11 minute read
QUIZ legal
QUIZ legal
BY JOHN WAIT, GENERAL COUNSEL
These questions are based on weekly Q&As published in the REALTOR® Rundown between January 2024 and June 2024.
What happens if I do not check the correct box to terminate the contract on Form 350-T (Termination of Contract)?
Can buyer agents rely on a listing agent’s representations?
Can an agent take a listing if one member of an LLC does not want to sell?
Can my buyers sue the sellers after closing for damage in the home discovered while under contract?
Can an escrow agent release an Earnest Money Deposit without the seller’s written consent?
What should I know if my firm adopts a policy allowing seller subagency?
Is the seller required to provide the Residential Property and Owners’ Association Disclosure Statement and the Mineral, Oil, and Gas Rights Disclosure forms?
Can a buyer agent make an offer contingent on the seller or listing agent agreeing to cooperative compensation in a separate agreement?
Is a seller’s failure to properly complete agreed-upon repairs a breach of contract?
When should I use the Offer to Purchase and Contract – New Construction (Form 800-T) instead of the New Construction Addendum (Form 2A3-T)?
Form 2-T, the Offer to Purchase and Contract, states that the contract may be terminated by a buyer’s “delivering to Seller written notice of termination (the “Termination Notice”) during the Due Diligence Period (or any agreed-upon written extension of the Due Diligence Period), TIME BEING OF THE ESSENCE.” Form 350-T is a unilateral termination form. Unlike Form 390-T (Termination of Contract by Mutual Agreement with Release of Earnest Money Deposit), Form 350-T does not require both parties to sign to effectuate a termination. Instead, the pre-printed language in paragraph 2 of Form 350-T states that “Buyer hereby terminates the Contract for the following reason(s) . . .” This preprinted language, standing alone, is enough to satisfy the requirements for the Termination Notice. While the checkboxes providing a reason for the termination in Form 350-T are often helpful to the parties in winding up a transaction, they are not required or necessary for purposes of termination. Once the listing agent or seller receives Form 350-T, the contract is terminated, regardless of what reason was given in the checkboxes, if any. Weekly Q&A dated 1-18-24.
There are circumstances where a buyer agent is expected to verify information. In the Commission’s 2022-2023 General Update Course on material facts, the Commission instructs that “[a] buyer agent may generally rely on the accuracy of the property information provided by the listing agent.” The Commission further states that “a buyer agent is not expected to personally verify the accuracy of information provided by the listing agent in most instances.” However, if a buyer agent reasonably suspects that the information provided by the listing agent is inaccurate, the buyer agent may not rely on it and must instead conduct their own investigation. Moreover, if a client has identified something as being material to them, then independent verification by the buyer agent is expected. Weekly Q&A dated 1-25-24.
While it may be possible to take a listing in these circumstances, it is likely not advisable unless you can get all members of the LLC to sign off on it. Generally speaking, an LLC can be bound by any one member who has authority to sign, and not all members will need to sign in order for the LLC to be obligated. The authority of a particular member to sign may come from an operating agreement, or it may come from North Carolina law. If there is no operating agreement, and selling real estate is in the ordinary course of the LLC’s business, then the signature of any one member will likely suffice. N.C.G.S. § 57D-3-20. There is one important exception to this rule, however, and that exception applies when the LLC will be selling substantially all its assets prior to dissolution. N.C.G.S. § 57D-303(3). If the exception applies, then all members must sign for the transaction(s) to be binding.It is possible that the disagreeing member may bring a lawsuit if a listing agreement is signed without their consent. If that lawsuit were successful, it may well block any transaction from taking place. This would put the listing agent in a position where they would have invested significant time, energy, and expense only to be told by a court that the sale cannot be completed.For these reasons, even though it may not technically be necessary, it would be advisable to only take a listing if all members of the LLC agree and sign. Weekly Q&A dated 2-8-24.
There are very real obstacles for buyers to sue sellers after closing. First, Form 2-T states that “closing shall constitute acceptance of the property in its then existing condition unless provision is otherwise made in writing.” Second, a claim for fraud or negligent misrepresentation requires a buyer to reasonably rely on representations made by the seller. This may be a difficult burden for a buyer to carry if they are aware of damage prior to closing, because they can no longer claim that they reasonably relied on the false representations of the seller. Weekly Q&A dated 3-28-24.
Yes, in some circumstances. If a seller disputes the buyer’s entitlement to the EMD, even if the dispute has no basis, paragraph 1(f) of Form 2-T spells out the obligations of the escrow agent. The escrow agent must retain the money in its trust account until: (a) the agent obtains a written release from the parties; (b) disbursement is ordered by a court; or (c) the funds are deposited with the clerk of court in accordance with the provisions of N.C.G.S. §93A-12. However, if the seller has merely gone silent and not signed a release of the EMD, the buyer agent may send an email to the listing agent stating that if the seller does not dispute the buyer’s entitlement to the EMD within 48 hours, the seller’s silence will be considered an acknowledgement that the escrow agent is authorized to disburse the entire EMD to the buyer. Though it is strongly recommended to get a signature from the seller, the seller’s consent to release of the EMD is not required. What is required is that there not be a dispute about the EMD between the buyer and the seller. Weekly Q&A 4-4-24.
Seller subagency is one solution to helping a buyer in a transaction, so long as the seller has properly authorized cooperating compensation for the seller subagent’s services and both buyer and seller have consented to seller subagency in writing. The role of a seller subagent is to help the buyer in the transaction, but not with any fiduciary duty to the buyer. Rather, the seller subagent’s fiduciary duty is to the seller, on whose behalf the seller subagent is actually working. Given the unique role of the seller subagent, it is easy for buyers to be confused about who the seller subagent represents. That is why it is critical that the prospective buyer receive a WWREA at first substantial contact along with a clear explanation of the seller subagent’s duties.In addition to the WWREA, however, Rule .1014(e) of the License Law imposes an additional requirement that a seller subagent disclose their agency in writing so that the buyer will know who the seller subagent represents before the buyer reveals personal and confidential information. This means that, a broker may only assist a prospective buyer with locating a property by either (1) having a written buyer agent agreement or (2) a written disclosure to the buyer that the broker will be working with the buyer as a seller’s agent or subagent.You should also be aware that seller subagency creates a risk of vicarious liability. Vicarious liability is a legal theory where one party, the principal, can potentially be liable because of the actions of another party, the agent. In the context of seller subagency, this means that it is possible that a seller or listing firm could be held liable for the actions of a seller subagent. Weekly Q&A dated 4-11-24.
The RPOADS and MOG are required under North Carolina law for residential sales where the property has one to four dwelling units. Although the term “dwelling unit” is not defined in the Residential Property Disclosure Act, the North Carolina Real Estate Commission has supplied the following definition in the RPOADS: “‘Dwelling’ means any structure intended for human habitation.” While a seller is technically required to provide the RPOADS and MOG prior to receiving an offer, the consequence for not doing so is limited. As stated in paragraph 5(d) of Form 2-T, the consequence for not providing the disclosures is that the buyer will receive a three-day window to terminate in which the Due Diligence Fee is refundable rather than non-refundable. So long as the seller is willing to risk this outcome, the seller may refuse the disclosures. Weekly Q&A dated 5-2-24.
Yes, but a buyer agent must be very careful to comply with Article 16 of the Code of Ethics and the License Law.Article 16 prohibits a buyer agent from using their client’s offer as a weapon to interfere with the agency agreement between the listing agent and the seller. This means that a buyer, and not a buyer agent on their own accord, can condition their offer to purchase on whether an agreement for cooperative compensation can be reached with the seller or listing agent.The Commission has written that Rule .0112 “bars a broker from using a preprinted offer or sales contract form containing any provision concerning the payment of a commission or compensation to a broker or firm.” The Commission has also said that while “a client may consider the amount of commission when considering making or accepting an offer, the broker/ firm should not be made a third party in a form purchase contract between the buyer and seller.”Together these rules mean that a buyer agent can make an offer that is contingent on cooperative compensation, so long as that contingency is at the written direction of the buyer, in the buyer’s best interest, and not part of the purchase contract at all. Agents should seek guidance from their BICs and the NC REALTORS® Legal Hotline for more details on how to comply. Weekly Q&A dated 5-23-24.
Yes. If the seller has failed to complete the agreedupon repairs in a good and workmanlike manner prior to the settlement date (including any delay in settlement requested by the seller), and the failure is material, then that failure would constitute a breach of contract that would entitle the buyer to the remedies set forth in paragraph 23 of Form 2-T. Weekly Q&A dated 5-30-24.
Form 800-T was designed for situations when the seller, or a contractor engaged by the seller, will construct a home on the property and then convey the property to the buyer. It is a construction contract plus a contract for the sale of land in one form. If construction is going to occur only after the buyer already owns the property, then all the buyer needs with the builder is a construction contract, which will not include the sale of the property itself.The New Construction Addendum (Form 2A3T), on the other hand, is designed for use with Form 2-T when construction of the new home is nearly complete or has been fully completed. Although the addendum does contemplate that the seller or builder might make additional minor improvements, it lacks the detailed provisions regarding the construction process that are included in Form 800-T.However, Form 2A3-T does contain an important warranty of construction that establishes the seller’s or builder’s duty to make any necessary repairs and corrections, and therefore, even if the new home is fully complete, the addendum is a good idea to include in the purchase contract. Weekly Q&A dated 6-6-24.
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