Chapter 8
Georgia Real Estate
An Introduction to the Profession
Eighth Edition
Chapter 8
Real Estate Sales Contracts
Key Terms
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binder
default
earnest money deposit
equitable title
installment contract
lease-option
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letter of intent
option contract
rider
right of first refusal
“time is of the
essence”
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Purpose of Sales Contracts
A buyer needs to time to be certain the seller
is legally capable of conveying title. It also
gives them time to arrange financing and an
inspection.
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Purpose of Sales Contracts
Once a sales contract is in writing and signed,
sellers cannot change their mind and sell to
another person.
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Purchase and Sale
When using a contract form, any unused
spaces that are part of the agreement should
be nullified by placing a “N/A” in the space.
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Earnest Money
Earnest money commonly
accompanies and offer to
purchase as evidence of
good faith.
The deposit can be cash,
check or wire transfer.
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Earnest Money
The contract will indicate if
the broker is holding the
earnest money as of the
offer date or within a
designated number of days
after the offer date.
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Date of Closing and Transfer of
Possession
A unilateral extension of the closing date is
allowed under very specific circumstances:
• title problems
• closing attorney unable to perform their
obligations
• lender unable to perform their obligations
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Seller’s Contributions at Closing
The seller may make a
contribution to be used by
the buyer as they see fit to
offset the costs of closing
the transaction.
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Closing Attorney
The buyer has the right to choose the closing
attorney.
Unless the buyer is paying cash, the closing
attorney represents the interests of the lender.
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Inspection
Buyers have the right to inspect the property
and the duty to inspect the neighborhood for
any conditions that they would find
objectionable.
It is always prudent to suggest that the buyer
order a termite inspection.
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Subject to Due Diligence or “As Is”
Most sales are subject to a due diligence
period, anywhere from 7 to 21 days. It can be
any period agreed to by the parties to the
contract.
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Subject to Due Diligence or “As Is”
If anything comes up during the due diligence
period that is not acceptable to the buyer, the
buyer can terminate without penalty any time
prior to the end of due diligence.
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Subject to Due Diligence or “As Is”
Without a due diligence period, the buyer is
buying the property “as is.”
Even when buying property “as is,” the seller
has a legal duty to disclose knowledge of any
latent defect.
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Subject to Due Diligence or “As Is”
A latent defect is a defect that is concealed, or
one that a buyer would have to possess
certain training or knowledge to recognize.
A patent defect is one that is open to
observation and would take no special training
to recognize.
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Subject to Due Diligence or “As Is”
Once the due diligence period passes, the
buyer is accepting the property as is.
The seller disclosure form should never be
completed by the real estate agent, or should
the agent assist in completing the form.
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Lead-Based Paint
On properties built before
1978, buyers have the right
to inspect for lead-based
paints.
This is covered under their
right to inspect in the
contract.
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Warranty
The seller will warrant the property to have a
marketable title and allow the buyer to
examine it.
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Risk of Damage to Property
The property will be delivered to the buyer at
closing in substantially the same condition as
at the time of contract, free of trash and
debris.
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Entitlement to and Disbursement of
Earnest Money
This section entitles the buyer to the earnest
money in the event that the seller defaults.
The seller would be entitled to the earnest
money in the event the buyer defaults.
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Entitlement to and Disbursement of
Earnest Money
Earnest money is treated as
liquidated damages.
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Agency and Brokerage
The broker working with the buyer is referred
to as the selling broker.
The broker working with the seller is known as
the listing broker.
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Agency and Brokerage
Compensation is typically
negotiated in the brokerage
engagement agreement,
not in the purchase and
sale.
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Disclaimer
The disclaimer reminds the parties that the
brokers are not experts in many topics.
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Notices
A contract is not a contract
unless it has been properly
and effectively
communicated between the
parties.
All notices must be in
writing.
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Notices
Notice is not effective until actual receipt, with
the exception of a fax and e-mail.
If the required notice is properly delivered to
the agent, it is the same as delivery to the
client.
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Other Provisions
• The seller agrees to transfer any warranties,
bonds or contracts to the buyer at the
buyer’s expense.
• Any repairs will be done in a workmanlike
manner.
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Other Provisions
• This agreement is the entire agreement
between the parties. Anything they deem
important is included in the contract.
• The survival clause stipulates that
obligations shall continue after closing if not
completed at closing.
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Other Provisions
• Interpretation of agreement shall be based
on Georgia law
• Time is of the essence. Times stipulated are
obligations, not suggestions
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Other Provisions
• The binding agreement date is the date the
acceptance is received by the offeror.
• All parties are required to cooperate in doing
all things reasonably necessary to fulfill the
agreement.
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Exhibits and Addenda
Most purchase and sale agreements will
provide for additional pages, called exhibits or
its addendums, to complete the agreement.
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Federal Clauses
Sellers and landlords must disclose known
lead based paint and lead based paint
hazards and provide available reports to
buyers or tenants.
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Federal Clauses
Buyers are entitled to a 10-day period to
conduct a lead-based paint inspection or risk
assessment at their own expense.
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Preprinted Clauses
When making additions or changes to the GAR
contracts, it is prudent to engage the
assistance of your broker, at the very least,
and the assistance of legal counsel at the very
best.
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Riders
A rider is any addition annexed to a document
and made part of the document by reference.
Riders are also known as addendums or
attachments.
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Negotiation
Nearly everything is negotiable and nearly
everything has a price.
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Practicing Law
Licensees in Georgia have the right to assist in
the creation of contracts.
It is important that licensees understand what
they can do and cannot do, and assure that
they never do anything that could be
considered crossing the line and practicing
law.
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Letter of Intent
If two or more parties want to express their
mutual intention to buy, sell, lease, develop or
invest and wish to do so without creating any
firm legal obligation, they may use a letter of
intent.
A letter of intent is neither a contract nor an
agreement to enter into a contract.
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Practicing Law
Georgia law allows a licensee to fill out preprinted forms.
A real estate licensee is not a license to
practice law.
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Installment Contracts
An installment contract is also known as a
land contract or a contract for deed.
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Installment Contracts
An installment contract contains most of the
content from the purchase and sale
agreement, plus wording similar to the
warranty deed, plus many provisions of the
mortgage.
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Installment Contracts
The seller does not deliver a deed to the buyer
at the closing. The seller promises to deliver
the deed at some future date, while the
purchaser is given the right to occupy the
property and have the rights, obligations and
privileges of ownership.
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Installment Contracts
The use of the installment contract occurs
when the buyer does not have the full
purchase price in cash or is unable to borrow it
from a lender.
The seller must accept a down payment plus
monthly payments.
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Vendor, Vendee
When all the installments are made, the seller
delivers a deed to the purchaser.
The buyer is called the vendee.
The seller is called the vendor.
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Public Criticism
When interests rates rose in the 1970s,
installment contracts were rediscovered.
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Public Criticism
The seller kept the property and mortgage in
the seller’s name and made the mortgage
payments out of the buyer’s monthly
payments. This continued until the buyer found
alternate financing, at which time the seller
delivered the deed.
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Protections
If an installment contract is used for the
purchase of real estate, it should be done with
the help of legal counsel to make certain that
it provides adequate safeguards for the buyer
as well as the seller.
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Equitable Title
During the period beginning with the buyer and
seller signing the contract and the seller
delivering the deed, the buyer holds equitable
title to the property.
Equitable title is the assured future interest in
the legal title.
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Equitable Title
A buyer has the exclusive right to purchase and
can enforce specific performance of the
contract to get title.
The seller holds bare or naked title.
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Equitable Title
Equitable title can be sold, given away, or
mortgaged, and it passes to the purchaser’s
heirs and devisees upon the purchaser’s
death.
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Option Contracts
The option contract is a unilateral contract.
The buyer (optionee) has a right to purchase
the property, with no obligation to do so.
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Option Contracts
The buyer has the right to buy, the seller has
the obligation to sell.
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Option Contracts
The buyer must pay consideration to the seller
(optionor) in order for the contract to be
enforceable.
This is a cash payment directly to the seller in
lieu of earnest money.
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Option Contracts
In return for the cash payment, the seller takes
the property off the market for the term of the
option agreement.
Option contracts must be in writing. A verbal
option would be void.
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Option Contracts
Exercising the option converts the option
contract to a purchase and sale.
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Option Contracts on Multiple
Properties
At the end of the option period, the contract
terminates if the option has not been
exercised by the optionee.
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Lease with Option to Buy
A lease-option allows a tenant to buy the
property at a present price and terms during
the option period.
The lease is typically for one year, and the
option to buy must be exercised during that
time.
The tenant is under no obligation to buy.
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Lease with Option to Buy
One cannot wait until the option is exercised to
write the purchase contract. If a real estate
agent puts a lease-option together, the agent
is entitled to a leasing commission at the time
the lease is signed.
If the option is exercised, the agent is due a
commission on the sales price.
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Lease with Option to Buy
The option to buy should be recorded.
An option is a unilateral contract.
The ensuing purchase and sales agreement is
bilateral. The lease portion of a lease-option is
bilateral.
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Lease with Option to Buy
The party giving the option is called the
optionor.
The party receiving the option is called the
optionee.
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Right of First Refusal
A right of first refusal is more common to a
lease than a purchase.
If someone presents the owner with a valid
offer, the owner must show it to the tenant
before accepting it.
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Right of First Refusal
A right of first refusal protects a tenant from
having the rental property sold when, if the
tenant knew about the offer, the tenant would
have been willing to match the offer.
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Review
1. A sales contract has an obligation at a
definite price for definite terms for a
definite period.
2. An option includes the right at a definite
price for definite terms for a definite period.
3. A right of first refusal has a right at a price
and terms to be determined. The parties
don’t know if the opportunity will present
itself.
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The E-Sign Act
A signature, contract or other record relating to
such transaction may not be denied legal
effect, validity or enforceability solely because
it is in electronic form.
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The E-Sign Act
A contract relating to such transaction may not
be denied legal effect, validity or enforceability
solely because an electronic signature was
used in its formation.
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