The One-Four Family Residential Contract (Resale) in a Nutshell

I recently attended a continuing education course and was provided a document that displayed  a simple break down of the One-Four Family Residential Contract that I feel is too good not to share.  The following break down was provided by Kevin Scanlan and I ask that you review this information, but understand that neither Kevin nor I are attorneys.  With that being said, if you have questions or concerns about details within the One-Four Family Residential Contract ask your Realtor or an attorney.

Paragraph 1: Parties

“This paragraph names the parties to the contract, the buyer and the seller.”

Paragraph 2: Property

A. Land

“This is the legal description of the property.”

B. Improvements

“This outlines the improvements that will convey with the house.”

C. Accessories

“This outlines the accessories that will convey with the house.”

D. Exclusions

“If the seller wanted to exclude any improvements or accessories that typically convey, they would be listed here.”

Paragraph 3: Sales Price

“States the down payment, the financed amount, and the total offer price.”

Paragraph 4: License Holder Disclosure

“This applies to agents who are either a party to the transaction or related to one of the principals.”

Paragraph 5: Earnest Money

“Lists the amount to be given in earnest money as well as who it will be deposited with (ie, which Title company).”

Paragraph 6: Title Policy and Survey

A. Title Policy

“This stipulates that the buyers will receive a title policy and establish who will be responsible for paying for the title policy (Seller or Buyer).  Title insurance is a policy that states that a chain of title has been run and there are no clouds our encumbrances against
the property.  If a mistake was made when researching the chain of title, the title company will be responsible for any monetary loss.  There are standard exceptions which are common to most title policies, such as deed restrictions, HOA restrictions, utility easements, and a couple of others.”

B. Commitment

“Once title company has run a chain of title and there are no clouds or encumbrances, they will issue Title Commitment.  This is their commitment to issue a title policy upon closing and funding.”

C. Survey

“This paragraph stipulates the number of days after the effective date of contract to furnish existing or new survey to Buyer (Buyer’s Lender) and title company.

D. Objections

“Once the buyers receive the title commitment and survey, they will have X days to object to any defects or exceptions, which prohibit use as a ‘Single Family Residence’.”

E. Title Notices

(1) Abstract or Title Policy

“An abstract is a document created by an attorney stating that a property is free of clouds or encumbrances.  It does not carry insurance against errors like title policy does.”

(2) Property Owners’ Association Mandatory Membership

“This basically says that the property is located in a mandatory HOA and that by purchasing this property, you agree to pay their dues and abide by the HOA rules.”

(3) Statutory Tax Districts

“This states that if the property is located in a tax district, such as a MUD or Water District, the seller must provide the buyer with a statement, which discloses the rates and fees associated with that district.”

(4) Tide Waters

“This paragraph pertains to properties potentially affected by coastal tide waters and states that a Tide Water Addedndum must be signed by all parties.”

(5) Annexation

“This is a disclaimer to the buyer, which states that if the property is located in an un-annexed portion of the city, this status may change in the future.”

(6) Property Located in a Certified Service Area of a Utility Service Provider

“This paragraph warns the buyer that if the property is located in an area which provides water/sewer service, the buyer should independently determine the costs and ramifications of that service.”

(7) Public Improvement Districts

“Another notice from the seller to buyer that any Public Improvement Districts, which are associated with this property may have costs associated with it and that the buyer is responsible for the costs moving forward.”

(8) Transfer Fees

“If the property is subject to a private transfer fee, the seller must disclose this to the buyer.”

(9) Propane Gas System Service Area

“If the property is in an area serviced by a propane company, the seller must disclose to the buyer.”

(10) Notice of Water Level Fluctuations

“If the property is located on a lake of a certain size, the buyer acknowledges that the water level may be subject to fluctuations.”

Paragraph 7: Property Condition

A. Access, Inspections, and Utilities

“This states that the seller shall provide reasonable access for any inspections.”

B. Seller’s Disclosure

“The seller has X days to deliver the Seller’s Disclosure to the buyer.  THe buyer may then terminate the contract within 7 days of receipt for any reason.”

C. Seller’s Disclosure of Lead Based Paint

“A Lead Based Paint Disclosure is required for the sale of any property built prior to 1978.”

D. Acceptance of Property Condition

“The buyer will accept the property in its present condition.  This does not preclude, nor should the seller assume that repairs will not be requested during the option period after the inspection has occurred.”

E. Lender Required Repairs and Treatments

“If lender required repairs exceed 5% of the purchase price, the buyer may opt out and receive a refund of earnest money.”

F. Completion of Repairs and Treatments

“The seller must complete all agreed upon repairs and treatments prior to closing.  Failure to do so constitutes breach of contract.”

G. Environmental Matters

“The buyer is responsible for any environmentally sensitive situations or species.”

H. Residential Service Contracts

“The seller will reimburse the buyer at closing for the purchase of a Residential Service Contract, also known as a Home Warranty.”

Paragraph 8: Brokers’ Fees

“The brokers’ fees are contained in a separate agreement between the seller and the listing agent, typically a Listing Agreement.”

Paragraph 9: Closing

A. Closing Date

“This is the closing date for the sale.”

B. At Closing

“The seller will deliver the deed to buyer upon receipt of buyer’s funds.  Also, the seller warrants that there are no outstanding liens or assessments against the property.”

Paragraph 10: Possession

“Possession may not occur until closing AND funding.  Meaning, if the closing documents are signed on Friday afternoon, but the lender doesn’t wire funds until Monday, the buyers may not take possession over the weekend.”

Paragraph 11: Special Provisions

“Any stipulations not contained in the promulgated sections of the contract may be inserted here.”

Paragraph 12: Settlement and Other Expenses

“This is where any closing costs paid by seller on behalf of buyer would be placed.”

Paragraph 13: Prorations

“Taxes, assessments, or HOA dues will be paid by the seller from January 1st to the closing date.  The buyer is responsible for those payments from the closing date to December 31st.”

Paragraph 14: Casualty Loss

“If the property is damaged, the seller must return the property to the condition it was in on the executed date or the buyer may opt out and receive a refund of earnest money.”

Paragraph 15: Default

“If either party fails to perform according to the terms of this contract, that party will be considered in breach of contract and may be liable for damages and/or an order of specific performance.”

Paragraph 16: Mediation

“Both parties agree to go through proceedings before any litigation may occur. This is not binding arbitration, simply an attempt to come to a compromise before a lawsuit is brought.”

Paragraph 17: Attorney’s Fees

“The prevailing party in any litigation may seek attorney’s fees from the losing party.”

Paragraph 18: Escrow

“This long-winded paragrpah basically states that the escrow entity (the title company) will collect and disburse funds according to the terms of this contract.”

Paragraph 19: Representations

“The seller holds that any information or representation in this contract is true.”

Paragraph 20: Federal Tax Requirements

“The seller must comply with any IRS regulations.”

Paragraph 21: Notices

“This is the contract information for both buyer and seller.  Be sure to include an email address, since the title company typically emails title commitment and other important documents.”

Paragraph 22: Agreement of Parties

“Any addenda associated with the transaction are listed here.”

Paragraph 23: Termination Option

“This gives the buyer X days for X dollars in order to get the home inspected and negotiate repairs.  The buyer may opt out for any reason within this time frame, which ends at 5:00pm on the last day of the Option Period.”

Paragraph 24: Consult an Attorney

“I AM NOT AN ATTORNEY.  I want you to be comfortable with this contract, so I always give a brief synopsis to my clients of each paragraph.  If there is anything in this contract that you do not understand, you may feel free to consult an attorney.”

Broker Information and Ratification of Fee

“This details the buyer’s agent commission, the broker information for each agent, and their contract information.”

Option Fee Receipt

“This is the signature section, showing that the listing agent, broker, or the seller has received the Option Fee.”

Contract and Earnest Money Receipt

“This is where the title company will sign, showing that they have received the Earnest Money and the executed contract.”