residential

Residential Contract: A Closer Look at Buying a Home Part III

June 12, 2014 by khproperties Leave a Comment

The One to Four Family Residential Contract (Resale) and Buying a Home

We’re back again with Part III of our series on the One to Four Family Residential Contract (Resale) – we’ve covered a lot of ground, but we still have a lot more left. If you need a refresher, you can go back and read Part I or Part II. If you’re ready to learn more about the process of buying a home, sit back, pour yourself a cup of coffee and let’s dive right back in where we left off on our last post.

Paragraph 11. Special Provisions This paragraph always the agents and clients to insert any “factual statements or business details” into the contract. This section must be used with care by agents as they are not lawyers and therefore cannot practice law. Writing in the wrong thing in this section could cause them to be seen as doing so. Items listed here should never be covered in the contract or in any addenda available to the agents. The most common items that should be seen in this section is that the seller or buyer is a licensed agent (this must be disclosed) or that they are related to their agent. If you want anything inserted into this section, you should consult with an attorney for the wording and usage.

Paragraph 12. Settlement and Other Expenses This paragraph defines the expenses payable by the seller (Section A.(1)) and the buyer (Section B.(2)) at or before closing. Section B allows for the contract to be terminated if any expense exceeds the amount stated in the contract and notes that the buyer cannot pay any fees prohibited by FHA, VA, Texas Veterans Land Board, or other governmental loan programs.

Paragraph 13. Prorations Because many items in real estate are paid yearly (or semi-annually), they must be prorated. The easiest way to look at this is that the seller pays for the time they lived in the house and the buyer pays for the time they will live in the house. In the case of interest on the loan, since most buyers don’t close exactly on the first day of the month, that also must be prorated based on the number of days in a given month that they will own the home. If you move in 15 days before the end of the month, you would owe those 15 days up front.

Paragraph 14. Casualty Loss When buying a home, everyone hopes nothing bad will happen to the property, but sometimes it does. The casualty loss paragraph covers this by stating that if the property is damaged or destroyed by fire or other casualty, the seller must return the home to its previous condition before the closing date. If the seller doesn’t, the buyer has three options; terminate the contract and receive their earnest money back, extend the closing date by fifteen days to allow the seller more time to complete their obligations, or accept the property in its damaged condition with proceeds from the seller’s insurance assigned to them and a credit of the seller’s deductible.

Paragraph 15. Default Default occurs when one or more of parties in the transaction fail to do something spelled out within the contract. There are many ways a buyer or seller can default on the contract, so great care must be taken to be sure they meet their deadlines and perform as instructed to by the contract. In the case of default by the buyer, the seller may enforce specific performance, which means that the buyer must buy the home regardless of the reason they are in default. The seller may also sue and terminate the contract and receive the earnest money as damages. If the seller is found to be in default, the buyer may also seek the same remedies.

Paragraph 16. Mediation In the past, this paragraph had two checkboxes, allowing buyers and sellers to chose whether or not they would use mediation if a dispute arises. Recently, the contract was changed to require mediation. The cost of mediation will be split equally between the parties.

Paragraph 17. Attorney’s Fees This paragraph gives the prevailing party to a lawsuit the right to seek attorney’s fees from the other party. Basically, if you lose the court battle, you can be made to pay the winner’s court fees and attorney costs. You can ask Denver area drug defense lawyers if you need more information on the same.

Paragraph 18. Escrow This paragraph has a few items of note. First off, in Section A, it releases the escrow agent from liability for several items (default, interest earned on earnest money, and liability for the a bank or financial institution going under while it is holding money in escrow). Section B covers how the earnest money is applied to funds owed by the buyer (cash down portion first, then any expenses of the buyer…any remaining portion is to be refunded to buyer). It also lays out the process of post-settlement funding service along with the refunding the earnest money if the transaction does not close (a written request must be made and signed by all parties and any expenses may be deducted from the earnest money). Section C talks about demand of the earnest money. Either party may make a demand, and the other party will be notified by the title company. If no written objection is received by the title company within fifteen days, the title company can disburse money to the party making the claim. Section D is important as we often see buyers and sellers get into disagreements over who is owed the earnest money upon termination. When this happens, it is important to still comply with the release as any party that refuses to sign the release within seven days can be found liable for three times the amount of the earnest money, the earnest money itself, attorney’s fees, and any costs associated with a lawsuit to claim the earnest money. Section E states that notices are effective when sent from the title company to the party as laid out in Paragraph 21 and objections are effective upon receipt by the title company.

Paragraph 19. Representations All convenants, representations, and warranties in the contract continue past the closing. If a representation is made, it must still be true after the closing. Simply put, don’t lie on the contract. This paragraph also gives the seller the right to show the property, negotiate contracts, and receive backup offers.

Paragraph 20. Federal Tax Requirements If the seller is a “foreign person” as defined by law, there are certain extra steps that must be taken to comply with tax law and the IRS.

Paragraph 21. Notices This is where all notices will be sent for the buyer and seller. The title company uses this section for contact information for the two parties so that they may deliver things like the title commitment and earnest money if need be.

Paragraph 22. Agreement of the Parties This paragraph is used to add addenda which become a part of the contract. This paragraph has a list of the most common addenda that are added to contracts and any that are not listed can be added by writing them in the “Other” section.

Paragraph 23. Termination Option We’ve covered the option fee and option period on the site before and we recommend you read this post about the option period for a good explanation of what it is and how it works.

Paragraph 24. Consult an Attorney Before Signing As you are about to sign a legally binding contract, the Texas Real Estate Commission recommends you to contact an attorney if you have any legal questions. As real estate agents are not lawyers, they cannot provide you with legal advice. There is a section for the buyer and seller to fill out the contact information for their attorney.

This last page also has signature lines for the buyer and seller and this is where the broker fills in the executed date once all parties agree to the contract.

Page 9 Page 9 of the contract contains the information for the brokerages involved in the transaction as well as commission information. It also has two sections, one for the receipt of the option fee (to be signed and dated by the listing agent or seller) and one for the receipt of the contract and earnest money (to be signed and dated by the title company).

So there you have it. As you can see there’s a lot going on in the One to Four Family Residential Contract (Resale) used when buying a home here in Texas. As always, we’ve tried to give you the basic rundown of the contract, but there are a lot of nuances to making an offer, so if you have any questions, contact us and we’ll be glad to help you.

Residential Contract: A Closer Look at Buying a Home Part II

June 11, 2014 by khproperties Leave a Comment

The One to Four Family Residential Contract (Resale) and Buying a Home

Yesterday, we started our breakdown of the One to Four Family Residential Contract (Resale) used in Texas to buy a home. We covered the first six paragraphs and ended on page four (of nine) and we recommend you read “Residential Contract: A Closer Look at Buying a Home Part I” first. Ready to learn some more about how to buy a home in Texas? Let’s get started, shall we?

Paragraph 7. Property Condition Another long paragraph, this one covers all aspects of a property’s condition, disclosures, and repairs.

Section A covers access, inspections, and utilities. In it, the seller gives the buyer (and their agent) permission to enter the property for inspections and it requires the seller to have all utilities on during the period of the contract.
Section B talks about the Seller’s Disclosure. In this section there are several options; the buyer has received the seller’s disclosure, the buyer has not received the notice, and the seller is not required to give a disclosure. If the buyer has not received the disclosure, the seller has a negotiable amount of time to provide the document. Failure to do so gives the buyer the right to cancel to the contract and receive their earnest money back. Once the buyer receives the seller’s disclosure notice, they have seven days in which they may terminate the contract and receive their earnest money back. There are instances where the seller is not required to give a seller’s disclosure notice, the most common sellers that are excluded from the requirement are; a builder of a new home, a trustee or executor of an estate, and a lender who has foreclosed on a property. There are 11 exemptions in the law, but these are the three you’ll see most often.
Section C denotes that all properties built before 1978 require a disclosure of lead based paint and lead based paint hazards. This is a federal law.
Section D talks about accepting the property “as is” – this however, does not remove the right of the buyer to have the property inspecting during the option period and negotiate repairs or termiante the contract during this time. A buyer can elect to add items into D.(2) that require specific repairs prior to the repair negotiations typically done during the option period. A buyer should use this section wisely however, because delineating items prior to a contract’s acceptance could lead to a seller refusing to accept the offer.
Section E deals with lender required repairs. According to the contract, neither party (buyer or seller) is responsible for paying for lender required repairs. If the buyer and seller cannot come to agreement as to who will pay for these repairs, the contract can be terminated and the buyer will receive their earnest money back. The buyer may also terminate and receive their earnest money back if the total cost of lender required repairs exceeds 5% of the sales price.
Section F states that all repairs must be performed prior to the closing date. This section also contains new language regarded who shall make the repairs – reapirs must be made by someone licensed to do such work or, in the case where a license is not required, someone who does those types of repairs commercially (ie, not your cousin who knows a few things about the repair, but does not work in that field). This section also states that all permits shall be obtained to do such work, that any transferable warranties will go the buyer at their expense, and if the seller fails to complete the repairs before closing, the buyer may elect to extend the closing date up to five days or seek remedies found in Paragraph 15 of the contract.
Section G advises the buyer about environmental matters that may affect the buyer’s intended use of the property. Items such as wetlands, toxic materials, and endangered species can affect the way a property is handled in the future, so buyers are given notice here.
Section H allows the buyer to ask the seller to pay for a residential service contract, also know as a home warranty. A buyer needs to put a specific value into this section, so it is advised that they research the various types of coverage available so that they know the price of the home warranty they wish to purchase.

Paragraph 8. Brokers’ Fees This short paragraph states that “All obligations of the parties for payment of brokers’ fees are contained in separate written agreements.

Paragraph 9. Closing The closing date of the contract is set forth in Section A of this paragraph. If the transaction doesn’t close on this date, it can be extended for seven days if objections were made under Paragraph 6.D. A closing date can also be amended if necessary and both parties agree to it. Failure to close on the date specified in this paragraph can put the seller or buyer in default of the contract. Section B covers all the items necessary to close: (1) seller shall give the buyer a general warranty deed to the property and show tax statements that there are no deliquent taxes, (2) buyer must pay the sales price in good funds that are accepted by the escrow agent (title company), (3) both parties agree to sign and deliver any documents necessary required for title policy and the closing of the sale, (4) that there will be liens or assessments against the property that are not paid off at or before closing, and (5) if there is a current lease associated with the property, all security deposits will be transferred to the buyer and the buyer will deliver to the tenant a signed statement acknowledging receipt of those funds and that they are responsible for the return of the security deposit (subject to standard rules regarding security depsoits).

Paragraph 10. Possession Two checkboxes here to pick from – either the buyer takes possession of the property upon closing and funding or the timing of possession goes according to a temporary residential lease. The paragraph also notes that the parties should consult with their insurance agent regarding any temporary leases as they can affect insurance coverage. In regards to other leases, the paragraph also states that a seller may not enter into any lease agreement after the effective date of the contract and that if there is a current lease, the seller must deliver to the buyer copies of the residential lease and the property condition and move-in form.

Residential Contract: A Closer Look at Buying a Home Part I

June 10, 2014 by khproperties Leave a Comment

The One to Four Family Residential Contract (Resale) and Buying a Home

When buying a home in Texas, most buyers will use the One to Four Family Residential Contract (Resale) to write their offer and negotiate their purchase. This form is used for resale homes (not new construction) and is the majority of what we see in contracts, so we’re going to dig deep and cover this contract so that you may better understand what all goes into the purchase of your home. Much like our other posts on contracts, we’ll be splitting this one up over several posts, so come back later to read the rest.

Paragraph 1. Parties As always, we’re going to need to define who the buyer is and who the seller is. This paragraph also sets forth that the seller is agreeing to sell the property to the buyer and that the buyer is agreeing to buy the property from the seller.

Paragraph 2. Property This paragraph defines the property to be purchased in several ways. Section A gives the legal description of the property. Section B gives the list of improvements that are considered part of the property. These are basically permanently installed items and include window screens, carpeting, mirrors, ceiling fans, water softeners and commercial water purification systems, and landscaping (please see the contract for a complete list). It is interesting to note that this list includes “mounts and brackets for televisions and speakers” – often sellers think they can take these off the wall and move them to their new place, but as they are considered part of the improvements of the property, they cannot be taken from the property. Section C is for accessories to the property. A list similar to Section B with the main difference being that these items are not necessarily permanently installed. A few items from this list? Window AC units, curtains, blinds, keys, and garage door openers. People can Get More Info here, if they need the best quality garage doors. While these items are not permanently attached, they are considered as part of the property as they are an essential part of the home. Section D is for any exclusions – if a seller doesn’t want to transfer ownership of anything in the home, this is the place to do it. A seller needs only put in the items that would normally transfer to the buyer in a sale. A good example is if they have an antique chandelier that they want to take with them. Since the chandelier is considered permanently attached, it is an improvement and therefore would be the buyers property at the conclusion of the sale. A refrigerator however, is not considered an improvement (as it is not permanently affixed to the home), so there is no need to exclude it from the sale. Buyers often ask, “does that come with the house?,” and you can always check with your agent for clarification.

Paragraph 3. Sales Price Here we lay out the sales price of the home; Section A is the cash portion of the sales price the buyer is paying, Section B is the sum of any financing the buyer will be using to buy the home, and Section C is the actual sales price (sum of Sections A and B).

Paragraph 4. Financing If buying a home with all cash, this section would not apply as this covers financing only. This portion of the contract covers some of the basics of financing and is typically backed up with a Third Party Financing Addendum for Credit Approval.

Section A. Third Party Financing: If you’re applying for a loan, you’ll be using this paragraph. Here you’ll define the amount of the loan you’re seeking and whether or not you must be approved for financing in order to buy the property (sometimes people will apply for a loan, but could possibly still buy the property with cash if needed). It is also important to note that this section lays out rules for “property approval” and what happens when the property does not satisfy the lender’s requirements; in such a case, the buyer may terminate the contract and they will receive their earnest money back.
Section B. Assumption: We don’t see this box checked much these days. Assumption allows a buyer to assume the seller’s current loan – taking oven payments for them. However, most loans now come with an acceleration clause. This clause allows to lender to make the entire balance due and payable in full if the seller tries to transfer the loan balance to another person. That person would then have to qualify for the loan just like anyone else. Assumptions were used a lot in the 80s when interest rates where skyrocketing…they allowed a buyer to get into a home and assume the lower interest rate loan that the seller had bought the home with.
Section C. Seller Financing: If the seller is willing, they can finance the loan for the home. It’s a complicated process, but seller financing can help both seller and buyer achieve their goals.

Paragraph 5. Earnest Money Simply put, earnest money is a deposit given in good faith to show your interest in the property. This paragraph sets how much earnest money will be given and who will act as escrow agent for that money. It also outlines any additional earnest money to be given at a later date.

Paragraph 6. Title Policy and Survey This is a pretty hefty section of the contract covering nearly two pages (out of nine). The title policy is insurance against any claims on the land or home by anyone else after the sale. For example, if a husband and wife owned the property jointly and one of them sold the property to someone without the other spouse’s knowledge, a title policy would protect the buyer against the claim when that person found out and claimed their interest in the property.

Section A covers who will pay for the title policy and who will issue the title policy (which title company). It goes on to list several exceptions to what the title policy will cover.
Section B covers title commitment – when a title company agrees to issue a title policy, they issue a title commitment…agreeing to issue the policy, which often comes after the sale of the home. This section gives the title company twenty days from the execution of the contract to get these documents to the buyer (and includes an automatic extension of this time for an additional fifteen days or three days prior to closing, whichever is earlier). If the seller (via the title company) fails to furnish these documents, the buyer may terminate the contract and receive their earnest money back.
Section C is all about the survey. There are three choices in this section. C.(1) is for when there is an existing survey. If there is one and both parties check this off, then within the specified amount of days, the seller must provide the survey (along with a T-47 Affidavit) to the buyer. There are also checkboxes for whether the seller or buyer will pay for a new survey if the title company or buyer’s lender deem the survey not acceptable. It is important to note, that regardless of which box is checked (buyer pays or seller pays), if the seller does not provide the survey to the buyer in the agreed upon time in this section, the buyer may order a brand new survey at the seller’s expense. C.(2) and C.(3) are used when there is no survey and you are opting to order a new survey at the buyer’s – C.(2) – or the seller’s – C.(3) – expense.
Section D allows the buyer to object to items that would affect the title policy. The buyer can name any objections and this section gives a time frame for the buyer to make objections after receiving the title commitment, exception documents, and the survey. The section gives the seller a timeframe in which they must clear these objections or the contract is terminated.
Section E covers various title notices. Basically, this section clears up and defines several items related to the title policy. It is recommended that you read this section carefully and if you have questions, consult with your agent and/or a real estate attorney.

Tomorrow, we will pick up where we left off, beginning with Paragraph 7. Property Condition, so stop back then to read “Residential Contract: A Closer Look at Buying a Home Part II” and learn more about the contract most often used when buying a home.