Sellers: Your agent could land you in court
Originally appeared in Bay Area News Group publications on May 17, 2013
Earlier this year, I counseled buyers and sellers against contracts without contingencies in an article called “Contingency-free Contracts Can Be Dangerous”. Several weeks later I read an article by a licensee that advocated what I had warned against, but did not mention the substantial risks involved with these practices.
This led me to consider a different approach — to appeal directly to sellers and help them see how their agent can get them into really hot water.
A contract disaster
Seller’s markets lead to multiple offer situations. Frequently, two of the bids are attractive enough that the seller will choose to accept one in “primary position” and the other in “backup position.” Handled with the correct forms and language, this is a good concept.
Nonetheless, if the paperwork for the backup offer does not include appropriate clauses, the seller can, unwittingly, be in a position where he has sold the same house to two different buyers. This happens occasionally where the listing (seller’s) agent is inexperienced, sloppy or both and can lead to legal action against the seller.
Second units in a property have to satisfy specific requirements; this must not be taken lightly. If your agent advertises your home as having an “in-law” without researching whether the city has authorized it as a legal second unit, you may end up paying the consequences.
Most worrisome is if, in a fire, someone is badly burned or dies because an illegal rental unit did not meet code for a sleeping room. Clearly, this scenario can lead to tragedy and multiple lawsuits against the seller.
Declaring online, in newspaper ads, flyers and/or the Multiple Listing Service (MLS) that a two-bedroom home is three bedrooms, or that a property with problems is “pristine” can lead to legal claims by buyers against sellers.
Improper or inadequate disclosure advice
Some listing agents do not understand and/or are not careful enough about making sure buyers are provided with proper disclosures. They let their sellers down by not taking the time to review and explain the importance of various disclosure documents and reports sellers are required to provide buyers.
The most important of these is the Real Estate Transfer Disclosure Statement. It is the listing agent’s responsibility to make sure this and other forms are completed fully and accurately by the seller. In addition, the agent is obligated to do his own, reasonably diligent, visual inspection of accessible areas of the house.
Few sellers understand the definition of “material facts” that must be disclosed to buyers. When their agent is equally ignorant of what this means and why it is important, it is a recipe for future seller troubles.
Misidentifying the neighborhood
Listings agents, in their advertising, commonly stretch the truth and say that a property is located in a more prestigious area than it really is. Examples are homes in Oakland’s Upper Dimond neighborhood labeled as being in the Oakmore district, or North Oakland addresses cited as being in Rockridge.
This type of “puffing,” when combined with other inaccurate information or lack of disclosure can be used by attorneys to suggest a pattern of intentional deceit on the part of the listing agent and, by extension, his seller. I encounter this as an East Bay real estate expert witness.
Agents who consistently mislead the public about which neighborhood the house is actually in also lose credibility with their real estate peers and this can harm their marketing efforts.
Choosing buyer’s title company
Buyers pay for title insurance and escrow service and, because of this, are entitled to choose their own title company. In practice, this usually means the one that provides excellent service to their agent.
A Federal law, the Real Estate Settlement Procedures Act, states, “Sellers… are prohibited from requiring borrowers, either directly or indirectly, as a condition to selling the property, to use a particular title company.” This applies to most home sales because the vast majority of buyers need a loan.
Despite this, in the current market, many listing agents state in their MLS “confidential remarks” that they have opened a “pre-escrow” with a specific title company. There are instances where this is appropriate, as when the title company has spent time and resources reviewing and approving trust documents for the seller.
More often, however, the listing agent is leveraging a low-inventory market to use his or her favorite escrow officer and this is not fair to the buyer. In many cases, the listing agent has not even told the seller he has opened a pre-escrow.
In a multiple offer situation, this may cause the buyer to reluctantly agree to use the listing agent’s title company so as not to “rock the boat” and create an objection to his offer. Later, if there are problems with the property or transaction, this can be used in a list of grievances against the seller.
Make sure your agent is fastidious with you about disclosure paperwork. He should be with you while you are completing it. This takes my sellers at least one and a half hours. Also, it is prudent to see the agent’s flyers and MLS information sheet and check them for accuracy.
Paying attention to what your agent is and is not doing can save you aggravation and money in the future.