May 24th, 2013 at 7:50 pm
As you know, in almost any MLS transaction, your commission is set by the offer of cooperation made by the listing agent. Pursuant to the rules of the MLS, by presenting an offer, you are accepting that compensation and a binding contract is created. Unfortunately, despite that fact, and the fact that discussing our commission in the client’s contract documents violates our duties, we often see listing agents try to get a discount as part of a counter offer. When faced with this issue, the obvious question is what to do. Can I refuse to discount? What if doing so negatively affects my client? These, and many other questions, illustrate how difficult this issue can be.
So, when faced with a request for a discount in your client’s contract, your response may take numerous steps. The first thing you need to decide is whether you are willing to discount. Remember, if your client has already written an offer for the property, you do not have to. You have an enforceable contract. But, if you agree to the discount, you should simply memorialize the new arrangement in a Cooperating Broker Compensation Agreement (CAR Form CBC). That takes the issue outside the clients’ contract and solves your problem.
On the other hand, if you do not want to discount, you should address the counter as follows: (1) First, tell the agent you already have a binding MLS contract and that including commission in the RPA is against the rules. If that works, great. If it doesn’t then (2) contact your manager, who should call the listing broker. Hopefully, by going up the chain, you will have better luck. If they still insist then (3) let it go and we will make a board claim after the fact. Remember, you do not want to cost your client the property by refusing to cooperate. So, after making the above attempts to have the listing agent do the right thing, let the deal close. You are serving your client and will not be waiving any rights. I have seen many board claims where an agent was awarded his full MLS commission after closing to save the client’s deal. I can’t promise it will happen in every case, but it will in most. Most boards, who are realtors just like you, do not like agents violating the rules in this way.
So, try to keep your commission out of the RPA if possible. You have an MLS contract and need nothing else. But, if the listing agent insists, and you can’t get them to do the right thing, then close the deal and we will go after your commission later.
As always, contact your manager with any questions you may have and they will contact the Legal Department if necessary
May 10th, 2013 at 7:49 pm
At last week’s CAR meetings in Sacramento, one of the main subjects making the rounds was pocket listings. Now, as you know, we have discussed pockets lately since they have become so prevalent in this market. If you will recall, our concern was making sure that your seller understands the impact of not putting a property in the MLS and how that might affect their sale or sale price. At CAR, as you can imagine, they had similar concerns, along with a desire to make sure that when handling a “pocket,” you follow the MLS rules. After all, and as you know, the MLS rules require that, without instructions to the contrary, all listings must be submitted to the MLS within 2 days of signature. The only way to hold a property out of the MLS, without violating the rules, is to have an instruction signed by the seller. Unfortunately, in a good number of our “pockets,” no such instruction exists. As a result, in addition to the fiduciary duty issues we have discussed in the past, we are also faced with violations of the MLS rules which could result in unwanted discipline.
As you will recall, when discussing pockets before, we identified CAR Form SEL, the “Seller Instruction to Exclude Listing From the Multiple Listing Service or Internet”, as a good tool in this regard. In truth, when looked at in detail, that form can solve both of the problems identified above. First, paragraph 5 is a “Seller Opt-Out – Exclusion of Property From MLS.” That paragraph specifically states that “Seller advises Broker that Seller elects to exclude the Property from the MLS.” As a result, by checking the box in front of this paragraph (which is required to make the instruction applicable), you have solved your MLS problem. You have a written instruction from your seller.
As importantly, the SEL discusses most of the issues arising from a pocket that have to be discussed with the seller. In paragraph 4, the document states as follows: “Seller understands and acknowledges that if this option is checked (a) real estate agents and brokers from other real estate offices, and their buyer clients, who have access to that MLS may not be aware that Seller’s Property is offered for sale, (b) Seller’s Property will not be included in the MLS’s download to various real estate Internet sites that are used by the public to search for property listings, and (c) real estate agents, brokers and members of the public may be unaware of the terms and conditions under which Seller is marketing the Property.” In other words, the SEL sets forth the consequences of a pocket very clearly and solves most, if not all of our fiduciary duty problems. The only additional thing I would like you to discuss with a seller is the fact that with less people seeing the property, it is possible that the seller will get less for it. After all, the broadest marketing possible would theoretically increase our chances for the highest offer.
I raise this issue again because it was such a big deal with CAR last week. Obviously, if they are so concerned, we will probably see more enforcement by our Boards of Realtors and may see an increased awareness of these issues by our clients. So use the SEL. It is another good form from CAR that will help you stay out of the trouble that could be caused by pocket listings.
As always, contact your manager with any questions you may have and they will get the Legal Department involved if necessary.
May 2nd, 2013 at 7:48 pm
As you can imagine, there are many parts of the Residential Purchase Agreement that cause confusion. Among the issues most commonly giving rise to questions is the liquidated damages clause in paragraph 25. Agents are often unsure what it means, or even if it is part of their contract. With that confusion in mind, here is a little explanation.
1. ? ? First, liquidated damages are only a part of the contract if paragraph 25 is initialed by both the buyer and seller. Even if the buyer’s offer includes that clause, if the seller signs an acceptance but does not initial liquidated damages, it is not part of the contract. In fact, the Counter Offer form makes this point explicitly: “Paragraphs in the Offer that require initials by all parties, but are not initialed by all parties, are excluded from the final agreement unless specifically referenced for inclusion in paragraph 1C of this or another Counter Offer.” (Counter Offer, paragraph 1A.) In other words, to be part of an agreement, both parties must explicitly signify their intent to agree to this clause. Without that, or with only one party’s acceptance, liquidated damages are not part of your contract.
2. ? ? Next, please understand that liquidated damages is intended as a protection for the buyer. As you know, in a normal case, if the buyer breaches its contract, the seller would be entitled to recover all the damages they suffered. The only requirement is that they prove what those damages are. In the case of liquidated damages, on the other hand, the parties agree to an amount up front and, if a breach occurs, the seller gets that amount, no matter what his actual damages are. So, even if buyer’s breach cost the seller $100,000, if the liquidated damages were only $10,000, that is all the seller gets.
3. ? ? Additionally, liquidated damages are limited to “the deposit actually paid.” (RPA, paragraph 25.) As a result, if the contract calls for a deposit of $25,000 and the buyer only actually deposits $10,000, then upon breach, assuming liquidated damages is part of the contract, the seller only gets $10,000.
4. ? ? Liquidated damages can only be 3% of the purchase price, by law. As a result, if the seller wants more than that amount given to him as a “nonrefundable deposit,” there must be an explanation as to what the amount above 3% is. After all, if the seller gets to keep that money on the buyer’s breach, then the court will assume it is damages and is covered by the liquidated damages clause. So we cannot just say something is “nonrefundable.” Unless that extra (above 3%) is reasonable and supported by independent consideration (like an option) the buyer could probably get the overage back if they wanted to go to court and fight.
5. ? ? Finally, if your client asks you whether they should initial this clause, try not to answer directly. After all, this is a strictly legal issue and we don’t give legal advice. However, paragraph 47 of the Statewide Buyer and Seller Advisory (CAR Form SBSA) gives a great explanation of this clause. As a result, refer your client to that document. That referral lets them understand the clause without you being required to give legal advice.
As always, please contact your manager with any questions you may have. They will contact the Legal Department if necessary.
April 27th, 2013 at 7:47 pm
I came across two issues this week that I thought would be worth sharing with you.
First, we had a couple of transactions that either cancelled at the last minute or were delayed because the seller did not order the City Report or HOA documents in a timely manner. Remember, those documents, along with the NHD, carry buyer contingency rights with them. Paragraph 4(B)(2) of the RPA covers City Reports, paragraph 6 covers the NHD and paragraph 7 covers the HOA. Each of those items is incorporated into the contingency section of paragraph 14, where the buyer has 5 days to cancel the transaction “if any report,…for which Seller is responsible is not Delivered within the time specified…” As a result, if representing the seller, you need to remember that by not ordering these items immediately, you may be lengthening the buyer’s contingency periods. This issue is most prevalent with the City Report and the HOA documents, since they often take a very long time to receive. So don’t wait to order them. Don’t wait until escrow is opened and have escrow do the ordering for you. Instead, order these items when you take the listing. Then, when you get an offer they will be ready to go and you will get all contingencies removed in a timely manner. This practice will better protect your seller. Given today’s market, the property will eventually sell and the reports will be needed. So there is no reason to wait. Order these items up front.
Next, as we have discussed before, we are seeing buyer’s do a lot of aggressive things in order to get their offers accepted. One of the most common things we see is the waiver of all contingencies. Buyer’s believe that if they waive their contingencies, the seller will feel more comfortable with them and will more likely pick their offer. While this is true, you need to be aware that this “waiver” may not always be effective. While I think it is possible to waive the contractually created contingencies (like HOA or title), certain cancellation rights are created by statute and I do not believe those can be waived. For example, and as you know, the Civil Code requires that the seller deliver a TDS to the buyer and provides the buyer with a 3 day right to rescind after that delivery. Even if an offer “waives” all contingencies, I still believe the buyer is entitled to the TDS and can cancel if he doesn’t like what it says. The same is true for the NHD and Lead Based Paint disclosure. So, if you represent a seller where this kind of offer comes in, please make sure they understand this issue. If they believe the deal is truly airtight, and the buyer then exercises his statutory right to rescind, the seller’s anger will surely be directed towards you.
As always, please contact your manager with any questions you may have and they will contact the Legal Department if necessary
April 19th, 2013 at 7:46 pm
As you know, when an offer is made by one party to another, the receiving party is normally in control of the process. Upon receipt of that offer, a buyer or seller can create a binding contract by simply accepting the offer and delivering it back to the other side. In our present market, however, this process can create problems for a seller, especially early in the listing period. After all, it is not unusual for a seller to receive an early offer that they want to entertain. On the other hand, they don’t want a contract finalized because they want to see if other, higher offers come in. By countering the original offer in the normal way, the seller is allowing the buyer to create a contract merely by accepting and delivering it back. So, what can the seller do to change this dynamic and keep control of the offer/acceptance process?
In truth, a couple of very simple changes to paragraph 4 of the Counter Offer form (CAR Form CO) provide your seller with the protection they need. First, in the title to that paragraph, “MULTIPLE COUNTER OFFER,” cross out the word “MULTIPLE.” Remember, in our scenario, we are early in the process and only have one offer for the property. As a result, we cannot say that we have multiple offers. That would be a lie. Next, cross out the first sentence of paragraph 4, which reads as follows: “Seller is making a Counter Offer(s) to another prospective buyer(s) on terms that may or may not be the same as in this Counter Offer.” (Below is an example of how to make these changes.) Again, in our scenario, that statement is not true. At the moment, we are only making one counter, to our Buyer No. 1. With those changes made, our clause no longer makes any misstatements. Instead, it tells the buyer that we are making a counter offer and changes the method of acceptance. Rather than our buyer having the power of acceptance, our counter-offer says that acceptance will not be binding “unless and until it is subsequently re-Signed by Seller…” In other words, if Buyer No. 1 accepts our counter and delivers it back to the seller, no contract is created. Rather, there is no contract until the seller re-signs. As a result, the seller now has control and decides when a contract is created.
So, when you think you have a popular property, but get an early offer from a buyer that you want to keep interested, make these changes. Two simple cross-outs give your seller control. But remember to make those changes so you do not make any misrepresentations to the buyer. That would only cause problems.
As always, please contact your manager if you have any questions and they will get the Legal Department involved if necessary.
