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Property II
University of Dayton School of Law
Reilly, Tracy

Real Property II
 
PART 1: THE TRANSFER OF OWNERSHIP—CONVEYANCING
 
I. Contracts for the Sale of Land – each state has their own set of real estate laws, no states have adopted the ULTA
 
A.    Real Estate Brokers
1.      Generally (hire agent, agent fulfills contract terms, sell house, agent paid out of proceeds from sale, usually %)
o       Most real estate for sale is “listed” with a real estate broke
o       Broker tries to find a buyer
o       If successful (finds buyer)à seller obligated to pay compensation (usually a % of the actual sales price)
2.      Broker v Agent
o       Agent cannot operate on their own, must be under supervision of broker.
o       Agent passes test then becomes a broker
3.      Broker/Agent Authority (show, advertise, market-à can’t force sale (majority) but may still get commission)
a.      Generally
 1)    Depends upon the agreement and the usual scope of authority for the region
b.      Usual View
 1)    Broker has authority to show, advertise and market property
 2)    Broker cannot force the sale to take place if seller refuses to go forward
 3)    Seller may be liable for the commission
c.       Minority View
 1)    Broker may have ability to enter into actual contract of sale and consummate of sale
d.      Agency Rules 
 1)    Apparent authority -à generally not found in this relationship
 2)    Explicit or actual authority generally required.
4.      Dual Agency  (permitted only in few states à requires disclosure and consent à buyers usually don’t know/care)
a.      Generally
o       Broker representing buyer and seller is permitted in some states
o       Agent must not violated the duty of loyalty to one party by fulfilling same duty to  the other
b.      Duty to Disclose
o       Dual agents MUST disclose fact to both parties and obtain consent
c.       Practically
o       Buyers don’t know or don’t care that agent represents the seller and not the buyer
o       Broker is typically paid a percentage of the sale price as commission – this is problematic because while it promotes completing the deal, it may be an incentive to raise the price
o       Buyer should hire an appraiser or third party negotiator, have a lawyer look over the contract
5.      Buyer’s Agent (Paid out of seller’s agent proceeds)
a.      Generally
o       Buyer can “hire” an agent to represent them during transaction
b.      Practically
o       Seller’s agent is paid commission out of sale price
o       If buyer has buyer’s agent, seller’s agent must split commission
o       Buyer does not pay buyer’s agent and seller doesn’t incur more cost.
6.      Duty to investigate (majority à no duty: CA/AZ à duty to conduct reasonably competent in investigation)
a.      General rule
o       Broker has no duty to investigate the premise
o       Only have duty to reveal known conditions
o       If didn’t know it, don’t have to say anything to the buyer
b.      California and Arizona
o       Broker has duty to conduct a reasonably competent and diligent inspection of the residential property listed for sale and to disclose to the prospective purchasers all facts materially affecting the value of desirability of the property that such an investigation would reveal.
c.       Scope of investigation  
o       Duty does not require broker to inspect any area that is reasonably and normally inaccessible to such inspection
o       Only have to inspect for physical defects
7.      Disclosure Requirement- Broker’s Duty
a.      Most statutes require brokers to disclose to buyer any material defects known to the broker but unknown to and unobservable by the buyer, but do not impose liability unless defects were known or are not known due to the broker’s reckless disregard – this is “pro-broker”
b.      Easton v. Strassburger (imposing a duty to investigate red flags and suggesting brokers should have expertise concerning their listings)
c.       Majority of courts do not require the broker to disclose facts that are readily observable – buyer can protect himself by ordering appropriate inspections
d.      If the broker does not answer questions accurately or fails to disclose material facts, he will be subject to an action for fraud or fraudulent concealment
8.      Standard of care- (must act in good faith)
o       Degree of care that a reasonably prudent real estate licensee would exercise and is measured by the degree of knowledge through education, experience, and examination.
9.      Broker Commission
a.      General Rule
o       Commission earned when real estate broker fulfills terms of the contract
o       Must look to terms and conditions of listing agreement to determine if commission is due
b.      Common Law (Majority)
o       Commission due upon realtor providing buyer that is ready, willing, and able to buy house
o       Does not require an actual sale of the house
o       Duty of contract is to provide buyer for the seller
–          If seller later rejects the buyer, broker still did their job.
c.       N.J. Dobbs Rule (Minority)
o       Commission is only due upon actual closing (can’t determine willing buyer until closing)
o       Because seller anticipates paying the commission out of the sale price, can’t pay commission until closing.
o       Even here, however, if the seller defaults, thus causing the failure of the transaction to close, the seller is still liable to the broker for the commission.
(i)     Drake v. Hosley (Hosley was entitled to commission because Dobbs exception does not apply when the seller defaulted – Hosley provided a ready, willing, and able group of buyers)
d.      Broker vs. Buyer
o       No contractual relationship à no remedy against a defaulting buyer
e.       Installment Contracts
o       Commission can be contingent upon receipt of installment payments
o       Commission paid out of installment payment for duration of installment contract term
B.     Listing Agreements – agreement between brokerage firm and seller, broker usually lists property in Multiple Listing Service to help market
a.      Defined (contract b/w seller and agent, appoint agent to obtain a buyer)
o       Execution of a contract by the seller appointing a broker to be his agent in obtaining a buyer
b.      Scope of Agreement
o       Appoints broker as the Agent
o       May give Agent sole and executive right to submit offers to purchase (depends on type of listing)
o       Gives Agent (and agency) right to install key-box w/ key to premise
o       Permits all agents of agency to show house
–          Must give reasonable notice and be at a reasonable time
o       Conditions for conclusive presumption that agent caused a sale
c.       Types of listings
i)        Open listing (nonexclusive): With the open listing, the broker earns his commission by procuring a ready, willing and able buyer for the property.
o       Property owner agrees to give only one broker the right to sell the property for a time certain
o       Property owner retains the right to sell the property himself without incurring a commission
o       Sale by owner: The seller can sell his property by himself, w/o a broker’s help, in which event no commission is payable.
o       Brokers rarely enter into non-exclusive agreements
ii)      Exclusive Agency: If the owner sells using another agent, the exclusive agent is entitled to his commission. The owner, however, may sell by his own efforts and thereby avoid a commission.
o       Property owner agrees to give only one broker the right to sell the property for a time certain
o       Property owner retains the right to sell t

stated the price, but it failed to lay out all of the essential terms of the agreement since it didn’t set forth any understand as to the amount of the contract deposit nor did it indicate how the parties intended to treat the commercial lease then encumbering the premises. (NO MEETING OF THE MINDS AS TO THE TERMS OF THE SALE)   
§         Electronic Signature: Congress passed the Electronic Signature in Global and National Commerce Act in 2000. This permits signature by electronic means and may include e-mail and voice mail related signatures as electronic communications.
 
2.      Part Performance – Exception to the statute of frauds Requirement 
a.      General Rule
§        Judicially-created exception to the Statute, and permits the courts to enforce a contract in equity even though there is no sufficient writing to satisfy the Statute of Frauds. Note: merely a substitute for WRITING; must still prove elements of a contract, but these matters may be proved by oral testimony.
§        If party performs part of their obligation under a non-written contract such that the other party benefits from the performance, other party cannot thereafter claim no contract and invoke the statute of frauds defense.
b.      Acts of Part Performance Recognized by Courts
§         Not requirements of the contract, but acts showing that there was a contract. 
§         Acts by Purchaser courts generally recognize:
o       Payment of part (or all) of the purchaser price
o       Possession of the property (generally required by all courts) + one of the other two.  
o       Making substantial Improvements
§         Some courts require a combination of at least, and a few courts require all three. None will accept payment alone.
c.       Two Theories for Recognizing Oral Contract based on Part Performance
 1)    Estoppel /Fraud – statute of frauds cannot be used to defraud
 2)    Evidentiary – any part performance proves existence of a contract
d.      Remedy
§        Typically specific performance unless property sold to another.
e.       Standard of Proof
§        Though elements are part performance are met, courts frequently insist that the proof of the contract’s terms be extraordinarily “clear and convincing” or the like.
f.       Example: Johnston v Curtis
§        SofF not applicable because of the Johnston’s part performance of the contract.
§        In order to remove an oral agreement from the S of F, it is necessary to prove both the making of the oral agreement and its part performance by clear and convincing evidence.  
§        In this case, the Buyer’s act of taking possession of the property and paying a portion of the purchase price are sufficient to take the oral modification of the contract out of the statute of fraud.
 
D.    Remedies for Breach of Contract
§         Introduction
o       Breach of Contract by either party (buyer or seller) may lead to some kind of remedy
§         Restitution (return innocent party to statue before the K was executed -à return earnest money, now free to sell)