Introductory Guide to Louisiana Purchase Agreements
The purpose of a purchase agreement in Louisiana real estate transaction is to outline the essential terms under which the buyer is willing to purchase the property and the seller is willing to sell the property. The purchase agreement is generally a prerequisite for the exchange of money and real estate between the parties. The Louisiana Purchase Agreement will often include the purchase price, the date of the exchange, method of payment, closing date, and deposits . The purchase agreement also captures the responsibilities and obligations of the buyer, seller, lender, and realtor.
A purchase agreement is often incorporated into a sales contract or offer-to-purchase and is a critical document that recognizes the meeting of the minds of the buyer and seller. Once a purchase agreement is signed by the buyer and seller with the legal authority to do so, it creates a legally binding contract that is enforceable in a Louisiana court.
Function of Louisiana Real Estate Commission
The Louisiana Real Estate Commission has significant regulatory authority over the practice of real estate in Louisiana. It has the power to determine the requirements for licensing and registration and set standards for the practice. The commission also has the authority to regulate advertising techniques and requirements related to all real estate activities.
In many cases, the powers granted to the Louisiana Real Estate Commission are limited to a broker and his or her salespersons. However, all licensees must comply with the commission’s standards for negotiating purchase agreements and drafting the agreements themselves. There may be provisions in the Louisiana Real Estate Commission requirements that overlap and conflict with Louisiana state law. In those cases, the commission requirements may take precedence.
Main Features of a Louisiana Purchase Agreement
The purchase agreement is a critical part of any real estate transaction, and the Louisiana Real Estate Commission provides specific elements that must be included in every purchase agreement. In section 2723 of the LREC’s rules and regulations, the necessary provisions of a purchase agreement are listed as follows:
(a) A legal description of the property, which may be by reference to the real estate agent’s MLS number provided that the MLS property is an identifiable and marketable portion of a specific, previously subdivided tract of land.
(b) The basis of the purchase price, including deposit amount and whether the deposit is refundable or nonrefundable.
(c) The closing date.
(d) Whether the buyer may occupy the property prior to closing and if so, on what date, and whether insurance coverage will protect the seller for liability during the period of possession.
(e) The allocation of closing costs.
(f) Provisions for the cost and manner of providing the following: termite inspection report as per R.S. 15:1154, surveys and inspections of the property and the availability of reports.
(g) The precise beginning date and final date for acceptance of the offer.
(h) The obligation of the seller to provide a valid title to the property generally known to be free of defects, including clear and marketable title by way of a warranty deed unless otherwise stated in the offer.
Aside from this list, there may be other terms that the seller and buyer decide to include in a property purchase agreement. These may include contingencies such as a property inspection or financing, sale of the buyer’s current property or other provision as the circumstances dictate.
Buyers and sellers should always consult with an attorney before signing any Louisiana real estate purchase agreement and other associated documents.
Frequently Used Clauses and Provisions
Before you agree on these terms, be sure you understand them. The RSC 6 Louisiana Purchase Agreement has the following clauses:
- Earnest Money: After an offer is made, it will probably contain a clause requiring an earnest money deposit. This is money that is attached to the contract as a show of good faith so the seller does not think you are making an offer for fun and games. Whether the earnest money is returned to you or not depends on the circumstances surrounding the cancellation of the agreement.
- Inspection Period: This is the time period during which you will do an inspection and make repairs or renegotiate if issues are found. If you fail to do so within the time period, you will have lost a valuable negotiating tool and you may or may not have to accept the condition of the home.
- Contingent on Financing: This is a clause that gives you the right to cancel the agreement without any repercussions if you cannot obtain financing.
- No Warranties: Don’t expect the holding company that owns the bank to promise you something about the condition of the property. Look it over yourself. The bank will likely sell the property as-is, with all hidden problems.
- Title Report: You have the right to a full title report on the property before closing. You also have the right to order your own home inspection after the contract has been accepted.
- Closing Date: It is a good idea to agree on this day. Often it is difficult to get all parties together to sign the papers. If everyone is in agreement on a day, it makes it much easier.
- Post-Closing Rights: Sometimes the bank will allow you to stay in the property after closing. Be careful to read the fine print because they only want to give you occupancy privileges until the title transfers officially and the check clears.
How to Fill Out Louisiana Purchase Agreement
Completing a Louisiana Purchase Agreement, such as the Louisiana Real Estate Commission Purchase Agreement, is not overly difficult. You should certainly let your attorney (or Realtors) guide you through the process, and it is always a good idea to allow a real estate attorney to review any contract you are signing before you sign it.
The Contract calls for the seller to complete certain sections. The following items must be completed by the seller: Section 13 – titled "Lead Based Paint Disclosure" if the premises was built prior to 1978 and Section 14 – titled "Agent Representations" and that the agent’s name must be checked or the third box must be selected denoting that "the Property was shown by the agents" remembering that a Louisiana Real Estate Commission approved Purchase Agreement is only required in Louisiana and the bar does not require an agreement to be written on LREC approved forms. After the Purchase Agreement has been signed by both a seller and a buyer the seller fills out the Seller’s Disclosure of Property Condition form, which is to be attached to the Purchase Agreement and it lists thirty (30) items for the seller to list the condition of the premises and call out the present condition, i.e. a hole in the wall, a crack in the foundation, etc. to help the buyer try to get as much information about the premises as possible. This information as well as the information from the buyer’s inspection report is what the seller will use to amend the Purchase Agreement, if the buyer requests repairs of the premises, if the buyer requests a reduction in the purchase price or some other amendment.
The seller should disclose everything wrong with the property and something is always wrong with every property . However, improper disclosure could result in some legal liability on the part of the seller so no matter how ugly it is, whatever it is that is wrong with the property should be disclosed. Expect the buyer to ask for repairs and a reduction in the purchase price as a result of the buyer’s inspection of the property. More often than not the bar expects that an addendum to the Purchase Agreement will be drafted to list those items that are required to be repaired, otherwise the buyer would have no support to amend the Purchase Agreement to allow procurement of the knowledge that he or she needs to fully disclose the property and its defects to the buyer.
Even when the buyer gets the inspection report and reports back to the seller with a request to fix things or provide a reduction in the purchase price the seller may still refuse to provide any repairs and/or a reduction in the purchase price. The Purchase Agreement is a contract to purchase the property and the seller is under no obligation to fix anything. However, the Purchase Agreement is tied to the financing and no bank is going to lend money on property that is falling down, has no ceiling, has no roof and no foundation. So the bar expects the negotiation to result in some items getting fixed, and some items receiving credits at closing.
Tread lightly here and make sure that the seller has at least some motivation to sell the property.
Disclaimer: This article is created for educational purposes only and is subject to revision based upon amendments in the law or other codes. Consult your attorneys, accountants and other professionals for specific issues and problems.
Legal Consequences of Breaching the Contract
Louisiana Real Estate Commission Purchase Agreement states that, "If seller does not deliver possession of the Property to buyer on the date for act of sale set forth in the Agreement, the buyer shall have the right to cancel this agreement and receive an immediate return of the deposit as it becomes liquidated damages for failure to perform, or buyer may exercise any other available remedy for breach of contract or both."
In this section H, the purchase agreement (sometimes referred to as an "Offer to Purchase" or "Residential Purchase Agreement") states how liquidated damages operate and provide a pretty clear course of action; however, this section does not specify what happens if the Seller fails to close because of something out of their control. What if a lien is discovered at closing or damage from Hurricane Isaac prevents the act of sale? With those unforeseen circumstances, the Seller has several options, such as cancel the deal or negotiate a move back to the original transaction date, allowing time to prepare a response to the lien and communicate with potential buyers.
The Louisiana Uniform Electronic Lien Registry Act outlines the process of foreclosures of real property by means of liens. Liens can be taken on a property to secure debt, such as a home mortgage, judgment, manufactured home mortgage, etc. If foreclosure was the result of the Seller’s failure to deliver clear title in a timely manner, the Buyer may sue the Seller for breach of contract and seek other remedies, including damages under the breach of contract statute of Louisiana.
Some breaches of contract might take longer to resolve, depending on the circumstances of the breach, which can cause significant damage to the party in breach if the default results in a lengthy extension of time without resolution. For example, once a mortgage is approved, a Seller might allow excessive time to pass before closing.
When this occurs, a Seller can be found liable for lost profits the buyer could have made if a sale had occurred on the date it would have had the effect been not default. The damages may even include damages for lost profits and consequential damages, which any other real estate agent in the negotiability of the transaction could identify.
If a third party is in possession of the property at the time of this breach, then a Buyer can recover possession of the property as well as the payment of all costs for maintaining the property, which includes any removal costs from the premises.
A contract that has been properly formed is legally binding, regardless of whether the parties are aware of the terms of Louisiana law.
The Role of Louisiana Real Estate Agents and Attorneys
The Role of Real Estate Agents and Attorneys in the Purchase Agreement
Realtors and real estate attorneys often facilitate the preparation and negotiation of the purchase agreement for their clients. The information contained in the agent discussion chapter of the Louisiana Real Estate Commission’s Consumer’s Guide to Obtaining and Owning Real Estate provides helpful information to consumers regarding the role of the real estate agent in the preparation and negotiation of the purchase agreement.
In addition to assisting the parties to the transaction in negotiating the terms of the purchase agreement, the agents provide helpful advice and expertise to their clients in understanding the legal and financial ramifications of the terms they have negotiated. This helps promote a successful closing in which both parties feel satisfied with the outcome.
After the purchase agreement is signed, it is common for the parties to engage the service of an attorney, especially if complex title issues are involved. Attorneys frequently review contracts for general enforceability when they are engaged by the purchaser.
Considerations:
•Over 90% of all real estate purchase agreements obtained were drafted by the Louisiana Realtor Association.
•Generally, real estate agents do not provide a personal guarantee on the performance of the terms of the contract, even though most real estate agents and brokers want to satisfy their clients on this matter.
•It is the practice of some practitioners to always reserve the right to counsel and to not be required to defend a lawsuit brought against a real estate licensee, even if it arises out of a purchase agreement prepared by a licensed Realtor.
Frequently Asked Questions about Louisiana Purchase Agreements
A couple of weeks ago I posted about Understanding the Louisiana Real Estate Commission Purchase Agreement. A post about the Louisiana real estate commission purchase agreement would not be complete without a list of frequently asked questions (FAQ) and answers. Below I have compiled a list of FAQ’s and answered them.
Q: What is the difference between an exclusive listing agreement and a purchase agreement (sales contract)?
A: The exclusive listing agreement is a sales contract that binds a seller to a broker for a period of time. The Louisiana real estate commission purchase agreement is a real estate sales contract that binds a buyer and a seller. An exclusive listing agreement is not the same as a purchase agreement. The exclusive listing agreement is a sales contract signed by a broker and a seller/broker. The commission is payable to the listing broker if the property sells. The purchase agreement is a sales contract signed by a buyer and a seller. Usually the purchase agreement is subject to a third party financing clause, and in such cases, the earnest money is deposited in escrow prior to the closing. Typically, the exclusive listing agreement does not contain a third party financing clause.
Q: Does a Louisiana real estate commission purchase agreement automatically terminate if the buyer cancels the sale?
A: The Louisiana real estate commission purchase agreement (or sales contract) terminates only after the buyer cancels the sale . A cancellation is not effective unless it is in writing and signed by the buyer.
Q: If I sign a Louisiana real estate commission exclusive listing agreement or a Louisiana real estate commission purchase agreement and then change my mind, can I cancel the transaction?
A: You may cancel an exclusive listing agreement. However, cancellations must be in writing and signed by the parties. The cancellation of a Louisiana real estate commission purchase agreement (sales contract) requires a written cancellation and is subject to the terms and conditions contained in the purchase agreement. Louisiana real estate commission purchase agreements (sales contracts) require a buyer to make a non-refundable deposit in the amount of $500.00 to confirm the sales contract. Thus, you cannot change your mind if a Louisiana real estate commission purchase agreement is subject to a third party financing clause. In such cases, the failure to obtain financing makes the deposit refundable to the buyer. There are no refunds of deposits paid under Louisiana real estate commission purchase agreements (sales contracts) unless the purchase agreement contains a financing clause with a lender and the lender rejects the buyer’s application for financing.