Real Estate Contracts
Real Estate Contracts in Florida
Intended Learning Outcomes
- Describe the characteristics of the various types of listings and describe at least three statutory requirements for listing agreements
- List the four types of legal contracts that licensees may prepare
- Explain the requirements of the statute of frauds and the exceptions allowed under the law
- Explain the various components of the FAR/BAR Contract for Sale and Purchase
- Distinguish between specific performance and liquidated damages
- Describe the differences between an options contract and a right of first refusal
- Explain the provisions of Chapters 689 and 760, F.S. regarding occupants infected with HIV or AIDS
- Describe the effects of Johnson v. Davis Supreme Court ruling on real estate practice in Florida
- Describe the requirements under Chapter 689, F.S. regarding disclosure of homeowner associations
Entitlement to Commission
The Listing Contract
A listing contract is the employment contract between the broker and the seller. The listing agreement sets forth the terms under which a broker is employed as an agent to find a buyer for the owner’s real estate. It outlines the terms under which the seller will owe the broker a commission for his services. Generally, commissions are paid on the sale price, not on the list price.
In Florida, a listing agreement is allowed to be written or oral, but the majority of Real Estate Contracts are written. It is very hard to prove in a court that the seller has hired the broker if the listing is not in writing. Florida law also provides that a copy of the listing contract be given to the seller within 24 hours of execution.
The following items must be included in any written listing agreement:
- A definite expiration date;
- Proper identification of the property;
- Price, terms, and conditions;
- Fee or commission to be paid;
- Signature of the owner
An automatic renewal clause for extension of the listing is forbidden under Florida Law. If the broker is a single agent to the seller, he owes the seller fiduciary responsibility. If the broker is employed as a transaction broker, the seller is a customer and the broker has no fiduciary responsibilities.
4 Types of Listing Agreements
There are 4 basic types of contracts between sellers of residential real estate in Florida and real estate brokers/agents: the open listing; the exclusive agency; the exclusive right of sale; and the net listing.
The seller retains the right to hire any number of brokers to sell his property. Whoever provides the seller with a ready, willing, and able purchaser is entitled to a commission. If the seller sells the property without the broker, he pays no commission. This is considered a unilateral contract because the broker does not guarantee sales.
Exclusive or Exclusive Agency Listing
Only one broker is allowed to act on behalf of the principal, but if the owner sells the property himself, no commission is paid to the broker. If the broker sells the property, he will be entitled to a commission. This is a unilateral contract.
Exclusive Right to Sell Contract
In this type of listing, the listing broker is always entitled to a commission regardless of who procures the buyer. It provides the most protection to the broker. If the owner of the property procures the buyer, the owner will be required to pay the listing broker. Because this type of listing is a bilateral agreement, it should be in writing.
This is a type of listing that is illegal in most states and strongly discouraged in Florida by regulatory agencies. This type of listing states that the seller is to receive a certain amount of money from the sale and any amount over the amount paid to the seller will be paid as a commission. This can lead to inaccurate pricing and price-gouging by brokers. Be sure to note that this listing requires the money left over to be given to the broker. It is not the same as the seller’s net, which is a math problem showing how much the seller makes from a sale.
In most listing contracts, language exists that says the broker (or any cooperating broker) must be the cause of a series of events in order to satisfy the terms of the listing and earn the commission. The commission is considered earned when the broker brings a “ready, willing, and able” buyer to the seller.
“Ready” means the buyer will or has signed the purchase agreement. “Willing” means the buyer will attend the closing. Finally, “able” means that the buyer has the funds or financing necessary to purchase the property.
If for some reason, the buyer cannot obtain the money, or will not attend the closing, the broker is NOT entitled to a commission. On the other hand, if the buyer remains ready, willing and able and the seller refuses to close, the broker may be entitled to the fee stated in the listing agreement.
Most courts have held that a broker who is the “procuring cause” is entitled to a fee. Procuring cause is defined as a chain of events. The events might include working with a buyer for a long time, introducing the buyer to the property and getting the buyer on paper.
Assisting with contract contingencies and inspections would also part of the chain of events. While there is no one item, a series of actions that lead to a ready, willing, and able purchaser, probably earns the fee. Evidence to support the broker’s claim is a well-kept paper trail. Items in the paper trail may include:
- Buyer and or seller correspondence
- Email or written communication
- A list of properties and dates are shown
- Communication with third parties
- Dates of meetings with either part
FAR/BAR Purchase and Sale Contract
Unauthorized Practice of Law
In Florida, the four types of contracts a broker may assist buyers and sellers with are:
- Listing Agreements
- Sale and Purchase Contracts
- Buyer Brokerage Agreements
- Lease Agreements
A major item that all brokers should advise their sales staff to avoid is the unauthorized practice of law. Almost all states have laws that provide that real estate brokers may not practice law but may fill in the blanks in standardized contracts provided by their attorneys or Board of Realtors®.
The practice of law is defined by the American Bar Association.
The “practice of law” is the application of legal principles and judgment with regard to the circumstances or objectives of a person that require the knowledge and skill of a person trained in law.
A person is presumed to be practicing law when engaging in any of the following conducts on behalf of another:
Giving advice or counsel to persons as to their legal rights or responsibilities or to those of others;
Selecting, drafting, or completing legal documents or agreements that affect the legal rights of a person;
Representing a person before an adjudicative body, including, but not limited to preparing or filing documents or conducting discovery; or
Negotiating legal rights or responsibilities on behalf of a person.
The primary consideration in defining the practice of law is the protection of the public. Thus, for a person’s conduct to be considered the practice of law, there must be another person toward whom the benefit of that conduct is directed. The conduct also must be targeted toward the circumstances or objectives of a specific person.
If a person who is not authorized to practice law is engaged in the practice of law, that person shall be subject to the civil and criminal penalties of this jurisdiction.
Statute of Frauds
Statute of Frauds is an old English statute passed in 1677, which has been adopted in almost all of the United States. Its purpose is to prevent fraud among the parties by requiring that all contracts be in writing and signed by all the parties to be charged. This will be covered more in contract law.
Specifically, to fulfill the Statute of Frauds, the State of Florida says:
689.01 How real estate conveyed.
No estate or interest of freehold, or for a term of more than 1 year, or any uncertain interest of, in or out of any messuages*, lands, tenements or hereditaments** shall be created, made, granted, transferred or released in any other manner than by instrument in writing, signed in the presence of two subscribing witnesses by the party creating, making, granting, conveying, transferring or releasing such estate, interest, or term of more than 1 year,
or by the party’s agent thereunto lawfully authorized, unless by will and testament, or another testamentary appointment, duly made according to law; and no estate or interest, either of freehold, or of the term of more than 1 year, or any uncertain interest of, in, to or out of any messuages, lands, tenements or hereditaments,
shall be assigned or surrendered unless it is by an instrument signed in the presence of two subscribing witnesses by the party so assigning or surrendering, or by the party’s agent thereunto lawfully authorized, or by the act and operation of law. No seal shall be necessary to give validity to any instrument executed in conformity with this section.
Corporations may convey in accordance with the provisions of this section or in accordance with the provisions of ss. 692.01 and 692.02.
Messuages – in law, this term equates to a dwelling-house and includes outbuildings, orchard, curtilage or court-yard and garden.
Hereditaments – every kind of inheritable property.
Documents for Preparing To Write the Contract
Before entering into a listing agreement with a seller, the broker should have an understanding about the property and its owner in addition to agreeing upon a commission percentage and the length of the listing term. Before drafting the listing agreement, the broker should request certain documents from the seller.
The following documents will assist the Broker in preparing the listing agreement and provide vital information important to potential buyers:
An owner’s title policy or an attorney’s abstract of opinion
These documents tell who owns the property and who must sign the listing and sale contract.
These documents tell the interest in the property held and how it is held (tenants by the entireties, joint tenants, etc.).
What are the encumbrances on the property (“the subject to’s”)?
What are the exceptions to the title, such as easements, right-of-way, reservations, and restrictive covenants?
The survey should show all encroachments unless new encroachments have occurred since the creation of the survey.
The survey should verify the correct legal description of the property and it should match the owner’s title policy.
The mortgage papers should have all important facts about the loan, its number, payoff information, etc.
The deed of trust should also be with the mortgage paper and should be examined for a prepayment clause or an alienation clause.
Other pertinent information pieces
Information about warranties for termites, burglar alarms, etc. should be present.
Any variances, nonconforming use, parking permits, etc. should be present.
Provisions of Real Estate Contracts
A. Contract Provisions:
The Sale and Purchase Agreement is a critical document that should accurately reflect the parties’ “meeting of the minds” and contain all the necessary terms and provisions to adequately protect each parties’ interests. A well-drafted, comprehensive contract is the foundation of a successful real estate transaction, and it should be the goal of every broker to prepare a contract that is straightforward and unambiguous.
A contract’s effective date is the date it is signed by the last party. For example, if the buyer signs the contract on November 3rd and the seller signs it on November 4th, the effective date is November 4th.
C. Parties and desired type of ownership:
The Sale and Purchase Contract should specify the buyer’s desired type of ownership interest, also called the estate. There are several different types of estates:
1. Estate in Severalty: When property is titled in one person’s name.
2. Tenancy by the Entireties: The TENANCY BY THE ENTIRETIES interest is available only to husbands and wives who own property together. Florida law considers property titled in this manner actually owned by the marriage rather than the individuals. In the event one spouse dies, the surviving spouse automatically receives sole ownership of the property regardless of any last will provisions. Neither spouse can legally sell or mortgage the property separately.
3. Joint Tenancy: JOINT TENANCY is an ownership interest between two or more parties with the right of SURVIVORSHIP (when one joint tenant dies, the other joint tenants absorb the decedent’s interest). The right to survivorship must be stated specifically in the deed by expressly using the words “Joint Tenants With Right of Survivorship.”
If the survivorship provision is not expressly stated, a tenancy in common will result. Additionally, joint tenancy requires that the property be acquired under the four unities of possession, interest, time, and title (PITT). The interests must be obtained simultaneously from the same source and in the same conveyance instrument (deed).
The ownership interest between the joint tenants (“co-owners”) must be equal (e.g. 50-50 or 1/4 each). All joint tenants have equal rights to possession and use of the subject property. Upon the death of a joint tenant, the decedent’s interest in the subject property does not pass according to the joint tenant’s will or estate, but rather the surviving joint tenants will equally absorb the decedent’s ownership interest.
If a joint tenant sells his or her interest, the new co-owner will not be considered a joint tenant with the other co-owners, but rather will be deemed a tenant in common. However, the original joint tenants shall remain as joint tenants with right of survivorship amongst themselves.
4. Tenants in Common: TENANTS IN COMMON is an interest in real property owned by two or more persons who may or may not have equal interests or may or may not have taken title at the same time. Their ownership interests may be equal (50/50) or unequal (80/20). Tenants in common have equal rights to possession and use of the property, regardless of the ownership share. A co-tenant may sell or transfer his or her interest separately.
D. Earnest Money Deposit:
If negotiated between the parties, the buyer will tender an earnest money deposit (EMD) as a demonstration of the buyer’s good faith and intention to fully perform according to the contractual terms. As a matter of law, the EMD is not mandatory; however, sellers usually require an EMD that will be forfeited if the buyer does not perform. Typically, a contract will state that in the event of a buyer’s breach, the seller is awarded the EMD as liquidated damages.
If an EMD is tendered, the amount and time of tender should be stated in the contract. Some buyers tender the EMD with an offer while others tender the EMD only after an offer is accepted. Either way, the broker must ensure that funds are properly handled which usually involves depositing the funds in an escrow account.
Earnest money deposits are usually in the form of a personal or business check. However, other types are permissible, including cash, third-party checks, and promissory notes. A well-drafted contract will state the amount and the type of EMD agreed upon by the parties.
Brokers are advised not to accept cash as an EMD due to liability risk and because of federal money-laundering rules for reporting cash transactions of $10,000 or more. In addition, promissory notes and post-dated checks cannot be accepted without prior approval by the seller.
The parties can agree that additional EMD funds are to be tendered at a scheduled time(s) prior to closing. Failure to timely tender EMD funds is considered to be a material breach of the contract by the buyer.
E. Legal Description:
Sale and Purchase Contracts should include the property’s address and legal description so that there is no doubt between the parties concerning what real estate is being transacted. The property’s legal description can be obtained from the owner’s deed, owner’s title insurance policy, mortgage, or survey.
Problems can arise if a Sale and Purchase Agreement does not contain a proper legal description. A buyer could later allege that failure to include the legal description is a basis to invalidate a contract. If the actual square footage area is different than the area represented, the buyer might be excused from performing based on misrepresentation or mutual mistake between the parties. If the Sale and Purchase Agreement contains an accurate legal description, no ambiguity should exist.
F. Purchase Price:
Naturally, the Sale and Purchase Agreement should state the purchase price in U.S. dollars. Typically, the purchase price is satisfied through a combination of the EMD, financing, plus additional cash tendered at closing, usually in the form of a bank check, certified funds, or wire transfer.
These methods of tendering cash at closing allow the closing agent to disburse funds immediately instead of waiting for personal checks to clear through the banking system. Remember that title transfers when the deed is delivered and accepted; therefore, the seller should receive cash at that time.
G. Financing Terms:
In addition to the purchase price, the parties may have to negotiate the financing terms of their agreement. When possible, it is preferable to have a buyer’s financial statement indicating his or her assets, liabilities, and income. With this information, the broker is able to advise the buyer about realistic price ranges to consider.
Sometimes, a copy of the buyer’s financial statement is attached to an offer so that the seller can assess the buyer’s likelihood of qualifying for a mortgage. Also, the seller could request a buyer’s financial statement as part of a counteroffer.
If the buyer has pre-applied for a mortgage, that fact alone is not necessarily helpful. Rather, being pre-approved (firm commitment) by a lender makes the potential buyer more desirable to the seller. If financing is a buyer contingency, specific time limits for loan application and approval should be stated in the sales contract.
Having a clause stating that the property is to be utilized as the buyer’s principal residence (if applicable) will protect the seller. Otherwise, the buyer could claim that the property will not be a principal residence and have the mortgage denied with the buyer receiving a full refund of the earnest money deposit.
If a contract is conditional on the buyer obtaining a loan (financing contingency), a time deadline should be established for starting the loan application process, a statement that the buyer will attempt to get the loan in good faith, and a clause which states the condition is waived after a certain time deadline (30 days to obtain loan approval). The buyer should state in the sale and purchase agreement that he or she will sign any documents necessary to have the loan approved.
H. Types of Financing:
There are numerous methods of financing available to the buyer. The particular type of financing anticipated by the buyer should be stated in the sale and purchase agreement.
If the terms are cash, there is no financing contingency. This means that the buyer will forfeit the earnest money deposit if the buyer fails to perform.
If seller financing has been agreed upon by the parties, certain terms and clauses should be established in the sale and purchase agreement, including the amount of the loan, interest rate, term of the loan, full amortization or partial amortization with a balloon payment, assumable or non-assumable, acceleration clause, etc.
If seller financing has been agreed upon, it is suggested that the actual note and mortgage that the buyer is to sign be attached as an addendum to the parties’ agreement at the time of contract formation.
A conventional mortgage may be available to the buyer with good credit and either 20% down or, if less than 20% down, obtaining private mortgage insurance to protect the lender in the event of foreclosure. If the parties’ agreement states that the buyer must be able to obtain a conventional loan, the maximum interest rate should be stated.
A VA loan may be available to a qualified buyer. Generally speaking, the maximum VA loan will probably not exceed $240,000. A higher VA loan may be available if the applicant has in cash for at least 25% of the amount exceeding $240,000.
The agreement should also state which party will pay the loan discount points or other closing costs. A VA appraisal is known as a Certificate of Reasonable Value. The sale and purchase contract should contain a provision that states if a Certificate of Reasonable Value is less than the purchase price, the buyer may cancel the agreement with a full return of all deposits.
If the buyer desires an FHA loan, the buyer should understand that there will be a closing cost called the Up Front Mortgage Insurance Premium (UFMIP) equal to 1.5% of the loan amount. This cost is usually paid by the buyer. Also, the FHA may require that certain repairs be performed as a condition to the loan; therefore, the parties’ contract should specify who will pay for these necessary repairs.
Regardless of the mortgage loan type, if the buyer desires an adjustable-rate mortgage, the sale and purchase agreement should state a maximum introductory interest rate.
I. Chattel and Fixture Inclusions:
If personal property, such as furniture, is included with a sale, it is preferable to have a list of inventory attached as an addendum to the agreement. If these items are included as part of the purchase price, no sales tax issues are raised. If, however, a separate dollar amount is associated with each item, sales tax must be charged and forwarded to the Florida Department of Revenue.
J. Title Inspection:
The buyer should be given a reasonable amount of time to examine the property’s title before closing. If there are any defects that prevent the title from being marketable (insurable), the buyer must notify the seller of the title defect and give the seller a reasonable amount of time to either cure the defect or the agreement should be canceled with a return of the EMD to the buyer.
K. Place of Closing:
A specific date for closing should be stated and not state that closing will occur within a certain number of days. The place of closing will usually occur in the county where the property is located unless otherwise agreed upon by the parties.
The sale and purchase agreement should state which items will be prorated between the seller and buyer at closing, such as property taxes, homeowner’s dues, insurance, rent, and others.
M. Pre-closing Possession:
It is usually advised that the buyer not take possession prior to closing. If pre-closing possession is necessary, the parties should enter into a lease thereby establishing a landlord-tenant relationship. Other items such as insurance and liability responsibility should also be addressed. The parties can also agree that the seller can remain in possession for a reasonable time after closing. This will ensure a smooth closing in a timely manner that will not jeopardize a seller moving prematurely.
N. Type of Deed:
The sale and purchase agreement should state the type of deed to be provided to the buyer. The most common form of deed is the GENERAL WARRANTY DEED which offers the buyer the greatest amount of protection and offers the greatest number of title warranties from the seller.
O. Breach of Contract:
In the event of breach, the sale and purchase agreement should state the remedies and procedures available to the parties. Typically, if a buyer defaults, the seller has a choice of liquidated damages (keeping the EMD), unliquidated damages (actual losses), or specific performance (seeking a court order requiring the buyer to purchase. In the event of a seller default, since the buyer has equitable title, the buyer has the choice of specific performance or contract cancellation with a full return of the EMD.
P. Other terms that should be addressed if appropriate include:
1. Special assessments should be identified, and the agreement should establish which party will be responsible for payment.
2. If the agent is participating as either the buyer or seller, the agency relationship should be terminated with a full disclosure of all facts and knowledge available to the agent. It is legal to pay a commission after agency termination (non-representative status will exist).
3. If the sale and purchase agreement is conditional upon a property inspection, time limits should be established together with an agreement on which party will make any necessary repairs.
Psychologically Impacted or Stigmatized Properties
A broker may be unsure what a material fact is under the law, but Chapter 689.25 (Conveyances of and Declarations of Trust) makes it clear and defines psychologically impacted or stigmatized property.
This is what the law says:
689.25 Failure to disclose homicide, suicide, deaths, or diagnosis of HIV or AIDS infection in an occupant of real property.
Florida Law does not require real estate licensees to disclose the claim that a property may be stigmatized. The site of a homicide, suicide, or death is not a material fact that must be disclosed in a transaction.
Occupant Infected with HIV or AIDS.
Licensees are prohibited from disclosing or discussing that a seller of property is HIV positive or infected in the AIDS virus. These matters are protected under privacy laws and must be adhered to by all licensees.
Ad Valorem Tax Disclosure (Chapter 689, F.S.)
(Ad Valorem means “in proportion (or proportionate) to the estimated value”)
689.261 Sale of residential property; disclosure of ad valorem taxes to prospective purchaser.
A prospective purchaser of residential property must be presented a disclosure summary at or before execution of the contract for sale. Unless a substantially similar disclosure summary is included in the contract for sale, a separate disclosure summary must be attached to the contract for sale.
The contract for sale must refer to and incorporate by reference the disclosure summary and include, in prominent language, a statement that the potential purchaser should not execute the contract until he or she has read the disclosure summary required by this section.
Property Tax Disclosure Summary
This is a disclosure to a buyer prior to entering into a contract in which to inform them that property taxes may be different from those paid by the previous owner due to reassessment. The disclosure summary, whether separate or included in the contract, must be in a form substantially similar to the following:
Buyer should not rely on the seller’s current property taxes as the amount of property taxes that the buyer may be obligated to pay in the year subsequent to purchase. A change of ownership or property improvements triggers reassessments of the property that could result in higher property taxes. If you have any questions concerning valuation, contact the county property appraiser’s office for information.
Statutory duties of disclosure
Radon is a colorless, odorless gas that can be very deadly to families. This disclosure must be provided prior to signing a real estate sales or leasing contract. This disclosure warns about the possible health hazards of radon gas but does not require a radon-gas inspection. Radon gas has become more of a health concern due to energy-efficient housing.
Duty of seller to disclose
Johnson versus Davis:
The rule of caveat emptor (Let the Buyer Beware) still holds some value in Florida as it does in most states. However, the Florida Supreme Court ruled in the case of Johnson v. Davis (1985) that the seller was responsible for disclosing material facts to the buyer on the purchase of residential real estate.
In this case, the buyer sued the seller for failure to disclose a leaky window. The buyer had asked the seller about buckling and peeling around the window and the seller told him the problem had been fixed. Shortly before closing, the buyer went to the home and found water pouring into the home around the window frame, ceiling, light fixtures, doors, and stove.
The buyer sued to rescind the contract and recover his money. The Florida Supreme Court ruled for the buyer and made a new rule requiring sellers of residential property to disclose substantial defects in a property that would not be readily observable by the buyer.
Even with the Johnson v. Davis case, the buyer is called upon to verify information by actual and constructive notice. The “as is” provision does not release the seller from giving important information to the buyer. All licensees should check the property carefully and make every effort to disclose material defects to the buyer.
Dorton vs. Jensen
The sellers, in this case, were sued by the buyers because the sellers had failed to disclose that there had been an issue of water ponding against the rear of the home. The sellers felt that it was not important, a minor issue, not a material defect — but the buyers did not agree, nor did the Florida appellate court.
The court said the issue was that the average buyer would have found the information relevant, not whether the seller considered it important. Any material fact or defect should be reported by the seller to the buyer.
Lead-based paint disclosure
Every purchaser or lessee of any interest in residential real property that was built prior to 1/1/78 must be notified that such property may present exposure to lead from lead-based paint. The regulation mandates disclosure. No testing or evaluation is mandated. It does not mandate a clean-up.
The seller or lessor of any residential property or agent of the seller or lessor must disclose to the purchaser or tenant any information on lead-based paint hazards from risk assessments or inspections in the seller’s or lessor’s possession.
The seller or lessor must provide a purchaser or tenant with a HUD-Approved pamphlet entitled Protect Your Family From Lead in Your Home. Real Estate Brokers who represent the seller in a transaction or receive any compensation from the seller are required to inform the seller of the disclosure obligation and to ensure compliance. Real Estate Brokers who represent the lessor in a transaction are also required to inform the lessor of the disclosure obligation and to ensure compliance.
If a licensee is charging a transaction fee in addition to receiving compensation through a commission, notice of the transaction fee must be provided to the person being charged prior to the formation of the purchase and sale agreement.
Building code violations
Sellers who have been cited for building code violations must disclose this information to buyers prior to closing.
A. Lease-Purchase vs. Lease-Option:
When a tenant is provided with the possibility of purchasing the leased premises at the end of the lease term, two different types of agreements are available. Under the Lease-Purchase Agreement, the tenant leases for a term, and, upon the term’s conclusion, the tenant is obligated to purchase based on contract terms established at the lease’s inception. Under the Lease-Option, the tenant has the option, but not the obligation, to purchase the premises based upon terms established at the lease’s inception.
B. Option contract:
An option contract is a unilateral agreement between an optionor (potential seller) and an optionee (potential buyer). An option contract must be in writing. In an option contract, the optionor grants an optionee the right to buy the subject property within a specified period of time for a specified price and other terms. During the option period, the optionor agrees not to sell the property to anyone else. The optionee is under no obligation to purchase.
Since the optionee is under no obligation to purchase, in order for there to be a binding contractual agreement the optionee is required to give definite, valuable consideration in lieu of a promise. The consideration must be in the form of money and must be more than a token offering. The parties can agree whether the consideration is refundable in full, in part, or may be applied to the purchase price if there is a sale.
C. Agreement for Deed:
An Agreement for Deed, also known as a Contract for Deed, is considered a financing device. The buyer takes possession of the property, makes installment payments to the seller, and, when the final payment is made, the deed is delivered to the buyer. If there is a breach by the buyer and the Agreement for Deed has been recorded, the seller must file a foreclosure action. Licensees should exercise great caution when involved with an Agreement for Deed and should advise their clients to consult with an attorney before signing such a contract.
With an Agreement for Deed, possession of the premises is delivered to the buyer at contract, not at closing.
Sold signs — FREC Rules Pertaining to Sold Signs
The intent of the Commercial Real Estate Sales Commission Lien Act is to help brokers who are the procuring cause of sale collect monies that are rightfully earned. There are cases where the broker in a commercial transaction has had difficulty collecting the earned fee and is forced to resort to court action. In order to protect the broker, the Act was passed. The complete act is lengthy and detailed. Listed are the highlights:
A lien may be placed against the proceeds from a sales transaction of a commercial property. The lien may NOT be placed against the property itself.
A disclosure must be made by the broker to the owner at or before the time the owner signs the listing agreement explaining that the law creates lien rights that cannot be waived. The notice must be delivered before the commission is earned.
Within 30 days after a commission is earned and at least one day prior to closing, the broker must deliver a signed, sworn ‘commission notice” to both the property owner and the closing agent, stating that the broker will enforce a lien for commission.
The commission notice may be recorded but will expire one year from recording. The notice may be extended in some cases. Once the closing takes place, the broker has no lien right.
The law requires the closing agent to hold the broker’s commission if the broker has satisfied the legal requirement.
If there is a dispute between the broker and the seller, the closing agent deposits reserved disputed proceeds with the court, less any costs incurred by the closing agent in an interpleader action.
Either broker or seller may file a civil suit to recover the reserved (held) proceeds. The prevailing party is entitled to collect court costs and attorney’s fees.
With an Open Listing, the seller reserves the right to sell the property himself or herself without owing a commission and reserves the right to offer the listing to other brokers at the same time. Under Exclusive Agency Listing, the seller reserves the right to sell the property himself or herself without owing a commission but agrees not to offer the listing to any other brokers while the Exclusive Agency Listing is in effect.
With the Exclusive Right of Sale Listing, the commission is paid no matter who procures the buyer.
A copy of any written listing must be given to the seller within 24 hours. Exclusive Right of Sale Listings must be in writing.
Open listings cannot be published in most Multiple Listing Services.
Licensees may prepare Sale and Purchase Contracts, Option Contracts, Listing Contracts, and fill-in-the-blank lease forms approved by the Florida Supreme Court.
Under the Statute of Frauds, certain types of contracts must in writing in order to be enforceable. In real estate, those contracts include Sale and Purchase Contracts, Option Contracts, and leases for more than one year. Either partial performance or full performance will remove an oral contract (parol contract) from the Statute of Frauds.
Specific Performance is a breach of contract remedy when the breaching party is ordered by a Judge or Arbitrator to perform the contract. Liquidated damages are a specific dollar amount of damages to which a non-breaching party is entitled in the event of a breach of contract by the other party.
With an option contract, the seller agrees not to sell the property to another while the potential buyer (optionee) is given a period of time to decide whether or not to buy. With a right of first of refusal, the property is technically not under contract, but the seller has an obligation to allow the party given the right of first refusal to match a subsequent offer from a third party.
Licensees are not allowed to disclose nor discuss if a party is infected with AIDS or is HIV positive.
The Florida Supreme Court case of Johnson v. Davis requires sellers and their agents to disclose any known defects that materially affect a property’s value.
Florida law requires that buyers be advised if purchasing a property will require mandatory membership in a homeowner’s association. If the disclosure is not timely delivered, the buyer receives a 3 day right of rescission.
Vocabulary List: abstract, compensatory damages, contingency, earnest money deposit, effect a sale, find a purchaser, joint tenancy, lease-option agreement, lease-purchase agreement, liquidated damages, procuring cause, right of first refusal, specific performance, the statute of frauds, tenancy by the entireties, tenancy in common, time is of the essence