Writing the Contract and Escrow Duties of the Trust Agent,  Chapter 4 of 8

* * * *  HARD CORE REAL ESTATE TALK * * * *

LENN IS PAID FOR WHAT SHE KNOWS, NOT FOR WHAT SHE DOES!

Reference is made to the recent posts of Gary Bolen and comments thereto by Bob Stewart about agents getting the message out describing [justifying] the services provided to home buyers.   

Specifically, Bob Stewart suggested that we write about the duties outlined in my post of November 11, 2006:

1.  Make the appointment
2.  Show the home
3.  Provide the required disclosures
4.  Write the contract and escrow
5.  Manage financing for the buyer
6.  Manage inspections
7.  Manage the title work
8.  Schedule the settlement and manage settlement services   

Today's chapter describes the Buyer's Agent's duties in writing the Contract of Sale when the seller is a FSBO.

DUTIES OF A BUYERS AGENT SELLING A FOR SALE BY OWNER "FSBO". Chapter 4,
Writing the Contract and Escrow.

CONTRACT OF SALE.  In states where the Buyer's Agent prepares the Contract of Sale, care has to be taken to make sure that the FSBO Seller has sufficient time to read the Buyer's offer and time for an attorney to review the contract if the Seller requests.  For FSBO contracts, a time limit for response is recommended because the FSBO Seller, while they are anxious to save the listing fee by selling their property themselves, may not understand the Contract of Sale and required disclosures, even when they shake their head up and down and say that they do understand.  The risk to the Buyer's Agent is to try to give the seller the facts of the offer without providing any agency level advice to the seller.  ADVISING FSBO SELLERS IS NOT OUR JOB AND IS RISKY.  It's always best if the seller gets advice from their own representative, be it an attorney or a broker/agent that they hire to advise them on the sale under a Limited Agency Agreement, Fee For Services, etc.  Dual Agency is an ugly monster and the cause of many law suits against agents and brokers. 
 

PRESENTING THE OFFER TO A FSBO.  CAREFUL! ! !   Present the facts, the terms and conditions of the contract offer.  We do not offer opinions about any of the terms and conditions to the seller.  Save agent opinions for your buyer client with whom you have an agency representative agreement.  Present the seller with the contract and, if convenient, go over the contract in it's various components:

• Property Address
• Date of Offer
• Price
• Payment Terms; Earnest Money and financing terms
• Closing Cost Credit from the Seller to the Buyer, which can include the Broker Fee. 
• Settlement Date
• Inspections, property and termite
• Inclusions/Exclusions
• Property Condition Report
• Termite Treatment and Repairs, if any
• Walk-Through Terms
• Transfer and Recording Taxesn if any
• Warranty, if any

 

PREPARE THE SELLER FOR THE FINANCIAL ALLOCATIONS.  Make sure that the FSBO Seller understands the terms and conditions and that all buyer credits will be paid from the seller's funds at settlement.  Preparing a Seller's net sheet will show the Seller how and how much they are expected to pay which can include:


 

• Transfer Taxes
• Recording Taxes / Stamps
• Buyer's Credit.  This is important because it can include the broker fee.
• Settlement costs to Seller, if any. 
• Inspection fees for septic, well, etc.

The Escrow procedures should be explained to the Seller because, in case of default of the Buyer, the Seller will expect that the deposit money will be handed over to them.  The matter of Releases should be explained without violating any confidentiality of the Purchaser/Client.  In many states, the Escrow Money will be held in the Buyer's Broker's Escrow Account.  At settlement, that money is credited towards the Buyer's closing costs and any excess returned to the Buyer.  The matter of the broker fee will be included in the HUD-1 as a payment by the Buyer or Seller, depending on the agreement between the parties as to who pays the broker fee.  Never permit a Seller to hold the Buyer's Earnest Money Deposit. 

When we sell a FSBO property, we require, as a condition of sale, an Agreement of Release signed by the seller that, if the Buyer voids the contract based on the Home Inspection Report, Termite Inspection Report, Financing contingency or any other reason for the Buyer to void the contract, the Seller understands that the Buyer's money in escrow is returned to the Buyer.  Experience has shown that FSBO sellers, while they are interested in saving the listing fee, seldom understand matters of escrow, inspection contingencies, etc. and it the Buyer's Agent can protect their Buyer's Escrow money with some planning and explanation (not advice) to the FSBO Seller.  Escrow money distribution is controlled by license law and few FSBO Sellers will understand the real estate license law. 

If the Seller signs without an attorney review, the agent should immediately make copies and provide one to the Seller.  A fully executed copy should also be provided to the Buyer and to the Title Company or Closing Attorney.  Most real estate contracts are fairly self executing and one agent, either the Buyer's Agent or a Seller's Agent can manage the transaction.  The one aspect of the real estate transaction that is missing when one party to the contract is a FSBO is that the Buyer's Agent must be careful to provide information to the Seller and reserve advice to their Buyer Client.

We will deal with the seller honestly and truthfully.

We will advocate for our buyer/client.