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Weekly Q&As

Is the cost of a home warranty a buyer expense that seller is obligated to pay?

Release Date: 5/19/2015

QUESTION:   Recently, two agents in our office expressed different opinions about whether a buyer could include the cost of a home warranty in the buyer's expenses that the seller agreed to pay at settlement. In the transaction in question, the parties agreed (by checking the appropriate box in paragraph 10 of the Offer to Purchase and Contract) that no home warranty would be provided by the seller. In paragraph 8 (h) of the contract, the parties agreed that the seller would pay at Settlement $3,000 toward any of buyer's expenses associated with the purchase of the property. In a situation like this, can the buyer purchase a home warranty and include the cost of that warranty in the expenses to be paid by the seller at Settlement?

ANSWER:  Yes. The fact that the parties agreed, in paragraph 10 of the contract, that the seller would not purchase a home warranty does not affect the ability of the buyer to include the cost of a home warranty in the list of expenses that the seller must pay at Settlement.

Paragraph 8 (h) of the standard purchase contract (Form 2-T) expressly states that Seller will pay the agreed-upon amount (possibly zero) "toward any of Buyer's expenses associated with the purchase of the Property... less any portion disapproved by Buyer's lender." What are expenses "associated with" the purchase of the Property? Several examples are listed in paragraph 8 (h). While the examples do not include the premium for a home warranty, that premium is well within the definition of an expense that is "associated with" the buyer's purchase.

Paragraph 10 of the standard contract requires the parties to reach an agreement regarding the purchase of a home warranty. Whatever agreement is reached in paragraph 10 is wholly independent of any agreement by the seller to pay some portion of the buyer's expenses. Paragraph 10 has three check boxes reflecting three distinct  options. The option selected in your example states that the seller will not purchase a home warranty and provide it to the buyer. That selection does not relieve the seller from his agreement, in paragraph 8 (h), to reimburse the buyer for the cost of a home warranty purchased by the buyer.  

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.

 

 

Can a lender pay for the costs of an open house?

Release Date: 5/12/2015

QUESTION:  A lender I regularly refer clients to has offered to pay for the cost of an open house luncheon I plan to hold for other agents.  Is there any problem with this?

ANSWER:  Yes, potentially.  The Real Estate Settlement Procedures Act (“RESPA”) prohibits settlement service providers from giving anything of value in exchange for referrals of business.  A settlement service includes any service provided in connection with a real estate settlement, and a lender is clearly a settlement service provider.  By defraying the costs of the luncheon that you would otherwise incur, the lender has arguably given you a thing of value in consideration for the referral of business. Both the lender and you could be held responsible for a RESPA violation.

If, however, the lender attends the open house and gives a brief presentation, or prominently displays a sign indicating the lender’s name and distributes brochures about the lender during the open house, there is a reasonable argument that this activity is an acceptable form of advertising rather than a payment to you for the referral of business.

This and other RESPA-related issues are addressed in a “RESPA FAQ” on the NAR website, accessible by clicking here, and in a “FAQs about RESPA” on HUD’s website, accessible by clicking here.

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.

 

 

How does my client assign his rights under a purchase contract?

Release Date: 5/5/2015

QUESTION:   I have a client who is under contract to purchase some residential property. He wants to assign his rights  under that contract to a family member. Can he do that? If so, is there a standard form that should be used to effect that assignment?

ANSWER:   Under North Carolina law, contracts are considered "freely assignable" unless the assignment is prohibited by statute or by public policy or by the terms of the contract. One example of a public policy against assignments are contracts involving an element of personal skill. If a venue hires a musician to perform a concert, the musician cannot freely assign that contract to another musician to perform in his or her place. In contrast, there is no statute or public policy that limits or restricts the assignment of a contract to buy and sell residential real estate.

However, the inquiry does not end there. The standard Offer to Purchase and Contract (Standard Form 2-T) has a paragraph directly addressing the issue of Assignments. Paragraph 16 states that the contract may not be assigned without the written consent of all parties (except in connection with a tax-deferred exchange). North Carolina courts have held that provisions like this one (i.e. that forbid assignment of the contract without the consent of the other party) are valid and enforceable.

Assuming that the seller in your transaction gives written consent to the assignment, the next step is to make sure that the assignment is prepared in proper form. NC REALTORS® has not adopted a standard assignment form because the issues involved in every assignment are complex. Perhaps most important, the parties must agree on whether the assigning party (called the assignor) will remain liable under the contract if the person to whom the contract is assigned (called the assignee) fails to perform. Unless the assignment agreement provides otherwise, the assigning party will remain liable for the performance. To be sure that the issues of liability are properly addressed, you should advise your client to speak with an attorney who can explain the issues involved and draft the appropriate document.

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.  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.

 

 

Can a buyer submit multiple repair requests during the due diligence period?

Release Date: 4/21/2015

QUESTION:   I am the Broker-in-Charge at my firm. One of my agents has a property under contract for some buyer clients. He wants to submit a Due Diligence Request and Agreement (standard form 310-T) to the sellers before all of the buyers' inspections have been completed. As long as the due diligence period has not expired, can the buyers submit more than one Due Diligence Request to the sellers? For example, can the buyers submit one such request for each inspection if they are attempting to get answers early on for some of their repair requests?

ANSWER:   Absolutely. Even if the sellers agree to the buyers' first request for repairs, that would not limit the ability of the buyers to request additional repairs during the due diligence period, and to terminate the contract if an agreement concerning those repairs is not reached.

The "NOTE" at the end of paragraph 1 of the Due Diligence Request and Agreement states that unless otherwise agreed, the buyer retains the rights agreed to in paragraph 1 (j) of the Offer to Purchase and Contract. This language is intended to confirm that the buyer retains the right to terminate the purchase contract for any reason or no reason even if the seller agrees to the repairs requested. The Guidelines for completing form 310-T (standard form 310G) express the intention of the "NOTE" as follows: "It is important for the parties to understand that unless the parties agree otherwise, the execution of (form 310-T) by the parties does NOT extinguish the Buyer's right to terminate the Contract for any reason or no reason prior to the expiration of the Due Diligence Period set forth in paragraph 1 (j) of the Contract."

Since your buyer clients have retained the right to terminate the contract even though the sellers have agreed to certain repairs, they certainly have the right to demand additional repairs, and to terminate the contract if the seller refuses their request. For any repair requests submitted after the first one, we do have a suggestion about wording: in paragraph 1 of form 310-T, the pre-printed words state: "Based upon Buyer's Due Diligence, the Buyer requests and the Seller agrees to the following:" The first words you should insert on the blank lines should be "additional repairs:" That will make it clear that the repairs being requested in the second (and third, etc.) requests are in addition to, and not in place of, the original repairs requested by the buyers.

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.

 

 

Does a buyer have the right to cancel a contract for a new condo or townhome?

Release Date: 4/28/2015

QUESTION: On the sale of a new condominium or townhome, I understand a buyer has the right to cancel the contract for 7 days.  Is that 7 business days or 7 calendar days?  If the buyer cancels, does she or he have the right to a refund of her or his earnest money deposit?   

ANSWER: Regarding the first sale of a new condo, your understanding is correct.  Section 47C-4-108 of the NC Condominium Act gives a purchaser the absolute right to cancel the contract to purchase for a period of seven calendar days following the execution of the contract.  The statute goes on to provide that any such cancellation is without penalty, and that “all payments made by the purchaser before cancellation shall be refunded promptly.”  Thus, the buyer would be entitled to a refund of any earnest money deposit he or she had paid.

Your understanding about the right of a buyer to cancel a contract for a townhome is incorrect, assuming that the “townhome” is not a condominium.  By way of explanation, we quote from Chapter 1 of the Real Estate Commission’s North Carolina Real Estate Manual: “The name “townhouse” actually derived from the architectural style typically seen with the townhouse form of property ownership…It is entirely possible that a complex with units that have the townhouse architectural style could be, with regard to the form of ownership, a condominium complex rather than a townhouse complex.”  Thus, if the “townhome” is organized as a condominium, the 7-day cancellation right would apply.  However, if the townhome is not a condominium, there is no consumer protection available to the buyer that would permit cancellation as there is under the Condominium Act.

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.