Dear Virginia Licensee, The attached material covers the Getting the Contract to Settlement course approved by the Commonwealth of Virginia for one hour mandated of continuing education for the correspondence course. After you read through it, complete the test, fill out the answer sheet and test certificate sheet and return to us. We will then grade the test and if you received a 70% or better overall score, we will notify the Virginia Real Estate Board that you have satisfied the education requirements for license renewal. If you do not get 70%, we will notify you of the need to re-test. The booklet contains: 1. a review of contract law 2. contract quiz 3. answer/test certification sheet If you have any questions as you review the materials, you may request to speak to an instructor by calling 703-560-9044 (Northern Virginia), 757-473-1500 (Hampton Roads), 804-346-2234 (Richmond) or 800-543-3365 (Roanoke). Return to us ONLY the answer sheet and test certification sheet along with your notarized affidavit with your payment of $10.50 by check, Visa, Master Card or Discover. We will send your name and your Virginia license number to the Real Estate Board via email at least semi-monthly. Please do not wait until the last minute to return the information to us. We will also send you a certificate stating that you have completed the required hours. Be sure to retain the certificate because the Real Estate Board could request a certified copy. If you have any questions, please call one of the numbers listed above. Good luck in your studies! Sincerely, Jill Malloy Northern Virginia Training Director
GETTING THE CONTRACT TO SETTLEMENT (Using the Regional Contract and Addenda) Very often, getting a contract on a listing is easy. It s getting to settlement that is the difficult part. Why is that? Sometimes, it s due to high emotions of buyers and sellers. Other times, it is because the agents do not fully understand the contract or because they fail to fully educate their clients upfront. Unfortunately, it is sometimes due to poor agent etiquette. Sometimes, Murphy s Law just happens. The agent has control over most of these variables, and when Murphy s Law happens, if the agent has done his/her job, what goes wrong is easier to repair and it doesn t appear to be so terrible. There are 6 steps to a successful settlement. They are: 1. Knowing the Sales Contract and the Forms 2. Educating the Clients Fully Upfront so there aren t Surprises 3. Anticipating Potential Problems 4. Completing All Addenda at the Time of Contract Ratification 5. Abiding by All Time Periods 6. Being Professional and Courteous at All Times Knowing the Sales Contract and the Forms The process begins with agents knowing the contract and the forms. This is critical to keeping clients on track and out of trouble. Following, is a review of some key points of the more commonly used forms and addenda. There is a definite difference between ratification and contingencies. Ratification occurs when all terms of the contract have been agreed upon by all parties to the contract. A ratified contract can have twenty contingencies; however, it is still ratified if all parties to the contract have agreed to all twenty contingencies and all other terms in writing. The greater the number of contingencies, the weaker the contract is because each contingency gives one or both parties an opportunity to void the contract without being in default. Usually, sellers warrant that certain systems and equipment will be in normal working order on the day of possession or settlement (paragraph three of the Regional Sales Contract). If so, the agent must know which systems these are and what warranting them means. In the Regional Sales Contract, the seller warrants that the existing appliances, heating, cooling, plumbing, electrical systems and equipment, and smoke and heat detectors (as required), will be in normal working order as of the possession date. The seller agrees to deliver the property in substantially the same condition as on the 2
Contract Date and broom clean with all trash and debris removed. The seller is also warranting that the well water will contain no more than the acceptable level of coliform bacteria and that the septic system appears to be functioning satisfactorily, and if known by public records, was installed pursuant to a valid health department permit. In addition, sellers warrant that all dwelling(s) and/or garage(s)) within the Property (excluding fences or shrubs not abutting garage(s) will be free of visible evidence of active termites or other wood-destroying insects and free from visible structural insect damage. The Regional Sales Contract also states that sellers will repair any items found to be in violation by their homeowners association or condominium association. As long as the items identified in the preceding paragraph are preserved in the sales contract, the seller is responsible for them. Both agents must understand that the federal government looks upon certain charges relating to a real estate transaction as being unearned. The most common example of this is lenders fees. If buyers are obtaining VA or FHA financing, those buyers are prohibited by law from paying lender s fees. The Regional Sales Contract states that the sellers pay those fees. If the purchasers request that the sellers pay a closing cost credit, that closing cost credit is first applied to the lenders fees and the remainder is applied to the purchasers closing costs. If the purchasers do not request any closing cost credit, the sellers pay the lenders fees. It is important that the listing agent note this on the seller s net sheet when this scenario occurs. Very often, different companies use different addenda or older versions of the same addenda used by the listing company. It is crucial that the listing agent is aware of this and knows what the particular addendum received with the contract says. With some addenda, sellers must respond in order for something to go into effect; with others, if the sellers don t respond, the same thing goes into effect. The NVAR Contingencies and Clauses Addendum states that, in the cases of a home inspection contingency or radon contingency, the failure of either party to respond to a counter-offer within the specified time period results in the contract becoming void. The agent who does not know this can be the cause of their clients contract becoming void. This is why it is so crucial that the listing agent review each form before advising sellers to sign and/or initial. In certain instances, buyers must either rent their current home or settle on it once it is sold in order to obtain the loan on the new property. In some contracts, this could fall under financing, in which case, if the property isn t rented or doesn t settle, the purchasers do not get the loan and the contract is voided with the purchasers being under no further obligation. In the case of the Regional Sales Contract, the contract is not contingent upon the successful lease or settlement of a property unless it is specified in a written contingency. The Virginia Property Owners Association Act states that sellers provide to purchasers an Association Disclosure Packet that is current as of the date specified on the Association Disclosure Packet. The purchasers then have an opportunity to cancel the contract: 1) within 3 Days after the date of Contract Acceptance, if on or before the 3
date of Contract Acceptance, the purchasers receive the Association Disclosure Packet or notice that the Association Disclosure Packet is not available; 2) within 3 Days after hand delivered receipt of the Association Disclosure Packet or notice that the Association Disclosure Packet is not available; or 3)within 6 Days after the postmark date if the Association Disclosure Packet or notice that the Association Disclosure Packet is not available is mailed to the purchasers. The purchasers may also void the contract at any time prior to settlement if they have not been notified that the Association Disclosure Packet will not be available and the Association Disclosure Packet is not delivered to them (the purchasers). If purchasers choose to void the contract, they need only give notice to the sellers that they are voiding the contract. However, this notice must be hand delivered or mailed, return receipt requested, within the cancellation period to the sellers. This notice voiding the sales contract cannot be faxed. The purchasers also have the opportunity to request assurance from the association that the information submitted in the Association Disclosure Packet remains materially unchanged, or if there have been material changes, a statement specifying such changes. If there are material adverse changes, the purchasers have no opportunity, at this point, to cancel the contract. With the Virginia Condominium Act, purchasers may also void the contract as in the Virginia Property Owners Association Act, with notice to the sellers by hand delivery or mail (not fax), return receipt requested, within the cancellation period. They may also request assurance from the association that the information submitted in the Resale Certificate remains materially unchanged. However, if there are one or more adverse material changes, the purchasers do have the opportunity to cancel the contract. The prudent listing agent will order Property Owners Association or Condominium documents as soon as possible, even before the listing is entered into the computer so that he/she can deliver them to the buyers at the time of contract ratification or shortly thereafter. The listing agent should take responsibility for obtaining these documents and delivering them safely to the buyers only at the address stated on the Virginia Jurisdictional Addendum. All documents should be current and not re-cycled. If there are time periods with which to comply in the contract, both agents must know when the clock begins to tick and what could potentially happen if any time periods are not met. In certain cases, one party can void the contract if a time period is disregarded. Educating the Clients Fully Upfront so there Will Not be Surprises Often, problems occur between contract and settlement because the clients have not been fully educated upfront by the agent. The listing agent needs to educate sellers regarding repairs and when they may be legitimately asked or given notice to make these repairs. The Regional Sales Contract is an evolving process in which many scenarios can occur until the time of settlement. 4
Purchasers can usually request that sellers make repairs following completion of the home inspection. Sellers need to be aware of the items for which they are responsible and the items that are negotiable. The selling agent should educate buyers regarding these items also. When the selling agent writes the home inspection addendum, it should only include negotiable items. All paragraph three items should be handled by notice on a separate sheet of paper. In certain situations, purchasers can request that sellers make repairs when the appraisal is completed. If the appraiser requires repairs and these repairs are not completed, the purchasers will not receive the funds from the lender. In this case, either the sellers or purchasers can make the repairs. Usually, purchasers request that sellers make these repairs; however, sellers are not obligated to do so. In some instances, sellers can be given notice that they must make repairs when the homeowners or condominium documents are delivered to the purchasers. The Regional Sales Contract states that sellers must comply with notices of violations from the homeowners associations or condominium associations, sellers must make required repairs. In this case, the purchasers or the selling agent prepare notice to the sellers with a list of violations attached after they receive resale documents that indicate these violations. Sellers may also be told to make repairs at the pre-settlement walk-through. Going back to paragraph 3 of the Regional Sales Contract, the purchasers and selling agent are looking at three major categories during this walk-through. The first category is paragraph 3 items (electrical, plumbing, etc.). The second is negotiable home inspection items that the sellers agreed to repair. The last category is property condition; paragraph three of the Regional Sales Contract states that the property must be in substantially the same condition that it was in on the contract date. If it is not, the sellers are responsible for restoring it to the condition it was in on the Contract Date. Anticipating Potential Problems Agents need to anticipate potential problems. This way, they can be solved before they occur. The listing agent should anticipate problems as soon as the sales contract is presented. Often, in an attempt to make the offer stronger, the selling agent will request a home inspection for informational purposes only. Since there is no home inspection contingency, the contract appears to be stronger. However, if the home inspection takes place immediately and the purchasers are not happy with the results, they can sometimes void the contract on another contingency, often the Property Owners Association Documents. In order to prevent this from occurring, the listing agent might want to counsel the sellers to counter this language in the offer to state: The home inspection will be conducted only after all contingencies have been removed and the appraisal has been completed. This way, when the home inspection does occur, the buyers have no recourse if they are not satisfied with the results. 5
The selling agent should check the conveyances with the listing agent before writing the offer. One way to do this is to ask the listing agent to fax the top half of page one of the listing agreement. There is no confidential information in this section of the listing agreement. The listing agent, once the offer is presented or delivered, should check the conveyances on the offer against the conveyances listed on the listing agreement and pay particular attention to both items that the sellers are conveying in as is condition and items written into the listing agreement that are not conveying (ex. Master bedroom draperies do not convey. ). The listing agent should take the lockbox off of the door of the listing when the contract is ratified. From ratification time forward, the purchasers and selling agent should have access to the home only for the purposes of fulfilling the terms of the contract. Any additional access should be granted only with the permission of the sellers. The Regional Sales Contract states that The Purchaser may substitute alternative financing for Specified Financing provided that there is no additional expense to the Seller and the settlement date is not delayed. The potential problem arises when purchasers decide to change from conventional financing to FHA or VA financing. The selling agent, in cases such as these, may need to be creative when amending the Sales Contract. If the purchasers did not originally ask for the sellers to contribute to closing costs in the offer, the sellers would now be obligated to pay the purchasers lender s fees, which by law cannot be charged to the purchaser. Since this would mean an additional expense to the sellers, it is not doable without some creativity. When the selling agent amends the sales contract to change the financing to VA or FHA, it can be written into the amendment that the seller will not pay any of the purchasers lender fees. The lender can work those fees into the loan and increase the rate or points accordingly, thereby eliminating those lenders fees. In addition, with FHA financing, there is always the possibility that the appraiser will require repairs that would not be required with conventional financing. The selling agent, in this case, can write into the amendment to the sales contract that the purchasers will be responsible for any lender required repairs up to a specific dollar amount. Sometimes, the lender is the culprit holding up settlement due to last minute requirements. It cannot be emphasized strongly enough that the lender and loan officer used should be known quantities and the loan officer should be someone who is honest and reliable. Once the financing contingency has been removed, the purchasers are in default if they cannot settle on the specified settlement date due to the loan. The fact that the delay is due to the loan officer is not important. The purchasers are in default and a savvy seller, who has been looking for a means to void the contract, now potentially has one. In the NVAR Contingencies/Clauses Addendum to Sales Contract, purchasers have an opportunity to void the sales contract following the home inspection. They can void the contract without giving a reason. They must simply deliver a copy of the inspection report and notice voiding the contract to the sellers. Following a radon inspection, purchasers can also void the contract if the radon level equals or exceeds the 6
action level established by the EPA. Again, all that is necessary is delivery of the radon report and notice voiding the contract. In these two situations, the purchasers are being granted an opportunity to void the contract. The listing agent may want to suggest to the sellers that they counter the offer by crossing out these options that allow the purchasers to void the contract. The purchasers would then have to take the property in its present condition or ask for remediation, but not cancel the contract. In the Virginia Jurisdictional Addendum, the selling agent must complete the address to which property owners association documents or condominium documents will be sent. If the purchasers address has been written in the blank that designates the address to which the documents are to be sent, the clock begins to tick once the purchasers receive the documents at their home address, if hand delivered. If mailed, the clock begins to tick when the documents are mailed. If instead, the selling agent s office address has been written in the blank, the clock begins to tick once the documents have been delivered to the agent s office, if hand delivered and if mailed, when the documents are mailed. If the agent is unavailable or out of town, there is a possibility that the contingency will be terminated by the time the agent returns to deliver the documents to the purchasers. Delivery to the purchasers home address releases the agent from this liability regarding delivery. Finally, it is imperative that all agents be compulsive in their communications with other agents and everything should be well documented. In addition, all documents related to the contract should always be delivered to the proper parties promptly. Completing All Addenda at Time of Ratification The property condition disclosure or disclaimer form should be signed by all parties by contract ratification. Otherwise, a contingency is created. The Disclosure of Information on Lead-Based Paint and Lead-Based Paint Hazards should be completed by all parties (including both agents) at the time of ratification. There are grave consequences associated with noncompliance of this federal law. If there is to be a pre or post-settlement occupancy agreement, it is best to include it at the beginning with the offer. In this way, there will be no future problems regarding terms of the agreement. Abiding By All Time Periods As previously mentioned, it is crucial to abide by all time periods stated in the sales contract. Savvy buyers and sellers, who wish to void the sales contract may be looking for the other party to disregard a time period. In some of these cases, the contract can be voided. 7
Being Professional and Courteous Unfortunately, the agent can be the cause of a contract falling apart, not just for the above reasons, but because the agent is acting in an adversarial manner. Although one agent is representing the sellers and another is usually representing the buyers, this is teamwork. Being adversarial will get an agent nowhere and may harm the transaction. It is unwise for an agent to play his clients hero. Agents sometimes create problems with the transaction or other agent in order to solve these problems and look good in their clients eyes. It is not just unwise, but also unethical to speak about another agent in a disparaging manner. 8
GETTING THE CONTRACT TO SETTLEMENT QUIZ (Using the Regional Contract and Addenda) 1. Sellers usually warrant that the following will be in normal working order on the day of settlement or possession: a. Windows b. Appliances c. Doors d. Roof and foundation 2. Must sellers treat well water that contains more than the acceptable level of coliform bacteria? a. No. That is the purchasers problem. b. No. The real estate agent must fix the problem. c. Yes. d. No. There is never enough time to treat the water prior to settlement. 3. If a home inspector finds that the air conditioning unit does not cool properly a. The purchasers should ask the sellers to repair it. b. The purchasers cannot ask the sellers to repair it. c. The purchasers should give notice that it is not in normal working order and the sellers must repair it. d. The sellers can refuse to repair it. 4. If purchasers do not respond to sellers counter-offer of the home inspection addendum within the agreed upon time period a. The sellers can void the contract. b. The sellers cannot void the contract. c. The selling agent can void the contract. d. There s no problem. 5. When can purchasers pay their own lender s fees? a. When they have enough money. b. When their loan is for VA financing. c. When their loan is for FHA financing. d. When they are obtaining conventional financing. 9
6. If sellers are given notice by purchasers to correct violations stated in Property Owners Association documents, they a. Can refuse to correct them if they have no money left. b. Must correct them. c. Can correct them, but this is negotiable. d. Cannot be told to correct them. 7. If purchasers void the contract based on Property Owners Association or Condominium Owners Association documents, a. They must do so within 10 days of receipt of the documents. b. They can fax notice to the sellers that they are voiding the contract. c. They must give notice to the sellers by hand delivery. d. They must give notice to the sellers by hand delivery or mail, return receipt requested. 8. If purchasers write into the sales contract that they can conduct a home inspection for informational purposes only, a. They never have a chance to void the contract if they don t like the results of the home inspection. b. They can still void the contract on the home inspection. c. They might be able to void the contract on a contingency that has not yet been removed. d. They can always void the contract before the home inspection. 9. If the property condition disclosure or disclaimer form is not completed by all parties to the contract by ratification, a. The contract is void. b. A contingency is created. c. The contract is not ratified. d. The selling or listing agent can sign the form for their clients. 10. If an appraisal requires that certain repairs be made to the home, a. The sellers must make those repairs. b. The purchasers must make those repairs. c. The repairs can always be completed after settlement. d. The purchasers will not receive their financing if the repairs are not completed prior to settlement. 10
Please circle the correct answer 1. A B C D 2. A B C D 3. A B C D 4. A B C D 5. A B C D 6. A B C D 7. A B C D 8. A B C D 9. A B C D 10. A B C D ANSWER SHEET (Getting the Contract to Settlement) 11
TEST CERTIFICATION SHEET I certify that I have reviewed and studied the materials for Getting the Contract to Settlement approved by the Commonwealth of Virginia Real Estate Continuing Education correspondence program presented by your school. I have completed the answer key and attached it to this certification sheet for your review. Print Name Address Date Phone My Virginia real estate license no. is ; it is a Sales Associate Broker Broker (circle one) license. It expires on. Date I am affiliated with Broker at office. E-mail address:. Virginia Real Estate Commission Course Evaluation Instructions: For each of the questions below please evaluate the course on the basis of a 5 point scale: 5 = Excellent 4 Good 3 Average 2 Fair 1 = Poor. The content of the course 1. Was the course material relevant to your day-to-day activities? 1 2 3 4 5 2. Overall, did you find the course informative? 1 2 3 4 5 The material 1. Did you find the material well organized? 1 2 3 4 5 2. Did you find the material easy to follow? 1 2 3 4 5 3. Did you find the material well written? 1 2 3 4 5 Student signature Payment I enclose a check (Payable to Long & Foster Institute of Real Estate) for $10.50 (includes tax). Please charge my Visa Master Card Discover. Card Number exp. Date Return this sheet with completed answer key and payment to: Long & Foster Institute or Long & Foster Institute or Long & Foster Institute or Long & Foster Institute 3069 Nutley Street 1300 Diamond Springs Road 4435 Waterfront Drive #400 3912 Electric Road Sw, #200 Fairfax, VA 22031 Suite 102 Glen Allen, VA 23060 Roanoke, VA 24018 Fax: 703-560-9772 Virginia Beach, VA 23455 Fax: 804-346-2223 Fax: 540-772-1271 Fax: 757-460-3626 12
STUDENT AFFIDAVIT / CORRESPONDENCE COURSE I certify that I have personally completed each assigned module of instruction and that my work in this course will be based on my own personal efforts, unassisted by any unauthorized individual or resource. I understand that receiving unauthorized assistance or tampering with course results will invalidate my course credit and may be a cause of action under the real estate laws and regulations of my state. (Student Name - Please print as it appears on your license) (License Number) Getting the Contract to Settlement (Course Name) Phone number: E-Mail address: Subscribed and sworn before me this day of,. Notary Signature: County/City of State of My commission expires on. Please mail test certificate/notarized affidavit and test answer sheets to: Long & Foster Institute or Long & Foster Institute or Long & Foster Institute or Long & Foster Institute 3069 Nutley Street 1300 Diamond Springs Rd. 4435 Waterfront Drive #400 3912 Electric Road, SW Fairfax, VA 22031 Suite 102 Glen Allen, VA 23060 Roanoke, VA 24019 FX: 703-560-9772 Virginia Beach, VA 23455 FX: 804-346-2223 Fax: 540-772-1271 FX: 757-460-3626 ALL OF THE ABOVE INFORMATION MUST BE ENTERED IN ORDER TO RECEIVE CREDIT 13
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