Property II Study Guide
Land Sale Contract
– Timetable
o Pre-Contract
o The Sales Contract
o The Closing (the Conveyance, the Deed)
o Post-closing: Financing (Mortgages etc.)
o Post-closing: Title
– PRE-CONTRACT ISSUES (Primarily Issues with Brokers)
o Sellers may and often do (but are not required to) engage an agent to assist in selling. These agents are generically called Brokers. Brokers are engaged to “list” the property and the terms of the contract with the broker is often delimited in the type of listing. Brokers also may represent buyers.
o Whoever they represent, brokers Broker owes fiduciary duty to adhere to high ethical and professional standards – loyalty and good faith
§ Licari v. Blackwelder p463:As fiduciaries, real estate brokers:
· must place their client’s interests above their own/no self dealing
· Act in good faith
· Disclose all information that is or may be material to client’s rights/interests
· Two real estate brokers associated with the listing agent on the Licari’s property purchased the property and sold it for profit 6 days later.
o Broker’s duty to disclose information regarding the property:
§ General rule—No duty to disclose
§ Exception—If the broker has knowledge of a latent defect in the property that could not be discovered by a buyer even in the exercise of due diligence. Note, this is about actual knowledge, not what the broker “should have known.” Has more or less caused brokers to not seek out information about latent defects.
o Types of brokers:
§ (Seller) Broker – works for seller (must act in good faith. Disclose any information that buyer shares to seller)
§ Buyer Broker – works for buyer (broker has duty to disclose defects to buyer)
§ Dual agents – broker represent both buyer and seller
o Types of listings (i.e., terms of the contract with the broker: seller authorizes broker to locate a buyer on seller’s behalf):
§ Open:
· Least protective
· Seller retains right to sell property himself or can use another broker to avoid commission
· Brokers earns commission only if first to find a buyer
· Usually no termination date
§ Exclusive-agency:
· Permits one broker to sell the property for a specified period of time
· Earns commission if secures buyer or separate broker secures buyer
· Do not have to compete with other brokers
· Owner can directly sell the property and avoid commission
§ Exclusive-right-to-sell
· Most protective
· Owner must pay broker if any buyer purchases during specified listing period no matter who finds the buyer
· Majority of listing agreements
o Commissions are due:
§ Traditional rule – broker earns commission when brings a ready, willing and able purchaser
g that he did not contract to buy.
– Definition of marketable title: title free from any defect that would raise a reasonable doubt as to its validity
– What constitutes an encumbrance?
o Defect which is substantial and injurious to the property rights that are the subject of the contract
§ Defects are defects of title, not of the property itself
· Ex: pg. 483, note 3 – Court held that title to land in which the seller knew had no legal access was marketable title. Court reasoned that the lack of access affected the market value of the land, not the marketability of the title.
§ Generally includes undisclosed monetary interests such as mortgages, liens, etc.
§ May also include errors in description of the property and/or defects in recording etc.
§ Private restrictions (Lohmeyer v. Bower)
· Ex: neighborhood covenant
· Mere existence of a private restriction is an encumbrance (defect per say)
o In order for a private restriction not to be considered an encumbrance, it must be explicitly exempted in the contract, as it was in Lohmeyer
§ Public restrictions (Lohmeyer v. Bower)
