Let the Seller Beware
The 25 Buyer Outs in the Texas Real Estate Contract
Reba Saxon
VILLAGE SCRIBES PUBLISHING
Published by Smashwords
Copyright 2011 Reba Saxon
ISBN: 978-0-9831436-1-1
Smashwords
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About the Author
Reba Saxon has been in the real estate industry for many years, first as the child of a Realtor® in Louisiana, then as an agent in Colorado in 1980 (when interest rates were 18%), but mostly in Texas since 2003. She served a 200+-agent real estate office in a management position and performed as a top producer there (but not at the same time). Additionally, Reba is a Certified Real Estate Instructor, a member of the faculty for the Texas Association of Realtors®, and has served on the Professional Development Committee at the state level since 2008. A member of the Professional Standards Committee since 2009, she has participated in Ethics hearings between Realtors® and between Realtors® and consumers, and works on the Housing Initiatives Committee to promote affordable housing across the state. She has achieved the following designations through education and personal production:
ABR: Accredited Buyer Representative
CREI: Certified Real Estate Instructor
CRS: Certified Residential Specialist
EcoBroker
EAH: Employer Assisted Housing/Home from Work
GRI: Graduate, Realtor® Institute
GREEN
SFR: Short Sale and Foreclosure Resource
TAHS: Texas Affordable Housing Specialist
And she teaches Contract Law, Agency Law, and Principles of Real Estate at a proprietary school in the Austin area. She is the owner/broker of Teacher Realty.
PARAGRAPH 6:TITLE POLICY AND SURVEY
PARAGRAPH 7: PROPERTY CONDITION
PARAGRAPH 11: SPECIAL PROVISIONS
PARAGRAPH 12: SETTLEMENT AND OTHER EXPENSES
PARAGRAPH 20: FEDERAL TAX REQUIREMENTS
PARAGRAPH 22: AGREEMENT OF PARTIES
PARAGRAPH 23: TERMINATION OPTION
PARAGRAPH 24: CONSULT AN ATTORNEY
FINAL PAGE OF CONTRACT: BROKER INFORMATION
Online links to forms discussed in this book:
ADDENDUM FOR PROPERTY LOCATED SEAWARD OF THE INTRACOASTAL WATERWAY
ADDENDUM FOR COASTAL AREA PROPERTY
ADDENDUM FOR PROPERTY SUBJECT TO MANDATORY MEMBERSHIP IN A PROPERTY OWNERS ASSOCIATION
ADDENDUM FOR RELEASE OF LIABILITY ON ASSUMED LOAN AND/OR RESTORATION OF SELLER’S VA ENTITLEMENT
ADDENDUM FOR RESERVATION OF OIL, GAS AND OTHER MINERALS
ADDENDUM FOR SALE OF OTHER PROPERTY BY BUYER
ADDENDUM FOR “BACK-UP” CONTRACT
BUYER’S TEMPORARY RESIDENTIAL LEASE
ENVIRONMENTAL ASSESSMENT, THREATENED OR ENDANGERED SPECIES, AND WETLANDS ADDENDUM
ADDENDUM FOR SELLER’S DISCLOSURE OF INFORMATION ON LEAD-BASED PAINT AND LEAD-BASED PAINT HAZARDS
SUBDIVISION INFORMATION, INCLUDING RESALE CERTIFICATE FOR PROPERTY SUBJECT TO MANDATORY MEMBERSHIP IN A PROPERTY OWNER’S ASSOCIATION
SELLER’S DISCLOSURE OF PROPERTY CONDITION
SELLER’S TEMPORARY RESIDENTIAL LEASE
THIRD PARTY FINANCING ADDENDUM FOR CREDIT APPROVAL
Why this ebook?
Texas real estate contracts are driven by consumer-focused law. In some ways, it is as if the seller is viewed as a giant corporate manufacturer of this large product to be sold for many thousands of dollars, vs the poor, defenseless buyer, whom we must protect. To provide this protection, there are a total of 25 “outs” for buyers in our residential contract and related addenda. There are only two for the Seller, when Seller financing or allowing their loan to be assumed.
Most agents are familiar with the option period that can be purchased by the Buyer directly from the Seller in Paragraph 23 of the contract. This option period is to allow for inspections and obtaining contractors’ estimates for specific repairs the Buyer may want to consider as a part of the purchase. It provides time for any due diligence the Buyer wants to perform. What many real estate agents don’t know is that this is only the most obvious “out” and there are many more.
This ebook outlines and explains the entire Texas Real Estate Sales Contract for the resale of One-to-Four Family Residential properties and includes all related addenda explained by a seasoned negotiator. It will benefit any Agent, Broker, Buyer or Seller of residential property in Texas. Many of the aspects may also apply to contracts available in other states, but this ebook applies to practice in Texas.
The real estate sales contract is THE most important document in a real estate agent’s briefcase. Listing agreements are nice, buyer representation agreements are nice, but their use only indicates the possibility of income. Nobody is going to get paid until a contract is written and closed. It is imperative that you know the contract inside and out, for yourself and for your clients, since the contract conveys property and large sums of money. It is the single most important aspect of our business.
Once I was referred to a client who wished to sell her home in Hutto, Texas. Hutto was once a tiny town eight miles east of Round Rock. During the development boom of the 2000s, Hutto went from less than 300 people to over 20,000, and from a dusty Texas farming town to a sprawling bedroom community for Austin and Round Rock, which is a suburb of Austin as well. There were thousands of newer homes in the area, but this home was quite different: a Craftsman bungalow in the original town, built in 1928. It had character. It had soul. I wanted the experience of working with it. I made an appointment to list the house, but was waylaid and called to say I would be thirty minutes late. The Seller said she had to pick her daughter up in an hour anyway so we rescheduled, because that didn’t leave us enough time. My listing appointments run an hour and a half. Doesn’t matter if it’s their first time to sell or their fifth, somehow whenever I get back in my car and check the clock it’s been ninety minutes. It just takes that long to talk about the Seller’s needs, thoroughly explain the listing agreement, and discuss the market data that determines the price.
I was sick as a dog on the rescheduled appointment day. I knew that no one would want to even be exposed to me across the table. In fact, I went to an emergency clinic instead and called the Seller to explain. “Oh, that’s ok, just call me when you are better.” My husband said I must have been really sick to miss a listing appointment.
When I called back to reset the appointment, the Seller said, “I appreciate your efforts to try to get this together, Reba, but I am worn out by the process. I was referred to three other Realtors® and have been through this three times already. They are all pretty good, and I am just going to pick one of those. This is an emotional decision for me to sell this house, and I just can’t go through it again.”
I said, “No, you really need to see me.”
“Why?” she said. “Do you really know and love Hutto? Because I think whoever sells this house needs to know and love Hutto.”
“With all due respect, I don’t need to know and love Hutto. Our Buyer’s Agents need to know and love Hutto. What I do know are the 24 outs for a Buyer in our contract, how to close those loopholes, and how to make sure you don’t leave any money on the table.”
She said, “…Would 1:30 be okay?”
How We Got Here
When I first got into real estate in Texas, I took the 30-hour Law of Contracts class as part of the pre-licensing requirements. During my first year, I also took the twelve days of GRI (Graduate, Realtor® Institute) coursework leading to that designation. Two full days of that series focus on Contracts and Contract Procedures. My husband asked me what we were studying, and when I replied, “Oh, the contract,” he asked, “How long can you study the same thing?” The answer is: an entire career. Knowing and negotiating the contract is the most important aspect of practicing real estate. There are over thirty related addenda that may be used. There are many possible special clauses you might want to enter in the Special Provisions Paragraph because there is no approved addendum, but you must avoid “practicing law” by getting creative there. Classes in contracts are generally the most well attended classes in any real estate brokerage office because agents know that they always pick up something that they will use in their business.
A basic understanding of contract law provides for just that, but basic is not nearly enough. The Texas Real Estate Commission (TREC), the regulatory agency for real estate licensees, promulgates contracts for use by those licensees. The best definition I can give you for ‘promulgates’ is ‘requires the use of’. The contracts and related addenda are actually written by the Texas Broker-Lawyer Committee, made up of 6 lawyers, 6 brokers, and a member of the public to provide the “Huh?” that leads to better explanations within documents so that the consumer can understand what these professionals are writing and guards against unexplained industry jargon and legalese. When this Broker-Lawyer Committee finishes drafting a new document or a revision of an existing one, TREC publishes the proposed changes and seeks input from the real estate community for several months before setting the changes in stone.
Following the simple requirements for a valid contract would result in a one-page document that could be written on the back of a paper sack. The Texas contract is now at eight pages, plus a ninth page, Broker Information, more commonly called the ‘courtesy page’ or ‘receipts page’. This page provides identification of the real estate Brokers and their Agents involved in the transaction, indicates the expected commission payment for the Buyer’s Agent from the Listing Agent, and provides places for the receipt of the option fee and the contract to be noted. How did we get from one page to nine pages? Partly through explanatory text added to make things clearer to the parties involved. Additionally, the various other regulatory agencies (Texas Department of Insurance, various taxing authorities) and other laws (Texas Property Code, Texas Water Code) want to get a word in edgewise about their requirements when transferring property. Sometimes (often) there has been a lawsuit and the additional text resulted from reaction to various problems encountered in those litigated transactions, in an effort to prevent those same problems for folks in the future.
The simple requirements for a valid contract are (1) Competent parties (Buyer and Seller who can read and understand the contract, are not under the influence or otherwise not competent), (2) Legal subject matter (can’t be for something illegal) (3) Consideration: a give and take from each side (give money and take property/give property and take money), (4) Mutual Assent (everybody has agreed to all terms), and (5) Delivery and Acceptance. In most states, there is also a requirement that a real estate contract must be in writing. We behave according to contracts every day, most of them implied. If there is a transfer of real estate involved, the contract must be expressed in writing to be valid.
Several states do not allow real estate Brokers or Agents to complete contracts at all; an attorney is involved in every real estate transaction. But at some point in Texas, I’m guessing that Brokers may have gone to the state legislature and said, “A lot of these real estate sales are the same type of transaction over and over. We could save the public (your constituents) money if we could just be allowed to have a contract--drafted by attorneys, of course--on which we could just fill in the blanks.” And it must have been a time when there weren’t so many lawyers in the legislature, because they said okay. This would be a nice revenue stream for attorneys, so we are very happy that we can serve our clients in this way, and that they are not forced to use an attorney for a boilerplate real estate transaction. Of course, we encourage them to hire an attorney if they have any questions beyond our limited expertise.
When I managed a large real estate office in the Austin, Texas suburb of Round Rock, part of my job was to resolve agents’ problems and conflicts. I would say that 80% of those problems were preventable with additional knowledge in just two areas: Contracts and Agency. Often an agent would come and sit in my office, saying “This problem has happened or is going to happen, what do I do?” And I would patiently point out to them the Paragraph in the contract that showed they didn’t need to come up with anything new, it was resolved right there in the contract. If they knew their contract better, they wouldn’t have been so upset and stressed out. As far as Agency, when an agent told me, “The other side is saying/doing this, what should I do?” The answer was usually, “You don’t need to DO anything. You are the Agent for the Broker, who is the Client’s agent/representative. You need to make sure that our Client is fully informed, let them make the decision, then you effect that decision.” No judgment calls, no unnecessary shouldering of blame.
As I have taught our sales contract numerous times, I have come to the conclusion that there is negotiation available in many areas that are not used often. If you are acting as an Agent for your Broker’s listing, and thus for the Seller, you need to know where to advise your client to stand firm and where to negotiate. If you are a Buyer’s Broker’s Agent, you need to know how to make your client’s offer stand out from others and how to reassure your Buyers that they are very well protected so that they can move forward quickly when you help them find the right house.
This ebook will provide you with those skills. Your Broker will guide you in how he/she wants you to do business in his/her name, but you can at least have the right questions to ask. And remember, we must always treat all parties honestly and fairly, client or not.
USING THIS EBOOK: If you have access to the internet, you may go back and forth from forms online in another window to the ebook. The One to Four Family Residential Contract is used as the template, and is included at the end of this ebook with links to each paragraph from its corresponding discussion within the text. The paragraphs are also excerpted and available before each paragraph discussion within the text. Several of the most often-used forms are available at the end of this ebook as well. The ‘BUYER (and SELLER) OUTS’ are all identified in red type if you have color available on the device where you are reading this ebook. To be considered a true ‘out’, the party must receive the earnest money when all is said and done.
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ONE TO FOUR FAMILY RESIDENTIAL RESALE CONTRACT
PARAGRAPH 1: PARTIES
PARTIES:
The names of the Sellers and Buyers of the property are entered.
The title company will be using the first two paragraphs of the
contract to draw up the deed, but will confirm names and other
titling details with the parties directly. In the past, if a single
person was purchasing the property, we might enter “a single
person” after their name to signal that there was no spouse who
could later claim the property under community property rights, but
that is really not necessary today. If the Buyers are a married
couple with the same last name, the old way was to add “a married
couple” after their names, but today it is assumed that they are
married if you do not add that phrase. In fact, it is the title
company’s responsibility to establish how the new owners want to
take title, and making suggestions in this area could constitute the
practice of law. I have had a title company’s attorney add “and
spouse” between the names, which angered a client when she sat at
the closing table and saw the deed written that way. She was an
attorney for the state, and she didn’t like being classified as the
“spouse”. She said to her husband, “Why do I have to be the
‘spouse’? Why can’t YOU be the ‘spouse’?” I immediately
asked, “Do you want to have it changed? We can close later and they
can redraw the deed.”