What You Shouldn’t Be Doing in Real Estate
In your real estate career, there may be some gray areas where you are really not sure if you should be doing something. Or maybe you know better, but think it’s OK to just sneak something in. Spoiler alert: It’s not.
Yesterday, the attorneys of PAR’s Legal Hotline presented a webinar on what agents and brokers should not be doing. Based on real calls to the PAR Legal Hotline, the attorneys addressed some common issues that are frequently asked and how Realtors® can save themselves some headaches.
PAR Chief Legal Officer Hank Lerner said the basics are don’t act too quickly, don’t discriminate, don’t blindly waive, don’t make assumptions and don’t mess around with money.
Don’t act too quickly.
Just because someone thinks they are going to be the executor of an estate does not mean they are. “Estates doesn’t exist until they exist. There is a process to get an estate after the owner dies. There is paperwork and a process. Until the executor has the paperwork, they cannot sign for the estate because the estate does not exist. You cannot sign a real estate contract just trusting someone will be the executor. Until the estate is set up, it is not binding. Get all the paperwork before moving forward,” he said.
Additionally, if more than one person is listed as an owner on the deed, you need everyone’s signature. It’s not uncommon for one owner to try to list the home without the other’s knowledge or permission. If it’s two spouses and the marriage is ending in divorce, you need that paperwork as well, said Lerner.
“Don’t try to get creative with assistance animals. You cannot put in an ad that there are no support animals allowed, that is discrimination,” said Associate Counsel Kacy Clouser. PAR offers many resources on the topic.
Assistant General Counsel Desiree Brougher added that businesses are people too. “Discrimination can occur in a commercial transaction as well,” she added. “Segregation is discrimination. For example, we get the ‘creative’ commercial owner who wants to refuse a lease or to charge higher rent to someone who wants to put in an Indian restaurant because they consider it smelly. That is a potential problem when the owners/operators of the restaurant are in a protected class.”
Don’t blindly waive.
“A lot of buyers have gotten creative with their offers to make them more enticing,” said Associate Counsel Brian Carter. But there are several things you legally cannot waive on behalf of your buyer.
“Buyers cannot waive reviewing HOA documents. Pennsylvania law says you have five days to review,” said Carter. “Buyers may also try to waive lender financing requirements, like an appraisal. You cannot waive that, it is a lender requirement. Municipal inspection is another one. A lot of these deal with sewer lines and can be very expensive to repair. You cannot negotiate those inspection requirements, though you can likely negotiate which party will be responsible for addressing them.”
For tenants, landlords often want to know how much they can charge as a security deposit. “The maximum you can hold is two months of rent in that first year. That is the law. You have 30 days to return a deposit once the person leaves. You cannot negotiate that period of time. If you try to waive items or negotiate; you can get yourself in trouble as an agent and also your broker,” Carter said.
Lerner added that many buyers have been waiving inspections and then still trying to bring an inspector through the property. But you cannot waive an inspection and then claim a right to do that inspection. You also can’t waive an inspection and then try to justify terminating the Agreement of Sale based on the language of that waived contingency.
“There are many buyers who waived the mortgage contingency, but still need a loan,” he continued. “If you waive the contingency, you are waiving that protection. If you waived the contingency and were denied a mortgage, you will not get your deposit back.”
Don’t make assumptions.
“You need to confirm the deposit; there are a few problems with not confirming the deposit,” said Clouser. “It can be a problem for both the seller and the buyer, especially when brokers refuse to hold deposits and not inform the clients. Title companies and/or attorneys are not required to follow the same rules, so be sure to get an escrow agreement signed, so that the parties know the terms for holding and releasing the funds.”
It’s also pivotal to make sure that both the buyers and sellers know what is included in the sale and not just assume.
Brougher added, “If it’s in the MLS, that does not mean it’s in the sale. Please think of what is in the MLS as a starting point for negotiation. If the listing says there are brand new stainless steel appliances, they still must be included in the Agreement of Sale if the buyer wants them as part of the transaction.”
The same holds for the seller disclosure form, which clearly states right in the form that listed items are not automatically included in the transaction, said Brougher.
“Put everything in writing, even if it seems obvious. It will save you so much trouble in the long run. Listing agents should also review and make sure the buyers didn’t write something in,” she added.
Also, own your knowledge. Clouser advised telling your clients you don’t know the answer instead of making up an answer. “It’s OK to say you don’t know. These issues can range from what utilities are to what is included in the sale to when trash pickup is. False information causes a crack in the trust.”
Don’t mess around with money.
Carter said do not allow your clients to agree to pay for something without the knowledge of what it will cost. “We have seen a lot of these with appraisal gaps. On inspection repairs, the clients agree to the costs, but if there is a problem with the septic system, that could be tens of thousands of dollars. There has been an uptick with buyers being willing to take care of any municipal inspection issues. If a whole sidewalk needs to be repaired, it can be costly. You need to have these discussions before your buyers or sellers agree to it.”
He added it’s suggested to get at least two opinions, if not three.
As for fees, Lerner said you must disclose your fee in advance. He reminded attendees that Realtors® cannot advertise their services as free, unless they are getting no compensation at all, but that brokers or agents may end up working for nothing if they don’t properly fill out the fee section of a buyer agency contract. He went on to note that the Code of Ethics states a listing broker cannot unilaterally modify their offer of compensation to buyer brokers, and that brokers should not be negotiating cooperating compensation in the body of the Agreement of Sale.
Finally, Lerner ended with a plea to brokers to work with their agents before sending them to the PAR Legal Hotline.
“We get a fair number of calls from agents who tell us that their brokers told them to call the hotline first,” he said. “The hotline is not an outsourced training facility. We are here to figure out the answer to things that a broker and agent cannot figure out together.” PAR’s extensive resources (including those linked in this article) answer many of the most common questions and are a great starting point for all members before they consider calling the hotline.