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THE REAL ESTATE TRANSACTIONS THAT TROUBLE ME

By BILL CHERRY

Real Estate Agent with Bill Cherry, Realtor 0124242

December 21, 2009 01:05 PM

There are three types of real estate transactions I've never been happy about:

Builders being allowed to employ and use as their sales staff, persons who are not licensed real estate agents or brokers.
Builders not being required to use state promulgated contract forms
Attorneys and relocation firms being allowed to gut the promulgated earnest money contracts through long, verbose addenda

When I first received a Texas Real Estate Broker's License in 1964, we were allowed to draft our own contracts, without the assistance of legal counsel. Realtors frequently used a contract format that had been drawn and suggested for use by the Board's legal counsel. However, there was nothing that stopped the agent from lining though, and otherwise amending the contract. And believe me, oft times we wrote and wrote and wrote.

But even worse, the public could get a one page earnest money contract form from a title company, complete it, put the deal in escrow, and close the transaction, with wording like, "the title policy premium will be paid as is customary in the county where the transaction will take place." In Galveston County, it was customary for the buyer to pay the premium. In Harris County, 50 miles away, it was customary for the seller to pay the premium.

Finally at the urging of lenders, underwriters, as well as agents and the public, contractual forms that attempt to treat all parties equally, were promulgated. We're required to use them, unamended, unless the contract we use has been drawn by a state licensed attorney.

The craziness of all of this, though, is that builders are exempt. Consequently, they usually demand that their own forms be used, and that the client negotiate through a sales person who has not proved they are qualified by becoming licensed. The transactions more often than not, are horribly one-sided, favoring the builder.

And on top of that, relocation firms are allowed to append our promulgated forms with multi-page addenda which causes our state approved contract to be impotent. Our contract says all plumbing, electrical and mechanical must be in good working order at the time of closing.

An addendum to that contract that I saw today, that was attached at the insistence of the relocation firm, said anything found not functional after the execution of the earnest money contract was the problem of the buyer. Further, it said that in cases of inconsistencies between the contract and the addendum, the addendum would be favored.

It's past time for the state to clear up these quagmires. It's past time for Realtor associations -- local, state and national -- to aggressively lobby for change.

In the meantime, no buyer should accept these homemade documents and amendments without their being reviewed by legal counsel. And no buyer should ever deal with a new home salesperson without having a licensed buyer's agent there to represent him.

BILL CHERRY, REALTORS

DALLAS - HIGHLAND PARK

Our 45th Year

214 503-8563

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Claude Cross

Homes By Cross, Inc. - Charlotte, NC

Charlotte NC Homes For Sale

Bill - I find that relocation addendums and many builder contracts are heavily slanted against the consumer. Your post is very relevant.

Dec 23, 2009 12:37 AM

Thomas McCombs

Century 21 HomeStar - Akron, OH

Slanted contracts are not going to change unless the other side effictively insists on it. As long as buyers agree those one sided addendums, the sellers will keep doing it. I'd like to see a concerted effort to require that those $100/day penalties for failure to close, for example, be made bilateral.

Dec 23, 2009 01:06 AM

Joetta Fort

The DiGiorgio Group - Arvada, CO

Independent Broker, Homes Denver to Boulder

Agreed - this post is important. It always amazes me that anyone would sign a builder's contract if they read and understood it.

Dec 23, 2009 01:29 AM

Ty Lacroix

Envelope Real Estate Brokerage Inc - London, ON

Bill, you have a valid point and that is why the courts are full of cases. It all depends where you practice real estate and the provincial, state regulations can alleviate some of the problems.

Dec 23, 2009 01:43 AM

Karen Rittenhouse

www.JKKPropertyInvestors.com - Greensboro, NC

Real Estate Investor

Once again, "buyer beware".

As always, its up to us to educate the uninformed buyer.

Dec 23, 2009 02:10 AM

Bill Gillhespy

16 Sunview Blvd - Fort Myers Beach, FL

Fort Myers Beach Realtor, Fort Myers Beach Agent - Homes & Condos

Hi Bill, Nice to see you in the 'Rain again ! Amazing how exemptions can gain a life of their own isn't it ? Hope your Holiday Season is the best ever !

Dec 23, 2009 03:25 AM

Karen Anne Stone

New Home Hunters of Fort Worth and Tarrant County - Fort Worth, TX

Fort Worth Real Estate

Bill: I am sorry... but on the issue of builders and their "sales reps"... I very much disagree with you. Builder's on-site salespeople work FOR the builders. They are selling the builder's homes. They do not make decisions. They have been told by the builder... the owner... what to do, and have been given, and have been trained in putting together all of the different forms that make up the builder's contracts.

I have sold literally hundreds of new homes... and honestly would MUCH prefer to deal with the "typical" builder's rep... than the "typical" real estate agent. Now remember... I am talking "typical." I have met some really knowledgeable builder reps, and some really knowledgeable real estate agents. To simply have a typical "licensed real estate agent" selling homes and representing the builder... would, in my opinion, be inviting disaster.

When selling an existing home... we have a finished product. It is pretty-much "as is" except for what may later be negotiated after a buyer's inspection. Much different from selling most new homes.

And, of course the builder's contract is slanted in favor of the builder. It was drawn up by the builder and the builder's attorneys. And some builders... come up with a new addendum whenever they have just gone through a buyer's lawsuit... or a buyer's attempt at a lawsuit... to address that issue. So... the builder's contract becomes longer.

Builders... typically... will not allow a buyer, or a buyer's agent, to modify their contracts. The builder is the seller, the owner, and it is their product they are selling. If you don't like the contract... buy a different home from a different builder. You can try and negotiate, but usually to little avail.

As an addition here... from reading many of the above comments... it is clear to me that many of the above agents really don't know very much about selling a builder's product.

Dec 23, 2009 03:57 AM

Gene Riemenschneider

Home Point Real Estate - Brentwood, CA

Turning Houses into Homes

The banks are doing the same thing. I agree it is a big problem and the really funny part is I do not think most of those forms are as effective as they think they will be.

Dec 23, 2009 04:30 AM

BILL CHERRY

Bill Cherry, Realtor - Dallas, TX

Broker & Wealth Coach

Well, Karen, I do know about this. You're pointing a finger at the wrong person.

With my partners, we developed several subdivisions in Houston, a couple in Dallas and one at Eagle Mountain Lake in Ft. Worth. Then we built hundreds of homes and about 5,000 apartments.

Is it your position that a licensed agent can't be trained to sell new homes? Is it your position that it is of no benefit to the buyer and the builder for there to be a licensed agent handling the selling? If it is, that makes no sense to me at all.

And just to level the playing field, I NEVER had anyone selling new homes for me OR leasing apartments who was not licensed, and further, all of our homes were listed on the appropriate MLS and we paid the expected commission at closing. It worked just fine. We sold a lot of homes, had only a few minor problems with buyers, and we made a lot of money.

The state either needs to license everyone or license no one. What it does now is totally hypocritical.

P.S. I occasionally write pieces for the conservative blog known as Town Hall, consequently, I have the web site referenced on my AR cover.

Dec 23, 2009 05:34 AM

Karen Fiddler, Broker/Owner

Karen Parsons-Fiddler, Broker 949-510-2395 - Mission Viejo, CA

Orange County & Lake Arrowhead, CA (949)510-2395

I agree.....standards need to be the same for everyone. That's supposed to be the deal...but just look at our Senate, every Senator gets a different perk for their vote. Should be all or nothing, licensing requirements should be no different.

Dec 23, 2009 06:08 AM

Martin E. Kalisker, Esq.

Natick, MA

Real Estate Law From A Practical Perspective

Our local Board of Realtors issues contract templates. We are not required to use them, but if something ever were to go to the Greivance Committee, I'm sure that a non-standard form would need to be scrutinized.

As for what you did back in the 60's, thank goodness you've changed your practices! I can't imagine a non-lawyer writing anything that is contained in a contract or legally binding agreement. That's an unlicensed practice of law!

Dec 23, 2009 06:45 AM

BILL CHERRY

Bill Cherry, Realtor - Dallas, TX

Broker & Wealth Coach

To Whomever at Weichert Realtors, Synergy:

To be sure we clear the air, brokers and agents drafting contracts having to do with the sale and leasing of real estate in Texas WAS NOT an illegal activity, but was an authorized function of the real estate license.

And further, in most states (if not all) there is nothing whatsoever that prohibits two parties from personally drafting and agreeing to a contract that's between them. In other words, there is nothing that prohibits me as a seller from writing up a contract to sell you, as buyer, a piece of property as long as you agree to the terms, and I don't represent myself as an attorney. By definition, that's not practicing law.

Finally, my memory may be cloudy, but I don't think negotiating real estate deals back then were any more screwed up than they are today. Nevertheless, the promulgated forms are the only way to go.

Dec 23, 2009 08:06 AM

Kathy Opatka

RE/MAX CROSSROADS - Ocean City, MD

Serving Ocean City, MD, & The Delaware Beaches

Bill,

We've certainly come a long way with our contracts. I'm not sure if they are BETTER, but they are certainly LONGER!LOL! When I started in real estate in 1986, our contracts were about 8 to 10 pages long. The contact I last wrote had 45 pages!!! Yes, that's correct... 45 pages! And I'm sure there'll be something new to cover in 2010 that will add more pages!

Dec 23, 2009 08:08 AM

Sandy McAlpine

RE/MAX EXECUTIVE - Cornelius, NC

Search Lake Norman Homes For Sale - Lake Norman NC

Standardization would be really nice. Licensed professionals--yes. I have seen too many builder reps make false or inaccurate statements about closings, etc.

Dec 23, 2009 09:28 AM

Lyn Sims

Schaumburg, IL

Real Estate Broker Retired

I would say that the same should be done for RELO addendum's, REO addendum's too. Builders contracts are so one-sided that I've often wondered why the state's legal counsel hasn't thought of going after them yet? Ours in Illinois, has a clause that says they really don't ever have to even build the house! Where are all those consumer advocates out there?

Dec 23, 2009 09:30 AM

Beverly of Bev & Bob Meaux

Keller Williams Suburban Realty - West Orange, NJ

Where Buying & Selling Works

Bill, it was good for me to read this especially since I deal with builders maybe once every two years, thank goodness. I do believe people should be licensed and should use an attorney. I wouldn't personally want to be an agent in states where attorneys aren't used. Call me soft, but I don't want that much liability.

Dec 23, 2009 09:36 AM

BILL CHERRY

Bill Cherry, Realtor - Dallas, TX

Broker & Wealth Coach

With respect to RELO addenda. States merely need to pass a law that does not allow amending their promulgated forms. Instead, if a RELO company wants to put a bunch of junk out there, they are required to hire an attorney, licensed in that state, to prepare a full contract.

Dec 23, 2009 10:46 AM

Dana Devine

Charles Rutenberg Realty - Apollo Beach, FL

i agree...nothing aganinst the builder, but i have often wondered whythe builders got to be different...but they are in the RE bisiness and they should be on the same plaing field as us

Dec 27, 2009 10:32 AM

Wayne B. Pruner

Oregon First - Tigard, OR

Tigard Oregon Homes for Sale, Realtor, GRI

That's pretty much the same situation around here Bill. The public is at greater risk.

Dec 29, 2009 03:48 PM

Charlotte Stilwell

Century 21 Hardee Team Realty - Magnolia, TX

Broker-Associate

I've always wondered about that with builders and it's always bothered me. Your post is right on the money. I've done a lot of relo and I agree there, too. Great blog.

Jan 05, 2010 05:17 AM