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Weekly Q&As

Is an inspection report a material fact that must be disclosed?

Release Date: 11/24/2015

QUESTION: A listing agent in my firm has been asked by a buyer agent to provide a home inspection report on the property that was done for a previous buyer who terminated their contract on the property.  The listing agent has disclosed in an email to the buyer agent several items of concern addressed in the report that the listing agent considers to be material, but the seller has asked her not to release the report itself.

The buyer agent insists that since the report was sent by the previous buyer’s agent to the listing agent, she must give the report to anyone else who might make an offer on the property. Is the buyer agent right?

ANSWER: We believe the answer to your question is “no.”  In our view, your listing agent is required to disclose any material facts contained in the inspection report but she is not required to disclose the report.  In other words, the report itself (or its existence for that matter) is not a material fact that must be disclosed. 

Having said the foregoing, your listing agent’s seller may want to reconsider their position.  The buyer is aware that the inspection report exists, and even thought the listing agent may have already disclosed any material facts addressed in the report, the buyer may feel that the seller’s refusal to provide the report itself is an attempt to hide something about the property. 

 

NC REALTORS® provides articles on legal topics as a member service.  They are general statements of applicable legal and ethical principles for member education only.  They do not constitute legal advice.  The services of a private attorney should be sought for legal advice.

© Copyright  2015. North Carolina Association of REALTORS®, Inc.  Any unauthorized reproduction, use or distribution is prohibited.  NC REALTORS® Members may reproduce individual articles and distribute them to other members and their clients, provided they are reproduced in their entirety without any modification, including the NC REALTORS® logo, disclaimer and copyright notice. 

 

 

I’m representing a brother and sister who have inherited a condo from a parent who just passed away.  Aren’t the heirs of estate property exempt from the requirement to provide either the Residential Property and Owners’ Association Disclosure Statement or the Mineral and Oil and Gas Rights Mandatory Disclosure Statement to prospective buyers?

Does Buyer's Due Diligence Fee get refunded upon Seller's breach of contract?

Release Date: 11/17/2015

QUESTION:  My buyer paid a $750 Due Diligence Fee to a seller. The parties agreed on a Settlement Date in October. However, the closing attorney discovered a title problem and has said that it will take three months to resolve the issue. The buyer does not want to wait that long to close. I know the buyer will receive his Earnest Money Deposit in this situation. However I am not sure if Seller has to refund Buyer's Due Diligence Fee? What should I tell my client?

ANSWER:  Paragraph 8(g) of the Offer to Purchase and Contract (Standard Form 2-T) obligates Seller to "execute and deliver a GENERAL WARRANTY DEED for the Property in recordable form no later than Settlement." Paragraph 8(n) of Form 2-T states: "If Seller fails to materially comply with any of Seller's obligations under this Paragraph 8... and Buyer elects to terminate this Contract as a result of such failure or breach, then the Earnest Money Deposit and the Due Diligence Fee shall be refunded to Buyer and Seller shall reimburse to Buyer the reasonable costs actually incurred by Buyer in connection with Buyer's Due Diligence without affecting any other remedies."

Keep in mind that Standard Form 2-T gives the seller a little bit of wiggle room in terms of delivering good title to the Property. Specifically, paragraph 13 allows Seller to delay Settlement by as much as 14 days, even without Buyer's consent, as long as Seller intends to complete the transaction, is acting in good faith and with reasonable diligence to proceed to Settlement, and gives proper notice of the delay to the Non-Delaying Party.

As a buyer agent facing this situation, the best way to protect your client is to notify the listing agent, in writing, that your client is ready, willing and able to complete Settlement on the Settlement Date. If Buyer is financing the purchase, your notice should state that all necessary financing is in place.

Once Buyer demonstrates his or her readiness, willingness and ability to complete Settlement on the Settlement Date, Buyer has the legal right to terminate the contract if Seller fails to deliver good title to the Property in a timely fashion. In that event, Buyer would be entitled to recover all of his or her damages incurred as a result of Seller's breach, including a refund of the Due Diligence Fee. 

 

NC REALTORS® provides articles on legal topics as a member service.  They are general statements of applicable legal and ethical principles for member education only.  They do not constitute legal advice.  The services of a private attorney should be sought for legal advice.

© Copyright  2015. North Carolina Association of REALTORS®, Inc.  Any unauthorized reproduction, use or distribution is prohibited.  NC REALTORS® Members may reproduce individual articles and distribute them to other members and their clients, provided they are reproduced in their entirety without any modification, including the NC REALTORS® logo, disclaimer and copyright notice. 

 

 

I’m representing a brother and sister who have inherited a condo from a parent who just passed away.  Aren’t the heirs of estate property exempt from the requirement to provide either the Residential Property and Owners’ Association Disclosure Statement or the Mineral and Oil and Gas Rights Mandatory Disclosure Statement to prospective buyers?

Data security laws and keeping copies of client checks

Release Date: 11/10/2015

QUESTION: Our office has been in discussion about making and retaining copies of Due Diligence and Earnest Money Checks from our clients. We are concerned with the laws on keeping the personal information of clients and customers in a secure manner. Is it required that we keep copies of the checks? Any thoughts or direction on this would be great.

ANSWER: Before answering your question, we’d like to say that you are right to be concerned about the risks of maintaining personal information about your clients and customers.  Bank account numbers on earnest money deposit and due diligence fee checks most certainly constitute personal information under State and Federal laws that impose legal requirements on persons who are in possession of the personal information of a consumer to maintain and dispose of such information in a secure manner.  You should avoid keeping records containing the personal information of a consumer unless it’s necessary, which brings us to your question.

To answer your question, you are required by Real Estate Commission Rule 58A.0117 to “create, maintain, or retain…copies of earnest money checks, due diligence fee checks, receipts for cash payments, contracts, and closing statements in sales transactions” among many other records.  If you do any property management, you would be interested to know that although the Rule requires you to keep copies of security deposit checks, it does not require you to keep copies of tenant rent checks.

We have been told informally by members of the Real Estate Commission’s legal staff that it is not permissible to redact (mark out) bank account numbers on copies of checks that you are required to keep unless the redaction can be reversed.

For more information on record retention and data security laws, check out the Data Security and Privacy Toolkit on the NAR website at www.realtor.org.  Enter “Data Security and Privacy Toolkit” in the search box at the top of the home page.

 

NC REALTORS® provides articles on legal topics as a member service.  They are general statements of applicable legal and ethical principles for member education only.  They do not constitute legal advice.  The services of a private attorney should be sought for legal advice.

© Copyright  2015. North Carolina Association of REALTORS®, Inc.  Any unauthorized reproduction, use or distribution is prohibited.  NC REALTORS® Members may reproduce individual articles and distribute them to other members and their clients, provided they are reproduced in their entirety without any modification, including the NC REALTORS® logo, disclaimer and copyright notice. 

 

 

I’m representing a brother and sister who have inherited a condo from a parent who just passed away.  Aren’t the heirs of estate property exempt from the requirement to provide either the Residential Property and Owners’ Association Disclosure Statement or the Mineral and Oil and Gas Rights Mandatory Disclosure Statement to prospective buyers?

Does my firm need copies of my buyer agency records even if my client's offer is not accepted?

Release Date: 11/03/2015

QUESTION:  I have been in real estate for over 10 years and am now with my third company. I have never had to turn in buyer agency forms to my broker-in-charge unless my buyer client actually entered into a contract to purchase property. My new company is insisting that I turn in a Buyer Agency Agreement and a Working With Real Estate Agents brochure even if my client's offer is rejected. Is there any obligation for me or my firm to retain records like that even when there is no completed transaction?

ANSWER:  Subsection (i)(5) of the Real Estate Commission’s broker-in-charge rule (A.0110) states that a broker-in-charge shall assume the responsibility for "the retention and maintenance of records relating to transactions conducted by or on behalf of the firm at such office" including those records required to be retained pursuant to the Commission’s record retention rule (A.0108).

The language of the record retention rule also speaks in terms of "transactions". It states: "Brokers shall retain records of all sales, rental, and other transactions conducted in such capacity, whether the transaction is pending, completed or terminated prior to its successful conclusion."

But what if your records don't relate to a transaction, but merely to a relationship that resulted in an unaccepted offer? In the published materials for its 2012-2013 broker-in-charge annual review, the Real Estate Commission made it clear that the buyer agency records still need to be retained. The course materials expressed the requirement this way: "If the company is acting as a buyer/tenant agent, a broker-in-charge should never see a transaction file that has 1 or more offers in it, but no written buyer/tenant agency agreement. (If that happens), the broker-in-charge should immediately confer with the agent handling the transaction to correct the omission. Failure to do so may result in disciplinary action against both the individual agent and the broker-in-charge, as well as possible forfeiture of any commission."

The bottom line is that your broker-in-charge has an obligation to confirm that all of the agents in your office are getting a Working With Real Estate Agents brochure signed each time there is "substantial contact" with a prospective buyer or seller. Similarly, your BIC must insure that written agency agreements are in place in a timely fashion, even if no transaction ever results from the agent's efforts. The only way to meet these requirements is to require buyer agency records to be retained, even in the absence of any signed purchase or lease agreement.

 

NCAR provides articles on legal topics as a member service.  They are general statements of applicable legal and ethical principles for member education only.  They do not constitute legal advice.  If you or a client requires legal advice, the services of a private attorney should be sought.  Always consult your broker-in-charge when faced with a question relating to the practice of real estate brokerage.

© Copyright  2015. North Carolina Association of REALTORS®, Inc. All rights reserved. No reproduction of any part may be made without the prior written consent of the copyright holder. Any unauthorized reproduction, use, disclosure or distribution is strictly prohibited.

 

 

I’m representing a brother and sister who have inherited a condo from a parent who just passed away.  Aren’t the heirs of estate property exempt from the requirement to provide either the Residential Property and Owners’ Association Disclosure Statement or the Mineral and Oil and Gas Rights Mandatory Disclosure Statement to prospective buyers?

Does the buyer agency agreement cover post-closing construction of a home?

Release Date: 10/27/2015

QUESTION: I represented a buyer who recently closed on a lot that she plans to build a new house on.  When she hired me, it was understood that I would help her with both the lot purchase and getting her lined up with a builder to build the home.  I have an Exclusive Buyer Agency Agreement (form 201) with the buyer.  Is that sufficient or do I need to get anything else signed?  Also, should I get the parties to sign an Offer to Purchase and Contract—New Construction (form 800-T) to cover the construction of the home?

ANSWER: The answer to your first question is most likely “yes” and the answer to your second question is a definite “no.”

As to the first question, the Exclusive Buyer Agency Agreement is not really designed to address compensation of a buyer agent where improvements are going to be made to the property after the sale of the property closes.  The manner in which the agent is compensated is inserted in the blank in paragraph 4(b).  It is typically filled in to provide for a fee based on a percentage of the purchase price of the property, with the fee payable at closing. The sales price of the property would be the price of the lot but not include the value of improvements made following the closing. 

If the agreement between the buyer and the buyer agent is that the buyer himself or herself is going to pay the buyer agent a fee based on the value of the property plus the post-closing improvements, the blank could perhaps be completed in a way that would work.  However, in our experience, it is typically the builder, not the buyer, who pays the agent a fee for improvements the builder is going to make for introducing the buyer to the builder.  Assuming that is the case in your situation, you need to have a separate agreement with the builder that addresses what the compensation will be, when it will be deemed earned, and when it will be paid.  Also, in order to comply with the Real Estate Commission’s compensation disclosure rule, you should disclose to the buyer in writing your compensation arrangement with the builder and the amount of compensation you expect to receive for referring her to the builder.

Regarding your second question, as set forth in the bracketed statement immediately under the name of the form, the Offer to Purchase and Contract—New Construction is for use when a licensed contractor is constructing or will construct a “spec” or custom single-family dwelling on land owned or to be owned by the contractor and then convey the improved land to the buyer. It is not for use when the buyer owns the land.  In your situation, there is no sale of land as between the builder and the buyer. The builder may well have its own construction contract; if not, the parties should be advised to consult an attorney to prepare one.

 

NCAR provides articles on legal topics as a member service.  They are general statements of applicable legal and ethical principles for member education only.  They do not constitute legal advice.  If you or a client requires legal advice, the services of a private attorney should be sought.  Always consult your broker-in-charge when faced with a question relating to the practice of real estate brokerage.

© Copyright  2015. North Carolina Association of REALTORS®, Inc. All rights reserved. No reproduction of any part may be made without the prior written consent of the copyright holder. Any unauthorized reproduction, use, disclosure or distribution is strictly prohibited.

 

 

I’m representing a brother and sister who have inherited a condo from a parent who just passed away.  Aren’t the heirs of estate property exempt from the requirement to provide either the Residential Property and Owners’ Association Disclosure Statement or the Mineral and Oil and Gas Rights Mandatory Disclosure Statement to prospective buyers?