I'm giving all of the Homefinders.com agents and a few agent friends a holiday gift, a seminar on RISK REDUCTION. Fun, you say??? Well, getting into a situation where the agent and broker is at RISK of losing their license or simply costing a lot of money isn't much fun either. So, I thought I would end this year 2006 with our last meeting of the year and cover RICK REDUCTION - again.
HINTS TO AVOID LOSING CONTRACTS, BUYERS, SELLERS, YOUR LICENSE AND LOTS OF MONEY
TELL THE TRUTH
My procedures for risk reduction are quite simple. Always tell the truth so there is no question about what you said and you don't even have to remember what was said because what you said was the truth and that never changes. Folks who shade the truth have a serious time keeping their story straight. Not a problem when the statements made are always truthful. You simply have to recall what happened, not what you said.
DOCUMENT, DOCUMENT, DOCUMENT
Folks are often receipt crazy when it comes to tax deductions and save a receipt for a 25 cent light bulb for their office, but will not even make a note on the file when they have a disagreement with another agent about critical issues about a contract when there are $Thousands or $Hundreds of Thousands or $Millions of Dollars involved.
Once we have a buyer or seller relationship, a file should be opened with that buyer or seller's name on it and EVERY transaction involved with that buyer or seller should be covered by a document or NOTE TO THE FILE.
Make detailed notes to the file about conversations. Keep note pads handy.
THE CELL PHONE IS NOT ALWAYS OUR FRIEND
Real estate practitioners offer availability as a positive service. However, if that accessibility involves contract negotiation, contract dispute, dates, or any matter that would be better handled by a memorandum to the other party, it is not a good idea to handle delicate or critical matters by phone, especially cell phone while driving. Unless an agent has access to their buyer or seller client file, they are putting their client AND THEMSELVES in serious risk by these impromptu telephone conversations with agents representing the other side. This has nothing to do with friendly relationships. It has to do with not being fully informed about dates, transactions, contingencies, details of an inspection, loan commitment, and a hundred other matters involved in the transaction that involves your buyer or seller client with $Hundreds of Thousands of Dollars, or more, involved. Learn from attorneys. Good attorneys will NOT discuss a matter without the file in front of them. Real estate agents are regularly comparing the professional practice of agents and brokers to attorneys. Yet, we often put our buyer and seller clients AND OURSELVES at serious risk because we use the ubiquitous cell phone for matters that should be done with the transaction file in front of us. It is a good practice to send a memo to the person you had a telephone conversation with memoranizing the conversation.
Memo any agreements made on the telephone. Keep in file.
READ THE CONTRACT
Once all of the terms and conditions have been accepted, if there are ANY questions about procedures, dates, etc., it is very risky for agents to discuss matters without first reviewing the contract. Often the questions asked by buyers or seller will influence our answers. By a careful read of the pertinent part of the contract, our answers to client questions can be accurate and on point. Of course, an agent should always review the contract with a buyer or seller BEFORE they sign. That way, at least the agent has attempted to help the buyer or seller understand what they are signing. However, agents often rush through that aspect of contract signing and don't recognize that the buyer or seller doesn't understand the various paragraphs included in a contract and MAY NOT WANT TO ADMIT that they don't understanding what they are signing. This situation is avoided by doing a routine review of the contract BEFORE a client signs. If the client later has questions, they can be referred to the pertinent paragraph with further explanation. Once a buyer or seller client understands the contract, there will be fewer disagreements. It is often hard for a buyer or seller to understand that what they WANT, unless it is also WHAT THEY AGREED TO IN THE CONTRACT, doesn't have much relevance. The time to be careful is BEFORE the client signs anything. WHAT DOES THE CONTRACT SAY? is my first response to a contract question from a buyer, seller, or agent. The answer to all questions is going to be in the contract, whether the parties involved like the answer or not. Once signed, the contract rules, unless it is changed and that must be in writing and signed by all of the parties.
DON'T PRACTICE LAW BY WRITING ADDENDA
In many years of real estate practice, this broker has seen agent written addenda that would make a first year law student laugh out loud. Our contracts have gotten longer and longer, partly, I believe, to protect agents from the reflex of writing their own addenda. Some common mistakes are:
Contingencies written without ending dates.
Contingencies written without remedy to cure.
Inspection addenda written without supporting inspection report.
Addenda signed by agent or broker for buyer or seller.
COMMON MISTAKES THAT INTRODUCE RISK
** Not describing the buyer's loan terms correctly in the contract. This gives rise to an opportunity for the buyer or seller to declare the contract void.
** Agent failing to monitor loan approval process, documents to lender, etc. This can cause the buyer to lose earnest money if they don't cooperate with lender.
** Agent failing to monitor loan commitment dates in contract. This can cause the contract to become void without written loan commitment by the agreed upon date.
** Failing to monitor inclusions / exclusions in contract. Listing and buyer's agents have to make sure the seller doesn't take property that conveyed and buyer shouldn't expect personal property to convey.
** Listing agents should make DISCLOSURES available to buyers timely. Agents are often anxious to write an offer and if the DISCLOSURES are not available in the house previewed by the buyer, buyers have no opportunity to review DISCLOSURES prior to making an offer. However, DISCLOSURE means that the information
should be available to the buyer before the offer is written. If the disclosure reveals defects, aged systems, deeded covenants, leaks, easements, etc. that would cause the buyer to eliminate the property from consideration, it is negligent on the part of the buyer's agent to write an offer BEFORE the buyer can review disclosures, and it is negligent for the listing agent to neglect to make these disclosures available when prospective buyer preview a property for sale.
** Writing contract offers without knowledge of on-site sewage disposal systems, well output or other information that would influence a buyers decision to buy.
** Not attending termite inspections. If termites are discovered, a buyer's agent must have attended the termite inspection to have first hand knowledge of the damages, if any that will be the subject of treatment and/or repairs.
Termites are not harmless. They will eat cellulose and turn floor joists into sawdust
** Deposit money not deposited timely. Quite often a buyer will want to delay deposit money until they:
Transfer money
Have the home inspection
Get gift money
Look at another property
Deposit money should be deposited as quickly as possible following a contract acceptance. If the buyer isn't ready to commit that deposit money as EARNEST MONEY, they are not ready to make offers. License law requires timely deposit of these funds and brokers and agents should too. Sellers should NEVER be given earnest money unless they are builders and have escrow account arrangements with a title company, attorney or licensed real estate broker. Escrow paragraphs cover agents and brokers, not sellers. If a contract fails, there is no way to force a seller to refund earnest money with out going to court.
** Buyers agents not explaining closing costs to buyers when writing an offer. Buyers agent rely on lenders for detailed explanation of closing costs through the Good Faith Estimate provided by the lender. However, if that document is not available or a lender has not been selected, the agent should (1) review the buyers financial ability to close and (2) explain the costs to the buyers to make sure they understand the money needed to close. If the buyer misrepresents their ability to close, their earnest money is at risk and this should be explained.
** Buyers agents should always explain the risk associated with buyer default. Buyers are often told that their earnest money deposit is not at risk. NOT SO. If the buyer defaults, the seller is usually entitled to the earnest money and often more. Too often agents will mislead a buyer into thinking that they can always get their deposit back because the lender will deny their loan. However, if the buyer's financial ability to buy is understood before accepting the contract, the seller has every right to rely on an honest representation of the buyer's financial ability and willingness to close. Lenders who cooperate with buyer defaults are guilty of misrepresentation at the least.
** Agents do not always review PROPERTY CONDITION DISCLOSURE STATEMENT. This is a common failure of listing agents who (rightfully) give the document to the seller to complete, but participate in seller misrepresentation by omission by not reviewing the document and making sure that it is completed in full. Agents can't and shouldn't participate in providing the property condition information, but should not distribute incomplete documents. Buyers agents should review this document carefully in conjunction with the home inspection report. If there are discrepancies between what the seller DISCLOSED and what the home inspection revealed, buyers agents should know the facts and protect their buyers.
** Avoid giving buyers advice that they don't need a home inspection. That may very well be the case. So often we see buyers pay $350 - $500 for a home inspection that revealed a broken ceiling fixture in the basement equipment room. Cost of repair? Perhaps $7.50. But, if you advise against a home inspection and three months following settlement, the condenser on the AC dies, who is going to be blamed?? Right, the agent. Of course, the AC could have died anyway, but the human nature of a home buyer to believe that they will never need to repair anything will convince them that it was your negligence in not recommending a home inspection that caused them to buy that house without a home inspection. Further, it is always possible that the home inspector would have noted a lack of service on the unit which could have caused the unit to be repaired or replaced before settlement. Home warranty companies do not like to cover equipment when it was not inspected prior to settlement. Warranty companies are insurance companies and they assume that equipment and systems are in operating condition at settlement. Without a home inspection and a thorough walk-through, there is no way of knowing and a warranty company could deny coverage as a "pre-existing condition". They are insuring operating condition, not giving a guarantee for repair or replacement.
The short: Be careful, take your time, cover your bases, keep accurate records, keep your documents in order, don't discuss cases without the file, review disclosures before writing offers, make sure your buyer or seller clients understand what they are signing and, finally, don't practice law.
Now go out and enjoy real estate practice without worrying about how to handle things. Questions, consult your broker. They are at risk too. Lenn Harley, Homefinders.com
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