UNIT 6 - CONTENTS

1. Contracts, Listing Agreements, Disclosures and Torts2. Home Warranty Agreements and Error and Omission Insurance3. Agency, Anti-Trust and Basic Business PlanningUnit Assessment

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COMMON MISTAKES

So let’s start with the most common and most important issues. Chapter 1 deals with a number of the many contracts and documents real estate professionals deal with on a daily basis. It touches on important rules and requirements governing those documents and offers some sound advice to help ensure their correct execution.

CHAPTER LEARNING OBJECTIVES

Upon completion of this chapter, the learner will be able to:• Identify important elements of a contract• Explain basic provisions in a listing agreement, PSA and disclosure statement• Understand what tort law covers and how to avoid infraction

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CHAPTER 1

CONTRACTS, LISTING AGREEMENTS, DISCLOSURES AND TORTS

ContractsContracts are an essential part, let’s face it the most essential part, of the transfer of real es-tate. It is important that you, as the real estate professional, are familiar with these contracts, know how to use them and have the ability to explain the terms contained within these forms to your clients.

These forms aid in the development of a legally binding contract between the parties and ex-press the terms, conditions, timeline and promises of the seller and the purchaser.

Should an issue or dispute ever arise between the parties to a contract, these forms and their content will be of the utmost importance in arbitration or in a court of law.

In this course, we will be referring to the contract between the buyer and the seller for the pur-chase of real property as a purchase and sale agreement (PSA).

TIP: Familiarize yourself with all of the common forms used in real estate contracts. Practice filling out blank forms and when possible, get your managing broker to review these forms. This will eliminate some of the mistakes that you might make when writing a contract for a cli-ent. As they say perfect practice makes perfect!

Elements of a ContractFor a legal contract to be binding, the following elements must exist:

• Mutual Agreement - Each and every party involved in the contract must agree to and ac-cept the contract and its components. All parties must recognize and acknowledge that an agreement has been made and duly accepted.

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CHAPTER 1 - SECTION 1

CONTRACTS, LISTING AGREEMENTS, DIS-CLOSURES AND TORTS

• Consideration - A contract must be mutually beneficial and all parties must recognize and accept the benefits from the contract. These benefits can include money, transfer of owner-ship, transfer of rights, exchange of services, or anything of value.

• Legally Competent Parties - In the United States, a person or entity (such as a business, trust or corporation) must be competent and at least 18 years old to enter into a contract. If the party is a business, the person representing the business must also be legally compe-tent and have the authority to act for the business.

• Lawful Objective - A legal contract cannot require any party to knowingly break the law. If so, the contract is usually void.

• Written Contract - The Statute of Frauds is a law which requires that all real estate con-tracts be in writing.

TIP: Be sure that all of the above five elements are considered when writing/reviewing a con-tract so that the contract is enforceable in a court of law. In fact, if it doesn’t have these, you might as well face the truth—it’s not really a contract.

Which brings us to the conversation of:

Valid, Void and Voidable Contracts

Valid Contracts - if a contract has all the required elements (see elements of a legal contract above), then it is valid and enforceable in a court of law. An example of this would be a home-owner (usually over the age of 18 and of sound mind) who signs a contract with the appliance store to buy a refrigerator. The homeowner pays for the refrigerator and the appliance store makes available the refrigerator for them to take home.

Void Contracts - a void contract is not a contract and has no effect in a court of law. Most commonly, a void contract will be missing one or all of the essential elements needed for a valid contract (again, see elements of a legal contract)

Voidable Contracts - a voidable contract is a one that may appear to be valid, but has some type of flaw which could cause one or both of the parties to void the contract. An example of this would be a contract between an illegal drug dealer and an illegal drug supplier to purchase a specified amount of drugs for a specified amount. Either one of the parties could void the

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contract since there is no lawful objective and hence missing one of the elements of a valid contract.

Be sure you’ve written a valid contract. If you haven’t, you might as well spit on your hands and shake on it. It would save you a lot of time and end in the same results—no validity.

Statute of Frauds

A valid contract not only protects you, but it also protects your clients. The “statute of frauds” requires that certain types of contracts be in writing and that they must be signed (acknowl-edged) by all of the parties that will be bound to the contract.

Contracts involving the sale or transfer of real property in most states fall under the Statute of Frauds law and must be in writing. Contracts not in writing are not enforceable.

Its origins come from the English Parliament in the 1600s, when real estate was conducted with a handshake, and the opportunities to commit acts of fraud were abundant.

There are some basic reasons why all real estate contracts should fall under this statute.

The purchase or transfer of real property often involves many terms and conditions as well as pricing. Because of this, the need for having these agreements in writing is essential.

Also, there may be many contingencies in the contract which have deadlines for completion. If these deadlines are not met, there can be serious consequences for either party. Again, hav-ing these agreements is writing provides clarification for all the parties.

Should there be any dispute between the parties in a contract, the issue may require arbitra-tion or intervention through the courts. Should this arise, an arbitrator or judge could obtain a clearer understanding of the intentions and promises between the parties by reviewing a writ-ten contract stating the specific agreements.

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Case Study

Joan, the Anderson’s listing representative, received a verbal offer to purchase the Anderson’s home from the Smiths’ buyer’s representative. Joan presented the verbal offer to the Ander-sons. Soon thereafter, the Smiths changed their minds and did not want to purchase the home. Joan tried to enforce the verbal offer made by the Smiths. This was not possible since the Statute of Frauds requires that all offers to purchase real estate must be made in writing.

Joan, Joan, Joan…get it in writing!

Purchase and Sale Agreement (PSA) Take the time and write up the PSA as soon as the opportunity presents itself. A purchase and sale agreement is used when a buyer (offeror) intends to make an offer to the seller (offeree). Since the Statute of Frauds requires all real estate offers to be in writing in most states, the PSA is used for this purpose. Included in the PSA are all of the terms and conditions of the pur-chase and the time frames in which certain actions must be performed. The PSA will typically specify some the following:

• Purchase price

• Closing date

• Date of the contract

• The multiple listing number if it has one

• The full names of all purchasers

• The common address and county where the property is located

• A legal description

• Included items, such as appliances, wood stoves, security systems

• Earnest money and default

• Information about disclosures

• Contingencies

• Information about the title company

• Information about the closing or escrow agent

• Closing date and date of possession

• Offer expiration date

• Service of closing agent for payment of utilities

• Charges and assessments due after closing

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• Agency disclosure

• Addenda attached to the contract

• Buyer’s address, phone, fax and e-mail address and signature

• Seller’s address, phone, fax and e-mail address and signature

TIP: Please take note from the above list that the legal description is in bold type. Without a le-gal description, in most states, a PSA is voidable.

The type of purchase and sale agreement (PSA) that will be used will depend on the property. The various types most commonly used by residential licensees are:

• PSA for Single Family Homes

• PSA for Multi-Family Homes

• PSA for Vacant Land (unimproved property)

• PSA for Condominiums

The PSA is usually completed by the licensee working with the buyers, then signed by the buy-ers and presented to the listing representative and the sellers.

TIP: A contract that has been written by the buyer’s representative and signed by the buyer, but not yet signed by the seller, is not a contract. It is merely an offer. You must obtain signa-tures from ALL parties that are buying and ALL parties that are selling before a valid enforce-able contract can be in place

Case Study

Joan, the Morgan’s buyer’s representative, wrote a contract to purchase a property from the Rutleys. Mr. Morgan, Mrs. Morgan and their daughter were purchasing the property and were to take title as joint tenants as per the purchase and sale agreement. Joan only obtained the signatures of Mr. and Mrs. Morgan and not their daughter. The contract could be considered invalid since the daughter’s signature was absent.

Listing AgreementsThere is a type of contract that should be very important to you as the real estate licensee and that is the listing agreement. When a licensee lists a property for sale, a listing agreement

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acts as a contract between the seller and the licensee (in actuality between the seller and the brokerage). It is like an employment contract in some ways, but it is between a seller and an independent contractor (the licensee).

The listing agreement will normally specify the following items:

• The common address for the property

• The legal description• The length of time of the listing

• The licensee and the brokerage company

• The rate of commission

• What will happen in the event that the seller sells the property

• Disclaimer on Distressed Homes

• Authorization to install a key box

• Seller’s warranties and representations regarding the right to sell and encroachments

• Seller’s indemnification to hold a licensee harmless if their representations are incorrect

• Brief information on closing costs

• Permission from the seller to be listed in MLS and that their representative can cooperate with other member of the MLS

• Disclaimer regarding insurance

• Licensee’s right to market the property

• Brief information on the seller’s disclosure statement

• Consequence and damages in the event of a buyer’s breach

• Attorney’s fees

From the above list, please note that the legal description is in bold type. It is one of the most important components of the listing. Without the legal description, in most states, the listing agreement is voidable. This means that either party can cancel the contract.

**Please make note that the legal description of the property, which can be obtained from the last deed and supplied by the title company, is not the same as the street address.

There are two basic types of listing agreements depending on the state that you are in:

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• Exclusive Sale and Listing Agreement – Allows the licensee to earn the listing portion of the commission, no matter who sells the property. Shown below.

• Exclusive Agency Sale and Listing Agreement – The licensee does not earn the listing portion of the commission if the seller produces a sale.

While a licensee may take the listing, that licensee is an agent for the broker and the broker or brokerage owns the listing.

Case Study

Jason, a licensee for ABC Realty Investments LLC, had a listing on the Brown’s property. Ja-son decided to change brokerages and work for XYZ Realty Inc. He wanted to take the Brown’s listing with him to his new brokerage. Can he do this? Yes, but only with the permis-sion of ABC Realty Investments LLC since that brokerage owns the listing. Jason does not own the listing.

Conditional release of a listingThe Conditional Release of Listing is another common contract that residential licensees use. In essence, it rescinds the listing agreement with the condition that the seller will still pay the licensee a commission if a future buyer purchases the property and has identified the property through the means of the licensee’s advertising or showing within six months.

NOTE: When a listing is rescinded, each party is put back to their original position.

Buyer’s AgreementAnother type of agreement that you need to think carefully about is the buyer’s agreement which is commonly used by residential licensees in most states. There are two types:

• Buyer’s Agency Agreement - States that the licensee represents the buyer and that the buyer has an obligation to that licensee for commission during the term of the agreement. This agreement is unilaterally cancelable by either party and must be done in writing. If two licensees are ever in a dispute over commission, a buyer agency agreement can be the proof that a particular licensee would be entitled to earn a commission.

• Buyer’s Agreement No Agency - This contract states the licensee does not represent the buyer, even though they may be performing brokerage services for the buyer.

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Legal DescriptionsIn all real estate transactions, it is of extreme importance to obtain a full legal description from the last deed and have it initialed by the seller(s). A street or common address is not sufficient in a listing and the listing agreement could be voidable.

For a purchase and sale agreement the same holds true and the full legal description must be initialed by both the buyer and the seller.

Case Study

John wrote a purchase and sale agreement for his buyers. The PSA was signed by all of the buyers and sellers. John did not attach a full legal description to the contract. A few days later, the seller received an offer that was $10,000 higher than the offer John had written. The sell-ers wanted to back out of the contract. Can they so this? Yes, the contract was voidable by the sellers since there was no legal description attached.

Here is an example of a correct full legal description:

The Grantor Paul S. Post and Mary B. Post, husband and wife

For and in consideration of TEN THOUSAND DOLLARS AND OTHER GOOD AND VALU-ABLE CONSIDERATION in hand paid, conveys and warrants to Peter D. Sanders and Kim H. Sanders

The following described real estate situated in the county of SNOHOMISH, State of Washing-ton

LOT 14, HAYWOOD HILLS, ACCORDING TO THE PLAT THEREOF RECORDED ON VOLU-ME 32 OF PLATS, PAGES(S) 121-123, INCLUSIVE RECORDS OF SNOHOMISH COUNTY, WASHINGTON. SITUATED IN THE COUNTY OF SNOHOMISH, STATE OF WASHINGTON

Seller Disclosure LawOne mistake you don’t want to make is not disclosing information. Most states require that sell-ers provide purchasers with a written disclosure statement regarding material facts or material defects about a property. This applies to real estate purchases and also property transfers.

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This information is based on the seller’s actual knowledge of the property when completing the form. Only the seller or the seller’s legal representative of the property can complete the state-ment. It is important to note that real estate licensees or any other third party are prohibited from completing the statement for the sellers.

For some states, disclosure may be completed for improved property or for unimproved prop-erty (vacant land).

While the seller is responsible for completing the form, it is important to note that there is liabil-ity for the licensees as well. The licensee is responsible for what they know or should have known. If a licensee sees something they feel is a material fact, then they must advise the seller to include this on the disclosure statement and the purchaser must be made aware of these facts.

If a material fact or defect is not included on a preprinted disclosure form that is not included as a question, it still must be disclosed.

Some of the items the seller may be asked to disclose on the statement are:

• Environmental information, such as soil expansion, erosion or settlement

• Open wells, mine shafts or tunnels and noise from surrounding areas including airports or traffic, plus odors or other issues

• Past or present asbestos, lead-based paint, radon, pesticides, underground storage tanks or fuel/chemical storage 

• Sewer waste and water treatment and utilities, whether the property currently receives listed utilities, including water sources and information on drinking water along with the name of the utilities provider

• Building and safety information including structural integrity of the property, a notice for the buyer to verify the condition of the roof, wood infestation, treatment history of the property -- including name of treatment provider --for eliminating wood destroying organisms

• Heating, cooling, plumbing and electrical information, including swimming pools, spas, hot tubs, saunas or other features on the property and whether they have had any problems

• Scorpions, rabid animals, bee swarms, rodents, owls or reptiles that have ever been pre-sent on the property

• Information about any work or improvements to the property, permits obtained for that work and other miscellaneous items

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Since this disclosure statement is provided in most transactions, it is very important that you as a licensee know the laws and regulations involving these disclosures. This reduces the risk for you, as a real estate professional, and the risk for your client. Seller’s disclosures, or the lack there of, are often times the subject in court cases when buyers seek restitution for undis-closed defects. According to some Errors and Omissions Insurance companies, 65%-70% of all real estate litigation arises from lawsuits which involve misrepresentation or the lack of dis-closures.

NOTE: In most states, the seller and only the seller must fill out the seller’s disclosure state-ment. It’s common for a real estate licensee to want to assist the seller in filling out this form, but caution should be taken not to put your pen to this form.

Who Must Comply?

In most states, sellers with a dwelling of 1-4 units must provide a written disclosure statement to the purchaser. This includes for sale by owner transactions.

Be sure to familiarize yourself with specific laws pertaining to your state and also the exemp-tions that may apply in providing a seller disclosure. Be sure to check with your individual state; however, some of the common exemptions may include:

• A gift or other transfer to a parent, spouse, or child of a transferor or child of any parent or spouse of a transferor;

• A transfer between spouses in connection with a marital dissolution;

• A transfer where a buyer had an ownership interest in the property within two years of the date of the transfer including, but not limited to, an ownership interest as a partner in a partnership, a limited partner in a limited partnership, a shareholder in a corporation, a leasehold interest, or transfers to and from a facilitator pursuant to a tax deferred ex-change;

• A transfer of an interest that is less than fee simple, except that the transfer of a vendee's interest under a real estate contract is subject to the requirements of this chapter; and

• A transfer made by the personal representative of the estate of the decedent or by a trus-tee in bankruptcy.

Case Study

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Able was planning on taking a listing from a seller who refused to provide a seller’s property disclosure statement on a single family residential property, even though it was required by law. Able brought this issue to the attention of his managing broker immediately. Anytime that a client refuses to provide paperwork that is required by law you should bring this to the attention of your manager immediately. This needs to be dealt with for your protection as well as the cli-ent’s.

Tort Law! You may have a great contract, but that doesn’t necessarily mean that you have smooth sail-ing. Be sure that you are knowledgeable about the properties you are representing and that you present information correctly.

Tort law is a group of laws that addresses, and provides remedies for, civil wrongs not arising out of contractual obligations. A person who suffers damages may be able to use tort law to re-ceive compensation from someone who is legally responsible for those injuries in civil law.

Tort law commonly related to the practice of real estate includes:

• Negligence

• Negligent Misrepresentation

• Intentional Misrepresentation

• Intentional Concealment

• Vicarious Liability

Negligence is defined as the failure to use ordinary or standard care. Don’t be negligent. Be sure to know the facts and take care of all situations as soon as they arise.

Example of Negligence:

The buyers wanted to purchase a vintage older home which was on a septic system. The buyer’s representative did not recommend that the buyers have a structural inspection or an inspection of the septic system. After closing, the buyers moved in and found massive dry rot under the wood siding of the home. They also found that the drain field for the septic system was defective and sewage was seeping up under the back lawn. The licensee was sued for negligence for not recommending a structural inspection.

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Negligent misrepresentation is a failure to disclose a material fact out of ignorance when the licensee should have known otherwise. This is where the licensee makes a statement without any reasonable grounds to believe that it is true.

Example of Negligent Misrepresentation:Due to a recent earthquake, many homes in a particular neighborhood suffered major struc-tural damages. The two homes next door to the subject property were being repaired and each still had scaffolding around them. While the sellers did not disclose this fact on their seller’s disclosure statement, they did tell their representative about the earthquake. The licen-see failed to advise the buyers of the potential problems with the structural integrity of the home and said that he thought the structure was just fine. The licensee was found liable for fail-ing to disclose the potential problems.

Intentional Misrepresentation is defined as “knowingly making a false statement about a ma-terial fact.” It is also known as fraud.

Claims of intentional misrepresentation would include knowledge by the licensee that the infor-mation was false and damage to a consumer who relied on this false information.

Example of Intentional Misrepresentation:The listing representative knew there were external factors which influenced the habitability of a home. The seller had disclosed the fact that because their home backed up to a supermar-ket, semi-trucks making deliveries at 4:00 am were a noise nuisance. The licensee repre-sented to the buyers that this home was in a quiet neighborhood. After the buyers moved in, they were awakened by the noise of the trucks and could sue the licensee for intentional mis-representation.

Intentional concealment is defined as “knowingly failing to disclose a material fact.” Claims of intentional concealment may include some of the following circumstances:

• A material fact was concealed or suppressed

• The fact was concealed with an intention to defraud

• A licensee’s duty to deal fairly with all parties even though they do not represent them.

• The consumer was damaged as a result of the concealment

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Example of Intentional Concealment:The listing representative had seen a burned area of approximately 6 feet in diameter on the hardwood flooring on the porch. An oil lamp had burned through the floor. The licensee placed a large area rug over the area to conceal the defect. When the new buyers moved in, they dis-covered that the sub-flooring, which was particle board, had rotted from exposure and mois-ture. The buyers sued the licensee for intentional concealment and won.

Vicarious liability is defined as “a person who is responsible or liable for the actions of an-other person.” Licensees are agents for their broker. Under some circumstances, a broker may be liable for the wrongful actions of a licensee under their supervision.

The theory behind vicarious liability is that the broker should not benefit from fraudulence or misrepresentations of their licensees.

Case StudyPete listed his neighbor’s home. The neighbor lived next door to him. Pete met some buyers who had a daughter in training to be an Olympic swimmer. The buyers were extremely inter-ested in the property if they could build an underground (built-in) swimming pool in the back yard. Because Pete lived in the area, he should have known that much of the development was built on solid quartz rock and there were underground utilities (there were no utility poles or above ground utility wires). He said nothing to the buyers about these two facts. The buyers bought the property and found that they could not build swimming pool because the backyard had solid quartz rock below it and the county did not allow builders to use dynamite on a prop-erty to remove the quartz rock. The buyers also discovered underground utilities running through the backyard which also prohibited them from building a pool. The buyers sued Pete and his brokerage for negligence.

All in all, remember that the contract is what is enforceable by law. Be sure to have all the nec-essary information and not knowingly leave out or misrepresent the facts. Most importantly, your integrity is on the line.

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Now, you have the contact issues under control. So, let’s minimize any other risks involved. In Chapter 2, home warranties, errors and omissions as well as general risk management will be examined. We will also cover a wide range of issues to be aware of when dealing with offers.

CHAPTER LEARNING OBJECTIVES

Upon completion of this chapter, the learner will be able to:• Explain the needs for home warranty and errors & omissions insurance• Implement some very basic risk management strategies• Identify areas of concern when turning offers into contracts

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CHAPTER 2

HOME WARRANTY AGREEMENTS AND ERRORS AND OMISSIONS INSURANCE

Home Warranty InsuranceAccording to the statistics kept by the Errors & Omissions Insurance providers, 60% - 70% of the real estate lawsuits involve disclosure issues or the lack thereof. Many of these issues can be resolved if there is a home warranty insurance policy in place. These policies cover many minor repairs which could become disclosure Issues.

Home warranty insurance, depending on the coverage, could insure such items as:

• Appliances (stoves, refrigerators, dish washers, water heaters, trash compactors)

• Systems in the home (heating systems, electrical systems, plumbing systems)

• Various structural issues (framing members, fences and outbuildings)

• The warranty could also cover the entire house in the case of new construction.

The following are some benefits for the home purchaser:

• Coverage for unexpected home repairs or replacement costs

• Budget/cash flow protection on unexpected repairs

• Coverage regardless of the age, make or model of the appliances.

If it can’t be fixed, it could be replaced (depending on the terms and conditions of the policy) and most insurers provide 24 hour service.

Some of the benefits to the seller are:

• A competitive edge over other homes in the marketplace not offering a warranty

• Value added incentive to attract purchasers

• Purchasers may tend to have more confidence in the home if there is a home warranty pro-vided

• If something malfunctions after the sale, there is less liability for the seller (and the licen-see as well)

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CHAPTER 2 - SECTION 1

HOME WARRANTY AGREEMENTS AND ER-RORS AND OMISSIONS INSURANCE

• Statistically, in most geographic areas, homes listed with a home warranty sell faster and closer to the asking price.

Example #1

Marty buys a home and purchases a home warranty. Three months after moving in, the hot wa-ter heater breaks; this was included in the list of covered appliances. Marty received reimburse-ment for a new hot water heater from the insurer after paying the deductible.

Example #2

Mary buys a home and purchases a home warranty. The bathroom faucet breaks. The cost of the faucet and installation is $80. The deductible on Mary’s home warranty policy is $130. She must pay for the faucet since the deductible was greater than the cost.

The importance of this coverage cannot be overstated, especially in relationship to the number of lawsuits that are created by disclosure issues. Most policies are for one year in duration and are relatively inexpensive (most costing $250-$400 per year). When you consider that cost in comparison to litigation, it is a wise investment. Usually these policies can be purchased by the seller, buyer, their representative or almost anyone.

TIP: Consider purchasing the first year of a home warranty policy for your buyer as a house warming gift. This might be a great risk management tool for you and a practical gift for your buyer.

Errors and Omissions InsuranceErrors and omissions insurance is often referred in the real estate industry as E & O insurance and protects the licensee and the brokerage from just that – errors and omissions. Most states do not require real estate brokerages to carry this insurance; however, many broker-ages choose to purchase this coverage. This is a sound brokerage policy and is especially im-portant should a large claim arise.

Some states have a self-insured system for E & O Insurance that is derived from the original and renewal fee charges to licensees.

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It is important to understand that this insurance does not cover intentional misrepresentation or illegal acts whereby the licensee had knowledge of the wrong doing. Like most insurance poli-cies, there are usually exceptions to the coverage.

These details and terms of the coverage may include the following:

• Limits of liability for each claim

• Limits of liability for each annual period (referred to as an aggregate limit)

• Extended reporting period

• Deductibles

• Exclusions to the coverage

• Types of property to be insured (residential, commercial, property management, business opportunities or vacant land)

• Personal injury

• Subrogation

• Lock box property damage

• Fair Housing coverage

• Pollution coverage (which may include mold, fungus, asbestos, radon, lead etc.)

• Bankruptcy or insolvency of the insured

• Assignment of the policy

• Arbitration

• Terms of cancellation of the policy

• Conformance to state statutes

Two types of coverage are “inside the limit of liability” and “outside the limit of liability.”

Inside the limit of liability coverage includes attorney fees and court costs within the limit of li-ability.

Example—limit of liabilityThe limit of liability for the errors and omissions insurance for XYZ Realty is $1,000,000. It is an inside the limit of liability policy.

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XYZ Realty had a claim for $800,000. The attorney fees and court costs associated with this claim were $300,000.

The claim and the legal fees totaled $1,100,000. XYZ’s limit was $1,000,000. In this scenario, XYZ would have to pay the additional $100,000 out of pocket.

Outside the limit of liability coverage does not include attorney fees and court cost within the limit of liability.

Example---outside the limit of liabilityABC Realty has a limit of liability policy for errors and omissions insurance of $1,000,000. It is an outside of the limit of liability policy. ABC had a claim for $800,000. The attorney fees and court costs associated with this claim were $300,000. The claim and the legal fees totaled $1,100,000. The $800,000 was within the limit of liability and was covered by the policy. The $300,000 in legal fees were also completely covered because this policy was an outside of the limit of liability policy.

It goes without saying, that errors and omissions insurance providers will charge a higher pre-mium for an outside of the limit of liability policy."

In addition, there may be further restrictions and specific procedures should a licensee also be the principal (owner or part owner) of the property. Some insurers charge extra for this cover-age and some will not cover the licensee as an owner.

Each licensee should know exactly what type of E & O coverage that their brokerage carries. If they self-insured they should know the details for this policy as well. Here’s what to ask:

• Does the brokerage have E & O coverage?

• Do the licensees pay the brokerage for this coverage (per transaction or per year)?

• What is the deductible?

• What is the limit of coverage per transaction?

• What is the aggregate limit for coverage for the year or policy period?

• If I sell my own property, am I insured by E & O Insurance? If so, are there any special pro-cedures that I must follow to be insured?

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TIP: Most real estate professionals don’t know the details about their E & O Insurance or if they even are covered by it. Ask your managing broker to see the errors and omissions insur-ance policy that is in place at your brokerage, if you have one. Study it……..ask questions.

Risk ManagementWith the increase in lawsuits over the last few decades, it’s safe to state that we, in the United States, have become a litigious nation. Lawsuits, or the threat thereof, within the real estate in-dustry, are certainly not an exception.

One of the causes, perhaps, is that a party does not have to prove that they were wronged be-fore filing a lawsuit. To complicate this even further, in most jurisdictions, the filing fee is very nominal. So, it becomes quite easy and inexpensive to threaten litigation.

The purpose of sound risk management procedures is to minimize your exposure and reduce your risk of being threatened with a suit. You should emphasize shifting the risk to those pro-fessionals who specialize in a particular field within the real estate industry. In doing so, you’ll also reduce the risk to your brokerage and to your client as well.

Today’s consumers, have increased expectations about the services that we provide as real estate professionals. Mastering some basic risk reduction procedures will assist you in meet-ing, or perhaps exceeding, these expectations and reduce your threat of litigation.

So, what should you do when a client asks you a question that is outside of the area of your training and expertise? You should suggest that they seek counsel or advice from a profes-sional. The list of professionals which support the real estate industry below is not an exhaus-tive list, but rather some common professionals that you may encounter in the industry:

• Real Estate Attorney

• Title Officer

• Tax Specialist or CPA

• Structural Inspector

• Building Contractor

• Environmental Specialist

• Soils Expert

• Pest Inspector

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• Septic System Inspector

• URHOTS (Underground Residential Heating Oil Tank) Specialist

• Surveyor

• Drinking Water Well Specialist

• Toxicologist

• Any specialist in the real estate field

TIP: Whenever possible, try to document, in writing, that you have suggested that your client seek the advice of a professional. Such documentation could be to your advantage should a dispute arise.

The importance having clear documentation regarding any transaction in real estate cannot be overly stated. All licensees should consider the possible threat of litigation in every aspect of a transaction. One of the best ways to protect yourself and your brokerage is to keep clear, ac-curate documentation throughout any transaction. This documentation could be extremely valu-able should a lawsuit arise or in the event of a real estate audit at the state or federal level.

Below are some suggestions for clear documentation:

• Take notes on correspondence with anyone involved in the transaction (buyers, sellers, co-op licensees, lenders, structural inspectors, escrow, title companies etc.). These conversa-tions may be in person, instant messaging, text messaging, e-mail or telephone calls.

• Initial and date all entries

• Present all disclosures and agreements in writing.

• All e-mails pertaining to the transaction should be printed and placed in the file.

• Keep all journals of fax transmittals (to show proof that you sent a fax).

TIP: Most fax machines can be programmed so that an individual journal is produced after each fax transmittal. The journal should be attached to the sent document and placed in the file. If the fax machine in your office is not set up with this feature, check with your broker or of-fice manager to see if an individual journal can be setup. This reduces the brokerage liability as well as yours.

Save hardcopies of all documents pertaining to the transaction. Double check to see that each document has the required signatures or initials.

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Photos can be solid documentation, especially when the issue involves construction and struc-tural components.

Include every component of documentation in the transaction or listing file. Hardcopy documen-tation is always stronger in a court case than recalling events from memory. Oral testimony in court is referred to as parol evidence.

In the United States we pride ourselves on diversity. In doing so, we have many different cul-tures and languages. For many residents, English is not their primary language. Written docu-mentation can certainly be of benefit in clearing up any misunderstanding which might arise in oral communication within a real estate transaction.

Case Study The buyer’s representative was meeting with his buyers and writing a contract to purchase a residential home. He called the listing representative to check on availability. The listing repre-sentative said that yes, the home was available, and that there had been an offer on the prop-erty the month prior, but that the sale fell through only due to financing. The buyer’s represen-tative asked if there had been a structural inspection performed by the first prospective buyer. The listing representative said yes. The buyer’s representative then asked if their seller’s dis-closure statement had been updated to include information reflected in this inspection and the listing representative affirmed that it had. The buyer’s representative made notes on the con-versation with the listing representative. The buyers bought the home and upon occupying the property became very ill. They hired a toxicologist and found very high levels of toxic mold which the neighbors claimed the sellers had known about. The buyer’s representative’s notes became Exhibit “A” in a $2,000,000 lawsuit where the purchasers became the plaintiff and the sellers were the defendant. The licensee’s handwritten documentation was crucial to this law-suit.

Offer BasicsAn offer to purchase a property is just that, an offer. This offer usually contains specific terms and conditions tailored to the property being offered for sale. The buyer making the original of-fer is called the offeree and the seller accepting the offer is called the offeror. When a counter offer is made by the seller, they become the offeror and the buyer becomes the offeree.

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The seller may accept, reject or counter the offer. The definition of a counter offer is when one of the parties makes a change to the original offer. Legally, it is considered a revocation of the original offer. When an offer is fully acknowledged (all parties have agreed and signed and no other changes have been made) and all have initialed and agreed to any prior changes; an of-fer becomes a contract. When this happens, the contract is said to have mutual acceptance.

Case StudyThe buyers made an offer through their buyer’s broker using a preprinted purchase and sale agreement and delivered it via fax to the seller’s representative. The sellers agreed to all of the many terms, except one, and changed the closing date. The sellers initialed the change and the seller’s representative delivered it via fax back to the buyer’s representative. The sellers submitted a counter offer. The buyer’s representative was not able to receive the fax that eve-ning as he was at a football game. During that evening, the sellers received another offer which was $10,000 higher than the first offer. The seller’s withdrew their counteroffer before it was accepted by the purchaser. It is legal to withdraw an offer or counter offer only before the other party accepts it. In this case, the first purchaser was no longer in the contract and the sellers were able to accept the higher offer.

Tip: When withdrawing an offer or counter-offer before it is accepted, a real estate licensee should keep extremely accurate documentation of the timeline, so that there is no dispute as to the timing of the withdrawal. Multiple forms of documentation may be used for this with-drawal, such as phoning, faxing and e-mailing (using all three) and a witness as proof of the timing of the withdrawal.

There are a number of ways in which an offer can be effectively presented:

• In person

• Via facsimile

• Via e-mail

While facsimile and e-mail can be convenient and can offer expedience, presenting offers in person can give a buyer’s representative many added advantages such as:

• Being able to explain the offer and its terms and conditions

• Fully communicate the needs and intentions of the buyers

• Answer any questions that the sellers may have

• “Make a case” and negotiate for the buyer

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• Observe any body language from the sellers or their representative

NOTE: The buyer’s representative has a fiduciary responsibility to their buyer of trust and must act in their best interest. A fiduciary relationship is basically defined as the duty to deal with the client in trust and confidentiality and must act in the client’s best interest.

Before presenting an offer, you, as a buyer’s representative, should take some time to learn as much information as possible about the needs and situations of both the buyers and the sell-ers. If the buyer’s representative has this information, the offer will be more effective and the chance of an unacceptable counter-offer diminishes. You may also have the opportunity to “tai-lor” your offer to fits the needs of the parties.

Offers, Counter-Offer and Multiple OffersFirst, let’s discuss the details of offers and counter-offers and then explain the issues associ-ated with multiple offers.

In most circumstances, an offer to purchase real estate is written by the licensee who is work-ing with the buyer. This contract to purchase, called a purchase and sale agreement (PSA), MUST be in writing. Verbal offers are not enforceable. The requirement that all offers be in writ-ing is known as the Statute of Frauds.

The licensee may be representing the buyer or the seller or both. The licensee must disclose which party they are representing before the offer is made. This is referred to as agency. The licensee could also be representing neither party, in which case this is referred to as no agency.

The offer is then signed by the buyer (another name for signed is acknowledged).

The buyer, in this circumstance, is known as the offeror. And the seller, who receives this offer, is known as the offeree.

The licensee working with the buyer will then deliver the purchase and sale agreement to the seller’s representative or in some circumstances meet with both the sellers and their represen-

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tative. The buyer is almost never present if the offer is made in person. Please see the follow-ing two sections on methods of transmittal for an offer.

The seller has basically three choices:

• They can accept the offer

• Reject the offer

• Counter the offer

Accepting an offerIf a seller accepts the buyer's offer, they are accepting the offer and all of the terms and condi-tions in its entirety. The seller would then sign the offer. At this point, mutual acceptance has occurred and each party is bound by the terms and conditions of the contract.

Rejecting the offer If a seller rejects an offer, they are rejecting the offer and its terms and conditions in its entirety. Usually, the listing representative will draw a line diagonally across all pages of the contract and write in bold writing REJECT. At this point, all negotiations are terminated. This seldom happens since the seller can always counter the offer at their original position.

Countering the offer If the seller wishes to make any changes to the buyer’s offer (even just one minor change) then the seller will line though the item, make the change and initial the change. This is known as a counter-offer. Technically, a counter-offer is a revocation of the original offer. We will dis-cuss this in further detail later.

The counter-offer is then sent back to the buyer. At this point, the seller is now the offeror and the buyer is the offeree.

The buyer then has the following choices:

• Accept the counter-offer

• Reject the counter-offer

• Counter the counter-offer

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If the buyer accepts the counter-offerThen they will initial where the changes have been made and the sellers have initialed. At this point, mutual acceptance has occurred and each of the parties is bound by the terms of the contract.

If the buyer rejects the counter-offer Then the entire contract is rejected and negotiations are terminated.

If the buyer counters the counter-offerThis means that they have made additional changes. The same process takes place as when the seller made a change. The item to be changed is lined out, the change is made, initialed by the buyer and the contract is sent back to the seller.

At this point, the buyer is now the offeror and the seller is the offeree.

This process can go on repeatedly, until all of the terms and conditions of the contract are mu-tually agreed upon. When there is mutual agreement on all changes, then there is mutual ac-ceptance.

In situations where there are many counter-offers, real estate licensees must perform more work as the offer is transferred back and forth between buyer and seller.

Multiple Offers:Multiple offers occur when there is more than one party desiring to purchase a particular prop-erty. The reasons for this occurrence may vary, but the following are some of the most com-mon scenarios:

• Low inventory of homes for sale and many people wanting to buy (supply and demand)

• A property is priced under market value

• Interest rates are low and favorable for buyers

• The seller is offering seller financing to the buyer (this is known as a purchase money mortgage and may allow a greater number of purchasers to qualify for the purchase)

• The property has some very unique quality or reputation (such as a historical landmark or the home of a famous rock star)

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• Zoning is favorable and attractive to investors

A real estate licensee representing the seller has the duty to present all offers to the seller, even if mutual acceptance has occurred with a prior buyer and a contract has been signed. If a seller has multiple offers to view all at once, they will want to compare the desirability of each.

It’s important to remember that you should treat each offer as a whole package when compar-ing offers. Price may not be the only key factor. The strength of the buyer, in terms of purchas-ing power, may be an additional factor. Other important factors would include the amount of the earnest money deposit, desired closing date (especially if the seller is attempting to close concurrently with another property), methods of financing, and contingencies in the contract.

Often buyers will include escalation clauses with their offer if they think there may be multiple offers.

Escalation Addendum to Purchase and Sale Agreement

An escalation clause basically states that a buyer will pay a specified amount of dollars over the highest purchase price up to a specified dollar amount (usually referred to as a cap). The buyer with the best escalation clause will ask for a copy of the next highest offer as proof that their escalation clause was required.

TIP: One or more escalation clauses being present when comparing offers can be a bit compli-cated. The best rule is to take the second to the highest best offer and have the BEST escala-tion clause escalate upon it. If you have any confusion, consult with your manager on the best way to approach this scenario.

Licensees are encouraged to seek assistance from their designated broker or managing bro-ker when dealing with their first transaction where multiple offers or escalation clauses are in-cluded.

So, now you know what you need to include and how to deal with offers. Mistakes? What mis-takes…you’re a pro.

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We’ve dealt with the basics and now it’s on to Chapter 3. In this chapter we look at Agency, Anti-Trust and general business planning in order to better understanding the common pitfalls in each area.

CHAPTER LEARNING OBJECTIVES

Upon completion of this chapter, the learner will be able to:• The different types of agency• The purpose and penalties of Anti-Trust Law• The need of basic business planning

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CHAPTER 3

AGENCY, ANTI-TRUST AND BASIC BUSINESS PLANNING

Agency LawAgency laws deal with the legal rights of the public in dealing with licensees. Most states take these rights very seriously.

In turn, many states have very specific laws and statutes regarding the responsibilities and duties of real estate licensees when they enter into an agency relationship. These laws are strictly enforced and penalties and fines can be imposed.

These laws often define the duties of a licensee, the duration of an agency relationship, how notices should be handled, vicarious liability and dual agency. They also define the duties that a licensee has to their principal.

Mastering the laws relating to agency can reduce misunderstandings and litigation, especially in the areas of commissions through procuring cause, conflicts of interest and representation.

Definitions:• Agent - A person who is employed by another person, has the authority to act for that

person, and has the authority to exercise some discretion while acting for another person

• Principal -The person who hires or appoints a licensee to act on their behalf

• Agency - The relationship between the licensee and their principal

• Fiduciary Responsibility - A duty that a licensee has to their principal which includes, loyalty, disclosure of material facts, confidentiality and trust, accounting of all funds handled (earnest monies) and reasonable care not to be negligent. When an agency relationship is created, the agent is bound by a fiduciary responsibility to their client.

" "

An agency can be created in two different ways:

• Expressed Agency – The creation of an expressed agency can be oral or written, but is usually written

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CHAPTER 3 - SECTION 1

AGENCY, ANTI-TRUST AND BASIC BUSINESS PLANNING

• Implied Agency – An implied agency is created through words or actions

Case Study #1Jolene asks John to list her property and they sign a listing agreement and create a marketing plan. This is an example of an expressed agency.

Case Study #2Jolene has been thinking about selling her property. When Jolene mentioned this to Pete, at her office, Pete said that he may be interested in purchasing this property and would like to view the home that same evening. Jolene calls her friend John, who is a licensee, and asks if John could meet them at her property and assist them. This is an example of implied agency.

Types of Agency• Dual Agency - Dual agency exists when a licensee represents both the buyer and the seller

in the same transaction. Dual agency is legal in most states, but it requires full disclosure and the written permission of both the buyer and the seller

• Agency by Ratification – Once an agency had been established then this form of agency reinstates an earlier understood agreement.

• Ostensible Agency - This agency is formed when a principal allows a third party to believe that an agency exists.

• Agency by Estoppel – When a principal does not stop an individual from representing their interest, they create an agency. The principal failed to prevent (estopped) the agency.

Degrees of Agency• Universal Agency - In this type of agency, the agent (licensee) is given the legal authority to

transact and represent ALL business matters for the principal. One common example of a universal agency would be that of a manager for a professional sports athlete. This licensee may handle negotiations for contracts and compensation with the team, may be responsible for managing all of the player’s investments and may manage any commercial endorsements for the athlete.

• General Agency - This type of agent (licensee) is authorized to act for the principal in a particular business or trade. Some examples of this type of agency would include a sales representative who represents a company in a particular territory, or a real estate licensee who is a general agent for their broker for the purpose of real estate transactions.

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• Special Agent - In a special agency, the agent (licensee) is allowed to perform a specific act or transaction only. Examples of this might include a real estate licensee who is authorized to sell a home for a principal, or a real estate licensee who is authorized to negotiate for a specific buyer on a specific property or an attorney-in-fact who has a specific power of attorney for a particular purpose. So, although being a “special agent” sounds the coolest, it is the most limited.

NOTE: In some states, a written agreement between the licensee and the clients must be in place to establish agency.

TIP: Many licensees find themselves in a position of an undisclosed dual agent. Care must be taken not to allow this to happen. In the next case study, we will explore how this might happen and how to prevent it.

Case Study: Sandy is holding an open house on her listing which is owned by her brother. A woman visits the open house and wants to make an offer. She asks Sandy if she will write up the offer. Sandy wishes to represent her brother solely and does not want to be a dual agent. On the purchase and sale agreement it states that Sandy is representing her brother and that the buyer is representing herself. Even though the potential buyer read on the purchase and sale agreement that Sandy is representing her brother solely, the potential buyer is understanding that Sandy represents her as well, since she is writing up the offer.

Sandy expressed in writing about the agency relationship in the purchase and sale agreement, but she should have also expressed this verbally and used a separate agency disclosure form if one was available.

Anti-TrustAnti-Trust Laws are designed to promote the policy and practice of competition. And although lack of competition may seem like a good idea, some of the symptoms of a lack of competition are higher pricing and diminishing quality of a service or product which is obviously bad for everyone.

Real estate licensees compete with one another to obtain listings for sale. At the same time, they often cooperate with one another to secure buyers for those listings. This dual situation of

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competition and cooperation, which is unique to the real estate industry, can present many opportunities for Anti-Trust violations.

In light of this risk, the National Association of Realtors® has produced a 16 minute video entitled “Anti-Trust and Real Estate” which can be obtained through them. This informative video explains the basis for Anti-Trust laws and how they pertain to you, as a real estate professional.

The foundation for federal Anti-Trust laws is the Sherman Act of 1890.

Section 1. Trusts, etc., in restraint of trade illegal; penalty

“Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.”

Note: The emphasis of this act is to prohibit the restraint of trade to allow for greater competition.

Types of Anti-Trust Violations Three types of anti-trust violations which are most important in the real estate industry

• Conspiracy to Fix Prices

• Imbalanced Commission Splits

• Conspiracy to Boycott

Conspiracy to fix Prices is a violation of both State and Federal Anti-Trust Laws for there to be ANY agreement between competing real estate licensees to fix the prices that each will charge to a third party.

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Examples regarding Conspiracy to Fix Pricing:• Brokerage A and Brokerage B agreed to charge all their clients x % commission on all

listings.

• Brokerage A, brokerage B and Brokerage C agreed to pay a set amount to outside licensees for any referral.

• A licensee tells her clients that the brokerage charges 6% commission on all their listings and that all other licensees charge the same amount as it is a “standard” in the industry.

Licensees need to be especially careful of imbalanced, exploitative splits when cooperating with others licensees on listings.

An exploitative split is one that:

• Minimizes the licensee’s costs of cooperation with other licensees

• Maximizes the licensee’s commission because they sell their own listings

• Maximizes the licensee’s commission when they sell other licensee’s listings

Example of an imbalanced commission split:A listing representative offers 1% to the buyer’s representative who sells their listings. Yet the representative seeks 3% of the commission when he or she sells the listing of other licensees who have 6% total commission.

This splitting structure discourages cooperation from other licensees and increases the likelihood that the licensee can sell their own listing.

The conspiracy to boycott happens when a group of competitors agree not to deal with another firm or when licensees collectively decide not to deal with a third party to eliminate competition.

An important distinction is that individuals each have a right to choose who they will and will not do business with. It is the collective action of a group which is prohibited by Anti-Trust Laws.

Example:

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Over a lunch meeting, licensee A from XYZ Realty and licensee B from ABC Realty agree not to show the listings of ADC Realty. They further state that if no other licensees will show the ADC Realty listings then ADC Realty should be out of business in no time. This is a conspiracy to boycott and eliminate competition.

Penalties for Anti-Trust ViolationsThe U.S. Attorney General may enforce criminal or civil Anti-Trust Violations. Civil action may be investigated by the FBI and criminal actions may be investigated through a grand jury.

The penalties are varied:

• A corporation that is found guilty may be fined up to $100 Million.

• An individual that is found guilty may be fined up to $1 Million or by imprisonment not exceeding 10 years, or both punishments, in the discretion of the court.

• Persons or firms that have been injured by Anti-Trust Violations may recover treble (three times) their actual damages and reasonable attorney’s fees.

• An injunction may be placed to prohibit further activities.

• A complaint filed with the FTC could result in an extensive investigation and a cease and desist order could be placed upon the person or firm in violation.

• The courts may have the right to supervise the business that is in violation for up to 10 years

• It is possible for a brokerage or a licensee to lose their license to practice real estate.

So, as you can see, this is not a situation in which you want to find yourself.

If you have an Anti-Trust problem or complaint, you can contact the Federal Trade Commission at:

Federal Trade Commission

Bureau of Competition-H374

Washington, DC 20580

1-877-FTC-HELP

1-877-382-4357

antitrust@ftc.gov

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General Business Planning

Business PlanLike any other business, a real estate brokerage needs a business plan. This is a detailed daily schedule of the actions that you will take to arrive at an established set of goals. Without a means by which to accomplish your goals, goal setting can become useless.

A business plan serves the following purposes:

• Acts as a road map to reaching goals

• Allows you to look back at your activities and determine if you are “on-track”

• Acts as in indicator of which activities and actions are producing the best results

• Aids in establishing a budget

Establishing a Budget

To be able to execute your business plan, you will need to have a budget. Plan carefully and be realistic about expenses. Make adjustments when necessary (such as an increase in postage or the price of gas). Check this budget often to determine if you are staying within the planned guidelines. If you are over budget, attempt to invent ways to cut back on expenses.

NOTE: Many real estate professionals forget to include insurance as part of their budget. Be sure to include auto insurance, health insurance (if you’re paying the premium) and any other insurance policies that you carry.

Income BufferWhen starting your career as a real estate professional, you’ll need to have an income buffer to draw from before you earn a real estate commission. Even if you were to sell a home the very first day on the job, a typical transaction can take 30-45 days or longer to close. It is highly recommended that you have at least a 2-3 month buffer to be able to meet all of your financial obligations.

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The fact that real estate transactions can be complicated is just the nature of the business. Contributing to these complications is that so many different parties are involved in a typical transaction. These parties can include the sellers, buyers, structural inspector, mortgage representative, title company, escrow (closing) agent and many more. Any problems encountered by any one of these parties can cause a delay in a transaction and can even cause a transaction to fail.

“It isn’t closed until it’s closed” is a phrase you’ll hear often and you should not directly allocate commission dollars until after you have been paid.

Case StudyJoan had a closing scheduled for Sept. 28th. She planned to pay her auto insurance with this commission check. Everything in the transaction had gone smoothly until Sept. 25th when the buyer purchased a new $40,000 car. The monthly payment of $625 caused the buyer’s qualifying ratios to be too high and the buyer could no longer qualify for the purchase. The transaction failed three days before closing.

DisciplineAs an independent contractor, you are the owner of your own business. Your designated or managing broker cannot tell you what office hours that you must keep. You must have the self-discipline to keep on track with your schedule and business plan.

Identify those things in your daily life that are distractions. This is especially true for licensees who are working from their home.

TIP: Many real estate professionals do not have a firm understanding of time management and their daily activities. Pick a day, and make a detailed analysis of your daily activities. Determine what activities are those that promote your success and those which can be eliminated or modified to make you more efficient.

Use of Standard FormsForms are one of the most important aspects of real estate. These forms, when filled out and signed by both the buyer(s) and seller(s) represent a legally binding contract between the parties. The Statute of Frauds states that all real estate contracts must be in writing. Should a

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dispute arise between the parties, a court of law will place more weight on the written contract then on parol (oral) evidence.

Use only standard forms in the exercise of your duties. Such forms must be reviewed and approved by real estate attorneys. Use extreme caution in adding anything to these standard forms.

In Cultum v. Heritage House Realtors, the court ruled that licensees need to take great care in using the standardized forms and must ensure that all additions are in line with the terms and conditions of the contract, or the licensee can be held liable for damages and losses.

According to the ruling, “[An agent] is permitted to complete simple printed standardized real estate forms, which forms must be approved by a lawyer, it being understood that these forms shall not be used for other than simple real estate transactions which arise in the usual course of the [agent’s] business and that such forms will be used only in connection with real estate transactions actually handled by such [agent] as [an agent] and then without charge for the simple service of completing the form.”

Check for understanding of the materialYou are writing up a purchase and sale agreement for your buyer client. Your client may be exposed to a pay cut or lay-off due to some union negotiations. Conversely, he may be eligible for a promotion and a pay increase depending on the union settlement. Your client has written three very detailed paragraphs on this situation and would like it to be a contingency to the contract so that he may not be bound to complete the purchase if certain circumstances should arise. He would like this verbiage to be added to the standard form as an addendum. As the buyer’s representative, what is the best course of action you can take?

A. Encourage the buyer to have their attorney review the purchase and sale agreement and the verbiage that he would like to include

B. Attach a copy of your client’s hand written contingency to the contract and label it Exhibit “A”

C. Rewrite the contingency into the body of the contract

D. Submit the offer to the seller without the contingency and without the buyer’s knowledge

The correct answer is “A.” “Encourage the buyer to have their attorney review the purchase and sale agreement and the verbiage that he would like to include.”

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You made it. You have “observed” the mistakes of others and have been given the necessary tips. No need to make any mistakes of your own. Now good forward and do well!!!

Check your understandingUse this link to open a short unit quiz:https://www.bookwidgets.com/play/G7KKL

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