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Legal Quiz: Will’s All-Time Top Ten Questions

BY WILL MARTIN, GENERAL COUNSEL

In commemoration of the 100th anniversary of NC REALTORS®, I wrote this article to reflect the top ten questions I’ve fielded through the Legal Hotline during my twenty-five years at NC REALTORS®. It was a really hard thing to do—so many questions! What I’ve done is list the most common categories of questions I’ve gotten over the years (in no particular order of importance), pose a question representative of each category, and identify two or three relevant Legal Q&As, which can be found on the NC REALTORS® website. Just for fun and as a nod to history, I’ve included an eleventh category of questions that I used to get all the time, but don’t get any more.

CATEGORY #1: Buyer’s right to refund for misrepresentation/omission of material fact

(This type of question has been around a long time, but is coming up more now due to the size of due diligence fees that are being paid.)

QUESTION: Does a buyer have the right to a refund of their Due Diligence Fee if the property is misrepresented by the listing agent or seller?

ANSWER: As a general rule, a seller doesn’t have to disclose anything to a buyer about their property, which is why the “no representation” option appears on the Residential Property and Owners Association Disclosure Statement. However, a seller could potentially be held liable for any damages the buyer can prove they have sustained as a result of the seller misrepresenting the property in a material way or actively hiding some defect about the property, or for failing to disclose a latent material defect that would not be discoverable by the buyer in the exercise of reasonable diligence.

A seller is also bound by his agent’s material misrepresentation of the property to the same extent as if he had made the misrepresentation himself; thus, a buyer may potentially have recourse against both the listing agent/listing agent’s firm and the seller for recovery of their DDF if the listing agent misrepresents the property.

• A seller’s duty to disclose latent material defects Category: Disclosure

• Can a buyer recover the due diligence fee based on a listing agent’s misrepresentation? Category: Disclosure.

CATEGORY #2: Has a binding contract been formed?

(This category of questions is as old as dirt.)

QUESTION: Buyer agent submits signed written offer on Form 2-T to the listing agent. After communicating with the seller, listing agent texts buyer agent to inform her that the offer is acceptable to the seller and that as soon as the seller sign it he will email her a signed copy. If the listing agent later notifies buyer agent that the seller has decided to accept an offer from a second buyer, may the first buyer claim that there is a binding contract between the seller and the first buyer?

ANSWER: The first buyer can certainly claim they’ve got a binding contract, but I think they would lose the argument in court. Why? For a couple of reasons: one, the text from the listing agent to the buyer agent didn’t bind the seller because agents don’t generally have the authority to make contracts for their clients; two, the offer was not signed by the seller as required by the express terms of the offer.

• Do agents have the authority to make contracts for their clients? Category: Contract Law

• Authority of Agent to Bind Client to Sales Contract Category: Contract Law

CATEGORY #3: Assistance animals

(This one made the list due to the dramatic increase in frequency of questions in this category in the past several years.)

QUESTION: Is a landlord who has a “no pets” policy required to let a tenant keep a dog or other domestic animal on the property for emotional support?

ANSWER: Very likely yes, assuming the prospective tenant provides adequate documentation of the existence of a disability and a disability-related need for the animal.

• New Guidance on Assistance Animals Category: Miscellaneous/Other Laws and Rules

CATEGORY #4: Buyer or seller switching firms

(I’ve handled a steady stream of questions in this category for many years.)

QUESTION: Can a buyer fire their buyer agent without cause and hire a new firm to represent them if the first firm won’t agree to terminate the buyer agency agreement?

ANSWER: Yes, but that doesn’t mean the buyer can’t be held liable for damages for breach of the buyer agency agreement or that the first agent might not be entitled to the compensation offered in MLS on any property to which they introduced the buyer.

• A Tangled Web Category: Insight Articles

CATEGORY #5: Fixtures and personal property

(This category, which warrants two questions, probably came over on the Mayflower.)

QUESTION: Is a free-standing refrigerator included as part of the sale if it’s advertised in MLS but not identified in the Offer to Purchase and Contract?

ANSWER: No. Buyers and sellers are not MLS participants, and nothing in an MLS listing magically becomes a part of any contract between a buyer and seller. The Contract also specifically provides that it contains the entire agreement of the parties.

• Does a refrigerator stay if it’s not in the Contract? Category: Forms/Offer to Purchase and Contract/Fixtures

QUESTION: Is a utility building that is not on a permanent foundation included as a part of the sale if it’s not listed as an exception in the Offer to Purchase and Contract?

ANSWER: Yes. “Utility building” is on the list of items in paragraph 2(b) that the buyer and seller agree will be included as a part of the sale unless excluded if they are present on the property. The fact that the utility building is not on a permanent foundation is irrelevant in this situation.

• Who gets to keep the utility shed? Category: Forms/Offer to Purchase and Contract/Fixtures

CATEGORY #6: Advertising another broker’s listing

(Not a new category of questions, but there’s been a sharp increase in their number, undoubtedly fueled by the popularity of social media.)

QUESTION: May a REALTOR® include another firm’s listing in her print or social media advertising without the other firm’s consent so long as the other firm is identified?

ANSWER: No. Advertising another firm’s listing without authority is a violation of the REALTOR® Code of Ethics. Even though the other firm and its client might not object to such advertising, the lack of objection cannot be assumed.

• Can a REALTOR® include one of my listings in her print advertising without my consent? Category: Advertising

• Can I advertise another firm’s property on social media? Category: Advertising

• Legal Quiz (February 2021) Category: Advertising

CATEGORY #7: Handling multiple offers

(This category of questions has been around a long time; their frequency ebbs and flows depending on how hot the market is.)

QUESTION: If asked by a buyer agent if there are other offers, the listing agent is ethically obligated to always disclose the existence of other offers. True or false?

ANSWER: False. According to the REALTOR® Code of Ethics, the listing agent must have the seller’s approval to disclose the existence of offers on the property. If the seller doesn’t approve, such disclosure would be unethical. If the seller does approve of disclosing the existence of other offers, the listing agent would be ethically required to do so if asked by a buyer agent.

• Handling Multiple Offers Category: Insight Articles

• Proper handling of a multiple offer situation Category: Disclosure

• Handling multiple offers - and requests for highest and best offers Category: Contract Law

CATEGORY #8: Negotiating repairs

(Although the particular questions have changed due to the introduction of the “due diligence contract” in 2011, this category has been a popular source of questions during my entire 25 years as NC REALTORS® General Counsel.)

QUESTION: So long as a buyer agent submits requested repairs prior to the 5 PM deadline on the last day of the Due Diligence Period, the buyer will be able to get their earnest money deposit back if the Due Diligence Period ends and the seller hasn’t agreed to the requested repairs. True or false?

ANSWER: False. As stated in the WARNING at the beginning of paragraph 4 of Form 2-T: “Buyer’s failure to deliver a Termination Notice to Seller prior to the expiration of the Due Diligence Period will constitute a waiver by Buyer of any right to terminate this Contract based on any matter relating to Buyer’s Due Diligence.” In other words, a buyer doesn’t have the right to terminate the contract after the Due Diligence Period ends if the buyer is unable to negotiate repairs with the seller.

• Taking the End of Due Diligence Period Seriously Category: Insight Articles

• Can a buyer submit multiple repair requests during the due diligence period? Category: Forms/Contract-Related Forms--300 Series

• Must Repairs Be Performed During the Due Diligence Period? Category: Forms/Offer to Purchase and Contract/Inspections/Repairs

CATEGORY #9: Disbursement of earnest money

(An oldie-but-goodie category that can always be counted on for hotline questions.)

QUESTION: Can a real estate firm acting as escrow agent disburse an earnest money deposit to the buyer without the seller’s written consent if the buyer terminates the contract during the Due Diligence Period?

ANSWER: If a buyer uses the standard termination notice (Form 350-T) to terminate the contract prior to the end of the Due Diligence Period, but the seller fails to sign the second page of the form authorizing the return of the EMD to the buyer, the Escrow Agent may still be able to disburse the EMD to the buyer if there is no evidence that the seller disputes the buyer’s entitlement to it. However, it is recommended that even in the absence of a dispute, an escrow agent should always attempt to obtain written consent from both parties to a terminated contract before disbursing an EMD to a party.

• Can my firm disburse an earnest money deposit without the written consent of both parties? Category: Real Estate License Law/Rules

• Abandonment of Claim to Disputed Deposit Category: Real Estate License Law/Rules

• Payment of Disputed Earnest Money Deposit to Clerk of Court Category: Real Estate License Law/Rules

CATEGORY #10: Listing and selling property of a recently deceased owner

(Owners have been dying regularly since the dawn of the private ownership of land, but for reasons unknown to me the number of hotline questions on how to list and sell the property of a recentlydeceased owner has been steadily increasing for several years)

QUESTION: I am taking a listing on property where the owner, Jack Smith, recently died. A broker buddy told me that I should list the property in the name of “Estate of Jack Smith.”

ANSWER: No. Upon the death of a property owner, title to the property immediately vests in either the heirs of the decedent or the devisees named in the will of the decedent. It is never correct to list an owner as “Estate of _________.”

• What the listing agent should look out for when the most recent owner of the property is deceased Category: Insight Articles

• How to Properly Handle Estate Property Sales Category: Miscellaneous/Other Laws and Rules

• Can I list property if the owner doesn’t have a deed? Category: Miscellaneous/Other Laws and Rules

LEGAL Q&AS Access any of the Q&As mentioned in this article on the NC REALTORS® website at ncrealtors.org/resolve-library.

BONUS | CATEGORY #11: Disputes about whether an item is performing the function for which intended and is not in need of immediate repair

(I’d like to have a dollar for every question I’ve gotten that fell into this category, or that related to any of the many conditions and contingencies that were contained in the pre-2011 version of the Offer to Purchase and Contract. Remember? In addition to the condition that a long list of items were performing the function for which intended and not in need of immediate repair, there was a loan contingency, an appraisal contingency, a wood-destroying insect condition, a radon condition, a cost-of-repair contingency, and a flood hazard condition, and there were deadlines associated with many of those conditions and contingencies!)

(NOTE: The following question appeared in a Forms Forum article in the February 2006 issue of Insight magazine. You can access the electronic version of the article by visiting ncrealtors.org/February2006LegalArticle)

QUESTION: If a seller refuses to replace a retaining wall that the buyer’s structural engineer says was improperly constructed and will need to be replaced in no more than five years, may the buyer terminate the contract and receive a refund of her EMD, or may the seller keep the EMD if the buyer refuses to close?

ANSWER: Very hard to say. The answer likely depends on whether the retaining wall is a “structural component” of the dwelling/outbuilding as that term was used was used in the Offer to Purchase in effect at that time, and whether a retaining wall that will fail in 5 years in the opinion of a structural engineer is in need of “immediate” repair. It is interesting to note that the article points out that if “Alternative 2” had been selected, there would have been no question that the buyer would have had the right to terminate the contract and receive a refund of her EMD if the seller refused to replace the retaining wall. “Alternative 2” was the precursor to what became the “due diligence contract.”

• Difficult repair issue leads to consideration of Alternative 2

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