Chapter 13 PowerPoint Contracts for Sale and Closing Essay

Chapter 13:
Contracts for Sale and Closing

McGraw-Hill/Irwin

Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Contract for Sale: The Most
Important Document in Real
Estate?
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Determines price and terms of the transaction Defines property interest being conveyed
Determines the grantee
Determines other conditions of the transaction 
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Financing
Date of occupancy
Any repairs or other conditions of the sale

13-2

Required Elements of a Contract
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All contracts:
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Competent parties
Legal objective
Offer and acceptance
Consideration
No defects to mutual assent

Contract for sale of real estate:
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In writing (per Statute of Frauds)
Proper description of property

13-3

A Closer Look at Requirements
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Competent parties
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Of legal age

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Not incapacitated at time of signing

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Appropriate official if representing a corporation

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Power of attorney if acting for another person

Lawful intent
Offer and acceptance
Consideration
No defects to mutual assent
In writing
Legal Description should be used

13-4

Legal vs. Equitable Title
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Legal title: Ownership of a freehold estate
Equitable title: Right to obtain legal title
Buyer obtains equitable title when a contract for sale of real estate is fully signed 13-5

Would This Be a Valid
Contract?
I, Ben Buyer, agree to buy and pay $20,000, and I, Cecil Celler,
Agree to sell the parcel of real estate at 1013 NE Seventh Road in North Platte, Nebraska.
Ben Buyer:
Cecil Celler
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Competent parties? Legal objective?
Offer and acceptance? Consideration?

13-6

Problems with This Contract?
I, Ben Buyer, agree to buy and pay $20,000, and I, Cecil Celler, Agree to sell the parcel of real estate at 1013 NE Seventh Road In North Platte,
Nebraska.

Ben Buyer:
Cecil Celler
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What are boundaries of 1013 NE Seventh Road?
When is the closing?
When does Ben get possession?
Cash sale? Earnest money deposit?
Must Cecil deliver marketable title?
Is a quitclaim deed acceptable?
Any fixtures (e.g., fences?)
Is Cecil married?
Are there structures? Condition now? Condition at closing?
13-7

Advantages of Form Contracts
Neutral (not prepared by opposite party)
Ready-made treatment of details

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Prorations

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Inspections

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Performance dates

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Many others

Local real estate boards are a good source
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Up-to-date with current relevant law

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Adapted to locally important issues
Radon risk
Flood plain
Insulation quality Water supply

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Generally neutral between the buyer and seller
13-8

Risks with Standard Form
Contracts
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May treat some issues too lightly
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Perpetual struggle on contract detail
 Attorneys: More detail reduces future disputes  Brokers: Long contracts put a chill on negotiations  Resolution: Bar Assn.-Realtors jointly drafted contract form

Inappropriate and inadequate application of a form contract:
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Residential contract for apartment property
Residential contract for undeveloped land
13-9

Components of a Form Contract
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Part I: Points particular to the deal
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Items to be negotiated (price, date of closing, distribution of expenses)
Items that characterize the property (water source, zoning, flood zone status)

Part II: Items that must be clear (the same for most transactions)
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Provisions for survey
Proration procedure
Disbursement of funds
Recourses in case of default
13-10

Handling of Funds
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Broker normally handles funds for a transaction Broker must put deposits in escrow
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Escrow account: An account holding funds dedicated for a particular purpose
Must be with insured institution or title company At closing, money is disbursed in accordance with a closing statement

13-11

Contract Terminology
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Contingent contract: Obligation of a party to perform depends on one or more conditions being met
Assignment: One party’s contractual rights and obligations are transferred to someone else
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Does not relieve assignor of liability
Can be

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