What does a termination option do? Who benefits from this?
-buyer benefits; buyer is literally buying time to inspect, get repair estimates , or just for any reason terminate.
What are the key characteristics of paragraph 23 Termination Option?
-gives the buyer the option to back out of buying the house for any reason.
How many days does the buyer have to consider the termination option?
-3 days; buyer's agent faxes over offer contract, seller's agent show seller, seller reviews, accepts or counters, sends contract back to buyer's agent, buyer agrees, both buyer and seller sign agreement, buyer has 3 days from the effective date to pay option termination fee.
When does the 3 days start ticking for the termination option if the buyer chooses this option?
-the effective date; the date that the seller and buyer agree on the contract, sign and initial.
What happens if the buyer does not pay the termination option fee within the 3 days?
-buyer loses the termination option
Do you pay for the earnest money during or after the option fee is up? If during option fee, do you get the earnest money and option fee back?
Earnest money contracts are what?
-bilateral contract; seller agrees to sell, buyer agrees to buy; mutual exchange of promises
What is a promise?
-something of value that can be consideration for a contract; love, money, diamonds, etc.
Option money check is made out to... and handled by...
seller; money is not in the escrow, the seller will keep the money whether the buyer buys or not.
Can it be agreed to put the option money towards the sale? If so how is this reported?
An option contract is a...
one sided contract; seller agrees to sell, IF buyer wants to.
Earnest money is not __________, but option money is.
-earnest money is refundable if conditions are met, option money is not refundable.
What if the seller thinks the option fee is to little for the amount of time? Can they counter the termination option fee?
What all happens during the option period? Survey? Inspection? How long do these usually take?
What are two ideas that affect how much money is put down for the termination option?
-put in only a small amount; keep option money low for buyers
-put a consideration that reflects the fair value of the property's time off the market.
Common termination fees:
-$1 (very minimal)
Even if the property fails to appraise, the buyer still loses the option money.
It is unwise for brokers to draft special provisions in paragraph 11 to cause a refund of option money. Why?
-this may be unauthorized practice of law
-just the presence of such provisions, even if the property is in great shape and appraises, may cause the contract to fail for lack of consideration.
Seller can refund the option money if they wish.
true; but how?? Where do they write that it was refunded
The incentive of termination option is to keep the option money low for buyers, sellers in exchange may demand a quick option period.
What is the common figure of days for the termination option? What all should the buyer get done during that time period?
-inspections and repair cost estimates.
Can you extend the termination option?
Can the option fee money be counted towards the sales price?
-yes; there is a check box
-pros; encourages larger option fees;
-cons; not a guarantee of consideration.
The seller can immediatly cash the termination option check into their bank account.
false; the broker should not allow the seller to cash the check until the seller is signed to a contract that matches what the buyer offered. (No changes or counters)
A buyer's agent should NOT honor a buyer's request to hold the option check for any reason, unless
both parties agree
The check needs to be in what form?
DON'T send the option money check to the title company, it will be time consuming to get out.
What should a buyer's broker get from the listing broker, when the buyer's broker gives the option money check?
a receipt for records of payment
If seller pulls property back to sell to a higher bidder, during the paid option period, the buyer and buyer's broker can...
-sue for breach of valid contract
If the check does not clear or get cashed, call to find out why.
A list of inspectors can be found where?
-(CAUTIOUS) list from broker
What are the pros and cons of the seller fixing repairs asked buyer from the inspection during the option period?
-buyer still can back out if repairs are done or not;
--pro: seller can fix things that other potential future buyers may see or ask for
--con: buyer can back out: seller should be careful to just fix things up to just that buyers preferences.
How might a repair request go?
1. the buyer and seller sign the contract
2. the buyer runs inspections and (buyer or seller) get repair estimates
3. the buyer writes the seller and explains why certain repairs might be desirable, and not that expensive in light of the repair estimates, and asks the seller to pay for them.
4. The seller agrees and offers to pay a substantial part of the repair costs. The buyer and seller put the repairs to be done in paragraph 2 of the Amendment to Contract from which the seller must sign and accept.
5. the repairs are completed
6. the sale closes
Where does the seller accept the repairs to be done?
paragraph 2 of an Amendment to Contract form; seller must sign
What does the buyer's agent want to be careful with when there are second or back-up contracts?
-writing a new contract
-best to modify the existing contract; modification forms for price change or addendums
A broker should be careful on advising the buyer on what might or might not be a good repair to make or not. That call should be left up to the buyer and inspectors.
Sometimes a certain repair is more important than other repairs, what can be done about this?
-possible to schedule a key repair estimate early "phrasing a repair".
If a seller agrees to fix a certain repair and a buyer knows a contractor to fix it, can a seller agree to go with the buyer's suggestion?
yes; as long as the contractor is license (if necessary); it may be cheaper for the seller.
Under the Option, if the buyer fails to kill the option by written notice, then the buyer is committed to buy the house "as is".
What is the proper way to "kill" the contract within option termination time frame?
-T.R.E.C.'s Notice of Termination of Contract form.
-get a confirmation from seller's agent that they have received the notice
What is the proper way to extend the time for the termination option?
-T.R.E.C. amendment to contract form, check box 7, and pay an additional option fee for an option extension.
Termination Option is based on...
"time is of the essence"
It is tempting to fill up the Special Provisions area with repair requests, but also very dangerous to do. What are some procedures to do to keep the broker safe?
-don't write anything in there and just have the parties draw up a draft in their own words
-limited requests is announcement format language: "the seller refuses to pay more than $1,000 for all repairs in the sale.
Writing repair requests and instructions in the Special Provision can get...
very complicated fast.
You should try to get the option check to sellers BEFORE they sign.