Modern Real Estate Practice in Texas, 15th Edition

1
Modern Real Estate Practice in Texas, 15th
Edition

• By Cheryl Peat Nance, Ed.D., DREI, CREI

2
11 Real Estate Taxes and Other Liens

• Learning Objectives
• Distinguish between and give examples of each
• Specific and general liens
• Voluntary and involuntary liens
• Statutory and equitable liens
• Describe
• Key components in each of the four phases of the
  annual tax levy process
• Steps for levying special assessments

3
11 Real Estate Taxes and Other Liens

• Learning Objectives
• Identify the
• Process through which real estate taxes become
  delinquent and/or become a lien
• Enforcement options for unpaid real estate taxes
• Equitable and statutory rights of redemption
• Explain the various types of liens other than
  taxes and how they are prioritized to satisfy
  unpaid debts

4
11 Real Estate Taxes and Other Liens

• Liens
• Voluntary Created by lienees action
• Involuntary Created by law
• Statutory Created by statute
• Equitable Created by common law
• General Affect all real and personal property
• Specific Secured by specific property

5
11 Real Estate Taxes and Other Liens

• Liens
• Priority
• Determines the order in which unpaid debts or
  obligations are paid from sales proceeds
• Real estate taxes and special assessments take
  priority over all other liens
• Next, Texas Workforce Commission wage liens, if
  applicable ? ? ?

6
11 Real Estate Taxes and Other Liens

• Liens (cont.)
• Priority (cont.)
• Mechanics liens take priority from the time work
  was begun or materials delivered
• Other outstanding liens take priority from the
  date of their recording at the county clerks
  office
• IRS tax liens do not have a specific priority
• They attach to a taxpayers equity interest in
  the property

7
11 Real Estate Taxes and Other Liens

• Subordination Agreements
• Change priority of liens
• Real Estate Tax Liens
• Ad valorem tax
• Special assessment

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11 Real Estate Taxes and Other Liens

• Real Estate Tax Liens
• Ad valorem
• For the general support or operation of the
  government
• Calculated on appraised value of the property -
  according to value
• Specific, involuntary, statutory lien

9
11 Real Estate Taxes and Other Liens

• Ad Valorem Taxes (cont.)
• Phases of Tax Levy Process
• Property Valuation
• Protest Period
• Tax Rate Adoption
• Tax Collection

10
11 Real Estate Taxes and Other Liens

• Ad Valorem Taxes (cont.)
• Phase 1 Property Valuation
• Overview
• Tax-exempt property includes property used for
  charity and nonprofit
• Exemptions for taxable property
• Homestead
• Age 65 or Older
• Disability Status
• Tax appraisal

11
11 Real Estate Taxes and Other Liens

• Ad Valorem Taxes (cont.)
• Phase 1 Property Valuation (cont.)
• Tax-exempt property includes property used for
  charity and nonprofit owned by
• State and federal government
• Cities
• Hospitals
• Educational institutions
• Religious corporations

12
11 Real Estate Taxes and Other Liens

• Ad Valorem Taxes (cont.)
• Phase 1 Property Valuation (cont.)
• Reductions from Appraised Value (for taxable
  properties)
• Homestead
• Own and live in property
• Submit a homestead exemption application form to
  appraisal district
• Address on drivers license or state-issued ID
  and on a vehicle registration receipt must match
  the address on the property for which the
  exemption is requested
• 15,000 off taxable value for school taxes

13
11 Real Estate Taxes and Other Liens

• Reductions in Value Taxable Properties (cont.)
• Age 65 or Older
• 10,000 in school taxes
• In addition to 15,000 homestead exemption
• Tax ceiling freeze
• Portability of tax freeze ? ? ?

14
11 Real Estate Taxes and Other Liens

• Reductions in Value Taxable Properties (cont.)
• Age 65 or Older (cont.)
• Payment of taxes in 4 installments
• Tax deferral
• Until taxpayer moves from the home
• Interest accrues at 8 per year
• Surviving-spouse benefit

15
11 Real Estate Taxes and Other Liens

• Reductions in Value Taxable Properties (cont.)
• Disability status
• 10,000 in school taxes (cannot get both over-65
  and disability exemptions)
• Tax ceiling freeze
• Portability of tax freeze
• Payment of taxes in 4 installments
• Tax deferral (with interest at 8 per year)
• Until taxpayer moves from the home
• Total exemption with 100 disability

16
11 Real Estate Taxes and Other Liens

• Phase 1 Property Valuation (cont.)
• Tax appraisal
• Notice of appraised value on SF residence
  homestead due to homeowner by April 1
• Appraised at least every 3 years
• Following generally accepted appraisal practices
• Valuation set at 100 of market value, based on
• Value as a residential homestead
• Comparable properties sold in the past 24 months
• Similarities in location, lot size, improvements,
  age, condition, amenities, views, easements . .
  .

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11 Real Estate Taxes and Other Liens

• Phase 1 Property Valuation (cont.)
• Tax appraisal (cont.)
• Land appraised separately
• Appraised value on homestead capped
• Lesser of most recent market value or
• 110 of the preceding tax years value
  improvements
• Notice of Appraised Value

18
11 Real Estate Taxes and Other Liens

• Phase 1 Property Valuation (cont.)
• Alternate Valuation Methods Agricultural
  Property
• Agricultural use valuation
• Uses agricultural value rather than market value
• 50 of income must be from farming or ranching
• Subject to 3-year rollback tax if property sold
  or use changed

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11 Real Estate Taxes and Other Liens

• Phase 1 Property Valuation (cont.)
• Alternate Valuation Methods Agricultural
  Property
• Open space valuation
• Easier to qualify for than Ag Use Valuation
• Farming does NOT have to be primary source of
  income
• Subject to 5-year rollback tax if use changed

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11 Real Estate Taxes and Other Liens

• Ad Valorem Taxes (cont.)
• Phase 2 Protest Period
• Present supporting documents to district
  appraiser for informal review
• Written protest filed by
• May 31 or
• Within 30 days after appraisal mailed

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11 Real Estate Taxes and Other Liens

• Phase 2 Protest Period (cont.)
• Hearing before the Appraisal Review Board
• May 1 July 20
• Evidence to be presented must be shared prior to
  hearing
• May present a recent independent certified
  appraisal
• Appeal to state district court or
• Submit to binding arbitration

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11 Real Estate Taxes and Other Liens

• Ad Valorem Taxes (cont.)
• Phase 3 Tax Rate Adoption
• Calculation of tax rate and property tax
• Certified appraisal roll to each taxing unit
• Taxing entity adopts a budget
• Ordinance is passed to authorize appropriation
• Tax levy imposed
• Tax rate computed Needed by Taxing Entities
  Rate/100
• Value of Taxable Real Estate

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Amarillo Area Tax Rates - 2010
11 Real Estate Taxes and Other Liens

• Amarillo ISD
• Amarillo College
• Canyon ISD
• Amarillo, City
• Canyon, City
• Potter County
• Randall County

• 1.17000
• 0.18996
• 1.29000
• 0.31009
• 0.35962
• 0.59911
• 0.36890

Example 1.170 0.18996 0.31009 0.36890
2.03895 tax rate per 100 (Property in AISD,
AC, Amarillo, Randall County)
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11 Real Estate Taxes and Other Liens

• Ad Valorem Taxes (Cont.)
• Computing a propertys tax
• Appraised Value x Rate per 100 Tax
• 150,000 x (2.03895 100) 3,058.43 annual
  tax

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11 Real Estate Taxes and Other Liens

• Ad Valorem Taxes (Cont.)
• Phase 4 Tax Collection
• Payment of taxes
• Prior lien January 1, current year
• Billed September-October, current year
• Due on or before January 31, following year
• Postmarked on or before the due date timely
  payment

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11 Real Estate Taxes and Other Liens

• Phase 4 Tax Collection (cont.)
• Enforcement
• Taxes must be valid
• Levied properly
• Used for a legal purpose
• Applied equitably
• Ad valorem tax liens
• Have priority over all other liens
• Are not extinguished in a mortgage foreclosure
• Delinquent tax notice sent

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11 Real Estate Taxes and Other Liens

• Phase 4 Tax Collection (cont.)
• Enforcement (cont.)
• Tax sale - auction
• After foreclosure of tax lien in court
• Conducted by sheriff or constable
• Purchaser must pay the lesser of
• Delinquent tax, penalty, interest, and attorneys
  fees or
• Appraised value
• Delinquent taxpayer gets excess proceeds
• Purchaser receives a sheriffs deed

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11 Real Estate Taxes and Other Liens

• Phase 4 Tax Collection (cont.)
• Enforcement (cont.)
• Right of redemption
• Equitable redemption
• Right to redeem prior to sale
• Pay delinquent taxes interest, court costs,
  attorney fees
• ?Statutory ? ? ?

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11 Real Estate Taxes and Other Liens

• Right of Redemption (cont.)
• Statutory redemption
• Right to redeem after the sale
• 2 years residence homestead, mineral interest,
  agricultural land
• 1st year price paid at tax sale 25 of
  purchase price
• 2nd year price paid at tax sale 50 of
  purchase price
• 6 months all other property

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11 Real Estate Taxes and Other Liens

• Real Estate Liens (cont.)
• Special Assessment
• Requires property owners to pay for improvements
  benefiting their property
• Due and payable in equal annual installments
• Over 5-10 years
• With interest
• Specific, involuntary or voluntary, statutory

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11 Real Estate Taxes and Other Liens

• Real Estate Tax Liens (cont.)
• Utility District Tax
• To provide water, sewer, drainage, and/or flood
  control
• Generally outside a town or city
• Utility district created by developer
• Utilities paid for by bonds
• Bonds retired by taxes
• Statutory notice to buyer required before final
  execution of a sales contract

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11 Real Estate Taxes and Other Liens

• Liens Other Than Taxes- Overview
• Mortgage (Deed of Trust) Lien
• Mechanics Lien
• Judgment Lien
• Estate/Inheritance Tax Lien
• Vendors Lien
• Vendees Lien
• Surety Bail Bond Lien
• TWC Wage Lien
• IRS Tax Lien
• Federal Judgment Lien
• UCC Lien

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11 Real Estate Taxes and Other Liens

• Other Liens on Real Property
• Mortgage (Deed of Trust) Lien
• Lien on real estate
• Given to lender by borrower as security for
  repayment of a loan
• Discharge of debts in bankruptcy does not
  eliminate mortgage lien
• Voluntary, specific lien

34
11 Real Estate Taxes and Other Liens

• Other Liens on Real Property
• Mechanics Lien
• Enhancement of value theory
• Available to persons or companies that perform
  labor or furnish material
• Priority established from the time
• Labor performed or materials delivered
• No right of redemption after foreclosure of a
  mechanics lien

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11 Real Estate Taxes and Other Liens

• Other Liens on Real Property
• Mechanics Lien (cont.)
• Affidavit Claiming a Mechanics Lien
• Specific, involuntary
• Lien filed when
• General contractor not paid by owner
• Subcontractor not paid by general contractor
• Enforcement Foreclosure suit and sheriffs sale

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11 Real Estate Taxes and Other Liens

• Mechanics Liens (cont.)
• Mechanics Lien Contract
• Specific, voluntary
• Must have a contract with owner
• Signed by husband and wife, if homestead
• Signed no earlier than 5 days after loan
  application
• May be rescinded up to 3 days after signing
• Must be signed at third party office
• Enforcement Non-judicial foreclosure

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11 Real Estate Taxes and Other Liens

• Mechanics Liens (cont.)
• Homeowner protection
• Final bills paid affidavit
• Contractors escrow account
• 10 retainage
• 30 days after completion of work

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11 Real Estate Taxes and Other Liens

• Other Liens on Real Property
• Judgment Lien
• Court declares a debt a money judgment
• County clerk prepares abstract of the judgment
• County clerk certifies and records the abstract
  of judgment
• Does NOT attach to homestead (generally)
• Priority from date of filing with the county
  clerk
• Must be recorded in all counties where debtor
  owns property

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11 Real Estate Taxes and Other Liens

• Other Liens on Real Property
• Judgment Lien (cont.)
• If not paid, creditor obtains a writ of
  execution
• Directs the sheriff to seize and sell nonexempt
  real or personal property
• When debtor pays, he gets a release of judgment
• Abstract of judgment lien valid for 10 years
• May be extended under certain circumstances
• General, involuntary, statutory lien

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11 Real Estate Taxes and Other Liens

• Other Liens on Real Property
• Exempt Personal Property
• Up to 60,000 for family 30,000 single adult
• Includes, among other things
• Bible
• Home furnishings
• Food
• Tools, equipment, books used in business
• Clothing
• Motor vehicle for each adult with drivers
  license
• Pets

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11 Real Estate Taxes and Other Liens

• Other Liens on Real Property
• Attachment
• To prevent a debtor from conveying title to
  unsecured real estate
• Court retains custody of property until suit
  concludes

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11 Real Estate Taxes and Other Liens

• Other Liens on Real Property
• Lis pendens
• Litigation pending
• Notice of a possible future lien
• Filed with the county clerk
• Priority for later lien
• Date of filing the lis pendens and indexing in
  the public records

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11 Real Estate Taxes and Other Liens

• Other Liens on Real Property
• Vendors Lien
• Secures a seller or lender
• Specific, involuntary, equitable lien
• Vendees Lien
• Secures a buyer, as in a contract for deed
• Specific, involuntary, equitable lien

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11 Real Estate Taxes and Other Liens

• Other Liens on Real Property
• Estate and Inheritance Tax Lien
• Encumber deceased persons real and personal
  property
• General, involuntary, statutory lien
• Bail Bond Lien
• Real estate as surety for bail
• Non-homestead property only
• Specific, voluntary lien

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11 Real Estate Taxes and Other Liens

• Other Liens on Real Property
• TWC Wage Lien
• Against an employer who owes back wages
• Has super-priority status
• Priority over all liens except ad valorem tax
  liens and special assessments
• Should NOT attach to homestead
• General, involuntary lien

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11 Real Estate Taxes and Other Liens

• Other Liens on Real Property
• IRS Tax Lien
• For nonpayment of federal IRS taxes
• On taxpayers equity in all real and personal
  property
• General, involuntary, statutory lien
• Federal Judgment Lien
• Lien in favor of Federal government
• School loans foreclosure on FHA/VA
• Effective for 20 years
• General, involuntary lien

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11 Real Estate Taxes and Other Liens

• Other Liens on Real Property
• UCC Lien
• Pledge of personal property or fixtures
• Secure a loan or credit purchase
• Security agreement
• Describes all items to be included in lien
• Financing statement
• Notice of the security agreement
• Includes legal description
• Must be recorded with county clerk

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12 Real Estate Contracts

• Learning Objectives
• Distinguish among
• Express and implied contracts
• Bilateral and unilateral contracts
• Executed and executory contracts
• Valid, void, voidable, and unenforceable
  contracts
• Identify the
• Requirements for a valid contract
• Statute of limitations for contract enforcement

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12 Real Estate Contracts

• Learning Objectives (cont.)
• Explain
• How contracts may be discharged
• Remedies available to a nondefaulting party
• Describe the differences between promulgated and
  approved forms and the requirements for their use

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12 Real Estate Contracts

• Learning Objectives (cont.)
• Discuss
• The provisions of the Texas promulgated contract
• A brokers avoiding the unauthorized practice of
  law
• The computation of time
• Identify the purpose and procedures for a buyers
  getting a property condition inspection
• Distinguish and list the characteristics of each
• Option contract
• Contract for deed

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12 Real Estate Contracts

• Real Estate Contracts, Overview
• Listing Agreements
• Buyer Agency Agreements
• Real Estate Sales Contracts
• Option Agreements
• Contracts for Deed
• Leases
• Escrow Agreements

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12 Real Estate Contracts

• Contract Law
• A Contract is a
• voluntary agreement or promise between
• legally competent parties to perform (or not
  perform) a
• legal act in exchange for
• legal consideration

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12 Real Estate Contracts

• Classifications of Contracts
• Express
• Parties state terms and show intentions in words
• May be written or oral
• Implied
• Agreement of parties demonstrated by acts and
  conduct

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12 Real Estate Contracts

• Classifications of Contracts (cont.)
• Bilateral
• Both parties make promises one in exchange for
  another
• Most real estate contracts are bilateral
• Unilateral
• One-sided agreement
• One party makes a promise to induce second party
  to do something
• Examples offer of reward option contract

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12 Real Estate Contracts

• Classifications of Contracts (cont.)
• Executory
• Contract partially performed
• Signed real estate contract executory
• Executed
• Contract completely performed
• Closing and funding executed contract

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12 Real Estate Contracts

• Classifications of Contracts (cont.)
• Valid
• All essential elements binding on all
• Void
• Missing essential element no legal effect
• Voidable
• Seems valid but may be disaffirmed
• Contract with a minor or with fraud present
  voidable by minor or injured party

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12 Real Estate Contracts

• Classifications of Contracts (cont.)
• Unenforceable
• Valid between the parties
• Neither party can sue to force performance
• Oral listing agreement unenforceable

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12 Real Estate Contracts

• Elements of a Valid Contract
• Overview
• Legally competent parties
• Offer and acceptance
• Consideration
• Legal purpose
• In writing and signed
• Legal description (real estate contract)

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12 Real Estate Contracts

• Elements of a Valid Contract (cont.)
• Legally competent parties
• 18, married, or minority status removed by a
  court
• Free from mental handicap
• If adjudicated incompetent void contract
• If not adjudicated voidable contract

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12 Real Estate Contracts

• Elements of a Valid Contract (cont.)
• Offer and acceptance
• All terms agreed upon
• Cannot involve misrepresentation, fraud, undue
  influence, duress
• If present voidable contract

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12 Real Estate Contracts

• Elements of a Valid Contract (cont.)
• Consideration
• That which is given in exchange for something
  from another
• A promise in exchange for a promise
• Must be good and valuable between the parties
• Usually a buyer promises money in exchange for a
  sellers promising a deed
• Legal purpose

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12 Real Estate Contracts

• Elements of a Valid Contract (cont.)
• In writing and signed
• Statute of Frauds
• To prevent fraudulent proof of a fictitious oral
  contract
• Need signature of all parties to be charged
• Both spouses if homestead or community property
• If sellers are co-owners, each person must sign
• Agent may sign with power of attorney

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12 Real Estate Contracts

• Elements of a Valid Contract (cont.)
• Uniform Electronic Transactions Act (UETA) and
  subsequent laws
• Permits electronic records and electronic
  signatures
• Even if a law requires
• An original, on paper, in writing, signed,
  witnessed, or acknowledged
• County clerk may receive electronic records and
  record electronically

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12 Real Estate Contracts

• UETA and subsequent laws (cont.)
• However
• If a non-original paper document (faxed,
  e-mailed, or copied) is presented for recording,
  it must contain, or be attached as an exhibit to
  a document that contains original signatures,
  acknowledged or sworn to before a notary.

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12 Real Estate Contracts

• Elements of a Valid Contract (cont.)
• Legal description
• Must be in real estate sales contracts
• Property must be identifiable with reasonable
  certainty
• Street address is not sufficient legal
  description
• Included in contracts as reference only

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12 Real Estate Contracts

• Performance
• Reasonable time Within 10 calendar days
• Promptly Within 3 calendar days
• Time is of the essence Within the time limit
  specified
• Four corners doctrine
• Parol evidence rule

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12 Real Estate Contracts

• Contract Performance (cont.)
• Assignment substitution of parties
• Transfers rights and/or duties
• Original obligor remains secondarily liable
  (unless released)
• May not be assigned if personal quality or unique
  ability of a party is required i.e., listing
  contract
• Novation substitution of contracts
• Intent to discharge old obligation
• Must be supported by consideration and include
  essential elements of a contract

68
12 Real Estate Contracts

• Contract Performance (cont.)
• Contract Termination
• Complete performance
• Breach - one party defaults
• Sue for specific performance and/or
• Seek other relief (arbitration, mediation,
  injunction, sue for compensatory damages)
• OR
• Terminate the contract and get earnest money as
  liquidated damages
• Releases both parties
• No other remedy can be sought

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12 Real Estate Contracts

• Contract Performance (cont.)
• Partial Performance
• Substantial Performance
• Impossibility of Performance
• Mutual Agreement
• Operation of Law
• Voiding by a minor
• ?Expiration of the statute of limitations ?

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12 Real Estate Contracts

• The Statute of Limitations
• For specific performance of a contract
• Four years from the date of the breach
• For a DTPA violation
• Two years from the date the buyer discovered or
  could reasonably have discovered the deceptive act

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12 Real Estate Contracts

• Promulgated forms Sales Contracts
• ? May fill in forms and add factual/business
  details
• May strike out only at principals direction
• May not add to a promulgated form details for
  which there is another promulgated form
• Protects from practicing law without a license
  if used correctly
• ? Must be used (with 4 exceptions) ? ?

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12 Real Estate Contracts

• Promulgated Contract Forms (cont.)
• Must Be Used (with 4 Exceptions)
• ?Licensee functioning solely as a principal
• ?Agency of U.S. government requires a different
  form
• ?Contract prepared by the property owner or an
  attorney and required by the property owner
• ?No standard contract form promulgated
• Use TREC approved form
• Use contract drawn by an attorney

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12 Real Estate Contracts

• Achieving Mutual Assent
• (Offer and Acceptance)
• All offers must be presented unless
• The seller has instructed the broker not to bring
  offers below a certain price or
• The seller has a binding contract on the property
  and has instructed the broker in writing not to
  bring offers

74
12 Real Estate Contracts

• Offer and Acceptance (cont.)
• Contracts must be promptly presented to the
  seller
• Multiple offers must be presented together
• Each potential buyers agent must be notified of
  multiple offers and
• Terms and conditions of other offers must be
  confidential

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12 Real Estate Contracts

• Offer and Acceptance (cont.)
• Counteroffer voids the original offer
• Changes must be initialed by all parties
• Offers/counteroffers may be withdrawn
• At any time before acceptance

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12 Real Estate Contracts

• Offer and Acceptance (cont.)
• An offer is not accepted until
• The person making the offer has been notified
• Notification may be made orally, with written
  confirmation
• Notification of acceptance must be delivered to
  the
• Buyer in a subagency transaction
• Buyers agent in a buyer-agency transaction
• Sellers agent

77
12 Real Estate Contracts

• Offer and Acceptance (cont.)
• Effective date
• The date of final initialing/signing by all
  parties
• The date on which acceptance was communicated
• The last party to initial/sign fills in the date

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12 Real Estate Contracts

• Termination of Offers
• Expiration of reasonable time
• Revocation prior to acceptance
• Rejection
• Counteroffer
• Death of offeror/ee prior to acceptance
• Insanity prior to acceptance
• Bankruptcy
• Change in law

79
Sales Contract Issues
12 Real Estate Contracts

• Equitable Title
• Destruction of the Premises
• Earnest Money Deposit
• Computation of Time

• Liquidated Damages
• Options
• Contingencies
• Addenda
• Disclosures

80
12 Real Estate Contracts

• Caution
• A real estate agent may not receive a fee for
  referring a buyer or seller to a home warranty
  company
• An agent may not discourage a principal to a real
  estate transaction from employing a lawyer
• When it appears that there are unusual matters
  involved in a transaction, a licensee must advise
  each party to consult a lawyer
• A licensee may not employ or pay for the services
  of a lawyer to represent a principal

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12 Real Estate Contracts

• Property Condition
• TREC-licensed inspector
• Standard report form
• Notes deficiencies in systems and components
• A condition that, in the inspectors reasonable
  opinion, adversely and materially affects the
  performance of a system or component or
  constitutes a hazard to life, limb, or property
• Report issued within 3 days
• Prior to the Termination Option time frame
• Other licensed contractors

82
12 Real Estate Contracts

• Property Condition (cont.)
• Buyer options if deficiencies reported
• Terminate under the Termination Option
• Obtain further evaluations
• Request the seller to make all or some repairs at
  sellers expense
• Make the repairs himself/herself
• Live with the reported deficiencies
• Residential service contracts

83
12 Real Estate Contracts

• Contract Dispute Resolution
• Promulgated contract
• Alternative dispute resolution mediation
• Construction new home or remodeling
• Residential Construction Liability Act (RCLA)
• Builders/remodelers may repair poor construction
  before litigation
• Contractor may inspect the property
• Within 45 days of notice, builder may offer
  money, repair, or cure
• If homeowner unreasonably rejects offer, damages
  are limited

84
12 Real Estate Contracts

• Special Real Estate Contracts
• Option Agreement
• Right to purchase by a specified date under set
  terms and conditions
• Optionee must pay money for option right
• Option money forfeited if purchase not completed
• Owner must sell if optionee chooses to buy
  unilateral contract

85
12 Real Estate Contracts

• Special Real Estate Contracts (cont.)
• Termination Option in a TREC Sales Contract
• Buyer may create an option contract
• Unrestricted right to terminate within stated
  time period
• Buyer must pay an option fee
• May be credited to purchase
• Nonrefundable if contract terminated
• Earnest money would be refunded

86
12 Real Estate Contracts

• Special Real Estate Contracts (cont.)
• Contract for Deed (Installment Contract)
• Buyer gets possession
• Title transferred when conditions met
• Equitable title prior to actual title
• Purchaser may elect to convert into recorded
  title
• Buyer concerns
• Seller concerns

87
12 Real Estate Contracts

• Special Real Estate Contracts (cont.)
• Contract for Deed Seller concerns
• Purchaser leasing to another party
• Damage to the property
• Contract for Deed Buyer concerns
• Seller not making payments on a prior loan
• Death of the seller
• A judgment lien against the seller

88
13 Listing Agreements

• Learning Objectives
• Distinguish among the different types of listing
  agreements and their terms
• Explain the
• Listing process
• Parts of the listing agreement
• Ways in which a listing may be terminated

89
13 Listing Agreements

• Learning Objectives
• Describe the
• Required property disclosures
• Circumstances under which each disclosure must be
  given to the buyer
• Ramifications to the seller or the real estate
  agent for nondisclosure
• Identify the limitations on an agents placing
  cold calls or sending fax and email
  advertisements to market real estate

90
13 Listing Agreements

• Listing Agreements
• Are contracts
• Expressed or implied
• Executed or executory
• Valid, void, voidable, or unenforceable
• Create a special agency relationship between
  broker and seller
• Must have a termination date

91
13 Listing Agreements

• Types of Listing Contracts
• Exclusive-right-to-sell listing
• Broker gets a commission no matter who sells
• Exclusive-agency listing
• Only one broker acts as agent
• Seller can sell without owing a commission
• Open listing
• More than one agent
• Commission paid if procuring cause
• Seller can sell without owing a commission

92
13 Listing Agreements
93
13 Listing Agreements

• Special Listing Arrangements
• Net listing
• Not permitted in Texas unless
• Principal requires a net listing
• Principal is familiar with current market values
• Broker must advise the seller of brokers opinion
  of market value
• Multiple listing
• Obligation to distribute listings through MLS
• Offer of cooperation and compensation to
  subagents or buyers agents

94
13 Listing Agreements

• Listing Process
• Information About Brokerage Services form
• CMA
• Property profile
• ?Listing agreement ? ? ?
• ?Disclosures ? ? ?

95
13 Listing Agreements

• Listing Agreement
• Legal names of all parties
• Brokers name as on license
• Type of listing agreement
• Legal description
• Property to be excluded
• Listing price
• Term of listing definite ending date

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13 Listing Agreements

• Listing Agreement (cont.)
• Brokerage fee
• Broker protection period
• Agency relationship
• Brokers authority and responsibilities
• Seller representations
• Limitation of Liability
• Agreements

97
13 Listing Agreements
Calculating a Commission
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13 Listing Agreements

• Termination of Listing Agreements
• Performance by the broker
• Expiration of listing period
• Unilateral revocation by broker or seller
• Destruction of property or change in use
• Bankruptcy of seller if title transferred to
  receiver
• Mutual agreement of the parties
• Death or incapacity of either party

99
13 Listing Agreements

• Seller Disclosures - Overview
• Sellers Disclosure Notice
• Lead-Based Paint Disclosure
• Notice of Additional Tax Liability
• Conditions under Surface Disclosure
• Membership in Property Owners Association

100
13 Listing Agreements

• Seller Disclosures Overview (cont.)
• Potential Annexation
• Unimproved Property in a Certificated Service
  Area
• Statutory Tax District
• Gulf Coast Counties

101
13 Listing Agreements

• Seller Disclosures Overview (cont.)
• Public Improvement District (PID)
• Mold Remediation Certificate
• Residential Property Encumbered by Lien

102
13 Listing Agreements

• Seller Disclosures
• Sellers Disclosure Notice
• Owner must disclose
• Latent structural defects
• Other known structural defects
• Required in almost all residential transactions
• Owner must deliver on or before contract
  effective date

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13 Listing Agreements

• Sellers Disclosure Notice (cont.)
• If not delivered on or before contract effective
  date
• Owner has limited time to provide notice
• But buyer may still terminate the contract
• For any reason
• Within 7 days after receiving the notice

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13 Listing Agreements

• Sellers Disclosure Notice (cont.)
• Disclosure not required for
• Death by natural causes, suicide, accident
  unrelated to property condition
• Sex offenders
• But are not prohibited from doing so
• AIDS or HIV infection
• Protected by fair housing, handicap
  classification
• Unusual occurrences must be disclosed

105
13 Listing Agreements

• Seller Disclosures (cont.)
• Lead-Based Paint Disclosure
• Required on properties built prior to 1978 (with
  few exceptions)
• Real estate agents must retain a copy for 3 years
• If tested and found free of lead, no disclosure
  required
• Not required to test, remove, or abate just
  disclose

106
13 Listing Agreements

• Lead-Based Paint Disclosure (cont.)
• Renovation, Repair, and Painting (RRP)
  regulations
• Renovation or repair of
• More than 6 sq. ft., interior
• More than 20 sq. ft., exterior
• Must use certified renovator
• Must give Renovate Right pamphlet before
  beginning
• Owner may repair owner-occupied property only

107
13 Listing Agreements

• Seller Disclosures (cont.)
• Notice of Additional Tax Liability
• Sellers of vacant land must disclose the
  possibility for future rollback tax liability
• If disclosure required and not made, seller
  responsible for additional taxes
• Conditions under Surface Disclosure
• Required by sellers of unimproved land
• Unless a seller is obligated to deliver a title
  commitment
• Disclose pipelines for natural gas and related
  products

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13 Listing Agreements

• Seller Disclosures (cont.)
• Membership in Property Owners Assn.
• Required to give purchaser written notice that
• Purchaser must be a member of the association
• Copies of restrictions are filed with county
  clerk
• Purchaser must pay assessments
• Nonpayment could result in a lien and foreclosure

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13 Listing Agreements

• Seller Disclosures (cont.)
• Potential Annexation
• Sellers outside city limits must provide written
  notice that property
• May now or later be included in ETJ
• May now or later be subject to annexation

110
13 Listing Agreements

• Seller Disclosures (cont.)
• Unimproved Property... Certificated Service Area
• Required in sale of unimproved property located
  in a retail utility providers service area
• Written notice
• Extension of water or sewer services might
  require additional expense
• Utility might be delayed in getting service to
  property

111
13 Listing Agreements

• Seller Disclosures (cont.)
• Statutory Tax District
• Property in a municipal utility district (MUD)
• Required to furnish statutory notice
• District tax rate
• Bonded indebtedness
• Standby fee

112
13 Listing Agreements

• Seller Disclosures (cont.)
• Gulf Coast Counties
• Texas Open Beach Law
• Gulf Coast beaches from mean low tide to
  vegetation line open to public
• Any structure becoming seaward of the vegetation
  line, subject to removal
• Coastal Area Property
• Notify buyers of restrictions on use and
  development of property adjoining tidally
  submerged lands

113
13 Listing Agreements

• Seller Disclosures (cont.)
• Public Improvement District (PID)
• PID Project to revitalize a community
• Must disclose that properties in PID pay annual
  assessment for maintenance of improvements
• Mold Remediation Certificate
• If mold damage remediated
• Purchaser must receive certificate of mold
  remediation issued in last 5 years

114
13 Listing Agreements

• Seller Disclosures (cont.)
• Residential Property Encumbered by Lien
• If lien will not be released within 30 days after
  sale
• Seller must deliver a notice of lien
• Must state that lender could demand full payment
  on outstanding balance at transfer
• Private Transfer Fee Obligation
• If real property is subject to a private
  transfer fee
• Seller must provide notice to a potential
  purchaser

115
13 Listing Agreements

• Seller Disclosures (cont.)

Failure to give required disclosures may allow
the buyer to terminate a contract for any reason
116
13 Listing Agreements

• Marketing and Promotion
• Online Marketing
• Full-service broker
• Discount Internet Realtor
• FSBO

117
13 Listing Agreements

• Marketing and Promotion (cont.)
• Telemarketing Telephone
• No call lists
• Numbers on lists permanently
• Cell numbers generally barred
• Internal do-not-call lists must be maintained
• Telephone numbers must be transmitted
• Robocalls prohibited without written permission
• Some exceptions for real estate agents

118
13 Listing Agreements

• Marketing and Promotion (cont.)
• Telemarketing Fax
• Junk Fax Prevention Act
• Restricts against faxing unsolicited
  advertisements
• Exceptions for
• Established business relationships
• Recipients consent
• Must contain an opt-out provision on first page

119
13 Listing Agreements

• Marketing and Promotion (cont.)
• Telemarketing E-mail
• CAN-SPAM Act
• Establishes requirements for e-mails that
  advertise
• Does not prohibit unsolicited commercial e-mails
• E-mails must not contain
• A false, deceptive, or misleading subject line
• Falsified routing information

120
13 Listing Agreements

• Marketing and Promotion (cont.)
• Telemarketing E-mail
• CAN-SPAM Act
• Messages must
• Contain an opt-out provision
• Clearly indicate that it is an advertisement
• Texas requires ADV as first 4 characters

121
13 Listing Agreements

• Marketing and Promotion (cont.)
• Internet Tracking
• Do Not Track
• Legislation proposed in US Congress and FTC Rules
  proposed

122
14 Appraisal

• Learning Objectives
• Explain the steps in the appraisal process
• Identify the
• Different types of value
• Four characteristics of value
• Basic principles of value

123
14 Appraisal

• Learning Objectives
• List and illustrate the steps in the appraisal
  process
• Sales comparison approach
• Cost approach
• Income approach
• Reconciliation

124
14 Appraisal

• Learning Objectives
• Distinguish a comparative market analysis from an
  appraisal in pricing a property to be listed
• Describe the requirements for becoming a licensed
  or certified appraiser in Texas

125
14 Appraisal

• Appraisal An opinion of market value
• Most probable price a property will bring
• Buyer and seller are both motivated
• Buyer and seller are both well informed
• Reasonable time allowed on the open market
• Payment in cash or equivalent
• No special financing or sales concessions

126
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14 Appraisal

• Value
• Characteristics of Value DUST
• Effective Demand ?Utility
• Scarcity ?Transferability
• Market value
• Market price
• Market value v. Cost
• Basic Principles of Value ? ? ?

128
14 Appraisal

• Basic Principles of Value
• Highest and best use
• Most probable use to which a property is suited
• Substitution
• Maximum value cost of purchasing an equally
  desirable and valuable substitute property

129
14 Appraisal

• Basic Principles of Value (cont.)
• Supply and demand
• Value of property will change as supply and
  demand increase or decrease
• Conformity
• Maximum value when land use conforms to the
  existing neighborhood standards

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14 Appraisal

• Basic Principles of Value (cont.)
• Externalities
• Influences outside the property have a
  positive/negative effect on its value
• Anticipation
• Anticipation of a future benefit or detriment
  affect property value

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14 Appraisal

• Basic Principles of Value (cont.)
• Increasing and diminishing returns
• Improvements reach a point at which they no
  longer have a positive net effect on value
• Plottage and assemblage
• Combining adjacent lots into one parcel increases
  utility and value

132
14 Appraisal

• Basic Principles of Value (cont.)
• Contribution
• The value of any component is measured by the
  amount it contributes or the amount its absence
  detracts
• Competition
• Excess profits attract competition
• Change
• Nothing remains constant

133
14 Appraisal

• Three Approaches to ValueOverview
• Sales Comparison Approach
• Most reliable approach for owner-occupied
  residential real estate
• Cost Approach
• Most reliable approach for special-use properties
• Income Approach
• Most reliable approach for investment property

134
14 Appraisal

• Sales Comparison Approach
• Compares subject property with recently sold
  similar properties
• Adjust sales prices of comparable properties for
• Date of sale
• Location
• Physical features
• Terms and conditions of sale

135
14 Appraisal

• Sales Comparison Approach (cont.)
• Adjust the sales prices of the comparables
• Add to the comparable a feature present in the
  subject but not in the comparable
• Subtract from the comparable a feature present in
  the comparable but not in the subject
• Analyze the adjusted prices of the comparables
• To arrive at the indicated value by the sales
  comparison approach

136
14 Appraisal

• Cost Approach
• Steps
• ?Estimate land value
• ?Add cost of improvements
• Reproduction cost exact duplicate
• Replacement cost eliminate obsolete features
• ?Estimate depreciationcurable and incurable
• Physical - loss due to wear and tear
• Functional - loss of building utility
• External - factors outside the subject property

137
14 Appraisal

• Cost Approach (cont.)
• Steps (cont.)
• ?Deduct accrued depreciation from estimated
  construction cost
• ?Add estimated land value to depreciated cost of
  the building
• To arrive at indicated value by the cost approach

138
14 Appraisal

• Income Approach
• Steps for Direct Capitalization Method
• ?Estimate potential annual gross income, based on
  market rental rates
• ?Deduct allowance for vacancy Effective gross
  income
• ?Deduct annual operating expenses, including
  management fees but excluding PI loan payments
  Net operating income (NOI)

139
14 Appraisal

• Income Approach (cont.)
• Steps (cont.)
• ?Estimate a capitalization rate (cap rate), the
  rate of return the investor will demand
• ?Divide net operating income by cap rate
• To arrive at indicated value by the income
  approach

140
14 Appraisal

• Income Approach (cont.)
• Gross Rent Multiplier (GRM)
• Simplified income analysis for residential
  properties not purchased for income potential
• Gross Rent Multiplier
• x Gross Monthly Rent Sales Price

141
14 Appraisal

• Income Approach (cont.)
• Gross Income Multiplier (GIM)
• Simplified income analysis for commercial and
  industrial properties
• Gross Income Multiplier
• x Annual Gross Income Sales Price

142
14 Appraisal

• Reconciliation
• Use all three indications of value
• Do not average the three indications
• Select the most reasonable and supportable value
  based on the type of property

143
14 Appraisal

• Pricing a Property
• Prepare a comparative/competitive market analysis
  (CMA)
• Indicate a price range for similar sold
  properties
• Price accurately for shortest time on market and
  best sales price
• Disclose if USPAP guidelines were not followed

144
14 Appraisal

• Pricing a Property (cont.)
• --Then--
• Seller determines the listing price
• Agent decides whether to list or not

145
14 Appraisal

• Broker Price Opinion (BPO)
• More than a CMA less than an appraisal
• Contains
• Neighborhood analysis
• Estimate of repairs
• Current and sold listings
• Probable selling price if sold as is or as
  repaired
• Used to weigh options of foreclosure, deed in
  lieu of foreclosure, short sale, or mortgage
  modification
• Lending institutions, attorneys, loss mitigation
  companies

146
14 Appraisal

• Appraisal Regulations
• FIRREA - 1989
• TALCB 1991
• License, certify, and regulate appraisers
• Safeguard the public interest
• Appraisals can be conducted only by persons
• Licensed or certified by TALCB
• Registered as a temporary out-of-state appraiser
• Approved as an appraiser trainee

147
14 Appraisal

• Appraisal Regulations (cont.)
• 4 Classifications of TALCB Appraisers
• Certified General Real Estate Appraiser
• May appraise all types of real property
• Certified Residential Real Estate Appraiser
• May appraise all 1-4 unit residential properties
• Must associate with a Certified General Appraiser
  to appraise non-residential properties

148
14 Appraisal

• Appraisal Regulations (cont.)
• 4 Classifications of TALCB Appraisers (cont.)
• State Licensed Real Estate Appraiser
• May appraise 1-4 unit residential properties
  under 1M (noncomplex) or 250K (complex)
• Must associate with a Certified General Appraiser
  to appraise non-residential properties
• Approved Appraiser Trainee
• Must appraise only under the active, personal,
  diligent direction and supervision of a
  sponsoring certified appraiser who must sign
  appraisal reports

149
14 Appraisal

• Appraisal Regulations (cont.)
• Real estate agents may
• Provide a written analysis, opinion, or
  conclusion
• Relating to the estimated price of real property
• If the analysis, opinion, or conclusion
• Is not referred to as an appraisal,
• Is given in the ordinary course of the business,
  and
• Is related to the actual or potential
  acquisition, disposition, encumbrance, or
  management of an interest in real property

150
14 Appraisal

• Appraisal Regulations (cont.)
• Dodd-Frank Wall Street Reform and Consumer
  Protection Act, 2010
• Appraiser independence requirements prohibit
• Lenders and brokers from bribing, coercing,
  extorting appraisers to inflate property values
• Mortgage brokers and real estate agents from
  selecting appraisers
• Mortgage production staff from ordering an
  appraisal
• Appraisal Management Companies (AMCs) separate
  a