Real Estate Transactions
Realty Transfer Steps:
(1) The execution of a contract of sale
(2) Inspections of the property and examination of the S’s title by B
(3) The arranging of financing by B
(4) The closing or “settlement”
(1) Real Estate Agents
(a) Real Estate Agents: Sell or lease others property with the expectation of compensation.
1. Traditional Broker Services: Marketing the home; Reviewing Contracts; Negotiating with potential home buyers and sellers; Locating potential properties for prospective buyers; Arranging for prospective buyers to inspect properties; Providing prospective buyers and sellers with pertinent information about a community such as relative property values, most recent selling prices, and property taxes; Apprising potential buyers of financing alternatives; Assisting in the formation and negotiation of offers, counter offers, and acceptances; Assisting with the closing of the transaction. Closing services might include assistance with handling paper work.
2. Agent only have the right to show, advertise and market the property, without right to transfer the title of the property.
a.) Agent’s Duty of Care: No objective standard, so spell it out in the agreement
b.) Duty to disclose latent defect. (Failure to disclose is fraud by omission)
1. What is a latent (v. patent) defect? (MN rule make exceptions: occupied, suicide, natural death, adult family home, murder)
2. B couldn’t reasonably be expected to know that. Not readily discoverable.
3. Information material influence on the property value.
4. Murder in the property? Yes, two standards: (1) die naturally; (2) suicide.
5. House has a reputation been haunted. Whether believing in ghost influence
3. S can authorize agent by giving her “power of attorney,” so agent, on your behalf, can enter into a contract and consummate sales.
4. Equal dignity rule: you need to transfer the right with the same formality and dignity the contract you want to have someone to exercise for you.
a.) Ex: Notary public, a deed has to be notarized with two witness. So, so according the listing agreement, there is no notary nor witness, so it would be inadequate.
4. Majority Rule: “broker is entitled to a commission when he produces a buyer ready, willing, and able to purchase the property on the seller’s terms, even if sale isn’t completed. (Drake v. Hosley)
a.)When a vendor enters a valid unconditional contract of sale with a purchaser procured by a broker, the purchaser’s acceptability is conclusively presumed because the vendor is estopped to deny the qualifications of a purchaser with whom he is willing to contract.
4. Minority Rule: Broker not entitled to a commission unless the contract for sale is performed.
5. Broker gets commission if “improper or frustrating conduct” by the owner prevents title from passing. (Drake v. Hosley)
6. A Broker has a duty to disclose to a buyer material defects known to the broker, but unknown to an unobservable by the buyer. This is true even when the broker is an agent to the seller.
(b) Broker Types: S’s agent (listing agent); B’s agent (selling agent) (Only if agreement signed) (c) Three types of Listing Agreements: Usual strict construction rule against drafter applies.
1. Open Listing: The property owner agrees to pay to the listing broker a commission if that broker affects the sale of the property but retains the right to sell the property himself as well as the right to procure the services of any other broker in the sale of the property.
2. Exclusive Agency Listing: Time certain and authorizes only one broker to sell the property, but permits the property owner to sell the property himself without incurring a commission.
a.) S normally wants this
3. Exclusive Right to Sell: No matter what, owner must pay listing broker a commission.
a.) Agent normally wants this
(c) Laws Pertaining to Real Estate Agents:
1. Minimum service laws: When contracting with broker, laws dictate min. services.
2. Fee-for-Service Broker: Broker that charges only for the services the consumer actually buys.
3. Dual Agency: An agent representing the buyer and the seller, but this is perilous because it requires identical loyalties to parties with different, and often opposite needs or wishes. The dual agent must disclose the existence of dual agency to both principals.
(d) Broker’s Commissions:
1. Common Commission Split: Mandated 50/50 split (normally 6%) between listing and selling agent, but more negotiable between broker and agent (Usually 1.5%)
2. 3% can be avoided if you do selling agent’s work directly. Knock it off selling price.
3. Perfect Tender Rule: B’s duty to perform is contingent on S’s performance. B has to perform the duty and then show they have completed a perfect tender and S failed to perform.
(2) Purchase Agreements
(a) Short Term Contract (Earnest Money, Deposit Receipt, Binder, Marketing Contract): Its function is to permit the parties to prepare for transfer of title. It usually provides for the closing, the delivery of the deed, and the payment of the purchase price after the contract’s signing.
1. Executory Until closing: Usually 30-90 days.
2. Conditions: Never set SPECIFIC number in condition.
a.) Ex: Conditioned on sale of other home for 70k. Instead, “at least 70k” or “such terms as the seller accepts. Otherwise intentions could be frustrated.
3. Inspection: Should insert clause giving buyer right to inspection.
4. Will often include fixtures.
5. Includes: (1) Type of title to be transferred; (2) Contingent on financing; (3) risk of loss interim; (4) Provisions for closing; (5) Exp. of offer on certain date; (6) Arb. Clause; (7) Personal Property; (8) Ernest Money (specify the means of payment and make sure it’s more than commission. If default, S can take the money. BUT, this is not only option for remedy). (9) Encumbrances; (10) Adjustment at Closing. (Proration: If S pays one year, then B should reimburse S. If S collects rent, should giv
e, flood; (2) Zoning changes; (3) Eminent domain change; (4) Building code change.
(d) Fulton v. Duro
1. “The B’s equitable interest is ‘real property’ and hence subject to judgment liens.”
a.) V’s heirs will inherit P property and B’s heirs will inherit R property if death during executory period
b.) RP according to state judgment lien statute: RP includes land, possessory rights to land, and that appurtenant to land and is coextensive with land, tenements, and etc.
(D) Casualty Insurance: Insures loss on the property. Bs will often have this only when the property is closed and full title is transferred. Because of unjust enrichment concerns, courts will often require the vendor to pay or credit the insurance proceeds to the purchaser, up to the full purchase price.
(4) Quality of Title to be Conveyed
(a) Marketable Title: One that is free from liens and encumbrances
(b) A vendee can consider the contract rescinded if the title is not marketable because of encumbrances, unless unpaid purchase money can remove the encumbrances. (Haisfield v. Lape)
1. This can be done where: (1) The amount of the encumbrance is definite; (2) Does not exceed the unpaid purchase money due; (3) Is presently payable; (4) Its existence is not a matter of doubt
a.) A line-of sight easement is not an encumbrance with a definite amount.
b.) Courts sometimes hold tan easement doesn’t make title unmarketable if it is o visible and beneficial.
c.) A complete lack of access to a public road can make the tile unmarketable
d.) A V’s title is unmarketable if an adverse possessor has completed acquisition of title
e.) If there is a deed that is not only recorded, but missing, title will be considered unmarketable
f.) Threat of litigation will not make a property unmarketable
g.) Usually, existence of ordinances has not been held to violate marketability of title
h.) A structure built by a neighboring property owner which overlaps the property boundary is usually considered to affect marketability of title.
i.) If the vendor’s title is based exclusively on his or her own adverse possession, the title is usually thought not to be marketable, although it may be good.
j.) Some courts have held that existing structures or conditions which violated zoning or other land use ordinances could make title unmarketable.
k.) Usually the V’s title doesn’t have to be in marketable condition until closing.