This document provides an explanation of the paragraphs found in a standard 1-4 family residential contract and various addendums. It breaks down each paragraph and section, providing details on what each covers such as the parties involved, property details, sales price, earnest money, title policy, property condition, repairs, closing details, possession and more. It also includes explanations of related terms and documents like the title commitment. The document appears to be serving as a training or educational guide for real estate professionals to better understand the elements and legal language found in a standard residential sales contract.
1. 1-4 Family Contract and
Addenda Explained
Paragraph-by-
Paragraph
Rick Tankersley
1
2. Table of Contents
1. 1-4 Family Contract and Addenda
Paragraph-by-Paragraph
2. Table of Contents
3. Paragraph 1: Parties
4. Paragraph 2: Property
5. Paragraph 3: Sales Price
6. Paragraph 4: License Holder Disclosure
7. Paragraph 5: Earnest Money
8. Paragraph 6A: Title Policy and Survey
9. Paragraph 6A: Title Policy and Survey
(continued)
10. Paragraph 6B: Commitment
11. What is a Title Commitment?
12. Paragraph 6C
13. Paragraph 6D: Objections
14. Paragraph 6E: Title Notices
15. Paragraph 6E: Title Notices (continued)
16. Paragraph 6E: Title Notices (continued)
17. Paragraph 6E: Title Notices (continued)
18. Paragraph 7: Property Condition
19. Texas Property Code 5.008 (e): Seller Disclosure
20. Paragraph 7: Property Condition (continued)
21. Paragraph 7: Property Condition
22. What is Earnest Money?
23. Paragraph 7: Property Condition
24. Paragraph 8: Brokers Fees
25. Paragraph 9A: Closing
26. Paragraph 9B: At Closing
27. Paragraph 10: Possession
28. Paragraph 11: Special Provisions
29. Paragraph 12A (1): Settlement and Other
Expenses
30. Paragraph 12A (2): Settlement and Other
Expenses
31. Paragraph 12B: Settlement and Other Expenses
32. Paragraph 13: Prorations
33. Paragraph 14: Casualty Loss
34. Paragraph 15: Default
35. Paragraph 16: Mediation
36. Paragraph 17: Attorney’s Fees
37. Paragraph 18: Escrow
38. Paragraph 18: Escrow
39. Paragraph 18: Escrow
40. Paragraph 19: Representations
41. Paragraph 20: Federal Tax Requirement
42. Paragraph 21: Notices
43. Paragraph 22: Agreement of Parties
44. Paragraph 23: Termination Option
45. Paragraph 23: Termination Option
46. Paragraph 23: Termination Option
47. Paragraph 24: Consult an Attorney
48. Execution and Signatures
49. Page 9: Broker Information
50. Page 10: Receipts
51. Third Party Finance Addendum
52. Third Party Finance Addendum (page 1)
53. Third Party Financing Addendum (page 1)
54. Third Party Finance Addendum (page 2)
55. Third Party Finance Addendum (page 2)
56. Third Party Finance Addendum (page 2)
57. HOA Addendum
58. HOA Addendum
59. What is Lead Based Paint?
60. Lead Based Paint Addendum, Paragraph A
61. Lead Based Paint Addendum Paragraph B
62. Lead Based Paint Addendum, paragraph C
63. Lead Based Paint Addendum, Paragraph D
64. Lead Based Paint Addendum, Paragraph E
65. Mineral Rights Addendum
66. Amendment to Contract
67. Contingency
68. Seller Finance Addendum: Paragraphs A and B
69. Seller Finance Addendum, Paragraph C
70. Seller Finance Addendum, Paragraph D
2
3. Paragraph 1: Parties
• Parties (Sellers and
Buyers) Also referred
to as “principals”
• Make sure to verify
seller info by
searching the
address on the
county appraisal
district website
3
4. Paragraph 2: Property
A. Complete Legal Description: Lot,
Block, Subdivision as found in
County Appraisal District Website
B. Defines Included Improvements
C. Accessories that STAY with the
property unless excluded
D. This is where exclusions are written
in
E. Any mineral rights reservations must
be in an addendum
4
5. Paragraph 3: Sales Price
A. Down Payment
B. Sales price minus
down payment.
(make sure to check
box for type of
financing.
C. Full Sales Price
5
6. Paragraph 4: License Holder Disclosure
• Disclose if the agent is the
seller or buyer or related to
the seller or buyer.
(example: Buyer is a
licensed real estate agent)
6
7. Paragraph 5: Earnest Money
• Blank 1 = Amount of earnest money
to be deposited, blank 2 = Title
company, blank 3 = address of title
company, blank 4 = any additional
earnest money to be deposited later,
blank 5 = how many days until addt’l
EM is deposited
• 3 Business days to deliver EM
• If not deposited within 3 days,
seller may terminate
• Time is of the essence!
7
8. Paragraph 6A: Title Policy and Survey
Check the box indicating who
pays for title policy
In the blank, name the title
company (not the escrow officer)
that will issue policy
8
9. Paragraph 6A: Title Policy and Survey
(continued)
• The paragraph continues to specify
what items the title policy
does not cover. These items will
again be reflected for review in the
title policy.
• Section 6.A.8 is the most recent
change to the title policy, allowing
buyers to gain additional protection
for themselves by amending the title
policy to include covering certain
survey issues. It is very popular and
generally a good idea to check box
“ii”, “will be amended”.
• It is common in the for the seller to
pay that cost, which is usually under
$100
x
9
10. Paragraph 6B: Commitment
When a title company agrees to issue a title
policy, they issue a title commitment (see
explanation on next slide)…agreeing to issue the
policy, which often comes after the sale of the
home.
This section gives the title company twenty days
from the execution of the contract to get these
documents to the buyer (and includes an
automatic extension of this time for an
additional fifteen days or three days prior to
closing, whichever is earlier).
If the seller (via the title company) fails to furnish
these documents, the buyer may terminate the
contract and receive their earnest money back.
10
11. What is a Title Commitment?
• Title commitment is, basically, an offer from the title company to issue a title policy along with an overview of the important
parts of the policy in question.
• A commitment is not always searched back to the original owner. Consequently, a clean commitment does not always
ensure that the buyer will never have title problems, only that he will have coverage if problems do arise.
• There are four title commitment sections for clients called “schedules” which provide information in an easily
understandable standard format.
• Schedule A - Basic information about the transaction such as the effective date; policy coverage amount; the legal name
of the current record title owner and a legal description of the property. Problems will arise if this information is incorrect.
• Schedule B - Contains a pre-printed list of standard exceptions that the title policy will not cover. Most importantly it will also
list matters specific to the transaction that could impact the usefulness of the property, i.e. restrictive covenants,
easements, and rights-of-way.
• Schedule C – VERY IMPORTANT TO REVIEW - lists the requirements that must be satisfied for the issuance of the title policy.
Examples include information on marital status, updated surveys, liens, judgments, lawsuits etc. Generally, the seller is
responsible for resolving discrepancies identified in Schedule C.
• Schedule D - discloses the total policy premium, along with an explanation of how the premium is divided among the
various parties who may be responsible for examining title and issuing the policy.
11
12. Paragraph 6C
There are three choices in this section.
(1) is for when there is an existing survey. If there is one and
both parties check this off, then within the specified amount
of days, the seller must provide the survey (along with a
Notarized T-47 Affidavit) to the buyer.
There are also checkboxes for whether the seller or buyer
will pay for a new survey if the title company or buyer’s
lender deem the survey not acceptable.
It is important to note, that regardless of which box is
checked (buyer pays or seller pays), if the seller does not
provide the survey to the buyer in the agreed upon time in
this section, the buyer may order a brand new survey at the
seller’s expense.
When there is no survey available and you are opting to
order a new survey:
(2) at the buyer’s
(3) – the seller’s expense
.
12
13. Paragraph 6D: Objections
Allows the buyer to object to items
that would affect the title policy.
The buyer may object to anything
that may prohibit the use or activity
written in the space provided.
This section gives a time frame for the
buyer to make objections after
receiving the title commitment,
exception documents, and the
survey. WRITE IN the number of days
buyer has to object after receiving
title commitment in the field provided.
13
14. Paragraph 6E: Title Notices
(1) Abstract or Title Policy – A buyer
does not have to get a title policy,
although it is a very good idea. This
advises that if they choose not to, it
is advised that they have an
attorney review the chain of title for
any issues that may affect their
ownership.
(2) Membership in a Property Owners
Association – is a notification that
the title commitment will address
whether or not the home is in an
HOA and ensure the buyer knows
that failure to pay HOA fees can
result in liens and foreclosure.
14
15. Paragraph 6E: Title Notices (continued)
(3) Statutory Tax Districts – a
notice that the buyer
should ensure they’ve
been informed by the
seller of any special tax
districts the property is
apart of, like MUD
(Municipal Utility District, not
currently prevalent in the
South Region Area).
(4) Tide Waters – This is for
coastal properties. There is an
additional notice for
coastal properties that the
buyers need to review.
15
16. Paragraph 6E: Title Notices (continued)
(5) Annexation – This notifies the buyer
that the home may eventually be
annexed into a city’s limits if it is not
within them already.
(6) Property Located in a Certificated
Service Area of a Utility Service
Provider – this applies to areas that
are serviced not exclusively by a
municipality’s utilities, but a private
utility, usually away from the city.
There may be additional costs to a
property and utilities if this is the
case, hence the notice if applicable
16
17. Paragraph 6E: Title Notices (continued)
(7)Public Improvement District – like
historic districts for example, there may
be other costs, regulations or
restrictions related to living in certain
neighborhoods.
(8) Transfer Fees – as of 2012, there
cannot be transfer fees related to the
property transaction, however
agreements predating the change
may still be in effect. The seller is
obligated to notify the buyer of any
such requirements.
(9) Propane Gas System Service Area –
The seller must notify the buyer if the
property is located in a propane gas
system service area. (Use Required
Addendum)
(10)Notice of Water Level
Fluctuations. If you’re next to a lake,
the water level can change.
17
18. Paragraph 7: Property Condition
A. Access, Inspections and Utilities THE SELLER MUST
HAVE THE UTILITIES ON DURING THE ENTIRE
CONTRACT PERIOD! …At their own expense.
B. Seller’s Disclosure. In most cases, the Seller
is legally obligated to provide the buyer with a
Seller’s disclosure which lists any issues about the
property of which the seller is aware. Often, the
listing agent will have the disclosure immediately
filled out and available on the MLS for the buyer’s
agent. If not, you can check box 2 and specify
when they would like the disclosure by (example
“3” days). If box 2 is checked, this is another rare
but possible “out” the buyer has from the contract
if the seller and their agent are not prompt
C. Lead Based Paint Disclosure. In addition to the
general disclosure discussed above, this two page
additional disclosure must be attached, filled out
by the seller, if the home was built prior to 1978.
18
19. Texas Property Code 5.008 (e): Seller Disclosure
of Property Condition
Most every seller must provide a Seller Disclosure. There are only 11(eleven)
exemptions.
19
20. Paragraph 7: Property Condition (continued)
The paragraph can cause some
confusion for the buyer.
Often the property will be accepted
“as-is”, understanding that you will
later have the option to renegotiate
repairs during any option period to
which you and the seller agree in
Paragraph 23.
If you already know of a specific repair
or treatment you would like done, you
can check box 2 and specify it up
front.
20
21. Paragraph 7: Property Condition
E. Lender Required Repairs and Treatments: According to
the contract, neither party (buyer or seller) is responsible
for paying for lender required repairs. If the buyer and
seller cannot come to agreement as to who will pay for
these repairs, the contract can be terminated and the
buyer will receive their earnest money back. The buyer
may also terminate and receive their earnest money back
if the total cost of lender required repairs exceeds 5% of
the sales price.
F. Completion of Repairs and Treatments Repairs must be
made by someone licensed to do such work or, in the
case where a license is not required, someone who does
those types of repairs commercially (i.e., not your cousin
who knows a few things about the repair, but does not
work in that field). This section also states that all permits
shall be obtained to do such work, that any transferable
warranties will go the buyer at their expense, and if the
seller fails to complete the repairs before closing, the buyer
may elect to extend the closing date up to five days or
seek remedies found in Paragraph 15 of the contract.
21
22. What is Earnest Money
Earnest money is money put up by the buyer showing evidence of their seriousness
(earnestness) to proceed with the offer and contract. If a buyer were to default on the
contract, this money would be in jeopardy and possibly retained by the seller for the
buyer’s non-performance according to the terms of the contract.
Once a contract is executed by all parties, the title company will sign in order to receipt
the contract and the earnest money. They will deposit the earnest money check into an
escrow account (so yes, prepare for it to be cashed) where it sits through closing. If
everything goes as planned, the earnest money will show up as a credit to the buyer at
closing.
If the contract does not make it to closing, the earnest money is at risk. If a buyer
terminates the contract during the option period or for reasons clearly permitted by the
terms of the contract, the buyer should be able to receive the earnest money back. (If
the buyer defaults on the contract however, the funds should be released to the seller. )
A written authorization signed by both buyer and seller has to be sent to the title
company requesting the release of funds to the buyer. Title companies cannot legally
release funds without the permission of all parties.
22
23. Paragraph 7: Property Condition
G. Advises the buyer about
environmental matters that may
affect the buyer’s intended use of
the property. Items such as
wetlands, toxic materials, and
endangered species can affect
the way a property is handled in
the future, so buyers are given
notice here.
H. Buyer may ask the seller to pay
for a residential home warranty
(service contract)
23
24. Paragraph 8: Brokers Fees
• This short paragraph states
that “All obligations of the
parties for payment of
brokers’ fees are contained
in separate written
agreements; Listing
agreement and Buyer Rep
Agreement
24
25. Paragraph 9A: Closing
Here you fill in the closing
date. This depends a lot on the
lender and they type of
financing. Cash deals can close
in a week or two. 6 weeks is a
reasonable time to expect for
most financed deals.
25
26. Paragraph 9B: At Closing
(1) ….seller shall give the buyer a general
warranty deed to the property and show tax
statements that there are no delinquent taxes,
(2) buyer must pay the sales price in good
funds that are accepted by title company
(3) both parties agree to sign and deliver any
documents necessary required for title policy
and the closing of the sale,
(4) that there will be liens or assessments
against the property that are not paid off at or
before closing
(5) if there is a current lease associated with the
property, all security deposits will be transferred
to the buyer and the buyer will deliver to the
tenant a signed statement acknowledging
receipt of those funds and that they are
responsible for the return of the security deposit
26
27. Paragraph 10: Possession
A. Buyers Possession: Two checkboxes here to
pick from – either the buyer takes possession of
the property upon closing and funding or the
timing of possession goes according to
a temporary residential lease.
The paragraph also notes that the parties
should consult with their insurance agent
regarding any temporary leases as they can
affect insurance coverage.
B. Leases: The section states that a seller may
not enter into any lease agreement after the
effective date of the contract and that if there
is a current lease, the seller must deliver to the
buyer copies of the residential lease and the
property condition and move-in form.
27
28. Paragraph 11: Special Provisions
• Special Provisions are for any arrangements between
buyer and seller that are NOT covered already in the
contract or in a promulgated TAR/TREC Addendum
available to Realtors.
• Use caution when adding anything to special provisions
because it can be difficult not to appear to be
“practicing law” by writing contractually obligating
language into a contract.
• Sometimes agents use the special provisions to include
anything that doesn’t fit elsewhere on the form (e.g. the
legal description in Paragraph 2. They might write “See
Special Provisions” instead). It is advisable to reference
a separate addendum instead of referencing Special
Provisions. However, the legal description is a factual
statement that meets the standards of being included in
Special Provision
28
29. Paragraph 12A (1): Settlement and Other
Expenses
(A) States what seller is required
to pay at closing. Basically,
anything that releases
existing liens and seller loan
liability
(B) The buyer can ask for the
seller to pay closing costs.
The amount is negotiable. It
is limited by the loan
program. VA, FHA and
Conventional programs all
have specific limitations
concerning how much a
seller can contribute.
Consult the buyer’s lender
before filling in this
amount.
29
30. Paragraph 12A (2): Settlement and Other
Expenses
(2) These are fees that buyers are
responsible for at closing. Very
important that the buyer reads the
contract carefully to understand
what may be required.
30
31. Paragraph 12B: Settlement and Other Expenses
READ CAREFULLY!
If any expense exceeds an
amount expressly stated in this
contract for such expense to be
paid by a party, that party may
terminate this contract unless
the other party agrees to pay
such excess. Buyer may not pay
charges and fees expressly
prohibited by FHA, VA, Texas
Veterans Land Board or other
governmental loan program
regulations.
31
32. Paragraph 13: Prorations
• Taxes are prorated – and they can make a huge
difference on closing costs. The OWNER pays taxes
in October for the entire year, January 1st to
December 31st. If you buy a home in September,
you are about to get taxed for the whole year,
including 9 months you didn’t even own it. Except
the seller will pay the prorated tax amount at
closing for the months they owned it.
• If you are buying in November, the seller has
already paid the taxes for the whole year, meaning
the BUYER OWES the seller money for the two
months they’ve already paid your taxes.
• The closing costs are lowest for buyers in September
and before taxes are paid in October, and highest
in the months after until the new year.
32
33. Paragraph 14: Casualty Loss
The inspection goes great, the buyer terminates
the option period early, is ready to close, and
… the house burns down , floods, is vandalized,
etc., the day before closing. Now what??
The seller is obligated to fix (restore) the home to
previous condition before closing. If not then the
buyer can terminate and get the earnest money
back. (Sellers need to keep insurance on the property
all the way through closing!
Buyers must conduct a final Buyer’s Walk-through a
day or two before closing, to make sure the property is
still in the original condition. The walk-through is
particularly important if the seller moved out since you
last saw the property. They may have accidentally
damaged the property on the way out, or taken
something they shouldn’t
33
34. Paragraph 15: Default
Are you the buyer? Do you want
your earnest money back? Don’t
default on the contract!
The seller can either sue you to
force you to buy the house or the
seller can just keep your earnest
money.
Are you the seller and change your
mind about selling?
If the seller defaults, the buyer can
sue the seller to force them to sell
the house or get their earnest
money back and walk.
34
35. Paragraph 16: Mediation
If there is a dispute, the parties agree to
try mediation through a service or
provider to try to avoid litigation.
This paragraph does not preclude a
party from filing a lawsuit.
35
36. Paragraph 17: Attorney’s Fees
If there are legal proceedings of any
kind, the loser pays attorney fees and
all costs of the proceeding.
36
37. Paragraph 18: Escrow
(A) Escrow: The escrow agent is not liable
for anything in the contract, nor the
earnest money they are holding if the
bank they use fails.
(B) Expenses: Authorizes the earnest
money to be applied toward the
buyer’s closing costs. It also states a
title company can require a release
signed by all parties as well as deduct
expenses from Earnest Money.
37
38. Paragraph 18: Escrow
C. DEMAND -- What if the contract is terminated,
but there is a dispute over who gets the earnest
money?
The buyer does not need the seller’s signature to
terminate a contract. They just sign and send the
termination notice.
But they do need the seller’s signature (and
agents’ signatures) on the Release of Earnest
Money form (TAR-1904).
If the seller refuses or ignores it, the buyer can ask
the title company to send a notice to the seller. If
the seller doesn’t respond to the written notice in
15 days, the title company will release the earnest
money to the buyer without a signature. If the
seller does respond and protests.. Then….(See
Next Paragraph 18.D)
38
39. Paragraph 18: Escrow
(D) Damages: Parties can be
liable for “damages” for not
signing an earnest money release
when they are supposed
to. Withholding your signature
out of spite or principal can hurt
you in court.
(E) Notices: This just specifies
where notices are to be sent and
when they are considered
“effective”.
39
40. Paragraph 19: Representations
The seller promises that everything
agreed to in this contract will be
resolved by close of escrow.
**Non-disclosure of any liens or
material defects can and will
come back to haunt you!
Also, the seller CAN continue
showing the property to
buyers and negotiate back up
offers even while under contract
(unless expressly prohibited in
writing)
40
41. Paragraph 20: Federal Tax Requirement
There are tax implications to selling
a home if the owner is not
American. There could be holdback
of proceeds to comply with the IRS.
This is an issue the title company
should resolve, ensuring that the
seller is American and, if foreign,
making the necessary tax
accommodations.
41
42. Paragraph 21: Notices
Throughout the contract, there are several
instances in which notices are required to
be delivered. Here is where both buyer and
seller officially state where they can be
reached.
Please note: Title company must have this
information in order to send notice of
demand for earnest money release.
42
43. Paragraph 22: Agreement of Parties
Changes to a contract must be in writing through an
attached addendum, here, or later with an amendment.
These addenda become a part of the contract once signed
by all parties. Verbal agreements count for nothing.
• The most common addendum is the Third Party Financing
Addendum.
• Many of these addenda are “area specific” like the
Addendum for Coastal Area Property or the Propane
Gas System Service Area
• If the home was built prior to 1978, then the Lead Based
Paint Disclosure should be marked and included here.
• Although not listed, Non-Realty Items Addendum is a
common addendum. That is the Non-Realty Items
Addendum. Do you want the refrigerator (or anything else
that is not attached? Use a non-realty items addendum .
Check the “other” box and list it here.
43
44. Paragraph 23: Termination Option
This covers the “Option Period”. Which is
negotiable length of time during
which the buyer can walk away for ANY
reason, whatsoever. It’s purpose is to give
the buyer an opportunity to do their due
diligence – inspect the property to make
sure it is in satisfactory condition.
The option fee is what the buyer pays out
of pocket to “purchase” the option
period. You must check whether it will be
refunded at closing or not. Otherwise, it is
NOT refundable, even if buyer withdraws
from the contract for a valid reason.
44
45. Paragraph 23: Termination Option
If the option fee is not received by the
seller within 3 days, the buyer does
NOT get an option period, even if the
seller agreed to one. It is voided!
The buyer is still under contract,
however, obligated to buy the house.
It is extremely important the option fee
(and earnest money) be deposited on
time.
45
46. Paragraph 23: Termination Option
It is VITALLY IMPORTANT to have the
seller’s agent/broker receive and receipt
the option with the time restraints.
It is not the Title Company’s obligation to
receive or receipt option money. Nor will
they take any liability if not delivered to
seller on time.
This is YOUR RESPONSIBILITY! Don’t blow it!!
46
47. Paragraph 24: Consult an Attorney
You are (most likely) NOT an attorney. An
agent should be able to explain
promulgated forms thoroughly. However,
for questions about non-promulgated
amendments, “what-if” scenarios, legal
implications of certain actions, or if there
seems to be a general uneasiness or lack
of understanding, always recommend
speaking to an attorney.
Although, most often left blank, this is a
section to include the buyer and/or seller
attorney info.
47
48. Execution and Signatures
All parties must initial every previous page
and place full signatures here.
Both electronic and “wet” signatures are
acceptable
Last party to sign should fill in execution
date.
“Executed” means all parties have signed
and the clock is ticking on timelines.
48
49. Page 9: Broker Information
Fill in ALL information and double
check for accuracy.
Make sure to include commission
amount in the blank at the bottom of
the page.
49
50. Page 10: Receipts
• Sellers agent receipts the option fee
• Title Receipts the Earnest Money
• Title Receipts the Contract
• Title will receipt any additional Earnest Money
throughout the process.
50
51. Third Party Finance Addendum
• The Third Party Financing Addendum is an
addendum to the One to Four Family
Residential Contract that covers the
financing of the home. In a cash deal, it is not
needed. If financing is involved, must be
completed and submitted with the Purchase
Contract.
51
52. Third Party Finance Addendum (page 1)
The first section of the form lays out the type of
financing the buyer is seeking of obtain and requires
the buyer to apply for such financing promptly.
The next sections of the paragraph outline the various
types of financing: 1. Conventional Financing, 2. Texas
Veterans Loan, 3. FHA Insured Loan, 4. VA Guaranteed
Financing, 5. USDA Guaranteed Financing, and 6.
Reverse Mortgage Financing.
Each loan type requires the buyer to outline the basic
criteria for the loan they are seeking – the amount of
financing, how many years the loan will be, the interest
rate, and origination fees (the money a lender charges
to make the loan).
52
53. Third Party Financing Addendum (page 1)
There are two types of approval: buyer
approval and property approval.
Buyer Approval gives a negotiable amount of
days in which the buyer must obtain their
approval. If the buyer cannot obtain the loan
approval in time, they will need to give the
seller written notice and terminate the
contract and will receive their earnest
money back.
Property Approval means the property must
be acceptable to the lender and meet all
underwriting requirements, INCLUDING
APPRAISAL.
If the buyer can not obtain property approval
from the lender, they may terminate and keep
their earnest money.
53
54. Third Party Finance Addendum (page 2)
C. SECURITY: Each note for the financing
described above must be secured by vendor’s
and deed of trust liens.
All loans must be secured by vendor’s and
deed of trust liens. When you take a loan on a
house, the lender will place a lien on the home,
securing their interest in the property. Should
anything happen and you need to sell it, you
can not sell it without satisfying the obligation to
the mortgage company by paying off the
remaining balance of the loan.
54
55. Third Party Finance Addendum (page 2)
4. FHA/VA Required Provision
When getting an FHA or VA loan, the
appraised price of the property must be
equal to (or more) than the sales price listed
in the contract.
If the appraised value comes in lower, the
buyer may either pay the difference
themselves (the lender will not loan more
than the appraised amount) or the buyer
and seller can come to an agreement to
lower the price.
Both loans involve the federal government,
so the language here is required to notify
both parties of the potential issues and
outcomes.
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56. Third Party Finance Addendum (page 2)
E. AUTHORIZATION TO RELEASE
INFORMATION
The last paragraph gives authorization to
the lender, title company, and escrow
officer to release pertinent information to
the seller and buyer as well as their
representatives (your real estate agent
and their broker) and to give copies of
the new closing disclosures to those
parties. Without this authorization, they
cannot provide this information to all of
the parties.
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57. HOA Addendum
The mandatory homeowners association addendum
covers many topics and just one is getting copies of
the deed restrictions. Of course, this is important for a
Buyer to understand the rules of the community. When
purchasing in a community managed by an HOA,
they agree to follow all of the rules. Best to know those
rules before you purchase!
Also included in these documents is the resale
certificate. This tells a Buyer what the dues are per
year, if there are any special assessments and if the
current homeowner (Seller) is behind in any way. It
also discloses if there are any lawsuits against the HOA
which your Buyer would be part of if they own a home
there
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58. HOA Addendum
• Fill Top Section entirely
• Subdivision Information (4 Choices)
• (most common) Seller pays for and delivers info within time allowed. – Check box and
fill in # of days
• Buyer Pays and obtains info
• Buyer Has received Info
• Buyer does not require info
• Material Changes – if there are changes info, buyer can terminate and
receive EM refund
• Fees – must fill in the amount but pays “not to exceed”
• Deposits for Reserves – buyer will pay any required deposits for reserves at
closing
• Authorization – seller authorizes release of information – if info is required by
title , choose which party (buyer/seller) will pay title company (usually the
seller)
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59. What is Lead Based Paint?
The lead in lead based paint is highly toxic and has been found to cause many
health issues, particularly in children. When ingested or absorbed into the body,
lead can cause brain damage as well as kidney, nerve, and blood issues.
Lead is also linked to behavioral problems, learning disabilities, seizures, and
death in children and infants.
You can learn more about both the dangers of lead as well as some of the ways
you can help protect you and your family from lead in the informational
brochure, Protect Your Family From Lead in Your Home (PDF).
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60. Lead Based Paint Addendum, Paragraph A
Like most forms, the first section provides the groundwork
of the form, in this case explaining why the form exists
and what its purpose is. This section sets forth the
requirement of disclosure of lead based paint and gives
a basic warning about why lead is dangerous. It also
recommends the buyer conduct a risk assessment or
inspection for lead based paint hazards prior to
purchasing the home. As with anything in bold on a
contract form, it is important to note the last line, which
states that any inspector must be properly certified as
required by federal law. Remember, the law behind this
disclosure is on the federal level and as such, the
inspectors involved in the process must meet federal
certification standards (i.e. your Uncle Bob is probably
not qualified to tell you if there are lead based paint
hazards in the home).
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61. Lead Based Paint Addendum Paragraph B
B. Seller’s Disclosure
This section covers the seller’s knowledge of lead
based paint hazards in the home. Section B.1, the
seller should choose either (a) or (b) indicated
whether they have any knowledge of lead based
paint hazards. If the seller selects (a) they will need to
provide an explanation of what they know.
Section B.2 covers any reports or records (such as
previous inspections or lead abatement information)
the seller might have. If the seller has any records,
they would check box (a) and then be required to
list those items and provide them to the buyer. If the
seller has no knowledge of lead based paint hazards
in the home, they would check box (b) as they
would not have any records.
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62. Lead Based Paint Addendum, paragraph C
C. Buyer’s Rights
This section is to be filled out by the buyer and indicates
whether they want to have an inspection for lead based
paint done on the property.
If they check the first box, they are deciding not to
conduct such an inspection.
Checking the second box, gives buyer 14 days with which
to inspect the property and determine whether or not they
want to proceed with the purchase.
If they decide to terminate the contract within those 14
days, they will receive a refund of their earnest money.
This notification must be in writing and it is suggested that
the buyer use the Notice of Buyer’s Termination of Contract
form along with a Release of Earnest Money form
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63. Lead Based Paint Addendum, Paragraph D
D. Buyer’s Acknowledgement
This section is to be filled out by the buyer. If
the seller indicated there were any reports or
records available, the buyer should receive
copies of those items and check the first
box. The buyer should check the second box
once they have received the pamphlet
Protect Your Family from Lead in Your Home,
which we provided a link to earlier in this
post. This box should always be checked as
the buyer should be given this information by
the sellers when buying any property built
before 1978.
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64. Lead Based Paint Addendum, Paragraph E
E. Broker’s Acknowledgement This section is for the brokers, who
also have to sign the form – both the seller’s broker and the
buyer’s broker.
Broker/Agent acknowledges
a. provide Buyer with the federally approved pamphlet on
lead poisoning prevention
b. complete this addendum
c. disclose any known lead-based paint and/or lead-based
paint hazards in the Property
d. deliver all records and reports to Buyer pertaining to lead-
based paint and/or lead-based paint hazards in the
Property;
e. provide Buyer a period of up to 10 days to have the
Property inspected;
f. retain a completed copy of this addendum for at least 3
years following the sale. Brokers are aware of their
responsibility to ensure compliance.
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65. Mineral Rights Addendum
Used only if any Mineral Right are being
retained by seller. If no addendum, all mineral
rights convey
Section A – Explains mineral rights
Section B – Does seller want ALL or
PERCENTAGE of rights?
Section C - Does seller retain rights to access
and obtain minerals
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66. Amendment to Contract
The only acceptable way to alter the contract
Amendment Items
1. Sales price
2. Repairs - Write in specific, non-ambiguous statements
3. Change Paragraph 9 (closing date)
4. Then amount in Paragraph 12A (closing Costs)
5. Lender Required Repairs
6. Extend Option Period
7. Waive option period
8. Extend Finance Addendum Date
9. Other Modifications – Use only factual statements for items not
listed. Do not practice law: no what ifs, TBD, “if that happens
then this…”
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67. Contingency
When making an offer on a property when your client must sell another
property. This will protect them in that they are not forced to purchase if
first property has not sold.
A. Write in the Address of the property your client must sell. Then fill in
the required date field. If property is under contract, use the closing
date in this blank. If not yet under contract, use a date as far out as
possible not exceeding the closing date on purchase of the new
home.
B. If the seller of the new property accepts an offer, your buyer can
drop (waive) the contingency or terminate. This blank gives the # of
days to decide whether client will waive the contingency.
(Recommend No more than 3)
C. Fill the blank with the amount of additional earnest money your
client will deposit for right to waive contingency
D. Nothing to fill in but acknowledge if your client waives the
contingency but cannot close, they will be in default.
E. Time is of the essence
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68. Seller Finance Addendum: Paragraphs A and B
A. Credit Documentation – buyer is give 3-
5 days (negotiable) to provide
documentation checked off or written
into the blanks
B. Buyer’s Credit Approval - If buyer fails
to deliver documents within agreed
time, seller may cancel and keep
earnest money. If documents are
provided and seller deems credit
unacceptable, seller may terminate
and refund the EM to buyer.
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69. Seller Finance Addendum, Paragraph C
Paragraph C. Promissory Note - gives three options for the terms of the promissory note
after entering the annual interest rate. There is no prepayment penalty and there is a
late fee for delinquent payments.
First blank is the amount to finance from 3B of the contract . Second blank is for the
interest rate the buyer is offering to pay.
Three Options for Promissory Note Terms
1. Note is payable in one payment “so many days” after the date of the note, with
interest payable as noted.
Write into blank how many days before one-time pay off and check off the preferred
option for paying interest
2. The note is paid in monthly installments of “so many dollars,” including interest or plus
interest, beginning on a “specific date” or the “first day of 2nd month” after the date of
the note. The payments continue for a “given number of months” when the balance of
the note becomes due.
Write in first blank the monthly payment and if it includes interest or not, second blank is
date of first payment, third blank is the # of months until entire balance is due (balloon
note)
3. The note is payable in interest-only payments for the first “so many months” and
thereafter in installments of “so many dollars”, including or plus interest, beginning on a
“specific date” after the date of the note and continuing for “a certain number” of
months when the balance becomes due.
Write in first blank the number of months to pay interest only. Second blank How much
the principle payment is (including or plus interest.) Third blank is date the payments
begin. Fourth blank is number of months until entire balance is due.
BEST PRACTICE: CONSULT WITH
TITLE COMPANY AND/OR AN
ATTORNEY THAT UNDERSTAND
SELLER FINANCE
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70. Seller Finance Addendum, Paragraph D
D. Deed of Trust– choose if buyer
wants consent to sell or lease
without permission from the seller.
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