May 4th, 2012 at 6:58 pm
As you know, we are doing a lot of lease business in this market. In that context, we often find ourselves being asked by a prospective tenant why their lease application was denied. Please understand that this can be a very problematic conversation and you have to be very careful how you respond. After all, the Fair Housing Laws apply to rental properties and, as a result, the landlord cannot discriminate against a potential tenant based on their membership in a protected class. As a result, discrimination in a leasing decision based on gender, religion, age, familial status, race, sexual preference or national origin is illegal. These problems can come up in obvious and not so obvious ways. For example, not wanting to rent to a family with small children could be seen as familial status discrimination. Similarly, we recently had a lease listing near a university, but the landlord did not want to rent to students. While I don’t think that is familial status discrimination, the contrary argument could be made. Also, even if not a factor in your landlord’s decision, the prospective tenant’s membership in a protected class could cause sensitivity. So, even if a denial has nothing to do with my religion or sexual preference, if I have been subject to discrimination before, I might not believe your explanation.
As a result, if you are the listing agent, and a lease application is denied, please be very careful when you talk to the prospective tenant. When asked for an explanation as to why the application was denied, you should answer in one of two ways. First, and preferably, tell the tenant that you don’t know. Try to avoid getting an explanation from your landlord thereby allowing that answer. You are not obligated to ask the landlord for her rationale and, in that case, saying “I don’t know” is a truthful response and cannot be misconstrued. Next, if you have been told why the application was denied , and even if it was for purely financial reasons and was not discriminatory (which it should always be), still try not to give a reason. That is where problems come from. Instead, tell the tenant that the decision was made by the landlord and not you. Try to leave it at that. If pushed, just say you can’t talk about it. But stay away from explanations. They are the only way to get you, or your client, in trouble.
As always, please let us know if you have any questions
April 21st, 2012 at 6:56 pm
As you know, it is common in our market for the buyer to make a deposit equal to 3% of the property’s purchase price. This practice is, at least in part, related to the fact that by law, liquidated damages can be no more than that amount. As a result, especially when the parties make liquidated damages part of the purchase agreement, the seller wants a 3% deposit so they can have the maximum protection should the buyer breach the contract.
Of course, the issue we see in this regard arises in the context of the negotiations that almost always occurs between buyer and seller. As you know, in the normal course, the buyer’s original offer will include the 3% deposit. However, it is also true that most times the seller will issue a counter offer, increasing the purchase price of the home. The question is whether the seller also increases the deposit at the same time to keep it at 3% of the newly offered price. As you know, the boilerplate language of the counter offer form does not address the deposit, saying only that the “down payment and loan amount(s) will be adjusted in the same proportion as in the original Offer.” As a result, if the deposit is going to be increased by a counter offer, it needs be explicitly done. The counter offer needs to say, “Purchase price to be x and deposit to be y,” with y equaling 3% of x.
What does all this mean for us? Well, as a listing agent, I believe it is your responsibility to discuss with the seller at the time of counter offer. Make sure to include an increased deposit amount in every counter, so that the seller has a 3% deposit in escrow. You could also include language as follows in the counter: “Deposit to equal 3% of the final purchase price.” Either way, should the buyer breach, your seller will be fully protected and, more importantly, will not be angry with you.
As always, please contact us with any questions you may have.
April 13th, 2012 at 6:55 pm
As you know, in most deals it is common for the seller to purchase a home warranty for the buyer. The policy covers many of the property’s systems and, by paying for repairs, can save everyone headaches after close of escrow. On the other hand, if not dealt with correctly, the contract terms around that warranty can be a problem. Specifically, paragraph 4D(6) of the Purchase Agreement deals with the allocation of costs for the home warranty. That clause reads that either the buyer or seller “shall pay the cost, not to exceed $___________, of a one-year home warranty plan, issued by _________________, with the following optional coverages:” The contract then has 4 checkboxes for optional coverages: air conditioning, pool/spa, codes and “other.” As you know, the disputes we see arise from the interpretation of this clause, and more particularly, how you fill it out.
For example, we have a deal where paragraph 4D(6) provides that the seller shall pay the cost of the warranty, “not to exceed $600.” The buyer only checked the box for one optional coverage, air conditioning. As a result, escrow ordered the policy, with optional HVAC coverage, for a total cost of $400. Two days before escrow was to close, the buyer’s agent called escrow and said they also wanted optional roof coverage at a cost of an additional $100. In other words, with that extra coverage, the seller would still be paying less than their “not to exceed” amount of $600. Is the seller obligated to pay for the roof coverage?
The answer to that question, quite simply, is no. The $600 “not to exceed” amount specifically refers to a one year policy with “the following optional coverages.” Since roof coverage was not indicated in the contract, it was not a “following” coverage. Further, since the $600 is a “not to exceed” amount, the seller is not obligated to pay that full amount. Rather, they are just not required to pay more than that amount. On the other hand, if the seller can provide the buyer with what they asked for in the contract, in our case a one year policy with HVAC coverage, for less than $600, they are free to do so and have properly performed the contract.
So what does this mean for the buyer’s agent? It means you need to be sure to designate the optional coverages you want. The way the contract is written, the “not to exceed” amount will not protect you if you don’t ask for the proper coverages. So, when you represent the buyer, talk to them about the condition of the house and the optional coverages available, and make sure to check the box for all coverages they want. That is the only way to make sure your buyer gets the warranty they bargained for.
As always, please contact us with any questions you may have.
April 11th, 2012 at 6:55 pm
As we all know, a seller has an obligation to disclose to the buyer, facts materially affecting the value and desirability of the property that are known only to him and not within the diligent reach of the buyer. When the listing agent becomes aware of these facts known by the seller, the agent owes the same duty to disclose. When we think of these disclosures, we generally think of matters related to the physical condition of the property. But the question has been raised as to whether an agent has a duty to disclose facts related to financial aspects of the transaction.
In 2010, a lawsuit was brought by the buyer of a property against a broker for negligent misrepresentation including failure to disclose. The facts of the case involved a buyer who had an accepted contract with a seller in the amount of $749,000. Absent from the contract was the crucial information that the seller had encumbered the property with three mortgages totally $1,141,000. This information had not been relayed to the listing agent at the time of listing nor at the time of accepted contract; thus, it was not listed as a short sale. The information regarding the encumbrances was relayed to the buyer before close of escrow but not before the buyer had sold his current residence in order to complete the purchase of the subject property. The lawsuit claimed that the agent was responsible for the buyer’s damages because of the agent’s failure to disclose the financial encumbrances on the property. The court initially ruled in favor of the agent; however, this decision was overturned on appeal with the court stating that a broker is obligated to disclose to the buyer before the purchase contract was signed that there was a substantial risk that the seller could not transfer title free and clear of all monetary liens and encumbrances. In other words, a broker’s duty to disclose extends beyond the physical aspects of the property to the financial obligations on the property.
The court concluded that when a real estate agent is aware that the amount of existing liens on the property exceeds the sales price so that either the seller will have to put cash into escrow to close the transaction or obtain cooperation from the lender to complete the transaction, the agent has a duty to the buyer to disclose this information so that the buyer can evaluate the risk before entering into the purchase contract.
This case is a reminder to all that when you take a listing make sure that you obtain sufficient information from the seller as to all encumbrances on the property and possibly run a title report to document this information. The duty to disclose the financial aspects of the property, while not new, is an issue which is coming up more regularly in today’s real estate market and places a duty of disclosure to the buyer on the listing agent.
As always, let us know if you have any questions.
April 6th, 2012 at 6:54 pm
We have had a number of disputes recently revolving around whether a property’s seller could take a specific piece of personal property at close of escrow. In one deal, the seller took two crystal chandeliers. In another, they took the drapes from the living room. And, in a third, they took both the flat screen tvs and the custom brackets that they had built for those tvs. Of course, in each case the buyer was unhappy and looked to us to make them whole.
On first look it was seem that paragraph 8 of the Purchase Agreement deals with most of these issues. After all, that clause specifically says that “lighting fixtures,” “window coverings” and “tv brackets attached to the walls” are included in the deal. Unfortunately, in our cases the sellers claimed that those clauses don’t actually mean what they seem to mean. In the first, the seller stated that they bought and installed the crystal chandeliers in the home and therefore they were not “fixtures” as the term is used in the RPA. In the second, the seller stated that since there were shades on the windows behind the drapes, those shades were the “window coverings” and the drapes were not. And, finally, in the third the seller took the position that because the bracket had to be custom built for his television, it could not be used by the buyer and did not need to be left.
Regardless of whether you agree with the seller’s positions (which I don’t), the bottom line is when the buyer moved into each house, that item was gone and the seller was not going to give it back. So, with that reality in mind, what should you do to protect yourself from this problem? Obviously, the best thing to do is not to rely on the language of the RPA. As you know, and can see above, any language can be interpreted in multiple ways. So, rather than relying on that language, ask the seller a question – Do you want to take anything from the house at close of escrow? By dealing with the issue up front, everyone knows what the deal is and there is no disappointment or surprise at close of escrow. As we have said many times, problems arise when something happens that your client doesn’t expect. So manage your client’s expectations and ask the question. That way you buyer won’t be surprised when escrow closes and won’t reach in to your commission for compensation.
As always, please contact us with any questions you may have.
