REAL ESTATE TRANSACTIONS
§ 1 Real Estate Transactions: The Purchase Agreement
a. Structure favors broker
b. Brokerage Agreement
i. Usually 6% to bring “ready, willing & able buyer.”
1. The S’s agent
2. Entitled to Commission even if sale NOT completed
a. (some States require there be a Buyer)
b. Broker & S can include condition of closing cl.
ii. Exclusive Agency – Broker gets commission no matter who brings in the Buyer.
iii. Protection Period – Broker still gets commission even after term of deal, so long as Broker brought in Buyer.
c. Liability of the Broker – 3 perspectives
i. Strict Liability: Broker liable for any misrepresentation
1. Broker responsible b/c he’s in position to take extra measures
2. Discouraged by cts b/c would → broker withholding info.
ii. No Liability:
1. Broker is S’s agent; B should not trust Broker;
2. B can have own survey
iii. Negligence Duty: Broker liable if he misrepresents + knew / should’ve known of falsity
1. => Reasonable degree of effort / expertise
a. Fiduciary rship w/ S.
b. Lack of privity b/w Buyer + Broker so limtd to fraud liability to Buyer.
2. EX: Hoffman v. Connall – owners told Broker wrong boundaries; Broker unknowingly told Buyers wrong info. Broker off the hook b/c was reasonable to believe owners.
2. PRE-PURCHASE AGREEMENT
a. Negotiation of Contract of Purchase
i. Letter of Understanding – proposing basis for formal sale agrmt (proposed terms / conditions)
ii. Agreement to Negotiate
1. Often NOT enforceable
2. Breach only if party failed to negotiate (or in bad faith)
iii. (+) Oppty to make a deal (and to get financing; serve as record for what’s agreed on; memorialize terms; get someone on other side of table)
iv. (+) Could help → Purch Agrmt
v. (+) MAY → c/a for breach of the doc
1. EX: Vestar v. General Dynamics – Agrmt to Negotiate NOT enforceable in Calif.;
b. Earnest Money K – governs the transaction to closing. B puts up Earnest $$ (downpayment) to show good faith willingness to go fwd w/ deal.
c. Statute of Frauds (SOF)
i. Purposes – prevent fraud; force terms to be memorialized
ii. Whenever sale of ppy, writing must include all essential terms…..
1. Parties’ names
2. Purchase Price
3. Terms of Sale
a. Description of Payments (dates, size)
4. Words demonstrating intent to Buy + Sell
5. Signatures of parties to be charged.
6. *Description of Property*: What is a sufficient description of the ppy?
a. Looser Test: Description sufficient so long as it can describe only one ppy. Can get details through oral / other evidence.
b. Intermediate Test (Oregon: Meyers): Descrip of ppy only needs to be of a memo to show parties had some agrmt, w/o looking at extrinsic evidence, so long as it pertains to one & only one identifiable parcel of land.
i. Ex: Meyers v. Kesterson – Yes K b/c K + extrinsic evidence ==> only one ppy
ii. Extrinsic evidence OK so long as description gives ascertainable objective factual evidence, w/o looking at intent of parties / oral discussions.
1. EX: title report; publicly available info (tax roles)
c. Strict Test (Maine: Gagne): Description must be in K itself. OR, there must be express reference to another legal doc. in that K that has the descrip.
d. Conditions Precedent (“Preconditions”) – something that has to be satisfied before something else happens; Condition subject to Purchaser → gives B an “out”
1. Ways to satisfy condition precedent….
a. Time limit for inspection
b. If problem found, this happens….
c. If not, this happens….
2. Financing Conditions
a. Securing of financing
i. Ex: Frady v. May – agreement contingent upon Nichols’s ability to get either financing from a lender or permission to assume the existing loan on the ppy.
b. If NO financing contingency (r
Explain conditions for Default; remedies
4. Force clients to think about risks
a. (And document the way to deal w/ risks)
5. Comply w/ SOF
6. Set up Preconditions
1. Inherent tension in K:: to get deal done….vs…..to get best deal
2. Typical solutions, customs, stds & practices to get past typical problems
a. EX: methods for prorating expenses / clearing title
1. (+) Serve as shortcut – proven methods; safe to use; comprehensive (typically)
2. (-) Biased, depending on who drafts them
3. (-) Might overlook issues that matter to client
4. (-) Every word has meaning – be careful
a. PA Form / Sample Purch Agrmt
iv. Split of Equitable Title + Legal Title on signing Purch Agrmt
1. Equitable Title – B gets interest in ppy when Purchase Agreement signed.
a. Puts B at risk of loss or if damage to ppy
i. → Makes B entitled to Insurance $$ upon loss / damage
2. Legal Title – S still possess legal title (possession) upon Purchase Agreement
a. Liability for Breach
i. If VOR breaches, B can….
1. Terminate K, recover d/p, & receive purchaser’s lien on ppy until repaid
2. Bring action for Specific Performance w/ abatement of price
3. Sue for Damages in amount of expenses & benefit-of-the-bargain expenses
ii. If B breaches, VOR can….
1. Terminate K & re-sell
2. Bring action for Specific Performance (but less likely for B w/o funds)
3. Sue for actual Damages in amt of expenses and benefit-of-bargain $d if VOR has resold for profit