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REAL ESTATE TRANSACTIONS OUTLINE

By Jesus Morgan,2014-03-11 18:47
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Conditional Sales absolute deed with option to repurchase, unconditional K obligating grantee to reconvey, lease back. c. Installment Sale Ks

    REAL ESTATE TRANSACTIONS OUTLINE

    Spring 2006

    I. THE TRANSFER OF OWNERSHIP-CONVEYANCES

    a. Contracts for the Sale of Land

    i. Real Estate Brokers

    1. Notes

    a. PROCESSES Real Estate is Bought / Sold:

    i. Execution of K

    ii. Inspections of property /examination of title

    iii. Arrangement of financing by buyer

    iv. Closing / ―settlement‖

    v. Recordation of deed

    b. Listing process

    i. Involves the execution of contract by seller which in effect appoints broker as his /

    her agent in obtaining buyer

    ii. Generally under some arrangement, if broker successful then the seller owes broker

    a commission

    c. Broker‘s Authority

    i. USUAL RULE: Broker has authority to merely show, advertise, and market

    property (not actually enter into K of sale)

    ii. Broker cannot generally force sale to take place if seller refuses (even though

    seller may still be liable for commission)

    d. Power to Consummate a Sale

    i. If the language of listing agreement is SPECIFIC ENOUGH, it may give broker the

    ―power of attorney‖ to enter into K and consummate sale

    ii. Some case law suggests that the phrase ―or contract to sell‖ which is used in forms

    does not mean the broker has power to form a contract

    iii. IF POWER TO CONSUMMATE IS ENDED IT MUST BE VERY CLEARLY

    STATED!

    e. Types of Listings

    i. THREE TYPES:

    1. Open listing - Owner agrees to pay listing broker if sale; owner retains

    power to sell himself; owner may procure other brokers

    2. Exclusive agency listing - Only one broker to sell property; owner can still

    sell his/her own property w/o having to pay commission

    3. Exclusive right to sell listing - Sale of property during contract of agent

    obligates payment of commission

    ii. NOTE: The majority of properties listed are EXCLUSIVE RIGHT TO SELL f. What is an ―Exclusive Listing Agreement‖?

    i. An ELA is a contract that creates an agency (a fiduciary relationship which P

    retains A giving A authority to act for P)

    g. Multiple Listing Services

    i. in addition to form agreement, seller and broker may prepare card or form

    regarding detailed information about house/property

    ii. Information is published in multiple listing service book

    iii. Maintain data on computer database / printed book

    iv. Essential to marketing of property provides access to property

    h. Common Problems with Some Listing Form Agreements (examining paragraphs from

    Sample Agreement) HOW IS COMMISSION EARNED BY BROKER/AGENT?

    i. Agent procures offer on seller‟s terms

    1. NOTE: This means that if offer is submitted consistent with terms of

    seller EVEN IF NO K EVER SIGNED commission may be earned

    ii. Seller removes property from market

    1. NOTE: This provision is not necessarily in all common exclusive listing

    agreements

    2. NOTE: This provision suggests that an agent / broker is relying upon

    agreement & expending resources (time/money) to locate buyer

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    3. FAIRNESS NOTION - Such a provision suggestions fairness to the broker

    to not allow the seller to remove property from mkt. w/o commission paid

    for work by broker leading up to point of removal

    4. KEY IN WORKING WITH CLIENTS: Lawyer will want to make sure

    before allowing client (seller) to agree to such a provision that seller is

    committed to selling/moving

    i. Other Illustrations of how commission is earned‖ (NWA Exclusive Listing Agmt.)

    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 sold during post-term period during which commission will be due if

    property sells (after term of agreement expired)

    iv. Seller revokes or violated listing agreements material breach

    v. Seller executes option to purchase / it is exercised during listing agreement

    j. Possible Drafting Solutions

    i. Insert paragraph that explains how COMMISSION IS EARNED; Ex:

    ―commission shall be earned when the following X takes place . . .‖

    1. EXAMPLE: This commission shall be payable only on the happening of

    one of the following events: (a) if sale of the Property is made before the

    Expiration Date of this listing and transfer of title to the Property is

    completed as a result; (b) if, before the Expiration Date of this listing,

    Seller and a Purchaser execute an option to purchase or a lease with option

    to purchase the Property (―Option‖) and the Option is subsequently

    exercised and transfer of title to the Property is completed as a result,

    whether or not the Option is exercised during the term of this agreement;

    (c) if this agreement is revoked or violated by Seller and a court of

    competent jurisdiction finds in a final, non-appealable order that the

    revocation or violation constituted a material breach of this agreement by

    Seller and that Broker did not materially breach this agreement; or (d) if

    within 180 days after the Expiration Date of this listing Seller conveys or

    exchanges or grants an option for the sale or exchange of the Property to

    any person named in a written list of prospective purchasers provided by

    Broker to Seller prior to the Expiration Date of this listing, unless the

    Property is listed with another broker. Seller has no obligation to agree to

    terms for any purchase, exchange or option unless all of the proposed

    terms are acceptable to Seller.

    ii. Remove ―said Agent‖ – change to ―agent‖

    iii. If a term is defined (Seller / Agent), the terms should be capitalized/written

    consistently throughout agreement

    2. CASE Drake v. Hosley - RULE FROM CASE: A broker is entitled to a commission if improper

    or frustrating conduct by the property owner prevents title to the property from passing

    a. Background: Drake signed exclusive listing agreement with the Hosley company; agreement provided for certain things to occur in order for commission to be awarded (1) find willing and able buyer and (2) entered into binding sale and (3) if property is sold ; group of buyers was found; purchase / sale agreement signed; Drake called off sale; Drake sold to other buyers; Hosley filed lawsuit claiming entitlement to commission;

    b. Issue: Whether Hosley performed obligations under agreement in effect to earn commission? Did Drake frustrate Hosley‘s performance?

    c. RULES:

    i. Traditional rule: broker is entitled to commission when he produces a buyer

    ready, willing, and able to purchase the property on the seller‘s terms, even if the

    sale is not completed.

    ii. (MINORITY RULE Dobbs rule): In the absence of default by the seller, the

    broker‘s right to commission comes into EXISTENCE only when his buyer

    performs in accordance with the K of sale; A BROKER IS STILL ENTITLED to a

    commission if ―IMPROPER OR FRUSTRATING CONDUCT‖ by owner prevents

    title from passing

    d. Holding: Dobbs rule is applied; A broker is STILL entitled to a commission if ―improper or frustrating‖ conduct by owner prevents title from passing; Hosley found buyers who were

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    willing; buyers tried to perform, but Drake frustrated their performance; Hosley is entitled

    to commission

    3. Notes

    a. Is the commission owed if no closing occurs?

    i. COMMON LAW RULE: broker‘s claim for commission exists despite failure to

    close (presents ready, willing able buyer);

    ii. MINORITY RULE Dobbs rule: In the absence of default by the seller, the

    broker‘s right to commission comes into EXISTENCE only when his buyer

    performs in accordance with the K of sale

    iii. Under Dobbs: An agent may not recover from the breaching buyer who refuses to

    close (no contractual relationship b/w agent and buyers)` b. Duty to Disclose Material Facts

    i. Broker has a duty to disclose to a buyer MATERIAL DEFECTS known to the

    broker but unknown to and unobservable to the buyer

    ii. Easton case extended duty; agent liable for damages when not disclose the fact

    that earlier earthslide had occurred/no direct evidence agent knew it; HELD: Duty

    to “conduct reasonably competent and diligent inspection of residential property

    listed for sale and to disclose to prospective purchasers all FACTS MATERIALLY

    AFFECTING VALUE

    c. What must be disclosed BY BROKER? (BOTH TO SELLER/BUYER) <