Real Estate Transactions
Fall 2011
Dollinger
Contracts for the Sale of Land
I. REAL ESTATE BROKERS
A. Listing
1. Listing Agreement
(a) Contract between seller and broker
(b) Broker becomes agent of seller
2. Three types of listings
(a) Open Listing
i. Owner agrees to pay listing broker if sold
ii. Owner retains power to sell by himself
iii. Owner my procure other brokers
(b) Exclusive Agency Listing
i. Only one broker to sell property
ii. Owner retains power to sell by himself
(A) DOES NOT pay commission
(c) Exclusive Right to Sell Listing
i. Only one broker to sell property
ii. NO MATTER how the property is sold broker gets commission
3. Exclusive Listing Agreement
(a) Creates agency relationship
(b) Seller is principal
(c) Broker is agent
i. Owes a fiduciary duty to seller
4. Multiple Listing Service
(a) Seller and broker prepare form with standard information about property
(b) Information is published in MLS books
(c) Provides access to property for other brokers and buyers
B. Broker
1. In Florida
(a) Real Estate Sales Associate (Agent)
i. Licensed to show properties
(b) Real Estate Broker
i. Licensed to sell properties
ii. Usually has multiple Sales Associates working underneath
2. Authority
(a) Usually
i. Broker has authority to show, advertise, and market the property
ii. Cannot enter contract for sale
iii. Broker cannot force seller to sell
(A) Seller may be liable for commission
(b) Power to Consummate Sale
i. Listing agreement can be specific enough to give broker Power of Attorney
(A) With power of attorney, Broker can enter contract for sale
(B) “or contract to sell” is not specific enough language
ii. Must clearly end any power to consummate relationship
3. Commission
(a) Generally if broker is successful, seller owes broker a commission
i. Common commission is 6%
(b) Some brokers operate on fee-for-service arrangement
i. A la carte services
ii. Prohibited in some states
Minimum service laws- in some states, they want people to take full services(rather than piece by piece ) because they want to ensure a holistic package.
(c) Contract Terms
i. Agent procures offer on seller’s terms
(A) If an offer is submitted consistent with the seller’s terms, even though no contract is signed
(B) Commission may be earned
ii. Seller removes property from market
(A) Fairness
(B) Broker is relying on agreement and expending resources
(C) Commission may be earned
(d) Other ways commission is earned
i. Broker presents offer equal to or greater than offering price
ii. Broker presents offer of lesser price or terms acceptable by seller
iii. Property is sold during post-term period
(A) During which commission will be due
(B) After term of listing has expired
iv. Seller revokes or violates listing agreement
(A) Material Breach
v. Seller executes option to purchase
(A) During listing agreement
(e) Ready Willing and Able
i. Drake v. Hosley (1986) p.12
(A) Drake is seller
(B) Hosley is broker who found ready and willing buyer
(C) Short term contract for sale signed
(1) Closing was supposed to happen 10 days after showing good title
(D) Drake sold to other buyers
(E) Ct rules in favor of Hosley
(1) Dobbs Rule – MINORITY RULE
– In the absence of a default by the seller, the broker’s right to commission comes into existence only when his buyer performs in accordance with the contract of sale
– A broker is still entitled to a commission if IMPROPER or FRUSTRATING CONDUCT by owner prevents title from passing
(2) Majority Rule
– Broker is entitled to a commission when he produces a buyer that is ready, willing, and able to purchase the property on the seller’s terms
– Even if the sale is not completed
Þ Default by buyer also entitles broker to commission
(f) Disclosure by Broker
i. Must disclose if seller or buyer agent
ii. Must disclose if dual agent
(A) Represent buyer and seller
iii. Must disclose Material Defects known to broker
(A) Unknown and unobservable to the buyer
(B) Easton case extended duty
(1) Duty to “conduct reasonably competent and diligent inspection of residential property listed for sale; AND
(2) Disclose to prospective purchasers all FACTS MATERIALLY AFFECTING VALUE
iv. Must disclose all Restrictive covenants that may affect buyer
II. THE STATUTE OF FRAUDS AND PART PERFORMANCE
A. Types of Contracts
1. Short Term/Earnest Money Contract
(a) Lag time
(b) Seller maintains possession
(c) Buyer takes possession at closing
2. Real Estate Installment Contract/Contract for Deed
(a) Owner finances and holds deed as collateral
(b) Buyer goes into immediate possession
(c) Payments made to seller
(d) Deed recorded when last installment is paid
B. Closing
1. Time delay from when agreement is signed and closing
2. Reasons for delay
(a) Make sure title is clear
(b) Arrange financing
(c) Seller locate new home
(d) Inspect home being purchased
C. Writing
1. Statute of Frauds requires sale to be in writing
2. “A contract for the sale of land comes within the statute of frauds and must be in writing to be enforceable”
(a) Jonston v. Curtis (2000) p.27
i. Johnston is buyer
ii. Curtis is seller
iii. Entered into a contract
r the difference in interest rates
v. Ct rules
(A) Buyer can recover incidental damages for seller’s breach
(B) Innocent purchaser should be permitted to recover the benefit of the bargain irrespective of sellers good faith or bad faith
vi. English Rule – NOT FOLLOWED
(A) Limits a buyer’s recover to the return of his deposit; unless
(1) Seller willfully refuses to pay; or
(2) Seller is guilty of fraud or deceit
(B) Only restitution
vii. American Rule
(A) Awards the benefit of the bargain
(1) Difference between market price and contract price
(B) Limitation
(1) Damage are only available when the Market Price is higher than the Contract Price
2. Incidental v. Consequential
(a) Incidental
i. Reasonably associated with or related to actual damages
(A) Expense of title examination
(B) Survey
(C) Attorney’s fees
(D) Financing terms no longer available
(b) Consequential
i. Reasonably foreseeable or within the contemplation of the parties at the time of contact
(A) Cost of leasing temporary place
(1) As long as seller knew
(B) NOT RECOVERABLE
(1) Airfare to negotiate and execute contract
3. Date of Valuation
(a) Traditional view
i. Date of breach
ii. Appraisal value
(b) Donovan case
i. Suggest may not be fair
ii. Should be Resale price
(A) Actual reselling price
4. Buyer’s Breach
(a) Seller’s Damages
i. Carrying costs until property is sold
(A) Assuming reasonable efforts to sell continued
ii. Interest reasonably expected to be earned
(A) Some states
iii. Cost of a second real estate broker
(A) If seller is obligated to pay commission to first broker
iv. Increased tax liability
(A) Changes in tax laws occurring between original scheduled closing and new closing
5. Specific Performance and Damages
(a) Contract is eventually performed after unjust delay, damages may still be awarded
i. Interest on purchaser mortgage should have been paying
ii. Recover taxes
iii. Recover interest
iv. Recover damages for deterioration to improvements due to delay
v. Recover higher cost of financing due to increased interest rates
C. Specific Performance