Hi Russ, thanks for taking me up on the request to put a blog together on this subject. Sorry I’ve been slammed with work to read it till now, but, I guess that’s a good thing. I’ll try to stick to the nature of what you started with in your original post as I see several folks have tried veering away from your target discussion. To your remark “Where I have to scratch my head is with the deals that are a bit out of the ordinary. Where the blank addendum becomes a significant part of the deal. My guess is that most of these deals also don’t get to the attorney. And yet I have seen many of these deals when the transaction blows up or after closing and everyone (many times including the agent) are in wonder why they tried to go it alone.” I’d have to say that you are likely right that the majority of these don’t see the light of an attorney’s office. My personal guess is that many people wrongly believe that the cost will be exorbinant. Others are afraid of becoming embroiled in a long and tedious lawsuit that will consume their lives and financial resources. Personal experience so far with numerous residential and commercial clients is that this isn’t the case typically. I truly believe that fear of the unknown is what kills off a lot of people from getting representation from an attorney.
So, that leaves a lot of people relying on their agent to put together these addendums that cover the items that aren’t covered in boilerplate NWMLS contract language. Most agents don’t get much training in how to write these types of addendums although there is a good class that is taught through SKCAR (or at least there was) by Larry Christensen. In it he covered the topic of what elements should be considered when writing on Form 34 or the blank section of Form 22D (section 10). How he put the material to the class was great because he got people thinking critically about what should be used in these situations if there was no way to get an attorney involved – that was the “if, then” concept and the reminder that any monies associated with the transaction must be address (ie. earnest money). Example: If Seller does not perform (x) by (insert date), then Buyer may cancel the Agreement and Earnest Money is returned to the Buyer. Because of some the initial questions Larry asked in the session you could tell many agents in the room had been writing some pretty poor addendums in the past and I truly hope that they all walked away with some new knowledge and that they listened to his advice of building a relationship with an attorney.
This class got me to modify a little bit how I draft addendum language although the majority of the difficult cases go to our real estate and business attorney, Berrie Martinis of Garvey Schubert Barer http://www.gsblaw.com for drafting. I frequently pay for this service for my clients as an added value to them but if it’s going to get sticky in a particular transaction I do refer them directly. I’ve done this as well with an estate planning attorney at the same firm, Tim Burkart, when the right situations call for it (such as dealing with an estate). We usually discuss it in advance and determine what will work – often with discussion including Berrie or Tim on this decision. To go back to another posting on this subject someone said they frequently write addendums that state a seller may be taking an object with them upon closing. Well, my first thought was are you only writing “Dining room chandelier to go with Seller”? If you’re writing only these words a lot of unstated concerns come up – such as: 1) is the seller responsible for replacing the chandelier with another light fixture?, 2) is that fixture to be of the same quality and price point as the current chandelier?, 3) If seller is replacing the fixture, does Buyer, who will take possession, get to determine the style of the new light fixture? and so on… I think you get my drift. If I were the seller’s agent in this situation and the seller had said that they would be taking the chandelier but they’d compensate for it, I would draft something more along the lines of “Dining room light fixture to remain as personal property of the Seller after Closing, allowing through to Possession for removal of the item. Costs to remove the light fixture will be borne by Seller. Additionally, Seller to credit Buyer ($ sum) for the cost of a like-kind replacement light fixture. Any costs for labor or other associated installment costs for replacing light fixture to be borne by the Buyer. If Seller fails to remove light fixture by the Possession date, then this addendum will automatically default and the light fixture will become the property of the Buyer. No compensation will be due from the Buyer to the Seller if the Seller does not meet the terms and timelines of this addendum for removal of the light fixture.”
[photopress:la_murrina_veneziano_murano_glass_chandelier_thumb.jpg,thumb,alignright]
Does this look like too much to cover the issue? Some people would say “yes” but I personally like the comprehensiveness of the language because it covers a lot of the possible questions and problems that could arise if these steps aren’t taken up front. It would be interesting to get your opinion on my example here, Russ. I’ve seen enough situations where a seller has taken something as simple as a light fixture and the buyer assumed a replacement would be put in and then they were surprised when one wasn’t there and a fight ensues leaving both parties with a “bad taste” at the end. On top of all the costs of purchasing a place, to find out you need to pay another $300-2000 for a new light fixture (chandeliers can be pricey) can be frustrating for a buyer and it makes the agents look bad because they should have considered these questions. It’s this kind of thing that helps bring value to the transaction and the clients. I’ve often called myself “an optimistic pessimist” because I always hope for the best, but I plan for the worst. That kind of thinking gets me asking questions that wouldn’t even come to mind for a lot of people when they’re buying a property. And, when I bring up questions that helps my clients to think critically about what they’re doing in a transaction and they feel more involved in their contract rather than feeling like they’re just being shoved through and they don’t really know what happened when it’s all done. This helps in making sure that when we have to go off the standard forms that we’re all focused on a good outcome and for our client’s interests to be protected.
I’ve had a few agents ask me if the simple addendums I write have been completed by an attorney because of their comprehensiveness. However, I would never hold myself out as an attorney or being as educated in case law. I just got done telling a client today that I have to be very careful in even discussing the meaning and interpretation of contract language and that I suggest he use his attorney to review some upcoming language in a Public Offering Statement that we’ll be reviewing. When it comes to being considered a “peer” with attorneys or any of the other professionals we engage with on a daily basis, I consider that to be in the sense that I should be able to engage in an educated, experience based and professional discussion of terms, consequences, and concern for the best interests of the mutual client. Each professional brings something useful to the table and it’s being able to merge all of these skillsets into a successful situation for the client that should be the goal. And sometimes that situation may mean killing a deal to save a client from a precarious purchase – not all deals should go through – but that doesn’t mean another property won’t come up that will result in a successful purchase.
This brings me to a subject I want to blog about in the near future – raising the level of professionalism of the real estate industry in general. That, and getting agents to stop those old sayings of things like “buyers are liars and sellers are worse.” When I got in the industry 4 years ago I couldn’t believe people in the industry said stuff like this around me all the time. It seems like an “us vs. them” mentality. How messed up is that!?!? If you’re a professional you don’t walk into a meeting with a prospective client with this kind of mindset and I’m glad that I don’t.
When I have a seller client who wants to keep a chandelier, I tell them to remove it and replace it, before the property goes on market. No addendum needed. They can pack it away before a buyer sees it, and wants it.
If I have a buyer client and the house they want to purchase says “chandelier to go with seller” in the listing, I indicate that the seller should simply remove the existing chandelier and not replace it.
I then go out with the buyer and have them pick out a new light fixture, which I pay for and have installed as their closing gift.
No long, drawn out addendum needed.
Hey Russ and Craig,
I’m curious for your opinion (which I respect) on this question: Do you think Realtors or real estate agents ought to be taught how to construct the language for use on the blank forms like the ones mentioned in Reba’s post?
Thank you!
Jillayne
I struggle with this question. In the perfect world, I think the answer is “yes.” While technically not legal, agents routinely fill in the blank addendum with all sorts of stuff. Most are untrained in this regard and this is not in the consumer’s best interests. So, training agents on how to draft contract language would, in theory, be good for consumers. The problem would be in the execution.
Most baby lawyers do not exit law school understanding how to draft good contracts. It takes some one, two or more years in a law firm to understand how to draft language depending on the circumstances of the deal. Most law firms lose a lot of money on first year associate lawyers because much of their billable time is written down or written off because the work product is not up to par. It is not knowledge. It is a skill. And you don’t go to an 8 hour clock hour class to learn how to write contract language and come away capable.
So, until we devise a program to really and truly provide the skill training to agents and the necessary oversight, I guess the answer to your question is “no.”
Great post, Reba!
And I have another suggestion ~ we need to call it the “real estate profession” instead of the “real estate industry” if we wish to be considered professionals.
We don’t BUILD anything; the construction INDUSTRY does that.
We will be considered professionals when we call ourselves professionals and act like professionals.
You can never be too elaborate on a contract addendum. …well, if you just keep repeating yourself, ..then yah I guess you can be overly elaborate. Every item in an addendum needs a what, a who, and a what if clause in them. What is being agreed on, …who is involved and who is supposed to do the what, and what if the who doesn’t complete the what. As Reba has in her example, each of these sections needs to be detailed.
I say agents …for the sake of their clients….should learn how to write a good addendum. I got an addendum from a buyer’s agent that had an item simply say “hardwood floors refinished” ….that was it. Uhm..okay….not very binding or clear. I could refinish a 1′ x 1′ square and say …we fulfilled the request. Buyers and sellers should demand that their agent be able to right a good addendum. Unfortunately, the general public probably doesn’t know what a good one is from a bad one.
I agree with your last paragraph Reba. One sure fire way to accomplish a raised level of professionalism (and competence if I might add) is to seriously raise the entry barrier into the profession. …and as Reba eludes to…..topic for another day.
The forms for purchase, sale, or listing, from the Northwest Multiple Listing service all say Agreement on the top. My understanding is that as Real Estate agents we negotiate terms of agreement between parties. A Purchase and Sale or Listing Agreement make up a meeting of the minds between the parties involved. This now includes the agents intentions by showing who the agent is representing.
I use John Wagner and refer people to him all the time for Real Estate advice. He’s never killed a deal. He has in fact made several deals happen for me over the years.
The thing about residential Real Estate is that we deal, many times, with people’s homes. I’ve had people dig up every plant in the yard and take them away a week before closing. Those plants were given to the young couple by the wife’s dead mother. What are you going to do?
It’s fine to talk about the law and contracts, or going to court, but the law is having a judge decide what’s right or wrong.
I have sat in front of a judge with my papers, photos, and signed documents, to have him lecture, then rule against me. He made the good point that I should have done what ever it took to make the problem go away before it got to court. As a Real Estate profressional that’s a big part of my job.
The fact is that residential Real Estate is an emotion driven business. Real Estate professionals navigate those very personal waters with tack, understanding, and compassion, while sternly warning the parties involved about legal consequences. We should do our very best to make an agreement that any reasonable person can read and understand. That agreement once signed all around should be clear instructions to the escrow agent.
The way I look at it is if something goes wrong it’s my fault, nobody elses. I should have paid closer attention, communicated better, or anticipated the problem. If I’m ever in the position of standing up to point the finger elsewhere I wasn’t doing my job. If there is a problem I can not fix, then I find some one who can fix it. That may be my broker, an attorney, or a friend of the family. It makes no difference who it is if all parties are comfortable with the fix.
David Says: “The way I look at it is if something goes wrong it’s my fault, nobody elses. I should have paid closer attention, communicated better, or anticipated the problem”
Kudos and Props, David, on that one! It’s about communication and making sure everyone understands and agrees with what is really going to happen, not the paper. If Seller’s agent doesn’t know the seller was planning to take sentimental value items…bad communication.
I had a very elderly lady fretting once about forgetting to tell me she had to have a little curtain she shopped for with her now deceased child. The buyer and buyer’s agent said NO! she didn’t exclude it. I told her to take it. What could the award be for a little 24″ wide lace curtain. In fact we replaced it with a similar one, and they never noticed. Sometimes right is right, regardless of the omission of an addendum.
Reba good topic and great issue I need to agree with you in your thinking of supporting classes for legal communicational skills with in the real estate industry. I have always tried to support education and the advancement of knowledge. As players in the industry we need to understand that before we can author we need to know definition.
In contractual law the skill lies in communication as based on perception. Contract law states that the language needs to be understood based on clear description and how the use of the language is to be perceived. As an example “The real estate industry is composed of different professions.
This post caused me to re-read the defining case of Cultum v. Heritage House Realtors, 103 Wn.2d 623 (1985), which permits agents to engage in the limited practice of law. Lo and behold, I think I did not fully appreciate that case previously. Who says blogging is a waste of time? Stay tuned for my own post on the topic that further addresses the issues raised above (including your question, Jillayne).
Sorry Reba, you’re “posting” on a “blog”. Please refer to this as “a posting”, “this post”, “my next post”, “I want to post next time” on the blog…
David up there has the right approach
In Chicago, we’re paid to sniff out the property for clients, get them in front of property, advise on the actual product/investment, have a team of referral services such as contractors, movers, designers etc… that we work with every day. We put the team together that finds, researches, improves, and closes the property… whatever they need and whenever they need it. So, of course we talk to attorneys, developers (which some of us are), contractors, mortgage brokers… and we should have a clue to solve problems, or, at least know a problem could happen, and like David says, find someone to solve it. My attorney, brokergae and I put our heads together all the time to find a solution… and not freak people of the place they want over plants or fixtures.
Oh yeah, we market and SELL real estate. Sales does not have to be equated with your picture of low professionalism in the “industry”. Go into any industry, you’ll find the same people. So, Golly Gee yourself crazy and save the lecture on professionalism. People know it when they see it and it’s different to everyone!
It takes a lot of experience to KNOW what should go in an addendum, then write it. Here, we write the addendum to the best of our abilities as agents to indicate what has been negotiated and agreed to on the “ground”. It goes to attorney to get tightened up. No one gets out of our attorney review without a second round of agreements and understanding in writng and signed off.
Addendums concerning exclusions and personal property are a matter of training and experience… there are clear guidelines to personal property and attached items stated in our statutes.
For example, if I’m listing a property and we exclude “attached” personal property such as chandeliers, attached shelving and lighting fixtures, we list it as excluded. The buyer can jump in a lake. The buyer’s agent will need to negotiate credits, replacements, repaired walls etc…if they want it done.
The best scenario is to either list, or ask about, specific exclusions depending on the side your on. Then, negotiate the appropriate purchase price or a credit in light of the personal property or repair issues. Asking the seller to fix or replace things in a deal is a joke…if they wanted to do it, they would have done it already (as Ardell suggests… take the damn thing down before showing, or sell it with the house).
If either side balks… guess what? No deal.
Bottom line, I ask my clients to pay the $500-$600 for a real estate attorney I reccomend or to hire one they know. Their contract riders are extensive and detailed…they check title… plus they do important administrative work. If my client wants to “go it alone” just to save the money, I won’t work with them..unless they are a real estate attorney themselves 🙂 Best money spent every time.
Eric,
That contradicts my experience here in Washington State. I can’t say we NEVER consult lawyers but, in 20+ years in real estate sales, I’ve never had a client who took their contract to an attorney for review, prior to signing. And once the contract IS signed, it’s signed. It can’t go back to an attorney to be renegotiated unless both parties agreed to do that or one party wanted to try to wiggle out of it.
Our standard MLS forms do not advise clients to seek the advice of the attorney, but my company does have an addendum that suggests that they do. “Buyer and Seller acknowledge that they have not received or relied on any statements or representations by agent regarding the legal consequences of this Agreement. Buyer and Seller are advised to seek independant legal counsel regarding this Agreement.” So, clients have the option to see an attorney, but rarely do.
I think that ticks some lawyers off, but it seems to work ok. And yes, I work for a major firm here and yes, I believe my experience is fairly typical. Also, in this state, we order title and if there’s a cloud, we can get assistance from the LPO’s or their staff attorney. And we don’t need lawyers to close transactions either, we use escrow companies.
So, in Washington, it’s entirely possible to go your entire real estate career, and never see a lawyer.
And that is our goal 🙂
Marlow
First, I’m OK with your goal. It does work in many cases.
Here’s the rub. That damn disclaimer. Agents prepare the PSA (filling in blanks and maybe writing stuff) and they insert the “company addendum” with many self-serving clauses like the one above. That clause essentially means that the agent who has written up the deal has (1) not told their seller or buyer client what in the heck all of the mumbo jumbo means and (2) even if they have told them, the client is not supposed to “rely” on it (meaning, don’t trust what the agent says cuz they are not a lawyer). Hmmmm.
You absolutely, positively cannot discuss a PSA without discussing the consequences of the words. And you cannot, in my opinion, properly represent a client in a RE transaction if you don’t explain what the heck they are signing. My issue is not that agents want to be the “lawyers” in the transaction. As I have said many times, that fits how we do business out here. My issue is really that the agents (and their companies) want their cake and frosting too. They want to BE the lawyers but they don’t want the responsibility of BEING the lawyer (hence the disclaimer). I find this wrong.
-Russ
Russ,
I agree with you, based on what I hear in the classroom from agents.
Everything appears all well and good, provided there are no conflicts.
It gives the consumer an APPEARANCE of “good.”
Once the deal falls apart (in whatever way) the agent and the consumer come out on the short end.
Referring to an attorney not only helps the consumer, it also serves the agent as well.
Maybe consumsers don’t understand that an attorney review is not so terribly expensive but is more like a home inspection: A worthwhile investment. Russ, what’s a common hourly rate for an attorney review of a Purchase and Sales Agreement? Is there a range? Follow up question: how long does it take, on average, for a competent attorney to review a P&S?
If it’s not cool to ask that question, just let me know.
Marlow,
I have something to add, but I need to jet. Be back in a couple of hours.
Marlow,
I re-read your post and my own question was answered.
But Russ, that “company disclaimer” is necessary because of certain lawyers (perhaps one we all know who is a frequent contributor here) who maintain that just by explaining what the contract means, we are practicing law.
I agree that agents need to go through the entire contract with some buyers and sellers. But if explaining to them the contract constitutes “practicing law”, then it would be very foolish of us NOT to insert that clause.
You say: “You absolutely, positively cannot discuss a PSA without discussing the consequences of the words. And you cannot, in my opinion, properly represent a client in a RE transaction if you don’t explain what the heck they are signing”
But then some other lawyers take us to task for doing just that, complaining we are practicing law without a license.
Marlow,
This “practice of law” issue continues to be one of the most misunderstood issues on RCG. You, Marlow, have a license to practice law in real estate transactions. That license is just “limited” based on the factors in Heritage House. Does the explanation of contract rights and obligations constitute the practice of law? Yep. Do I think that an agent’s explanation of a PSA that they prepare for their client is within this limited license? Yes, I do.
A lawyer who takes agents to task for doing so is, I believe, misguided. The whole idea behind the decision in Heritage House was to remove lawyers from simple residential real estate transactions. While not specifically stated, I don’t believe the Court came to that conclusion while at the same time not allowing the agent to explain the docs to the client. Certainly, if the agent is filling in the document, they should know what the docs say and mean. Right?
-Russ
Jillayne
Hourly rates for real estate lawyers are across the board. I think it probably ranges from high 100’s to low 300’s.
While I don’t do a lot of residential transactions these days, in the past I would usually quote the client 2-4 hours of time for document review, consultation and drafting an addendum which is many times recommended. I believe some attorneys (Craig I think) will do this work on a flat fee. He can chime in if he wishes.
Does that help?
Russ
Here’s how I see it from the ground.
People feel they wasted their money on a full attorney review because they can’t retain it and still want the agent to define sections as they come up. So if they do a full attorney review before they are actually “in contract”, they still need the agent to explain the relevant portions of the clauses. Usually the inspection clause.
I think a great class would be an attorney doing a full review for agents. I’d go to that class. So that the agents are explaining it as correctly as possible to the clients.
I’d love a class on just P&S, 22A, 22D, 22J, 35, 35R and maybe a few others,like house sale contingency. In fact I’d require our agents to attend as well. All addendums would be too much to retain. I think a class like that every 6 months for refresher would be very valuable for agents. Those forms are used most often. I can probably come up with a better complete list.
Jillayne? You game?
Pingback: Team Reba Real Estate » Attorneys vs. Agents - does it have to be a showdown?