Sale Agreements for Owners in Oregon
An Oregon sale agreement is the formal contract used to convey real property in the state of Oregon. The sale agreement outlines the responsibilities of both the buyer and the seller while the property is in escrow. Because the transaction is binding once all parties sign, an Oregon sales agreement is the document of sale that protects buyers and sellers from liability and fraud.
The Oregon Owner Sale Agreement and the Oregon Earnest Money Receipts are officially sanctioned forms adopted by the State of Oregon and published by the Oregon Real Estate Agency, which is part of the Oregon Department of Consumer and Business Services. The forms are designed to be easy to fill out, with major elements of the transaction designated by blank spaces. The seller is expected to fill out the form from the perspective of a seller, and vice versa for the buyer . The agreement includes blank lines for a real estate agent to write in the terms of the transaction. If no agent is involved, then the parties completing the sale agreement must fill out those spaces themselves.
Most Oregon sales agreements include descriptions of the property, the accepted price of the property, and the names, addresses and phone numbers of the seller and buyer. A paragraph describing the earnest money deposit is usually included, with the agreement to be applied to the contract if the sale goes through. A credit may also be offered in lieu of earnest money, which must be noted in the sale agreement. If a buyer discloses that he or she will not be applying for financing, then a statement of proof of funds is expected to be submitted with the agreement.
The Part Played by the Earnest Money Receipt
The earnest money receipt is a written instrument used in Oregon residential real estate transactions. The earnest money receipt is used in conjunction with an owners sale agreement. The owners sale agreement memorializes the purchase and sale of the property. It sets out the property, the price, the down payment, the seller financing, the contingencies, the closing, and any other terms that the parties agree upon. The earnest money receipt memorializes the receipt of the buyer’s deposit and the agreement to execute the agreement.
Earnest money receipts may be either an interim step to the final execution of the agreement by all parties, or it may be the final disposition without the agreement. The document shall clearly identify the parties, the purchaser of the property, the seller of the property, and the substance and amount of the deposit. The earnest money may be delivered either with the interim receipt as part of the negotiations (the same as would occur with a typical real estate transaction), or the earnest money may be delivered with the executed agreement or separately.
In Oregon, it is typical for the buyer to deliver earnest money to a broker upon acceptance of an offer by the seller. The broker holds the earnest money in a trust account until the agreement closes, or the agreement is canceled or terminated. At that point, the earnest money is disbursed according to the terms of the agreement.
If a purchaser defaults on the sale agreement, then the seller may have the right to retain the earnest money. The seller also has the right to go after the purchaser for money damages. The seller must commingle funds that were received, but the seller retains the right to keep the deposit to pay for any damages caused by the purchaser’s default.
If the seller defaults on the sale agreement, then the purchaser can also pursue money damages. The buyer can also terminate the agreement and receive his deposit back. The seller must return the funds. To the extent that a seller has damages caused by a purchaser who does not close on the sale, under the owners sale agreement, the earnest money deposit is likely not going to be sufficient to pay the seller’s damages. The seller will be forced to pursue the purchaser for an amount greater than what was deposited as earnest money.
Because of this liability to both the seller and the purchaser, earnest money should be placed into an irrevocable fund if possible, so that the funds cannot be dissipated. The standard practice in Oregon is for a broker to maintain the funds in an interest bearing account, and to take a portion of the income generated from that account to pay for the cost of maintaining the account. The balance of the income generated by the interest bearing account is then paid to the buyer and the seller at the time of disbursement of the funds.
Common Terms and Legal Requirements
Oregon owners sale agreements, like most contracts, are subject to the general requirements of contract law. Both parties must be legally competent to contract and must have a "meeting of the minds" on all key provisions. In addition, no contracts can run afoul of the law or public policy. While Oregon has no state requirements as to what must be in an owners sale agreement, most real estate professionals typically include the following types of content:
Contingencies – any contingencies on the sale of the property, which might include the sale of the property being contingent upon new employment for the seller, or the purchase of a new home. In some cases, owners may also condition the sale based on the seller’s ability to negotiate a certain price for their existing home. Keep in mind that if you fail to include a contingency related to the sale of your property, you could be forced to complete the sale even if your home doesn’t sell within the time frame desired.
Terms of Sale – while this is typically covered in any purchase agreement, be sure to confirm that the transaction will be a cash transaction, or financed in some way. If financing is involved, confirm the amount of the financing and how it will be accomplished, whether through a bank, vendor take back or lease to own process.
Buyers/Seller Obligations – neither party is obligated to complete the transaction until all required inspections and approvals have been received. These inspections may include home inspections, pest inspections, or something else specific to the property.
Receiving Earnest Money – perhaps the most important part of the owners sale agreement, be sure to specify how earnest money will be handled in the transaction. Your Real Estate law firm can help you draft any necessary real estate documents, including owners sale agreements and earnest money receipts.
How to Protect Yourself with Earnest Money
Buyers and sellers can provide for additional protections in the earnest money deposit paragraph or in a separate addendum to the contract. For example, they may want to have a specific date by which to move the funds from the seller’s attorney to an escrow account. They may also want to specify that the buyer will receive a refund if the earnest money is not held in escrow by a certain date. On the seller’s side, for many, having the security of knowing that the earnest money deposit has been placed in escrow is worthwhile. If the buyer breaches, then the seller may sue for specific performance of the contract or, more commonly, bring an action for the agreed-upon liquidated damages.
Liquidated damages are a fixed amount that the parties agree the seller will receive if the buyer defaults. Oregon law requires that the liquidated damages amount must be no more than three percent of the sales price. For example, if the sales price is $400,000, then the maximum amount of agreed-upon liquidated damages is $12,000. Sellers often feel a sense of security because they know that the buyer will have a financial penalty if the buyer defaults.
On the flip side, buyers should be aware that if they risk losing their earnest money deposit, then it is very likely that they will lose more than that amount if they breach. Buyers should also have their own remedies in the case of a seller’s breach. If a seller defaults, the buyer may sue for damages related to the buyer’s loss of value or equity in the property, etc. The buyer may also have a separate cause of action against the seller for recovery of a portion of the earnest money deposit when it is held in escrow.
Pitfalls and Problems
It is the real estate agent’s job to help buyers and sellers create a successful sale transaction. Among other things, this includes ensuring the sale agreement and earnest money receipt are completed and signed in accordance with state law. Many issues arise during the process of preparing the sale agreement and earnest money receipt that, unless dealt with appropriately, could jeopardize the enforceability of the sale transaction. These issues include:
- Lack of a legal owner signature. Only legal owners of the real property may enter into a sale agreement. If any party to the sale agreement is not a legal owner, that person has not rights to the property and the agreement will be void. Moreover, ownership in real property is confusing in Oregon. For example, unmarried individuals may jointly hold property as "tenants in common," as "joint tenants," or as "community property." Ownership by individuals under those different types of ownership arrangements has distinct legal consequences. Similar to married individuals, even though a married individual is the only one on title, his or her spouse usually has an ownership interest in the real property. This fact can be particularly challenging for real property held by limited liability companies ( LLC’s) and corporations because they require special documents in order to transfer any ownership interest in real property that is titled in the name of the company. Traditionally, every spouse has a presumptive right to attend any transaction involving the family home and has the right to sign any deed or mortgage. Involving all possible owners of a property, including spouses’ and other family members, in the sale transaction from the start, along with obtaining proper legal documentation confirming the status and authority of those owners, will help avoid many legal challenges.
- Failure to identify the real property. All parties must know exactly what property is being sold and what price is being paid for it. For example, if a seller intends to convey only the improvements on a given piece of property, the buyer should be clear on that point before entering the sale agreement. It is also critical that once the property to be sold is identified, the real estate agent include the same legal description on each of the documents that have to be signed as part of the sale transaction (i.e., the sale agreement, earnest money receipt, offer, acceptance, and addendums). The legal description that appears on the property deed is different than the description shown in a prior title commitment or a survey. In addition , property taxes must be paid in full prior to recording the deed.
- Improper earnest money. The earnest money deposit is evidence of the buyer’s ability to complete the transaction and buyer’s good faith. It is essential that the earnest money be sufficient to cover the costs a seller would incur if the sale did not close. If a sale closed and the buyer refuses to pay the full purchase price, good faith would normally require the buyer to lose his or her earnest money. However, the seller may authorize the release of the earnest money to the buyer even in the event of a closing failure or a sale transaction fall through. The earnest money provision contained in the earnest money receipt should make clear how and when the earnest money is refund to the buyer. With the inclusion of clear language, the seller may be protected from claims for the return of the buyer’s funds.
- Lack of registered agent. A company or corporation must provide the name of its registered agent that will receive the legal notice required in the event of a dispute. The absence of such a name on the sale agreement could expose the company or corporation to a long period of time during which it will not be aware of any legal proceedings against it. It might be impossible to serve notices on a company or corporation that does not have a registered agent.
- The cause and effect of unilateral and mutual consent. Liquidated damages and mutual remedy clauses are often included in earnest money receipts. Courts uphold these clauses so long as the sums to be paid are reasonable under the circumstances. Problems will arise if the terms and conditions of the clauses are not fulfilled, and they could impact the underlying sale agreement. For example, if an earnest money provision allows the buyer to back out for any reason and provides for a refund of full of the earnest money, the buyer’s actions may constitute a waiver of the buyer’s remedies outlined in other parts of the earnest money receipt. A settlement agreement resolving matters arising from providing a buyer full refund of the earnest money does not constitute a waiver of the buyer’s rights under the sale transaction. However, a settlement agreement resolving all matters including the earnest money refund does waive the buyer’s remedies.
- Failure to use current forms. Forms to be used in Oregon for sale agreements, earnest money receipts, titles, and licenses are revised on a regular basis. To avoid any complications or delays during the sale transaction, make sure to use the most current forms.
Preparing and Examining the Papers
Confusion can arise when it comes to the preparation and use of Oregon Owners Sale Agreements and Oregon Earnest Money Receipts. To help minimize those potential problem areas, there are several best practices for both the preparation and review of these documents that can play an important role in a successful real estate transaction. Those best practices include: Engagement with Real Estate Agent. If engaged in the purchasing real estate, whether as a condo owner or otherwise, it is a good idea to hire a licensed real estate agent to assist in the search. Oregon law requires a real estate agent working with home buyers (or condo buyer) to disclose any possible conflict-of-interest that may occur as a result of representing a building or developer that sells condominiums and that also represents the public in purchasing such a building. As a potential purchaser, you have the right to use the real estate professional of your choosing or one provided for you by the developer or seller.
Engagement with Real Estate Attorney. It is important for both condo purchasers and sellers to have an experienced attorney involved in the preparation of any sale agreement. This is true even for condominiums that permit the developer to handle the sale of a unit as long as the sale purchase agreement is being prepared by an experienced real estate transactional attorney. It is also a good idea to have an experienced real estate lawyer review an Oregon Sale Agreement or Oregon Earnest Money Receipt for accuracy and to make certain that the listing complies with Oregon law.
Common Questions and Their Answers about Oregon Owners Sale Agreement and Earnest Money
Frequently Asked Questions About Oregon’s Sale Agreement and Earnest Money Receipts
Within the realm of real estate law, many questions are asked! We are listing below some of the most common questions and answers.
What is an Oregon Real Estate Agency approved "Owners Sale Agreement"?
Typically, an "Owners Sale Agreement" is an agreement between a seller of real estate and a buyer of real estate. The word "agreement" is in the singular because all forms of the Oregon Real Estate Agency approved Owners Sale Agreement are combined in one document and can be covered by one "Oregon Association of Realtors" form. The terms page of the form is also referred to as the "mutual acceptance page" and it sets out all of the terms and conditions of an agreement. A signed "Owners Sale Agreement" will typically control all terms and conditions that will govern the sale of property, starting with the first earnest money deposit, and ending with the transfers on closing. Most real estate transactions in Oregon will be governed by an approved Oregon Real Estate Agency Owners Sale Agreement. There are notable exceptions to this general rule.
How is earnest money handled?
Earnest money is considered a type of security deposit for the performance of the terms of an Owners Sale Agreement. The earnest money which is typically held in an escrow account will act as an indication to the seller of the seriousness of the offer, as well as the buyer’s intent to complete the purchase or sale of their real estate, subject to certain contingencies. Earnest money should be considered fully refundable if a stated contingency has not been satisfied, unless there is a dispute as to the anticipated closing. Problems with the recovery of earnest money often involve a dispute as to which party is entitled to the earnest money, or an interpretation of the terms of a settlement agreement, or of a purchase and sale agreement. A recent Oregon case which held that there was no statute of frauds issue when earnest money was deposited into escrow, and where a party sought enforcement of a dispute as to the release procedures set out in the Purchase and Sale Agreement . The Oregon Court of Appeals upheld the trial court’s finding that the money paid into escrow was binding and enforceable against the party. For pre-printed earnest money receipts, which contain a space for signatures, the preprinted statements may not be sufficient if they are not signed by all parties. The statutory scheme for earnest money is set forth in ORS 86A.145 – 86A.165. Articles 4 and 5 set out the type of notice that must be given to all parties. If there is a dispute over earnest money, a deposit into court is not required. In addition to EMDs, liquidated damages are often a major point of contention in a transaction. Typically, a liquidated damages clause in an earnest money deposit is an amount which parties agree is not punitive, but is in line with other damages which might flow out of a transaction.
When will a buyer and/or seller receive their earnest money deposit back?
The timing of the disbursement of earnest money can be very different, depending on which party is entitled to the return of the deposit. Disputes as to the cancellation of agreements, to how the real estate contract should be interpreted, to the movement of another party, and to the good faith actions of a party under a real estate contract are all reason why parties may dispute the return of an earnest money. These disputes are often able to be addressed by the parties as they are receiving advice from their attorney or the closing agent, particularly in the case of liquidated damages. If matters can be worked out amicably, it is always best, as court proceedings can cost substantially more than the amount in question! One of the reasons for disputes is also the movement of other parties. For example, if a party is moving forward with a real estate contract, and a party states that they have lost good faith, disputes can arise.
What happens when a buyer denies receipt of the earnest money, is there a lawsuit for conversion?
Generally, there can be claims for conversion; particularly where the Receiver of earnest money has transferred the money to another level of responsibility, such as an association, or a real estate agent is holding the earnest money. In those cases we usually see federal court cases, or a federal defense in an action for other reasons.