Real Estate Practice 051623

1. The Real Estate School
U N I T 1 8
SALES CONTRACTS
1
Page 337

2. DISCLOSURES
• Consumer Notice – Explains
agency relationships and is
reviewed at the initial meeting
2
Page 338

3. DISCLOSURES
• Seller’s Property Disclosure –
Seller has a duty to disclose any
known defects that threaten
structural soundness or personal
safety
3
Page 338

4. DISCLOSURES
• Seller’s Property Disclosure (cont’d)
• Buyers have the responsibility to discover problems or issues
that are important to them
• Licensees are obligated to
disclose known costs
associated with selling or
buying property before
their clients enter into an
agreement
4
Page 338

5. DISCLOSURES
• Material Facts – Information that is significant to a person and that
person’s ability to make an informed decision
• Property conditions
• Health concerns
• Property use
5
Page 338

6. DISCLOSURES
• Latent Defect – Hidden structural defect that would not be
discovered by ordinary inspection
• Violations of zoning
• Building codes
6
Page 338

7. DISCLOSURES
• Stigmatized Properties – Properties that society has found
undesirable because of events that occurred there
7
Page 339
Issue is not a physical defect but a perception

8. DISCLOSURES
• Stigmatized Properties (cont’d)
• Milliken v. Jacono (2014 PA Supreme Court case) – Psychological stigmas
on a property are not material defects that reduce the value of
the property thus do not require seller disclosure
8
Page 339

9. DISCLOSURES
• Estimated Statements of Closing Costs – Licensees are required to
provide buyer and seller with written estimated statements of
closing costs before signing an agreement
9
Page 339

10. $296,674 $291,898 $297,444
$308,063
$321,155
$335,415
* Based on price appreciation as predicted by the Home Price Expectation Survey (HPES). The survey asks more than 100
leading economists, real estate experts and investment and market strategists to predict real estate appreciation trends.
2023 2024 2025 2026 2027 2028
$38,741
Potential growth in household wealth over the next 5 years
based solely on increased home equity if you purchase an
average priced home in Lancaster County in February 2023
-1.61% +1.90% +3.57% +4.25% +4.44%

11. Interest Rate: 6.32%
Term: 30 years
Loan-to-Value: 95%
Mortgage: $281,840
Monthly Payment: $1,748.19
Principal Amount Remaining
After 5 Years: $263,280
Sales Price:
Mortgage Payoff:
Less: Original Down Payment
Equity:
$ 335,415
263,280
14,834
$ 57,301

12. DISCLOSURES
• Uniform Condominium Act and Uniform Planned Community Act
– Require a seller to furnish copies of the development’s
declaration, bylaws, and rules and regulations of the association
for buyer’s review
• Buyer has five days
to review documents
12
Page 339-340

13. DISCLOSURES
• Opinion versus Fact
• Consumer must be aware of whether licensee is sharing an
opinion or stating a fact
• Fraud is the intentional
misrepresentation of a
material fact in such a
way as to harm or take
advantage of another person
13
Page 340

14. DISCLOSURES
• Opinion versus Fact (cont’d)
• Misrepresentation is an unintentional misstatement or
omission
• If a buyer relies on licensee’s
statement, the licensee is
liable for damages that
result
14
Page 340

15. DISCLOSURES
• Opinion versus Fact (cont’d)
• Puffing – An exaggeration of a property’s benefits
15
Page 340

16. AGREEMENT OF SALE
• A real estate sales contract contains the
complete agreement between a buyer of
real estate and a seller
• Offer to Purchase – Prepared and
signed by Buyer
• Agreement of Sale – Offer is accepted
and signed by the Seller
16
Page 341
Figure 18.1
(Page 346-359)

17. AGREEMENT OF SALE
• Preparing a Contract
• Licensees are permitted to prepare contracts by filling in the
blanks on standard PAR forms
17
Page 341
L H L

18. AGREEMENT OF SALE
• Preparing a Contract (cont’d)
• Licensees must avoid the unauthorized practice of law by not
altering wording or drafting clauses that could injure parties or
create liability for themselves
• All parties to a contract must be
given the opportunity to secure an
attorney before signing a contract
18
Page 341

19. AGREEMENT OF SALE
• Preparing a Contract (cont’d)
• Basic requirements to form a legally binding contract:
• Offer and acceptance
• Consideration
• Legally competent parties
• Legality of object
• Reality of consent
19
Page 342

20. AGREEMENT OF SALE
• Offer – Licensees help prospective buyers prepare an offer to
purchase
• Offer is signed by the buyer and
presented to the seller by the licensee
20
Page 342

21. AGREEMENT OF SALE
• Earnest Money – Evidence of the buyer’s intention to carry out the
terms of the contract
• Broker deposits the
check in a special
account as required by
law
21
Page 342

22. • Earnest Money (cont’d)
• Deposit amount is a matter to be agreed on by the parties
• Deposits should be an amount sufficient to:
• Discourage the buyer from defaulting
• Compensate seller for taking property off the market
• Cover expenses seller incurs if buyer defaults
AGREEMENT OF SALE
22
Page 342

23. • Earnest Money (cont’d)
• Commingling – Mixing
earnest money with
broker’s personal
funds (illegal)
• Conversion – Using
earnest money
funds for personal use
(illegal)
AGREEMENT OF SALE
23
Page 342

24. • Earnest Money (cont’d)
• All deposits may be kept in
one account and broker
must maintain full,
complete, and accurate
records of all deposits
AGREEMENT OF SALE
24
Page 342

25. • Earnest Money (cont’d)
• The account may or may not pay interest
• Must deposit funds by the end of the
next business day following receipt
by broker
• Check may be held until
offer is accepted
AGREEMENT OF SALE
25
Page 342-343

26. • Earnest Money (cont’d)
• Wire transfers are becoming increasingly popular in today’s
fast-paced world
• Use of apps and programs also are becoming more common
to transfer money
AGREEMENT OF SALE
26

27. • Binder – States the essential
terms of the offer in a shorter
document and acknowledges
that the licensee has received
the purchaser’s deposit
AGREEMENT OF SALE
27
Page 343

28. • Counteroffer – Any change by the seller to the terms of the offer
proposed by the buyer
• The original offer ceases to exist
• Offer/Counteroffer may be withdrawn at any time before it has
been accepted
• Licensees must present all
offers and counteroffers in
a timely manner
AGREEMENT OF SALE
28
Page 343

29. • Acceptance – Occurs when a buyer or seller agrees to the offer or
counteroffer of the other party
• An offer is not considered accepted until
the person making the offer has been
notified of the other party’s acceptance
• Electronic transmission constitutes
acceptance
AGREEMENT OF SALE
29
Page 343-344

30. • Equitable Title – Buyer does not
receive legal title until delivery and
acceptance of deed which is
evidence that a property has
transferred
AGREEMENT OF SALE
30
Page 344

31. • Destruction of the Premises – Once the parties form the
agreement of sale, the buyer bears the risk of any
damage/destruction of the property
• In practice, the PAR
Standard Agreement of
Sale states otherwise
AGREEMENT OF SALE
31
Page 344

32. • Parts of an Agreement of Sale
AGREEMENT OF SALE
32
Page 344-345
• Names of Seller and Buyer
• Legal description
• Type of deed offered
• Consideration and financial
arrangements
• Provisions for closing
• Possession of property
• Provisions for title evidence
• Provisions for pro-rations
• Provisions in the event of damage or
destruction
• Provisions for default
• Contingencies
• Date and signature of parties
• Agency disclosure statement

33. • Additional Provisions
AGREEMENT OF SALE
33
Page 345
• Personal property left behind
• Real property removed
• Transfer of warranties
• Identification of leased equipment
• Appointment of closing agent
• Closing instructions
• Special assessments
• Pre-settlement walkthrough
• Documents to be provided

34. • Contingencies – Additional conditions that must be satisfied
before a sales contract is fully enforceable
• Contingences create a
voidable contract if they are
rejected or not satisfied
AGREEMENT OF SALE
34
Page 360

35. • Contingencies (cont’d)
• Include the following three elements:
1. Actions necessary to satisfy the
contingency
2. Time frame within the action must be
performed
3. Who is responsible for paying any costs
AGREEMENT OF SALE
35
Page 360

36. • Contingencies (cont’d)
• Example of a ‘BAD’ contingency
“This agreement is contingent upon
living room being painted.”
AGREEMENT OF SALE
36
Page 360

37. • Contingencies (cont’d)
• Mortgage Contingency – Protects the buyer’s earnest money
until a lender commits the mortgage funds
• Type of mortgage
• Amount of mortgage
• Maximum interest rate
• Minimum term
AGREEMENT OF SALE
37
Page 360
• Deadline for commitment
• Nature and extent of Broker
assistance

38. • Contingencies (cont’d)
• Inspection Contingency – Allows the buyer to obtain certain
inspections of the property
• Wood-boring insects
• Lead-based paint
• Structural
• Mechanical systems
AGREEMENT OF SALE
38
Page 360
• Sewer and water
• Radon

39. • Contingencies (cont’d)
• Property Sale Contingency – Allows the buyer to make the sales
contract contingent on the sale of their current home
• Insurance Contingency – Allows the buyer to make the sales
contract contingent on obtaining affordable homeowner’s
insurance
AGREEMENT OF SALE
39
Page 360

40. • Amendments and Addendums
• Amendment – A change or modification to the existing content
of the contract
• Must be initialed or
signed by all parties
• Example: Changing
settlement date from
90 to 60 days
AGREEMENT OF SALE
40
Page 360

41. • Amendments and Addendums (cont’d)
• Addendum – Provision added to an existing contract without
altering the content of the original
• Must be signed by all parties
• Example: An agreement to
split costs of repairing items
discovered in a home inspection
AGREEMENT OF SALE
41
Page 360

42. • Disclosures – License law in Pennsylvania requires that an
agreement contain disclosures when prepared by licensees
• Capacity in which the Broker is operating
• Purpose of the Real Estate Recovery Fund
• Statement of the zoning classification of the property
• Access to a public road may require a highway occupancy
permit
AGREEMENT OF SALE
42
Page 361

43. • Disclosures (cont’d)
• Lead-based paint disclosure for properties built prior to 1978
• Sewage facilities disclosure
• If time-share, condominium, or planned community the right
for Buyer to rescind
AGREEMENT OF SALE
43
Page 361

44. • Steps to Limit Liability – Who is my client?
• Consumer Notice – Document explains the various options
available regarding agency
• Agreement of Sale (page 1)
outlines exactly who the
parties to the transaction
are and what role (if any)
the agents and broker
take on
AGREEMENT OF SALE
44
Page 361

45. • Time is of the Essence
• If either party fails to follow the particular timeframes, that party
may be considered to be in default
AGREEMENT OF SALE
45
Page 362

46. • Option is a unilateral contract by which an optionor (owner) gives
an optionee (purchaser or lessee) the right to buy or lease
property at a fixed price within a stated period of time
OTHER AGREEMENTS
46
Page 363

47. • Options on commercial real estate frequently depend on
some specific conditions being fulfilled, such as obtaining a
zoning change or a building permit
OTHER AGREEMENTS
47
Page 363

48. • Installment Contracts – The seller retains legal title to the
property while the buyer takes possession and acquires equitable
title
OTHER AGREEMENTS
48
Page 363

49. • Installment Contracts (cont’d)
• Buyer gives seller a down payment and pays monthly
installments of principal and interest over a number of years
• Buyer pays real estate taxes, insurance, and repairs which is
similar to terms of a net or land lease
OTHER AGREEMENTS
49
Page 363

50. • Installment Contracts (cont’d)
• Seller is not obligated to execute and deliver a deed until all the
terms of the contract have been satisfied
• Sellers, buyers, and licensees
should consult an attorney when
contemplating an Installment
Sales Contract
OTHER AGREEMENTS
50
Page 363