The Complete Book of Real Estate Contracts

Every form and clause is Ready-toUse and modifiable for your needs

The

Complete

M O d -R de CD clu In

OVER 200 CLAUSES

Book of

Real Estate Contracts ➤ Money Saving Tips ➤ Required Disclosures ➤ Selling Advice

➤ Buyer’s Position

➤ Sample Forms

➤ Alternate Clauses

M A R K WA R D A Attorney at Law

The

Complete Book of

Real Estate Contracts (+CD-ROM) Mark Warda Attorney at Law

SPHINX PUBLISHING ®

AN IMPRINT OF SOURCEBOOKS, INC.® NAPERVILLE, ILLINOIS

www.SphinxLegal.com

Copyright © 2005 by Mark Warda Cover and internal design © 2005 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—without permission in writing from its publisher, Sourcebooks, Inc.® Sourcebooks and the colophon are registered trademarks of Sourcebooks, Inc. All brand names and product names used in this book are trademarks, registered trademarks, or trade names of their respective holders. Sourcebooks, Inc., is not associated with any product or vendor in this book. This book was previously published under the title Essential Guide to Real Estate Contracts. First Edition: 2005

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 www.sourcebooks.com www.SphinxLegal.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. The complete book of real estate contracts / by Mark Warda.-- 1st ed. p. cm. Includes index. ISBN-13: 978-1-57248-528-0 (pbk. : alk. paper) ISBN-10: 1-57248-528-0 (pbk. : alk. paper) 1. Vendors and purchasers--United States--Popular works. 2. Vendors and purchasers--United States--Forms. I. Title. KF665.Z9W366 2005 346.7304'37--dc22 2005025789

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

CONTENTS

How to Use the CD-ROM . . . . . . . . . . . . . . . . . . . . . . . ix Using Self-Help Law Books . . . . . . . . . . . . . . . . . . . . xiii Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xvii 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 . . . . . . . . . . . . . . . . . 11 Finding Good Deals How Much to Pay Contingencies Buyer’s Broker Seller’s Disclosures

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Chapter 4: The Seller’s Position . . . . . . . . . . . . . . . . . 19 Tying Up Your Property Contingent Liability Disclosures Selling As Is Buyers Moving in Early Refund of Deposit

Chapter 5: Federal and Local Laws . . . . . . . . . . . . . . 25 Federal Laws State and Local Laws

Chapter 6: Unfair Contracts . . . . . . . . . . . . . . . . . . . 39 Chapter 7: Basic Clauses . . . . . . . . . . . . . . . . . . . . . 43 Parties and Agreement Purchase Price Conveyance Property Description Other Agreements FHA/VA Insulation Clause Lead-Based Paint Clause

Chapter 8: Recommended Clauses . . . . . . . . . . . . . . 57 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—Common Elements and Assessments

Contents

Condominium Documentation Default Engineering Reports Environmental Conditions Existing Mortgages (Deeds of Trust) Expenses Financing Contingency FIRPTA Ingress and Egress Inspection Leases Licensed Real Estate Professional or Investor Lien Affidavit Maintenance Mold Personal Property 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

v

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Chapter 9: Creative Clauses . . . . . . . . . . . . . . . . . . 123 Credits Deposit Distribution of Proceeds Down Payment Examination of Books FHA/VA Fees Mortgage (Deed of Trust) Clauses Perc Test Presentation of Contract Rezoning Sale of Other Property Tax-Free Exchanges Unpaid Rent

Chapter 10: The Art of Negotiating. . . . . . . . . . . . . . 135 Know Your Range Focus on Need Over Position Understand the Other Side Act Like You Could Walk Away Do Not Make It Personal State Your Supportable Position Turn the Tables The Last Shot

Chapter 11: Signing the Contract . . . . . . . . . . . . . . 143 Witnesses Notary

Chapter 12: Backing Out of the Deal. . . . . . . . . . . . 145 Contingencies Sellers Default Attorney’s Fees

Contents

Chapter 13: Rescuing the Deal . . . . . . . . . . . . . . . . 149 Financing Property Defects Encroachments Termites Judgments Boundary Disputes

Chapter 14: The Closing . . . . . . . . . . . . . . . . . . . . . 153 Using an Attorney Examine All Closing Documents Buyer’s Concerns Seller’s Concerns

Chapter 15: After the Closing . . . . . . . . . . . . . . . . . 159 Seller Financing Defects in the Property Zoning and Building Codes Title Problems Bills

Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 Appendix A: State Radon and Indoor Air Quality Contacts . . . . . . . . . . 171 Appendix B: Lead-Based Paint Pamphlet . . . . . . . . . 181 Appendix C: Forms . . . . . . . . . . . . . . . . . . . . . . . . . 199 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235 About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . 243

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HOW TO USE THE CD-ROM

Thank you for purchasing The Complete Book of Real Estate Contracts (+CD-ROM). In this book, we have worked hard to compile exactly what you need to put together a real estate contract that fits your needs. To make this material even more useful, we have included every document and clause in the book on the CD-ROM that is attached to the inside back cover of the book. You can use these forms just as you would the forms in the book. Print them out, fill them in, and use them however you need. You can also fill in the forms directly on your computer. Just identify the form you need, open it, click on the space where the information should go, and input your information. Customize each form for your particular needs. Use them over and over again. The same is true for the clauses. Simply select the ones you need, and add them to the existing forms or put them together for your own unique document. The CD-ROM is compatible with both PC and Mac operating systems. (While it should work with either operating system, we cannot guarantee that it will work with your particular system and we cannot provide technical assistance.) To use the forms on your computer, you will need to use Microsoft Word or another word processing program that can read Word files. The CD-ROM does not contain any such program.

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Insert the CD-ROM into your computer. Double-click on the icon representing the disc on your desktop or go through your hard drive to identify the drive that contains the disc and click on it. Once opened, you will see the files contained on the CD-ROM listed as “form #: [form title]” or “[clause title].” Open the file you need. You may print the form to fill it out manually at this point, or you can click on the appropriate line to fill it in using your computer. Any time you see bracketed information [ ] on the form or clause, you can click on it and delete the bracketed information from your final document. This information is only a reference guide to assist you in filling in the information and clauses and should be removed from your final version. Once all your information is filled in, you can print your document. Purchasers of this book are granted a license to use the forms and clauses contained in it for their own personal use. By purchasing this book, you have also purchased a limited license to use all information on the accompanying CD-ROM. The license limits you to personal use only and all other copyright laws must be adhered to. No claim of copyright is made in any government form reproduced in the book or on the CDROM. You are free to modify the forms and clauses and tailor them to your specific situation. The author and publisher have attempted to provide the most current and up-to-date information available. However, the courts, Congress, and your state’s legislatures review, modify, and change laws on an ongoing basis, as well as create new laws from time to time. Due to the very nature of the information and the continual changes in our legal system, to be sure that you have the current and best information for your situation, you should consult a local attorney or research the current laws yourself.

How to Use the CD-ROM

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• • • • • 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

USING SELF-HELP LAW BOOKS

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 will not be the first or only person handling your own legal matter. For example, in some states, more than 75% of the people in divorces and other cases represent themselves. 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 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.

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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. When buying a car, you decide whether you want transportation, comfort, status, or sex appeal. Accordingly, you decide among choices such 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 straightforward, 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.

Using Self-Help Law Books

xv

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 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 while handling your 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 jurisdiction. 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,

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The Complete Book of Real Estate Contracts

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 is available in your area, whether to use hand tools or power tools, and how to use those tools. 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 or use slightly different language. 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.

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 or she uses a form designed for a seller’s benefit. Many times, a seller gives more to a buyer than he or she 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 in most cases, there are no fixed rules as to who should pay for what. It

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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 basic information you should know about contracts, buyers, sellers, attorneys, and laws in Chapters 1–6. In Chapters 7–9, it explains the different clauses found in real estate contracts and tells you which ones are better for when you are buying or selling. 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. There is a glossary to help you understand legal terms. Most of the italicized words throughout the text can be found in the glossary. Appendix A provides a listing of state radon and indoor air quality (IAQ) contacts. Appendix B contains a lead-based paint pamphlet. Sample forms are provided in Appendix C 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.225.) On more complicated deals, you may want to put together your own contract created from the clauses provided in this book. 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.

1

PREPARING YOUR OWN CONTRACT

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 or she 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 attorney’s 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.

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 often 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 or her 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 before you use it to make an offer and see if every clause is in your best interest. If not, discuss the possibility of using your own form with the broker.

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The Complete Book of Real Estate Contracts

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. 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. Some states have laws requiring certain forms or clauses 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 merely recommended or approved by some group, they cannot force you to use it. If a form is said to be required by law, be sure that this is the case. And even if so, you will most likely be able to amend the terms with an addendum.

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 the 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 or she would be paid. So 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. Obviously, many lawsuits resulted. Today, most states have laws allowing more flexibility in the relationship of real estate brokers to the parties in the transaction. From that flexibility, different types of brokers developed that helped resolve the conflict. In addition to traditional brokers, there are now buyers’ brokers and transaction brokers. (In at least one state, the real estate brokers put together an agreement whereby they would not be responsible to either party, but the court ruled that they could not both get a commission and have no responsibility, so that agreement was dropped.)

Preparing Your Own Contract

3

Buyers’ brokers. 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 sellers’ brokers. However, they may not be as good as a contract you draft yourself. See Chapter 3 for more information on buyers’ brokers. 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 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 brokers. 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 When you add your clauses to a preprinted contract you make them stand out and they are often the first thing read by the other side. If they are creative or unusual, the offer may be rejected without consideration of the entire deal. One way to avoid this is to have your clauses incorporated into a form contract. Years ago this was costly, but today everyone can have professional

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The Complete Book of Real Estate Contracts

looking contracts. Most people completely type out their contract in professional-looking type and leave some items blank. Then they fill in the blanks by pen, on a normal typewriter, or with a different font (such as courier) on the computer. The result will be in many cases the filled-in clauses will get the most scrutiny and the form clauses will get less scrutiny and objection. 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. Since every form and clause are available to you on the CD-ROM attached to the backcover, it is even easier for you to print out a clean, professionallooking contract everytime. No matter what changes you want to make or additional clauses you want to add, you can quickly modify your document with the material contained on the CD-ROM. See page ix for more information on “How to Use the CD-ROM.”

2

USING AN ATTORNEY

The purpose of this book is to provide information to you at a reasonable cost and to give you more control of your legal affairs. If you understand real estate contracts, 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

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The Complete Book of Real Estate Contracts

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 or her.

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 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 attorney 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 criminal attorney explained that he thought that the mortgage also acted as a deed.

Young Attorneys 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.

Using an Attorney

7

However, the most common types of real estate transactions often are very similar from one to the next. This allows a young attorney to gain experience very quickly. Since many young attorneys tend to do a lot of real estate deeds, he or she may be more in tune with current practices than an older attorney.

Investor Attorneys The best attorney to use for a real estate deal is one who actively invests in real estate him- or herself. Such an attorney will have learned about the subject out of personal interest and for personal gain. This will most likely lead him or her to becoming an expert. Joining a club or association of real estate investors is often a good way to meet attorneys who are investors.

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. Be aware that even experienced real estate lawyers and brokers can misinterpret the law, and that 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 or her become a deal-killer. Real estate

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The Complete Book of Real Estate Contracts

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 that a dead deal poses no liability for the attorney, but one that closes may cost him or her plenty if a mistake is made. 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. 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 using the clauses and information in this book 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 that your attorney has never seen them before or is being overly cautious. 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 that suits your needs.

Using an Attorney

9

If your attorney says a clause you want to use is invalid or illegal in your jurisdiction, ask for the specific law or case that says so. 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 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.

3

THE BUYER’S POSITION

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 snatched up quickly. There are exceptions, of course. Even the multiple listing services, the listings used by real estate agents to search for and put properties on the market, occasionally contain bargains. Properties passed over due to some superficial defect may in fact be a real bargain. 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. When bargain hunting, careful attention has to be paid to all the information on the listing.

Finding Good Deals Instead of waiting for a bargain to appear, 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

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The Complete Book of Real Estate Contracts

may be negotiable. The three main areas to negotiate in a real estate deal are: ■

price;

■

terms; and,

■

property.

Price Price is obviously the first concern. Usually, the price is the most important thing the seller considers. Receiving asking price will make the seller feel successful, even if you get concessions on other points that more than compensate you for paying a higher price. Likewise for the buyer, price can be a key issue, but the way the deal is structured could actually allow a buyer to buy a more expensive property and ultimately pay less.

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 or her to enter into a lease/option agreement, to delay taking part of the seller’s proceeds, or to allow assumption of his or her existing loan.

Property If the seller needs a certain amount of cash and will not negotiate price or terms, possibly you can get more property included in the deal to make it worthwhile. The owner might include the appliances, a vacant lot next door, or even a car or boat in the deal. If repairs are needed, the seller may agree to pay to have them done or do them him- or herself. (Be sure the seller is qualified to do the repairs if the seller is going to do them. You do not want him or her to learn roofing on your dream house.)

The Buyer’s Position

13

Example 1: The seller demands $100,000 for the property and will not 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, you may be able to save even more than $10,000 in interest and loan fees. Example 2: 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 sought after price. Example 3: The seller wants a fair price for the property, but you do not have the down payment. See if the seller will give you a lease/option for a year or two, allowing part of your rent to go 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.

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 highvoltage power lines, or any number of factors. The uniqueness of property is one of the major factors that contribute to how much it is worth. 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 it for your home, you will probably be more concerned with the livability of the house, the neighborhood, and the location in relation to your job or schools. If you find a property that ideally suits your needs,

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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 be determined by what you originally paid for it in most cases. 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 time looking at listings, viewing houses, and reading the real estate ads. Some people spend every weekend, month after month, looking at properties. This is often time well spent. Familiarity with values will allow you to locate the best property and 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 needs (for example, if you cannot get a loan at good terms or if the property turns out to have problems you did not 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 that the seller is unwilling to correct.

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There is also a clause that allows a buyer to make the contract contingent upon approval of his or her spouse, partner, or attorney. This is a standard clause, usually given with a time limit, such as a seven-day attorney review period. However, as explained in Chapter 8, if a contract gives a buyer too easy a way out, a court may rule that the contract is also not enforceable against the seller. 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 website: www.esri.com/hazards 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.

Buyer’s Broker 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 resources 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. This often kills the deal.

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Fortunately, buyers’ 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 of certain defects, usually ones that are readily obvious just by looking such as prior flood damage. In other states, court cases have made it clear that sellers will be held liable if proper disclosure was not made. Even where disclosure is not required, a buyer is protected if a seller fails to disclose when asked. For this reason, a buyer can protect him- or herself by asking the seller about every possible aspect of the property. If the seller says he or she knows of no defects and after the closing you find out the seller lied, you may be able to hold him or her liable for repairs. These 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 was fixed—the sewer was clogged, but the seller rodded it two weeks ago. If you ask, “Have there been any plumbing problems?” the seller should tell you about them and that they were fixed. Two disclosure addendums are included in this book, DISCLOSURE ADDENDUM FOR PURCHASE OF REAL ESTATE and DISCLOSURE ADDENDUM FOR SALE OF REAL ESTATE. (see form 7, p.227 and form 8, p.229.) These are for use by a buyer and seller respectively. As you can see from the way they are worded, the buyer’s version asks for more information than the seller’s.

The Buyer’s Position

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NOTE: In some states or localities, a more detailed disclosure might be required by statute or caselaw. However, do not be misled by a broker who insists that his or her form is required. Many brokers and boards of realtors have disclosures drafted by their attorneys to primarily protect themselves. Their company rules may require they use the form, but you as a party to the transaction are under no legal obligation to use it. Ask them for a clear legal basis that their form is required before using it.

4

THE SELLER’S POSITION

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 sellers have been shocked to see a property he or she 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.Suppose your property is worth $90,000 and you want to see if you can get $100,000. If you list 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 an investor who would like to turn over a property 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 wrong. The buyer might find a better deal, the city might decide to widen the road, or your roof might start to leak.

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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. Of course, the contract should have a set closing date (also called the settlement date), but you should also put time limits on any contingencies. If the buyer wants a 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 a firm commitment be obtained 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, “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, “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.

Disclosures In recent years the legal principles that apply to real estate sales have practically changed from caveat emptor (buyer beware) to caveat vendor (seller beware). Court cases and laws in most states have held sellers liable for undisclosed defects in properties.

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If a seller intentionally hides a known major defect (such as covering up termite damage), then liability is likely, 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 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 or she 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 that 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 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.

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In any case, you should not say or sign anything false 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 specifying the specific items the as is clause applies to is usually stronger than a general as is statement, but in some states even this does not work. In one 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 or her 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. 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.

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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. Further allowing the buyer to move in early may subject you to additional income tax liabilities as the money you receive for rent will have to be claimed. While this may be of little concern if there is not much of a time frame or money involved, if the buyer moves in a long time before closing actually happens, there may be significant tax consequences. You may wish to discuss these issues with an accountant or tax preparer. 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 landlordtenant 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.

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Refund of Deposit One scam that has been occasionally used on property sellers and real estate agents is a buyer gives a personal check as a deposit on a real estate offer. When the offer is (expectedly) rejected, the buyer requests 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. In many areas, it is common practice to just hold the check without actually cashing it. Then, at closing it is either returned and made part of the closing costs or cashed. Doing this is nearly the same as not taking the check in the first place. The buyer is not really out anything if he or she backs out. However, if it is the common local practice, deviating from it may make the sale harder.

5

FEDERAL AND LOCAL LAWS

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 that may affect your contract rights. Following are some examples of new developments in the law that affect the sale of real estate. ■

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.

■

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.

■

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

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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, the federal government has passed numerous laws in recent years that control real estate sales. Local and state laws affecting real estate sales change every year so it is not possible to supply a current list of every law for every community in a book like this. The following is a list of the types of laws that may apply to your contract. You should contact a local real estate agent or attorney for up-to-date information on requirements in your community.

Federal Laws Both federal and local laws have an impact on real estate transactions. Since federal laws apply across the country, they are often general laws covering different types of buyers and sellers, different types of properties, and the procedures involved in real estate transactions.

Lead-Based Paint Disclosure The Environmental Protection Agency (EPA) and the Department of Housing and Urban Development (HUD) have 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 specifically designated 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 10, p.233.) The pamphlet is also included. (see Appendix B, page 181.) The rule is contained in the Federal Register, Volume 61, Number 45, March 6, 1996, pages 9064–9088. More information and copies of the

Federal and Local Laws

27

pamphlet can be obtained from the National Lead Information Center at 800-424-5323. The information can also be obtained at: www.epa.gov/lead/nlic.htm

FHA/VA Loans If a purchase will be financed by a loan guaranteed by the Federal Housing Authority (FHA) or the Department of Veterans Affairs (formerly known as the Veterans Administration) (VA), then certain language must be included in the contract. FHA and VA clauses are included on pages 52 and 53.

Flipping Properties In recent years, abuses by some parties have caused federal regulators to take a dim view of people who sell properties quickly at a profit. Thus there have been some new rules and proposed rules to make properties ineligible for certain types of financing if they have not been owned by the seller for certain time periods, such as ninety days or even one year. Holding a property for the required time period is sometimes called seasoning. While using a friendly appraiser to get a higher price for a property just purchased at full price, and getting a government guaranteed loan to an unqualified buyer may be unethical or just plain wrong, there are plenty of legitimate situations in which properties are sold quickly at a profit. Often a rehabber can take a foreclosed home in poor condition and make it a highly desirable place in a few months. Another problem for buyers who want to assign the contract to another party prior to closing is that in some cases a buyer of a property from a government agency or certain lenders is not allowed to do so. This form of flipping can place an already distressed seller into an even worse position, but there are times when the practice is for non-profit-making reasons or actually put the seller in a better position.

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One way to get around some of these types of prohibitions is to use a corporation, limited liability company, or land trust to own the property. This way the ownership of the entity can be sold without changing the ownership of the property.

Discrimination Since these rules change, you should check into possible financing options before putting your contract together. Since the passing of 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 homes;

■

there is no more than one sale within twenty-four months;

■

the person does not own any interest in more than three homes at one time; and,

■

no real estate agent or discriminatory advertisement is used.

It also does not apply to a property that is owner-occupied if it has four or fewer units.

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Coercion or intimidation. If 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 Another civil rights law, often referred to as Civil Rights Act, Section 1982, is similar to the previously discussed statute, but where the above applies to any policy that has a discriminatory effect, this law applies only if 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, Compensation, and Liability Act (CERCLA or Superfund). (U.S.C., Title 42, Secs. 9601–9657.) 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.

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Because of this, it is important to avoid buying property unless you are sure it is free of contamination. There is less of a risk of contamination in a residential subdivision 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. Instead, 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. However, this is expensive and may make the property not worth buying.

Foreign Buyers Federal tax law, the Foreign Investment in Real Property Tax Act (FIRPTA) 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 buyer should obtain a nonforeign 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 The Real Estate Settlement Procedures Act (U.S.C., Title 12, beginning with Sec. 2601.) contains federal rules that apply to many residential closings. One requirement is that the closing statement be done on the form approved by the Department of Housing and Urban Development, called the HUD-1. This law will be of concern to the attorney or title agent who handles the closing of your transaction. If you would like to get a copy of HUD-1 or any other HUD forms, you can get them at: www.hudclips.org/sub_nonhud/html/forms.htm

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Interstate Land Laws 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. The most common questions about this law are answered on the HUD website at: www.hud.gov/offices/hsg/sfh/ils/ilsdevqa.cfm

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 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. You can only use this break once every two years even if you own two homes, each of which you have lived in for two years. If you do not meet this requirement or are selling investment property, you could be subject to capital gains taxes. 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. There are several restrictions and requirements you must follow to qualify for this tax break. However, the general rule goes as follows. By using the services of a 1031 intermediary, you can sell your property and have the proceeds put into escrow until you find a replacement property. You a have 45 days to find it and 180 days to close it. By using a 1031 reverse exchange, you can have an intermediary buy a property for you before you

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are able to sell your property. The IRS rules of this are strict so be sure to find a 1031 intermediary before you sign your contracts. 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. 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. Specialized rules. If you feel that any of these mentioned rules may apply to you, you should research the matter further before signing a contract. Further, there are more specialized rules concerning low-income 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.

State and 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.

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Laws that you might never 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.

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-bystate list in Appendix A. These agencies may be able to provide you with guidance on legal requirements. Because you are not required to disclose hazards that you do not know about, there would be no legal advantage to having your property tested on your own. If you do have your property tested, you may be legally required to disclose whatever the results are. In some cases, you must disclose bad information even if you are not asked. While such disclosures may scare away some potential buyers and make it harder to sell the property, they may prove to be a protection for sellers in the long run. 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 eventually 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 in Appendix A.

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Known Defects Due to increased litigation over the last few decades, most real estate agents like to get disclosure forms from sellers listing known defects in the property. In a few states, disclosure is required by law and every year additional states consider requiring it. Some real estate brokers require disclosure forms before they accept a listing. California has one of the strictest disclosure laws in the country. Among other things, sellers must find out whether their property is in a earthquake zone and disclose this to a buyer. Check with a local real estate agent for all the requirements. The important thing about these forms is how they are worded. There is a big difference between asking a seller if he or she knows of any current problem with the plumbing and asking if there has ever been any problem with it in the twenty years he or she owned the house. As explained in Chapter 3, two different disclosure forms are provided in this book—one for a buyer to ask for and one for a seller to offer. (See form 7 for buyers and form 8 for sellers.) As with environmental hazards disclosures, these forms can protect the seller from future lawsuits. This is because when you truthfully disclose something, you cannot be sued for hiding it. Whichever disclosure form you use, 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 technically 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.

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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 In some states, the courts have held that builders can be held liable for defects in properties they have sold. The courts have noted that builders are more knowledgeable about their profession and should not be able to sell defective products without liability. This is called implied warranties.

Stigmatized Properties 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, in otherwords, to undo the closing and make the seller take back the property and put the buyer back in the same position he or she was in prior to the deal. 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. Some states have laws that a seller of real estate cannot be sued for not disclosing that a former occupant had been infected with HIV or diagnosed with AIDS. Other states make it illegal to disclose this information as it is a form of discrimination. And in some states, a seller must disclose to a buyer how to find out whether a known sexual offender lives in the neighborhood. This is known as Megan’s Law.

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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 people who buy a property and then sell it at a profit. This is known as a speculation tax.

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. You should make any purchase of property contingent on the zoning not interfering with your needs.

Homeowners Association In some areas, a seller must disclose whether the property is controlled by any homeowners association. One of the important matters to be discussed is whether there are homeowners association dues. Also, a homeowners association could indicate whether the property is subject to certain covenants and restrictions that affect what an owner can do to and on the property.

Coastal Properties 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, Sec. 161.57.

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Discrimination In addition to federal discrimination laws, many states have their own laws against discrimination and some cities and counties also have them. The reason for the duplication is that local laws may be easier to enforce and cover more people than federal laws.

6

UNFAIR CONTRACTS

One problem with using a strong contract is that if you are ever taken to court, you may 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 ironclad 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 in to fill the blanks 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.

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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 that 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. The problem of a contract being too strong would most likely come up when 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

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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.

7

BASIC CLAUSES

Every contract must contain certain minimum requirements to be valid. Real estate transactions are no different. The minimum points that a real estate contract must contain to be legally enforceable are: ■

identification of the parties;

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description of the property;

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clear terms of payment;

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some consideration, such as a deposit; and,

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an offer and an acceptance.

Beyond these minimums, 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 now, and we can

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haggle at the closing when the stakes are higher. 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. 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. 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 contract form, an ADDENDUM TO CONTRACT is also provided. (see form 6, p.225.) Additional clauses from this book can be added to the basic contract forms by using this ADDENDUM TO CONTRACT.

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

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Buyer’s View The buyer will want to be sure that he or she 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 from his or her 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 title as tenants by the entirety, which offers some additional protections from creditors. Seller’s View In most cases, the seller would prefer to have the contract signed by some-

one 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.

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

Option #1

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 and buyer’s views for Option #1 are addressed as follows. 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 personally by his or her 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.

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b) The buyer would want to specify the terms of the mortgage that he or she wants. Otherwise, if rates go up he or she will be required to buy the property at the going rate. (See the clause for “Financing Contingency.”) c) If the buyer assumes the mortgage that the seller already has on the property, then he or she agrees to be legally bound to pay it. If the buyer takes the property subject to the mortgage, he or she has no legal obligation to pay it (though he or she could lose the property if he or she does not). NOTE: If the seller’s mortgage is from a bank or other lending institution, they must be involved in any assumption. That mortgage document will generally indicate whether an assumption is even allowed and the bank’s requirements. The seller prefers that the buyer assume the mortgage and should use another clause that 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 the contract can be rescinded. d) This clause should clearly spell out the payment terms. The other terms of any 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.

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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 terms in Option #1, you can use a shorter version to suit your needs. Option #2

The purchase price shall be $_____________________.

Option #3

The purchase price shall be $_____________ subject to the following terms and conditions:_________________________________________ _____________________________________________________________.

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 #4 might be Federal Housing Administration (FHA), Veterans’ Administration (VA), Member, Appraisal Institute (MAI), or some other entity that provides appraisals.

Conveyance The conveyance clause states the type of deed that will be given by the seller to the buyer. There are many different types of deeds that can be used to transfer a person’s ownership in a piece of property. A quitclaim deed is a deed that says, in effect, “I do not know what I own, but whatever it is, I convey it to you.” In some states, a quitclaim deed is a warning to a buyer that the seller does not think he or she 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.

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In most areas, a general warranty deed is one in which a seller guarantees that he or she has good title to the property, and a special warranty deed is a deed in which the seller does not guarantee that he or she has good title, but does guarantee that he or she has not done anything that would affect the title. However, in some states these definitions are reversed. Seller’s View The seller would like to get the sale proceeds 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 received a warranty deed when the property was purchased, 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 to guaranty that the title is good

so that if there are problems with the title, the buyer can get his or her 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 it was included in the sale. Without a bill of sale, a neighbor could come over and say that the lawn mower in the garage belongs to him or her and was merely borrowed by the seller. You can often tell what kind of deed is involved by the language used in it. The following are some examples. ■

Quitclaim Deed. Conveyance shall be quitclaim deed.

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Fee Simple Deed. Conveyance shall be fee simple deed.

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Special Warranty Deed. Conveyance shall be by special warranty deed subject to matters expected in the contract.

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■

General Warranty Deed. Conveyance shall be by general warranty deed subject to matters excepted in this contract.

■

General Warranty Deed and Bill of Sale. 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.

Property Description The property description clause states what property the seller will be deeding to the buyer. This is obviously of great importance, but can be a lot trickier than one would think. Have you noticed real estate signs that offer a piece of property described as “6.5 acres MOL” or “6.5 acres +/-?” The “MOL” and “+/-” mean more or less and this is always added as an estimate of the size so that the buyer cannot sue if the land turns out to be 6.4 acres after it is surveyed. There are many ways to describe property with some being more exact than others. The best way is to include a street address, so the location can be easily identified, and then the legal description, which accurately reflects the parcel of land being sold. Street Address: __________________________________________________ Legal Description: _______________________________________________ _______________________________________________________________ _______________________________________________________________

Seller’s View The seller does not want to promise to sell more than he or she owns.

Many sellers have been sued when the property turned out to be less than described in the sales contract. 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 (by the

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government) for say, 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. When a lot in a subdivision is being sold, the legal description usually consists of the lot number and plot. But when rural or unplotted land is being sold, the boundary can be affected by a neighbor’s fence, the movement of a stream, or many other factors. Adding the approximate lot size or acreage would make the description more accurate and the contract more enforceable if the exact legal description is not known. Buyer’s View The buyer wants to know exactly what is included. 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 111.) When the buyer is relying on a description provided by a real estate agent, he or she may want to state something like, “...as described in MLS Listing Number 123456.”

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

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Mutual View

The Complete Book of Real Estate Contracts

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. Since 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 written into the contract. Warning: In some cases, one party makes a lot of oral promises, leaves them out of the written contract, and never performs them.

Buyer’s View

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 in such a way that it can be identified (e.g., “Survey given to buyer, performed by ABC Surveyors dated June 30, 2005 for said property”) and made a part of the contract. You make it part of the contract by identifying it and either attaching it as an exhibit (and say in the contract that it is attached as an exhibit) or stating that it is incorporated into the contract by reference.

FHA/VA Loans that are guaranteed by the Federal Housing Administration (FHA) or Department of Veterans Affairs (VA) offer a buyer better terms than are available through banks (conventional loans). In the event the purchase will be financed by an FHA or VA loan, one of the following clauses is necessary. These are clauses required by the government regulations. They should not be changed.

Basic Clauses

FHA 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.

VA Clause

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 VA, Purchaser shall pay such excess amount in cash from a source which Purchaser agrees to disclose to the VA and which Purchaser represents will not be borrowed funds except as approved by VA.

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Insulation Clause Sellers of newly built homes, condominiums, and cooperatives 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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Lead-Based Paint Clause 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. Federal law requires that parties to a real sales contract sign a special disclosure form regarding lead paint hazards (form 10, p.233), that the prospective buyer be given a pamphlet about the risks (Appendix B), and that the buyer be allowed back out of the deal. The seller does not need to test the property for lead paint under federal law, although some states or localities might have this requirement. In most cases, it is best for the seller not to test because if he or she does then he or she must disclose the results. The lead-based paint clause addresses what will be done regarding any lead-based paint issues after the disclosures are made. Some of the options are as follows. Option #1: Warranty— Property LeadBased Paint Free

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

Option #2: Sold As Is— No Warranty

Property is being sold as is with no representations or warranties of any nature being given by Seller. Buyer represents that he or she has inspected the property to his or her satisfaction and accepts it in as is condition.

Option #3: No Knowledge— Buyer Responsible

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.

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. Buyer’s View In most cases the buyer will want to be sure that the property is free of

lead-based paint hazards because these may cause a problem when he or she wants to sell the property. Laws are changing around the country and

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at some point it may be difficult or impossible to sell a property with leadbased 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 him- or herself.

8

RECOMMENDED CLAUSES

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 get 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 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 book should cover all their needs.

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Acceptance The acceptance clause tells the party receiving the offer how long he or she has to accept the offer. The following are three options based on who is making the offer. Option #1: Offer Made to Seller by Buyer

[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 counteroffer, it remains open until the seller withdraws it. Option #2: Neutral—Both Parties Execute

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

Option #3: Offer Made to Buyer by Seller

Buyer shall have until __________________, 20___ at _____ o’clock __m to accept this Contract.

Buyer’s View

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

Seller’s View

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

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Agreement for Deed/Contract for Deed 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 on 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. 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 the buyer will receive the deed if he or she complies with all the terms. The most common use of such agreements occurs when 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. Sometimes they provide that the buyer will be given a deed and be allowed to assume the first mortgage after a certain amount of equity is built up. In 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. Option #1: Long Grace Period, Assumable, No Prepayment Penalty

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.

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Option #2: Short Grace Period, Assumable on Seller Approval

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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.

NOTE: The contract must also spell out what the interest rate and payment terms are for this agreement. It would usually be done in the purchase price clause. (see p.46.) Buyer’s View

The buyer wants a long grace period, wants the agreement to be assumable, and does not want a prepayment penalty. (Option #1)

Seller’s View

The seller does not want a long grace period and does not want the agreement to be assumed without his or her approval. (Option #2)

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Allocation of Purchase Price 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. 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. Option #1: Allocation for Land, Buildings, and Personal Property

The par ties 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.

Option #2: Allocation for Personal Property

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.

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 may not want any amount allocated to personal property if a higher basis in the real estate is desired. If other tax savings are being sought, having some part of the purchase price allocated to personal property may be desirable.

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 or her tax situation and this should be discussed with a tax advisor. NOTE: Add Option #2 to the end of the personal property clause on page 95.

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Approval The approval clause makes the contract contingent on the approval of some party. Generally, this approval will be the buyer’s attorney, business partner, or spouse. 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. Option #1: Spouse Approval

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

Option #2: Partner Approval

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

Option #3: Attorney Approval Option #4: Spouse Approval with Time Limit

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

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

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Buyer’s View

The buyer may want to have the contract contingent upon the approval of a spouse, partner, attorney, or other advisor. (Contingent means he or she can back out of the deal without penalty.) When partners are involved it is usually necessary to obtain their approval to complete the deal. 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 or her spouse 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 or she needs to back out of the deal.

Seller’s View

In some cases, the seller might want to sign the contract, but make it subject to his or her attorney’s approval. Generally, however, the seller does not want any contingencies in the contract. If there are any, the seller wants them to last for only a few days so the property can be put back on the market.

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Arbitration 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. The arbitration clause provides for binding arbitration and does not allow a lawsuit to be filed except to enforce the arbitrator’s ruling.

Option #1

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.

Option #2: Binding Arbitration

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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Assignment The assignment clause provides whether or not the contract can be assigned by the buyer to another party. 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. Option #1: Fully Assignable— Detailed

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. Option 2: Fully Assignable— Simple

This Contract is fully assignable.

If Option #2 is used, a seller could at least make the argument that he or she 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. Option #3: Fully Assignable— Right to Show

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

Option #3 makes it clear that the buyer intends to resell the property, presumably at a profit, prior to taking title. Option #4: Not Assignable

Option #5: Not Assignable without Approval

This Contract is personal to the parties and is not assignable.

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

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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 the money out of the sale probably would not care who is buying it, so assignability would not be a problem. However, when a seller will hold a mortgage, or remain liable on the mortgage, someone with substantial assets personally signing the note is wanted. 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.

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Attorney’s Fees The attorney’s fees clause provides whether either of the parties have to pay the other’s attorney’s fees if an attorney needs to be hired to enforce the contract. These clauses are added with the idea that 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. 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 64 for arbitration clauses.) Option #1: Attorney’s Fees to Prevailing Party

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

Option #2: No Attorney’s Fees

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

Option #3: Attorney’s Fees to Buyer

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 to recover reasonable attorney’s fees and costs.

Option #4: Attorney’s Fees to Seller

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 attorney’s fees and costs.

NOTE: Option #3 and #4 are extra strong in that they also allow attorney’s fees if a party just calls an attorney for advice, and they only allow attorney’s fees to one side. It might intimidate a party who does not use an attorney, but if the other party signs either of these, a court might say that they apply to the other side as well.

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

Option #1: Seller Agrees to Pay Broker

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 or her 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.

Option #2: Parties Acknowledge Broker Procured

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 or her 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.

Option #3: Amount of Broker Commission Not Disclosed

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 or her services in effecting the sale by finding a Buyer ready, willing, and able to purchase pursuant to the

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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.

Buyer’s View Usually, the seller is the only one who has contracted with a real estate bro-

ker and the buyer is not concerned with this agreement. If the buyer has a broker, there is probably a separate contract spelling out that agreement. The buyer’s broker might want his or her fee spelled out in the contract between the buyer and seller and paid at closing. Seller’s View If the seller has some reason for disputing a broker’s participation in the

transaction, he or she would not want to acknowledge any participation by the broker in the sales contract. Therefore, the seller would prefer that the commission not be mentioned in the contract. Since presumably there already is an agreement with the broker, there would be no need to repeat the terms of that agreement in this 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 or she

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 the commission disclosed in the contract and prefer to say that the commission is “in accordance with the listing agreement between Seller and Broker.”

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Closing Date and Place The closing date and place clause provides when and where the papers will be signed and delivered to finalize the transaction. 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 listed, the term “closing” is used. The proper term for your location should be used in your contract. Option #1: Buyer Selects Location

Closing shall be on ___________________, 20___ at a location to be selected by Buyer.

Option #2: Location in Contract

Closing shall be on ___________________, 20___ at ________________.

Option #3: Location in Contract— Time of Essence

Closing shall be on ________________________________, 20______ at ______________________________________. Time is of the essence on this Contract.

Option #4: Seller’s Attorney or Title Office

Closing shall be on ________________________, 20___ at the office of an attorney or closing agent designated by Seller.

Option #5: Seller’s Attorney or Title Office— Time of Essence

Closing shall be on ________________, 20___ at the office of an attorney or closing agent designated by Seller. Time is on the essence of this Contract.

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. When a party wants the deal to go through, even if it takes a little longer, this option is not necessary.

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Buyer’s View The buyer wants the closing to be held at a time and place more conven-

ient to him or her. Seller’s View The seller wants the closing to be held at a time and place more convenient

to him or her.

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Condominium— Common Elements and Assessments The condominium—common elements and assessments clause requires several things specific to a condominium. It states that they include all rights attached to the property, including such things as common areas and parking spaces in the sale. It also states who pays for any approval of the buyer required by homeowners association, condominium board, or developer. Lastly, it explains how any assessments are to be prorated between the buyer and the seller

Option #1: Seller Pays Costs

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.

Option #2: Parties Split Cost

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 #3: Buyer Pays Cost

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.

Option #4: Buyer Applies in Five Days— Pays Cost

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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Buyer’s View

The buyer wants to be sure to receive all condominium rights and to have his or her deposit returned if the sale is not approved. He or she 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.

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Condominium Documentation The condominium documentation clause makes the transaction contingent upon the buyer’s satisfaction with the legal documentation of the condominium. Three different options are given, each regarding a more specific reason for cancellation.

Option #1: Documents to Buyer—Option to Cancel

If 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. Option #2: Sale Contingent on Attorney Approval

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. Option #3: Sale Contingent on Specific Use

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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Buyer’s View The buyer wants to be sure the Declaration of Condominium is satisfac-

tory. Condominiums have all sorts of rules, some of which you might not expect. Some of them control the color of 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 residence, 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 106.)

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Default The default clause tells what the rights of the parties are if the other fails to fulfill their obligations under the contract. Option #1: Seller Keeps Deposit; Buyer May Sue for Property—Simple

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 or her rights under this Contract.

Option #2: Seller Keeps Outof-Pocket Costs Only

In the event Buyer defaults hereunder, Seller shall be entitled to his or her 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.

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

Option #4: Seller May Enforce Sale; Buyer Gets Fixed Damages

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 marketable title after diligent effort, Seller fails, neglects, or refuses to perform under this Contract, Buyer may proceed at law or in equity to enforce his or her rights under this Contract.

In the event Buyer defaults hereunder, Seller shall be entitled to retain any deposits paid hereunder as liquidated damages, or at his or her 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.

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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. Buyer’s View The buyer will hopefully have enough contingencies to avoid a default,

but in the event he or she does default, liability should be kept as low as possible. If the seller defaults the buyer 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. The seller likewise wants liability limited if he or she is responsible for the default. The seller should require as large a deposit as possible.

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Engineering Reports The engineering reports clause makes the transaction contingent upon the results of an examination of the property by an engineer. This contingency would normally be used only in the event the land was going to be used for some sort of new or additional construction. (For the typical home inspection, see the options available under “Inspection,” p.88.) Option #1: Contingent on Specific Use

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

Option #2: Contingent on Contractor Approval

Contingent upon Buyer obtaining engineering repor ts on the proper ty satisfactory to Buyer’s contractor.

Buyer’s View

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

Seller’s View

Seller prefers no contingencies in the deal.

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Environmental Conditions 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. Option #1: Seller Warrants No Violation

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

Option #2: Seller Unaware of Any Violation

Seller is unaware of any environmental hazards on the property. Buyer shall have the right to have the property inspected for environmental factors within fifteen 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 fifteen days, 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 hidden problem, he or she might not want to use Option #2 because if anything is detected, the seller will be informed of it 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 or she may not want to have one done. Once the seller learns about a hazardous condition, it must be disclosed to potential buyers and in some cases reported 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 in such matters.

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Buyer’s View The buyer wants to be protected from potential liability for cleanup of

environmental hazards on the property. If the buyer can get an environmental clause accepted, and there is a “Survival of Contract” clause (see page 112), the buyer may be able to sue the seller years later if anything turns up. Seller’s View

A wise seller would not guarantee that the property had no problems because there might be something the seller does not know about. Therefore, the seller does not want to make any warranties as to the condition of the property. He or she may want to put in a clause relieving himor herself of potential liability.

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Existing Mortgages (Deeds of Trust) The existing mortgages clause explains what the terms are of any mortgage on the property that will not be paid off at closing, what will happen to the escrow, and whether the buyer will assume liability for the mortgage or merely take over payments. NOTE: Depending in which part of the country you reside, banks may use either “mortgages” or “deeds of trust” when loaning money for a property purchase. For purposes here, the two terms are interchangeable and you should use the term common in your area.

Option #1: Seller Pays Costs

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.

Option #2: Neutral Clause

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: ________________________________________.

Option #3: Buyer Pays All Costs

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

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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 or she would prefer to take the property subject to the mortgage, rather than assuming it, because if assumed, the buyer becomes personally liable to pay it in the event of a foreclosure. The buyer would also like to have the seller pay the assumption fees and to give away the 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.

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Expenses The expenses clause tells which party will pay the various costs of finalizing the transaction. The options range from the seller paying all the closing costs, to the buyer paying them all. These expenses can often be an area for negotiation and subject to the common practices of your area. Option #1: Seller Pays All Costs

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. Option #2: Seller Pays Transfer Fees; Buyer Pays Mortgage Fees

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. Option #3: Seller Pays Transfer and Mortgage-toSeller Fees

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 that have intangible taxes on mortgages. Option #4: Parties Split Fees

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.

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Option #5: Buyer Pays All Fees

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

Option #6: Buyer Pays Closing Fees

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

Buyer’s View

The buyer wants to pay as few expenses as possible even if it is customary for the buyer 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.

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Financing Contingency The financing contingency clause makes the transaction contingent upon the buyer obtaining a loan with which to make the purchase. A buyer who cannot obtain financing is of little value to the seller and most often not going to have anything worth suing over, making a court battle useless. However, to keep the deal moving toward closing, having an understanding that financing will occur is necessary.

Option #1: Loan Approval Any Time before Closing

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.

Option #2: Reasonable Diligence Used to Apply for Loan

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.

Option #3: Limited Time to Apply for Loan

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.

Buyer’s View The buyer wants the deposit refunded if a suitable loan cannot be

obtained. Without this option, the buyer will lose the deposit if the loan is denied. It is important to list the terms of the loan being sought. Otherwise, if interest rates go up, the payments could be a lot more than expected, possibly making going through with the purchase undesirable. Seller’s View The seller wants a contract with no contingencies, but if financing is

necessary, he or she wants to know as soon as possible if the loan will be approved.

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FIRPTA 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. The FIRPTA clause covers this situation. 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 necessar y.

Buyer’s View The buyer 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.

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Ingress and Egress The ingress and egress clause guarantees the buyer will have legal access to the property. In a platted subdivision this is not usually necessary, but when purchasing unplotted land it is very important. Option #1: Seller Warrants

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 or she should not use Option #1. If the buyer does not bring it up then no clause is necessary.

Option #2: No Warranty

Property is being sold in as is condition with no representations or warranties of any nature being given by Seller. Buyer represents that he or she has inspected the property to his or her satisfaction and accepts it in as is condition.

Buyer’s View

The buyer wants to be sure there is legal access to the property and that he or she has a right to continued use of the access. 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 or she just wants to sell the property. If the seller has a survey or title policy showing ingress and egress Option #1 is acceptable.

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Inspection The inspection clause makes the transaction contingent upon an inspection of the property. The inspection can be done by a licensed professional and/or the buyer. In many cases, especially for a personal residence, the buyer will want a licensed professional to inspect the property and its belongings, as well as performing a final walk-through just prior to closing. Therefore, Option #1 may be used in addition to one of the other options.

Option #1: Inspection at Closing

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

Option #2: Licensed Contractor Inspection

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

Option #3: Property As Is

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.

Option #4: Major Systems to Be Working Six Days Prior to Closing

Major appliances, heating, cooling, electrical, and plumbing systems to be in working order as of six days prior to closing. Buyer may, at his or her 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 or she 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 97.

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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 or her name for the inspection. However, if the buyer will rent the property out, paying the expenses of putting the accounts in his or her name for a day and then into a tenant’s name is not wanted, 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.

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

Option #1: Contingent on Buyer Approval and Estoppel Letters

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.

Option #2: Contingent on Proof

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

Option #3: Subject to Existing Leases

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

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 or her. The buyer may not want the property if it is subject to long leases at low rentals (such as, for example, 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.

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Licensed Real Estate Professional or Investor The licensed real estate professional or investor clause is used to disclose such information where required. 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. 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. It is a violation of real estate licensing laws in some states not to disclose that one holds such a license whether you are a buyer or a seller. In some areas certain language may be required. Option#1: Agent

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

Option #2: Broker

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

Option #3: Professional Investor

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

Option #4: Licensed Real Estate Professional

Buyer/Seller is a licensed Real Estate Agent/Broker and is disclosing such so that the Buyer/Seller is fully informed that he or she should seek independent advice for any questions he or she may have.

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Lien Affidavit The lien affidavit clause guarantees the buyer that there are no financial claims against the property that will not be paid before he or she takes ownership of the property. 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 ninety 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.

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.

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Maintenance 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. Option #1: Delivered in Good Condition

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.

Option #2: Delivered in As Is Condition

Property is being sold in as is condition with no representations or warranties of any nature being given by Seller. Buyer represents that he or she has inspected the property to his or her satisfaction and accepts it in as is condition.

Buyer’s View

Buyer wants property in the best possible shape at closing. 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.

Seller’s View

The seller wants to convey the property as is.

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Mold In recent years the presence of mold in buildings has become a multi-million dollar industry for inspectors, attorneys, and mold remediation companies. Sellers have been held liable to buyers and owners have been held liable to occupants for perceived damages from the presence of mold. Since the issue is relatively new the extent of risk for liability is still unknown. Both buyers and sellers should be aware of the issue when entering a contract. Option #1: Seller Warranty

Seller warrants that the property is free of infestation of mold.

Option #2: Buyer Option to Inspect

This contract is contingent upon property being free of mold and related infestations. Buyer may have property inspected for such infestations and may cancel the contract if the report is unsatisfactory to buyer.

Option #3: Property in As Is Condition

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

Buyer’s View

The buyer would like to be sure the property is free of mold or that he can get out of the deal if it is not.

Seller’s View

The seller wants to sell the property as is with no reduction in price or lingering liability if mold is present. NOTE: More elaborate clauses may be drafted similar to termite clauses that allow for a reduction on selling price or for remediation by seller.

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95

Personal Property The personal property clause sets out exactly what moveable personal property is included in the sale. Option #1: Property Listed in Schedule A

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.

NOTE: A Schedule A form is included with the forms in this book. (see form 8, p.229.)

Option #2: Specific Items plus All Property Left on the Premises

Option #3: Only Listed Items in As Is Condition

Buyer’s View

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___ Cur tains___ 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.

The following personal property is included in the purchase price and sold in as is condition: ___________________________________________ _______________________________________________________________.

The buyer wants to know which personal property is included in the purchase and to have it in working order. If the seller forgets a 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 61.)

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Seller’s View

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The seller does not want to warrant condition of the property or to include any items he or she did not intend to sell. With Option #3, if the seller forgot something on the premises, he or she 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 or she would probably have to pay tax on the depreciation recapture.

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97

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

Option #1: Full Warranty

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.

Option #2: Working Condition

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

Option #3: Working Condition Six Days Prior to Closing— Warranty Waived unless Reported

Major appliances, heating, cooling, electrical, and plumbing systems to be in working order as of six days prior to closing. Buyer may, at his or her 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 or she 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.

Option #4: in As Is Condition

Property is being sold in as is condition with no representations or warranties of any nature being given by Seller. Buyer represents that he or she has inspected the property to his or her satisfaction and accepts it in as is condition.

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. If the buyer insists upon warranties, Option #3 makes sure they are taken care of or waived before closing.

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Possession The possession clause guarantees the buyer that he or she 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 or she needs to get rid of.

Option #1: Escrow for Rent in Arrears

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.

NOTE: The figures used in Option #1 are for illustration. They may need to be higher or may be negotiated lower. Option #2: All Leases Current

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

Option #3: Subject to Existing Tenancies

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

Buyer’s View

The buyer wants possession of the property at closing or compensation for any delays.

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 or she is to stay after closing.

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Prorations The prorations clause explains how the continuing costs of the property will be shared at the closing. 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. Option #1: Proration as of Closing

Option #2: Proration as of Closing— Future Adjustment

Option #3: No Proration

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.

Taxes, rents, interest, proper ty owner dues, and insurance acceptable to Buyer, and ______________________ shall be prorated as of closing. Real and personal proper ty 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 proper ty completed by Januar y 1st of the year of closing, which improvements were not in existence on Januar y 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 par ties, failing which, request will be made to the proper ty 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.

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

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Option #4: No Future Adjustments

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Real and personal proper ty 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.

Buyer’s View

The buyer wants full credits from 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. If prorated, however, the seller would prefer the lowest figures be used with no possibility for future obligations.

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Purchase Money Mortgage The purchase money mortgage clause explains what the terms will be if the seller will be holding the mortgage after the sale. This clause is one of the most important in the contract and could result in tens of thousands of dollars in additional profit. NOTE: In some areas a “deed of trust” is used instead of a “mortgage.”

Option #1: Sixty-Day Grace Period—BuyerFriendly Terms

Option #2: Thirty-Day Grace Period

Option #3: Standard Mortgage Form

In the event Seller will hold a purchase money mor tgage under this Contract, said mor tgage shall contain no prepayment penalty, be fully assumable, and allow a sixty-day grace period on late payments. Mor tgagee shall look only to the collateral for security and not be entitled to any deficiency judgment. Mor tgagor shall have a first right of refusal at any time mor tgagee desires to sell the note and mor tgage at a discount, and mor tgagor may have par ts of the proper ty released from the mor tgage propor tional to the principal paid. Mor tgagor 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.

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 thirty-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.

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.

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Option #4: Ten-Day Grace Period— Adjustable Rate upon Transfer

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In the event Seller will hold a purchase money mortgage under this Contract said mortgage shall contain a ten-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: _________________________________________________________________ _________________________________________________________________.

Buyer’s View

The buyer wants the best terms on the mortgage to save money and lessen 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.

Seller’s View

The seller wants a nonassumable mortgage with lots of protection. For example, he or she wants a late penalty, and a right to foreclose quickly if the buyer defaults. Usually, a mortgage form used by lenders in the area is quite good. If the seller lowered the price based on higher interest on the mortgage, he or she would also want a pre-payment penalty. (If the mortgage is a wrap-around or second mortgage, see page 119.)

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Radon The 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. The issue is still new, so 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 or she is not happy with the result.

Option #1: Buyer May Cancel

Seller, at his or her expense, shall provide Buyer at least fifteen 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.

Option #2: Buyer’s May Cancel or Seller Must Install Equipment

Seller, at his or her expense, shall provide Buyer at least fifteen 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.

Option #3: Buyer May Inspect

Buyer, at his or her expense may have property inspected at his or her expense for the presence of Radon gas within fifteen days of acceptance of contract and if levels are not acceptable to Buyer, he or she may cancel this contract.

Option #4: State Clause

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 this state. Additional information regarding radon and radon testing may be obtained from your county public health unit or the Environmental Protection Agency.

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Buyer’s View If the property is in high-radon area, the buyer may want to have a radon

test done on the house. He or she 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.

State and Local Law Some state and local governments in areas where radon gas is found have passed laws requiring disclosure of the risk of radon gas. Option #4 is a typical clause, but check with a local attorney or board of realtors to see if a specific clause is required in your area.

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Recording The recording clause provides whether or not the contract can be filed in the public records. Neither this Contract nor any notice of it shall be recorded in any public records.

Buyer’s View

The buyer would like to record the contract to protect his or her 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 the contract recorded to cloud his or her title to the property. The seller should not allow his or her signature to be notarized.

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Restrictions and Easements The restrictions and easements clause allows the buyer to check whether there are any restrictions or easements that may affect his or her planned use of the property. Restrictions are rules affecting the use of land that 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 as the right of a utility company to install a power pole). Option #1: Free of Adverse R&E

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

Option #2: Free of Adverse R&E— Seller Provides Copies

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 fifteen days prior to closing.

Option #3: Property Subject to All R&E of Record

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

Buyer’s View

The buyer does not want to buy property if restrictions or easements prohibit his or her intended use of the property or adversely affect its value. Most restrictions add to the value of the property by forbidding neighbors from doing offensive 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 do not allow it, he or she probably will not 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.

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107

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

Option #1: Buyer May Accept with Proceeds or Cancel

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 canceling this Contract and receiving return of deposit(s) made hereunder.

Option #2: Seller May Cancel or Repair

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 ninety days and restore the premises to substantially their original condition.

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 the seller may prefer to repair the premises and continue with the closing.

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

Option #1: Seller Shall Repair

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, a licensed general contractor, or a firm specializing in presale inspections of proper ty to determine that there is no visible evidence of leaks or damage (including fascia and soffit). If repairs are needed, Seller shall have them completed at the Seller’s expense by a licensed roofer, or at Buyer’s option shall credit the Buyer for the cost of said repairs.

Option #2: Seller Shall Repair up to 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, a 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 fascia and soffit). If repairs are needed, Seller shall pay up to 2% 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 2% of the purchase price, Seller may cancel this Contract.

Option #3: Sold in As Is Condition

Property is being sold in as is condition with no representations or warranties of any nature being given by Seller. Buyer represents that he or she has inspected the property to his or her satisfaction and accepts it in as is condition.

Buyer’s View The buyer wants the 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.

Recommended Clauses

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Severability 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 clause is used. This clause 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. 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.

Mutual View In most cases, both parties want a severability clause since it would sup-

port the validity of the contract. It is also very important in a contract that is drafted to favor one side very strongly.

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Special Assessments 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.

Option #1: Seller Pays Completed Pending Liens

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.

Option #2: Buyer Pays Pending Liens

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.

Option #3: Buyer Pays All Liens

Property is sold subject to assessment of record.

NOTE: When using Option #3, the seller should disclose assessments to the buyer. Option #4: Seller Pays Only Recorded Liens

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

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 that are liens on the property as of closing.

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Survey The survey clause provides whether a survey will be made of the property, who will pay for it, and whether the contract will be cancelled if it is not satisfactory. NOTE: In some areas a survey may be required by law. Option #1: Seller Must Correct

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

Option #2: Seller May Correct or Cancel

Buyer may, at his or her expense and within fifteen 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 fifteen days, Seller may correct them at his or her expense or cancel this Contract.

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 a 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 naïve seller may agree to pay the cost.

Seller’s View

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

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Survival of Contract 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 for 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 deems 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”) that 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. Option #1: Simple Clause

This Contract and the covenants herein shall survive the closing.

Option #2: Simple Clause with Expanded Language

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.

Buyer’s View

Usually, the buyer wants the contract to survive the closing so that he or she can sue the seller is anything was misrepresented.

Seller’s View

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

Recommended Clauses

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Termites The termites clause provides for who will pay for a termite inspection and what will be done if infestation is found. In some areas a termite inspection is required by law. Even if not required, the buyer, bank, or title insurer may insist one be done. Option #1: Seller Pays— Buyer May Cancel or Require Repair

Seller, at his or her expense, shall provide Buyer with a repor t by a certified pest control operator acceptable to Buyer, dated within thir ty 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 proper ty shall be treated and repaired at the expense of Seller.

Option #2: Seller Pays— Treatment and Repair Limited

Seller, at his or her expense, shall provide Buyer with a report by a certified pest control operator acceptable to Buyer, dated within thirty 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.

Option #3: Parties Split Cost—Either May Cancel

Within thirty 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.

Option #4: Sold As Is

Proper ty is sold in as is condition with no representations or warranties of any nature being given by Seller. Buyer represents that he or she has inspected the proper ty to his or her satisfaction and accepts it in as is condition.

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Option #5: Buyer Pays— Seller may Cancel or Repair

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Buyer may, at his or her expense, no less than fifteen 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.

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 the infestation is discovered later and the company that did the inspection is out of business, the buyer might sue the seller.

Recommended Clauses

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

Option #1: Seller Cures Defects

Option #2: Buyer Must Notify or Waives— Seller may Cure or Cancel Option #3: Seller may Cure or Cancel

In the event title is found to be defective, Seller shall have sixty 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 necessar y suits.

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.

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.

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 for 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.

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

Option #1: Title Evidence After Contract—Specific

Within _____ days from acceptance of this Contract, Seller shall, at Seller’s 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.

Option #2: Title Evidence Prior to Closing— Specific

At least ______ days prior to closing, Seller shall, at Seller’s 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.

Option #3: Title Evidence— Any Time Prior to Closing

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.

Option #4: Buyer May Obtain Own Title Insurance

Buyer may at buyer’s expense obtain a title insurance policy or abstract of title.

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 the 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 or she would not want to obtain the commitment for the title insurance policy until the last minute in case the deal falls through.

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Violations The violations clause guarantees the buyer that the property does not violate any existing laws. Option #1: No Violations

Seller warrants property to be free from violations of building, health, and other governmental codes and ordinances.

Option #2: No Notice of Violations

Property is being sold in as is condition with no representations or warranties of any nature being given by Seller. Buyer represents that he or she has inspected the property to his or her satisfaction and accepts it in as is condition.

Option #3: As Is Condition

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

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, an option should be added stating that the contract survives the closing.

Seller’s View

The seller does not want to warrant anything. Option #1 would not usually be acceptable to a sophisticated seller since it even warrants that the property is free from violations that the seller does not know about.

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

Option #1: Water Access

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.

Option #2: As Is Condition

Property is being sold in as is condition with no representations or warranties of any nature being given by Seller. Buyer represents that he or she has inspected the property to his or her satisfaction and accepts it in as is condition.

Buyer’s View

If the buyer is purchasing property purported to be on the water, he or she wants to be sure it is actually on the water and that all possible water rights are included.

Seller’s View

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

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Wraparound and Second Mortgages The wraparound and second mortgages 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 second mortgage is one in which the buyer makes one payment to the original mortgage holder, and a second payment on a separate mortgage to the seller. A wraparound mortgage is one in which the payment to the seller includes the payment that the seller will make on the existing mortgage.

Second Mortgages Option #1: Subject to First

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

Option #2: Assumption of First

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

Option #3: Buyer Must Provide Proof of Payments

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 or her mortgage and accelerate the balance of said mortgage.

Wraparound Mortgages

Option #4: Seller Must Provide Proof of Payments Option #5: No Proof Required

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

The mortgage held by Seller shall be a wraparound mortgage.

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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 over 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 or she wants options in it to protect 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 he or she could 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 or she wants options in it that protect from the possibility of a default on the first mortgage by the buyer.

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Zoning and Ordinances The zoning and ordinance clause makes the transaction contingent upon these things not adversely affecting the buyer’s planned use of the property. 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 or she might not want such a property. The buyer should check state and local laws prior to closing. Option #1: Contingent on Specific Use

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

Option #2: Contingent on No Adverse Zoning

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

Option #3: Property Subject to Existing Zoning

Property to be conveyed subject to governmental zoning and ordinances.

Buyer’s View

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

Seller’s View

The seller wants no contingencies.

9

CRE ATIVE CL AUSES

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 goes to court. Therefore, you should consider using the severability clause with these and to read Chapter 6. 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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Credits The parties have unlimited flexibility to handle most terms of the contract and setting a higher purchase price with a credit is one way to put a deal together. Unless the following items are repaired prior to closing, the buyer will be credited at closing for the amount listed opposite each item: _________________________________________ $____________________ _________________________________________ $____________________ _________________________________________ $____________________

Buyer’s View

Because the seller is often most concerned with 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 or she understands how much they can lower the proceeds at closing.

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Deposit The buyer usually makes a deposit of some significant amount that is held until the closing of the sale. Option #1: Interest on Deposit

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

Option #2: Note as Deposit

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

Buyer’s View

If the buyer is putting down a large deposit for a property, he or she wants it to earn interest prior to closing, and to be credited with that interest. The buyer does not want to tie up money before closing and wants it to be difficult for the seller to take the deposit if the buyer defaults.

Seller’s View

The seller wants no restrictions on the deposit and would not generally want either of these options in the contract. If one, or one like these options, is included, the seller would not want to be responsible for accounting for or paying any interest on the deposit.

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Distribution of Proceeds The distribution of proceeds can be spelled out in the contract to avoid later disagreements. The net proceeds to the Seller at closing shall be distributed in separate checks as follows: _________% to__________________________________________________ _________% to__________________________________________________

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.

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Down Payment The cash down payment needed to purchase a property is usually the biggest obstacle to buying a property. Option #1: Services as Down Payment

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 or before _______________________________ _______________________________________________________________.

Option #2: Property as Down Payment

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 $________________________ _______________________________________________________________.

Option #3: Mortgage (Deed of Trust) as Down Payment

The Buyer may, at his or her option, use as the down payment a note secured by mor tgage on his or her proper ty located at _______________________________________________________________ _______________________________________________________________.

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 or she 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 a lack of cash, accepting something besides cash may make a deal possible.

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

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 the books to every prospect but only

to those who have made a firm purchase offer.

FHA/VA Fees There is no rule as to who must pay the FHA or VA loan fees. Buyer shall pay any FHA or VA points on the mor tgage loan for this transaction.

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 sales price is high enough

he or she may be able to pay them and still make the expected profit.

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Mortgage (Deed of Trust) Clauses When the seller will be holding a mortgage, the terms can be as flexible as the parties agree.

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. Buyer’s View

Because the seller is often most concerned with 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.

Seller’s View

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

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Perc Test A percolation test (perc test) is done to property to see if it is absorbent enough for a septic system to be installed. 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.

Buyer’s View

If planning to buy land on which to build a house and there is no sewer available, then the buyer 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.

Presentation of Contract Some real estate agents prefer to approach the seller alone to present the contract. This option keeps the contract negotiations more in the hands of the buyer and seller. This Contract shall be presented to Seller in the presence of Buyer.

Buyer’s View

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

Seller’s View

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

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

Buyer’s View The buyer may only want this property if the zoning can be changed to

suit his or her needs. Seller’s View The seller would prefer not to have contingencies in the contract.

However, if the property is hard to sell with its present zoning, the seller may be glad to have the buyer do the work changing the zoning and buying the property.

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Sale of Other Property Sometimes the buyer must sell his or her house before being able to buy a new one.

Option #1

This Contract contingent upon sale of Buyer’s proper ty 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 proper ty 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.

Buyer’s View The buyer would like to have a binding contract on this property while

selling his or her existing property. Seller’s View The seller does not want the property tied up indefinitely while waiting for

the buyer’s house to sell. The seller would like the option of cancelling this contract if an offer without a contingency is received.

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Tax-Free Exchanges If a party is planning to make the transaction part of a tax-free exchange under Section 1031 of the Internal Revenue Code, this clause should be included. 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 necessar y. Any and all costs associated with such exchange will be paid by the par ty involved in the exchange.

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

Option #1

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.

Option #2

If at the time of closing any of the rents on the premises are in arrears, the entitlement to such rent shall pass to Buyer for the effort needed to collect it and no credit shall be due to Seller.

Buyer’s View The buyer does not want to get involved in any dealings between the seller

and the tenants. If buyer needs to collect unpaid rents, he or she should be entitled to it. Seller’s View The seller would like the buyer to collect the rent from the tenant and

remit it when received. Otherwise, the seller needs to sue the tenant since the seller can no longer evict him or her.

10

THE ART 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 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. Since real estate is the most expensive purchase many people make in their lifetime, putting together a real estate deal is the most important negotiating a person will do. Most real estate is not priced on a take-it-or-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. 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

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the seller was expecting to pay as his or her commission, an attorney will charge you by the hour, at a rate of usually $100 or more. 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.

Know Your Range 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.

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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. 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. But be sure it is worded carefully and considers all future contingencies. The buyer could offer to pay you 15% interest if you sell for $80,000 but then could refinance and pay you off a month or two later. To avoid this, you would need a prepayment penalty in the mortgage.

Focus on Need Over Position One of the biggest mistakes in negotiation is to concentrate on your position and ignore your needs. Once people have stated a position, it often becomes a matter of pride to maintain that position. While saving face may be important, you must decide if you are more interested in saving face or making a good deal. You should analyze the situation, determine your needs, 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 $210,000 house may be cheaper than a $200,000 house if you consider taxes, transportation costs, and other variables. Examine your position, but decide exactly what needs are most important to you.

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Understand the Other Side You can negotiate much better if you understand the other side’s position and the reasons for it. In other words, what are their needs? If a seller is demanding a large amount of money down, what are his or her real needs? Maybe he or she want to pay off a mortgage that you could assume? Figure out the other side’s bottom line and how that results in his or her position. 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 needs. 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.

Act Like You Could Walk Away 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, who are desperate, or who 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.

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Do Not Make It Personal Another mistake in negotiating is to get personally involved with your opponents. Once you have met them a few times, perhaps found out you are from the same hometown, and 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 or she has no control over your decision.

Good Guy/Bad Guy Another variation is to use the good guy/bad guy approach. One party can do the negotiating and then blame his or her spouse or partner for not agreeing to the deal. The bad guy never meets personally with the other side, he or she 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.

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State Your 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 cannot hurt to ask and try your best supportable position. Many people have started with ridiculously high figures and been surprised to have them accepted. You only get one chance to state your opening position and you usually cannot 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. It may now be too late to ask for more.

Turn 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.

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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.”

11

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 offeror 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, say, include the washer and dryer, if you then withdraw the offer, the seller cannot then change his or her mind and force you to buy it with the washer and dryer included. The seller’s late acceptance is really a new offer that 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 enough contingencies to let you out of the deal if it is not right?

❏

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 at least two witnesses to each signature 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 or her interest.

12

BACKING OUT OF THE DE AL

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 an 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 in which 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 buyer’s 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

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they find every reason for not going through with 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 buyer’s remorse is to imagine that the seller wants to back out of the deal after realizing that he or she is giving you too good a deal. If you truly made a mistake, or had a change of circumstances that 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 and mention 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 what reasons the courts have 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.

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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 $500 or $1000. 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, $1000.)

Attorney’s Fees The most expensive thing about defaulting on a contract is the attorney’s 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.

13

RESCUING THE DEAL

Some real estate deals close quickly and effortlessly. Others go from one crisis to another 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. By logically approaching a problem and coming up with alternatives to solve it, most deals can be saved.

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 follow. 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.

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■

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

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

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

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

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The buyer’s parents can cosign on the loan.

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

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

Property Defects If the buyer has properly drafted the 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 or she has to pay for this. If the seller has properly negotiated the contract, he or she 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.

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Example: A buyer may want to back out of a deal if he or she finds out that the basement leaks. But the small expense of a sump pump or a change of landscaping may solve the problem.

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. In many cases, a minor encroachment will be overlooked by a buyer. Example 1: 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. Example 2: When a seller was told that the survey showed part of his driveway extended six inches over the property line, he rented a diamond blade saw and in a couple hours cut off the offending section.

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. One of the termite clauses in this book allows the seller to treat the property and force the buyer to complete the sale. (see Option #5, p.113.) 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

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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.

Judgments Occasionally, a seller will be unaware of a judgment (court ruling that one owes money) against him- or herself that is also 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 or her 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.

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) that corroborates what they are saying, 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. If the closing did not follow the contract, it is assumed that there was an

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agreement to modify the contract. In other words, there is not 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 that 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) that would not have been noticed by the buyer for years. It would cost thousands of dollars to correct or may not be correctable at all. 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 that 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. Be sure you understand everything you sign. If you wait until the closing is over, it will most likely be too late.

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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 that apply to the whole neighborhood and require such things as 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 that can be paid to the buyer to cover the problem. If the cost of solving the problem is unknown, some of the seller’s funds should be held

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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 a 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. Generally, when the seller gets paid at the closing table, he or she is paid with an escrow account check issued by the title insurance company or an attorney’s trust account check. In most cases, these checks 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 you 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 clause on page 101, and possibly the Wraparound Mortgage clauses on page 119. 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. They expect an old house 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.

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 or her 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 due 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 that cannot be negotiated with the seller, the solution is usually a lawsuit, during which payments must always be kept current.

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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’s fees. 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. Unless a large amount of money is involved, a suit is not worth the expense. 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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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: ■

not getting all the land you were supposed to;

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old mortgages on the property that were not paid off;

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

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easements that 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.

GLOSSARY

A abstract of title. A summary of the title policy issued to show ownership of the property. agreement for deed. A legal instrument that 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 in which an arbitrator decides to what each party is entitled. 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.

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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.

C closing. The finalization of the purchase and sale of a property. closing date. The date that the purchase and sale of a property are finalized. closing statement. The document that summarizes all of the payments, expenses, and prorations in the sale and purchase 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 that 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.

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D deed of trust. See mortgage. deed. A legal instrument that transfers an interest in a property. disclosure. The act of informing a party, usually the buyer, of conditions and matters relating to the 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 in which part of one piece of property unlawfully violates the rights of another piece of property. escrow. In some states, the procedure in which the closing of a property purchase and sale is finalized.

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

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G general warranty deed. See warranty deed.

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 of property that is reflected in the title of the property. like-kind property. Property that is similar in nature to property being sold by the seller. Generally used to refer to property involved in Internal Revenue Code §1031 like-kind exchanges.

M MOL (more or less). Used in legal descriptions of property because exact areas are not easy to ascertain.

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mortgage. A legal instrument that pledges a piece of real property to guarantee payment of a loan. Some states use mortgages, others use deeds of trust. multiple listing services (MLS). The listings used by brokers and real estate agents to list properties for sale.

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

P percolation test. A test used to determine the absorption rate of water into the ground where a septic system will be placed. 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 that pledges a piece of real property to guarantee payment of a loan that was used to purchase the property. Some states use mortgages, others use deeds of trust.

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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.

R real property. The legal term to describe land and structures on it. recision. To end a contractual relationship and return the parties to the same position they were in before the contract was originally entered into. 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 that has another (first) mortgage previously in place. section 1031 intermediary. A person who holds the proceeds of a real estate transaction until the seller finds a new property that qualifies for an exchange under Section 1031 of the Internal Revenue Code. settlement date. See closing date. shell corporation. A corporation with no active business on its own and genereally serves only as a vehicle for the business of another entity.

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special warranty deed. A deed in which the grantor only warrants that he or she has not done anything that would cloud the title, not that he or she has good title. speculation tax. A tax associated with the sell of property purchased with the intent of making a quick profit at sale. statute. A law passed by a state or the federal government. statutory warranty deed. A legal instrument that 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. title insurance. Insurance purchased to protect a buyer of property from claims of ownership by someone other than the seller. transaction broker. A real estate agent who puts a transaction together without being an agent of either party.

V Veterans Affairs (VA). An agency of the United States government that, among other things, guarantees home loans for veterans. violation. Any situation on a piece of property that does not comply with a law or regulation.

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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 that 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.

APPENDIX A: STATE RADON AND INDOOR AIR QUALITY CONTACTS This appendix contains contact information for each state’s office or department that handles Radon and indoor air quality (IAQ) issues. Some states will have a toll-free number and others will only have local numbers. In states that have a separate IAQ contact number, it has been given.

Alabama Alabama Department of Public Health P.O. Box 303017 Montgomery, AL 36130-3017 800-582-1866 Radon 334-206-5373 IAQ Contact

Alaska Alaska Dept. of Health and Social Services Radiological Health Program 4500 Boniface Parkway Anchorage, AK 99507 800-478-8324 Radon 907-268-7630 IAQ Contact

Arizona Arizona Radiation Regulatory Agency 4814 South 40th Street Phoenix, AZ 85040 602-255-4845 x244 Radon 602-364-3118 IAQ Contact

Arkansas Arkansas Department of Health 4815 West Markham Street Slot 30 Little Rock, AR 72205-3867 800-482-5400 501-661-2301 Radon 501-661-2833 IAQ Contact

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California California Department of Health Services P.O. Box 997413 Sacramento, CA 95899-7413 800-745-7236 916-449-5674 Radon Contact 510-620-2801 IAQ Contact

Colorado Colorado Department of Public Health and Environment Hazardous Materials and Waste Management Division 4300 Cherry Creek Drive South Denver, CO 80220 800-846-3986 303-692-3300 Radon Contact 303-692-3164 IAQ Contact

Connecticut Connecticut Department of Public Health MS# 51 EHS Hartford, CT 06134-0308 860-509-7367 Radon 203-509-7740 IAQ Contact

Delaware Delaware Office of Radiation Control P.O. Box 637 Dover, DE 19903 800-464-4357 302-739-4731

District of Columbia DC Health Department 825 North Capitol Street, N.E. Washington, DC 20002 202-535-2999 Radon Contact 202-535-2302 IAQ Contact

Florida Florida Department of Health Bureau of Community Environmental Health 4052 Bald Cypress Way Bin A08 Tallahassee, FL 32399-1710 800-543-8279 850-245-4288 Radon

Georgia Georgia Department of Natural Resources Pollution Prevention Assistance Division/P2AD 7 Martin Luther King Jr. Drive Suite 450 Atlanta, GA 30334 800-745-0037 404-872-3549 - the phone will be answered by a contractor (Southface Energy Institute) 404-657-6534 IAQ Contact

Guam Guam USA P.O. Box 122439-GMF Barrigada, GU 96911 671-475-1611

Appendix A: State Radon and Indoor Air Quality Contacts

Hawaii Hawaii Department of Health Radiation Branch 591 Ala Moana Boulevard Honolulu, HI 96813 808-586-4700

Iowa Iowa Dept. of Public Health Lucas State Office Building 321 East 12th Street Des Moines, IA 50319-0075 800-383-5992 515-281-4928 Radon

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

Illinois Illinois Emergeny Management Agency 110 East Adams Street Springfield, IL 62701 800-325-1245 217-785-1325 Radon 217-782-5830 IAQ Contact

Indiana Indiana State Department of Health Indoor & Radiological Health 2 North Meridian Street 5th Floor Indianapolis, IN 46204-3003 800-272-9723 317-233-7147 Radon 317-383-6147 IAQ Contact

Kansas Kansas Dept. of Health and Environment Radiation Control Program 1000 S.W. Jackson Street Suite 310 Topeka, KS 66612-1366 800-693-5343 785-296-1560 Radon 785-296-1343 IAQ Contact

Kentucky Kentucky Department of Health Services Environmental Management Branch 275 East Main Street Frankfort, KY 40621 502-564-4856 Radon 502-573-3382 IAQ Contact

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Louisiana Louisiana Department of Environmental Quality 325 Loyola Avenue Suite 210 New Orleans, LA 70112 888-293-7020 504-568-8537 Radon 504-568-8537 IAQ Contact

Maine Maine Radiation Control Program #10 State House Station 157 Capitol Street Augusta, ME 04333 800-232-0842 207-287-5676 Radon 207-287-2437 IAQ Contact

Maryland Maryland Department of the Environment 201 West Preston Street Baltimore, MD 21201 410-767-6860

Michigan Michigan Department of Environmental Quality Drinking Water & Radiation Protection Division 815 Terminal Road Lansing, MI 48906 800-723-6642 517-335-8037 Radon

Minnesota Minnesota Department of Health Indoor Air Program P.O. Box 64975 St. Paul, MN 55164-0975 800-798-9050 651-215-0909

Mississippi Mississippi Department of Health Indoor Radon Program 3150 Lawson Street Jackson, MS 39213-5754 800-626-7739 601-987-6893 Radon 601-576-7411 IAQ Contact

Massachusetts Massachusetts Department of Public Health Radiation Control Program 23 Service Center Northampton, MA 01060 800-RADON95 [723-6695] 413-586-7525 x1185 Radon 617-983-6761 IAQ Contact

Missouri Missouri Department of Health Bureau of Environmental Equity 930 Wildwood Drive Jefferson City, MO 65102 573-751-6160 Radon

Appendix A: State Radon and Indoor Air Quality Contacts

Montana Montana Department of Environmental Quality Occupational & Radiological Health Quality P.O. Box 20091 Helena, MT 59620-0301 800-546-0483 Radon 406-444-6768 IAQ Contact

Nebraska Nebraska Department of HHS Regulation and Licensure Public Health Assurance Division 301 Centennial Mall, South 3rd Floor Lincoln, NE 68509-5007 800-334-9491 Radon 402-471-0782 IAQ Contact

Nevada Nevada State Health Division Radiological Health Section 1179 Fairview Drive Suite 102 Carson City, NV 89701-5405 775-687-5394 x275 Radon 775-684-4200 IAQ Contact

175

New Hampshire New Hampshire Department of Environmental Services Radon Program 29 Hazen Drive Concord, NH 03301-6527 800-852-3345 x4610 603-271-4764 Radon 603-271-4664 IAQ Contact

New Jersey New Jersey Department of Environmental Protection Radiation Protection Program P.O. Box 415 Trenton, NJ 08625-0402 800-648-0394 609-984-5425 Radon 609-631-6749 IAQ Contact

New Mexico New Mexico Environmental Department P.O. Box 26110 1190 St. Francis Drive N4050 Sante Fe, NM 87502-0110 505-827-1093 Radon

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New York New York State Health Department Bureau of Environmental Radiation Protection 547 River Street Flanigan Square Room 530 Troy, NY 12180-2216 800-458-1158 x27556 Radon 518-402-7800 IAQ Contact

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

Ohio Ohio Department of Health Environmental Radiation Safety Section P.O. Box 118 Columbus, OH 43215-0118 800-523-4439 614-644-2727 Radon 614-644-7630 IAQ Contact

Oklahoma Oklahoma Department of Environmental Quality P.O. Box 1677 Oklahoma City, OK 73101-1677 405-702-5100 405-702-5132 405-528-1500 x350 IAQ Contact

Oregon North Dakota North Dakota Department of Health Division of Air Quality P.O. Box 5520 Bismarck, ND 58506 800-252-6325 Radon 701-328-5188 IAQ Contact

Oregon Department of Human Resources Health Division 800 N.E. Oregon Street Suite 260 Portland, OR 97232 503-731-4014 x669

Appendix A: State Radon and Indoor Air Quality Contacts

Pennsylvania Pennsylvania Department of Environmental Protection Rachel Carson State Office Building P.O. Box 8469 Harrisburg, PA 17105-8469 800-237-2366 717-783-3594 Radon 717-787-1708 IAQ Contact

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South Carolina South Carolina Department of Health & Environment Control 2600 Bull Street Columbia, SC 29201 800-768-0362 864-241-1090 Radon 803-898-3890 IAQ Contact

South Dakota Puerto Rico Puerto Rico Radiological Health Division G.P.O. Call Box 70184 Rio Piedras, PR 00936 787-274-7815

Rhode Island Rhode Island Department of Health Office of Occupational & Radiological Health 3 Capital Hill Room 206 Providence, RI 02908-5097 401-222-2438 Radon 401-277-3424 IAQ Contact

South Dakota Department of Environment & Natural Resources Joe Foss Building 523 East Capitol Room 217 Pierre, SD 57501 800-438-3367 605-773-7171

Tennessee Tennessee Department of Environment & Conservation Division of Air Pollution Control 711 R.S. Gass Boulevard Nashville, TN 37216 800-232-1139 Radon 615-532-0570 IAQ Contact

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Texas Texas Department of Health 1100 West 49th Street Austin, TX 78756-3199 888-963-7111 800-834-4509 x2431 Radon 800-834-4509 x2444 IAQ Contact

Utah Utah Department of Environmental Quality P.O. Box 144850 Salt Lake City, UT 84114-4850 800-458-0145 801-536-4250 Radon 801-536-4000 IAQ Contact

Vermont Vermont Department of Health Division of Health Protection 108 Cherry Street P.O. Box 70 Burlington, VT 05402 800-439-8550 802-865-7730 Radon 802-863-7388 IAQ Contact

Virgin Islands EPA Region 2 Office 212-637-4013

Virginia Virginia Department of Health Bureau of Radiological Health 109 Governors Street Richmond, VA 23219 800-468-0138 804-864-8162 Radon 800-592-5482 IAQ Contact

Washington Washington State Department of Health Division of Radiation Protection P.O. Box 47827 Olympia, WA 98504-7825 360-236-3203 Radon 360-236-3385 IAQ Contact

West Virginia West Virginia Bureau of Public Health Office of Environmental Health Services 815 Quarrier Street Suite 418 Charleston, WV 25301 800-922-1255 304-558-3427

Appendix A: State Radon and Indoor Air Quality Contacts

Wisconsin Department of Health and Family Services 1 West Wilson Street P.O. Box 309 Madison, WI 53701-0309 888-569-7236 608-267-4796 Radon 608-266-2871 IAQ Contact

Wyoming Wyoming Department of Health 2300 Capitol Avenue Hathaway Building Room 486 Cheyenne, WY 82002-0710 800-458-5847 307-777-6015 Radon 307-777-7394 IAQ Contact

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APPENDIX B: LEAD-BASED 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. 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: www.hud.gov/offices/lead/disclosurerule/index.cfm

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APPENDIX C: FORMS

The following pages include forms that 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. These forms are all contained on the attached CD-ROM for you to fill in, print, and use. Each of the clauses found throughout this book are also on the CD-ROM allowing you to add those necessary for your transaction directly onto one of the sample real estate contracts provided. You can also piece together all the clauses you need and draft your own agreement. Depending on your situation, it may be easier to simply add a clause as an addendum to the contract. In that case, simply add it to Form 6, ADDENDUM TO CONTRACT, and attach it to yours as needed.

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Table of Forms form 1: Real Estate Purchase Contract—1 (Strong) . . . . . . . . . . . . 201 form 2: Real Estate Purchase Contract—2 . . . . . . . . . . . . . . . . . . . 207 form 3: Real Estate Contract (Neutral) . . . . . . . . . . . . . . . . . . . . . . 213 form 4: Real Estate Sales Contract—1 (Strong) . . . . . . . . . . . . . . . 217 form 5: Real Estate Sales Contract—2 . . . . . . . . . . . . . . . . . . . . . . 221 form 6: Addendum to Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . 225 form 7: Disclosure Addendum to Contract for Purchase of Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227 form 8: Disclosure Addendum to Contract for Sale of Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229 form 9: Schedule A (List of Personal Property) . . . . . . . . . . . . . . . . 231 form 10: Lead-Based Paint Disclosure Form . . . . . . . . . . . . . . . . . . 233

form 1

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Real Estate Purchase Contract—1 Date: _______________, 20________ 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, Buyer’s entire earnest money deposit shall be refunded immediately.

202 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 ____________________, 20_____ at a location to be selected by Buyer. 5. ACCEPTANCE: Seller shall have until ________________________, 20_____ 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 sixty-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 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 or her 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 sixty 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

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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 ninety 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 or her expense, shall provide Buyer with a report by a certified pest control operator acceptable to Buyer, dated within thirty 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 thirty 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

204 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 twenty-four 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 fifteen 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 or her 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

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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, a 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 or her 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. 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 canceling 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 or her rights under this contract.

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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 attorney’s 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: ______________________________

______________________________

______________________________

STATE OF: ____________________________ COUNTY OF: __________________________ Subscribed, sworn to, and acknowledged before me by ____________________ this ________ day of ________________, 20____. ______________________________ NOTARY PUBLIC

form 2

207

Real Estate Purchase Contract—2 Date: _______________, 20________ 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, Buyer’s entire earnest money deposit shall be refunded immediately.

208 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 ________________, 20_____ at a location to be selected by Buyer. 5. ACCEPTANCE: Seller shall have until _______________________, 20______ 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 thirty-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. 7. TITLE EVIDENCE: Within _____ days from acceptance of this contract, Seller shall, at his or her 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 sixty 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

209

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 ninety 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 or her expense, shall provide Buyer with a report by a certified pest control operator acceptable to Buyer, dated within thirty 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 thirty 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 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.

210 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 twenty-four 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 or her 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

211

last, shall have the roof inspected at Seller’s expense by a licensed roofer, a 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 or her 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. 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 or her 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.

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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: ______________________________

______________________________

______________________________

STATE OF: ____________________________ COUNTY OF: __________________________ Subscribed, sworn to, and acknowledged before me by ____________________ this ________ day of ________________, 20____. ______________________________ NOTARY PUBLIC

form 3

213

Real Estate Contract Date: _______________, 20________ 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: 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 $_________________ for escrow. Said loan is fully assumable under the following terms: _____________________________________________________ _____________________________________________________________________.

214 3. CLOSING DATE & PLACE: Closing shall be on __________________, 20______ 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 __________________, 20_______ 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 sixty 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 ninety 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 thirty days of closing the premises shall be inspected by a certified pest control operator acceptable to Buyer and the cost of said inspection shall

215 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 or her expense if acceptable to Buyer. 14. PLUMBING AND ELECTRICAL: Major appliances, heating, cooling, electrical, and plumbing systems to be in working order as of six 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 or she 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 or her attorney approving the Declaration of Condominium and all Amendments thereto and any rules and regulations promulgated thereunder within fifteen 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 or she 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,

216 whereupon all parties shall be relieved of all obligations under this Contract. If, for any reason other than failure of Seller to render his or her 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 or her rights under this Contract. 24. 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. 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: ______________________________

______________________________

______________________________

form 4

217

Real Estate Sales Contract—1 Date: _______________, 20________ 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 __________________, 20______ 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.”

218

5. ACCEPTANCE: Buyer shall have until ________________________, 20_______ 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 or her 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. 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 transfer 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.

219

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 ninety 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 or her 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: ______________________________

______________________________

______________________________

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form 5

221

Real Estate Sales Contract—2 Date: _______________, 20________ 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 __________________, 20______ 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.”

222

5. ACCEPTANCE: Buyer shall have until ________________________, 20______ 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 or her 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. 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 transfer 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.

223

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 ninety 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 or her 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: ______________________________

______________________________

______________________________

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form 6

225

Addendum to Contract The undersigned parties to that certain Real Estate Contract on ___________________ __________________________________________________ dated ______________, 20_____, 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: ______________________________

______________________________

______________________________

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form 7

227

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form 8

229

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form 9

231

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: _________ _________

__________ __________

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form 10

233

INDEX

A abstract of title, 116, 156 acceptance, 15, 43, 58, 72, 74, 79, 85, 90, 111, 116 acceptance clause, 58 actual knowledge, 22 Addendum to Contract, 2, 16, 32, 44 agency law, 2 agents, 2, 3, 8, 11, 14, 15, 24, 26, 28, 30, 34, 36, 43, 51, 70, 86, 91, 92, 98, 130, 139, 153, 154, 155 agreement for deed, 59 AIDS, 35 allocation of purchase price clause, 61 alterations, 23 American Arbitration Association, 64 appraisal, 48 appraising, 13 appreciation, 14 approval clause, 62 arbitration, 64, 67

as is, 22, 49, 55, 75, 79, 87, 88, 93, 94, 95, 97, 106, 107, 108, 113, 117, 118 assessments, 72, 110, 112 assignment clause, 65 attorney’s fees clause, 67 attorneys, 2, 4, 5, 6, 7, 8, 9, 15, 17, 21, 23, 26, 28, 30, 32, 39, 41, 46, 57, 62, 63, 64, 67, 70, 74, 76, 79, 86, 123, 135, 136, 145, 146, 147, 149, 154, 155, 156, 157, 160, 161 fees, 147 finding, 6 investor, 7 using, 154

B bargains, 11, 12, 14, 112 finding, 11 bill of sale, 49, 50 boundary disputes, 152

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The Complete Book of Real Estate Contracts

brokers, 1, 2, 3, 6, 7, 8, 14, 15, 16, 17, 21, 32, 34, 36, 46, 68, 69, 76, 91, 135, 136, 149, 155 broker’s fee clause, 68 building codes, 160 buyer’s broker, 3, 15, 16, 69, 135 buyer’s position, 11, 13, 15, 17 buyers moving in early, 22, 23 buyers’ remorse, 145, 146

C cash flow, 14 caveat emptor, 20, 25 caveat vendor, 20 Civil Rights Act of 1964, 28 Civil Rights Act, Section 1982, 29 closing date, 20, 23, 70, 107 closing date and place clause, 70 closing documents, 153, 155 closings, 3, 4, 8, 16, 20, 21, 22, 23, 24, 27, 30, 35, 36, 43, 44, 46, 48, 51, 53, 55, 57, 63, 65, 68, 69, 70, 71, 72, 81, 83, 84, 85, 86, 87, 88, 89, 90, 92, 93, 95, 97, 98, 99, 100, 103, 106, 107, 108, 110, 111, 112, 113, 114, 116, 117, 118, 119, 121, 124, 125, 126, 127, 132, 133, 137, 153, 154, 155, 156, 157, 158, 159, 160, 161 coastal properties, 36 coercion, 29 commissions, 1, 2, 15, 16, 68, 69, 76, 136

common elements, 72 Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 29 condominium board, 72 condominium documentation clause, 74 condominiums, 13, 54, 75 condominium—common elements and assessments clause, 72 conflicts of interest, 2 consideration, 3, 43, 68, 69, 76 contingencies, 14, 20, 43, 47, 63, 75, 77, 78, 85, 121, 130, 131, 137, 144, 146 contingent liability, 20 contract, 1, 2, 3, 4, 7, 8, 14, 15, 19, 20, 22, 23, 25, 26, 27, 28, 32, 39, 40, 43, 44, 45, 47, 48, 49, 50, 51, 52, 53, 54, 55, 57, 58, 59, 60, 62, 63, 64, 65, 66, 67, 68, 69, 70, 72, 74, 75, 76, 79, 80, 85, 88, 89, 93, 94, 101, 102, 103, 105, 107, 108, 109, 110, 111, 112, 113, 114, 115, 116, 117, 121, 130 preparing your own, 1 presentation of, 130 printing your, 3 signing, 143 contract for deed, 59 conveyance clause, 48 cooperatives, 54 covenants, 36, 106, 112 creditors, 45 credits, 124

Index

D damages, 23, 28, 29, 76, 77 deal-killers, 7 deed, 6, 46, 48, 49, 50, 59, 60, 83, 101, 112, 120 deed of trust, 46, 59, 81, 101, 120, 127, 129, 158, 159 default, 70, 76, 77, 101, 102, 119, 120, 125, 129, 147, 159 default clause, 76, 147 defects, 11, 16, 20, 21, 34, 35, 104, 115, 124, 150, 160 deficiency judgment, 66, 101 Department of Housing and Urban Development (HUD), 26, 28, 30, 31, 53 Department of Veterans Affairs (VA), 27, 28, 52, 53, 82 deposit, 13, 23, 24, 43, 46, 47, 48, 58, 68, 69, 73, 76, 77, 85, 86, 107, 125, 128, 136, 146, 147, 152 refund of, 24 depreciation, 32, 96 description, 43, 50, 51, 105, 156 developer, 72 disasters, 15 Disclosure Addendum for Purchase of Real Estate, 16 Disclosure Addendum for Sale of Real Estate, 16 disclosure statement, 21 disclosures, 16, 17, 20, 21, 26, 31, 33, 34, 36, 55 discrimination, 28, 29, 35, 37 intent to, 29 distribution of proceeds, 126

237

divorce, 126 documentary stamps, 83, 84 down payment, 127, 149, 150

E earnest money deposit, 43, 85 earthquakes, 15 easements, 75, 106, 111, 156, 161 ejectment, 23 encroachments, 151 engineering reports clause, 78 environmental conditions clause, 79 environmental hazards, 29, 33, 34, 79, 80 Environmental Protection Agency (EPA), 26 escrow, 157, 158 eviction, 23, 98 examination of books, 128 existing mortgages clause, 81 expenses clause, 83

F Federal Housing Authority (FHA), 27, 52, 82, 128 fees, 128 Federal Register, 26 fee simple deed, 48, 49 financing, 136, 146, 149, 158, 159 financing clause, 14 financing contingency, 47 financing contingency clause, 85 fire, 107 FIRPTA clause, 86

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The Complete Book of Real Estate Contracts

flipping, 20, 27 flood, 15, 16 foreclosure, 23, 82, 120 foreign buyers, 30 Foreign Investment in Real Property Tax Act (FIRPTA), 86 fraud, 21, 31, 39, 40

intermediary, 31, 32 Interstate Land Sales Full Disclosure Act, 31 intimidation, 29 investment, 13, 14, 31, 32, 61, 62, 86, 91 investors, 7, 8, 11, 14, 20, 40, 41, 91

G general warranty deed, 49, 50 grace period, 59, 60, 101, 102

H HIV, 35 homeowners association, 36, 72 HUD-1, 30 hurricanes, 15

I implied warranties, 35 improvements, 23, 72, 73, 92, 99, 107, 114 ingress and egress clause, 87 inherently dangerous, 34 inspection, 14, 20, 78, 88, 89, 97, 103, 108, 113, 114 inspection clause, 14, 88 installment land contract, 59 installment sales, 31 insulation clause, 54 insurance, 6, 15, 43, 49, 53, 86, 87, 99, 107, 116, 152, 156, 157, 161 insurance commitment, 116

J joint tenants, 45 judgments, 152

K known defects, 34, 104

L land use, 36 landlocked, 118 landlord-tenant law, 23 law library, 57 laws, 2, 8, 16, 20, 25, 26, 27, 29, 31, 32, 33, 34, 35, 36, 37, 55, 59, 79, 91, 103, 117, 121 lead-based paint, 26, 55, 56 lead-based paint clause, 55 Lead-Based Paint Disclosure Form, 26 leases, 90, 98 leases clause, 90 legal research, 9 lenders, 27, 101, 108 licensed real estate professional or investor clause, 91 lien affidavit clause, 92

Index

liens, 23, 50, 92, 110, 152, 155, 156, 161 limited common elements, 72 liquidated damages, 76, 77 listings, 11, 14

239

O offer, 1, 2, 3, 6, 11, 13, 14, 24, 34, 40, 41, 43, 50, 52, 58, 77 ordinances, 117, 121

P M maintenance, 88, 93, 97 maintenance clause, 93 market, 9, 11, 13, 19, 63, 90 Megan’s Law, 35 Member, Appraisal Institute, 48 merges with the deed, 153 metes and bounds, 156 misrepresentation, 34 mold, 94 mold clause, 94 more or less, 50 mortgages, 6, 22, 46, 47, 53, 59, 66, 81, 82, 83, 85, 101, 102, 108, 111, 112, 119, 120, 127, 128, 129, 137, 138, 156, 158, 159, 161 multiple listing services, 11

N negotiating, 3, 7, 15, 19, 135, 136, 137, 138, 139, 140, 141, 143, 150 nonforeign person affidavit, 30 notary, 144

parties, 2, 3, 16, 23, 27, 43, 44, 51, 55, 57, 58, 59, 61, 64, 65, 67, 68, 72, 76, 83, 92, 95, 99, 106, 109, 113 passive income, 32 payment, 13, 20, 43, 47, 59, 60, 66, 81, 101, 119 percolation test (perc test), 130 personal property, 32, 49, 50, 61, 92, 95, 96, 99, 100, 127 personal property clause, 95 platted subdivision, 51, 87, 111 plumbing and electrical clause, 97 possession, 88, 93, 97, 98, 157 possession clause, 98 price, 5, 8, 11, 12, 13, 14, 15, 19, 27, 32, 40, 46, 48, 53, 56, 60, 61, 62, 68, 81, 91, 93, 94, 95, 96, 99, 103, 108, 113, 115, 116, 124, 128, 129, 136, 140, 141, 150, 151, 154 primary residence, 31 property, 12 tying up your, 19 waterfront, 118 prorations clause, 99 purchase money mortgage clause, 101, 158 purchase price clause, 46, 60, 61

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The Complete Book of Real Estate Contracts

Q quitclaim deed, 48, 49, 152

R radon, 33, 103, 104 radon clause, 33, 103 real estate agents. See agents real estate licensees, 36, 91 Real Estate Settlement Procedures Act (RESPA), 30 recision, 35 recording, 83, 105 recording clause, 105 rents, 45, 98, 99, 100 unpaid, 133 repairs, 12, 16, 20, 25, 108, 117 rescission, 145 rescuing the deal, 149, 151 restrictions, 31, 36, 75, 106 restrictions and easements clause, 75, 106 reverse exchange, 31 risk of loss clause, 107

S sale of other property, 132 sanctity of contract, 25, 39 schools, 6, 13 seasoning, 27 second mortgages, 47, 119, 120 Section 1031, 31, 133 security deposits, 90, 99, 100 seller financing, 159

seller’s position, 19, 21, 23, 61, 120 settlement date, 20 severability clause, 40, 109, 123 shell corporations, 45, 65 special assessments clause, 110 special warranty deed, 49 speculation tax, 36 stigmatized properties, 35 Superfund, 29 survey, 51, 52, 83, 84, 87, 111 survey clause, 51, 111 survival of contract clause, 112

T Tax Reform Act of 1986, 32 tax-free exchanges, 31, 133 taxes, 23, 30, 31, 32, 61, 83, 86, 96, 99, 100, 110, 137 Taxpayer Relief Act of 1997, 31 tenants by the entirety, 45 tenants in common, 45 termite clause, 14, 94, 113, 151 termite clearance, 22, 43 termites, 14, 21, 22, 34, 43, 44, 83, 84, 94, 113, 114, 151, 152 terms, 2, 3, 4, 12, 14, 39, 43, 44, 47, 48, 51, 52, 59, 60, 69, 81, 82, 85, 90, 101, 102, 109, 119 title defect, 115 title defects clause, 115 title evidence clause, 116 title insurance, 152, 156, 157, 161 title insurance policy, 43, 116 tornadoes, 15

Index

Torrens, 116 transaction brokers, 2, 3 transfer taxes, 83

U unconscionable, 40 underwriter, 157, 161 unfair contracts, 39, 41 uniqueness, 13 unsophisticated seller, 39

V VA. See Department of Veterans Affairs violations clause, 117 void, 23, 39, 40, 58, 109

W warranties, 35, 55, 80, 87, 88, 93, 94, 97, 108, 112, 113, 117, 118 water access clause, 118 witnesses, 144 wraparound and second mortgage clause, 119 wraparound mortgages, 119, 120

Z zoning, 36, 121, 131, 160 zoning and ordinance clause, 121

241

ABOUT THE AUTHOR

Mark Warda received his BA with Honors in Political Science from the University of Illinois in Chicago and his JD from the University of Illinois in Champaign. He also studied law at the university of Oxford, England and studied German in Cologne and Spanish in Barcelona. Mark started his first business at the age of three when, after learning that one needs money to buy things, he started selling his drawings to visiting relatives. While practicing law he noticed that his clients had problems they wouldn’t have had if they had known something about the law before they came to him. So he started Sphinx Publishing to publish self-help law books. His first book was Landlords’ Rights and Duties in Florida and his first printing sold out quickly. Over the next few years he wrote several more books and eventually quit practicing law to publish the books full time. After finding lawyers in other states interested in simplifying the law, he began publishing versions of his existing books adapted to those states. By 1996 he found he was spending most of his time overseeing the publishing end of the business, so he sold the company to Sourcebooks to give himself more time to write books.

244

The Complete Book of Real Estate Contracts

In 1998 he started Land Trust Service Corporation to service readers of his book Land Trusts in Florida who were looking for dependable, affordable trustee services. Today Mark is continuing to update his over 60 books and running Land Trust Service Corporation in Lake Wales, Florida with his wife Alexandra and his new son, Mark David.

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SPHINX PUBLISHING NATIONAL TITLES 1-57248-363-6 101 Complaint Letters That Get Results 1-57248-361-X The 529 College Savings Plan (2E) 1-57248-483-7 The 529 College Savings Plan Made Simple 1-57248-460-8 The Alternative Minimum Tax 1-57248-349-0 The Antique and Art Collector’s Legal Guide 1-57248-347-4 Attorney Responsibilities & Client Rights 1-57248-482-9 The Childcare Answer Book 1-57248-382-2 Child Support 1-57248-487-X Cómo Comprar su Primera Casa 1-57248-488-8 Cómo Conseguir Trabajo en los Estado Unidos 1-57248-148-X Cómo Hacer su Propio Testamento 1-57248-532-9 Cómo Iniciar su Propio Negocio 1-57248-462-4 Cómo Negociar su Crédito 1-57248-463-2 Cómo Organizar un Presupuesto 1-57248-147-1 Cómo Solicitar su Propio Divorcio 1-57248-507-8 The Complete Book of Corporate Forms (2E) 1-57248-383-0 The Complete Book of Insurance 1-57248-499-3 The Complete Book of Personal Legal Forms 1-57248-528-0 The Complete Book of Real Estate Contracts 1-57248-500-0 The Complete Credit Repair Kit 1-57248--458-6 The Complete Hiring and Firing Handbook 1-57248-484-5 The Complete Home-Based Business Kit 1-57248-353-9 The Complete Kit to Selling Your Own Home 1-57248-229-X The Complete Legal Guide to Senior Care 1-57248-498-5 The Complete Limited Liability Company Kit 1-57248-391-1 The Complete Partnership Book 1-57248-201-X The Complete Patent Book 1-57248-514-0 The Complete Patent Kit 1-57248-369-5 Credit Smart 1-57248-163-3 Crime Victim's Guide to Justice (2E) 1-57248-251-6 The Entrepreneur’s Internet Handbook 1-57248-235-4 The Entrepreneur’s Legal Guide 1-57248-160-9 Essential Guide to Real Estate Leases 1-57248-375-X Fathers’ Rights 1-57248-517-5 File Your Own Divorce (6E) 1-57248-450-0 Financing Your Small Business 1-57248-459-4 Fired, Laid-Off or Forced Out 1-57248-502-7 The Frequent Traveler’s Guide 1-57248-331-8 Gay & Lesbian Rights 1-57248-139-0 Grandparents’ Rights (3E) 1-57248-475-6 Guía de Inmigración a Estados Unidos (4E) 1-57248-187-0 Guía de Justicia para Víctimas del Crimen 1-57248-253-2 Guía Esencial para los Contratos de Arrendamiento de Bienes Raices _____ 1-57248-334-2 Homeowner’s Rights _____ 1-57248-164-1 How to Buy a Condominium or Townhome (2E)

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Ship Date

Chicago, IL

Expiration Date Retail

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ISBN

1-57248-384-9 1-57248-497-7 1-57248-472-1 1-57248-390-3 1-57248-345-8 1-57248-520-5 1-57248-232-X 1-57248-479-9 1-57248-379-2 1-57248-394-6 1-57248-156-0

Title

Retail

How to Buy a Franchise $19.95 How to Buy Your First Home (2E) $14.95 How to File Your Own Bankruptcy (6E) $21.95 How to Form a Nonprofit Corporation (3E) $24.95 How to Form Your Own Corporation (4E) $26.95 How to Make Money on Foreclosures $16.95 How to Make Your Own Simple Will (3E) $18.95 How to Parent with Your Ex $12.95 How to Register Your Own Copyright (5E) $24.95 How to Write Your Own Living Will (4E) $18.95 How to Write Your Own $24.95 Premarital Agreement (3E) 1-57248-504-3 HR for Small Business $14.95 1-57248-230-3 Incorporate in Delaware from Any State $26.95 1-57248-158-7 Incorporate in Nevada from Any State $24.95 1-57248-531-0 The Infertility Answer Book $16.95 1-57248-474-8 Inmigración a los EE.UU. Paso a Paso (2E) $24.95 1-57248-400-4 Inmigración y Ciudadanía en los EE. UU. $16.95 Preguntas y Respuestas 1-57248-377-6 The Law (In Plain English)® for Small Business $19.95 1-57248-476-4 The Law (In Plain English)® for Writers $14.95 1-57248-453-5 Law 101 $16.95 1-57248-374-1 Law School 101 $16.95 1-57248-223-0 Legal Research Made Easy (3E) $21.95 1-57248-449-7 The Living Trust Kit $21.95 1-57248-165-X Living Trusts and Other Ways to $24.95 Avoid Probate (3E) 1-57248-486-1 Making Music Your Business $18.95 1-57248-186-2 Manual de Beneficios para el Seguro Social $18.95 1-57248-220-6 Mastering the MBE $16.95 1-57248-455-1 Minding Her Own Business, 4E $14.95 1-57248-480-2 The Mortgage Answer Book $14.95 1-57248-167-6 Most Val. Business Legal Forms $21.95 You’ll Ever Need (3E) $22.95 1-57248-388-1 The Power of Attorney Handbook (5E) $28.95 1-57248-332-6 Profit from Intellectual Property 1-57248-329-6 Protect Your Patent $24.95 1-57248-376-8 Nursing Homes and Assisted Living Facilities $19.95 1-57248-385-7 Quick Cash $14.95 1-57248-350-4 El Seguro Social Preguntas y Respuestas $16.95 1-57248-386-5 Seniors’ Rights $19.95 1-57248-217-6 Sexual Harassment: Your Guide to Legal Action $18.95 1-57248-378-4 Sisters-in-Law $16.95 1-57248-219-2 The Small Business Owner’s Guide to Bankruptcy $21.95 1-57248-395-4 The Social Security Benefits Handbook (4E) $18.95 1-57248-216-8 Social Security Q&A $12.95 Form Continued on Following Page SubTotal______

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ISBN

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1-57248-328-8 1-57248-525-6 1-57248-457-8 1-57248-366-0 1-57248-236-2

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_____ 1-57248-333-4 _____ 1-57248-380-6 _____ 1-57248-505-1

Title

Starting Out or Starting Over Teen RIghts (and Responsibilities) (2E) Tax Power for the Self-Employed Tax Smarts for Small Business Unmarried Parents’ Rights (and Responsibilities(3E) U.S. Immigration and Citizenship Q&A U.S. Immigration Step by Step (2E) U.S.A. Immigration Guide (5E) ¡Visas! ¡Visas! ¡Visas! The Weekend Landlord What to Do—Before “I DO” What to Do When You Can’t Get Pregnant The Wills, Estate Planning and Trusts Legal Kit Winning Your Personal Injury Claim (3E) Win Your Unemployment Compensation Claim (2E) Working with Your Homeowners Association Your Right to Child Custody, Visitation and Support (3E) Your Rights at Work

Retail

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CALIFORNIA TITLES How to File for Divorce in CA (5E) $26.95 How to Settle and Probate an Estate in CA (2E) $28.95 How to Start a Business in CA (2E) $21.95 How to Win in Small Claims Court in CA (2E) $18.95 Make Your Own CA Will $18.95 Landlords’ Legal Guide in CA (2E) $24.95 Tenants’ Rights in CA $21.95 FLORIDA TITLES _____ 1-57248-396-2 How to File for Divorce in FL (8E) $28.95 _____ 1-57248-356-3 How to Form a Corporation in FL (6E) $24.95 _____ 1-57248-490-X How to Form a Limited Liability Co. in FL (3E) $24.95 _____ 1-57071--401-0 How to Form a Partnership in FL $22.95 _____ 1-57248-456-X How to Make a FL Will (7E) $16.95 _____ 1-57248-354-7 How to Probate and Settle an Estate in FL (5E) $26.95 $21.95 _____ 1-57248-339-3 How to Start a Business in FL (7E) _____ 1-57248-204-4 How to Win in Small Claims Court in FL (7E) $18.95 _____ 1-57248-381-4 Land Trusts in Florida (7E) $29.95 _____ 1-57248-338-5 Landlords’ Rights and Duties in FL (9E) $22.95 GEORGIA TITLES _____ 1-57248-340-7 How to File for Divorce in GA (5E) $21.95 _____ 1-57248-493-4 How to Start a Business in GA (4E) $21.95 ILLINOIS TITLES $24.95 _____ 1-57248-244-3 Child Custody, Visitation, and Support in IL _____ 1-57248-206-0 How to File for Divorce in IL (3E) $24.95 _____ 1-57248-170-6 How to Make an IL Will (3E) $16.95 _____ 1-57248-265-9 How to Start a Business in IL (4E) $21.95 _____ 1-57248-252-4 Landlord’s Legal Guide in IL $24.95 MARYLAND, VIRGINIA AND THE DISTRICT OF COLUMBIA _____ 1-57248-240-0 How to File for Divorce in MD, VA, and DC $28.95 _____ 1-57248-359-8 How to Start a Business in MD, VA, or DC $21.95 MASSACHUSETTS TITLES _____ 1-57248-115-3 How to Form a Corporation in MA $24.95 _____ 1-57248-466-7 How to Start a Business in MA (4E) $21.95 _____ 1-57248-398-9 Landlords’ Legal Guide in MA (2E) $24.95 _____ _____ _____ _____ _____ _____ _____

1-57248-489-6 1-57248-464-0 1-57248-336-9 1-57248-194-3 1-57248-246-X 1-57248-397-0 1-57248-241-9

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ISBN

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Retail

MICHIGAN TITLES _____ 1-57248-467-5 How to File for Divorce in MI (4E) _____ 1-57248-182-X How to Make a MI Will (3E) _____ 1-57248-468-3 How to Start a Business in MI (4E) MINNESOTA TITLES _____ 1-57248-142-0 How to File for Divorce in MN _____ 1-57248-179-X How to Form a Corporation in MN _____ 1-57248-178-1 How to Make a MN Will (2E) NEW JERSEY TITLES _____ 1-57248-512-4 File for Divorce in NJ _____ 1-57248-448-9 How to Start a Business in NJ NEW YORK TITLES _____ 1-57248-193-5 Child Custody, Visitation and Support in NY _____ 1-57248-351-2 File for Divorce in NY _____ 1-57248-249-4 How to Form a Corporation in NY (2E) _____ 1-57248-401-2 How to Make a NY Will (3E) _____ 1-57248-468--1 How to Start a Business in NY (3E) _____ 1-57248-198-6 How to Win in Small Claims Court in NY (2E) _____ 1-57248-122-6 Tenants’ Rights in NY NORTH CAROLINA AND SOUTH CAROLINA TITLES _____ 1-57248-185-4 How to File for Divorce in NC (3E) _____ 1-57248-371-7 How to Start a Business in NC or SC _____ 1-57248-091-2 Landlords’ Rights & Duties in NC OHIO TITLES _____ 1-57248-503-5 How to File for Divorce in OH (3E) _____ 1-57248-174-9 How to Form a Corporation in OH _____ 1-57248-173-0 How to Make an OH Will PENNSYLVANIA TITLES _____ 1-57248-242-7 Child Custody, Visitation and Support in PA _____ 1-57248-495-0 How to File for Divorce in PA (4E) _____ 1-57248-358-X How to Form a Corporation in PA _____ 1-57248-094-7 How to Make a PA Will (2E) _____ 1-57248-357-1 How to Start a Business in PA (3E) _____ 1-57248-245-1 Landlords’ Legal Guide in PA TEXAS TITLES _____ 1-57248-171-4 Child Custody, Visitation, and Support in TX _____ 1-57248-399-7 How to File for Divorce in TX (4E) _____ 1-57248-470-5 How to Form a Corporation in TX (3E) _____ 1-57248-496-9 How to Probate and Settle an Estate in TX (4E) _____ 1-57248-471-3 How to Start a Business in TX (4E) _____ 1-57248-111-0 How to Win in Small Claims Court in TX (2E) _____ 1-57248-355-5 Landlords’ Legal Guide in TX _____ 1-57248-513-2 Write Your Own TX Will (4E) WASHINGTON TITLES _____ 1-57248-522-1 File for Divorce in WA

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KEY FORMS AND CLAUSES TO BUILD YOUR OWN IDEAL REAL ESTATE CONTRACT Every form and clause is Ready-to-Use and modifiable for your needs

Buying or selling property is a big decision. You want to make sure the contract you sign is the one that best fits your needs. But most of us are not even sure what we need or what is required by law. The Complete Book of Real Estate Contracts is here to help you put together the perfect deal. Inside, find everything you need to create a complete contract. Review your options with each clause and learn both the buyer’s and seller’s position. Regardless of who is writing the document, knowing what the other side is thinking will give you the negotiating advantage. For every item in your contract, learn the following:

Definition

Options

Buyer’s View

Seller’s View

The Complete Book of Real Estate Contracts

puts you in charge and saves you thousands of dollars.

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w w w. S p h i n x L e ga l . c o m

Real Estate

$18.95 U.S. $26.95 CAN

ISBN 13: 978-1-57248-528-0 ISBN 10: 1-57248-528-0

EAN

SPHINX PUBLISHING

AN IMPRINT OF SOURCEBOOKS, INC.® NAPERVILLE, ILLINOIS

UPC

ISBN 13: 978-1-57248-520-4 ISBN 10: 1-57248-520-5

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