosure that you do not know if the roof leaks would be better than claiming it definitely did not leak, especially if you never actually looked in the attic. IMPLIED WARRANTIES

STIGMATIZED PROPERTIES

In some states the courts have held that builders can be held liable for defects in properties they have sold. Rather than make the “buyer beware,” the courts have noted that builders are more knowledgeable about their profession and should not be able to sell defective products without liability. Some people become upset with the fact that a tragedy such as a murder or a suicide took place in a house. Often this is the first thing the buyers learn from neighbors so it can quickly result in a lawsuit for recision. At least twenty states say that such facts do not have to be disclosed.As mentioned previously, a New York appeals court allowed recision when a buyer convinced the court that her house was haunted. In California the seller does not have to disclose a death if it occurred more than three years before the sale. It will be interesting to see how the courts rule in cases where the last occupant had AIDS. While some people will argue that it is important to disclose this, others will argue that such matters are private and must not be disclosed.

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federal and local laws

REAL ESTATE LICENSEES

In some states persons who are licensed as real estate brokers or sales agents must disclose this fact on any contracts they execute for themselves. The rationale is that they have special knowledge about properties and they might be using it to take advantage of a person who is less sophisticated.

SPECULATION TAX

In the District of Columbia there is a special tax on persons who buy a property and then sell it at a profit.

ZONING AND LAND USE LAWS

Today nearly all land is subject to zoning or land use laws. These laws can make it impossible to use a property for some activities. Everyone knows that businesses are not allowed in some residential areas, but some laws also forbid the parking of boats or RVs in the yard or cars on the street. Some purchasers have been badly disappointed to discover that they had to find other storage facilities for their vehicles after the closing on their new house. As explained in the discussion in this book on zoning clauses, you should make any purchase of property contingent on the zoning not interfering with your needs.

COASTAL PROPERTIES

DISCRIMINATION

In some states, buyers of property on the coast must be given disclosures about what can and cannot be done along the coast, such as required by Florida Statutes, Section 161.57. In addition to federal discrimination laws, many states have their own laws against discrimination and some cities and counties have them.The reason for the duplication is that local laws may be easier to enforce and cover more people than federal laws. Some of these laws may be unduly harsh and have unintended consequences. In Dade county Florida, a law against discrimination based on age made it impossible to build housing for the elderly.

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essential guide to real estate contracts

STATE RADON AND INDOOR AIR QUALITY (IAQ) CONTACTS Alabama Dept. of Public Health P.O. Box 303017 Montgomery, AL 36130-3017 1-800-582-1866 334-206-5391 IAQ: 334-206-5373 Alaska Dept. of Health and Social Services Radiological Health Program Section of Laboratories 4500 Boniface Parkway Juneau,AK 99507-1270 1-800-478-8324 Radon: 907-334-2107 IAQ: 907-563-6529 Arizona Radiation Regulatory Agency 4814 S. 40th Street Phoenix, AZ 85040 602-255-4845 x244 Radon/IAQ: 602-230-5830 Arkansas Dept. of Health 4815 West Markham St., Slot 30 Little Rock,AR 72205-3867 800-482-5400 501-661-2301 Radon/IAQ: 501-661-2986 California Dept. of Health Services P.O. Box 942-732 (MS 396) Sacramento, CA 94234-7320 800-745-7236 916-324-2208 Radon/IAQ: 510-540-2469 Also: Indoor Air Quality and Personal Exposure Assessment Program California Air Resources Board, Research Division P.O. Box 2815 Sacramento, CA 95812 916-445-0753/916-322-8282 Colorado Dept. of Public Health and Environment, Laboratory and Radiation Services Division 8100 Lowry Boulevard

30

Denver, CO 80220 800-846-3986 303-692-3090 Radon/IAQ: 303-692-3164 Connecticut Dept. of Public Health P.O. Box 340308 Hartford, CT 06106-4474 860-509-7367 Radon/IAQ: 860-509-7742 Delaware Office of Radiation Control P.O. Box 637 Dover, DE 19903 Radon/IAQ: 800-464-4357 302-739-4731 District of Columbia Health Department Environmental Health Administration 51 N. St., N.E. Washington, DC 20002 Radon: 202-535-2999 IAQ: 202-535-2989 Florida Department of Health Bureau of Facility Programs 4052 Bald Cypress Way, Bin A08 Tallahassee, FL 32399-1710 Radon/IAQ: 800-543-8279 850-245-4288 Georgia Dept. of Natural Resources Pollution Prevention Assistance Division/P2AD 7 M.L. King Jr. Dr., Suite 450 Atlanta, GA 30334 800-745-0037 404-872-3549 - the phone will be answered by a contractor (Southface Energy Institute) Radon/IAQ: 404-657-6522 Hawaii Department of Health Radiation Branch 591 Ala Moana Blvd. Honolulu, HI 96813 Radon/IAQ: 808-586-4700

fe deral and local laws

Idaho Indoor Environment Program P.O. Box 83720 Boise, ID 83720-0036 800-445-8647 208-332-7319 Radon/IAQ: 208-334-4964

Maine Radiation Control Program #10 State House Station 157 Capitol Street Augusta, ME 04333 800-232-0842 207-287-5676

Illinois Dept. of Nuclear Safety 1035 Outer Park Drive Springfield, IL 62704 800-325-1245 217-785-9958 Radon/IAQ: 217-782-5830

Maryland Dept. of the Environment 2500 Broenig Highway Baltimore, MD 21224 IAQ: 410-631-3801, or 410-631-3300 MD does not have a radon program. If you have questions about radon, you should contact the EPA regional office in Philadelphia for assistance at 800-438-2472 x2086; 215-814-2086 or visit their website.

Indiana State Dept. of Health, Indoor & Radiological Health 2 North Meridian St., 5th Floor Indianapolis, IN 46204-3003 800-272-9723 317-233-7147 Radon/IAQ: 317-383-6147 Iowa Dept. of Public Health Lucas State Office Building 321 E 12th Street Des Moines, IA 50319-0075 800-383-5992 515-281-4928 Radon/IAQ: 515-281-4928 Kansas Dept. of Health and Environment, Radiation Control Program Forbes Field, Bldg. 283 Topeka, KS 66620-0001 800-693-5343 785-296-1561 Radon/IAQ: 913-296-1551 Kentucky Dept. of Health Services Environmental Management Branch 275 East Main Street Frankfort, KY 40621 502-564-4856 Radon/IAQ: 502-573-3382 Louisiana Dept. of Environmental Quality P.O. Box 70884-2135 Baton Rouge, LA 70884-2135 1-800-256-2494 225-925-7042 Radon/IAQ: 504-568-8537

Massachusetts Dept. of Public Health Radiation Control Program 305 South Street Jamaica Plain, MA 02130 800-RADON95 [723-6695] 413-586-7525 x1124 Radon/IAQ: 617-522-3700 x366 Michigan Radiological Protection Section Drinking Water and Radiological Protection Division Michigan Department of Environmental Quality 815 Terminal Road Lansing, MI 48906 800-723-6642 (in state only) Radon/IAQ: 517-335-8037 Michigan Department of Community Health, Environmental Epidemiology PO Box 30195 3423 N MLK Jr Blvd Lansing MI 48909 517-335-8350 Minnesota Dept. of Health Division of Environmental Health P.O. Box 64975 St. Paul, MN 55164-0975 Radon/IAQ: 800-798-9050 651-215-0909 Mississippi Dept. of Health Division of Radiation Health & Radon Program 31

essential guide to real estate contracts

3150 Lawson Street Jackson, MS 39213-5754 800-626-7739 601-987-6893 Radon/IAQ: 601-576-7411 Missouri Dept. of Health, Bureau of Environmental Equity 930 Wildwood Drive Jefferson City, MO 65109 Radon/IAQ: 800-669-7236 573-751-6160 Montana Dept. of Environmental Quality Occupational & Radiological Health Quality P.O. Box 20091 Helena, MT 59620-0301 Radon/IAQ: 800-546-0483 406-444-6768

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800-648-0394 609-984-5425 IAQ: NJ Dept. of Health & Senior Services Consumer & Environmental Health Services 609-984-2193 New Mexico Environment Dept. Community Services Bureau 525 Camino de los Marquez, Suite 5 Santa Fe, NM 87502 505-476-8531 Radon: 505-827-7541 IAQ: 505-827-0006 New York Health Department, Bureau of Environmental Radiation Two University Place, Rm 240 Albany, NY 12203-339 800-458-1158 (local and Toll Free) Radon/IAQ: 518-402-7800, or 800-458-1158 x27800

Nebraska Dept. of HH—Regulation and Licensure, Public Health Assurance Division 301 Centennial Mall, South, 3rd fl Lincoln, NE 68509-5007 800-334-9491 402-471-0594 Radon/IAQ: 402-471-8320

North Carolina Division of Radiation Protection 3825 Barrett Drive Raleigh, NC 27609-7221 919-571-4141 Radon/IAQ: 919-715-6431

Nevada State Health Division, Radiological Health Section 1179 Fairview Drive, Suite 102 Carson City, NV 89701-5405 775-687-5394 x275 Radon/IAQ: 775-687-5494 x276

North Dakota Dept. of Health Environmental Health Section P.O. Box 5520 Bismarck, ND 58502-5520 Radon/IAQ: 800-252-6325 701-328-5188

New Hampshire Dept. of Radiological Health Health & Welfare Building Six Hazen Drive Concord, NH 03301-6527 800-852-3345 x4674 603-271-4674 Radon/IAQ: 603-271-4676

Ohio Dept. of Health Bureau of Diagnostics, Safety & Performance Certification P.O. Box 118 Columbus, OH 43215-0118 1-800-523-4439 614-644-2727 Radon/IAQ: 614-644-7630

New Jersey RADON: NJ Dept. of Environmental Protection Radiation Protection Program, DESHAP, 25 Arctic Parkway, CN415 Trenton, NJ 08625

Oklahoma Dept. of Environmental Quality P.O. Box 1677 Oklahoma City, OK 73101-1677 405-702-5100 Radon and IAQ: 405-702-5132

federal and local laws

Oregon Dept. of Human Resources Health Division 800 NE Oregon Street, Suite 260 Portland, OR 97232 Radon: 503-731-4014 x664 Pennsylvania Dept. of Environmental Protection Rachel Carson State Office Bldg. 400 Market Street, 13th Floor Harrisburg, PA 17101 800-237-2366 717-783-3594 Radon/IAQ: 717-787-6548 Puerto Rico Health Department Radiology Division G.P.O. Call Box 70184 Rio Piedras, PR 00936 787-274-7815 Rhode Island Dept. of Health; Office of Occupational & Radiological Health 3 Capital Hill, Room 206 Providence, RI 02908 401-222-2438 Radon/IAQ: 401-277-3424 South Carolina Dept. of Health & Environmental Control 2600 Bull Street Columbia, SC 29201 800-768-0362 803-734-4634 IAQ: 803-898-4467 Radon: c/o SC DHEC 301 University Ridge, Suite 5800 Greenville, SC 29601 864-241-1090 South Dakota Dept. of Environment & Natural Resources Joe Foss Building 523 E. Capitol, Room 217 Pierre, SD 57501 Radon/IAQ: 800-438-3367 605-773-3151 Tennessee Dept. of Environment & Conservation, Div. or Pollution Prevention/ Environmental Awareness

401 Church Street, 8th Floor, L&C Annex Nashville, TN 37243-1551 800-232-1139 615-299-9725 Radon/IAQ: 615-532-0570 Texas Dept. of Health Bureau of Radiological Control 1100 West 49th Street Austin, TX 78756 800-572-5548 512-834-6688 Radon/IAQ: 512-834-6600 Utah Dept. of Environmental Quality P.O. Box 144850 Salt Lake City, UT 84114-4850 800-458-0145 801-536-4250 Radon/IAQ: 801-536-4000 Guam USA P.O. Box 122439-GMF Barrigada, GU 96911 671-475-1611 Vermont Dept. of Health, Division of Health Protection 108 Cherry Street, P.O. Box 70 Burlington,VT 05402 Radon/IAQ: 800-439-8550 802-865-7730 IAQ direct: 802-863-7388 Virgin Islands EPA Region 2 Office 212-637-4013 Virginia Dept. of Health Bureau of Radiological Health 1500 E. Main Street 240 Richmond, VA 23218 800-468-0138 804-786-5932 Radon/IAQ: 804-762-4421 Washington State Dept. of Health, Division of Radiation Protection P.O. Box 47827 Olympia, WA 98504-7825 360-236-3253 Radon/IAQ: 360-664-8860

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essential guide to real estate contracts

West Virginia Bureau of Public Health, Office of Environmental Health Services 815 Quarrier Street, Suite 418 Charleston,WV 25301 Radon/IAQ: 800-922-1255 304-558-3427 Wisconsin Division of Health Dept. of Family Services 1 West St., P.O. Box 309 Madison,WI 53701-0309 888-569-7236 608-267-4796 Radon/IAQ: 608-266-2871

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Jefferson County Health Dept. N 3995 Annex Road Jefferson,WI 53549 Wyoming Dept. of Health 2300 Capitol Avenue Hathaway Bldg., Room 486 Cheyenne, WY 82002-0710 800-458-5847 307-777-6015 Radon/IAQ: 307-777-7394

O V E R R E AC H I N G

6

One problem with using a strong contract is that if you are ever taken to court, it may make you look like the bad guy. If a judge feels a contract is too one-sided or that a weak party was taken advantage of by a strong party, the judge can usually change the terms of the contract. The doctrine of sanctity of contract has given way, in our modern world, to a view that the weak must be protected from the strong, and even from themselves. Therefore, an exceedingly strong contract may not work in your favor in every case. If your “iron clad” contract is ever taken to court, a judge may be so shocked by it that he or she would rule against you no matter what your contract says. One tactic used by some purchasers is to prepare a contract that is totally one-sided and have it printed up with the words “approved form” at the top. Since most people, and even some attorneys, only read the material typed on a contract, contracts with ridiculous terms in the fine print are often signed. If such a case went to court and it was determined that an unsophisticated seller was clearly taken advantage of, a judge could easily find a reason to declare the contract void. The incident might also result in a newspaper article or a fraud investigation. This is especially likely if the person using the strong contract had a real estate license.

essential guide to real estate contracts

That is not to say that a strong contract should never be used. Most disputes never get to court and if the other party decides he or she is not happy with the deal you can usually just walk away and not have your contract tested in court. Some people put little boxes for initials next to each clause, which might be considered controversial. This might help convince a judge that the other person was aware of the clause, but it would not keep a contract from being declared void if it were considered unconscionable by the judge. Traditionally, the best way to protect a deal from being declared void is to include a severability clause. This is a clause that says that if one part of the contract is declared void the rest of the contract will not be affected. However, in an overly strong real estate contract this kind of clause may backfire. Example: Suppose you are buying a $40,000 property and offer $50,000 for it if the owner will take an unsecured note at 2% interest. If the case went to court and a judge thought that an unsecured note at 2% was unconscionable, you would not want the deal to go through at $50,000. In such a case you would want a clause stating that the purchase price is based upon the interest rate and that if the rate changes for any reason the price must be adjusted accordingly. A problem of this kind would most likely come up where one party was unsophisticated and did not understand the contract and later thinks he or she was cheated. (When sophisticated investors make such deals with unsophisticated people, the courts, newspapers, and consumer fraud departments do not let it go unnoticed.) The chance of having problems like this can be lessened by having someone more knowledgeable assist the person you are dealing with. Some investors even insist that the other party get a lawyer or that they sign a paper stating that they know they should have one but have decided against it. Of course, if the offer is really outrageous the attorney or other advisor might convince the person not to sign it. 36

BASIC CLAUSES

7

The minimum that a real estate contract must contain to be legally enforceable is: l

identification of the parties;

l

description of the property;

l

clear terms of payment;

l

some consideration, such as a deposit; and

l

an offer and an acceptance.

However, it is important to both the buyer and the seller to have other terms and contingencies. A buyer would probably want the sale contingent upon receiving a clear title insurance policy and termite clearance. A seller would want an earnest money deposit to bind the deal and to be sure to receive certified funds. A real estate contract should spell out the terms of the transaction in as much detail as possible. Some buyers and real estate agents present offers that are very vague and then fight over the details at closing. The idea is, the less said the less there is to disagree with, we can haggle at the closing. These are the deals that most often fall through. If all of the terms are spelled out in the contract then neither party can back out of the deal.

essential guide to real estate contracts

On the following pages different options are given for each possible clause. Depending on whether you are buying or selling, you can choose the option that is in your best interest. Most people do not even question many of the terms in a printed form. They read just what is typed in the blanks. If a form contract says that the seller pays for the termite report they would not question it. If the form says the buyer pays and you cross it out and type in “Seller,” they will scream. For this reason you might want to have your contract typeset as explained in Chapter 1, page 3. At the end of this book there are five contract forms. One of these should be suitable for any normal situation. To make amendments to the basic form an ADDENDUM TO CONTRACT is provided. (see form 6, p.205.) Additional clauses from this book can be added to the basic contract forms by using this ADDENDUM TO CONTRACT.

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basic cl auses

PARTIES AND AGREEMENT EXPLANATION

Two of the most basic parts of the contract are the parties and the statement that they agree to a sale and purchase. The form of the clause is not important, but what is filled in the clause is very important. Don’t forget to get the phone number. You might need to contact the other side if a problem arises.

BUYER’S VIEW

The buyer will want to be sure that he gets the signatures of all of the owners of the property. If several people own the property and only some of them sign, then it will be impossible to force the other owner to go through with the contract. (However, it might be possible to sue the ones who signed if they represented that they had the authority to sell.) When making the contract, the buyers should decide on how they wish to take title. If they take as tenants in common, then when one dies his or her share goes to whoever inherits their estate. If they take title as joint tenants with full right of survivorship, then when one dies his or her share goes to the other owner. In some states a married couple may take as tenants by the entireties which offers some protections, for example, from creditors.

SELLER’S VIEW

In most cases the seller would prefer to have the contract signed by someone with substantial assets or good credit. If the seller will be holding the financing, this will be especially important. If the buyer will be paying all cash it would not matter who signed, but if the buyer has no assets and ties the property up for months, the seller will have no recourse. Sellers should be careful of offers from corporations or trustees. These can be shell entities with no assets and can cost the seller a great deal of money. Example: If a property were sold to a shell corporation with little money down, the corporation could collect rents or strip the property while the seller goes through months of court proceedings to get the property back. 39

essential guide to real estate contracts

PARTIES:___________________________________________ __________as “Buyer” of ______________________________ Phone:__________________and_________________________ ___________as “Seller” of______________________________ Phone:__________hereby agree that the Buyer shall buy and the Seller shall sell real property described below under the following terms and conditions.

40

basic clauses

PURCHASE PRICE EXPLANATION

OPTION #1

The purchase price clause is usually fairly standard. The following option covers all types of payments.

The full purchase price shall be $__________ payable as follows: a)Deposit held in escrow by ______________________

$_________

b)New mortgage or deed of trust to be obtained by Buyer _______________________________________ $_________ c)Subject to [ ] , or assumption of [ ] mortgage* to ___________________________ with interest rate of _____%, payable $___________ per month, having an approximate balance of.......................

$_________

d) Mortgage* and Note to be held by seller at ___% interest payable___________________ for ______ years in the amount of....

$_________

e) Other __________________________________________ _______________________________________________ $_________ f) Balance to close (U.S. cash, certified or cashier’s check) subject to adjustments and prorations, plus closing costs.. $_________ Total .............................................................................

$_________

The seller’s view and buyer’s view for Option #1 are addressed in the subparts below that reflect a difference in view. The subparts correspond to the subparts in Option #1. a) The seller would prefer a larger deposit of at least 10% of the sales price, held by himself or his attorney. This way the buyer will not be tempted to walk away from the deal. The buyer would prefer a small deposit, such as $100 or $500, held by a neutral party such as a title company or the real estate broker. b) The buyer would want to specify the terms of the mortgage that he wants. Otherwise, if rates go up he will be required to buy the property at the going rate. See the clause for “Financing Contingency.” 41

essential guide to real estate contracts

c) If the buyer assumes the mortgage, then he agrees to be legally bound to pay it. If the buyer takes the property subject to the mortgage, he has no legal obligation to pay it (though he could lose the property if he does not). The seller prefers that the buyer assume the mortgage and should use another clause which requires that the seller be released from further liability on the loan. Otherwise the seller could be sued years later if the buyer fails to pay the loan. The buyer prefers to buy the property subject to the mortgage with no assumption of the liability. The buyer wants the mortgage terms filled in so that if they are not as described, then he can rescind the contract. d) This clause should clearly spell out the payment terms. The other terms of the mortgage that the seller will hold should be set out in another clause in the contract. e) Use this space if there is a second mortgage, a property to be used as part of a trade, or any other form of payment. If a small deposit was made, then the seller should require additional deposit money after any contingencies in the contract have been eliminated. f) This is the amount that the buyer will need to have at closing in addition to the initial deposit. If you are customizing a contract and know that you will not need all of the options in the previous clause you can use a shorter version to suit your needs:

OPTION #2

42

The purchase price shall be $_____________.

basic clauses

OPTION #3

The purchase price shall be $_____________ subject to the following terms and c o n d i t i o n s : _____________________________________ _______________________________________________

OPTION #4

The purchase price shall be determined by a __________ appraisal done by an appraiser acceptable to the Buyer and Seller. The type of appraisal in alternate Option #3 might be FHA (Federal Housing Administration), VA (Veterans’ Administration which was changed to the Department of Veteran Affairs), MAI (Member, Appraisal Institute), or some other entity that provides appraisals.

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essential guide to real estate contracts

CONVEYANCE EXPLANATION

The conveyance clause states the type of deed which will be given by the seller to the buyer.

DEFINITIONS

A quitclaim deed is a deed which says, in effect, “I don’t know what I own, but whatever it is I convey it to you.” In some states a quit claim deed is a warning to a buyer that the seller doesn’t think he owns the property, but in most states such a deed does not create any negative assumption. A fee simple deed is one that merely conveys all rights to a piece of property. In most areas, a general warranty deed is one in which a seller guarantees that he has good title to the property, and a special warranty deed is a deed in which the seller does not guarantee that he has good title, but does guarantee that he hasn’t done anything which would affect the title. However, in some states these definitions are reversed.

SELLER’S VIEW

The seller would like to get his money without further obligation and the best way to do this is to sign a quitclaim or fee simple deed. But in most cases a seller will need to sign a warranty deed. If the seller is selling property that he bought and for which he received a warranty deed, giving a warranty deed is no problem. However, if the seller inherited the property or received part of it by quitclaim deed or court settlement, then the seller would be better off conveying by quitclaim deed or fee simple deed.

BUYER’S VIEW

The buyer would prefer a warranty deed guarantying that the title is good so that if there are problems with the title he can get his money back from the seller. However, if, as is usual in most states, the buyer will receive title insurance, then the type of deed is not as important to the buyer as it is to the title company. The buyer would also like a bill of sale on the personal property to prove that he has bought it. (Option #4.) Without a bill of sale, a neighbor could come over and say that the lawn mower in the garage belongs to him and was merely borrowed by the seller.

44

basic clauses

Fee Simple Deed OPTION #1

Conveyance shall be by fee simple deed.

Special Warranty Deed OPTION #2

Conveyance shall be by Special Warranty Deed subject to matters excepted in this Contract.

General Warranty Deed OPTION #3

Conveyance shall be by General Warranty Deed subject to matters excepted in this Contract.

General Warranty Deed and Bill of Sale OPTION #4

Conveyance shall be by General Warranty Deed subject only to matters excepted in this Contract. Personal property shall be conveyed by an absolute Bill of Sale with warranty of title subject only to such liens as provided herein.

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essential guide to real estate contracts

PROPERTY DESCRIPTION EXPLANATION

The property description clause states what property the seller will be deeding to the buyer.

DEFINITIONS

Have you noticed real estate signs that offer a piece of property described as “6.5 acres MOL?” MOL means More or Less and this is always added to the description so that the buyer cannot sue if the land turns out to be 6.4 acres after it is surveyed.

SELLER’S VIEW

The seller does not want to promise to sell more than he owns. Many a seller has been sued when the property he owned turned out to be less than he described in the sales contract. Where a lot in a subdivision is being sold, the legal description usually consists of the lot number and plat. But where rural or unplatted land is being sold, the boundary can be affected by a neighbor’s fence, the movement of a stream, or many other factors. The best description would be the exact description of the property from a previous deed, unless part of the property has since been sold or taken for road widening. In many cases the seller could use the street address, but this might cause problems. If the seller also owned the vacant lot next door the buyer might assume that it was part of the property. Adding the approximate lot size or acreage would make the description more accurate and the contract more enforceable. If the deed of purchase is available, it would usually be safe and even more accurate to use the description contained on it.

BUYER’S VIEW

46

The buyer’s position is the opposite of the seller. He wants to know exactly what he is buying. Some properties have been found to be a fraction of the seller’s description. When this is discovered after the closing, an expensive lawsuit usually results. Unless the property is part of a platted subdivision the buyer should obtain a survey of the property. For extra caution the buyer could make the contract contingent upon the survey being satisfactory. Of course the buyer would prefer that the seller pay the cost of the survey. (See the survey clause on page 112.)

basic clau ses

When the buyer is relying on a description provided by a real estate agent, he may want to state something like, “...as described in MLS Listing Number 123456.”

OPTION

Street Address _______________________________________ Legal Description:_____________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________

47

essential g uide to real estate contracts

OTHER AGREEMENTS EXPLANATION

The other agreements clause states that there are no terms of the deal which are not included in the contract.

MUTUAL VIEW

In most cases neither party wants the other to say that they were promised something not in the contract, or that the contract did not cover everything that they had agreed upon. While it is often difficult to prove the terms of an oral agreement it is better to make it clear that there was no intent to rely on anything not put into the contract. Warning: In some cases one party plans to make a lot of oral promises, leave them out of the contract, and not perform them at the closing.

BUYER’S VIEW

OPTION

48

If the buyer is relying on some other document such as a listing of the property or a survey or sketch provided by the seller, then that document should be mentioned in the contract and made a part of the contract. For example, see the buyer's view on page 46.

No prior or present agreements or representations shall be binding upon the parties unless incorporated into this Contract. No modification or change in this Contract shall be valid or binding unless in writing and signed by the party to be bound thereby.

basic clauses

F.H.A./V.A. EXPLANATION

F.H.A. CLAUSE

In the event the purchase will be financed by an F.H.A. or V.A. loan, one of the following clauses is necessary. These are clauses required by the government regulations. They should not be changed. Since the Veterans Administration was changed to the Department of Veteran Affairs, the initials may change in the V.A. clause.

It is expressly agreed that, notwithstanding any other provisions of this contract, the Purchaser shall not be obligated to complete the purchase of the property described herein or to incur any penalty by forfeiture of earnest money deposits or otherwise unless the Seller has delivered to the Purchaser a written statement issued by the Federal Housing Commissioner setting forth the appraised value of the property (excluding closing costs) for the mortgage insurance purpose of not less than $________ which statement the Seller agrees to deliver to the Purchaser promptly after such appraised value is made available to Seller. The Purchaser shall, however, have the privilege and option of proceeding with the consummation of this contract without regard to the amount of the appraised valuation made by the Federal Housing Commissioner. The appraised valuation is arrived at to determine the maximum mortgage the Department of Housing and Urban Development will insure. HUD does not warrant the value or the condition of the property. The Purchaser should satisfy himself/herself that the price and condition of the property are acceptable.

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essential guide to real e state contracts

V.A. CLAUSE

50

It is expressly agreed that, notwithstanding any other provision of this contract, the Purchaser shall not incur any penalty by forfeiture of earnest money or otherwise be obligated to complete the purchase of the property described herein, if the contract purchase price or cost exceeds the reasonable value of the property established by the Veterans Administration. The Purchaser shall, however, have the privilege and option of proceeding with the consummation of this contract without regard to the amount of the reasonable value established by the Veterans Administration. Purchaser agrees that should Purchaser elect to complete the purchase at an amount in excess of the reasonable value established by V.A., Purchaser shall pay such excess amount in cash from a source which Purchaser agrees to disclose to the V.A. and which Purchaser represents will not be borrowed funds except as approved by V.A.

basic clauses

INSULATION CLAUSE EXPLANATION

OPTION

Sellers of newly built homes, condominiums, and cooperatives to consumers are required by federal law to provide detailed information about the insulation.(Code of Federal Regulations, Title 16, Section 460.) If the information is not available when the contract is signed, the seller must agree to provide it as soon as it is available.

INSULATION. The insulation in the property is as follows: 1. Exterior walls are insulated with ________________________ to a thickness of ___ inches which according to manufacturer will yield an R-value of R-____. 2. Interior walls are insulated with _________________________ to a thickness of ___ inches which according to manufacturer will yield an R-value of R-____. 3. Ceilings of air-conditioned areas are insulated with _____________________________ to a thickness of ___ inches which according to manufacturer will yield an R-value of R-____. 4. Garage ceilings, if any, are insulated with _______________ ___________________ to a thickness of ___ inches which according to manufacturer will yield an R-value of R-____. 5. Garage partition walls of air-conditioned areas are insulated with __________________________ to a thickness of ___ inches which according to manufacturer will yield an R-value of R-____.

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essential g uide to real estate contracts

LEAD-BASED PAINT CLAUSE EXPLANATION

The lead-based paint clause is a disclosure by the seller to the buyer about whether lead-based paint has been used on the premises.

BUYER’S VIEW

In most cases the buyer will want to be sure that the property he is purchasing is free of lead-based paint hazards because these may cause him a problem when he wants to sell the property. Laws are changing around the country and at some point it may be difficult or impossible to sell a property with lead-based paint. Of course the price of the property will determine whether lead-based paint is a concern. At the right price a buyer may be willing to handle any problems himself.

SELLER’S VIEW

The seller does not want to make any warranties about the paint and does not want to spend any money removing any such paint.

Warranty—Property Lead-Based Paint Free OPTION #1

Seller warrants that the property is free of lead-based paint and this warranty shall survive the closing.

Sold “As Is”—No Warranty OPTION #2

Property is being sold “as is” with no representations or warranties of any nature being given by Seller.

No Lead-Based Paint Knowledge—Buyer Responsible OPTION #3

52

Seller has no knowledge as to whether lead-based paint has been used on the premises. Buyer is buying the property in its present condition and agrees to be responsible for any needed lead-based paint abatement.

basic clauses

FEDERAL LAW

A federal rule promulgated by the Department of Housing and Urban Development and the Environmental Protection Agency in 1996 required that a disclosure form be signed by all parties to a real estate transaction. Because known hazards must be disclosed, sellers are advised not to have their property tested since any known hazards must be disclosed. See Appendix A, page 171 and form 9 in Appendix B.

STATE LAW

Some states have recently passed laws regarding lead-based paint hazards. Some require testing and disclosure. Be sure to check your state laws before setting a price on your property.

53

RECOMMENDED CLAUSES

8

It takes many clauses to comprise a good real estate contract. Many issues must be dealt with and many potential problems avoided. It is in ironing out the details of a deal that conflicts usually come up. One way to approach a deal is to agree to the basics and fight over the details later—perhaps at closing. The better way is to agree on all the details in the contract negotiation and then go to a closing that is short and sweet. The clauses in this chapter will help you go to a smooth closing. You might have to fight over each clause while putting the contract together. You might have to give in on some. But if you work out all of the little details in the contract there will be no surprises at the last minute and there will be less chance that the deal will fall through. Many sales have failed to close when the parties discovered that they really did not agree on everything and that they were unable to resolve their differences. The clauses in this chapter should allow you to clearly put into writing every aspect of your real estate purchase. If you are doing something especially complicated, you might want to check a law library for a book written for lawyers on real estate contracts, or you can take a seminar on creative real estate contracts. But for most people this should cover all of their needs.

essential guide to real estate contracts

ACCEPTANCE EXPLANATION

The acceptance clause tells the party receiving the offer how long he has to accept the offer.

BUYER’S VIEW

The buyer wants the seller to have to quickly decide whether or not he will accept the offer, but wants to have as long as possible to decide if he or she is given a counter-offer. (Option #1.)

SELLER’S VIEW

The seller wants time to shop for offers but wants the buyer to decide quickly. (Option #3.)

Offer to Seller OPTION #1

[If offer is made to seller] Seller shall have until _________ _________, 20___ at ___ o’clock __m to accept this Contract.

With Option #1 a seller must decide within the time specified or the offer is void, but if the seller presents a counter-offer, it remains open until the seller withdraws it.

Neutral Clause—Both Parties Execute OPTION #2

If this offer is not executed by both parties on or before ________________, 20___, it shall be void and Buyer’s deposit returned.

Offer to Buyer

OPTION #3

56

[If offer is made to buyer] Buyer shall have until _________ _________, 20___ at _____ o’clock __m to accept this Contract.

recommended clauses

AGREEMENT FOR DEED/CONTRACT FOR DEED EXPLANATION

In some cases the parties may want to use an agreement for deed, an installment land contract, or a contract for deed rather than an actual deed of the property. Some states have laws that make using these contracts risky for the buyer who could lose the property even after years of making payments. But in other states they are used successfully by both buyers and sellers. The most common use of such agreements is where the buyer has little money to put down and the seller is willing to help with some of the financing but wants to be sure that the first mortgage is paid on time each month. In some states, where these agreements must be foreclosed like mortgages, it is risky to sell a property to a buyer who has put little or no money down because the buyer can stay in the property for months without making a payment. In a conventional sale the seller deeds the property over to the buyer and the buyer then gives a mortgage or deed of trust to a bank or other lender. In an agreement, for deed the buyer does not yet get the deed. The agreement states that at a later date he will receive the deed if he complies with all the terms. Such agreements are often used when a buyer has little money to put down. Sometimes they provide that the buyer will be given a deed and be allowed to assume the first mortgage after he builds up a certain amount of equity. In another clause (purchase price on page 41) the contract must also spell out what the interest rate and payment terms are.

BUYER’S VIEW

The buyer wants a long grace period, wants the agreement to be assumable, and does not want a prepayment penalty.

SELLER’S VIEW

The seller does not want a long grace period and does not want the agreement to be assumed without his approval.

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essential guide to real estate contracts

Long Grace Period,Assumable, No Prepayment Penalty OPTION #1

In the event the property will be sold by Agreement (Contract) for Deed, said agreement shall contain no prepayment penalty, be fully assumable and allow a 30-day grace period on late payments. Purchaser shall have a first right of refusal at any time Seller desires to sell his interest in the Agreement.

Short Grace Period,Assumable on Seller Approval

OPTION #2

58

In the event property will be sold by Agreement (Contract) for Deed said agreement shall contain a 10-day grace period and provide that if any interest in the property is transferred (other than a subordinate lien or lease without an option) the remaining balance shall become immediately due and payable.

recommended clauses

ALLOCATION OF PURCHASE PRICE EXPLANATION

The allocation of purchase price clause explains what amount of the price is for the land, buildings, and personal property. It is used for tax purposes.

BUYER’S VIEW

If the property is being purchased for investment the buyer usually would like as much of the purchase price as possible allocated to personal property that can be depreciated quickly. When buying a residence the buyer would usually not want any amount allocated to personal property because he wants a higher basis in the real estate.

SELLER’S VIEW

If the property is his or her residence, the seller would prefer to allocate as much as possible of the purchase price to personal property because that would lower the taxable profit on the real estate. (Selling used household goods at less than their purchase price would not be taxable.) The seller’s position on investment property would depend on his tax situation and this should be discussed with a tax advisor.

Allocation for Land, Buildings, and Personal Property OPTION #1

The parties agree that the allocation of the purchase price is $_______________ for the land, $_______________ for the buildings and $_______________for the personal property. The parties agree that this sale is indivisible even though the amounts have been allocated separately.

Allocation for Personal Property OPTION #2

The portion of the purchase price allocated to the personal property is $__________. The parties agree that this sale is indivisible even though the amounts have been allocated separately.

NOTE: Add Option #2 to the end of the personal property clause on page 93. NOTE: If it appears that the parties have agreed to ridiculous allocation amounts solely to avoid taxes, the IRS may ignore it and substitute what it feels is a more reasonable allocation. The second sentence in both options is included so that one party does not try to buy only part of the property based upon a favorable allocation.

essential guide to real estate contracts

APPROVAL EXPLANATION

The approval clause makes the contract contingent on the approval of some party.

BUYER’S VIEW

The buyer may want to have the contract contingent upon the approval of his partner, spouse, attorney, or other advisor. (Contingent means he or she can back out of the deal without penalty. Where a partner is involved it is usually necessary to obtain their approval to complete the deal. But in other cases, the approval of a third party can be used to give the buyer the right to get out of the deal. In this way a buyer can lock in a deal and then after thinking about it for a few weeks say that his wife did not approve. The danger with using such a clause is that if the seller wanted to get out of the deal and took it to court, the court could rule that the contract was not binding upon the buyer so that it would also not be binding on the seller. The buyer usually would like the contingency to apply right up until the closing in case he needs to back out of the deal.

SELLER’S VIEW

The seller does not want any contingencies in the contract, but if there are any he wants them to last for only a few days so that he can then put his property back on the market. In some cases the seller might want to sign the contract but make it subject to his attorney’s approval.

Spouse Approval OPTION #1

This Contract is contingent upon the approval of Buyer’s spouse.

Partner Approval OPTION #2

This Contract is contingent upon the approval of Buyer’s partner.

Attorney Approval OPTION #3

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This Contract is contingent upon the approval of Buyer’s attorney.

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Spouse Approval with Time Limit OPTION #4

This Contract is contingent upon the approval of Buyer’s spouse within ______ hours.

Limited Time to Object OPTION #5

This Contract will be in full force and effect unless ____________ objects in writing on or before _______________, at ________.

It is usually good to have an attorney review a contract before accepting (or presenting) it to be sure that there is nothing in it that would be legally objectionable, or misleading. However, a problem sometimes comes up when the attorney leaves the realm of legal advice and starts giving business advice. Example: Attorneys have been known to tell their client that a price was too low (or too high) or that the property is not a good investment. Some people may be glad to have such advice. For others it may sour what was thought of as a good deal. When using an attorney be sure you know what type of advice you are seeking. See Chapter 2 about using an attorney.

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ARBITRATION EXPLANATION

OPTION

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Unless a party is an attorney or has an attorney relative who will work for free, he or she would most likely prefer to arbitrate any dispute rather than go through the time and expense of a lawsuit. This clause provides for binding arbitration and does not allow a lawsuit to be filed except to enforce the arbitrator’s ruling

ARBITRATION. The parties agree that any dispute arising out of this contract shall be settled by neutral binding arbitration in the county in which the property is located, and not by court action except as provided by law for review of arbitration proceedings

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ASSIGNMENT EXPLANATION

The assignment clause provides whether or not the contract can be assigned by the buyer to another party.

BUYER’S VIEW

The buyer would like the right to assign the contract to another purchaser, corporation, or trust. If the seller will be holding the financing, the buyer could avoid personal liability by assigning the contract to a corporation.

SELLER’S VIEW

A seller who is receiving all cash out of the sale probably wouldn’t care who is buying it so assignability would not be a problem, but where a seller will hold a mortgage or where he will remain liable on the mortgage, he should have someone with substantial assets personally signing the note. If the buyer is to make a substantial down payment and the seller would be glad to get the property back without a deficiency judgment (a money judgment against the buyer in addition to return of the property), assignability would not be a problem.

Fully Assignable—Detailed OPTION #1

Buyer may assign this Contract and all rights and obligations hereunder to another person, corporation or trustee.

Option #1 makes it clearer that the contract can be assigned to a corporation or trustee which would have no personal liability.

Fully Assignable—Simple OPTION #2

This Contract is fully assignable. If Option #2 is used, a seller could at least make the argument that he relied on the buyer’s personal worth and might try to back out of the contract if the buyer assigned the contract to a shell corporation or trustee.

Fully Assignable—Right to Show OPTION #3

This Contract is fully assignable. Buyer shall have the right to show the property to prospective purchasers prior to closing.

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Not Assignable OPTION #4

This Contract is personal to the parties and is not assignable. Option #3 makes it clear that the buyer intends to resell the property (presumably at a profit) prior to the time he takes title.

Not Assignable without Approval OPTION #5

Buyer may not assign this Contract without the approval by Seller of any assignee’s credit worthiness.

NOTE: In some jurisdictions a contract is assignable unless it states otherwise; in other jurisdictions it is not assignable unless it states otherwise. If the law in your jurisdiction is well-settled you could rely on that and leave the clause out. However, there is less chance of a lawsuit if you put it clearly in the contract.

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ATTORNEY’S FEES EXPLANATION

The attorney’s fees clause provides whether either of the parties have to pay the other’s attorney fees if an attorney needs to be hired to enforce the contract.

USUAL VIEW

If the loser will have to pay both parties’ attorney’s fees in a lawsuit then neither party will be as eager to file a lawsuit unless they have a very good case. Stipulating that the loser will pay both sides attorney’s fees makes litigation less likely in a close case.

ALTERNATE VIEW #1

If one party has a lawyer in the family or on retainer, he may want to sue even if his case is weak, because he does not have to worry about paying the other side’s attorney’s fees.

ALTERNATE VIEW #2

Because of the high cost of attorney’s fees, some people prefer to put an arbitration clause in all of their contracts. Arbitration is usually a lot less expensive than going to court. (See page 62 for arbitration.)

Attorney’s Fees to Prevailing Party OPTION #1

In connection with any litigation, including appellate proceedings, arising out of this Contract, the prevailing party shall be entitled to recover reasonable attorneys’ fees and costs.

No Attorney’s Fees to Either Party OPTION #2

In the event of any litigation arising out of this Contract each party shall be responsible for his or her own attorneys’ fees and costs.

Attorney’s Fees to Buyer for Any Consultation OPTION #3

In the event Buyer needs to consult an attorney or resort to litigation, including appellate proceedings, to enforce rights under this contract, then Buyer shall be entitled recover reasonable attorneys’ fees and costs.

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Attorney’s Fees to Seller for Any Consultation OPTION #4

In the event Seller needs to consult an attorney or resort to litigation, including appellate proceedings, to enforce rights under this contract, then Seller shall be entitled recover reasonable attorneys’ fees and costs.

NOTE: Option #3 and #4 are extra strong in that they also allow attorney fees if a party just calls his attorney for advice, and they only allow attorney fees to one side. However, even if the other party signs either of these a court might say that they apply to the other side as well. It might intimidate a party who does not use an attorney, but if it does go to court it might make the judge think the party who supplied the contract was the “bad guy.”

Binding Arbitration OPTION #5

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In the event of any dispute under this agreement, the parties agree to binding arbitration in accordance with the rules of the American Arbitration Association.

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BROKER’S FEE EXPLANATION

The broker’s fee clause states whether there is a fee due to a real estate broker for the transaction covered by the contract.

BUYER’S VIEW

Usually the seller is the only one who has contracted with a real estate broker and the buyer is not concerned with this agreement. If the buyer has a buyer’s broker there is probably a contract spelling out that agreement. The buyer’s broker might want his fee spelled out in the contract and paid to him at closing.

SELLER’S VIEW

If the seller has some reason for disputing a broker’s participation in the transaction, he would not want to acknowledge any participation by the broker in the sales contract. Therefore he would prefer that the commission not be mentioned in the contract. Since he presumably already has an agreement with the broker, there would be no need to repeat the terms of that agreement in the contract. However, if the broker’s commission is undisputed it does not make much difference if it is in the contract.

BROKER’S VIEW

The broker would like it to be acknowledged in the contract that he was the procuring cause of the sale. When this is signed by both sides it may make it easier for the broker to collect if there is a dispute. The broker might not want the amount of his commission disclosed in the contract and prefer to say that the commission is “in accordance with the listing agreement between Seller and Broker.”

Seller Agrees to Pay Broker OPTION #1

Seller agrees to pay the registered real estate Broker named below, at the time of closing, from the disbursement of the proceeds of sale, compensation in the amount of ____% of gross purchase price or $_________ for his services in effecting the sale by finding a Buyer ready, willing, and able to purchase pursuant to the foregoing Contract. In the event Buyer fails to perform and deposit(s) are retained, 50% thereof, but not exceeding the Broker’s commission above computed, shall be paid to the Broker as full consideration for Broker’s services including costs expended by Broker, and the balance shall be paid to Seller. If the transaction shall not be closed by reason of refusal or failure of Seller to perform, the Seller shall pay said fee in full to Broker on demand.

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Parties Acknowledge Broker Procured OPTION #2

Seller and Buyer acknowledge that Broker is the procuring cause of this Contract and Seller agrees to pay the registered real estate Broker named below, at the time of closing, from the disbursement of the proceeds of sale, compensation in the amount of ____% of gross purchase price or $_________ for his services in effecting the sale by finding a Buyer ready, willing, and able to purchase pursuant to the foregoing Contract. In the event Buyer fails to perform and deposit(s) are retained, 50% thereof, but not exceeding the Broker’s commission above computed, shall be paid to the Broker as full consideration for Broker’s services including costs expended by Broker, and the balance shall be paid to Seller. If the transaction shall not be closed by reason of refusal or failure of Seller to perform, the Seller shall pay said fee in full to Broker on demand.

Amount of Broker Commission Not Disclosed OPTION #3

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Seller and Buyer acknowledge that Broker is the procuring cause of this Contract and seller agrees to pay the registered real estate Broker named below, at the time of closing, from the disbursement of the proceeds of sale, compensation in accordance with the listing agreement between Seller and Broker, for his services in effecting the sale by finding a Buyer ready, willing, and able to purchase pursuant to the foregoing Contract. In the event Buyer fails to perform and deposit(s) are retained, 50% thereof, but not exceeding the Broker’s commission above computed, shall be paid to the Broker as full consideration for Broker’s services including costs expended by Broker, and the balance shall be paid to Seller. If the transaction shall not be closed by reason of refusal or failure of Seller to perform, the Seller shall pay said fee in full to Broker on demand.

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CLOSING DATE AND PLACE EXPLANATION

The closing date and place clause provides where and when the papers will be signed and delivered to finalize the transaction.

DEFINITIONS

In different areas of the country the act of signing the final paperwork and finalizing the deal is called the closing, the settlement, or the escrow. In the options on this page the proper term for your location should be used.

BUYER’S VIEW

The buyer wants the closing to be held at a time and place most convenient to him.

SELLER’S VIEW

The seller wants the closing to be at a time and place most convenient to him. NOTE: If “time is of the essence” is used in a contract then the dates and times must be complied with strictly. If a party is late then the other party can declare the contract in default and back out of the deal. Where a party wants the deal to go through, even if it takes a little longer, this option is not necessary.

Buyer Selects Location OPTION #1

Closing shall be on ___________________, _____ at a location to be selected by Buyer.

Location in Contract OPTION #2

Closing shall be on __________________________, _____ at ______________________________________.

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Location in Contract—Time of Essence OPTION #3

Closing shall be on __________________________, _____ at ______________________________________. Time is of the essence of this Contract.

Close at Seller’s Attorney or Title Office OPTION #4

Closing shall be on ___________________, _____ at the office of an attorney or closing agent designated by Seller.

Close at Seller’s Attorney or Title Office—Time of Essence OPTION #5

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Closing shall be on ___________________, _____ at the office of an attorney or closing agent selected by Seller. Time is of the essence of this Contract.

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CONDOMINIUM—1 EXPLANATION

The condominium-1 clause makes the transaction contingent upon the buyer’s satisfaction with the legal documentation of the condominium.

BUYER’S VIEW

The buyer wants to be sure the Declaration of Condominium is satisfactory. Condominiums have all sorts of rules, some of which you might not expect. Some of them control the color of your draperies, whether or not you can enclose your porch, where you can park, what you can park on the property, how long you can have guests stay at your apartment, and many other aspects of daily life. If you cannot abide by these rules you should not buy in such developments. People who have problems with their association over matters such as these often feel that their rights are being violated. But the rights of the owners have been determined before anyone buys in the complex, so it is important that you learn what these rules are before you sign a contract to buy.

SELLER’S VIEW

The seller wants to sell the property as is with no contingencies. (See also the Restrictions and Easements clause, page 105.)

Documents to Buyer—Option to Cancel OPTION #1

If this property is a condominium, Buyer shall be given a copy of the Declaration of Condominium and all Amendments and rules and regulations promulgated thereunder within five days of acceptance of this Contract. Buyer shall have the option to cancel this Contract if said documents are not satisfactory to Buyer’s needs.

Option #1 gives the buyer the right to cancel the purchase for any reason.Therefore a court might hold that the contract was not binding and that the seller also had the right to back out.

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Sale Contingent on Attorney Approval OPTION #2

If this property is a condominium, sale is contingent upon Buyer’s attorney approving the Declaration of Condominium and all Amendments thereto and any rules and regulations promulgated thereunder. Option #2 might have a better chance of being held to be binding since it could be argued that the attorney must give an objective opinion.

Sale Contingent on Specific Use OPTION #3

If this property is a condominium, sale is contingent upon Buyer being able to use the property for ______________________________________________

Option #3 would be most likely to constitute a binding contract since it only allows the contract to be cancelled upon a certain condition.

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CONDOMINIUM—2 EXPLANATION

The condominium-2 clause requires that the seller include all rights in the sale; it states who pays for any approval of the buyer; and it explains how any assessments are to be prorated.

BUYER’S VIEW

The buyer wants to be sure to receive all condominium rights and to have his deposit returned if the sale is not approved. He would also like to have the seller pay the costs of approval, if necessary, and for any improvements substantially completed.

SELLER’S VIEW

The seller wants the buyer to pay costs of approval and as much of the assessment fees as possible.

Seller Pays Costs OPTION #1

If this property is a condominium, Seller shall convey all rights therein including common elements and limited common elements such as parking spaces and cabanas, if any. This Contract is contingent upon approval by the association or developer, if required, and Seller shall pay all costs of approval and transfer. Any assessments to be levied for work, improvements or services, which are substantially completed at time of closing, shall be paid by Seller.

Parties Split Cost OPTION #2

If this property is a condominium, Seller shall convey all rights therein including common elements such as parking spaces and cabanas, if any. This contract is contingent upon the approval by the association or developer, if required, and the parties shall equally pay all costs of approval and transfer. Any assessments shall be prorated as of closing.

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Buyer Pays Costs OPTION #3

If this property is a condominium, Seller shall convey all rights therein including common elements such as parking spaces and cabanas, if any. This contract is contingent upon the approval by the association or developer, if required, and the parties shall equally pay all costs of approval and transfer. Any assessments shall be prorated as of closing.

Buyer Applies in 5 Days—Pays Costs

OPTION #4

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If this property is a condominium requiring approval by the association or developer, Buyer shall make application within five days of acceptance of this contract and shall pay all approval and transfer fees, if any. Any assessments shall be prorated as of closing.

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DEFAULT EXPLANATION

The default clause tells what the rights of the parties are if the other fails to fulfill his obligations under the contract.

BUYER’S VIEW

The buyer will hopefully have enough contingencies to avoid a default, but in the event he does default he wants his liability to be as low as possible. If the seller defaults he wants the choice of specific performance or monetary damages. The buyer should put down as small a deposit as possible.

SELLER’S VIEW

The seller wants to keep the buyer’s deposit plus any other damages or to be able to force the buyer to perform and wants to limit his liability in case he defaults. The seller should require as large a deposit as possible.

Seller Keeps Deposit; Buyer May Sue for Property—Simple OPTION #1

In the event Buyer defaults hereunder, Seller shall be entitled to the earnest money deposited herewith as liquidated damages. In the event Seller defaults hereunder, Buyer may proceed at law or in equity to enforce his rights under this contract.

Seller Keeps Out of Pocket Costs Only

OPTION #2

In the event Buyer defaults hereunder, Seller shall be entitled to his actual out-of-pocket expenses, and the Buyer shall have no further liability. The deposit paid under this Contract shall be returned to Buyer on demand. Buyer shall have no liability for commissions to any broker involved in this transaction. In the event Buyer must take legal action to recover the deposit, Seller shall be liable for Buyer’s attorney’s fees.

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Seller Keeps Deposit; Buyer May Sue for Property—Detailed OPTION #3

If the Buyer fails to perform under this Contract within the time specified, the deposit(s) paid by the Buyer may be retained by the Seller as liquidated damages, consideration for the execution of this Contract and full settlement of any claims, whereupon all parties shall be relieved of all obligations under this Contract. If, for any reason other than failure of Seller to render his title marketable after diligent effort, Seller fails, neglects, or refuses to perform under this Contract, Buyer may proceed at law or in equity to enforce his rights under this Contract.

Seller May Enforce Sale; Buyer Gets Fixed Damages OPTION #4

In the event Buyer defaults hereunder, Seller shall be entitled to retain any deposits paid hereunder as liquidated damages, or at his option, Seller may proceed to enforce specific performance of this Contract. In the event Seller defaults hereunder, Buyer shall be entitled to the sum of $_______ as liquidated damages from the Seller plus return of Buyer’s deposit, if any.

NOTE: Some contracts offer either the buyer or seller a choice of choosing between actual or liquidated damages. However, some courts have held such options unenforceable.

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ENGINEERING REPORTS EXPLANATION

The engineering reports clause makes the transaction contingent upon the results of an examination of the property by an engineer.

BUYER’S VIEW

If the buyer is purchasing land in order to build something on it, he wants to be sure that the land is suitable for his project. This may require tests of the soil, water table, bedrock, etc.

SELLER’S VIEW

Seller prefers no contingencies in the deal.

Contingent on Specific Use OPTION #1

Contingent upon satisfactory engineering reports on the property for the building of a _____________________ as proposed by Buyer.

Contingent on Contractor Approval

OPTION #2

Contingent upon Buyer obtaining engineering reports on the property satisfactory to Buyer’s contractor.

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ENVIRONMENTAL CONDITIONS EXPLANATION

The environmental conditions clause provides the buyer with information on the possibility of environmental contamination of the property. As explained in Chapter 5 an owner of property can be liable for any cleanup on the property.

BUYER’S VIEW

The buyer wants to protect himself from potential liability for cleanup of environmental hazards on the property. A wise seller would not guarantee that the property had no problems because there might be something he does not know about, but if the buyer can get such a clause accepted, and there is a “Survival of Contract” clause, the buyer may be able to sue the seller years later if anything turns up.

SELLER’S VIEW

The seller does not want to make any warranties as to the condition of the property. He may want to put in a clause relieving himself of potential liability.

Seller Warrants No Violation OPTION #1

Seller warrants that the property is not in violation of any federal, state or local environmental laws.

Seller Unaware of Any Violation OPTION #2

Seller is unaware of any environmental hazards on the property. Buyer shall have the right to have the property inspected for environmental factors within 15 days of acceptance of this contract. If Buyer is not satisfied with the environmental audit, Buyer may cancel this contract. If Buyer does not conduct an audit or cancel the contract within said 15 days then this right shall be waived and Buyer shall take the property as is.

The first sentence of Option #2 should not be used if the seller has knowledge of any hazards. If the seller suspects that there might be a 78

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hidden problem he might not want to use Option #2 because if anything is detected the seller will be informed of and may then be unable to sell the property without paying for the cleanup. Warning: If a seller thinks an environmental audit may uncover something, he may not want to have one done. Once the seller learns about a hazardous condition he must disclose it potential buyers and in some cases report it to governmental authorities. It may be possible to keep the audit confidential by hiring a lawyer to render confidential legal advice regarding the property. If the attorney orders the audit, the matter might be kept confidential by claiming attorney-client privilege. Seek the advice of an attorney is such matters.

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EXISTING MORTGAGES (DEEDS OF TRUST) EXPLANATION

The existing mortgages clause explains what the terms are of any mortgage on the property which will not be paid off at closing, what will happen to the escrow, and whether the buyer will assume liability for it or merely take over payments.

BUYER’S VIEW

The buyer needs to know all terms of the existing mortgage and wants to pay as little as possible to take over the loan. He would prefer to take the property subject to the mortgage, rather than assuming it, because if he assumes it he is personally liable to pay it in the event of a foreclosure. He would also like to have the seller pay the assumption fees and to give away his escrow balance, though the latter is very unlikely to be acceptable.

SELLER’S VIEW

The buyer should assume the existing mortgage at whatever its terms, at the buyer’s expense, and should also protect the seller from future liability on the loan. For FHA and VA loans the seller should check into the procedures for being released and having eligibility restored.

Seller Pays Costs OPTION #1

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Seller represents to Buyer that the existing mortgage on the property is held by _________________________________ and bears interest at _____% per annum with monthly payments of $________ principal and interest plus $______ for escrow. Said loan is fully assumable under the following terms:________ __________________________________________________ __________________________________________________. Seller to pay all costs of assumption and to bring current and transfer escrow balance, if any, without additional compensation. Said balance has been calculated into the purchase price.

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Neutral Clause

OPTION #2

Seller represents to Buyer that the existing mortgage on the property is held by ___________________________________ and bears interest at _____% per annum with monthly payment of $________ principal and interest plus $________ for escrow. Said loan is fully assumable under the following terms: _______ __________________________________________________.

Buyer Pays All Costs OPTION #3

Buyer to assume and hold Seller harmless on Mortgage to _______________________________. Buyer to pay all costs of assumption and to purchase Seller’s escrow balance, if any.

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EXPENSES EXPLANATION

The expenses clause tells which party will pay the various costs of finalizing the transaction.

BUYER’S VIEW

The buyer wants to pay as few expenses as possible even if it is “customary” for him to pay them.

SELLER’S VIEW

The seller wants to pay as few expenses as possible even if it is “customary” for the seller to pay them.

Seller Pays All Costs OPTION #1

Seller shall pay all closing costs, including all documentary stamps, transfer fees on the deed and mortgage, survey, termite report and appraisals. Option #1 is rarely acceptable to sellers.

Seller Pays Transfer Fees; Buyer Pays Mortgage Fees OPTION #2

Seller shall pay for the documentary stamps or transfer taxes on the deed, costs of obtaining and recording any corrective instruments and for any intangible tax and recording of any mortgages to be executed by Buyer.

Option #2 requires the seller to pay the intangible tax and recording fee even if the mortgagee is a bank.

Seller Pays Transfer and Mortgage-to-Seller Fees OPTION #3

Seller shall pay for the documentary stamps or transfer taxes on the deed, costs of obtaining and recording any corrective instruments and for any intangible tax and recording of any mortgages to Seller. Option #3 is standard in some areas which have intangible taxes on mortgages.

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Parties Split Fees OPTION #4

The parties herein shall each pay half of the fees and costs for documentary stamps and transfer and recording fees.

NOTE: In different localities it may be customary for one or the other party to pay certain fees. Thus, where it is customary for a buyer to pay all of the fees, Option #4 would cause an extra expense for the seller.

Buyer Pays All Fees—Including Termite OPTION #5

Buyer shall pay all closing costs, including documentary stamps, transfer fees, survey, termite report and appraisals.

Buyer Pays Closing Fees OPTION #6

Buyer shall pay for all closing costs, documentary stamps and transfer fees.

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FINANCING CONTINGENCY EXPLANATION

The financing contingency clause makes the transaction contingent upon the buyer obtaining a loan with which to make the purchase.

BUYER’S VIEW

The buyer wants to have his deposit refunded if he cannot obtain a suitable loan. Without this option the buyer whose loan application is denied will lose his deposit. It is important to list the terms of the loan the buyer is seeking. Otherwise, if interest rates go up, the payments could be a lot more than expected and he may not want to go through with the purchase.

SELLER’S VIEW

The seller wants a contract with no contingencies, but if financing is necessary, he wants to know as soon as possible if the loan will be approved.

Loan Approval Any Time before Closing OPTION #1

Contingent upon Buyer obtaining a mortgage loan for a minimum of $____________ at a maximum interest rate of _____% with payments not to exceed $__________ per month and no more that $__________ in loan points and fees. If Buyer is unable to obtain said loan prior to closing, Buyer’s entire earnest money deposit shall be refunded immediately.

“Reasonable Diligence” Used to Apply for Loan OPTION #2

Contingent upon Buyer obtaining a firm commitment for a loan of at least $__________, at a maximum interest rate _________%, for a term of at least ______ years. Buyer agrees to make application for and use reasonable diligence to obtain said loan.

Limited Time to Apply for Loan OPTION #3

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Contingent upon Buyer obtaining a firm commitment within ____ days from acceptance for a loan of at least $__________. Buyer to make application within five days and use reasonable diligence to obtain said loan. Should Buyer fail to obtain said commitment or to waive this contingency within said time, either party may cancel this Contract.

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F.I.R.P.T.A. EXPLANATION

When the seller of a piece of real estate is not a United States taxpayer, The Foreign Investment in Real Property Tax Act (FIRPTA) requires that the buyer or an agent of the buyer such as the title insurance company or attorney withhold income taxes from the proceeds. If this is not done, the buyer can be liable for them.

BUYER’S VIEW

As a buyer you should be sure either that the seller is a United States citizen or that the taxes are properly withheld from the proceeds at closing.

SELLER’S VIEW

If the Seller is only receiving a small deposit at closing, this may not be enough to pay the required withholding and the seller may be required to come up with cash to close the transaction.

OPTION

Buyer and Seller Agree to comply with FIRPTA and at or prior to closing Seller will provide documentation of exemption or withholding will be made at closing. If Seller’s proceeds at closing are not enough to cover the required withholding, Seller will provide additional funds at closing as necessary.

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INGRESS AND EGRESS EXPLANATION

The ingress and egress clause guarantees the buyer that he has legal access to the property.

BUYER’S VIEW

The buyer wants to be sure there is legal access to the property and that he has a right to continued use of the access. In a platted subdivision this is not usually necessary, but when purchasing unplatted land it is very important. If the title policy or abstract indicates that there is no legal ingress and egress, the buyer probably will want to cancel the deal or require the seller to acquire ingress and egress rights prior to closing.

SELLER’S VIEW

The seller does not care if there is legal ingress or egress; he just wants to sell the property. If the seller has a survey or title policy showing ingress and egress Option #1 is acceptable.

Seller Warrants Ingress and Egress OPTION #1

Seller warrants that there is ingress and egress to the property which is insurable by a title insurance underwriter.

If seller does not know if there is legal ingress and egress he should not use Option #1. If the buyer does not bring it up then no clause is necessary.

No Warranty OPTION #2

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Property is being sold in “as is” condition with no representations or warranties of any nature being given by Seller.

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INSPECTION EXPLANATION

The inspection clause makes the transaction contingent upon an inspection of the property.

BUYER’S VIEW

The buyer wants to examine the property immediately before closing to be sure the property is in good condition and the contract is complied with. When the property is vacant and the buyer is moving in at closing, the buyer may want to turn the water and power on in his name for the inspection. However, if the buyer will rent the property out, he or she will not want to pay the expenses of putting the accounts in his name for a day and then into a tenant’s name, so it is best to have the seller pay for this.

SELLER’S VIEW

The seller wants the buyer to take the property in its present condition.

Inspection within 24 Hours of Closing OPTION #1

Buyer shall be allowed to inspect the property within 24 hours of closing and at such time the Seller shall have the electrical service, water and gas on.

Licensed Contractor Inspection Any Time OPTION #2

Contingent upon satisfactory inspection of the premises by a licensed contractor.

Property “As Is”—Buyer Has Inspected OPTION #3

Property is being sold in “as is” condition with no representations or warranties of any nature being given by Seller. Buyer has personally fully inspected the property, finds it satisfactory and does not rely on any representations not contained in this Contract.

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Major Systems to Be Working Six Days Prior to Closing OPTION #4

Major appliances, heating, cooling, electrical and plumbing systems to be in working order as of six days prior to closing. Buyer may, at his expense, have inspections made of said items by licensed persons dealing in the repair and maintenance thereof, and shall report in writing to Seller such items as found not in working condition prior to taking possession thereof, or six days prior to closing, whichever occurs first. Unless Buyer reports failures by said date, he shall be deemed to have waived Seller’s warranty as to failures not reported. Valid reported failures shall be corrected at Seller’s cost. Seller agrees to provide access for inspection upon reasonable notice.

NOTE: Option #4 is the same as Option #4 under “Plumbing and Electrical” on page 95.

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INVESTMENT EXPLANATION

In some areas those who are buying property for investment, especially for a quick profit, must disclose this to the seller. This is especially true for those who hold real estate licenses. It is a violation of real estate licensing laws in some states not to disclose that one holds such a license. In some areas certain language may be required.

Buyer Is a Real Estate Agent OPTION #1

Buyer is a licensed real estate agent buying this property for investment.

Buyer Is a Real Estate Broker OPTION #2

Buyer is a licensed real estate broker buying this property for investment.

Buyer Is a Professional Investor OPTION #3

Buyer is a professional real estate investor buying this property for profit.

If you are getting an especially good price on a property and think someone might later question the transaction, you might want to consider using Option #3.

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LEASES EXPLANATION

The leases clause makes the transaction contingent upon the buyer being happy with any existing leases affecting the property.

BUYER’S VIEW

If the property is presently leased to someone, the buyer wants to be sure that leases on the property are reasonable and are assigned to him. The buyer may not want the property if it is subject to long leases at low rentals (such as a five year lease to the seller’s brother at half the market rent).

SELLER’S VIEW

The buyer should take the property subject to all of the terms of the existing leases.

Contingent on Buyer Approval and Estoppel Letters OPTION #1

Contingent upon Buyer’s approval of all leases affecting the property, copies of which shall be provided to Buyer five days after acceptance hereof. Prior to closing Seller shall furnish to Buyer estoppel letters from all tenants stating the nature and duration of occupancy, rental terms and any advanced rent and security deposits. In the event Seller is unable to obtain such letters, said information shall be furnished by Seller to Buyer in the form of a Seller’s Affidavit and Buyer may thereafter contact tenants to confirm such information. Seller shall deliver and assign to Buyer all original leases at closing along with an assignment of all leases.

Contingent on Leases Are as Represented OPTION #2

Contingent upon Seller providing to Buyer proof that all leases are as represented to Buyer, and delivering to Buyer copies of all existing leases.

Property Subject to Existing Leases OPTION #3 90

Property to be conveyed subject to existing leases, if any.

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LIEN AFFIDAVIT EXPLANATION

The lien affidavit clause guarantees the buyer that there are no financial claims against the property which will not be paid before he owns the property.

BUYER’S VIEW

The buyer wants the seller to provide an affidavit at closing stating that there are no liens on the property. This will usually be required by the closing agent and often includes such bills as for water, sewer, etc.

SELLER’S VIEW

The seller gains nothing by this option, but need not object to it. If there are hidden claims against the property the seller would probably be sued if the buyer has to pay them.

OPTION

Seller shall, as to both the real and personal property being sold hereunder, furnish to Buyer at time of closing an affidavit attesting to the absence, unless otherwise provided for herein, of any financing statements, claims of lien or potential lienors known to Seller, and further attesting that there have been no improvements to the property for 90 days immediately preceding the date of closing. If the property has been improved within said time Seller shall deliver releases or waivers of all mechanic’s liens, executed by general contractors, subcontractors, suppliers and materialmen, in addition to Seller’s lien affidavit, setting forth the names of all such parties and further reciting that in fact all bills for work to the property which could serve as a basis for a mechanic’s lien have been paid or will be paid at closing.

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MAINTENANCE EXPLANATION

The maintenance clause guarantees the buyer that the property will be maintained in the time period between signing the contract and getting possession of the property.

BUYER’S VIEW

Buyer wants property in the best possible shape at closing.

SELLER’S VIEW

The seller wants to convey the property “as is.”

Property Delivered in Good Condition OPTION #1

Seller agrees to deliver the premises in good condition. Until possession seller shall maintain the property, including the lawn and shrubbery, and the pool, if any, shall be clean and clear. All floors to be washed or vacuumed and all walls to be clean and free of holes or damage.

With Option #1 the buyer could argue for a slight reduction in the purchase price at the closing table if the property has not been cleaned and maintained.

Property Delivered in “As Is” Condition OPTION #2

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Property is being sold in “as is” condition with no representations or warranties of any nature being given by Seller.

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PERSONAL PROPERTY EXPLANATION

The personal property clause sets out exactly what moveable personal property are included in the sale.

BUYER’S VIEW

The buyer wants to know which personal property is included in the purchase and to have it in working order.

SELLER’S VIEW

The seller does not want to warrant condition of the property or to include any items he didn’t intend to sell.

Property Listed on Schedule A OPTION #1

This sale includes all personal property listed on Schedule A plus any additional items remaining on the premises after closing.Seller warrants all items to be in working order at time of closing. A SCHEDULE A form is included with the forms in this book. (see form 8, p.207.)

Specific Items plus All Property Left on the Premises OPTION #2

The following personal property is included in the purchase price: Range___ Oven___ Refrigerator___ Freezer___ Dishwasher___ Disposal___ Microwave___ Washer___ Dryer___ Heating System___ Air System___ Air Units___ Water Heater___ Water Softener___ Dehumidifier___ Ceiling Fans___ Pool Equipment___ Fireplace Equipment___ Swing Set___ Barbecue___ Curtains___ Drapes___ Rods___ Blinds___ Other____________________________________________ plus all additional items remaining on the premises after closing. The parties agree that the portion of the purchase price attributable to the above items is $________. Seller warrants all items to be in working order at time of closing.

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If the seller forgets his gold watch on a shelf, under Option #2 the buyer gets to keep it. Buyers of rental property would want the portion of the purchase price attributable to personal property as high as possible since it can be depreciated more quickly. (See the “Allocation of Purchase Price” options on page 59.)

Only Listed Items in “As Is” Condition OPTION #3

The following personal property is included in the purchase price and sold in “as is” condition: _______________________ _________________________________________________.

With Option #3, if the seller forgot something on the premises he could assert that it was not included in the deal. If the property is being used as a rental (rather than a residence) the seller would not want to attribute much of the price to the personal property because he would probably have to pay tax on the depreciation recapture.

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PLUMBING AND ELECTRICAL EXPLANATION

The plumbing and electrical clause explains the condition those systems will be in at the time of sale.

BUYER’S VIEW

Buyer wants property in the best possible condition at time of closing with corrections made at the seller’s expense.

SELLER’S VIEW

Seller wants the buyer to take the property in its present condition.

Seller Warrants That There Are No Problems OPTION #1

Seller warrants all heating, cooling, electrical and plumbing systems to be in working condition as of closing. Buyer may have inspections made of said systems by licensed persons dealing in the repair and maintenance thereof. All plumbing to be free from drips or leaks and in conformance with applicable standards, including septic system, if any, and all electrical fixtures to be in working order, including bulbs.

Seller Warrants “Working Condition” OPTION #2

Seller warrants all heating, cooling, electrical and plumbing systems to be in working condition as of closing.

Property in “As Is” Condition OPTION #3

Property is being sold in “as is” condition with no representations or warranties of any nature being given by Seller.

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Working Condition Six Days Prior to Closing— Warranty Waived unless Reported OPTION #4

Major appliances, heating, cooling, electrical and plumbing systems to be in working order as of six days prior to closing. Buyer may, at his expense, have inspections made of said items by licensed persons dealing in the repair and maintenance thereof, and shall report in writing to Seller such items as found not in working condition prior to taking possession thereof, or six days prior to closing, whichever occurs first. Unless Buyer reports failures by said date, he shall be deemed to have waived Seller’s warranty as to failures not reported. Valid reported failures shall be corrected at Seller’s cost. Seller agrees to provide access for inspection upon reasonable notice.

If the buyer insists upon warranties, Option #4 makes sure they are taken care of or waived before closing.

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POSSESSION EXPLANATION

The possession clause guarantees the buyer that he will have possession of the property, except for legitimate tenants, at the time of sale and that there will not be other people in the property whom he needs to get rid of.

BUYER’S VIEW

The buyer wants possession of the property at closing or compensation for any delays. The figures in the following options are for illustration. The may need to be higher or may be negotiated lower.

SELLER’S VIEW

The seller wants the buyer to take the property subject to existing tenancies, if any, and to not pay any penalties if he is to stay after closing.

Escrow for Rent in Arrears OPTION #1

Seller shall deliver exclusive possession of the premises to Buyer at closing subject only to leases assigned to Buyer which are current in rent. In the event any rents are in arrears, the sum of $500.00 of Seller’s funds shall be held in escrow by closing agent for each unit in arrears, to cover costs of eviction and lost rent, if any. If Seller is to remain in possession of the property at closing, Seller ’s proceeds shall not be released until Seller has fully vacated the property, and Buyer shall be entitled to $50.00 per day for each day Seller holds over.

All Leases Current OPTION #2

Seller shall deliver exclusive possession of the premises to Buyer at closing subject only to leases assigned to Buyer which are paid current.

In Options #1 and #2, “leases” can also include oral leases.

Subject to Existing Tenancies OPTION #3

Possession shall be delivered at closing subject to existing tenancies, if any.

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PRORATIONS EXPLANATION

The prorations clause explains how the continuing costs of the property will be shared at the closing.

BUYER’S VIEW

The buyer wants full credits from the seller for all taxes owed and rents and security deposits prepaid.

SELLER’S VIEW

The seller would prefer the buyer to take title subject to taxes and without rent credits. But if prorated, the seller would prefer the lowest figures be used with no possibility for future obligations.

Proration as of Closing OPTION #1

Taxes, rents, interest, property owner dues, insurance acceptable to Buyer and _________________ shall be prorated as of closing. Any security deposits shall be turned over to Buyer.

Proration as of Closing—Future Adjustment OPTION #2

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Taxes, rents, interest, property owner dues, and insurance acceptable to Buyer and _________________ shall be prorated as of closing. Real and personal property taxes shall be prorated based upon the most recent available information. If closing occurs at a date when the current year’s millage is not fixed, and current year’s assessment is available, taxes will be prorated based upon such assessment and the prior year’s millage. If current year’s assessment is not available, then taxes will be prorated on the prior year’s tax; provided, however, if there are improvements on the property completed by January 1st of the year of closing, which improvements were not in existence on January 1st of the prior year, then taxes shall be prorated based upon the prior year’s millage and at an equitable assessment to be agreed upon between the parties, failing which, request will be made to the property appraiser or assessor for an informal assessment. Any tax proration based upon an estimate may, at the request of Buyer, be subsequently readjusted upon receipt of the tax bill. Prepaid rents and other tenant deposits shall be prorated to the date of closing. Any security deposits shall be turned over to Buyer.

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No Proration OPTION #3

Neither taxes nor rents shall be prorated as these amounts have been calculated into the sales price.

No Future Adjustments OPTION #4

Real and personal property taxes shall be prorated according to the last available bill and no future adjustments shall be required. Rents shall be prorated as of the date of closing and tenant deposits turned over to buyer.

NOTE: Before deciding which option is best you must first figure out if the proration would cost you money or give you extra money. In some areas taxes may be assessed or collected a year or two in advance or in arrears. This would make a difference in the which option works best.

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PURCHASE MONEY MORTGAGE EXPLANATION

The purchase money mortgage clause explains what the terms will be if the seller will be holding the mortgage after the sale. NOTE: In some areas a “deed of trust” is used instead of a mortgage.

BUYER’S VIEW

The buyer wants the best terms on the mortgage to save him money and lessen his risk of default. Most important are a long grace period on late payments and the right to have the mortgage assumed by a later buyer, but some buyers like to ask for a lot more. NOTE: This clause is one of the most important in the contract and could result in tens of thousands of dollars in additional profit.

SELLER’S VIEW

The seller wants a non-assumable mortgage with a lot of protective options.

60-Day Grace Period—Buyer-Friendly Terms OPTION #1

In the event Seller will hold a purchase money mortgage under this Contract, said mortgage shall contain no prepayment penalty, be fully assumable and allow a 60-day grace period on late payments. Mortgagee shall look only to the collateral for security and not be entitled to any deficiency judgment. Mortgagor shall have a first right of refusal at any time mortgagee desires to sell the note and mortgage at a discount, and mortgagor may have parts of the property released from the mortgage proportional to the principal paid. Mortgagor shall be permitted to miss one monthly payment per loan year without default and shall be able to substitute other collateral of equal equity value at any time.

Few sellers would accept all of the provisions in Option #1, but some of them may be accepted.

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30-Day Grace Period OPTION #2

In the event Seller will hold a purchase money mortgage under this contract, said mortgage shall contain no prepayment penalty, be fully assumable and allow a 30-day grace period on late payments. Mortgagor shall have a first right of refusal at any time mortgagee desires to sell the note and mortgage at a discount.

Standard Mortgage Form OPTION #3

In the event Seller will hold a purchase money mortgage under this Contract said mortgage will be on a standard form used by lenders in the area and contain a “due on sale option.”

10-Day Grace Period—Adjustable Rate upon Transfer OPTION #4

In the event Seller will hold a purchase money mortgage under this Contract said mortgage shall contain a 10-day grace period and provide that if any interest in the property is transferred (other than a subordinate lien or lease without an option) the interest rate shall be adjusted upward to the average fixed loan rate at the following institutions ____________________ _________________________________________________.

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RADON EXPLANATION

The recent discovery that radon gas is present in many homes and is a health hazard is causing new laws and regulations to be passed around the country. This, of course, is resulting in new lawsuits and attempts to find liability. Since the issue is so new there is no way to know what laws will be passed or which contract options will hold up the best. However, the following suggestions may be helpful. The radon clause provides for an inspection for radon gas on the property and allows the buyer to cancel the transaction if he is not happy with the result.

BUYER’S VIEW

If the property is in a high-radon area, the buyer may want to have a radon test done on the house. He would prefer to have the seller pay for it and would like to back out of the deal if the house is found to have high levels of radon.

SELLER’S VIEW

The seller wants to sell the property without any delays or expenses due to radon problems. Therefore the less said about the issue the better. Because sellers have been held liable for not disclosing known defects in their properties, a seller might not want to voluntarily have a radon test done if it was not requested.

Buyer May Cancel OPTION #1

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Seller, at his expense, shall provide Buyer at least 15 days prior to closing with a report by a licensed inspector acceptable to Buyer, of the level of radon gas in the premises. In the event levels of radon gas are unacceptable to Buyer, Buyer may cancel this Contract.

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Buyer May Cancel or Seller Must Install Equipment OPTION #2

Seller, at his expense, shall provide Buyer at least 15 days prior to closing with a report by a licensed inspector acceptable to Buyer, of the level of radon gas in the premises. In the event levels of radon gas are unacceptable to Buyer, Buyer may cancel this Contract or require that radon gas reduction equipment be installed on the property at Seller's expense, not to exceed 3% of the purchase price.

There are not yet clear standards as to what amount of radon is acceptable. Therefore Options #1 and #2 allow the buyer to back out if any is found or to accept the property if minor amounts are found and mitigation equipment is installed.

Florida’s Clause OPTION #3

RADON GAS: Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county public health unit.

FLORIDA LAW

A law in Florida requires Option #3 in all contracts for sale (and lease) or real property. This law may be beneficial to sellers in that by giving a warning to buyers, they may be protected from liability if radon is found later.

OTHER STATES

Persons in areas other than Florida should check to see if any new laws have been passed in their area. (Boards of Realtors should know.) If no clause is required, the Florida clause could be used by changing the state name and may offer some protection. See the list of state agencies on page 30 to find out how to get more information.

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RECORDING EXPLANATION

The recording clause provides whether or not the contract can be filed in the public records.

BUYER’S VIEW

The buyer would like to record the contract to protect his interest if the seller refuses to close. Be sure the contract has the correct legal description and that the sellers’ signatures are notarized.

SELLER’S VIEW

The seller does not want contract recorded to cloud his title to the property. The seller should not allow his signature to be notarized

OPTION

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Neither this Contract nor any notice of it shall be recorded in any public records.

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RESTRICTIONS AND EASEMENTS EXPLANATION

The restrictions and easements clause allows the buyer to check whether any of these affect his planned use of the property and allow him to cancel the contract if they do. Restrictions are rules affecting the use of land which have been placed on the land by a prior owner (such as a rule that only a single home may be built on a lot). Easements are rights of other parties to use parts of the land (such a the right of a utility company to install a power pole).

BUYER’S VIEW

The buyer does not want to buy property if restrictions or easements prohibit his intended use of the property or adversely affect its value. Most restrictions add to the value of the property by forbidding neighbors from doing obnoxious things like having clotheslines or trucks in the front yard. However, if a buyer wants to install a six foot fence or a pool and restrictions don’t allow it, he probably won’t want the property. Some restrictions forbid parking cars on the street or control the color that the house may be painted. Be sure to check these things before closing.

SELLER’S VIEW

The seller wants the buyer to buy the property as is.

Property Free of Adverse Restrictions and Easements OPTION #1

Sale contingent upon property being free and clear of any easements or restrictions which adversely affect the value of the property to Buyer.

Property Free of Adverse Restrictions and Easements— Seller Provides Copies OPTION #2

Sale contingent upon property being free and clear of any easements or restrictions which adversely affect the value of the property to Buyer. Seller to provide Buyer with copies of all applicable restrictions and easements at least 15 days prior to closing.

Property Subject to All Restrictions and Easements of Record OPTION #3

Property to be conveyed subject to easements, covenants and restrictions of record. 105

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RISK OF LOSS EXPLANATION

The risk of loss clause explains what is to happen in case the property is damaged before the transaction is finalized.

BUYER’S VIEW

In the event part of the premises are destroyed before closing, buyer may want to take the property as is with an assignment of the insurance proceeds or to cancel the contract.

SELLER’S VIEW

In the event part of the premises are destroyed before closing the seller may want to cancel the contract and keep the insurance proceeds and the property, or he may prefer to repair the premises and continue with the closing.

Buyer May Accept with Proceeds or Cancel OPTION #1

If the improvements are damaged by fire or other casualty prior to closing, Buyer shall have the option of either taking the property as is together with the insurance proceeds available by virtue of such loss or damage, or of cancelling this Contract and receiving return of deposit(s) made hereunder.

Seller May Cancel or Repair OPTION #2

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If the improvements are damaged by fire or other casualty prior to closing, Seller may cancel this Contract, or may extend the closing date up to 90 days and restore the premises to substantially their original condition.

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ROOF EXPLANATION

The roof clause calls for an inspection of the roof before the transaction is finalized and determines whether the seller must make repairs and whether the buyer may cancel the transaction if the roof condition is not acceptable.

BUYER’S VIEW

The buyer wants roof to be in as good condition as possible at the seller’s expense. Some mortgage lenders require such an inspection.

SELLER’S VIEW

The seller wants the buyer to take the property in its present condition.

Seller Shall Repair OPTION #1

The Seller, within the time allowed for delivery of evidence of title and examination thereof, or no later than ten days prior to closing, whichever date occurs last, shall have the roof inspected at Seller’s expense by a licensed roofer, licensed general contractor or a firm specializing in presale inspections of property to determine that there is no visible evidence of leaks or damage (including facia and soffit.) If repairs are needed, Seller shall have them completed at his expense by a licensed roofer, or at Buyer’s option shall credit the Buyer for the cost of said repairs.

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Seller Shall Repair up to 2 Percent OPTION #2

The Buyer, within the time allowed for delivery of evidence of title and examination thereof, or no later than ten days prior to closing, whichever date occurs last, may have the roof inspected at Buyer’s expense by a licensed roofer, licensed general contractor or a firm specializing in presale inspections of property to determine that there is no visible evidence of leaks or damage (including facia and soffit.) If repairs are needed, Seller shall pay up to two percent of the purchase price for the repairs which shall be performed by a licensed roofer or licensed general contractor. If the cost of repairs exceeds two percent of the purchase price, Seller may cancel this Contract.

Property Sold in “As Is” Condition OPTION #3

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Property is being sold in “as is” condition with no representations or warranties of any nature being given by Seller.

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SEVERABILITY EXPLANATION

Occasionally a contract will be declared void by a court because of some option in it that is found to be against public policy. To avoid the whole contract being thrown out because of one option, a severability option is used. This option says that the contract should not be declared void due to one part being invalid. However, if the invalid option is an important part of the deal, then the person presenting the contract might not want the contract to be upheld.

BUYER'S AND SELLER'S VIEW

In most cases both parties would want a severability clause since it would support the validity of the contract. This clause would be needed in a contract that is drafted to favor one side very strongly.

OPTION

In the event any option in this Contract is held to be unenforceable, or against public policy, such holding shall not affect the validity of the remainder of the Contract unless it materially alters the terms hereof.

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SPECIAL ASSESSMENTS EXPLANATION

The special assessments clause explains which party is to be responsible for any existing or pending assessments against the property. Assessments are a type of taxes against a property to pay for some special cost such as improvement of the road in front of the property.

BUYER’S VIEW

The buyer wants the seller to pay all special assessments levied and pending against the property.

SELLER’S VIEW

In some cases the seller would want the buyer to take over assessment liens on the property, but in any case Seller wants to pay only assessments which are liens on the property as of closing.

Seller Pays Completed Pending Liens OPTION #1

Certified, confirmed and ratified special assessment liens as of date of closing (and not as of Contract date) are to be paid by Seller. Pending liens as of date of closing shall be assumed by Buyer, provided, however, that where the improvement has been substantially completed as of the date of closing, such pending liens shall be considered as certified, confirmed or ratified and Seller shall, at closing, be charged an amount equal to the last estimate by the public body making the assessment for the improvement.

Buyer Pays Pending Liens OPTION #2

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Certified, confirmed and ratified special assessment liens as of date of closing (and not as of Contract date) are to be paid by Seller. Pending liens as of date of closing shall be assumed by Buyer.

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Buyer Pays All Liens OPTION #3

Property is sold subject to assessments of record.

When using Option #3, the seller should disclose assessments to the buyer.

Seller Pays Only Recorded Liens OPTION #4

Seller shall be responsible only for assessments which appear as liens on the property as of the date of closing.

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SURVEY EXPLANATION

The survey clause provides whether a survey will be made of the property, who will pay for it, and whether the contract may be cancelled if it is not satisfactory.

BUYER’S VIEW

From the buyer's view it is always best to have a survey of the property, but in a platted subdivision a new survey is not usually necessary unless a mortgage lender is requiring it, or if the boundary of the property is uncertain. In many cases an old survey along with a title report is sufficient to show the buyer easements and boundaries. When buying vacant land a survey is absolutely necessary. Some lots have easements running down the middle of them or have been found to be a block away from where the “For Sale” sign was located! Usually a buyer pays for the survey but a desperate or naive seller may agree to pay the cost.

SELLER’S VIEW

The seller has no need for a survey, and if the buyer wants one, he should pay for it. A survey may find problems that may delay the closing and be costly to the seller to correct.

Seller Must Correct OPTION #1

Seller shall provide Buyer with a survey of the property certified within 30 days of closing. In the event encroachments are indicated they shall be corrected at the expense of Seller.

Seller Ma y Correct or Cancel OPTION #2

Buyer may, at his expense and within 15 days of acceptance of this Contract, have the property surveyed by a licensed surveyor. In the event encroachments are indicated and brought to Seller’s attention within said 15 days, Seller may correct them at his expense or cancel this Contract. NOTE: In some areas a survey may be required by law.

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SURVIVAL OF CONTRACT EXPLANATION

The survival of contract clause states that the contract will still be enforceable after the transaction is finalized. This is necessary because in some jurisdictions the contract of sale is considered to have “merged” into the deed once the closing has taken place. This means that any promises or warranties in the contract are deemed to have been waived if not fulfilled or otherwise put into another writing at closing. If there are any such provisions (such as “Seller warrants that the property is free of violations of government regulations,” or “Seller will pay assessments”) which will not be fulfilled at closing, this option should be used. If this clause is not used, a separate agreement such as an escrow agreement can be executed at closing, which will continue the obligations of the contract.

BUYER’S VIEW

Usually the buyer wants the contract to survive the closing so that he can sue the seller if anything was misrepresented.

SELLER’S VIEW

In most cases the seller just wants his money with no further obligations or possible liabilities. Any continuing obligations of the buyer are usually contained in the mortgage and note executed at closing.

Simple Clause OPTION #1

This Contract and the covenants herein shall survive the closing.

Simple Clause with Expanded Language OPTION #2

This Contract and all of its provisions shall not be extinguished by merger of the deed of bargain and sale, but shall expressly survive the transfer of the property.

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TERMITES EXPLANATION

The termites clause provides who will pay for a termite inspection and what will be done if infestation is found.

BUYER’S VIEW

The seller should deliver the premises free of wood-destroying organisms and pay for inspection and treatment. The buyer should have the option to back out of the deal if infestation is discovered. The buyer would prefer that a major national company do the inspection because a small one might go out of business and not be available if it turns out that termites were missed by the inspector.

SELLER’S VIEW

The seller wants to pay as little as possible and to cancel the deal if the cost of treatment is too high. Using a large national company to do the inspection could protect the seller. If infestation is discovered later and the company that did the inspection is out of business the buyer might sue the seller.

Seller Pays—Buyer May Cancel or Require Treatment/Repair OPTION #1

Seller, at his expense, shall provide Buyer with a report by a certified pest control operator acceptable to Buyer, dated within 30 days of closing, that there are no signs of infestation by wood destroying organisms. In the event infestation is indicated, Buyer may cancel this Contract or the property shall be treated and repaired at the expense of Seller.

Seller Pays—Treatment and Repair Limited to 3 Percent OPTION #2

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Seller, at his expense, shall provide Buyer with a report by a certified pest control operator acceptable to Buyer, dated within 30 days of closing, that there are no signs of infestation by wood destroying organisms. In the event infestation is indicated, Buyer may cancel this Contract or the property shall be treated and repaired at the expense of Seller of up to 3% of the purchase price.

recommended clauses

Parties Split Cost—Either May Cancel OPTION #3

Within 30 days of closing the premises shall be inspected by a certified Pest Control operator acceptable to Buyer and the cost of said inspection shall be paid equally by Buyer and Seller. In the event infestation by wood destroying organisms is indicated, either party may cancel this Contract or Seller may treat the premises at his expense.

Property Sold “As Is” OPTION #4

Property is sold in “as is” condition with no representations or warranties of any nature being given by Seller.

Buyer Pays—Seller May Cancel or Repair OPTION #5

Buyer may, at his expense, no less than 15 days before closing, have the improvements inspected by a licensed termite inspector. In the event active infestation is indicated, Seller shall have the option to treat the premises or cancel this Contract.

NOTE: In some areas a termite inspection may be required by law.

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TITLE DEFECTS EXPLANATION

The title defects clause explains what will happen if it turns out that the seller’s ownership of the property has some legal problems.

BUYER’S VIEW

The buyer wants the seller to cure any title defects promptly at the seller’s expense or wants to be able to cancel the deal. In some cases it may require a lawsuit and a considerable amount of time to cure a title defect. If the property is an especially good deal, the buyer may want to give the seller a longer period of time in which to cure. The buyer might also wish to take the property with the defect if he can get a reduction in price.

SELLER’S VIEW

The seller wants to be able to back out of the deal if the title report shows defects that are too costly to cure. Since it may take some time to cure some defects, seller would like as much time as possible to cure them and still go through with the contract.

Seller Cures Defects OPTION #1

In the event title is found to be defective, Seller shall have 60 days within which to remove such defects. If Seller is unable to cure them within such time, Buyer may cancel this Contract and have all earnest money refunded or may allow Seller additional time to cure. Seller agrees to use diligent effort to correct the defects including the bringing of necessary suits.

Buyer Must Notify or Will Be Waived— Seller May Cure in 120 Days or Cancel OPTION #2

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In the event title is found defective, Buyer shall within three days thereafter notify Seller in writing specifying the defects or else same shall be waived. If defects render title unmarketable Seller shall have 120 days within which to cure said defects or to cancel this Contract.

recommended clauses

Seller May Cure in 180 Days or Cancel OPTION #3

In the event title is found defective, Buyer shall within three days thereafter notify Seller in writing specifying the defects or else same shall be waived. If defects render title unmarketable Seller shall have 180 days within which to cure said defects or to cancel this Contract.

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TITLE EVIDENCE EXPLANATION

The title evidence clause provides when the evidence of seller’s title will be provided to the buyer and who will pay for it.

BUYER’S VIEW

The buyer wants to examine the title as soon as possible at the seller’s expense.

SELLER’S VIEW

The seller would like buyer to pay for the title policy or abstract, but in many areas it is customary to charge this expense to the seller unless the buyer agrees to pay “all closing costs.” If the seller does pay he would not want to obtain the commitment for the title insurance policy until the last minute in case the deal falls through.

Title Evidence within a Certain Amount of Days after Contract OPTION #1

Within _____ days from acceptance of this Contract Seller shall, at his expense, provide to Buyer a title insurance commitment for a fee simple owner’s marketable title policy in the amount of the purchase price, or if it is the prevailing custom in the locality, an abstract of title, to be paid for at closing by Seller.

Title Evidence a Certain Amount of Days Prior to Closing OPTION #2

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At least ______ days prior to closing Seller shall, at his expense, provide to Buyer a title insurance commitment for a fee simple owner’s marketable title policy in the amount of the purchase price, or if it is the prevailing custom in the locality, an abstract of title, to be paid for by Seller at closing.

recommended clauses

Title Evidence—Any Time Prior to Closing OPTION #3

Seller shall purchase and deliver to Buyer at or before closing a title insurance policy, or if it is the prevailing custom in the locality, an abstract of title.

Buyer May Obtain Own Title Insurance OPTION #4

Buyer may at his expense obtain a title insurance policy or abstract of title. NOTE: In some areas, such as Chicago, a Torrens system is used in which a person can get a title certificate similar to a car title. If this is the case in your county, you should substitute the appropriate wording.

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VIOLATIONS EXPLANATION

The violations clause guarantees the buyer that the property does not violate any existing laws.

BUYER’S VIEW

The buyer does not want to find out after closing that the property is in violation of several codes and that thousands of dollars worth of repairs are needed. To be sure to be able to take advantage of this warranty a option should be added stating that the contract survives the closing.

SELLER’S VIEW

The seller does not want to warrant anything.

Seller Warrants No Violations OPTION #1

Seller warrants property to be free from violations of building, health and other governmental codes and ordinances. Option #1 would not usually be acceptable to a sophisticated seller since it even warrants that the property is free from violations that he does not know about.

Seller Received No Notice of Violations OPTION #2

Seller represents to Buyer that he has received no notice of violation on the property of any building, health or other governmental codes or ordinances.

Property in “As Is” Condition OPTION #3

Property is being sold in “as is” condition with no representations or warranties of any nature being given by Seller.

NOTE: In some large cities the codes are so strict that all properties are in violation, but no one is cited unless he causes trouble for someone connected with the city government. 120

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WATER ACCESS EXPLANATION

The water access clause guarantees the buyer that the property has legal access to adjacent water.

BUYER’S VIEW

If the buyer is purchasing property purported to be “on the water” then he wants to be sure that it is actually on the water and that all possible water rights are included. Some properties appear to be waterfront but are actually landlocked by thin strips of land owned by strangers. Many docks are on state-owned or privately owned bottom lands.

SELLER’S VIEW

The seller does not want to warrant anything. He wants to sell whatever it is he owns and does not want to end up in a lawsuit if it is not what the buyer expected.

Seller Warrants Water Access OPTION #1

Seller warrants the property to have water access and to have riparian rights which shall be conveyed to Buyer at closing. Any dock appurtenant to the property is legally constructed and does not encroach upon any other property.

Property in “As Is” Condition

OPTION #2

Property is being sold in “as is” condition with no representations or warranties of any nature being given by Seller.

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WRAPAROUND AND SECOND MORTGAGES EXPLANATION

The wraparound and second mortgage clause provides what the terms will be if the seller will be holding some financing after the closing in addition to the first mortgage on the property. A wraparound mortgage is one in which the payment to the seller includes the payment which the seller will make on the existing mortgage. A second mortgage is one in which the buyer makes one payment to the original mortgage holder, and a second payment on an separate mortgage to the seller.

BUYER’S VIEW

If the property has a first mortgage (or deed of trust) and the seller will be financing some amount in addition to that, the buyer would prefer a second mortgage to a wraparound mortgage. This way the buyer can be sure the first mortgage is paid and possibly take advantage of an advantageous interest rate. The problem with a wraparound mortgage is that the buyer can make payments to the seller for several months, while the seller pockets the money and lets the first mortgage go into default. If the buyer does agree to a wraparound mortgage, he wants options in it that protect him from the seller defaulting on the first mortgage.

SELLER’S VIEW

The seller’s position is exactly the opposite of the buyer’s. The seller would prefer a wraparound mortgage to a second mortgage so that he can be sure the first mortgage is being paid. A buyer could make payments on the second mortgage and let the first go into default resulting in a foreclosure and loss of the seller’s interest. If the seller does take back a second mortgage he wants options in it that protect him from the possibility of a default on the first mortgage by the buyer.

Second Mortgage—Subject to First OPTION #1

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The mortgage held by Seller shall be a second mortgage and buyer shall take title to the property subject to the first mortgage.

recommended clauses

Second Mortgage—Assumption of First OPTION #2

The mortgage held by Seller shall be a second mortgage and buyer shall assume the first mortgage.

Second Mortgage—Buyer Must Provide Proof of Payments OPTION #3

The mortgage held by Seller shall state that Buyer must provide proof to Seller of payments on the underlying mortgage(s) at least every _____ days. In the event Buyer defaults in payment, Seller may make up such payments, add such amounts to the balance of his mortgage and accelerate the balance of said mortgage.

Wraparound Mortgage—Seller Must Provide Proof of Payments OPTION #4

The wraparound mortgage held by Seller shall state that Seller must provide proof to Buyer of payment on the underlying mortgage(s) at least every _____ days. In the event Seller defaults in payment, Buyer may make payments and deduct any amounts so paid from payments due to Seller.

Wraparound—No Proof Required OPTION #5

The mortgage held by Seller shall be a wraparound mortgage.

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ZONING AND ORDINANCES EXPLANATION

The zoning and ordinances clause makes the transaction contingent upon these things not adversely affecting the buyer’s planned use of the property.

BUYER’S VIEW

The buyer wants to back out of the contract if the zoning affecting the property will not permit him to use the property for his intended purpose.

SELLER’S VIEW

The seller wants no contingencies.

Contingent on Specific Use OPTION #1

Contingent upon Buyer’s ability to use the property for _____________________________________.

Contingent on No Adverse Zoning OPTION #2

Contingent upon zoning and ordinances not affecting Buyer’s intended use of the property.

NOTE: In some cities there are laws, for example, that prohibit boats or RVs from being stored on the property or that prohibit parking on the street at night. If the buyer has a boat or three cars he might not want such a property. The buyer should check local laws prior to closing.

Property Subject to Existing Zoning OPTION #3

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Property to be conveyed subject to governmental zoning and ordinances.

C R E AT I V E CLAUSES

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To really make a profit on a real estate deal you can use clauses that are more creative than the usual ones and that give you more flexibility. The clause options included in this chapter are very basic and do not always cover every aspect of what you might wish to accomplish. Depending on your situation, you may wish to have a clause rewritten by an attorney who can tailor it to suit your needs. Depending upon who you are dealing with, some of these clauses might be considered unfair if the case ever comes to court. Therefore you should consider using the severability clause with these and to read Chapter 6, page 35 on overreaching. Also, it is possible that in some jurisdictions some of these clauses may cause the transaction to be in violation of some law.

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DEPOSIT EXPLANATION

The buyer usually makes a deposit of several thousand dollars which is held until the closing of the sale.

BUYER’S VIEW

If the buyer is putting down a large deposit for a property, he wants it to earn interest prior to closing, and to be credited with that interest.

SELLER’S VIEW

The buyer does not want to tie up money before closing and he wants it to be difficult for the seller to take his deposit if he defaults.

Interest on Deposit OPTION #1

The deposit hereunder shall be placed in an interest-bearing account with the interest credited to Buyer at closing.

Note as Deposit OPTION #2

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Buyer’s deposit under this contract shall consist of a promissory note payable in full at closing and bearing no interest.

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DOWN PAYMENT EXPLANATION

The cash down payment needed to purchase a property is usually the biggest obstacle to buying a property.

BUYER’S VIEW

A buyer who has no money to put down on a property might be able to make a deal to perform some services for the seller as the down payment (Option #1). A buyer who has no money to put down on a property might be able to make a deal to trade some other real or personal property as the down payment (Option #2). Finally, A buyer who has no money to put down on a property might be able to place a mortgage (deed of trust) on another property he owns as the down payment (Option #3).

SELLER'S VIEW

If a seller is eager to sell a property and a buyer appears financially sound except for his lack of cash, accepting something besides cash may make a deal possible.

Services as Down Payment OPTION #1

The parties agree that in lieu of down payment in the amount of $__________ for this purchase, the Buyer shall perform the following services for the Seller on for before __________ ________________________________________________ _______________________________________________.

Property as Down Payment OPTION #2

The parties agree that the down payment on this transaction shall be the following property which shall be transferred to Seller at closing and which is agreed to have a value of $_______________________________________________ ________________________________________________ ____________________.

Mortgage (Deed of Trust) as Down Payment OPTION #3

The Buyer may, at his option, use as the down payment a note secured by mortgage on his property located at ______ _______________________________________________. 127

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MORTGAGE (DEED OF TRUST) CLAUSES EXPLANATION

When the seller will be holding a mortgage, the terms can be as flexible as the parties agree.

SELLER’S VIEW

Because the seller is often most concerned with his sales price, a buyer who makes an offer at a good price can often get concessions in other areas such as the terms of the mortgage.

BUYER'S VIEW

A seller should carefully review any requests for unusual terms like these in the mortgage and make sure he understands the potential financial consequences of them.

OPTION #1

At such time as the balance of the mortgage is $__________, buyer may have the following portion of the property released from the mortgage:________________________________.

Option #1 is used when the property consists of separate units or tracts of land. It allows the buyer to own part of the property free and clear before the entire balance is paid. OPTION #2

Buyer shall have the right to miss one loan payment in each calendar year without causing a default of the mortgage. Such missed payment shall not affect accrual of interest.

Option #2 may prevent the buyer from losing the property in the event of financial hardship.The second sentence protects the seller but also helps the clause seem less onerous.

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EXPLANATION Either party may be planning to make the transaction part of a tax-free exchange under Section 1031 of the Internal Revenue Code. If so this clause should be included.

OPTION

Buyer and Seller agree to cooperate in structuring this transaction as an exchange for __ Buyer __Seller under §1031 of the Internal Revenue Code, and to sign any documentation necessary. Any and all costs associated with such exchange will be paid by the party involved in the exchange.

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CREDITS EXPLANATION

The parties have unlimited flexibility to handle most terms of the contract and of setting a higher purchase price with a credit is one way to put a deal together.

BUYER'S VIEW

Because the seller is often most concerned with his sales price, a buyer who makes an offer at a good price can often get concessions in other areas such as credits for defects

SELLER'S VIEW

A seller should carefully review any clauses like this and make sure he understands how much they can lower the proceeds at closing.

OPTION

Unless the following items are repaired prior to closing, the buyer will be credited at closing for the amount listed opposite each item: ______________________________ $__________ ______________________________ $__________ ______________________________ $__________

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UNPAID RENT EXPLANATION

At the time the property changes ownership there may be some rent in arrears and the parties need to deal with this.

BUYER'S VIEW

The buyer does not want to get involved in any dealings between the seller and the tenants.

SELLER'S VIEW

The seller would like the buyer to collect the rent from the tenant and remit it to him when received. Otherwise the seller needs to sue the tenant since he can no longer evict him.

OPTION

If at the time of closing any of the rents on the premises are in arrears, Buyer shall collect such amounts and remit them to Seller as collected.

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EXAMINATION OF BOOKS EXPLANATION

Because a large rental property is more like a business than a mere piece of real estate the financial records of the business give a good indication of its value.

BUYER’S VIEW

The buyer would want to examine the books before being committed to purchase the property.

SELLER'S VIEW

The seller would not want to show his books to every prospect but only to those who have made a firm purchase offer.

OPTION

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Within 10 days of the acceptance of this agreement Seller shall deliver to Buyer his books and records of account for the property. Buyer shall have 15 days in which to examine them. If Buyer gives written notice within said 15 days that the property is not acceptable to him, then this contract shall be cancelled and Buyer’s deposit returned.

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F.H.A./V.A. FEES EXPLANATION

There is no rule as to who must pay the F.H.A. or V.A. loan fees.

BUYER’S VIEW

Although the buyer usually pays these fees, the buyer would prefer that the seller pay them and it cannot hurt to ask.

SELLER'S VIEW

The seller would prefer not to pay these fees, but if his sales price is high enough he may be able to pay them and still make the profit he expected.

OPTION

Seller shall pay any F.H.A. or V.A. points on the mortgage loan for this transaction.

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SALE OF OTHER PROPERTY EXPLANATION

Sometimes the buyer must sell his house before being able to buy a new one.

BUYER’S VIEW

The buyer would like to have a binding contract on this property while he sells his existing property.

SELLER'S VIEW

The seller does not want his property tied up indefinitely while he waits for the buyer to sell his house. He would like the option of cancelling this contract if he gets an offer without a contingency.

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OPTION #1

This contract contingent upon sale of Buyer’s property at ________________________________. Closing of this contract to be simultaneous with the closing of Buyer’s property.

OPTION #2

This contract contingent upon sale of Buyer’s property at ________________________________. Closing of this contract to be simultaneous with the closing of Buyer’s property. However, in the event Seller receives a firm offer from another buyer, this Buyer may remove this contingency or this contract becomes void.

creative clauses

PERC TEST EXPLANATION

A percolation test is done to property to see if it is absorbent enough for a septic system to be installed.

BUYER’S VIEW

If the buyer is buying land on which he plans to build a house and there is no sewer available, then he wants to be sure that the land passes a perc test.

SELLER'S VIEW

The seller would prefer not to have contingencies in the contract.

OPTION

This contract is contingent upon the property passing a percolation test that meets the standards of the governmental agency having authority over such tests in the area.

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PRESENTATION OF CONTRACT EXPLANATION

Some real estate agents prefer to approach the seller alone to present the contract.

BUYER’S VIEW

In some cases the buyer would prefer to be present, such as when the agent might have another prospect or friend interested in the property.

SELLER'S VIEW

While some sellers might prefer the insulation of all offers going through the agent, meeting the prospective buyer and hearing his presentation could be useful.

OPTION

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This contract shall be presented to Seller in the presence of Buyer.

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DISTRIBUTION OF PROCEEDS EXPLANATION

How the proceeds are to be distributed can be spelled out in the contract to avoid later disagreements.

BUYER'S VIEW

This issue usually does not affect the buyer. If spelling it out ahead of time avoids complications at closing this is in the buyer’s interest.

SELLER’S VIEW

If the sellers are getting a divorce or dissolving a partnership they may want separate checks at the closing.

OPTION

The net proceeds to the Seller at closing shall be distributed in separate checks as follows: _______% to___________________________________ _______% to___________________________________

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REZONING EXPLANATION

In some cases a person only wishes to buy a property if the zoning can be changed to allow the use he plans for the property.

BUYER’S VIEW

The buyer may only want this property if he can change the zoning to suit his needs.

SELLER'S VIEW

The seller would prefer not to have contingencies in the contract, but if the property is hard to sell with its present zoning, he may be glad to have the buyer do the work changing the zoning and buying the property.

OPTION

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This contract is contingent upon Buyer being able to have the zoning changed to _________________ within ______ days. Seller agrees to cooperate in any application to change zoning but shall not be responsible for any costs of rezoning.

THE ART

10

OF

NEGOTIATING

In some societies negotiation is a way of life and a joy. People get angry if you accept their first offer. They want you to complain and to counteroffer. They love to haggle and to feel they have gotten the best deal they could out of you. Not so in America. Most Americans hate haggling. Haggling means uncertainty and the possibility of rejection. We never know how high or how low to go and we always worry if we could have gotten a better deal. We would much rather know the bottom line so we can take it or leave it. (Recently a car dealer greatly expanded his business by marking its lowest prices on all cars and advertising that the prices were not negotiable.) Since real estate is the most expensive purchase many people make in their lifetimes, putting together a real estate deal is the most important negotiating a person will do. Most real estate is not priced on a “take-itor-leave-it” basis, so it is usually necessary to do some negotiating to find the best available deal. No matter how much you dislike negotiating you should consider that a little discomfort may result in a savings of thousands of dollars. Unless you won the lottery you can probably use the savings for something important in your life. When buying or selling a piece of property you should remember the rule, “It can’t hurt to ask.” By using this as your motto you can considerably benefit. If you really hate to negotiate, you can hire a buyer’s broker or an attorney to negotiate for you. While a buyer’s broker can often get paid out of funds the seller was expecting to pay as his commission, an attorney will charge you by the hour, usually $100 or more.

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If you want to get serious about negotiating there are several good books on the market explaining all the techniques and nuances of negotiation. If a lot of money is involved you might want to get one of these or hire the services of an attorney or broker to negotiate for you. If not, you can just use the techniques in this chapter to gain a considerable advantage.

BEST/LEAST To begin you should figure out what is the best deal you can hope for (your best supportable position) and what is the least that you would accept (your worst acceptable position). With these figures you have a range within which to aim. You will know immediately if the deal is worthwhile. Without this you will negotiate aimlessly and may end up with a bad deal. You should make a list of all the factors that support your best supportable position and use them to argue your case. Use your imagination and come up with as many reasons as possible. When people aim high they often end up high. Asking a lot for something gives the other side the perception, correct or not, that it is worth a lot. NOTE: The position must be supportable. Do not make a ridiculous offer that no one in their right mind would accept. You might not be taken seriously or they might not even bother negotiating with you. Another danger, if you ask too high and the other side accepts, is that they will be unable to fulfill the deal. If you, as the seller demand too high a price for a property, the buyer may not be able to afford the payments and if you are holding the financing may have to foreclose and go through selling the property again. (Of course, if you got a large deposit you may not mind, but there are other risks to consider such as the buyer filing bankruptcy and tying up the property for a long time, making it unavailable to resell.) Keep in mind that your worst acceptable position may change. If an offer is made that meets some of your other needs, one part of your position may be worth changing.

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Example: If you need $100,000 net proceeds from a sale of property to invest for future income you may be able to accept $90,000 or even $80,000 if you hold the mortgage and the buyer pays you higher interest than is otherwise available.

NEED, NOT POSITION One of the biggest mistakes in negotiation is to concentrate on your position and ignore your need. Once people have stated a position it often becomes a matter of pride to maintain that position. In some societies saving face may be important. You must decide if you are more interested in saving face or in making a good deal. You should analyze the situation, determine your need, and concentrate on that. Example: Your position may be that you want to put no more than $10,000 down on the property and that you must refuse a seller’s offer that requires $12,000 down. But if the seller will take back a mortgage (which saves you closing costs,) or will include extra appliances in the deal, you may be able to afford the extra $2,000. If you had concentrated on your position of not wanting to put more than $10,000 down you might have lost a good deal. Sometimes your goals may not be clear even to yourself. A $110,000 house may be cheaper than a $100,000 house if you consider taxes, transportation costs and other variables. Examine your position and decide exactly what is most important to you.

UNDERSTANDING THE OTHER SIDE You can negotiate much better if you understand the other side’s position and the reasons for it. In other words, as explained in the last paragraph, what is their need? If a seller is demanding a large amount of

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money down, what is his real need? Does he want to pay off a mortgage that you could assume? Figure out the other side’s bottom line and why that is his position or need. Understand their interests and try to formulate your offer to fill their needs as well as yours. Similarly you should not let the other side know your need. Otherwise they will figure out your worst acceptable position and try to use it to their advantage. You should concentrate on your best supportable position and divert the other side away from factors that reveal your worst acceptable position. Remember that the other side may feel it is important to save face. Make your offer in such a way as to make them happy to accept it. One way to do this is to make it look like you are making a big change in your position to accommodate them.

EMOTIONAL INVOLVEMENT WITH THE DEAL The best negotiators are the ones who do not need the deal. They can walk away from the deal with no regrets. The worst ones are the ones who must have this deal, the ones who are desperate or fell in love with the deal. If you are ready to walk away from the deal if you do not get what you want, and the other side feels it, you will do much better. On the other hand, if you have already decided that you must have this deal you are easy pickings. If you are also considering other properties or other buyers you will not be pressed to take this one. Even if you do not have others in mind you should act like you do.

TAKING IT PERSONALLY Another mistake in negotiating is to get personally involved with your opponents. Once you have met them a few times, perhaps found out

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you are from the same home town, become cordial, you may feel awkward in not accepting whatever they offer. It is not easy to turn someone down, especially someone with whom you have just made friends. Some people are soft negotiators and others hard. Some give in easily just to avoid disagreement and others hold out until they get everything they want. If you are the former you will easily be taken advantage of by the latter. AGENTS

One way to avoid such a situation is to negotiate through an agent. It is easy for an agent to become best friends with the other side and to praise their position, but to explain that he has no control over your decision. One advantage of using a land trust, for instance, is that a buyer can be friendly with the seller and still easily explain that the trust has certain rules which must be followed. But that is another book.

“GOOD GUY/ BAD GUY”

Another variation is to use the “good guy/bad guy” approach. One party can do the negotiating and then blame their spouse or partner for not agreeing to the deal.The bad guy never meets personally with the other side, he just vetoes deals from the background.

LOCKING IN

Do not lock into a position or each change will be difficult. Keep in mind the worst acceptable result that you have already established and do not worry about the intermediate steps. Be open to all possible options and to any new suggestions the other side may have. There may be an alternative that you have not even considered. Keep in mind that the other side may be taking his or her side personally. Do not criticize the other side personally or say anything that makes the other side more attached to his or her position.

THE BEST SUPPORTABLE POSITION Starting at your best supportable position may sound obvious, but some people give away their worst acceptable position right away. Keep in mind that it “can’t hurt to ask” and try your best supportable position. Many people have started with ridiculously high figures and been surprised to have them accepted. 143

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You only get one chance to state your opening position and you usually can not go higher. Suppose you list your vacant lot for sale at $20,000 and the day the listing is published you get five offers at full price. Obviously you started too low. And it may be too late to ask for more.

TURNING THE TABLES Whether you are the buyer or seller, when you enter negotiations on a property the other side will probably be expecting to be doing the screening. The seller wants to screen for the best price and the buyer wants to screen for the best property. If you begin the negotiation by listing your needs and asking if the other side can meet them, then you have turned the tables. The other side will then be put in the position of wondering if they can meet your needs. Meeting your needs will then be the primary goal and their needs may be forgotten. Example: The owner of an unusual, expensive property did not know if anyone would want such a property. So the ad for the property merely listed its best features without a photo or address and stated that the buyer must have at least $100,000 cash and a net worth of at least a million dollars. Dozens of people called to see if they could qualify for this exclusive offer and it sold at full asking price.

THE LAST SHOT Once you think you may be able to make a deal, why not ask for one last concession? You like the property, the price is acceptable and the sellers have agreed to your terms. Try something like, “If you throw in the washer and dryer I’ll take it.” (“It can’t hurt to ask.”)

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SIGNING THE CONTRACT

Typically a contract for the sale of real estate contains several changes that must be accepted by each side before the contract is legally enforceable. Under basic contract law, a contract must either be accepted as offered or any changes to it become a counteroffer. This counteroffer then must be accepted by the original offer or to create a binding contract. The contract is not binding until all of the changes have been accepted by all parties. If a contract becomes messy and unreadable with numerous additions and deletions it is wise to redraft the contract including all changes and have it signed by all parties. Otherwise, one or more omitted initials can result in the contract being unenforceable. At any point before all of the changes have been accepted by all parties, any of them can withdraw the offer and cancel the deal. Example: If you are negotiating to buy a house and have most of the terms worked out but the seller will not include the washer and dryer, if you then withdraw the offer the seller cannot then change his mind and force you to buy it with the washer and dryer included. The seller’s late acceptance is really a new offer, which you may accept or reject.

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Before putting your final signature on the contract you should review the following checklist: ❒

Are all clauses in the contract worded correctly?

❒

Have you included all of the necessary contingencies to protect your interest?

❒

Have you read all of the fine print?

❒

Are all terms legible?

❒

All changes initialed?

❒

Is everything you assume or understand about the deal written in the contract?

❒

Does the contract contain the proper signatures of the other parties?

WITNESSES Some states do not require witnesses on contracts for the sale of real estate, but it is always good to have them in case the issue goes to court. To find out the requirements in your state call a local real estate agent.

NOTARY A real estate contract does not usually need to be notarized. From the seller’s point of view it would be better if it were not notarized because a notarized contract could in most cases be recorded by the buyer in the local real estate records, placing a cloud on the title to the property. The buyer’s point of view is the opposite; the notarization may be helpful if the seller tries to back out of the deal and the buyer wants to record it to protect his interest.

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12

BACKING OUT OF THE DEAL

As a general rule, once a real estate contract has been signed, both parties are bound to go through with it unless some contingency has not been met. There is no “three-day right of rescission” (the right to cancel a contract within three days of signing) and you cannot legally get out of it by lying to the bank about your income (hoping you will not qualify for the loan). However, many contracts are loosely drawn and many have loopholes that allow escape. Because of the amount of money involved, it is wise to seek the advice of an attorney who is experienced in real estate law before repudiating a contract. He or she may be able to point out clear reasons why you can or cannot get out of the contract. You must realize though, that the law is not always clear. Law books are full of cases where attorneys advised their clients they were in the right, but were proven wrong years (and thousands of dollars) later. In many cases the best thing to do is to present the problem to the other side or to your real estate agent. Perhaps they can amend the deal to solve whatever problem you have with it. Another thing to consider is that many people get second thoughts after a deal is finalized. For buyers it is called “buyers’ remorse” and it is usually emotional and not logical. The fear of having made such a big decision puts doubts in the buyers’ minds and they find every reason for not going through with

essential guide to real estate contracts

the deal. Its kind of like the fear some people get a week before their wedding day. Many people with such fears overcome them and find their home was the best purchase they ever made. Others actually back out of the deal and end up spending more money in court than the deposit they put down. The best thing to do for buyers’ remorse is to imagine that the seller wants to back out of the deal because he realizes that he is giving you too good a deal. If you truly made a mistake, or had a change of circumstances which would make the transaction wrong for you, you may be able to get out of the deal. It usually depends upon whether you put any contingencies in the contract.

CONTINGENCIES If you read this book carefully before signing the contract you should have put several contingencies in the contract. Many of these can let you out of the deal.The most common one is financing. Usually people exaggerate their financial condition. If you deflate your position to something more realistic, mentioning some contingent liabilities, you might be rejected for the loan. Clauses that call for approval by your spouse, partner, or attorney can also give you an out.

SELLERS Sellers usually have a much harder time of getting out of the contract. However, if the contract is loose enough to let the buyer out easily, it may be unenforceable. If you wish to get out of a contract you have signed, ask an experienced real estate lawyer if there are any ways you can get out of it. You might also ask him or her to check the most recent real estate cases in your state to see if what reasons the courts have

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allowed for letting people out of contracts. If the fees would be too high, perhaps he or she could hire a law student to research it.

DEFAULT If you do refuse to go through with the deal, your penalty will be decided by the default clause you put in the contract. (Default means you have failed to do what was required under the contract.) As a buyer you should have put in a clause saying that in the event of your default you lost only your deposit. You also should have put up only a small deposit, such as $100 or $500. As a seller you should have put a similar clause in the contract giving a limited remedy in the event of your default. (For example the contract could say, if you default the buyer gets a flat sum of, say, $500.)

ATTORNEY’S FEES The most expensive thing about defaulting on a contract is the attorney fees. In most cases (depending on the clause in your contract) the loser pays both sides’ attorney’s fees. If each side spends 100 hours on the case the fees could easily be $20,000 to $30,000. Keep this in mind when deciding whether or not to breach the contract or to sue over the other side’s breach.

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RESCUING THE DEAL

13

Some real estate deals close quickly and effortlessly. Others go from crisis to crisis for months and then fall apart completely. If yours looks like it is falling apart, do not give up. There are often ways to keep it on track. One way to prevent the deal from falling through is to impress upon the other side that there will be a lawsuit if they do not go through with the deal. Once the party realizes that this may cost them tens of thousands of dollars and keep them in court for years, they may decide the problem with the contract is not worth it. Of course this argument can only be used when the contract is legally binding. The following sections discuss some common problems and possible ways to solve them.

FINANCING Probably the most common problem is the buyer not being able to qualify for the loan or being unable to come up with a large enough down payment. A few solutions are listed below. Some of them require more complicated actions than can be discussed here and some may be illegal if not done properly. If any of these seem to be able to help you, seek advice from your broker or attorney.

essential guide to real estate contracts

l

The seller can loan the buyer part of the down payment.

l

The seller can accept some personal or real property as part of the down payment.

l

The buyer can get a loan against other property he or she owns.

l

The buyer’s parents can loan or give money to buyer.

l

The buyer’s parents can co-sign on the loan.

l

The buyer’s parents can qualify for the loan and add buyer’s name to the property.

l

The parties can enter into a lease or option agreement until the buyer builds up equity.

PROPERTY DEFECTS If the buyer has properly drafted his contract, the sale will be contingent on the property not having major defects such as potential flooding, defective electrical or plumbing systems, or a leaking roof. If an expensive problem is discovered, it is usually the duty of the seller to fix it or to lower the price. The seller may not want to go ahead with the deal at the contract price if he has to pay for this. If the seller has properly negotiated the contract he will be able to back out of the deal if repairs are too expensive. If the buyer did a better job of negotiating the contract the seller will be required to complete the deal and pay to cure the defect. The usual solution for a defect is to convince the seller to lower the price. Often a problem appears more complicated and expensive than it really is. Example: A buyer may want to back out of a deal if he finds out that the basement leaks. But the small expense of a sump pump or a change of landscaping may solve the problem. 152

rescuing the deal

ENCROACHMENTS If part of the adjoining property encroaches (extends over the property line) on the premises, it may be suggested that a lawsuit is necessary. But some other ways this could be solved include moving the fence, cutting the edge off the roof, cutting the edge off the driveway, or moving the garage, for example. In many cases a minor encroachment can be overlooked by a buyer. Example: By explaining to the seller that it would take a $5,000 lawsuit to solve the problem, and that the buyer will accept the property as is with a $2500 reduction in price, the deal may be saved and the buyer may get a better deal.

TERMITES In northern regions termites are not common and an infestation in a property may be reason to pass on the property. However, in warmer states most properties have some evidence of past or present infestation. Persons new to the area might be scared off by something that should be overlooked. Evidence of past treatment of the property or active termites in a fence post should not be reason to worry. The termite clause (Option #5 on page 115) in this book allows the seller to treat the property and force the buyer to complete the sale. Keep in mind that termite inspection companies are in the business of doing treatments and that is where they make most of their money. An inspector who finds some live termites in a fence post may refuse to give a clearance to the house unless it is treated. A seller should not be willing to pay for treatment of the house unless live termites have actually been found there. If one inspector is uncooperative, it may be worth hiring a second one.

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JUDGMENTS Occasionally a seller will be unaware of a judgment (court ruling that one owes money) against himself that is a lien (a claim against the title) on the property. If it is an old one it may be difficult to find someone to release the property from the lien of the judgment. If the holder of the judgment cannot be found it may be possible to deposit the payment into the registry of the court. Once this is done it should be possible to have the title insurance policy issued. If the judgment is old enough the lien may have expired and there may be no need to pay it off. Also, in some states, if the seller lives in the house as his homestead, the judgment may not be an effective lien against the property.

BOUNDARY DISPUTES If the survey or title report discloses a problem with the boundary of the property, it will need to be corrected whether this buyer, or another buyer purchases the property. This problem can cause a long delay, but if the owner and the affected neighbors understand the high costs of a lawsuit it should be possible to negotiate a compromise that can be handled with quitclaim deeds.

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14

THE CLOSING

Some of the clauses in this book may not have been seen by some closing agents before. If they have done things the same way hundreds of times they may not even notice that your contract is different. Be sure to read the closing documents carefully and to compare them to the contract. Check the closing statement carefully to be sure that each item is charged to the right party. If you used some clauses that you know are unusual, you might want to call the closing agent and be sure that the contract has been carefully read and understood. This is better than having to wait for the papers to be retyped at the closing. Some closing agents may even argue with you that “the seller never pays for that,” or that “the buyer always pays for that in this county.” Explain to them politely that none of that matters. Unless they can provide a state statute (very unlikely) or local ordinance (extremely unlikely) do not let them close except in strict compliance with your contract. Warning: In most cases, if you close under terms different from your contract you are deemed to have waived those terms. There is a rule in most states that the contract “merges with the deed” and if the closing did not follow the contract it is assumed that there was an agreement to modify the contract. In other words there is not

essential guide to real estate contracts

much you can do after the closing. You cannot call back tomorrow when the attorneys are gone and say that there was a mistake made. If you feel you must close and that the issues in your contract will be dealt with later, be sure to get a document signed by all parties stating what the issues are and that they will be complied with by a certain date.

USING AN ATTORNEY It is, of course, best to have a real estate attorney attend the closing with you. That way you can be sure of your legal rights. If you have used a strong contract, which gives you a lot of advantages over the other party, it may be even more important to have an attorney present. Although some attorneys insist upon charging a percentage of the purchase price, many will charge a more reasonable hourly rate or a flat fee. In some areas where title companies handle all paperwork,attorneys are rarely taken to closings. This can save a couple hundred dollars. However, there have been closings where the seller’s deed left off part of the property (water access or several acres) which would not have been noticed by the buyer for years. It would have cost thousands of dollars to correct, or may not have been correctable at all. As discussed early in this book, you must weigh the cost of an attorney against your possible loss if something goes wrong. If you decide against having an attorney attend the closing you should at least consider having the closing papers reviewed by an attorney. You can also arrange to call the attorney during the closing if problems arise. You can specify in your contract that the closing papers will be available several days before the closing to give you and your attorney time to review them. However, some closing agents are poorly organized and do not have the papers ready until the minute of closing. In such cases they can at least be faxed to your attorney.

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EXAMINE ALL CLOSING DOCUMENTS Whether you are the seller or the buyer you should carefully examine the closing statement, or have your attorney or broker do so. Check each figure and confirm that it has been calculated correctly. Also, check to be sure that the right party is being charged for each expense. If there are some expenses that you do not understand or did not request, ask that they be explained. Example: At one closing, the title company included a $125 "closing fee" on the buyer’s side. When it was pointed out that the contract provided that the seller was to pay all closing fees, the closing agent said, "Oh, we can take that out, we just add that to all closings." Unless they have been read by your attorney, you should read everything you sign. Object to anything that is incorrect or does not make sense. Do not swear to anything that you are not sure of. Example: Title agents will often ask a buyer to sign an affidavit that there are no liens on the property. The buyer, in most cases, does not know if this is true. Before signing such a paper you should insist that the words “to the best of the buyer’s knowledge and belief,” or “there are no liens created by buyer” are included in the affidavit. Do not be afraid to ask questions or to object to things which do not seem right.The other people in the room will be closing agents, brokers, and attorneys, and they will be professionals at what they are doing but they do make mistakes. And they are working for you and the other party. Make sure they satisfy you before you complete the deal. Do not let them rush you.

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BUYER’S CONCERNS One important thing for the buyer to examine at the closing is the title to the property. This is evidenced by a title insurance binder or, in some localities, an abstract of title. An abstract of title can usually only be examined by an experienced attorney. This is a summary of all the deeds and other papers filed in the courthouse that affect the title to the property. It usually covers every document recorded since the property first became part of the United States and can be hundreds of pages long. A title insurance binder is a lot more readable. Typically the first section describes the property either as a lot in a subdivision or as a metes and bounds description (a description of the property based on the length and location of each property edge).The second section describes what needs to be done to give good title to the buyer. The third section describes the things that affect the title. This is where you find mortgages, easements, and liens against the property. The third part is also called the exceptions which means you have all rights to the property except those things listed. It is common to find a utility easement along the edge of the property or some subdivision restrictions which apply to the whole neighborhood and require such things as that no businesses be conducted on the street. (However, some buyers have found such exceptions as an easement running down the middle of the house, a lien against a former owner, and a drainage easement across all of the yard.) If you notice such a problem you definitely need the advice of an attorney. If your contract is drawn properly, you can either decide to cancel the purchase or force the seller to correct the problem. A second concern is the physical condition of the property. An inspection should have been done shortly before closing and if anything was not in the condition that the contract required, then an amount can be agreed upon which can be paid to the buyer to cover the problem.

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the closing

If the cost of solving the problem is unknown, some of the seller’s funds should be held back until the problem is corrected. The title agent should have an escrow agreement available that will spell out the terms under which the funds can be released to the seller. Another concern of the buyer is to get physical possession of the property. Unless leases are being assumed, the buyer does not want strangers living in the property. In most cases the buyer does not want the seller to still live in the property after the closing. Either of these parties may be hard to remove. If the seller plans to stay after closing it is also a good idea to hold some of the seller’s proceeds in escrow. (Escrow is money held by the closing agent until all the terms of the contract have been fulfilled.) If the seller does not leave on time an amount can be paid to the buyer for each day the seller stays over.

SELLER’S CONCERNS The main concern of the seller is to get paid at closing. In some states the deed and funds are placed in escrow until the funds clear. In other states the seller gets his check at the closing table. The seller should get a cashier’s check or other form of guaranteed payment and not accept a personal check from the buyer. Although the seller could sue to get the property back if the buyer’s check bounced, it would be an expensive and time-consuming process. In most cases where the seller gets paid at the closing table he is paid with an escrow account check issued by the title insurance company or an attorney’s trust account check. In most cases these are not a problem but in a few instances the checks have bounced when the title company went out of business after the closing. Fortunately, the underwriter of the title insurance usually made good in such cases.

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To be completely safe, you can insist on certified funds or a cashier’s check at closing or at the close of escrow. To be sure to get this, you should require it in the contract. If the buyer will be giving the seller a mortgage or deed of trust, you should be sure that it is well-drafted and complies with the contract. If you followed this book you should have used the “Purchase Money Mortgage” on page 100 and possibly the “Wraparound Mortgage” clauses on page 122. If you will not be holding financing, then you probably do not plan to have any other contact with the buyer. If a problem comes up at the closing such as some defect on the property, it is usually better to agree on a figure at closing than to start an escrow and to have to deal with it later. Buyers sometimes come up with one demand after another once they have moved into a house. An old house is expected to be in the same condition as a new one and the buyer wants one thing after another replaced. If you can end your dealing with the buyer at the closing, there is less likelihood that this will happen.

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15

AFTER THE CLOSING

After the closing the parties will usually not need to have further contact except in the circumstances described in this chapter.

SELLER FINANCING If the seller is holding financing on the property the buyer will usually be making payments for many years. The relationship will end when the final payment is made and the seller releases his interest in the property, unless either party assigned their interest to someone else earlier. If the buyer defaults in payment the seller is usually able to take the property back. This process can take considerable time and the legal fees are high. Sometimes the seller must also continue to make payments on the first mortgage (or deed of trust) to keep that from going into foreclosure. If the buyer finds that there are problems with the property it is tempting to stop making payments which are due to the seller. However, this is almost always a mistake since payments to the seller are not usually contingent upon the condition of the property or other factors. If problems with the property arise which cannot be negotiated with the seller the solution is usually a lawsuit, during which payments must always be kept current.

essemtial guide to real estate contracts

As for stopping payments to a bank or other third-party lender, do not even think of it. In most cases the lender is an even more innocent party than the buyer, and rarely subject to any liability. If you have a novel theory of why the lender should be liable for problems with your property, be sure to get the opinion of an experienced real estate attorney before taking action you might regret.

DEFECTS IN THE PROPERTY As discussed in Chapter 5, there are circumstances under which a seller can be sued for defects in the property that are discovered after the sale. Such cases are usually hard to prove and both parties must usually pay their own attorney fees. Unless a large amount of money is involved, a suit is not worth the expense. If you put clauses in your contract in which the seller warranted the condition of the property, and if you used the clause stating that the contract survives the closing, then you will have a much better case. In small matters you may be able to use small claims court to sue for damages. Typically matters of up to $1,000 or $5,000 can be handled without a lawyer in small claims court.

ZONING AND BUILDING CODES Whether a buyer can make a claim against the seller if the property is cited for violations of the zoning or building codes will depend upon the contract. If a buyer used a clause stating that the property complied with all codes and another clause saying the contract survived the closing he or she will have a much better case. If the seller used the “as is” clauses, he or she will have the better case.

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after the closing

TITLE PROBLEMS If you have a problem with the title to your property you will probably have recourse against the title insurance underwriter or the attorney who examined the title. Some of the types of problems that come up are: l

not getting all the land you were supposed to;

l

old mortgages on the property which were not paid off;

l

heirs or spouses of former owners who still have an interest in the property; and

l

easements which were not disclosed in the title report.

All of these claims are serious and you should immediately contact the underwriter or attorney. If it seems that they are not handling the problem consult your own attorney.

BILLS If a buyer receives a bill for water or other services that accrued prior to the closing, it should be forwarded to the seller. If the seller does not pay it and the provider seeks to collect from the new owner, the closing agent should be contacted. Some bills, such as electricity, should not create liens on the property and any matters that would result in liens should be insured against by the title insurance.

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GLOSSARY

A agreement for deed. A legal instrument in which two parties agree to the purchase and sale of a piece of property for a series of payments (also known as a contract for deed). appraisal. A professional evaluation of the value of the property. arbitration. . A dispute resolution system where an arbitrator decides what each party is entitled to. assessment. A special tax levied against a piece of property usually based upon some improvement benefiting that property.

B bill of sale. A document that is used to transfer ownership of items of personal property. broker. Someone who is paid to get a buyer and seller together. buyer’s broker. A real estate agent who acts as agent of a buyer.

essential guide to real estate contracts

C closing statement. The document which summarizes all of the payments, expenses and prorations in the sale and purchase of a property. closing. The finalization of the purchase and sale of a property. cloud. A problem with the title to a piece of property. consideration. An exchange of something valuable, which makes a contract legally binding. contingencies. Things which may or may not happen in the future. contingent liability. A possibility that at a future time a person will have financial liability. contract for deed. A legal instrument in which two parties agree to the purchase and sale of a piece of property for a series of payments (also known as an agreement for deed). conveyance. The transfer of a piece of real property. covenant. An agreement in a contract.

D deed of trust. See mortgage. deed. A legal instrument which transfers an interest in a property.

E easement. The legal right of one party to make a certain use of part of the property of another person. encroachment. A situation where part of one piece of property unlawfully violates the rights of another piece of property.

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glossary

escrow. In some states, the procedure in which the closing of a property purchase and sale is finalized.

F fee simple deed. A legal instrument which conveys absolute ownership in a property. FHA, Federal Housing Administration. An agency of the United States government which, among other things, guarantees home loans. foreclosure. A legal proceeding in which a property is taken from a debtor for failure to pay a loan.

I implied warranty. A guarantee that the law makes a seller provide even though not in writing. ingress and egress. The right to enter and exit a piece of property by legal means.

J joint tenants. Persons who share ownership of a piece of property.

L lien. A claim against a piece or property that is reflected in the title of the property.

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M MOL, (more or less). Used in legal descriptions of property because exact areas are not easy to ascertain. mortgage. A legal instrument which pledges a piece of real property to guarantee payment of a loan. (Some states use mortgages, others use deeds of trust.).

O ordinance. A law passed by a city, town or other municipal government.

P points. A fee for providing a mortgage loan, usually based on a percentage of the loan amount. promissory note. A legal instrument in which a person promises to pay a sum of money to another. proration. The division of some expense between two parties usually as of a certain date. Purchase Money Mortgage. A legal instrument which pledges a piece of real property to guarantee payment of a loan which was used to purchase the property; see also Deed of Trust. (Some states use mortgages, others use deeds of trust.).

Q quitclaim deed. A legal instrument in which a person conveys any interest he or she may have in a property without guaranteeing that he or she actually has any interest.

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R recording. Registering an interest in real property with the government agency in charge of keeping such records. restrictions. Limitations on the use of a piece of property.

S second mortgage. A legal instrument that pledges a piece of real property to guarantee payment of a loan on a piece of property which has another (first) mortgage previously in place. special warranty deed. A deed in which the grantor only warrants that he has not done anything which would cloud the title; not that he has good title. statute. A law passed by a state or the federal government. statutory warranty deed. A legal instrument which uses the language of a state statute to convey an interest in a property. survey. The official measurement of the dimensions of a piece of property.

T title. The registered ownership of a piece of property. transaction broker. A real estate agent who puts a transaction together without being an agent of either party.

V VA, Veterans Administration. An agency of the United States government which, among other things, guarantees home loans for veterans.

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violation. Any situation on a piece of property in which it does not comply with a law or regulation.

W warranty deed. A legal instrument in which a person conveys an interest in property and guarantees that he or she is giving good title to the property. warranty. A guarantee as to the condition of a property. wraparound mortgage. A financing arrangement in which a buyer of property makes one monthly payment to the seller which includes money the seller will pay to the holder of an older, smaller mortgage on the property.

Z zoning. Governmental regulations controlling the use of land.

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LEAD-BASED

APPENDIX A PAINT PAMPHLET

This appendix contains the Lead-Based Paint Pamphlet. It gives tips on how to protect yourself and your family. The language contained here is provided by the Environmental Protection Agency, the Consumer Product Safety Commission, and the Department of Housing and Urban Development. As explained on page 22, federal law requires that this pamphlet be given to prospective purchasers of property built before 1978. See Chapter 7 for more information. You can also find this pamphlet in other formats at: http://www.hud.gov/lea/leadhelp.html

PROTECT YOUR FAMILY

FROM

LEAD

IN

YOUR HOME

*Simple Steps To Protect Your Family From Lead Hazards* If you think your home has high levels of lead: l

Get your young children tested for lead, even if they seem healthy.

l

Wash children's hands, bottles, pacifiers, and toys often.

l

Make sure children eat healthy, low-fat foods.

l

Get your home checked for lead hazards.

l

Regularly clean floors, window sills, and other surfaces.

l

Wipe soil off shoes before entering house.

l

Talk to your landlord about fixing surfaces with peeling or chipping paint.

l

Take precautions to avoid exposure to lead dust when remodeling or renovating (call 1-800-424-LEAD for guidelines).

l

Don't use a belt-sander, propane torch, dry scraper, or dry sandpaper on painted surfaces that may contain lead.

l

Don't try to remove lead-based paint yourself.

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ARE YOU PLANNING TO BUY, RENT, OR RENOVATE A HOME BUILT BEFORE 1978? Many houses and apartments built before 1978 have paint that contains lead (called leadbased paint). Lead from paint, chips, and dust can pose serious health hazards if not taken care of properly. By 1996, federal law will require that individuals receive certain information before renting, buying, or renovating pre-1978 housing: LANDLORDS will have to disclose known information on lead-based paint hazards before leases take effect. Leases will include a federal form about lead-based paint. SELLERS will have to disclose known information on lead-based paint hazards before selling a house. Sales contracts will include a federal form about lead-based paint in the building. Buyers will have up to 10 days to check for lead hazards. RENOVATORS will have to give you this pamphlet before starting work. If you want more information on these requirements, call the National Lead Information Clearinghouse at 1-800-424-LEAD. This document is in the public domain. It may be reproduced by an individual or organization without permission. Information provided in this booklet is based upon current scientific and technical understanding of the issues presented and is reflective of the jurisdictional boundaries established by the statutes governing the co-authoring agencies. Following the advice given will not necessarily provide complete protection in all situations or against all health hazards that can be caused by lead exposure.

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IMPORTANT! *Lead From Paint, Dust, and Soil Can Be Dangerous If Not Managed Properly* FACT: Lead exposure can harm young children and babies even before they are born. FACT: Even children that seem healthy can have high levels of lead in their bodies. FACT: People can get lead in their bodies by breathing or swallowing lead dust, or by eating soil or paint chips with lead in them. FACT: People have many options for reducing lead hazards. In most cases, lead-based paint that is in good condition is not a hazard. FACT: Removing lead-based paint improperly can increase the danger to your family. If you think your home might have lead hazards, read this pamphlet to learn some simple steps to protect your family. LEAD GETS IN THE BODY IN MANY WAYS *1 out of every 11 children in the United States has dangerous levels of lead in the bloodstream.* *Even children who appear healthy can have dangerous levels of lead.* People can get lead in their body if they: l

Put their hands or other objects covered with lead dust in their mouths.

l

Eat paint chips or soil that contain lead.

l

Breathe in lead dust (especially during renovations that disturb painted surfaces).

Lead is even more dangerous to children than adults because: l

Babies and young children often put their hands and other objects in their mouths. These objects can have lead dust on them.

l

Children's growing bodies absorb more lead.

l

Children's brains and nervous systems are more sensitive to the damaging effects of lead.

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Lead's Effects If not detected early, children with high levels of lead in their bodies can suffer from: l

Damage to the brain and nervous system

l

Behavior and learning problems (such as hyperactivity)

l

Slowed growth

l

Hearing problems

l

Headaches

Lead is also harmful to adults. Adults can suffer from: l

Difficulties during pregnancy

l

Other reproductive problems (in both men and women)

l

High blood pressure

l

Digestive problems

l

Nerve disorders

l

Memory and concentration problems

l

Muscle and joint pain *Lead affects the body in many ways.*

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CHECKING YOUR FAMILY FOR LEAD *Get your children tested if you think your home has high levels of lead.* A simple blood test can detect high levels of lead. Blood tests are important for: l

Children who are 6 months to 1 year old (6 months if you live in an older home that might have lead in the paint).

l

Family members that you think might have high levels of lead.

If your child is older than 1 year, talk to your doctor about whether your child needs testing. Your doctor or health center can do blood tests. They are inexpensive and sometimes free. Your doctor will explain what the test results mean. Treatment can range from changes in your diet to medication or a hospital stay. WHERE LEAD-BASED PAINT IS FOUND *In general, the older your home, the more likely it has lead-based paint.* Many homes built before 1978 have lead-based paint. In 1978, the federal government banned lead-based paint from housing. Lead can be found: l

In homes in the city, country, or suburbs.

l

In apartments, single-family homes, and both private and public housing.

l

Inside and outside of the house.

l

In soil around a home. (Soil can pick up lead from exterior paint, or other sources such as past use of leaded gas in cars.)

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WHERE LEAD IS LIKELY TO BE A HAZARD *Lead from paint chips, which you can see, and lead dust, which you can't always see, can both be serious hazards.* Lead-based paint that is in good condition is usually not a hazard. Peeling, chipping, chalking, or cracking lead-based paint is a hazard and needs immediate attention. Lead-based paint may also be a hazard when found on surfaces that children can chew or that get a lot of wear-and-tear. These areas include: l

Windows and window sills.

l

Doors and door frames.

l

Stairs, railings, and banisters.

l

Porches and fences.

Lead dust can form when lead-based paint is dry scraped, dry sanded, or heated. Dust also forms when painted surfaces bump or rub together. Lead chips and dust can get on surfaces and objects that people touch. Settled lead dust can reenter the air when people vacuum, sweep, or walk through it. Lead in soil can be a hazard when children play in bare soil or when people bring soil into the house on their shoes. Call your state agency (see below) to find out about soil testing for lead.

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CHECKING YOUR HOME FOR LEAD HAZARDS *Just knowing that a home has lead-based paint may not tell you if there is a hazard.* You can get your home checked for lead hazards in one of two ways, or both: l

A paint inspection tells you the lead content of every painted surface in your home. It won't tell you whether the paint is a hazard or how you should deal with it.

l

A risk assessment tells you if there are any sources of serious lead exposure (such as peeling paint and lead dust). It also tells you what actions to take to address these hazards.

Have qualified professionals do the work. The federal government is writing standards for inspectors and risk assessors. Some states might already have standards in place. Call your state agency for help with locating qualified professionals in your area (see below). Trained professionals use a range of methods when checking your home, including: l

Visual inspection of paint condition and location.

l

Lab tests of paint samples.

l

Surface dust tests.

l

A portable x-ray fluorescence machine.

Home test kits for lead are available, but the federal government is still testing their reliability. These tests should not be the only method used before doing renovations or to assure safety.

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WHAT YOU CAN DO NOW TO PROTECT YOUR FAMILY If you suspect that your house has lead hazards, you can take some immediate steps to reduce your family's risk: l

If you rent, notify your landlord of peeling or chipping paint.

l

Clean up paint chips immediately.

l

Clean floors, window frames, window sills, and other surfaces weekly. Use a mop or sponge with warm water and a general all-purpose cleaner or a cleaner made specifically for lead. REMEMBER: NEVER MIX AMMONIA AND BLEACH PRODUCTS TOGETHER SINCE THEY CAN FORM A DANGEROUS GAS.

l

Thoroughly rinse sponges and mop heads after cleaning dirty or dusty areas.

l

Wash children's hands often, especially before they eat and before nap time and bed time.

l

Keep play areas clean. Wash bottles, pacifiers, toys, and stuffed animals regularly.

l

Keep children from chewing window sills or other painted surfaces.

l

Clean or remove shoes before entering your home to avoid tracking in lead from soil.

l

Make sure children eat nutritious, low-fat meals high in iron and calcium, such as spinach and low-fat dairy products. Children with good diets absorb less lead.

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HOW TO SIGNIFICANTLY REDUCE LEAD HAZARDS *Removing lead improperly can increase the hazard to your family by spreading even more lead dust around the house.* *Always use a professional who is trained to remove lead hazards safely.* In addition to day-to-day cleaning and good nutrition: l

You can temporarily reduce lead hazards by taking actions like repairing damaged painted surfaces and planting grass to cover soil with high lead levels. These actions (called "interim controls") are not permanent solutions and will not eliminate all risks of exposure.

l

To permanently remove lead hazards, you must hire a lead "abatement" contractor. Abatement (or permanent hazard elimination) methods include removing, sealing, or enclosing lead-based paint with special materials. Just painting over the hazard with regular paint is not enough.

Always hire a person with special training for correcting lead problems--someone who knows how to do this work safely and has the proper equipment to clean up thoroughly. If possible, hire a certified lead abatement contractor. Certified contractors will employ qualified workers and follow strict safety rules as set by their state or by the federal government. Call your state agency (see below) for help with locating qualified contractors in your area and to see if financial assistance is available.

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REMODELING OR RENOVATING A HOME WITH LEAD-BASED PAINT *If not conducted properly, certain types of renovations can release lead from paint and dust into the air.* Take precautions before you begin remodeling or renovations that disturb painted surfaces (such as scraping off paint or tearing out walls): l

Have the area tested for lead-based paint.

l

Do not use a dry scraper, belt-sander, propane torch, or heat gun to remove lead-based paint.These actions create large amounts of lead dust and fumes. Lead dust can remain in your home long after the work is done.

l

Temporarily move your family (especially children and pregnant women) out of the apartment or house until the work is done and the area is properly cleaned. If you can't move your family, at least completely seal off the work area.

l

Follow other safety measures to reduce lead hazards. You can find out about other safety measures by calling 1-800-424-LEAD. Ask for the brochure "Reducing Lead Hazards When Remodeling Your Home." This brochure explains what to do before, during, and after renovations.

If you have already completed renovations or remodeling that could have released lead-based paint or dust, get your young children tested and follow the steps outlined above in this brochure.

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OTHER SOURCES OF LEAD *While paint, dust, and soil are the most common lead hazards, other lead sources also exist.* l

Drinking water. Your home might have plumbing with lead or lead solder. Call your local health department or water supplier to find out about testing your water. You cannot see, smell, or taste lead, and boiling your water will not get rid of lead. If you think your plumbing might have lead in it:

l

Use only cold water for drinking and cooking.

l

Run water for 15 to 30 seconds before drinking it, especially if you have not used your water for a few hours.

l

The job. If you work with lead, you could bring it home on your hands or clothes. Shower and change clothes before coming home. Launder your clothes separately from the rest of your family's.

l

Old painted toys and furniture.

l

Food and liquids stored in lead crystal or lead-glazed pottery or porcelain.

l

Lead smelters or other industries that release lead into the air.

l

Hobbies that use lead, such as making pottery or stained glass, or refinishing furniture.

l

Folk remedies that contain lead, such as "greta" and "azarcon" used to treat an upset stomach.

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FOR MORE INFORMATION The National Lead Information Center Call 1-800-LEAD-FYI to learn how to protect children from lead poisoning. For other information on lead hazards, call the center's clearinghouse at 1-800-424-LEAD. For the hearing impaired, call, TDD 1-800-526-5456 (FAX: 202-659-1192, Internet: [email protected]). EPA's Safe Drinking Water Hotline Call 1-800-426-4791 for information about lead in drinking water. Consumer Product Safety Commission Hotline To request information on lead in consumer products, or to report an unsafe consumer product or a product-related injury call 1-800-638-2772. (Internet: [email protected]). For the hearing impaired, call TDD 1-800-638-8270. STATE HEALTH AND ENVIRONMENTAL AGENCIES Some cities and states have their own rules for lead-based paint activities. Check with your state agency to see if state or local laws apply to you. Most state agencies can also provide information on finding a lead abatement firm in your area, and on possible sources of financial aid for reducing lead hazards. See http://www.hud.gov/lead for contacts. EPA REGIONAL OFFICES Your Regional EPA Office can provide further information regarding regulations and lead protection programs. EPA Regional Offices Region 1 (Connecticut, Massachusetts, Maine, New Hampshire, Rhode Island, Vermont) John F. Kennedy Federal Building One Congress Street Boston, MA 02203 (617) 565-3420 Region 2 (New Jersey, New York, Puerto Rico, Virgin Islands) Building 5 2890 Woodbridge Avenue Edison, NJ 08837-3679 (908) 321-6671 183

Region 3 (Delaware, Washington DC, Maryland, Pennsylvania, Virginia, West Virginia) 841 Chestnut Building Philadelphia, PA 19107 (215) 597-9800 Region 4 (Alabama, Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina, Tennessee) 61 Alabama St., SW Atlanta, GA 30303-3104 (404) 562-8956 Region 5 (Illinois, Indiana, Michigan, Minnesota, Ohio, Wisconsin) 77 West Jackson Boulevard Chicago, IL 60604-3590 (312) 886-6003 Region 6 (Arkansas, Louisiana, New Mexico, Oklahoma, Texas) First Interstate Bank Tower 1445 Ross Avenue, 12th Floor, Suite 1200 Dallas, TX 75202-2733 (214) 665-7244 Region 7 (Iowa, Kansas, Missouri, Nebraska) 726 Minnesota Avenue Kansas City, KS 66101 (913) 551-7020 Region 8 (Colorado, Montana, North Dakota, South Dakota, Utah, Wyoming) 999 18th Street, Suite 500 Denver, CO 80202-2405 (303) 293-1603 Region 9 (Arizona, California, Hawaii, Nevada) 75 Hawthorne Street San Francisco, CA 94105 (415) 744-1124 Region 10 (Idaho, Oregon, Washington, Alaska) 1200 Sixth Avenue Seattle, WA 98101 (206) 553-1200

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CPSC REGIONAL OFFICES Eastern Regional Center 6 World Trade Center Vesey Street, Room 350 New York, NY 10048 (212) 466-1612 Central Regional Center 230 South Dearborn Street Room 2944 Chicago, IL 60604-1601 (312) 353-8260 Western Regional Center 600 Harrison Street, Room 245 San Francisco, CA 94107 (415) 744-2966

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APPENDIX B FORMS

The following pages include forms which use the clauses in this book. In many cases these may be useful for a deal you are putting together. If these are not exactly what you need you can put together your own contract using the clauses. Since these are basic contracts, they may not have some of the specific clauses that you need. Be sure to read about each clause in this book and use the ADDENDUM TO CONTRACT to add it to your contract. (see form 6, p.205.) The following forms are included: form 1: REAL ESTATE PURCHASE CONTRACT—1 (Strong) . . . . . . . . . . . . . . . . . . . . . . . 189 form 2: REAL ESTATE PURCHASE CONTRACT—2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 form 3: REAL ESTATE CONTRACT (Neutral) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197 form 4: REAL ESTATE SALES CONTRACT—1 (Strong). . . . . . . . . . . . . . . . . . . . . . . . . . . 201 form 5: REAL ESTATE SALES CONTRACT—2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203 form 6: ADDENDUM TO CONTRACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205 form 7: DISCLOSURE ADDENDUM TO CONTRACT FOR PURCHASE OF REAL ESTATE. . . . . . . 206 form 8: SCHEDULE A (List of personal property) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207 form 9: LEAD-BASED PAINT DISCLOSURE FORM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209

form 1

REAL ESTATE PURCHASE CONTRACT—1 Date:_______________________ PARTIES:______________________________________________________________________________________ as “Buyer” of__________________________________________________________________ Phone:________________ and____________________________________________________________________________________ as “Seller” of ______________________________________________________________________ Phone:__________________ hereby agree that the Buyer shall buy and the Seller shall sell real property described below under the following terms and conditions: Street Address:____________________________________________________________________________________ Legal Description:

1. PURCHASE PRICE:The full purchase price shall be $_________________ payable as follows: a) Deposit held in escrow by ____________________________________ b) New mortgage or deed of trust to be obtained by Buyer _________ ______________________________________________________________ c) Subject to [ ] , or assumption of [ ] mortgage or deed of trust to __ _______________ with interest rate of _____%, payable $____________ per month, having an approximate balance of......................................

$____________ $____________

$_____________

d) Mortgage or deed of trust and Note to be held by seller at ___% interest payable _________________ for ______ years in the amount of

$_____________

e) Other _____________________________________________________ _____________________________________________________________

$_____________

f) Balance to close (U.S. cash, certified or cashier’s check) subject to adjustments and prorations, plus closing costs...................... Total ....................................................................................................

$_____________ $_____________

2. FINANCING CONTINGENCY: Contingent upon Buyer obtaining a mortgage loan for a minimum of $____________ at a maximum interest rate of _____% with payments not to exceed $________ per month and no more than $__________ in loan points and fees. If buyer is unable to obtain said loan prior to closing, Buyers’ entire earnest money deposit shall be refunded immediately. 3. EXISTING MORTGAGES: Seller represents to Buyer that the existing mortgage on the property is held by __________________________________________ and bears interest at _____% per annum with monthly payments of $________ principal and interest plus $________ for escrow. Said loan is fully assumable under the following terms: _______________________________________ _______________________________________ Seller to pay costs of assumption and to bring current and transfer to Buyer the escrow balance without any additional compensation or credits. Said balance has been calculated into the purchase price. 4. CLOSING DATE & PLACE: Closing shall be on __________________, _______ at a location to be selected by Buyer. 5. ACCEPTANCE: Seller shall have until __________________, _______ at ____ o’clock __.m. to accept this contract. 6. PURCHASE MONEY MORTGAGES: In the event Seller will hold a purchase money mortgage under this Contract, said mortgage shall contain no prepayment penalty, be fully assumable, and allow a 60 day grace period on late payments. Mortgagee shall look only to the collateral for security and not be entitled to any deficiency

189

judgment. Mortgagor shall have a first right of refusal at any time mortgagee desires to sell the note and mortgage at a discount, and mortgagor may have released from the mortgage, parts of the property proportional to the principal paid. Mortgagor shall be permitted to miss one monthly payment per loan year and shall be able to substitute other collateral of equal equity at any time. 7. TITLE EVIDENCE: Within _____ days from acceptance of this contract, Seller shall, at his expense, provide to Buyer a title insurance commitment for a fee simple owner’s marketable title policy in the amount of the purchase price, or if it is the prevailing custom in the locality, an abstract of title, to be paid for by Seller at closing. 8.TITLE DEFECTS: In the event title is found defective, Seller shall have 60 days within which to remove such defects. If Seller is unable to cure them within such time, Buyer may cancel this contract and have all earnest money refunded or may allow Seller additional time to cure. Seller agrees to use diligent effort to correct the defects including the bringing of necessary suits. 9. EXPENSES: Seller shall pay all closing costs, including all documentary stamps, transfer fees on the deed and mortgage, survey, termite report and appraisals. 10. PRORATIONS: Taxes, rents, interest, property owner dues, and insurance acceptable to Buyer shall be prorated as of closing. Real and personal property taxes shall be prorated based upon the most recent available information. If closing occurs at a date when the current year’s millage is not fixed, and current year’s assessment is available, taxes will be prorated based upon such assessment and the prior year’s millage. If current year’s assessment is not available, then taxes will be prorated on the prior year’s tax;provided, however, if there are improvements on the property completed by January 1st of the year of closing, which improvements were not in existence on January 1st of the prior year, then taxes shall be prorated based upon the prior year’s millage and at an equitable assessment to be agreed upon between the parties, failing which, request will be made to the property appraiser or assessor for an informal assessment.Any tax proration based upon an estimate may, at the request of Buyer, be subsequently readjusted upon receipt of the tax bill. Prepaid rents and other tenant deposits shall be prorated to the date of closing. 11. SURVIVAL OF CONTRACT: This contract and the covenants herein shall survive the closing. 12. SPECIAL ASSESSMENTS: Certified, confirmed and ratified special assessment liens as of date of closing (and not as of date of Contract) are to be paid by Seller. Pending liens as of date of closing shall be assumed by Buyer, provided, however, that where the improvement has been substantially completed as of the date of closing,such pending liens shall be considered as certified,confirmed or ratified and Seller shall,at closing,be charged an amount equal to the last estimate by the public body of the assessment for the improvement. 13. LIEN AFFIDAVIT: Seller shall, as to both the real and personal property being sold hereunder, furnish to Buyer at time of closing an affidavit attesting to the absence, unless otherwise provided for herein, of any financing statements, claims of lien or potential lienors known to Seller, and further attesting that there have been no improvements to the property for 90 days immediately preceding the date of closing. If the property has been improved within said time Seller shall deliver releases or waivers of all mechanic’s liens, executed by general contractors, subcontractors, suppliers and materialmen, in addition to Seller’s affidavit, setting forth the names of all such parties and further reciting that in fact all bills for work to the property which could serve as a basis for a mechanic’s lien have been paid or will be paid at closing. Any security deposits shall be turned over to buyer. 14.APPROVAL: Contingent upon the approval by Buyer’s ___________________________. 15. TERMITES: Seller, at his expense, shall provide Buyer with a report by a certified pest control operator acceptable to Buyer, dated within 30 days of closing, that there are no signs of infestation by wood destroying organisms. In the event infestation is indicated, Buyer may cancel this contract, or the property shall be treated and repaired at the expense of Seller. 16. SURVEY: Seller shall provide Buyer with a survey of the property certified within 30 days of closing. In the event encroachments are indicated they shall be corrected at the expense of Seller.

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17. LEASES: Contingent upon Buyer’s approval of all leases affecting the property, copies of which shall be provided to buyer five days after acceptance hereof. Prior to closing, Seller shall furnish to Buyer estoppel letters from all tenants stating the nature and duration of occupancy, rental terms and advanced rent and security deposits. In the event Seller is unable to obtain such letters, said information shall be furnished by Seller to Buyer in the form of a Seller’s affidavit and Buyer may thereafter contact tenants to confirm such information. Seller shall deliver to Buyer all original leases at closing along with an assignment of all leases. 18. PERSONAL PROPERTY: This sale includes all items of personal property listed on Schedule “A” to be attached hereto plus all additional items remaining on the premises after closing. Seller warrants all items to be in working order at time of closing. 19. ALLOCATION OF PURCHASE PRICE: The parties agree that the allocation of the purchase price is $__________ for the land, $__________ for the buildings, and $_________ for the personal property. The parties agree that the sale is indivisible even though the amounts have been allocated separately. 20. MAINTENANCE: Seller agrees to deliver the premises in good condition.Until possession seller shall maintain the property, including the lawn and shrubbery, and the pool, if any, shall be clean and clear. All floors to be washed or vacuumed and all walls to be clean and free of holes or damage. 21. INSPECTION: Buyer shall be allowed to inspect the property within 24 hours of closing and at such time Seller shall have the electrical service and water and gas on. 22. PLUMBING AND ELECTRICAL: Seller warrants all heating, cooling,electrical and plumbing systems to be in working condition as of closing. Buyer may have inspections made of said systems by licensed persons dealing in the repair and maintenance thereof. All plumbing to be free from drips or leaks and in conformance with applicable standards, including septic system, if any, and all electrical fixtures to be in working order including bulbs. 23. RESTRICTIONS & EASEMENTS: Sale contingent upon property being free and clear of any easements or restrictions which adversely affect the value of the property to Buyer. Seller to provide copies thereof at least 15 days prior to closing. 24. CONDOMINIUMS - 1: If this property is a condominium Buyer shall be given a copy of the Declaration of Condominium and all Amendments and rules and regulations promulgated thereunder within five days of acceptance of this Contract. Buyer shall have the option to cancel this contract if said documents are not satisfactory to his needs. 25. CONDOMINIUMS - 2: If this property is a condominium, Seller shall convey all rights therein including common elements and limited common elements such as parking spaces and cabanas, if any. This Contract is contingent upon approval by the association or developer, if required, and Seller shall pay all costs of approval and transfer. Any assessments to be levied for work, improvements or services, which are substantially completed at time of closing, shall be paid by Seller. 26. ZONING & ORDINANCES: Contingent upon zoning and ordinances not affecting Buyer’s intended use of the property. 27. ROOF: The Seller, within the time allowed for delivery of evidence of title and examination thereof, or no later than ten days prior to closing, whichever date occurs last, shall have the roof inspected at Seller’s expense by a licensed roofer, licensed general contractor or a firm specializing in presale inspections of property to determine that there is no visible evidence of leaks or damage (including facia and soffit.) If repairs are needed,Seller shall have them completed at his expense by a licensed roofer, or at Buyer’s option shall credit the Buyer for the cost of said repairs. 28.VIOLATIONS: Seller warrants property to be free from violations of building,health and other governmental codes and ordinances. 29.ENVIRONMENTAL: Seller warrants that the property is not in violation of any federal, state or local envi-

191

ronmental laws. 30. INGRESS & EGRESS: Seller warrants that there is ingress and egress to the property which is insurable by a title insurance underwriter. 31. ASSIGNMENT: Buyer may assign this contract and all rights and obligations hereunder to another person, corporation or trustee. 32. POSSESSION: Seller shall deliver exclusive possession of the premises to Buyer at closing subject only to leases assigned to buyer which are current in rent. In the event any rents are in arrears, the sum of $________ of Seller’s funds shall be held in escrow by closing agent for each unit in arrears, to cover the costs of eviction and lost rent,if any. If Seller is to remain in possession of the property at closing,Seller’s proceeds shall not be released until Seller has fully vacated the property, and Buyer shall be entitled to $_____ per day for each day Seller holds over. 33. RISK OF LOSS: If the improvements are damaged by fire or other casualty prior to closing,Buyer shall have the option of either taking the property as is together with the insurance proceeds available by virtue of such loss or damage, or of cancelling this contract and receiving return of deposits made hereunder. 34. DEFAULT: In the event Buyer defaults hereunder, Seller shall be entitled to the earnest money deposited herewith as liquidated damages. In the event Seller defaults hereunder, Buyer may proceed at law or in equity to enforce his rights under this contract. 35. ATTORNEY’S FEES: In the event Buyer needs to consult an attorney or resort to litigation,including appellate proceedings, to enforce rights under this contract, then Buyer shall be entitled recover reasonable attorneys’ fees and costs. 36. CONVEYANCE: Conveyance shall be by Warranty Deed subject only to matters excepted in this contract. Personal property shall be conveyed by an absolute Bill of Sale with warranty of title subject only to such liens as provided herein. 37. SEVERABILITY: In the event any clause in this contract is held to be unenforceable, or against public policy, such holding shall not affect the validity of the remainder of the contract unless it materially alters the terms hereof. 38. OTHER AGREEMENTS: No prior or present agreements or representations shall be binding upon the parties unless incorporated into this contract. No modification or change in this contract shall be binding unless in writing and signed by the party to be bound thereby. 39. FIRPTA. Buyer and Seller Agree to comply with FIRPTA and at or prior to closing Seller will provide documentation of exemption or withholding will be made at closing. If Seller’s proceeds at closing are not enough to cover the required withholding, Seller will provide additional funds at closing as necessary. Having read the foregoing, the undersigned hereby ratify, approve and confirm the same as our agreement. Witnesses:

Sellers:

______________________________________

______________________________________

______________________________________

______________________________________ Buyers:

______________________________________

______________________________________

______________________________________

______________________________________

192

form 2

REAL ESTATE PURCHASE CONTRACT—2 Date:_______________________ PARTIES:______________________________________________________________________________________ as “Buyer”of________________________________________________________________ Phone:__________________ and____________________________________________________________________________________ as “Seller” of ______________________________________________________________________ Phone:__________________ hereby agree that the Buyer shall buy and the Seller shall sell real property described below under the following terms and conditions: Street Address:____________________________________________________________________________________ Legal Description:

1. PURCHASE PRICE:The full purchase price shall be $_________________ payable as follows: a) Deposit held in escrow by ____________________________________ b) New mortgage or deed of trust to be obtained by Buyer _________ ______________________________________________________________ c) Subject to [ ] , or assumption of [ ] mortgage or deed of trust to __ _______________ with interest rate of _____%, payable $____________ per month, having an approximate balance of......................................

$____________ $____________

$_____________

d) Mortgage or deed of trust and Note to be held by seller at ___% interest payable ___________________ for ______ years in the amount of

$_____________

e) Other _____________________________________________________ _____________________________________________________________

$_____________

f) Balance to close (U.S. cash, certified or cashier’s check) subject to adjustments and prorations, plus closing costs...................... $_____________ Total .................................................................................................... $_____________ 2. FINANCING CONTINGENCY: Contingent upon Buyer obtaining a mortgage loan for a minimum of $____________ at a maximum interest rate of _____% with payments not to exceed $________ per month and no more than $__________ in loan points and fees. If buyer is unable to obtain said loan prior to closing, Buyers’ entire earnest money deposit shall be refunded immediately. 3. EXISTING MORTGAGES: Seller represents to Buyer that the existing mortgage on the property is held by __________________________________________ and bears interest at _____% per annum with monthly payments of $________ principal and interest plus $________ for escrow. Said loan is fully assumable under the following terms:____________________________________________________________________________________ . 4. CLOSING DATE & PLACE: Closing shall be on __________________,_______ at a location to be selected by Buyer. 5. ACCEPTANCE:Seller shall have until __________________,________ at ____ o’clock __.m.to accept this contract. 6. PURCHASE MONEY MORTGAGES: In the event Seller will hold a purchase money mortgage under this Contract,said mortgage shall contain no prepayment penalty, be fully assumable, and allow a 30 day grace period on late payments. Mortgagee shall look only to the collateral for security and not be entitled to any deficiency

193

judgment. Mortgagor shall have a first right of refusal at any time mortgagee desires to sell the note and mortgage at a discount. 7. TITLE EVIDENCE: Within _____ days from acceptance of this contract, Seller shall, at his expense, provide to Buyer a title insurance commitment for a fee simple owner’s marketable title policy in the amount of the purchase price, or if it is the prevailing custom in the locality, an abstract of title, to be paid for by Seller at closing. 8.TITLE DEFECTS: In the event title is found defective, Seller shall have 60 days within which to remove such defects. If Seller is unable to cure them within such time, Buyer may cancel this contract and have all earnest money refunded or may allow Seller additional time to cure. Seller agrees to use diligent effort to correct the defects including the bringing of necessary suits. 9. EXPENSES: Seller shall pay for the documentary stamps or transfer taxes on the deed, costs of obtaining and recording any corrective instruments and for any intangible taxes and recording of any mortgages to be executed by Buyer. 10. PRORATIONS: Taxes, rents, interest, property owner dues, and insurance acceptable to Buyer shall be prorated as of closing. Real and personal property taxes shall be prorated based upon the most recent available information. If closing occurs at a date when the current year’s millage is not fixed, and current year’s assessment is available, taxes will be prorated based upon such assessment and the prior year’s millage. If current year’s assessment is not available, then taxes will be prorated on the prior year’s tax; provided,however, if there are improvements on the property completed by January 1st of the year of closing, which improvements were not in existence on January 1st of the prior year, then taxes shall be prorated based upon the prior year’s millage and at an equitable assessment to be agreed upon between the parties, failing which, request will be made to the property appraiser or assessor for an informal assessment.Any tax proration based upon an estimate may, at the request of Buyer, be subsequently readjusted upon receipt of the tax bill.Prepaid rents and other tenant deposits shall be prorated to the date of closing. Any security deposits shall be turned over to Buyer. 11. SURVIVAL OF CONTRACT: This contract and the covenants herein shall survive the closing. 12. SPECIAL ASSESSMENTS: Certified, confirmed and ratified special assessment liens as of date of closing (and not as of date of Contract) are to be paid by Seller. Pending liens as of date of closing shall be assumed by Buyer. 13. LIEN AFFIDAVIT: Seller shall, as to both the real and personal property being sold hereunder, furnish to Buyer at time of closing an affidavit attesting to the absence, unless otherwise provided for herein,of any financing statements, claims of lien or potential lienors known to Seller, and further attesting that there have been no improvements to the property for 90 days immediately preceding the date of closing. If the property has been improved within said time Seller shall deliver releases or waivers of all mechanic’s liens, executed by general contractors, subcontractors, suppliers and materialmen, in addition to Seller’s affidavit, setting forth the names of all such parties and further reciting that in fact all bills for work to the property which could serve as a basis for a mechanic’s lien have been paid or will be paid at closing. 14. APPROVAL: Contingent upon the approval by Buyer’s _______________________________________. 15. TERMITES: Seller, at his expense, shall provide Buyer with a report by a certified pest control operator acceptable to Buyer, dated within 30 days of closing, that there are no signs of infestation by wood destroying organisms. In the event infestation is indicated, Buyer may cancel this contract, or the property shall be treated and repaired at the expense of Seller of up to 3% of the purchase price. 16. SURVEY: Seller shall provide Buyer with a survey of the property certified within 30 days of closing. In the event encroachments are indicated they shall be corrected at the expense of Seller. 17. LEASES: Contingent upon Buyer’s approval of all leases affecting the property, copies of which shall be provided to buyer five days after acceptance hereof. Prior to closing, Seller shall furnish to Buyer estoppel letters from all tenants stating the nature and duration of occupancy, rental terms and advanced rent and security

194

deposits. In the event Seller is unable to obtain such letters, said information shall be furnished by Seller to Buyer in the form of a Seller’s affidavit and Buyer may thereafter contact tenants to confirm such information. Seller shall deliver and assign to Buyer all original leases at closing along with an assignment of all leases. 18. PERSONAL PROPERTY: This sale includes all items of personal property listed on Schedule “A” to be attached hereto plus all additional items remaining on the premises after closing. Seller warrants all items to be in working order at time of closing. 19. ALLOCATION OF PURCHASE PRICE: The parties agree that the allocation of the purchase price is $__________ for the land, $__________ for the buildings, and $_________ for the personal property. The parties agree that the sale is indivisible even though the amounts have been allocated separately. 20. MAINTENANCE: Seller agrees to deliver the premises in good condition. Until the closing the Seller shall maintain the property, including the lawn and shrubbery, and the pool, if any, shall be clean and clear. All floors to be washed or vacuumed and all walls to be clean and free of holes or damage. The lawn and shrubbery shall be maintained and the pool, if any, shall be clean and clear. All floors to be washed or vacuumed and all walls to be clean and free of holes or damage. 21. INSPECTION: Buyer shall be allowed to inspect the property within 24 hours of closing and at such time Seller shall have the electrical service and water and gas on. 22. PLUMBING AND ELECTRICAL: Seller warrants all heating,cooling, electrical and plumbing systems to be in working condition as of closing. 23. RESTRICTIONS & EASEMENTS: Sale contingent upon property being free and clear of any easements or restrictions which adversely affect the value of the property to Buyer. 24. CONDOMINIUMS - 1: If this property is a condominium Buyer shall be given a copy of the Declaration of Condominium and all Amendments and rules and regulations promulgated thereunder within five days of acceptance of this Contract. Buyer shall have the option to cancel this contract if said documents are not satisfactory to his needs. 25. CONDOMINIUMS - 2: If this property is a condominium, Seller shall convey all rights therein including common elements and limited common elements such as parking spaces and cabanas, if any. This Contract is contingent upon approval by the association or developer, if required, and Seller shall pay all costs of approval and transfer. Any assessments to be levied for work, improvements or services, which are substantially completed at time of closing, shall be paid by Seller. 26. ZONING & ORDINANCES: Contingent upon zoning and ordinances not affecting Buyer’s intended use of the property. 27. ROOF: The Seller, within the time allowed for delivery of evidence of title and examination thereof, or no later than ten days prior to closing, whichever date occurs last, shall have the roof inspected at Seller’s expense by a licensed roofer, licensed general contractor or a firm specializing in presale inspections of property to determine that there is no visible evidence of leaks or damage (including facia and soffit.) If repairs are needed,Seller shall have them completed at his expense by a licensed roofer, or at Buyer’s option shall credit the Buyer for the cost of said repairs. 28.VIOLATIONS: Seller warrants property to be free from violations of building,health and other governmental codes and ordinances. 29. ENVIRONMENTAL: Seller warrants that the property is not in violation of any federal, state or local environmental laws. 30. INGRESS & EGRESS: Seller warrants that there is ingress and egress to the property which is insurable by a title insurance underwriter.

195

31. ASSIGNMENT: This contract is fully assignable. 32. POSSESSION: Seller shall deliver exclusive possession of the premises to Buyer at closing subject only to leases assigned to Buyer which are paid current. 33. RISK OF LOSS: If the improvements are damaged by fire or other casualty prior to closing,Buyer shall have the option of either taking the property as is together with the insurance proceeds available by virtue of such loss or damage, or of cancelling this contract and receiving return of deposits made hereunder. 34. DEFAULT: In the event Buyer defaults hereunder, Seller shall be entitled to the earnest money deposited herewith as liquidated damages. In the event Seller defaults hereunder, Buyer may proceed at law or in equity to enforce his rights under this contract. 35.ARBITRATION. The parties agree that any dispute arising out of this contract shall be settled by neutral binding arbitration in the county in which the property is located, and not by court action except as provided by law for review of arbitration proceedings. 36. CONVEYANCE: Conveyance shall be by Warranty Deed subject only to matters excepted in this contract. Personal property shall be conveyed by absolute Bill of Sale with warranty of title subject only to such liens as provided herein. 37. SEVERABILITY: In the event any clause in this contract is held to be unenforceable, or against public policy, such holding shall not affect the validity of the remainder of the contract unless it materially alters the terms hereof. 38. OTHER AGREEMENTS: No prior or present agreements or representations shall be binding upon the parties unless incorporated into this contract. No modification or change in this contract shall be binding unless in writing and signed by the party to be bound thereby. 39. FIRPTA. Buyer and Seller Agree to comply with FIRPTA and at or prior to closing Seller will provide documentation of exemption or withholding will be made at closing. If Seller’s proceeds at closing are not enough to cover the required withholding, Seller will provide additional funds at closing as necessary.

Having read the foregoing, the undersigned hereby ratify, approve and confirm the same as our agreement.

Witnesses:

Sellers:

______________________________________

______________________________________

______________________________________

______________________________________

Buyers: _____________________________________

______________________________________

_____________________________________

______________________________________

196

form 3

REAL ESTATE CONTRACT Date:_______________________ PARTIES:______________________________________________________________________ as “Buyer” of________________________________________________ Phone:_________________ and____________________________________________________________________ as “Seller” of ________________________________________________________ Phone:________________ hereby agree that the Buyer shall buy and the Seller shall sell real property described below under the following terms and conditions: Street Address:___________________________________________________________________ Legal Description:

1. PURCHASE PRICE: The full purchase price shall be $_________________ payable as follows: a) Deposit held in escrow by ____________________________________ $____________ b) New mortgage or deed of trust to be obtained by Buyer _________ ______________________________________________________________ $____________ c) Subject to [ ] , or assumption of [ ] mortgage or deed of trust to __ _______________ with interest rate of _____%, payable $____________ per month, having an approximate balance of.................... $_____________ d) Mortgage or deed of trust and Note to be held by seller at ___% interest payable ___________________ for ______ years in the amount of $_____________ e) Other _____________________________________________________ _____________________________________________________________ $_____________ f) Balance to close (U.S. cash, certified or cashier’s check) subject to adjustments and prorations, plus closing costs ... $_____________ Total................................................................................... $_____________ 1. FINANCING: Contingent upon Buyer obtaining a firm commitment for a mortgage loan for a minimum of $____________ at a maximum interest rate of _____% for a term of at least ____years. Buyer agrees to make application for and use reasonable diligence to obtain said loan. 2. EXISTING MORTGAGES: Seller represents to Buyer that the existing mortgage on the property is held by ______________________________________________ and bears interest at _____% per annum with monthly payments of $________ principal and interest plus

197

$______________________ for escrow. Said loan is fully assumable under the following terms: ________________________________________________________________________________. 3. CLOSING DATE & PLACE: Closing shall be on __________________, ________ at the office of the attorney or title agent selected by Seller. 4. ACCEPTANCE: If this contract is not executed by both parties on or before __________________, _________ it shall be void and Buyer’s deposit returned. 5. PERSONAL PROPERTY: The following personal property is included in the purchase price and sold in “as is” condition: ________________________________________________________. 6. TITLE EVIDENCE: Seller shall purchase and deliver to Buyer at or before closing a title insurance policy, or if it is the prevailing custom in the locality, an abstract of title. 7. TITLE DEFECTS: In the event title is found defective, Seller shall have 60 days within which to remove such defects. If Seller is unable to cure them within such time, Buyer may cancel this contract and have all earnest money refunded or may allow Seller additional time to cure. Seller agrees to use diligent effort to correct the defects including the bringing of necessary suits. 8. PRORATIONS: Real and personal property taxes shall be prorated according to the last available bill and no future adjustments shall be required. Rents shall be prorated as of the date of closing and tenant deposits turned over to buyer. 9. EXPENSES: The parties herein shall each pay half of the costs and fees for closing costs, documentary stamps and transfer and recording fees. 10. SPECIAL ASSESSMENTS: Certified, confirmed and ratified special assessment liens as of date of closing (and not as of closing date) are to be paid by Seller. Pending liens as of date of closing shall be assumed by Buyer. 11. LIEN AFFIDAVIT: Seller shall, as to both the real and personal property being sold hereunder, furnish to Buyer at time of closing an affidavit attesting to the absence, unless otherwise provided for herein, of any financing statements, claims of lien or potential lienors known to Seller, and further attesting that there have been no improvements to the property for 90 days immediately preceding the date of closing. If the property has been improved within said time Seller shall deliver releases or waivers of all mechanic’s liens, executed by general contractors, subcontractors, suppliers and materialmen, in addition to Seller’s affidavit, setting forth the names of all such parties and further reciting that in fact all bills for work to the property which could serve as a basis for a mechanic’s lien have been paid or will be paid at closing. 12. CONTINGENCIES: Contingent upon satisfactory inspection of the premises by a licensed contractor. 13. TERMITES: Within 30 days of closing the premises shall be inspected by a certified pest control operator acceptable to Buyer and the cost of said inspection shall be paid equally by Buyer and Seller. In the event infestation by wood destroying organisms is indicated, either 198

party may cancel this contract or Seller may treat the premises at his expense if acceptable to Buyer. 14. PLUMBING AND ELECTRICAL: Major appliances, heating, cooling, electrical and plumbing systems to be in working order as of 6 days prior to closing. Buyer may inspect said items and shall report in writing to seller such items as found not to be in working condition. Unless Buyer reports failures by said date he shall be deemed to have waived Seller’s warranty as to failures not reported. Valid reported failures shall be corrected at Seller’s cost. Seller agrees to provide access for inspection upon reasonable notice. 15. RESTRICTIONS & EASEMENTS: Property is subject to easements, covenants and restrictions of record provided they do not affect Buyer’s intended use of the property. 16. CONDOMINIUMS - 1: If this property is a condominium, sale is contingent upon Buyer or his attorney approving the Declaration of Condominium and all Amendments thereto and any rules and regulations promulgated thereunder within 15 days of receipt from Seller. 17. CONDOMINIUMS - 2: If this property is a condominium, Seller shall convey all rights therein including common elements such as parking spaces and cabanas, if any. This contract is contingent upon the approval by the association or developer, if required, and the parties shall equally pay all costs of approval and transfer. Any assessments shall be prorated as of closing. 18. ZONING & ORDINANCES: Property to be conveyed subject to governmental zoning and ordinances. 19. VIOLATIONS: Seller represents that he has received no notice of violation on the property of any building, health or other governmental codes or ordinances. 20. INGRESS & EGRESS: Seller warrants that there is ingress and egress to the property which is insurable by a title insurance underwriter. 21. POSSESSION: Seller shall deliver exclusive possession of the premises to Buyer at closing subject only to leases assigned to Buyer which are paid current. 22. RISK OF LOSS: If the improvements are damaged by fire or other casualty prior to closing, Buyer shall have the option of either taking the property as is together with the insurance proceeds available by virtue of such loss or damage, or of cancelling this Contract and receiving return of deposit(s) made hereunder. 23. DEFAULT: If the Buyer fails to perform under this contract within the time specified, the deposit(s) paid by the Buyer may be retained by the Seller as liquidated damages, consideration for the execution of this contract and full settlement of any claims, whereupon all parties shall be relieved of all obligations under this contract. If, for any reason other than failure of Seller to render his title marketable after diligent effort, Seller fails, neglects, or refuses to perform under this contract, Buyer may proceed at law or in equity to enforce his rights under this contract. 24.ARBITRATION. The parties agree that any dispute arising out of this contract shall be set199

tled by neutral binding arbitration in the county in which the property is located, and not by court action except as provided by law for review of arbitration proceedings. 25. CONVEYANCE:Conveyance shall be by Warranty Deed subject only to matters excepted in this contract. Personal property shall, at the request of Buyer be conveyed by an absolute Bill of Sale with warranty of title subject only to such liens as provided herein. 26. SEVERABILITY: In the event any clause in this contract is held to be unenforceable, or against public policy, such holding shall not affect the validity of the remainder of the contract unless it materially alters the terms hereof. 27. OTHER AGREEMENTS: No prior or present agreements or representations shall be binding upon the parties unless incorporated into this contract. No modification or change in this contract shall be binding unless in writing and signed by the party to be bound thereby.

Having read the foregoing, the undersigned hereby ratify, approve and confirm the same as our agreement.

Witnesses:

Sellers:

___________________________________

____________________________________

___________________________________

___________________________________

Buyers: ___________________________________

___________________________________

___________________________________

___________________________________

200

form 4

REAL ESTATE SALES CONTRACT—1 Date:_______________________ PARTIES:______________________________________________________________________________________ as “Buyer”of________________________________________________________________ Phone:__________________ and____________________________________________________________________________________ as “Seller” of ______________________________________________________________________ Phone:__________________ hereby agree that the Buyer shall buy and the Seller shall sell real property described below under the following terms and conditions: Street Address:____________________________________________________________________________________ Legal Description:

1. PURCHASE PRICE:The full purchase price shall be $_________________ payable as follows: a) Deposit held in escrow by ____________________________________

$____________

b) New mortgage or deed of trust to be obtained by Buyer _________ ______________________________________________________________ c) Subject to [ ] , or assumption of [ ] mortgage or deed of trust to __ _______________ with interest rate of _____%, payable $____________ per month, having an approximate balance of......................................

$_____________

d) Mortgage or deed of trust and Note to be held by seller at ___% interest payable ___________________ for ______ years in the amount of

$_____________

e) Other _____________________________________________________ _____________________________________________________________

$_____________

f) Balance to close (U.S. cash, certified or cashier’s check) subject to adjustments and prorations, plus closing costs...................... Total ....................................................................................................

$_____________ $_____________

$____________

2. EXISTING MORTGAGES: Buyer to assume and hold Seller harmless on mortgage to ____________________________________________.Buyer to pay all costs of assumption and to purchase Seller’s escrow balance, if any. 3. CLOSING DATE & PLACE: Closing shall be on __________________, ________ at a location to be selected by Seller. Time is of the essence of this contract. 4. PURCHASE MONEY MORTGAGES: In the event Seller will hold a mortgage under this contract, said mortgage will be on a standard form used by lenders in the area and contain a “due on sale clause.” 5. ACCEPTANCE: Buyer shall have until ___________________, ________ at ___ o’clock __.m. in which to accept this contract. 6. PERSONAL PROPERTY: The following personal property is included in the purchase price and is sold in “as is”condition: _____________________________________________________________________________________. 7.TITLE EVIDENCE: Buyer may, at his expense, obtain a title insurance policy or abstract of title. 8. TITLE DEFECTS: In the event title is found defective, Buyer shall within three days thereafter notify Seller in writing specifying the defects or else same shall be waived. If defects render title unmarketable, Seller shall have 180 days within which to cure said defects or to cancel this contract. 9. EXPENSES: Buyer shall pay all closing costs, including documentary stamps and transfer fees.

201

10. PRORATIONS: Neither taxes nor rents shall be prorated as these have been calculated into the sales price. 11. LEASES: Property to be conveyed subject to existing leases and tenancies, if any. 12. INSPECTION: Property is being sold in “as is” condition with no representations or warranties of any nature being given by seller. Buyer has personally fully inspected the property, finds it satisfactory and does not rely on any representations not contained in this contract. 13. ZONING & ORDINANCES: Property to be conveyed subject to governmental zoning and ordinances. 14. RECORDING: Neither this contract nor any notice of it shall be recorded in any public records. 15. CONDOMINIUMS: If this property is a condominium requiring approval by the association or developer, Buyer shall make application within five days of acceptance of this contract and shall pay all approval and trans fer fees, if any. Any assessments shall be prorated as of closing. 16.ASSIGNMENT: This contract is personal to the parties and is not assignable. 17. POSSESSION: Possession shall be delivered at closing subject to existing tenancies, if any. 18. RISK OF LOSS: If the improvements are damaged by fire or other casualty prior to closing, Seller may cancel this Contract, or may extend the closing date up to 90 days and restore them to substantially their original condition. 19. DEFAULT: In the event Buyer defaults hereunder, Seller shall be entitled to retain any deposits paid hereunder as liquidated damages, or at his option, Seller may proceed to enforce specific performance of this contract. In the event Seller defaults hereunder, Buyer shall be entitled to the sum $_______ as liquidated damages from the Seller plus return of Buyer’s deposit, if any. 20. ATTORNEY’S FEES:In the event Buyer breaches this Contract, Seller shall be entitled to recover reasonable attorney’s fees and costs. 21. CONVEYANCE: Conveyance shall be by Fee Simple Deed 22. SEVERABILITY: In the event any clause in this contract is held to be unenforceable or against public policy, such holding shall not affect the validity of the remainder of the contract unless it materially alters the terms hereof. 23. OTHER AGREEMENTS: No prior or present agreements or representations shall be binding upon the parties unless incorporated into this contract. No modification or change in this contract shall be binding unless in writing and signed by the party to be bound thereby.

Having read the foregoing, the undersigned hereby ratify, approve and confirm the same as our agreement. Witnesses: _______________________________________

Sellers: ______________________________________

_______________________________________

______________________________________

_______________________________________

Buyers: ______________________________________

_______________________________________

______________________________________

202

form 5

REAL ESTATE SALES CONTRACT—2 Date:_______________________ PARTIES:______________________________________________________________________________________ as “Buyer”of________________________________________________________________ Phone:__________________ and____________________________________________________________________________________ as “Seller” of ______________________________________________________________________ Phone:__________________ hereby agree that the Buyer shall buy and the Seller shall sell real property described below under the following terms and conditions: Street Address:____________________________________________________________________________________ Legal Description:

1. PURCHASE PRICE:The full purchase price shall be $_________________ payable as follows: a) Deposit held in escrow by ____________________________________

$____________

b) New mortgage or deed of trust to be obtained by Buyer _________ ______________________________________________________________ c) Subject to [ ] , or assumption of [ ] mortgage or deed of trust to __ _______________ with interest rate of _____%, payable $____________ per month, having an approximate balance of......................................

$____________

$_____________

d) Mortgage or deed of trust and Note to be held by seller at ___% interest payable ___________________ for ______ years in the amount of e) Other _____________________________________________________ _____________________________________________________________

$_____________ $_____________

f) Balance to close (U.S. cash, certified or cashier’s check) subject to adjustments and prorations, plus closing costs...................... Total .................................................................................................... 2. EXISTING MORTGAGES: Buyer to assume and __________________________________________________.

hold

$_____________ $_____________ Seller

harmless

on

mortgage

to

3. CLOSING DATE & PLACE: Closing shall be on __________________, ________ at a location to be selected by Seller. Time is of the essence. 4.PURCHASE MONEY MORTGAGES:In the event Seller will hold a mortgage under this contract, said mortgage will be on a standard form used by lenders in the area and contain a “due on sale clause.” 5. ACCEPTANCE: Buyer shall have until ___________________, ________ at ___ o’clock __.m. in which to accept this contract. 6. PERSONAL PROPERTY: The following personal property is included in the purchase price and is sold in “as is”condition:_____________________________________________________________________________________. 7.TITLE EVIDENCE: Buyer may, at his expense, obtain a title insurance policy or abstract of title. 8. TITLE DEFECTS: In the event title is found defective, Buyer shall within three days thereafter notify Seller in writing specifying the defects or else same shall be waived. If defects render title unmarketable, Seller shall have 120 days within which to cure said defects or to cancel this contract. 9. EXPENSES: Buyer shall pay all closing costs, including documentary stamps and transfer fees.

203

10. PRORATIONS: Real and personal property taxes shall be prorated according to the last available bill and no future adjustments required. Rents and other tenant deposits shall be prorated as the date of closing. 11. LEASES: Property to be conveyed subject to existing leases and tenancies, if any. 12. INSPECTION: Property is being sold in “as is” condition with no representations or warranties of any nature being given by seller. Buyer has personally fully inspected the property, finds it satisfactory and does not rely on any representations not contained in this contract. 13. ZONING & ORDINANCES: Property to be conveyed subject to governmental zoning and ordinances. 14. RECORDING: Neither this contract nor any notice of it shall be recorded in any public records. 15. CONDOMINIUMS: If this property is a condominium requiring approval by the association or developer, Buyer shall make application within five days of acceptance of this contract and shall pay all approval and trans fer fees, if any. Any assessments shall be prorated as of closing. 16.ASSIGNMENT: This contract is not assignable. 17. POSSESSION: Possession shall be delivered at closing subject to existing tenancies, if any. 18. RISK OF LOSS: If the improvements are damaged by fire or other casualty prior to closing, Seller may cancel this Contract, or may extend the closing date up to 90 days and restore them to substantially their original condition. 19. DEFAULT: In the event Buyer defaults hereunder, Seller shall be entitled to retain any deposits paid hereunder as liquidated damages, or at his option, Seller may proceed to enforce specific performance of this contract. In the event Seller defaults hereunder, Buyer shall be entitled to the sum $_______ as liquidated damages from the Seller plus return of Buyer’s deposit, if any. 20.ARBITRATION. The parties agree that any dispute arising out of this contract shall be settled by neutral binding arbitration in the county in which the property is located,and not by court action except as provided by law for review of arbitration proceedings. 21. CONVEYANCE: Conveyance shall be by Fee Simple Deed 22. SEVERABILITY: In the event any clause in this contract is held to be unenforceable or against public policy, such holding shall not affect the validity of the remainder of the contract unless it materially alters the terms hereof. 23. OTHER AGREEMENTS: No prior or present agreements or representations shall be binding upon the parties unless incorporated into this contract. No modification or change in this contract shall be binding unless in writing and signed by the party to be bound thereby.

Having read the foregoing, the undersigned hereby ratify, approve and confirm the same as our agreement. Witnesses: ______________________________________

Sellers: ______________________________________

______________________________________

______________________________________

______________________________________

Buyers: ______________________________________

______________________________________

______________________________________

204

form 6

ADDENDUM The undersigned parties to that certain Real Estate Contract on ____________________ ____________________________________________________ dated ______________, _______, hereby agree that the following terms are hereby made a part of that contract and supersede any terms to the contrary in said contract.

Having read the foregoing, the undersigned hereby ratify, approve and confirm the same as our agreement.

Witnesses: ___________________________________

Sellers: ______________________________________

___________________________________

______________________________________

___________________________________

Buyers: ______________________________________

___________________________________

______________________________________

205

form 7

DISCLOSURE ADDENDUM TO CONTRACT FOR PURCHASE OF REAL ESTATE Date: ____________________ Property address: ________________________________________________________________ Use additional sheets if necessary. Are there any legal actions pending or other claims against the property? o No

o Yes

If so, explain:

Have their been any disputes with nearby property owners or tenants regarding encroachments or boundary disputes? o No

o Yes

If so, explain:

Are you aware of any past or present soil settling or movement on this or nearby properties? o No

o Yes

If so, explain:

Are you aware of any past or present drainage or water problems on this or nearby properties? o No

o Yes

If so, explain:

Are you aware of any past or present plumbing problems on the property? o No

o Yes

If so, explain:

Are you aware of any past or present electrical problems on the property? o No

o Yes

If so, explain:

Are you aware of any past or present structural problems on the property? o No

o Yes

If so, explain:

Are you aware of any past or present roof problems on the property? o No

o Yes

If so, explain:

What year was roof last replaced? ________ Are you aware of any past or present termite or pest problems on the property? o No

o Yes

If so, explain:

Are you aware of any other situation which could affect the value or desirability of this property? o No

o Yes

If so, explain:

__________________________________________ _____________________________________ Seller Seller 206

form 8

SCHEDULE A The following personal property is included in the sale of _______________________________ _________________ (List quantities, make and condition) _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____

Range ____________________________________________________________________ Oven _____________________________________________________________________ Refrigerator _______________________________________________________________ Freezer ___________________________________________________________________ Dishwasher _______________________________________________________________ Disposal __________________________________________________________________ Microwave ________________________________________________________________ Washer ___________________________________________________________________ Dryer ____________________________________________________________________ Heating System ____________________________________________________________ Air System ________________________________________________________________ Air Units __________________________________________________________________ Mowers ___________________________________________________________________ Water Heater ______________________________________________________________ Water Softener ____________________________________________________________ Dehumidifier ______________________________________________________________ Ceiling Fans _______________________________________________________________ Pool Equipment ____________________________________________________________ Fireplace Equipment _______________________________________________________ Swing Set _________________________________________________________________ Barbecue __________________________________________________________________ Rods _____________________________________________________________________ Blinds ____________________________________________________________________ Rugs _____________________________________________________________________ Shades ____________________________________________________________________ Curtains & Drapes __________________________________________________________ Lawn Equipment ___________________________________________________________ Other _____________________________________________________________________ Other _____________________________________________________________________ Other _____________________________________________________________________ Other _____________________________________________________________________ Other _____________________________________________________________________ Other _____________________________________________________________________ Other _____________________________________________________________________

Unless otherwise specified the property included with this sale is the same property viewed by Buyer when the property was examined. Initials of the parties:

_________

_________

__________

__________

207

form 9

208

209

INDEX

A abstract of title, 158 acceptance, 56 access, 86 addendum to contract, 38, 205 agent, 2, 3, 7, 143, 155, 157, 159 AIDS, 28 appliances, 10, 11 appraisal, 11, 43 appreciation, 11 approval, 12, 60 arbitration, 62, 65 asbestos, 27 assessment, 73, 110 special, 110 assignment, 63 attorney, 1, 2, 4, 5-8, 12, 17, 19, 24, 25, 26, 35, 55, 60, 61, 62, 65, 66, 72, 125, 139, 140, 147, 148, 149, 151, 156, 157, 158, 159, 162, 163 fees, 65, 149, 162

B bar association, 6 best supportable position, 143-144 bill of sale, 44 boundaries, 112, 154 broker, 1-2, 3, 6, 7, 13, 17, 26, 29, 41, 67-68, 139, 140, 146, 147, 151, 157 buyer's broker, 2, 3, 13, 67, 139 fees, 67 seller's broker, 3, 13 transaction broker, 2, 3 budget, 10 building codes, 162

buyer, 1, 2, 3, 9-14, 15, 16, 18-19, 24, 28, 37, 39, 41, 42, 44, 46, 48, 52, 56, 57, 59, 60, 63, 67, 69, 71, 73, 75, 77, 78, 80, 82, 84, 85, 86, 87, 90, 91, 92, 93, 95, 97, 98, 100, 102, 104, 105, 106, 107, 110, 112, 113, 116, 118, 120, 121, 122, 124, 126, 127, 128, 130, 131, 132, 133, 134, 135, 136, 137, 138, 142, 144, 146, 149, 151, 152, 153, 154, 155, 156, 157, 158-159, 160, 161 foreign, 24

C cash flow, 11 children, 22 Civil Rights Act, 23 clause, 1, 3, 4 closing, 4, 16, 18, 19, 25, 37, 55, 67, 69, 80, 85, 86, 87, 92, 95, 96, 98, 105, 106, 110, 112, 113, 120, 122, 124, 126, 130, 137, 155-160, 161163 time is of the essence, 69 commission, 1, 2 Comprehensive Environmental Response, Compensation, and Liability Act, 23-24 condominiums, 11, 51, 71-72, 73 conflict of interest, 2 contamination, 78 contingencies, 12, 16, 46, 60, 71, 75, 77, 84, 87, 90, 124, 134, 135, 138, 146, 147, 148, 152 financing, 84 contract, 1-4, 8, 12, 16, 21, 35, 39, 136, 145-146, 147 master, 8 one-sided, 35

essential guide to real estate contracts

presentation, 136 printing, 3-4 signed, 39, 147 signing, 12, 16, 145-146 strong, 21, 35, 36 conveyance, 44 cooperatives, 51 corporation, 24, 39, 63 counteroffer, 56, 145 court, 4, 8, 12, 13, 18, 19, 21, 22, 28, 35, 39, 44, 60, 65, 66, 71, 109, 146, 148, 151, 154, 162 credit, 10, 39, 130 creditors, 39

D deal-killer, 7 deed, 44, 46, 57, 113, 154 agreement for, 57 contract for, 57 fee simple, 44 general warranty, 44 quitclaim, 44, 154 special warranty, 44 deed of trust. See mortgage default, 75, 100, 122, 126, 149, 161 defect, 13, 17, 27-28, 116, 152, 162 known, 27-28 deficiency judgment, 63 Department of Housing and Urban Development, 22, 25, 53 Department of Veteran Affairs. See Veterans’ Administration deposit, 19, 37, 41, 75, 84, 85, 126, 148, 149 depreciation, 25 disclosure addendum to contract for purchase of real estate, 14, 206 disclosures, 13, 17-18, 27, 28, 53, 89, 102 statement, 17 discrimination, 23, 29 nationality, 23 race, 23 religion, 23 sex, 23 divorce, 137 down payment, 10, 127, 151, 152

E earthquakes, 12 easement, 105, 158 ejectment, 19

212

electrical, 95, 163 encroachments, 153 engineering reports, 77 environment, 23-24, 27, 78-79 Environmental Protection Agency, 22, 53 escrow, 69, 80, 113, 159, 160 eviction, 19, 131

F Federal Housing Authority, 22-23, 43, 49, 80, 133 federal law, 21-34 FHA/VA clause, 23 finances, 132 financing, 10, 12, 39, 63, 84, 122, 140, 151-152, 160, 161 flooding, 12, 152 foreclosure, 19, 80, 122, 161 Foreign Investment in Real Property tax Act, 85 fraud, 18, 36 furniture, 10

G grace period, 57

H houses, 11, 26, 51, 145 low-income, 26 hurricanes, 12

I ingress and egress, 86 inspection, 12, 16, 87, 107, 114 installment land contract, 57 insulation, 51 insurance, 6, 12, 37, 44, 106, 118, 154, 158, 159, 163 title, 6, 37, 44, 118, 154, 158, 159, 163 interest, 19, 57, 84, 122, 126 investment, 6, 8, 9, 11, 15, 16, 26, 59, 61, 89

J joint tenants, 39 judge, 7, 35, 66 judgment, 154 jurisdiction, 8, 64, 113, 125

L landscaping, 11 lawsuits, 2, 13

index

lawyers. See attorney lead, 27 lead-based paint, 22, 27, 52 pamphlet, 22, 171-185 lead-based paint disclosure form, 22, 209 lease, 10 liability, 2, 7, 13, 16, 17, 21, 24, 27, 42, 63, 75, 78, 80, 85, 102, 103, 113, 148, 162 licenses, 29, 89 lien, 19, 91, 110, 154, 158, 163 affidavit, 91 loan, 12, 16, 19, 84, 147, 151, 152

M maintenance, 92 metes and bounds, 158 mortgage, 6, 18, 41, 42, 57, 63, 80-81, 100, 107, 112, 113, 122, 127, 128, 142, 158, 160, 161, 163 first, 122 purchase money, 100 second, 42, 122 wraparound, 122, 160

N negotiation, 1, 2, 3, 5, 9, 13, 15, 55, 139-144, 152 notary, 146

O offer, 2 option agreement, 10 ordinances, 124 overreaching, 35-36, 125 owners, 10, 12, 24, 39, 158

P parties, 39 percolation test, 135 plumbing, 95 possession, 97 price, 10, 11, 13, 15, 41, 57, 59, 92, 94, 116, 128, 130, 152 proceeds, 137 profit, 11, 15, 16, 25, 59, 64, 89, 125, 133 property, 3, 5, 8, 9, 10, 11, 12, 13, 15, 16, 17, 18, 19, 21, 23, 24, 25, 26, 27, 28, 29, 37, 39, 42, 44, 46, 52, 53, 57, 59, 60, 61, 63, 64, 71, 77, 78, 79, 80, 86, 87, 89, 90, 91, 92, 93, 94, 95, 97, 102, 104, 105, 106, 107, 110, 112, 116, 120, 121, 122, 124, 126, 127, 131, 132, 134,

136, 138, 139, 140, 144, 146, 152, 153, 154, 156, 158, 159, 160, 161, 162, 163 coastal, 29 commercial, 27 description, 37, 46 personal, 26, 44, 59, 93, 127, 152 purchase, 5 real, See real estate rental, 94, 132 residential, 27 stigmatized, 28 prorations, 98 purchase, 1

R radon, 27, 30, 102, 103 real estate, 1, 2, 3, 5, 6, 7, 8, 9, 11, 13, 17, 19, 21, 22, 23, 26, 29, 36, 37, 41, 46, 53, 55, 59, 89, 125, 136, 139, 145, 147, 148, 151, 152, 156, 162 real estate agent. See broker real estate contract (neutral), 197 real estate purchase contract, 189, 193 real estate sales contract, 201, 203 Real Estate Settlement Procedures Act, 24 recording, 104 refund, 20 rent, 10, 18, 39, 87, 98, 131 rental agreement, 19 repairs, 16 restrictions, 105 roof, 16, 107, 152

S sale, 1, 9, 10, 16, 17, 18, 19, 21, 22, 23, 28, 39, 46, 57, 67, 73, 93, 95, 100, 113, 126, 145, 146, 152, 153, 162 as is, 18, 92, 162 installment, 25 interstate, 25 tax-free, 25 schedule A, 93, 207 security deposit, 19, 98 seller, 1, 2, 3, 4, 9, 10, 12, 13, 15-20, 21, 24, 28, 35, 37, 39, 41, 42, 44, 46, 51, 52, 56, 57, 59, 60, 63, 67, 69, 71, 73, 75, 77, 78, 79, 82, 87, 90, 91, 92, 93, 94, 95, 97, 98, 100, 102, 104, 106, 107, 110, 112, 113, 114, 116, 118, 120, 121, 122, 124, 126, 127, 128, 130, 131, 132, 133, 134, 135, 136, 137, 138, 144, 146, 148, 149, 152, 153, 154, 155, 157, 158, 159-160, 161,

213

essential guide to real estate contracts

U

162, 163 settlement. See closing severability, 36, 109, 125 state laws, 2, 21-34 survey, 46, 86, 112 survival of contract, 113

unconscionability, 36 underground storage tanks, 27 urea-formaldehyde, 27

T Tax Reform Act, 25 taxes, 24, 25-26, 29, 59, 82, 85, 94, 98, 110, 129 Taxpayer Relief Act, 25 tenant, 131 tenants by the entireties, 39 tenants in common, 39 termites, 12, 17, 18, 28, 37, 38, 114, 153 terms, 3, 4, 10, 35 title, 25, 44, 64, 86, 98, 116, 118, 157, 158, 159, 163 defects, 116 evidence, 118 tornadoes, 12 trust, 24

214

V vacant, 25, 87, 112, 144 Veterans’ Administration, 23, 43, 49, 80, 133 violations, 120

W warranty, 18, 28, 44, 52, 96, 120 water, 87, 121, 163 witnesses, 146

Z zoning, 29, 124, 138, 162

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Real Estate/Legal Reference

L

YOUR STEP-BY-STEP GUIDE TO UNDERSTANDING REAL ESTATE CONTRACTS

WRITTEN

T

➠ ➠ ➠ ➠ ➠ ➠

Attorney's fees Broker’s fees Deposits Expenses Federal Housing Authority Lead-based paint

➠ ➠ ➠ ➠ ➠ ➠

to

U I D E S

®

LAWYER

Includes: ♦ Contracts

R E ONTRACTS C

Lead-based paint Plumbing, electrical, and the roof Purchase price Restrictions and easements Survival of contract Veteran's Administration

Mark Warda received his J.D. from the University of Illinois in Champaign. He practiced law in Clearwater, Florida, then gave up a busy practice to publish self-help law books. He has written or co-authored over sixty self-help law books, including Essential Guide to Real Estate Leases and The Most Valuable Personal Legal Forms You’ll Ever Need.

Legal Survival Guides – Your #1 Source for Real World Legal Information ®

Real Estate/Legal Reference $18.95 U.S. 5 1 8 9 5

EAL STATE

and clauses for BUYERS

♦ Contracts

and clauses for SELLERS

♦ Tips on closing the deal

♦ Lead-based

paint information

Mark Warda

SPHINX PUBLISHING ®

AN IMPRINT OF SOURCEBOOKS, INC .® NAPERVILLE, ILLINOIS

G

ESSENTIAL GUIDE

Backing out of the deal Rescuing the deal Closing the deal Disclosing lead-based paint Understanding warranties Protecting your investment

ISBN 1-57248-159-5

U R V I V A L

FORMS AND INSTRUCTIONS INCLUDED

Plus, it explains over fifty types of clauses, including those on: ➠ ➠ ➠ ➠ ➠ ➠

BY A

S

A SIMPLE ENGLISH EXPLANATION OF THE LAW

he fine print on a standard real estate contract can cost you thousands of dollars. Whether you are the buyer or the seller, Essential Guide to Real Estate Contracts explains all the clauses of typical contracts so you can protect your rights, understand what you are signing, and negotiate your best terms. This book explains: ➠ Positioning of the buyer and seller ➠ Negotiating strategies ➠ Understanding federal and local laws ➠ Comparing clause options ➠ Renting to owning procedures ➠ Dealing with brokers and attorneys ➠ Distinguishing between deed types

E G A L

9 781572 481596

1

Attorney at La w