Buyer is reminded to:
- Read the entire contract before signing
- Review Section 4a (SPDS)
- Confirm ability to obtain insurance during inspection period.
- Apply for a loan
- Get funds in escrow in time to close
- Read the Title Commitment within 5 days of receipt. Section 3c.
- Read the CC&Rs within 5 days of receipt. Section 3c.
- Conduct a final walkthrough
- Advises buyers to obtain information through the Buyers’ Advisory NOTE: When buyer signs the offer, the buyer confirms receipt of the Advisory
What are the Requirements for a valid Contract?
4. Sufficient specificity so that obligations can be ascertained
Verbal contracts are binding but only written contracts are enforceable. All changes to the original agreement must be written down and signed by the parties.
AZ Law (A.R.S. §25-214 (C) states that both husband and wife must sign the real estate contract and all other agreements related to the transfer of real property for the community property to be obligated. If this is impossible, one spouse can execute documents on behalf of the other pursuant to a power of attorney.
ALSO: Both husband and wife should sign the written disproval notice (BINSR) whether they are the buyers or the sellers.
What are the risks associated with the property section?
- Failure to join or bind all property owners resulting in the inability to transfer property
- Failure to properly identify the property
- Failure to provide sufficient time for close of escrow
- Failure to include all required addenda
- Failure to include or exclude personal property
The financing section of the contract is one of the most difficult sections of the contract for agents to understand and clearly explain to their clients.
In brief, the financing section obligates the buyer to take very specific steps to obtain a loan. It also clarifies the buyer finance contingencies that govern the agreement between the buyer and the seller.
2.a Line 54 And Section 2.b Lines 55-60
Section 2a now requires the Pre-Qualification Form to be submitted in conjunction with the Contract at the time of the offer.
Section 2b now provides that, three days prior to close of escrow the Buyer must either: (i) sign all loan documents; or (ii) deliver to Seller or Escrow Company notice of loan approval without PTD conditions AND date(s) of receipt of Closing Disclosure(s) from Lender; or (iii) deliver to Seller or Escrow Company notice of inability to obtain loan approval without PTD conditions.
Section 2.c Lines 61-63Section
The buyer’s obligation to complete the sale is contingent upon the buyer obtaining loan approval for the loan described in the AAR Loan Status Report (LSU) without Prior to Document (PTD) conditions no later than three (3) days prior to the close of escrow.
If after a good faith effort the buyer cannot obtain loan approval without PTD conditions by COE the loan contingency is unfulfilled.
When must the loan contingency be filled?
In order to establish unfulfilled loan contingency and cancel the contract a buyer must:
Deliver an Unfulfilled Loan Contingency (AAR) to the seller and title and also send to title a demand for earnest money signed by the buyer. Sample verbiage:
“Attached is a Notice of Unfulfilled Loan Contingency. Pursuant to section 2c lines 59-61 of the purchase contract I am entitled to a return of my earnest money. Please immediately cancel this escrow and return my earnest money.”
What should the seller do if the buyer fails to sign all loan docs three (3) days prior to COE?
If the buyer does not deliver a notice of the inability to obtain loan approval or sign loan documents three (3) days prior to COE the seller should:
Deliver a cure period notice to the buyer specifying that the buyer has not complied with the contract by signing the loan documents or delivering a notice of the inability to obtain loan approval to the seller or the escrow company. Thereafter:
- If the buyer signs the loan documents within three days and is prepared to close escrow on the COE Date, the seller must close.
- If the buyer delivers notice of the inability to obtain loan approval without PTD conditions within three days, the contract is unenforceable against the buyer and the buyer is entitled to a return of the earnest money, assuming that the buyer made a diligent and good faith effort to obtain the loan.
If the buyer does neither, the buyer is in breach of contract, and the remedy for the breach depends on the specific noncompliance, as set forth in Section 7b:
- If the buyer failed to obtain loan approval without PTD conditions and failed to deliver the notice, the buyer is in breach for the failure to deliver the notice, and the seller is entitled to the earnest money.
- If the buyer obtained loan approval without PTD conditions or failed to make a diligent and good faith effort to obtain loan approval, the buyer is in breach, and the seller may accept the earnest money as the seller’s sole right to damages or pursue the buyer for the actual damages or specific performance.
Three (3) days before close of escrow, the buyer receives a notice of disapproval from lender #1. Buyer is now attempting to qualify for financing with lender #2. The seller has a better “back up” offer from another buyer and wants to accept this better “back up” offer now. Is the buyer entitled until close of escrow to attempt to qualify for financing with lender #2?
Section 2.d Lines 64-67
Buyer acknowledges that the inability to obtain loan approval due to the failure to lock the interest rate and “points” by separate written agreement with the lender during the inspection period –or—the failure to have down payment or other funds due from the buyer is not grounds for an unfulfilled loan contingency.
Section 2.e Lines 68-70
Buyer shall deliver to seller the LSU with a minimum of lines 1-40 complete within ten (10) days of contract acceptance. Seller is entitled to an updated LSU upon request.
Section 2.f Lines 71-73
Additionally, section 2f requires the buyer to provide the lender with the “Buyer’s name, income, social security number, Premises address, estimate of value of the Premises, and mortgage loan amount sought” within three days after Contract acceptance
Section 2.g Lines 74-77
Buyer agrees to diligently work to obtain the loan and will promptly deliver all lender requested documentation. Buyer is required to sign all loan documents three (3) days prior to Close of Escrow date.
Section 2.h Lines 78-79
Indicates the buyers intended type of financing
Section 2.i Lines 80 And Section 2.j Lines 81-82
All costs of obtaining a loan shall be paid by the buyer unless otherwise detailed in the contract.
Seller concessions are addressed here. Buyer shall no longer deliver an additional clause addendum.
What fees are not included in the seller concessions?
Section 2.k. Lines 83-85
When buyer obtains a VA loan certain loan costs MAY NOT BE paid by the buyer. Prior to writing an offer the real estate agent must discus the total cost of the prohibited fees with the lender.
What VA loan costs are not permitted to be paid by the buyer?
Section 2.l Lines 86-89
Buyer must immediately notify the seller in writing of any changes to the buyer’s loan program, finance terms, or lender according to the Pre-Qualification or LSU whichever was provided by the buyer. The buyer may make unilateral changes so long as the changes do not affect the buyer’s ability to obtain approval without PTD conditions by COE date, increase the seller’s closing costs or delay COE.
What should you always do as the buyer’s representative if there is any change to the buyer’s loan program?
Section 2.m Lines 90-93 and 2n. Lines 94-95
The appraisal contingency provides that the buyer may cancel the contract if the property does not appraise for at least the value of the purchase contract. Upon notice of the appraisal the buyer has five days to take action or the appraisal contingency is automatically waived.
Does the appraisal contingency apply to any appraisal required by the lender?
Does notice of the appraised value occur when the buyer/buyers agent is told the appraisal was low or does notice have to be in writing?
If the appraisal comes in low, what are the buyer’s options?
If the appraisal comes in low, does the buyer have to reduce the sales price?
In a cash offer does the buyer have an appraisal contingency?
If the seller believes the buyer failed to make a diligent and good faith effort to obtain loan approval, what are the seller’s options?
Your buyer is an investor intending to flip the property and intends to use hard money to close the “B” transaction. Should the offer be written as a financed or as a cash offer?
Page 9 Of the PC
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