Florida Real Estate Principles Practices Law 38 th

Florida Real Estate Principles, Practices & Law 38 th Edition Linda L. Crawford Copyright © 2015 Kaplan, Inc. All rights reserved.

Chapter 11 Real Estate Contracts

Preparation of Contracts • Real estate licensees are allowed to assist buyers and sellers with the preparation of four types of contracts – Listing agreement – Buyer brokerage agreement – Sale and purchase contract – Option contract © 2015 Kaplan, Inc.

Definition of a Contract • Agreement between two or more parties to do or not do certain things, supported by sufficient consideration © 2015 Kaplan, Inc.

Essential Elements of a Contract • Competent Parties (legal capacity to contract) – Voidable by the minor • Offer and acceptance—mutual assent – “Meeting of the minds” – Offeror and offeree • Legal purpose • Consideration – Valuable Measured in terms of money – Good Cannot be measured in terms of money; love and affection © 2015 Kaplan, Inc.

Unenforceable Contracts • A contract that cannot be proven and will not be recognized by a court • Possible reasons • Failure to comply with Statute of Frauds • Exceeds time frame in Statute of Limitations © 2015 Kaplan, Inc.

Statute of Frauds • Requires certain contracts be written and signed by parties to be enforceable • Purchase and sale contracts • Option contracts • Deeds and mortgages • Lease agreements for more than one year • Listing agreements for more than one year © 2015 Kaplan, Inc.

Statute of Frauds • Oral agreements are not illegal but may be unenforceable in court • It is possible for an oral real estate contract to be valid • An oral contract has been formed and the buyer has paid part of the purchase price and either taken possession or made improvements © 2015 Kaplan, Inc.

Statute of Limitations • Establishes time period during which a contract is enforceable – Written contracts 5 years – Oral contracts (parol) 4 years © 2015 Kaplan, Inc.

Void and Voidable Contracts • Void – Does not meet all of the required elements of a valid contract and, therefore, has no legal effect • Voidable – A contract in which one party may cause the contract to be voided © 2015 Kaplan, Inc.

Elements of a Valid Real Estate Sale Contract • • • Competent parties Offer and acceptance (meeting of minds) Legal purpose In writing and signed (Statute of Frauds) Consideration (valuable or good) © 2015 Kaplan, Inc.

Contract Categories – Formal vs. Informal • Formal • Informal Written (historically was under seal) Oral (parol contract) – Bilateral vs. Unilateral • Bilateral • Unilateral Obligates both parties to perform Obligates only one party © 2015 Kaplan, Inc.

Contract Categories – Express vs. Implied • Express • Implied All of the terms have been conveyed and a meeting of the minds is reached Not expressed but may reasonably be implied – Executory vs. Executed • Executory • Executed Contract in the process of being carried out Contract has been fully carried out © 2015 Kaplan, Inc.

Contract Negotiation • Offer – Offeror – Offeree • Counteroffer – Alters the terms of the original offer – Kills original offer and substitutes new offer © 2015 Kaplan, Inc.

Ways An Offer Is Terminated • • Withdrawal by offeror Insanity Lapse of time Death • • Counteroffer Acceptance Rejection Destruction of the property © 2015 Kaplan, Inc.

Termination of Contracts • • • Performance Mutual rescission Impossibility of performance Lapse of time Bankruptcy Breach © 2015 Kaplan, Inc.

Remedies for Breach of Contract • Specific performance – Court orders party who committed the breach to perform as stated in the contract • Liquidated damages – If buyer defaults, seller may retain deposits as liquidated damages © 2015 Kaplan, Inc.

Remedies for Breach of Contract • Rescission – Cancellation of contract – Parties restored to original position • Compensatory damages – Unliquidated damages – Civil suit for money damages suffered because of breach © 2015 Kaplan, Inc.

Assignment and Novation • Assignment occurs when one party transfers rights and duties to another person • Novation occurs when a new party is substituted for one of the original parties • Novation requires the consent of all parties (old and new) © 2015 Kaplan, Inc.

Listing Contracts • Listing contracts may be written, oral, or implied • Written listing contracts must include – – – Definite expiration date Identification of the property Price and terms Fee or commission Signature of owner • Copy to seller within 24 hours • Automatic renewal clause prohibited © 2015 Kaplan, Inc.

Power to Bind the Seller or Buyer • Broker does NOT have the authority to sign a contract for buyer or seller • Power of attorney – Gives another individual the legal right to sign for the person who executed the power of attorney © 2015 Kaplan, Inc.

Conditions Created by Listing Contracts • Find a Purchaser – Broker must produce a buyer who is ready, willing, and able to purchase at the terms of the listing contract or at other terms the seller accepts • Effect a Sale – Broker must produce a buyer who is ready, willing, and able to purchase at the terms specified or accepted by the seller and must ensure the transaction closes © 2015 Kaplan, Inc.

Types of Listings • Open listing—One or more brokers, commission to broker who sells the property, usually a unilateral contract • Exclusive-agency listing—One broker, commission to listing broker if not sold directly by owner, usually a bilateral contract • Exclusive-right-of-sale listing—One broker, commission to listing broker no matter who procures the buyer, usually a bilateral contract © 2015 Kaplan, Inc.

Types of Listings • Net listing – Could be open, exclusive agency, or exclusive right of sale – Broker retains proceeds in excess of seller’s net • Multiple listing – Service between brokers – Agreement to cooperate on sales and share commission © 2015 Kaplan, Inc.

Broker’s Compensation • To be paid, the broker must • Hold a current, active license • Be employed through a listing or buyer broker agreement • Be the procuring cause © 2015 Kaplan, Inc.

Buyer Brokerage Agreements • • • Parties and term of agreement Characteristics of property desired Broker’s obligations Buyer’s obligations Compensation Authorized brokerage relationship © 2015 Kaplan, Inc.

Option Contracts • Unilateral contract – Optionor (owner) has obligations – Optionee (potential buyer) has right to buy • • Consideration Information required Options assignable Licensee requirements – Substantial valuable consideration © 2015 Kaplan, Inc.

Sale and Purchase Contracts • Vendor (seller) and vendee (buyer) • Bilateral contract • In writing and signed – (Statute of Frauds) © 2015 Kaplan, Inc.

Information in Sale and Purchase Contracts • • • Names of vendor and vendee Legal description Consideration Total purchase price Financing or cash terms Type of deed Title evidence Expenses and prorations Personal property to be left Closing date, time, place Date of possession of property © 2015 Kaplan, Inc.

Material Defects Disclosure • Sellers of residential property must disclose material defects • “As is” provision does not circumvent duty to disclose • Johnson v Davis – Florida Supreme Court decision © 2015 Kaplan, Inc.

Radon Gas Disclosure • Required radon disclosure statement on sale and lease contracts – Information regarding radon gas – Does not require testing for sale or lease © 2015 Kaplan, Inc.

Lead-Based Paint • Residential Leadbased Paint Hazard Reduction Act (federal law) • Applies to housing built prior to 1978 © 2015 Kaplan, Inc.

Lead-Based Paint • Homes built prior to 1978 – Sellers/landlords must disclose presence of any known lead-based paint – Contract must include disclosure about leadbased paint – Buyers and renters must be given an EPA booklet – Sellers must allow buyers to conduct an inspection within 10 days (inspection is not required) © 2015 Kaplan, Inc.

Energy Efficiency Brochure • Florida Building Energy. Efficiency Rating Act – Buyers, before signing sale contract, receive an information brochure stating purchaser may get an energy-efficiency rating – Created uniform, statewide energy efficiency rating system © 2015 Kaplan, Inc.

Homeowners’ Association Disclosure • Property subject to mandatory homeowner’s association • Provide buyers with a disclosure regarding the association, fees, restrictive covenants, and assessments • 3 -day right of rescission – Cannot be waived – Ends at closing © 2015 Kaplan, Inc.

Property Tax Disclosure • Disclosure summary concerning ad valorem taxes before or at the time of execution of a contract for sale • Buyers should not rely on the amount of the seller’s property taxes as an indication of the taxes purchasers will be required to pay in the year following purchase of the property © 2015 Kaplan, Inc.

Building Code Violation Disclosure • Seller must disclose – The existence and nature of the violation – Copy of the pleadings, notice, etc. – Buyer will be responsible for compliance with code • Seller must forward name and address of new owner to code enforcement agency within 5 days © 2015 Kaplan, Inc.

Community Development District (CDD) • Independent special district – Services the long-term needs of its community – Constructs, operates, and maintains infrastructure and services – Developer finances construction of infrastructure by issuing bonds – Homeowners repay the bonds through tax assessments – Written disclosure in initial contracts for sale © 2015 Kaplan, Inc.