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Use the Agreement of Sale, the whole Agreement of Sale

by Goldsmith, James on

I’m currently defending a broker and her salesperson in a failure-to-disclose lawsuit.  My client — a buyers’ agent —  has been accused of failing to tell her clients that mold is not an unusual environmental condition and that they have a right to test for its presence. 

Had the broker used the PA Association of REALTORS® Standard Agreement – all of it – she would probably not have been involved in this suit.  Well, perhaps she would have been involved in the suit — but my chances of getting her out of the suit early would have been better!

During a deposition a few weeks ago, I asked the buyers whether they thought it was important to read the Agreement of Sale that contained all of the terms and defined the rights of the buyers and seller. Didn’t they think that their initials on each of the pages signified their review? When I got to the question about reviewing the Notices provisions relating to inspections, environmental conditions and specifically mold, I got a surprise: the buyers were out of town when they signed the Agreement of Sale and transmission of the form to and from the broker were by fax. The buyers never received the reverse sides of the Agreement and therefore could honestly say that they were not provided with the opportunity to read the mold notice. 

Based on the buyer’s testimony, we know that had they received it they would have read it, called the EPA, undertaken further research, tested for mold, etc.  (Plaintiffs in litigation will always say they would have availed themselves of all of the testing and assessment opportunities had they been properly advised.  In real life, very few people who receive this Notice test or assess for the presence of mold. )

Paragraph 11 (Inspections) specifically addresses the buyers’ right to assess the property for mold.  A more comprehensive discussion of mold is found in the Notices section.  There, mold is identified as a contaminant, the presence of which may be confirmed by tests.  It is this provision to which I will frequently direct the buyer during the course of litigation by having them acknowledge that yes, they received this information and had the opportunity to read and follow the advice given. 

This suit is not going to be won or lost as a result of the agent’s failure to assure that all pages of the Agreement of Sale were reviewed by the buyers with copies provided.  But the failure to prove delivery of the Notice provision pulled from our grasp one very useful defense.  I would be much happier arguing to the jury that not only did the buyers sign the Agreement of Sale with an inspection contingency that allowed for the testing for the presence of mold but also were provided with a lengthy disclosure of the hazards associated with mold and the advisement of having the appropriate qualified expert test for its presence.

The Notices of the Agreement of Sale are not merely inserted for the purpose of giving you a pre-fabricated defense to hold in your back pocket.  The reason the Notices serve as a defense is because they do what agents should be doing: advising buyers of the common pitfalls that may be encountered when purchasing a home and of their ability to choose a course that will eliminate such pitfalls to the extent possible.  One would think that all buyers understand that the presence of mold in any home is a possibility.  Do not, however, overestimate what the average layman understands about environmental hazards or other issues that relate to a home purchase.  The Notices provisions were included in the Agreement for a reason.  Take the time to fax or scan all pages.  By the way, one reason the new Agreement is longer is for the very purpose of accommodating faxing and scanning.  The larger font assures clearer legibility for those on the receiving end of the scan or fax.

Topics

Disclosure Agreement of sale
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Comments (10)

Comments

  • Andrew Wetzel    August 5, 2010 | 9:20 am

    Great advice as always! Also, further proof that we can be our own worst enemy (think Pogo).

    I have always wondered why some of the pages in our contracts have a reverse side while others do not. It can be confusing: if every page had a reverse side we would all be used to it.

    In today’s world, given the excessive use of faxing (some fax rather than drive a few blocks to deliver something but that is another story) and scanning (same principle), I might suggest that ALL forms have a single side to make faxing and scanning easier. Obviously that would increase the number of contract pages (and resulting cost), especially the Agreement of Sale but, frankly, either the Notices are important or they are not.

    What price are we willing to pay to protect our clients and ourselves?

    Just a thought.

    Andrew Wetzel

    Reply to Andrew Wetzel
  • Melanie McLane    August 5, 2010 | 9:33 am

    Jim–a thoughtful and timely post (as usual). As an instructor, I still find agents who have not read the notices; some are surprised to see that the definition of a defect from the Home Inspection Law is there and includes the language that “the fact that a system is at or near the end of its physical life does not constitute a defect”. Many agents don’t take the time to really go through the contract; if they would take the time to go through the contract thoroughly, they would save such a great amount of grief afterward. I keep trying to keep them out of trouble–but I always tell them if they get into trouble, call Caldwell and Kearns!

    Reply to Melanie McLane
  • Steve Sisman    August 5, 2010 | 9:59 am

    Excellent article! This issue could possibly be avoided if more agents used the electronic forms programs. This forms are designed to be single paged, easier to use and more ledgible for presenting to clients. It is our responsiblity to protect our clients to the best of our abilities. Think client first. Steve

    Reply to Steve Sisman
  • Cathy Mackenzie    August 5, 2010 | 11:46 am

    Great article. I will share this with all the agents in my office.

    Reply to Cathy Mackenzie
  • Melissa Sieg    August 5, 2010 | 1:20 pm

    Excellent article and perfect “lesson to be learned” story! While I would agree that more should be using electronic forms as that would take care of everything being one sided, I’m not in favor of the
    pre-printed forms being one sided and therefore a higher cost. Some responsibility has to be taken by the broker and/or agent to do it right!

    Reply to Melissa Sieg
  • Gary Muccio    August 5, 2010 | 2:07 pm

    Jim – Great article as always.

    Over my 17 years of practice I’ve learned so much from you and incorporate your risk management techniques in my daily practice of real estate. I’ve also started to instruct and reference your wisdom often.

    It’s not difficult to practice risk management. PAR does a great job in providing us with the tools. Use the PAR forms – don’t write language – and don’t alter the forms. And, when in a difficult or unique situation, contact legal counsel upfront or advise your clients to do so. It’s a lot less expensive than a law suit!

    Again, many thanks and I’m glad we have you at PAR! Best regards!

    Reply to Gary Muccio
  • Dominic Cardone    August 5, 2010 | 4:39 pm

    Thank you Jim. I could not have said it better myself. We have been preaching this point about the notices always being included in any electronic transmission of the Agreement of Sale for years. Perhaps now that our members can see a real life law suit on the issue, may impress them even more.
    This also brings to mind the related issue of the professional and ethical importance of REALTORS always providing copies to our clients (consumers)of any document they sign when they sign.

    Reply to Dominic Cardone
  • Pat Moyer    August 12, 2010 | 9:27 am

    Great point made for us all whether practitioners or instructors. Reminds me of “for want of a shoe the horse was lost, for want of a horse the battle was lost”. Not intending to predict loss but for want of a copy of the back of a page many people will lose time, and possibly some money, etc. How hard is it to make a copy of the back of a page for those not using electronic forms?? Even my aged home fax machine makes copies. Even if the buyer is out of town using a fax the cost of a few extra pages should never be an issue.

    Reply to Pat Moyer
  • Sharon Kehres    August 12, 2010 | 1:39 pm

    This is a great article and something we should definitely remind our agents to stay on top of. However, I would really like to see an acknowledgement on the part of sellers and buyers on these pages indicating that they, in fact, have seen these pages. I believe with previous versions of this agreement, there was a place for all parties to initial these notice pages. Would it be a good idea to have all parties do that even though it is not specifically required?

    Reply to Sharon Kehres
  • Don Deets    April 15, 2013 | 12:51 am

    Important notice, yet the 12th Ed. of Modern Real Estate Practice in Pennsylvania shows the contract, including the reverse side of the pages and does not include the lines for buyer and seller to initial- unlike the actual agreement. (see pages 405-423)

    Reply to Don Deets

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