Electronic signatures: Convenience with concerns
Originally appeared in Bay Area News Group publications on May 18, 2012
Digital signatures have been legally authorized for over ten years, but rarely used in real estate because of resistance from California banks; however, they are becoming increasingly common.
What is gained in expediency and convenience needs to be balanced by the potential risks of buyers and sellers “speed-signing” without fully understanding the real estate documents they are approving.
Presentation of offers
Personal presentations have been seen as the preferred and most professional way for sellers to receive offers. The selling (buyer’s) agent would normally meet with the seller and listing agent in the listing broker’s office.
The listing agent would confer with the seller, explaining important contract clauses and the counteroffer, if any. Once price and terms were acceptable, the seller would then sign the original contract and counter.
Although this process still occurs, there are fewer personal presentations today because of technology. Instead, offers are now commonly emailed to the listing agent who then forwards them to the seller. It is not unusual for the two agents in an escrow to never physically meet. In fact, I never met the selling agents of my last two listings and I am working on another listing with the same arrangement.
Lack of face-to-face contact
One advantage of the personal presentation is that, as listing agent, I have the opportunity to see how the buyer’s agent functions. Did he arrive on time and bring a contract copy for me as well as my seller? Was the offer well explained or did the other agent spend a lot of time telling my seller about himself and his success rather than about the offer?
Clearly, much valuable information, especially body language, can be lost when the agent-to-agent communication is strictly by email and phone.
If you are a buyer using an agent who is not knowledgeable about the location where you are making an offer, or a seller whose agent is unfamiliar with your area, you are taking a big risk.
As an example, I know an Oakland homeowner who bought during the height of our last seller’s market and worked with an agent who was not familiar with the city. The end result was that he overpaid for the property (even at the time) and he wasn’t told about all the issues he would have to deal with being on one of the busiest streets and, worse yet, directly across from a very active school.
Unfortunately, many non-local agents do their business via phone or email from a distance and not in person, where they can use their eyes, ears and nose to discover problems. In some instances, the selling agent may never have seen the property that is the subject of his offer.
Failure to explain the docs
A real estate licensee has a legal obligation to function with utmost care in his client’s best interests. A large part of this is understanding and explaining the meaning and ramifications of specific documents and clauses within them.
Although failing to inform is an industry issue even when agents and their clients meet in person, processing the paperwork online exacerbates the problem because it allows the negligent agent to spend even less thought and energy on his duties.
Many salespeople simply fill in price, terms, dates on a contract and send it to their buyer for signature with no written or oral clarification. The list of possibly sensitive items is extensive.
For example, some agents, especially in competition, put in contingency dates for appraisal and loan that are unrealistically short. Rarely is the buyer told that he might not be able to meet these obligations required by the contract and that the seller may not agree to extensions. On the flip side, the listing agent may not notify the seller that the contingency dates appear too short.
Dispute resolution and the differences between mediation, arbitration and going to court routinely are given short shrift by agents, especially when handling documents online.
Over the years, I have found that many agents fail to grasp the intricacies of the Liquidated Damages Clause. Even when they are clear about it, real estate salespeople often neglect to adequately cover the pros and cons for both buyers and sellers when they meet in person. When the contract is done long-distance, the likelihood of a thorough explanation diminishes greatly.
Although sellers are not necessarily making a profit, multiple offers are relatively common even in this buyer’s market. A major factor in the buyer’s decision of how much to offer is the number of other offers. In situations that do not involve distressed properties, it is prudent for the buyer to request a personal presentation so his agent can ask how many other offers there are when he meets with the seller.
In scenarios where the multiple offers are all conveyed by email or fax, the buyer will not know the actual number. It is sad that many agents do not explain to the buyer that he may be offering thousands or tens of thousands more than necessary because of a lack of critical information.
Much of what I highlighted above exists whether or not digital signatures are utilized. Nonetheless, proceeding with paperwork online rather than in person makes it easier for inattentive agents to be even sloppier. As a Bay Area real estate expert witness, I anticipate future lawsuits regarding e-signing. Keep this in mind during your next purchase or sale.
Negotiation, Mediation, Arbitration or Court?
What Are Liquidated Damages?