In the state of Utah, real estate transactions are initiated and facilitated by a legal document called a Real Estate Purchase Contract, more commonly referred to as a REPC (pronounced rep-see).
The REPC acts as a contractual offer to purchase on behalf of a buyer, and a contractual acceptance of the buyer’s offer (or potentially counteroffers) by the seller of a piece of real estate. The offer contained in a REPC normally includes a provision for earnest money (an amount offered by the potential buyer to show he has real intent in considering the purchase and executing the contract)
The standard Utah REPC has 25 sections, which I’ll describe here.
The Utah Real Estate Purchase Contract starts with verbiage that acts as an offer from the buyer to the seller, including the date of the offer, the amount being offered, a commitment to paying a designated amount of earnest money within four days of the offer being accepted, and the signature of someone representing the brokerage (or other buyer representative) verifying that an earnest money deposit has been received.
Utah REPC Section 1
This section identifies the property that is the subject of the REPC agreement. Normally the property’s given address is used to identify the specific property involved in the transaction.
This section is also used to identify items associated with the property that will be included with the sale as well as particular items that are excluded from the sale. This section of the Utah REPC creates a clear boundary for both buyer and seller regarding what items will be involved in the real estate transaction and what items will specifically be left out.
Also, because Utah is a desert, water rights are critical elements of property transactions. Section 1 of the Utah REPC includes a specific section dealing with water rights, allowing a seller to exclude water shares from the property transfer.
In section 2 of the Utah REPC, the purchase price is made clear. The purchase price is segmented into the different components of the total agreed upon price, including the earnest money deposit (which is normally applied to the final purchase price), the amount that will be financed via a mortgage, any seller financing amount, and the amount that will be provided by the buyer at closing to complete the funding of the entire purchase.
Section 3: Settlement and Closing
Section 3 describes the settlement and closing details, including who pays for obligations that might be owed on the property for HOA fees or other potential obligations associated with the property. It also provides for credits to the buyer that might come from things such as tenant rents or deposits.
Section 3 section also describes what constitutes closing and what conditions must exist for settlement and closing to take place.
Section 4: Possession
Once closing has been completed, it’s time for the buyer to have access to and possession of the property. Section 4 of the Utah REPC defines exactly (to the hour or calendar day) when this will take place. Three options are available per Section 4 of the standard Utah REPC:
- The buyer can be entitled to possession as soon as the home closes.
- The buyer can be granted possession of the home within a certain number of hours after closing
- The buyer and seller can agree that transfer of possession of the home will occur within a certain number of calendar days (usually not more than 3-5 days) after closing occurs.
It should be noted that “Settlement” (which is when Closing documents are signed) and “Closing” are not the same thing. Closing occurs after settlement, when loan funds (or other payment monies) have sourced and have been transferred to the seller or to the closing agent, and after the Closing documents have been recorded with the county recorder.
In some cases, the bank or lending institution is able to source the funds involved in the transaction immediately after the settlement has taken place at the title company, such as in cases when a local bank is used and there is a good relationship and communication between the title company and the lender.
Most often, purchasers of a home in Utah are given access to it within a few hours after they and the sellers have signed closing documents at the title company. In each of the three different homes I’ve purchased in Utah, that has been the case. I’ve been able to go from a title closing in the morning to moving into my new home later that day.
However, I have known of many situations did not work that way, and some sellers are strict about making sure that EVERYTHING (fund sourcing and recording) has been completed before turning over possession. In one case that I knew of, the underwriter for a lender who was being used by a couple who I’m friends with to supply the mortgage funds did some last minute double-checking and found out after settlement that the wife had quit her part-time job at Wendy’s just days earlier. That missing 200 or so dollars per month disqualified them for the loan. They were already moving into the home when the news came. Things were very stressful for several days, until they went back to the lender and worked something out that would allow the funds to source and closing to finally take place.
Tenants and Rental Contracts
If there are renters occupying the property that’s being purchased, their agreement with the seller as their landlord has to be considered in light of Section 4 of the Utah REPC. The seller of a property is obligated to let the buyer know about any lease agreements that would affect the property.
Seller Leaseback Agreement
A somewhat common scenario affecting the sale of a home is a seller who needs extra time after closing to move out. In Utah, the seller and buyer can execute a contract known as a Short-term Lease Back, which can grant the seller the right to occupy the property for the period of time (usually not more than 60 days) as the Short-term Lease Back dictates.
Section 5: Confirmation of Agency Disclosure
This section is an acknowledgement by both the seller and the buyer that they are being represented by a real estate agent and for the real estate brokerage they represent.
In the case of a real estate transaction that is done without the use of agents, this section can be crossed out, or a note can be made that the buyer and the seller are each representing themselves.
In less common scenarios, an agent may represent both the buyer and the seller as a Limited Agent. Because of the conflict of interest that exists in this situation, use of a single agent or a single brokerage by both a seller and a buyer requires the signing of a Limited Agency Consent Agreement, which is a formal acknowledgement of the situation. Because agents in the same brokerage often share information and for other reasons that can tend to compromise their fiduciary obligation to their respective clients, a Limited Agent arrangement is not typically recommended.
Section 6: Title and Insurance
In this section of the Utah REPC, the seller provides assurance to the buyer that the seller has ownership rights to the property being transacted, and that the title will be transferred to the buyer through a general warranty deed.
The seller’s commitment to providing a “marketable title” (a title to the property that allows it to be re-sold) backed up with a commitment to pay for and provide Title Insurance. A title insurance policy is normally provided by the title company that is handling settlement and closing arrangements.
Section 7: Seller Disclosures
The Seller Disclosures section of the Utah REPC allows the buyer to perform due diligence on the property.
When an offer is made on a home, it is assumed by the buyer that there is no major issue that would cause the home to be of significantly less value than the offer that is made. During the time between the offer acceptance and the closing period, the buyer is expected to be able to inspect and investigate pertinent information related to the home.
The seller’s role in this due diligence process is to provide accurate information about the property being sold. This normally involves completing as thoroughly as possible the Seller’s Property Condition Disclosure form available on the State of Utah website. The form covers everything from describing the condition of the roof and major appliances such as the heater and air conditioning unit to explaining any remodels or additions made to the house to information about water and other utilities. It also includes a section for information about a homeowner’s association (HOA) if it applies.
False Disclosure Information from Seller
In the event that the seller provides false or intentionally misleading information, the buyer is entitled to sue for damages.
Commitment for Title Insurance
Section 7 of the Utah REPC also contains a legal commitment by the seller to purchase and provide title insurance to the buyer.
Section 8: Buyer’s Condition of Purchase
Section 8 of the Utah REPC provides a condition for release of the obligation of the buyer from a commitment to purchase the property in the scenario where the information disclosed by the seller is not acceptable to the buyer. Many buyers who are not serious about purchasing a particular home will make an offer on a home, engage the seller’s agent, and then use this part of the REPC to back out of the deal. According to this section, the potential buyer will also be entitled to be refunded the earnest money deposit used to induce the offer acceptance.
Although there is the option for buyers to opt out of this due diligence contingency, that option is rarely used except in situations where the buyer is highly motivated for some reason and the diligence process is not critical. Most REPC agreements include the contingency for the buyer to back out of a home purchase based on their inspections and other information they might not like about the home.
Besides the property condition and seller disclosure contingencies, Section 8 of the Utah REPC also provides other reasons a buyer can back out of a home purchase, including not liking the home appraisal or not being able to get financing for the home.
Section 9: Addenda
Section 9 of the Utah REPC simply indicates whether there are any extra addenda outside of the REPC. Common addenda include extra seller disclosures relevant to the specific property and not covered in the Seller Property Condition Disclosure, seller financing terms, a VA or FHA Addendum, and disclosure forms for things such as lead-based paint.
Section 10: Home Warranty Plan / As-Is Condition of Property
This section gives the seller and the buyer the chance to determine whether there will be a home warranty plan included with the purchase of the property. Including a home warranty allows the seller the chance to make the buyer more comfortable with the condition of the property.
In the most common situation, there is a one-year home warranty plan included with the sale of the property, and it’s paid for by the seller. Obviously, this arrangement is negotiable, including not including a home warranty plan at all.
From the buyer’s side, Section 10 of the Utah REPC allows the buyer to certify that the process of inspecting the property prior to closing on it is sufficient, and that the opportunity is being provided through that process for the buyer to reconcile that the property’s value actually matches what was understood when the offer was made.
The seller in Section 10 is able to certify that the information provided to the buyer about the property is accurate, and that it is sufficient to allow the buyer to made an informed decision about the property based on the condition it is presented to be through seller disclosures and other communications regarding what contributes to the overall value of the home.
Section 11: Final Pre-Settlement Walk-Through Inspection
This section also helps the buyer to be entitled to receiving the value expected with the property based upon the property’s value not having been lost due to the conditions of the home being worse than when the agreement was made. During the walk-through inspection, the buyer has the opportunity to verify that improvements have been made as agreed upon through the seller’s disclosures associated with the this transaction.
The walk-through is typically done, as spelled out in this section, within 7 days of when closing occurs. This time limit is spelled out to limit the amount of time something could happen to the home that might lessen its value or make it materially different from what was originally agreed upon.
Section 12: Changes During Transaction
This section, similar to the previous two, essentially puts a pause on the seller’s use of the property identified in this contract in terms of not allowing significant changes to be made to the property itself, to whatever interests might exist when this contract is made, or to anything that would lessen the value of the home in one way or another.
For instance, according to the terms of Section 12 of the Utah REPC, a seller couldn’t go out and get a home equity line of credit (HELOC) tying up the property as collateral for the lender, once the Utah REPC is signed without written permission of the buyer.
In 6.1, the opportunity is given for the buyer to acknowledge that the purchase of the property is subject to existing property management or rental agreements. This section doesn’t change those conditions.
As with the previous sections, Section 12 is a way of mitigating the risk that the buyer will receive upon closing anything other than what was agreed upon originally in this purchase contract.
Section 13: Authority of Signers
This section simply certifies that, for contracts made between entities other than individuals (estates, businesses, etc.), the person signing the contract has authority to do so on behalf of the organization.
Section 14: Complete Contract
This section essentially makes the REPC contract and associated documents the last word in the relationship between the buyer and seller, meaning any previous agreements that might have been made between the two parties are superseded by this agreement.
Similar to most other legal agreements, the most recent version of an ongoing contract is typically the one that stands.
Section 15: Mediation
This section gives the two parties – buyer and seller – the option of potentially avoiding a lawsuit in the case of dispute between the parties by choosing to make dispute mediation a mandatory part of the dispute resolution process.
Section 16: Default
This section spells out the consequences of defaulting on the contract by either the buyer or seller. Default, which can be caused by any of the several agreements listed in the various sections of the overall contract, by either party typically results in the cancellation of the contract, although it’s still an option (normally through a lawsuit) for the non-defaulting party to force the defaulting party to enforce the REPC. In addition to the contract being cancelled in the event of a default, there is often monetary damages that are awarded to the non-defaulting party.
If the buyer defaults, the seller is usually entitled to keep the earnest money deposit. If that deposit amount is less than what is perceived to be the damage caused by whatever the buyer did to default, the seller is entitled to go after the buyer for additional damages.
In the event that the seller defaults, the buyer doesn’t have possession of a deposit (like the earnest money required from the buyer to initiate the contract) that can be used to pay for financial damages caused by the default, which makes it more difficult to receive financial compensation for the default. However, based on this REPC contract, there is an expectation that the buyer can receive payment for damages through other legal means that can be used for that purpose.
Typically, real estate agents or others who work with and represent the buyer and seller have as a big part of their roles the duty to keep defaults from happening through clear and consistent communication between the buyer and the seller. Defaults in a real estate purchase contract are not fun to deal with, and can often be avoided with some assertiveness on both sides of the transaction.