1. Real Estate Principles and Practices Chapter 9 Marketing and Selling Real Estate © 2010 by South-Western, Cengage Learning

2. Key Terms Auction Bill of sale Counteroffer Disclosure statement Earnest money Equitable interest Errors and omissions insurance Home buyer’s insurance Home warranty insurance Lease option Marketable title Purchase agreement Right of first refusal Straw man Trust account

3. © 2010 by South-Western, Cengage Learning Overview Purchase agreement Presenting counteroffers Earnest money deposits Seller disclosure statement

4. © 2010 by South-Western, Cengage Learning The Purchase Agreement Prequalify buyer Buyer’s cost estimate Purchase agreement Upon acceptance it becomes a contract Statue of frauds: in writing to be enforceable Practice of law? Presented to seller by listing agent

5. © 2010 by South-Western, Cengage Learning Presenting the Offer Copy to offeror Presented to offeree Usually by listing agent If sellers agree – sign acceptance Copy left with seller Notify buyer of acceptance Receives signed copy Offer may be rescinded any time prior to acceptance

6. © 2010 by South-Western, Cengage Learning Counteroffers Counteroffer: Counteroffer: revokes previous offer with entire new offer Not a partial acceptance Available for another offer Withdraw counteroffer prior to accepting a new offer

7. © 2010 by South-Western, Cengage Learning Earnest-Money Deposits Purchaser’s deposit Demonstrates good intent Placed in broker’s trust account Credited to buyer at closing Returned if offer is not accepted

8. © 2010 by South-Western, Cengage Learning Earnest-Money Deposits Buyer default could result in forfeiture of funds Disclose in writing prior to presentation of contract May be split between seller and broker after broker expenses Interpleader

9. © 2010 by South-Western, Cengage Learning Trust Accounts Clients and customers money must be kept in a trust account Ledgers & journals Sales and rents kept separately

10. © 2010 by South-Western, Cengage Learning Trust Accounts Broker entitle to money only after final sale Interest v. non-interest bearing accounts Audits

11. © 2010 by South-Western, Cengage Learning Lease Options Lease option: Lease option: leasing with option to buy Purchase within a set period of time Price and terms defined Rent may be applied to down payment

12. © 2010 by South-Western, Cengage Learning Lease Options Right of first refusal: Right of first refusal: tenant may match any offer owner receives Tenant is not obligated to purchase Disadvantage to owner

13. © 2010 by South-Western, Cengage Learning Lease Options Tenant must purchase at the end of the lease Allows time to arrange financing or clear title Portion of rent may be applied to purchase

14. © 2010 by South-Western, Cengage Learning Lease Options Equitable interest: Equitable interest: buyers interest in property once offer is accepted Assignment is allowed unless specifically prohibited Straw Man: Straw Man: offer made with intent to transfer prior to closing

15. © 2010 by South-Western, Cengage Learning Lease Options Bill of Sale: Bill of Sale: used to transfer chattel Personal property

16. © 2010 by South-Western, Cengage Learning Lease Options Marketable title: Marketable title: free of defects, liens and encumbrances

17. © 2010 by South-Western, Cengage Learning Sale by Auction Auction: Auction: absolute sale sold to the highest bidder Licensed auctioneer Absolute: sold no matter how high the bid Seller is offeror

18. © 2010 by South-Western, Cengage Learning Sale by Auction With reserve: bid may be rejected Bidder is offeror No warranties except Property is being sold Right to sell and transfer title

19. © 2010 by South-Western, Cengage Learning Representing the Seller Owe fair treatment to the buyer Confidentiality to the seller Full disclosure to the buyer

20. © 2010 by South-Western, Cengage Learning Representing the Seller Disclosure statement: Disclosure statement: checklist of inspections and potential problem areas Seller must disclose all defects Latent - hidden Patent - visible

21. © 2010 by South-Western, Cengage Learning Representing the Seller Errors and omissions insurance: Errors and omissions insurance: malpractice insurance Mandated by many states Brokers may require the disclosure in non- mandated states

22. © 2010 by South-Western, Cengage Learning Buyer’s Warranties HOW: Home owner’s warranty 10 year warranty plan for new homes Covers defects

23. © 2010 by South-Western, Cengage Learning Buyer’s Warranties Insurance for existing homes Purchased by buyer or seller Deductible amount

24. © 2010 by South-Western, Cengage Learning Buyer’s Warranties Protection against financial loss due to damage Premiums are invested to build reserves Lender requires a policy Endorsement or rider: covers additional risk

25. © 2010 by South-Western, Cengage Learning Buyer’s Warranties HO-1: basic HO-2: broader scope HO-5: covers all risks except specific exclusions 5 different types of policies

26. © 2010 by South-Western, Cengage Learning Basic Homeowner Coverage Fire Lightning Windstorm or hail Explosion Property removal from endangered premises Riot Aircraft Vehicles Smoke Theft Vandalism Breaking of glass Collapse Falling objects Weight of ice, snow or sleet Hot water heating system or appliance Frozen plumbing Electrical appliances Artificially generated current

27. © 2010 by South-Western, Cengage Learning Buyer’s Warranties Tenant insurance for personal belongs Commercial: Business equipment Interruption of business Flood Insurance Optional coverage Deductibles

28. © 2010 by South-Western, Cengage Learning Buyer’s Warranties Insurable interest to collect Rates are in direct proportion to risk $210 for $60,000 of coverage Rate = 210 $60,000 =.0035 or $3.50 per $1,000

29. © 2010 by South-Western, Cengage Learning Buyers Warranties Personal liability from injury to oneself or others Annual fee