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Real Estate Transactions
University of Minnesota Law School
Burkhart, Ann M.

Real Estate Transactions

Burkart

Fall 2014

Real Estate Transaction Process

1) Execute Contract of sale/ Purchase Agreement

2) Inspection of the property and examination of the sellers title by the B or agent of B

3) Arranging of financing by the buyer

4) Closing or Settlement

5) Recording of the deed and any mortgages

1) Real Estate Agents

· If you are trying to sell or lease someone else’s property and 2) expect to be paid for doing so; you must be licensed by the state

· Sellers Agent= Listing Agent

· Buyers Agent= Selling Agent

· Two types of agents

o Brokers- have more education and experience

o Agent- beginner, has to work under a broker

· Agents get paid a commission which is a percentage of the sales price- 6% typical

o Completely negotiable

· They have the power to consummate the sale but cannot force sale

· If you list with a REA

o Seller is making them their agent

o If they are successful, you have an obligation to pay their commission

§ When does commission become due?

· Drake v. Hosley

o When the agent produces someone “ready willing and able” to purchase

§ What is RWA?

· Majority- When the purchase agreement is signed by the buyer and seller

o Justification: Buyer agreed to it so they should be bound, could have changed terms before signing.

o Agent fully performed

· Minority (Dobbs Rule)- Only if the buyer actually purchases the property

o Justification: Buyers typically pay commission from money from the sale of property. Agent has the incentive to check out the buyer’s finances to make sure sale can be complete. Sellers expect agent to sell the property not just market it

o If RWA purchaser is produced and sale fails, commission is still due

o How to protect against majority rule if you are seller

§ Make sure down payment/earnest money is enough to pay agent commission, so they can be covered if buyer defaults

§ Put in PA that if buyer doesn’t complete the sale they pay the commission.

§ Or say that “Commission is earned only when sale closes.”

o Perfect Tender Rule

§ Common law requirement to get damages

§ Obligation to perform under the contract is dependent on the other sides obligation to perform

· Must prove that you were ready to perform.

· Agents typically have access to Multiple Listing Service (MLS) which allows them to list the sellers property for other agents to see

Listing Agreements

· Employment contract between broker and property owner

· Types of Listings- must be written due to SOF

o Open (nonexclusive) listing

§ Commission only if one particular agent finds the buyer

§ Seller can use as many agents as they want

§ This is not good because a bunch of agent could find a buyer and be entitled to a commission.

· Contract that it is first come first serve to the commission

§ Seller retains right to sell themselves

o Exclusive Sale listing (Exclusive right to sell)

§ No matter who finds the buyer, the agent gets a commission

§ This has to be express and clear in the contract, if not the court will find it is not this type

§ Best for Brokwer

o Exclusive Agency Listing

§ Allows only one agent to find a buyer, if so the commission is due

§ But if sellers finds buyer no commission is due

§ Best option

· Listing Contract

o Price

o Terms

§ Other conditions that must be met other than the price. This must be listed in the contract

o Title

§ Saying title is perfect, if it is not then you must list exceptions

o Compensation for the broker

o Set out agents duties

Whose agent is the Broker?

· Listing agent has agency relationship and duty to seller because he retained services and will pay for commission

o Because listing agent and selling agents split the commission, which the seller pays the selling agent is really the sellers subagent (not the buyers agent)

o Buyer should enter into a buyers broker agreement in which the selling agent agrees to be the buyers agent

· Dual Agency Agreements

o A dual agency happens when it is the same broker, it does not have to be the same agent as well.

o Must be disclosed to and agreed to by both parties

Agents Duty to Disclose Material Facts

· Patent (visible or obvious) vs. Latent (not readily discoverable)

Duty to disclose material facts or defects known to broker but not to buyer

Even if the broker is the agent only of the seller

If seller knows of a defect that is not reasonably discoverable by buyer and could affect the selling price/ value (enjoyment) of property (materially affect the property), it is a breach and is seen as fraud by omission.

Buyer still has a duty of reasonable inspection

§ Examples of latent material facts: haunted house, death in house

2. Purchase Agreements/ Contract for Sale

· Must be in writing.

o Need to include: Parties Price, Property, Words of Conveyance (what is happening between them, what each party will do), Signatures.

· What buyer should do after PA but before closing

o Arrange financing

§ Buyer should condition their ability to perform on the ability to get financing. Be specific about what type you want

o Inspect property

§ Want PA to say that risk of loss or damage to the property between signing and closing is borne by the seller

o Check title to ensure it is marketable

o Sell home

o Check zoning laws to know how land can be used

§ Get a letter from govt saying you can use land for your intended purpose

o Get environmental assessment

§ You do this because the you are responsible for clean-up if it is discovered after you own the property

· Matters of title

o Easements, liens, etc

o Title Insurance company protects you against these issues but not Matters of survey

· Matters of survey

o Deal with physical condition

be permanent)

· Zoning ordnances that say you cant use the land in a certain way does not make the title unmarketable

· If seller got property though AP

o This is because title is only marketable if it can be proved through the public land record and if you AP there is no record of that in the land records.

· Hazardous Waste

§ Marketable Title Acts

· Limit how far someone needs to look back in title records by cutting off all interest in land which appear prior to a certain time.

o Exceptions

§ Rights of Govt

§ Visible easements, mineral rights

o Can re-record if you want to keep interest

· Curative Acts- allow instruments with a minor defect to be presumed valid (not sealed, wrong date etc)

o Insurable Title

§ Title with some type of defect, but the insurance company is willing to take the risk and insure over it.

§ Buyer should make sure they know what title company is insuring to make sure they are reliable

§ Buyer should list what type of policy they want

o Good Title

§ Seller does in fact have title but there is no public record that names the seller as the owner

· AP

§ Don’t want this.

§ Seller can bring a quite title action if someone is an AP to get good title to the land.

o Notice to vendor of title defects

§ Buyer must examine the title before closing/delivery of the deed and give seller notice and reasonable opportunity to cure the defect (typically before closing, however if contract does not make time of the essence it can be extended past the closing date)

§ Seller must make a good faith effort to correct any issues after getting notice of them

o Merger of Title Covenants

§ If the purchaser has an objection to the title, they must raise it prior to accepting delivery of the deed. IF not they are deemed to be satisfied that they are getting the title contracted for.

· They don’t have any remedy after acceptance because the contract provisions are no longer valid, because the seller has fully performed

· NOTE: Merger is a CL doctrine, so you can contract around it.

§ To protect against this: B should check the public records immediately prior to accepting delivery of and recording the deed. (“Bring down the title”)

· Or escrow money for damages if there are any

§ In some jurisdictions merger only applies to matters of title, while in other it applies to all issues in a transaction.