Real Estate Transactions
Pt. 1 – The Transfer of Ownership
I. Contracts for the Sale of Land
a. Real Estate Brokers
i. Types of Listings
1. Open Listing Agreements: property owner agrees to pay to the listing broker a commission if that broker effects the sale of property
a. However, the property owner retains two rights:
i. The right to sell the property himself, and
ii. The right to procure the services of any other broker in the sale of the property.
2. Exclusive Agency Listing: This listing agreement is for a certain time and authorizes only one broker to sell the property.
a. Property owner still retains the right to sell the property himself without incurring a commission.
3. Exclusive Right to Sell Listing: the sale of the property, no matter by whom negotiated, obligates the property owner to pay a commission to the listing broker.
a. Most popular type of listing
1. Types of Brokers:
a. Traditional Full Service Broker: does a number of things…
i. Markets the home;
ii. Reviews contracts;
iii. Negotiates with potential home buyers and sellers;
iv. Locates properties for potential buyers;
v. Arrange inspections;
vi. Provide potential buyers with information about the community;
vii. Apprise potential buyers about financing alternatives;
viii. Assist in the formation and negotiation of offers, counteroffers and acceptances; and
ix. Assist with the closing of the transaction
b. Fee for Service Broker: broker willing to sell a subset of real estate brokerage services
2. Minimum Service Laws: laws or regulations that dictate the services that a consumer must purchase when entering into a relationship with a real estate broker – whether the consumer wants to buy them or not.
3. Payment to Brokers:
a. If a valid listing agreement exists between a seller of real estate and a real estate broker, the agent earns his commission if
i. The seller accepts the purchaser’s offer; and
ii. The purchaser closes in accordance with the contract.
b. A broker is entitled to a commission if improper or frustrating conduct by the property owner prevents title to the property from passing.
i. Drake v. Hosley: In plaintiff’s action against the defendant, the defendant contended that he did not owe a commission to the plaintiff because the plaintiff did not produce a ready, willing, and able buyer at the time of closing for a piece of property owned by the defendant. The court found that a broker is indeed entitled to a commission if improper or frustrating conduct by the property owner prevents title to the property owner from passing.
c. If the seller breaches the agreement, the commission is earned by demonstrating that the buyer was ready, willing, and able to close.
d. Buyers’ Broker: if after singing a contract to purchase, the buyer backs out and no closing occurs, the seller will owe no commission. This screws over the buyer’s broker, who can’t recover his or her split of the commission from the buyer directly.
e. Conflicts of Interest: the selling agent is a subagent of the seller. A broker who contracts with the seller is the primary broker, and if another broker finds a buyer, then the two brokers split the commission in half. However, since the broker who found the buyer has some fiduciary responsibility to both parties, it is a conflict of interest.
i. Unless agreed to by all parties after full disclosure, conflicts of interest by brokers can give rise to private liability, as well as public discipline by the state licensing body.
ii. The agent who causes loss to the principal by virtue of the conflict may lose the commission and be subject to a judgment for damages.
4. Duty to Disclose Material Facts: a broker has a duty to disclose to a buyer the material defects known to the broker but unknown and unobservable by the buyer, even if the broker is the agent of the seller.
a. A majority of states are unwilling to hold brokers liable when they were silent about defects of which they had no actual knowledge, but which could have been found by an inspection
b. The Statute of Frauds and Part Performance
i. Earnest Money Contract: permits the parties to prepare for the transfer of title by making the necessary arrangements (mortgage financing, inspections, title clearance, etc.).
1. Usually provides for the closing – the delivery of the deed and the payment of the purchase price – within a short time after the contract singing.
ii. Real Estate Installment Contract (or Contract for Deed): buyer goes into possession immediately, makes payment to the seller on a regular basis over a long time period and receives the deed when the last installment is paid.
1. It is a mortgage substitute.
iii. The Statute of Frauds
1. Requires that the contract or some memorandum or note thereof be in writing.
a. Any writing that meets the necessary elements will do, whether it was intended to memorialize the contract or not.
b. If there is no sufficient writing, neither party can enforce the contract.
a. The names of the parties;
b. An identification of the land;
c. Words indicating an intent to sell;
e. Financing terms (cases are divided on this inclusion);
f. Date of closing (if the date is not in the contract, the court will assume a reasonable time is allowed); and
g. Contract must be signed.
3. A typed signature at the bottom of the email can satisfy the statute of frauds requirement, but the agreement must still contain all the essential terms.
a. An email that only identifies the parties, the property, and the price of the property does not lay out all of the essential terms of the agreement, and does not establish a meeting of the minds as to the terms of the sale of the property.
b. Rosenfeld v. Zerneck: The plaintiff’s filed suit for specific performance of an agreement entered into by email for purchase of the defendant’s home. Plaintiff’s offered $3.5m in cash to purchase the defendant’s home, which they followed up with an email to him. After a telephone conversation about the transaction, the defendant followed up with an email accepting the plaintiff’s all-cash offer of $3.525m with no contingencies for financing or sale of their present residence, and setting a closing date. Court found that the typed email signature did fulfill the requirement but the email didn’t identify all of the essential terms.
iv. Part Performance Doctrine: a judicially created exception to the statute of frauds, which permits the courts to enforce a contract in equity even though there is no sufficient writing.
1. Merely a substitute for a writing. It is still necessary to prove offer, acceptance, considerati
The seller not having title to the property, or
ii. The seller has sold it to a third party that has no knowledge of the previous contract, or
iii. A buyer cannot obtain or be subjected to specific performance if the buyer does not have the money or ability to borrow the money
b. The contract itself may exclude specific performance (i.e. liquidated damages are the sole remedies);
c. If the purchaser’s only purpose is to resell the property to a third party (damages can be measured in this case);
d. If there are precedent or concurrent conditions that have not been fulfilled or if the plaintiff is in substantial breach.
5. Fairness and Vagueness
a. The courts frequently impose a higher standard of contract specificity when asked to enforce a contract that when asked to award damages. In addition, courts widely hold that a contract ought not to be specifically enforced if such enforcement would be unjust or unfair.
b. An injustice does not need to rise to the level of fraud or deception, but simply be overreaching or harsh dealing.
c. Some cases refuse specific enforcement merely because the purchase price is unfair. This is particularly likely if there is a great disparity in the sophistication or bargaining power of the parties.
6. Damages in addition to Specific Performance: even if a decree of specific performance is entered into by a court, a long time will usually have passed since the parties agreed on a closing date. This delay might have caused one or both of the parties significant amounts of money for which they may be entitled to additional compensation.
ii. Incidental Damages
1. Incidental Damages: those damages reasonably incurred and arising from the subject matter of a claim for actual damages; such damages generally arise from activities undertaken by the non-breaching party as a result of the breach.
2. A buyer of real estate may recover incidental damages for the seller’s breach.
a. Donovan v. Bachstadt: plaintiff contended he was entitled to the difference in interest rates he experienced due to defendant’s failure to fulfill their land sale contract. The court found that incidental damages could be granted to the buyer because a purchaser must be allowed to enjoy the benefit of his bargain just as in any breach of contract case.
iii. Liquidated Damages
1. The liquidated damages clause raises three common questions:
a. May the vendor be compelled to return some or all of the deposit if it exceeds his actual loss?
b. Does sit preclude an action by the vendor for additional damages if the deposit is too small to cover his loss?
c. Does it preclude assertion of alternate remedies by the vendor, such as actual damages or specific performance?
2. In the context of a contract for the sale of real estate, a contract provision defining the amount of damages that will be owed as a result of a breach of the contract by one of the parties.
a. In a great majority of land contracts, the purchaser makes an earnest money deposit of funds with the seller or the seller’s broker or attorney.
b. If the purchaser subsequently breaches, the seller commonly attempts to retain these funds as liquidated damages, while the buyer may bring an action for restitution of them.