Real Estate: Purchase Agreement Functions

• After this lesson, students should be able to discuss the functions of a purchase agreement.
• After this lesson, students should be able to identify the various provisions in a typical agreement.
• After this lesson, students should be able to explain the circumstances in which addenda or forms are used.
• After this lesson, students should be able to describe dispute resolution options and remedies.
• After this lesson, students should be able to understand the legal significance of the agreement to buyers and sellers.
• Exercise 7.1 reviews the previous chapter, “Preparing and Negotiating Offers."
• Chapter 7 reviews purchase agreements.

Requirements for a Valid Purchase Agreement

• Requirements for a valid purchase agreement is lesson content.
• Using residential purchase agreement forms is lesson content.
• Typical provisions in a residential agreement is lesson content.

Typical Provision Elements

• Parties and signatures is a typical provision in a residential agreement.
• Purchase price and method of payment is a typical provision in a residential agreement.
• Inspections and repairs is a typical provision in a residential agreement.

Identifying Key Contract Provisions

• The content of exercise 7.2 contains identifying key contract provisions.
• Closing date is a key contract provision
• Transfer of possession is a key contract provision
• Conveyance and title is a key contract provision
• Liquidated damages and dispute resolution is a key contract provision

Dispute Resolution and Remedies

• Exercise 7.3 contains dispute resolution and remedies.
• The lesson ends with a Chapter 7 Quiz.
• Purchase agreements share the same basic legal requirements for a contract.
• Competent parties are a basic legal requirement for a contract.
• Mutual consent (offer and acceptance) is a basic legal requirement for a contract.
• Lawful objective is a basic legal requirement for a contract.
• Consideration (promises to sell and buy) is a basic legal requirement for a contract.

Addition residential purchase agreement requirements

• In writing is an additional requirement for residential purchase agreements.
• Identifying parties and property is an additional requirement for residential purchase agreements.
• Statement of price and method of payment is an additional requirement for residential purchase agreements.
• List of liens or encumbrances on property is an additional requirement for residential purchase agreements.
• Summary of buyer's financing terms is an additional requirement for residential purchase agreements.
• Description of any conditions on sale is an additional requirement for residential purchase agreements.
• Most agreements contain information beyond minimum requirements, use forms to describe unique details of each transaction.
• No standard form is required, and a variety of forms are available.
• Familiarity with the form used in the office is important.
• Multiple listing service may require the use of a certain form.
• Forms should be used only for their intended purposes.
• Identify which sections apply to the transaction.
• If sections apply, fill in all blanks completely
• Cross out sections that doesn't apply
• Attach addenda for issues not covered by form.
• All parties must be identified, and appropriate signatures must be obtained

Agreement Signatures

• Everyone with ownership interest must sign the contract.
• If capacity problems exist (age or mental competence), a legal guardian signs.
• If a party is married, generally both spouses must sign.
• If tenancy in common or joint tenancy, all owners must sign to convey full interest.
• If a party is a partnership, LLC, or corporation, the person signing must show authorization.
• If property is part of a trust or estate, the executor or trustee must sign.
• A party may authorize another to sign on his behalf, through power of attorney.
• An attorney in fact should sign the party's name first, then her name.
• Authorization should be recorded in the county where property is located.
• A legal description should be used to identify the property; attach a copy to form as an addendum.
• The full purchase price (including assumptions) and method of payment should be described in detail (financing arrangements).
• If an agreement is contingent on financing, it must be stated.
• If any seller financing, must attach an addendum to form describing terms.
• Details about inspections and repairs should be documented, including who will pay.
• A buyer usually makes the agreement contingent on the right to inspect the property; the buyer may approve the condition or request repairs.
• Agreements may cover updates in compliance with requirements for residential properties (smoke detectors, braced water heaters, low-flow toilets).

Key Contract Elements

• The closing Date is a key contract element.
• The date selected should give parties time to meet contingencies and conditions involving inspections, repairs, and financing.
• If parties want to extend (or move up) the closing date, a written amendment must be signed.
• If the extension agreement isn't signed before the closing date, the purchase agreement terminates.
• The transfer of possession usually occurs at closing.
• If the buyer or seller wants possession before or after closing, they need a separate rental agreement.
• The buyer usually designates the closing agent on the form; the closing agent is often provided through the buyer's lender.
• Escrow instructions may be a separate document or incorporated into the purchase agreement.
• Conveyance and title provisions describe the type of deed the seller will execute for the buyer; it is usually a grant deed.
• The seller provides a list of liens or encumbrances, including easements and restrictive covenants.
• The seller must also disclose other information that might affect the title, including pending legal actions.
• Agreements usually include liquidated damages provisions and dispute resolution procedures.
• In California, most agreements have a liquidated damages provision for good faith deposits; if parties initial this paragraph and the buyer defaults, the seller keeps the good faith deposit but can't sue the buyer for other damages.
• Closing costs and agent fees may be deducted from the forfeited deposit.
• Most agreements require mediation or arbitration to settle disputes, as opposed to a lawsuit.
• With mediation, a neutral third party helps resolve the dispute via negotiation, before arbitration or a lawsuit.
• Under some mediation provisions, a party who turns to arbitration or a lawsuit before mediation can't recover attorney's fees.
• If an arbitration clause is initialed, the parties give up the right to file a lawsuit; the arbitration decision is binding, with no appeal.
• The signature section is important for several reasons.
• The buyer's signature makes the form an offer to purchase.
• The form also serves as the buyer's receipt for the good faith deposit.
• The seller's signature makes the form into a binding contract.
• On most forms, listing and selling agents also sign, fill in the names of brokerages, and add license identification numbers.
• The "time is of the essence" clause makes a failure to meet deadlines an automatic breach of contract.
• Acceptance deadlines and communication methods must also be specified.
• The included items provision helps prevent disputes over what is (and isn't) part of the sale.
• Exercise 7.3 is about dispute resolution and remedies.
• Exercise 7.1 reviews exercise.

Key Contract Provisions

• Ask students to examine the purchase agreement form in the textbook and find which section contains each of the following provisions (exercise 7.2).
• Appraisal contingency
• Buyer's right to inspections
• Escrow instructions
• Attorney's fees
• Transfer of possession
• Initial good faith deposit
• Buyer's offer (proposed purchase price)
• Seller's acceptance of offer
• Timelines for buyer inspection and repair requests
• Sale of buyer's property contingency
• Arbitration clause
• Agency disclosure