Author Archives: Craig Blackmon

About Craig Blackmon

I am an attorney in Seattle, where I have practiced real estate law for over a decade. I own and operate my law firm, Seattle Property Lawyer, where I help people buy and sell homes without an agent (plus handle other legal issues relating to owning a home). I maintain the FSBO Law Center a web site for "for sale by owner" sellers and buyers. I am a licensed real estate broker and innovator in the real estate industry.

Not showing a less-than-3% SOC commission? That's unethical and illegal

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This is not legal advice. For legal advice, consult an attorney directly, not a blog.

It’s common knowledge (based on those comments, at least) that some buyer’s agents will not show properties with an SOC of less than 3%. Is that a problem? In a word, Yes.

First, the ethics: The term “ethics” in this context refers to the code of conduct by which a professional is expected to perform his or her duties. “Ethics” in this sense usually — but not always — correlates with what a layperson would consider “right” and “wrong.” Generally speaking, “ethics” in the professional sense imposes an obligation to perform a professional duty in a fair and reasonable matter.

Admittedly, I am not up to speed on the rules of ethics that would apply to a real estate agent. Many agents are also Realtors, and I know that they are thus subject to a particular code of ethics. Attorneys are subject by law to the Rules of Professional Conduct, rules of ethics formulated by the State Supreme Court. I am unaware of any similar rules that apply to agents.

With that disclaimer, it certainly seems like this conduct SHOULD be considered unethical. Surely an agent has an ethical duty to diligently work for the client, including the identification and showing of any property that is or may be suitable for the client. From an ethical perspective, I would even argue that this applies to properties with no SOC whatsoever. Admittedly, in that circumstance, the agent has every right to and should discuss this with the client, as the agent need not work for free. Thus, the agent should, either at the initiation of the representation or when the issue arises, discuss with the client whether and how the agent will be compensated if the agent finds a house that does not offer an SOC. The parties may agree that, in that instance, the client does not expect and has no right to receive information from the agent about that property. Regardless, with this conversation, whatever its outcome, the client can knowingly consent to any limited scope of representation, and consent is the key when dealing with an ethical issue.

Now, the legality: This conduct is almost certainly illegal (at least where there is something more than a 0% SOC), but there is very little chance that it will give rise to liability. How is it illegal? RCW 18.86.050 is the relevant statute. It requires a buyer’s agent to “make a good faith and continuous effort to find a property for the buyer,” except that the agent need not “show properties as to which there is no written agreement to pay compensation to the buyer’s agent.” In addition, the agent is relieved of this obligation entirely IF the buyer agrees otherwise in writing after receiving the required “Laws of Agency” pamphlet. So, assuming the property offers a commission in some amount (i.e., greater than zero), I believe the agent has a legal duty to bring that property to the client’s attention.

So why no liability if the agent fails to do so? That turns on general legal principles applicable to wrongful conduct. Where such conduct causes an injury, the wrongdoer is liable for the harm caused. Here, assume an agent fails to show a “dream house” to the client because of a 2% SOC. The client subsequently buys another house for the same price. The client then finds out that he was denied an opportunity to buy his dream house because his agent did not tell him about it. What is the injury? Given that they are the same price, there is no way to quantify the client’s injury. Under those circumstances, it will be difficult to find the agent liable. Note, however, that if the house actually purchased cost MORE than the dream house, the client may be able to recover the difference.

From a practical perspective, too, there is little chance of the agent being held liable. The whole claim turns on what the client did not know. So, in order to even raise the claim, the client has to learn that his agent failed to inform him of his dream house. Needless to say, it is hard to even fathom a situation where the client would learn of this information after the fact.

So, it ends up being one of those unfortunate facts of life where — as of today, given the laws as they exist — there is no real remedy for the injured party. Unethical? Yes. Illegal? Probably? Any way to stop the behavior? Unfortunately, probably not.

The Commission-Based Fee Structure: it’s Bad for Buyers

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Reduced SOC[This post updated 12/2014 and 3/2016 and 9/2016]

This post is not legal advice. For legal advice, consult an attorney in person, not a blog.

Originally, all real estate agents  represented only the seller. The “listing” agent signed the contract with the seller that entitled the agent to sell the house and earn a commission. This agent worked for and had a duty to the seller, of course. The listing agent informed other agents about the house now available for purchase by posting it on the Multiple Listing Service.

Another agent, the “selling” agent, would see the listing and show it to a potential buyer. Even though the selling agent then assisted the buyer in purchasing the property, she actually — and legally — worked for and owed a duty to the seller only. Upon the sale, the listing agent would split the commission required by the listing contract with the selling agent. After all, they cooperated in making the sale.

The system made sense – least back then – as an efficient way of selling property. Some agents today still look at commissions in this light. As James Melanowski, an agent, said in a recent comment (#20):

There is one commission. I get paid x% to sell your property and with that x% I will do everything in my power to do my job. That may include paying a buyer’s agent, it may not. I may want to pay that agent y%, y-1/2%, or y+1/2% to bring that buyer to the table. The point is, x% is what you pay ME and it is to do with as I please.

Unfortunately, in the old, historical system – echoes of which are still heard today – buyers usually mistakenly believed that “their” agent represented them in the transaction. In reality, “their” agent, the selling agent, worked only for the seller, and the buyers had no representation at all.

With the evolution of consumer protections, many states revised this system. In 1996, Washington passed RCW Chapter 18.86, which by law altered this arrangement. Since then, in Washington a “buyer’s” agent owes a duty only to the buyer, regardless of the source of compensation, while a “seller’s” agent represents only the seller. Notwithstanding this new legal arrangement, the term “selling” agent is still used today by the MLS to describe a buyer’s agent(much to the chagrin of enlightened agents — right, Ardell?).

But if the buyer’s agent now represents the buyer, why is the buyer’s agent still paid by the seller? This alone is enough to create a conflict of interest that could potentially impact the quality of the buyer’s representation (see RPC 1.08(f)).

There are other implications. A buyer selects her agent and works closely with the agent to find and buy a house, an intimate and expensive proposition. The agent works for and owes a duty to the buyer. So shouldn’t the buyer have the ability to decide how much to pay the agent? Under the current system, based on an outdated and no-longer-applicable model of representation, it is the seller — not the buyer — who ultimately determines the buyer’s agent’s compensation. This leaves the buyer with no ability to match the fee paid with the services provided. Yet most buyers now do their own initial home search themselves on the internet.

In addition, agents can and do represent both buyers and sellers. Thus, they have a vested interest in a system that promises a significant commission for both sides of the transaction. With flat fee listing and FSBO, the listing agent commission has come under increasing price pressure, and indeed it is not uncommon for listing agents to reduce their commission from the previously “standard” 3% (often times as long as the seller will also use the same agent for the following purchase, thus allowing the agent a subsequent and “full” 3% commission).

The “selling” agent commission (SOC), however, is immune from such price pressure given the current business model. Indeed, as Kary Krismer, another agent, said in a comment (#31) to a recent post in reference to a buyer’s agent’s commission of 2.5%, rather than the standard 3%:

Well, it’s not that it’s a waste, but it’s not a wise decision at all. We’ll show buyers 2.5% properties, and have actually had a number of transactions in them. But there are some agents that won’t, or that subconsciously might down-talk the property.

Agents may argue that they are “entitled” — or, more accurately, earn — a full 3% given the time and efforts they invest in a sale. But that alone cannot justify this failure to show properties with a slightly lesser commission. After all, even 2.5% is a reasonable — to say the least — paycheck given the average house price (2.5% of $400k is $10,000). Thus, whether consciously or subconsciously, a significant number of agents fail to best serve their clients’ interests (by showing them ALL suitable properties and giving honest and accurate advice about each) simply because they won’t make as much money.

While that is not absolutely wrong, at a minimum the buyer should be aware of this “limited” representation. How many buyer’s agents — who discriminate against SOCs of less than the “full” 3% — have that conversation with their clients? So consciously or not, brokers provide inferior services to buyers where sellers offer less than a 3% SOC.

That said, there is some early downward price pressure on the SOC, thanks to the Seattle startup scene. Surefield, a licensed broker and member of the NWMLS, now offers a $2000 SOC. It is able to do so thanks to its patented 3D virtual tour technology that powers its listings. This “virtual” tour makes it easier to sell the house, so Surefield offers a much lower buyer’s agent’s commission.

There is the “granddaddy” of Seattle startup real estate firms, Redfin. It’s been around for more than 10 years, plugging away at the issue and in the process making it clear that sellers don’t necessarily need to offer the “full” 3% SOC. Although the amount has dropped significantly over the years, Redfin still rebates a portion of the SOC to its client at closing.

And there used to be a Seattle real estate firm, Houses,Direct (formerly Added Equity Real Estate, formerly Quill Realty), which was at the forefront of change. Quill withdrew from its local Multiple Listing Service in June of 2015. Since then it was the only real estate firm in Western WA to sell houses without offering a buyer’s agent commission. Although that iteration didn’t work too well, it is clear that Seattle startups are leading the charge on lowering the SOC!

Finally, because the commission is a transaction cost, it stands to reason that a decrease in that cost will benefit either buyers or sellers or both (either prices remain the same with less costs and more money to the seller, or prices are reduced to reflect the reduction in costs, or both). With the current system, there is virtually no incentive to reduce this cost — or, for that matter even an ability to do so, unless the buyer is willing to forego an agent and either use an attorney or self-represent. Given what is at stake, an attorney is the prudent choice. Some lawyers are marketing themselves to buyers who want to buy without an agent in order to save the 3% SOC.

So, the current commission-based fee structure, based on an outdated and now inapplicable model, leads to increased transaction costs (than what would be available in a truly competitive market) and a decreased quality of buyer’s representation. I’d say that’s bad for buyers. But changes are on the horizon.

Image above © Iqoncept | Dreamstime.com – Commission Percent Sign Ball Earning Bonus Pay Rate Photo

Buying without an Agent: How to get that 3%

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[Updated 3/2016]

This post is not legal advice. For legal advice, consult an attorney in person and do not rely on a blog.

I’ve written elsewhere about the practical steps in buying without an agent. The Big Question, of course, is this: Will that save me any money? If it does, then every buyer should at least consider using a real estate attorney rather than a real estate agent to buy a home.

As an initial matter, you must understand where the money starts and where it goes in a typical transaction. It starts, of course, with you, the Buyer. It’s not uncommon to hear someone say, “Oh, sure I used an agent to buy my house — he was free! I didn’t pay him anything!” As a practical matter, that is just not true .

Remember that, of all the parties involved in the transaction (seller, buyer, listing agent, buyer’s agent, title insurance, escrow, lender, mortgage broker, etc.) only one brings money — you, the Buyer. Everyone else gets paid from the Buyer’s money. So while you may not pay your agent directly, you most certainly do pay him out of your pocket (or, more accurately, out of the money you have borrowed from the bank, and which you must repay, with interest).

And exactly how does your agent get paid with your money? Well, the seller previously signed a contract with the listing agent where the seller promised to pay a certain percentage in exchange for the agent finding a buyer. The “typical” percentage paid is 6%, although there is some degree of variability with figure. Per the rules of the MLS, that commission is then shared with the buyer’s agent when the house is sold (or, more accurately, with the buyer’s broker, but I won’t get into that for simplicity’s sake). Most sellers and listing agents agree to give 3% to the buyer’s agent, on the theory that anything less will attract less interest from buyer’s agents (I’ll get into the ethical issues of that dilemma in a future post).

The listing agent has a contractual right to the full commission. If you go without an agent (e.g., drafting the offer yourself (discouraged) or using an attorney), then the listing agent will not need to share any portion of the commission. While the agent has no legal obligation to accept anything less than the full commission as set by the listing agreement, the agent is free to accept less than full payment if he is so inclined. So, the buyer can structure the offer such that, if the listing agent cooperates, the selling price is reduced by 3% (or whatever percentage was to be shared with a buyer’s agent). The seller will presumably lean on the listing agent to reduce the commission, as everyone gets what they expected out of the transaction.

All that said, clearly the seller and not the buyer pays for the buyer’s agent – suggesting otherwise is simply a helpful analytical approach. But equally true, the buyer can benefit by reducing the seller’s anticipated and already-accounted-for costs. When the buyer does so, the seller is likely to pass most if not all of those savings back to the buyer in the form of a reduced price.

So regardless of the perspective, in the final analysis a buyer can pay less by reducing the fee paid to the buyer’s agent. So smart buyers do so by skipping an agent and reducing their offer by the 3% to be saved by the seller.

Finally, what about all of the extra work for the listing agent? Yes, there may be a more work, such as being there for the inspection since there is no buyer’s agent. But don’t forget that, in any one transaction, a listing agent makes a very fair fee. What is the average amount of time a good listing agent invests in a listing? And, assuming a 1.5% commission to the agent (after the broker’s cut), what is the average fee? Given a median home price of $400k, the agent will make $6k. Assuming 50 hours of time, that’s $200 per hour. A little “extra” work (it is, after all, all part of the job) is not unreasonable if necessary to secure that amount of compensation.

So, if you’re thinking of buying a house, consider ALL of your options and figure out what is best for you. If you want to save a lot of money (we’re not talking pennies here), consider using an attorney instead of an agent (you should absolutely use a professional given the value of the transaction, and realistically these are your two options).

Using an agent to buy a house? That is soooo 20th century…

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This post is not legal advice. For legal advice, consult an attorney directly (i.e. not via a blog).

This is Part I of a multi-part post.
Part I: Visiting the Property
Several months ago, I authored a post about buying a house without utilizing the services of an agent. It generated quite the conversation (concluding with this tasteful comment from our friends at Bloodhound Blog: “Entirely self serving, badly argued with serious errors of omission, it generated some pleasant acrimony in the comment section…”) and eventually led to the promise of a “blogging death match” between me and Ardell — okay, Ardell, it’s ON!

It used to be, way back in the 20th century, that a potential buyer had no way of searching the “market” for the perfect home. There was no single “market” (as in marketplace) for consumers because properties were invariably listed on the MLS, and MLS data was private and accessible only through an agent. Thus, to search the marketplace, the buyer needed to hire an agent who could then search the data for the perfect home.

The advent of the internet changed all that, of course. Today, while agents (or more accurately, brokers) still control the data, it is available publicly through innumerable search engines . Thus, a buyer can now find the perfect home without ever speaking with an agent — until it is time to actually visit the property before making an offer (buying a home sight unseen based on pictures on the internet is only for the very brave and the very foolish). As a result, most buyers at that point simply contact an agent (we’ve all got family, friends, friends-of-family, and family-of-friends who are agents and who would love to assist) who can then provide them with access to the property.

But that service (and perhaps others! Good agents are a veritable repository of helpful information concerning property) comes at a significant cost. The typical buyer’s agent expects to be paid 3% of the selling price as a fee for his or her services (with some portion of that going to the buyer’s broker). This substantial sum (do the math yourself — it is a lot of money for even an “affordable” starter home) travels a circuitous route from the buyer to the agent. When listing the property on the MLS (still the de facto marketplace) the seller signs a contract with the listing agent (more accurately, the listing broker). That contract entitles the agent to a certain percentage of the sales price (typically 6% but there are many exceptions). That commission is then shared via MLS rules with a buyer’s agent, with 3% usually going to the buyer’s agent. Accordingly, at closing, 3% of the purchase price is paid by the buyer to the seller, who then pays it to his listing agent/broker, who then pays it to the buyer’s agent/broker.

So if you want to see the property but don’t want to hire an agent because you don’t want to pay such a significant sum, how do you get in to see the property? Easy: Contact the listing agent. Way back when property values were skyrocketing, some listing agents felt that they should not have to assist a buyer in seeing the property. Those days — at least for now — are over. As TJ commented on my last post:

I think the time when sellers and sellers agents have the luxuary to pick and choose buyers on petty criteria’s like if they have a buyer’s agent or not is soon going to be history.

Contact the listing agent, let her know you want to see the property, and schedule a mutually convenient time. In this market, the listing agent should be more than happy to show the property to a prospective buyer.

[Part II coming soon: “how to get that 3% back into the buyer’s pocket” which will further discuss the services that might otherwise be provided by the agent.]

Having second thoughts about that High-End Condo presale?

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As with any blog, this is not legal advice. If you want legal advice, consult an attorney in your area.

Escala. 1521 second avenue. Olive 8. Just a few of the many luxury, high-end condominiums going up in the Emerald City. Needless to say, when its “designed exclusively for the confident few,” you can be sure there will be a stiff price of admission. Indeed, these developers not only charge a high price, they also typically require a substantial earnest money deposit, usually 5% of the purchase price. On a million dollar condo, thats $50k. You’ll pony up this sum months, and even years, before the condo is complete and ready to close.

So what happens if you change your mind between the time you signed the presale contract and when the closing date approaches? What happens if the market goes in the tank and you want out of the deal? Or you foolishly went long on a can’t-miss investment opportunity, and now you’re not so sure you’re one of the “confident few”? Can you get your money back?

The short answer is “no.” Developers typically structure their contracts so that the earnest money will be forfeited if the buyer does not close. Buyers backing out of the deal is every developer’s nightmare — they need to sell the units and move on to the next project. Accordingly, developers do everything they can to “lock in” a buyer.

That said, there are typically a few avenues of attack if you really want out of the deal. To determine whether you are really serious about getting out of the deal (versus typical “buyer’s remorse”), ask yourself: “What would be worse, buying this condo or losing my earnest money?” If buying the condo is the worst possible outcome, worse even than losing your earnest money, then you’re ready to head for the exits.

One fertile area of inquiry is the Public Offering Statement (POS). By law, the seller of a new condo must provide the buyer with POS, which contains a variety of information about the condo development. Upon receipt, the buyer has a 7 day right of rescission and can therefore rescind the contract within that period with a full return of the earnest money. The seller must also provide the buyer with “all material amendments” to the POS, and upon receipt the buyer has another right of rescission if the “purchaser would have that right under generally applicable legal principles.”

Therein lies the rub, of course. These “generally applicable legal principles” are not spelled out in the statute, so it is a bit of an open question as to the extent of a change in the POS (between when provided to the buyer initially and when finalized) that gives rise to another right of rescission. Regardless, however, it creates an arguable point with attendant risk to all parties if they are unable to voluntarily resolve the dispute. Since every POS changes between the initial, presale version and the final version, a buyer can usually use these changes to negotiate at least a partial return of the earnest money.

There are other “arguable points” as well, all of which can lead to a negotiated resolution and a return of at least some of the money. Many developers are apparently unaware of the Interstate Land Sales Disclosure Act, a federal law that applies to large-scale developments. This statute has several requirements, including a disclosure requirement similar to the POS. If the seller fails to abide by the requirements of this federal statute, the buyer may have a right of rescission. There are many exceptions to this statue, but as long as there is some doubt, it will assist the buyer in negotiating a resolution.

In the final analysis, it is probably worth it to hire an attorney if there is a substantial amount of earnest money at issue (almost guaranteed if you’re talking about a luxury condo). The attorney will be able to identify those legal issues that can be used to negotiate a resolution. In doing so, you will probably get some of your earnest money back, and that total will probably be more than what you spent on attorney’s fees.

Sellers — are you getting SC@EWED by the lender? Fight back!

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Over the last few weeks, there have been a few posts here on RCG discussing the means by which loan originators enhance their income by “harvesting” seller paid closing costs that otherwise would have been retained by the seller.  In a nutshell, the process works like this: In the purchase and sale agreement, seller agrees to pay “up to” a certain sum in buyer’s closing costs.  Immediately prior to closing, when all costs are known, the loan originator determines that the closing costs are less than the maximum amount to be paid by the seller.  The loan originator then increases the loan origination or related fees to “soak up” the difference between the “actual” costs of providing the service to buyer and the amount that can be charged based on seller’s obligation to pay up to a certain amount.

As I (and many others) noted in comments on the above posts, this conduct is dishonest and reprehensible.  Why should the loan originator (or other service provider, such as escrow) be paid an amount beyond that quoted in the Good Faith Estimate or elsewhere?  The service provider agreed to provide a service for a set fee, but then increases that fee at the last minute not because of additional work, but because there is additional money “available.”  Clearly, this constitutes a windfall to the loan originator at the seller’s expense. 

In Washington, there is a law, the Consumer Protection Act (CPA), that prohibits any unfair or deceptive acts or practices in the conduct of commerce.  If a person is the victim of conduct that violates the CPA, that person has a legal claim against the wrongdoer.  If the plaintiff prevails on such a claim, the plaintiff is entitled to an award equal to the amount they lost as a result of the wrongful conduct, plus an addition sum equal to three times that amount (up to $10,000), plus their attorney fees and costs incurred in pursuing the claim.  The legislature specifically enacted this law to create “private Attorney Generals,” private citizens who would have the incentive to seek out and punish unfair or deceptive business practices.

If you are a recent seller, you may have been victimized by the conduct described above, and you may have a claim under the CPA.  To find out, first determine whether you agreed in the purchase and sale agreement to pay “up to” a certain sum in closing costs.  Presumably, the more you agreed to pay, the more likely it is that some of those funds were “harvested” by the loan originator or other service provider related to the transaction. 

If you agreed to pay “up to” a certain amount, then you need to research further.  Ask your Closing Agent to provide you with a copy of the buyer’s HUD-1 Settlement Statement, which will show the amount paid by you (on buyer’s behalf) in closing costs.  If your Closing Agent will not provide you with a copy, contact your agent (if you used one), as the purchase and sale agreement requires the Closing Agent to share documents with the agents.  Once you obtain a copy, have it reviewed by someone knowledgable about typical closing costs to determine whether any are obviously excessive.  Alternatively, contact the buyers and see if they will share a copy of their Good Faith Estimate.  Comparing the GFE to the HUD-1 should indicate whether there were any significant (and presumably last minute) increases in the buyer’s closing costs.

If it appears that you were the victim of this scam, contact an attorney who is knowledgable about consumer law and/or real estate law.  The attorney may be willing to take the case on a contingency basis (meaning the attorney gets paid only if you recover funds) given the attorney’s fees provision in the CPA.  If it appears that you paid an additional $2000 in closing costs, then you could recover that $2000 plus an additional $6000, for a toal recovery of $8000.  Of course, I would be happy to discuss the matter and would very probably be interested in taking the case.  Regardless, though, sellers need to step up and enforce the protections of the CPA if we are to discourage this conduct in the future.

The (legal) importance of a home inspection

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(This post is not legal advice.  For legal advice, consult a lawyer about your particular situation.)

First, my apologies to the RCG community.  I recently took a lengthy vacation and have been quite busy since my return.  Moreover, I now need to hire additional staff and thus move to a larger office space.  So, please forgive my less-than-frequent contributions until things return to “normal.”

Recently, Russ authored a post discussing the recent Supreme Court case of Alejandre v. Bull (beating me to the punch, in the process).  This is indeed an important case for several reasons, one of which Russ and the subsequent comments touch upon: the importance of a thorough home inspection.

Initially, the home inspection (if performed competently) provides the buyer with information regarding the condition of the house.  Obviously, the buyer is best served having full knowledge of any existing defects and able to make an informed decision about whether to complete the purchase. 

In light of the Bull case, however, the inspection also has legal significance.  In that case, the Court (in paragraphs 32 and 33) noted that a buyer of real property may still have a claim of fraudulent concealment and/or fraud where the seller fails to disclose a known defect (notwithstanding the fact that the buyer does not have a claim for negligent misrepresentation due to the economic loss rule, as discussed by Russ).  To prevail on a claim of fraudulent concealment, the buyer must show that the defect at issue “would not be disclosed by a careful, reasonable inspection by the purchaser.”  To prevail on a fraud claim, the buyer must show that he had a right to rely on the alleged misrepresentation of the defect at issue.  This “right to rely” is “intrinsically linked” (using the Court’s words) to a buyer’s duty to exercise diligence with regard to the representations at issue.  

Accordingly, an inspection is critical to retaining the ability to make a claim of fraud or fraudulent concealment against a seller.  If a buyer skips the inspection, the buyer will have great difficulty showing that the defect would not have been revealed by an inspection.  The reverse is true as well: by getting an inspection that fails to uncover the defect, the buyer will have a very good argument that the defect would not be (and indeed was not) revealed by an inspection.  Similarly, absent an inspection, the buyer will almost certainly have failed to exercise the necessary diligence to identify the defect, regardless of seller’s representation.

An inspection has an immediate, practical benefit.  However, it also has a legal benefit.  If you forego the inspection, you essentially waive any claim against the seller for failing to disclose a known defect.

The condo public offering statement/resale certificate

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As always, this post is not legal advice.  For a specific legal question, consult an attorney.

Buying a condo can make a lot of sense, particularly if you can purchase a unit close to work (e.g. downtown) and if your “lifestyle” is conducive to apartment-style living (e.g. no kids, no pets).  If you’ve decided to take the plunge, make sure you do your homework.  The Seattle Times had a good piece on the topic a couple of years ago.  That article notes several sources of information that you should review prior to purchasing, including the public offering statement (for new construction) or the resale certificate (for a previously owned unit).  In reality, your homework can begin and end with the public offering statement or resale certificate, as by law each of these must contain the information necessary to make an informed decision.

That said, don’t revert to your younger self and “forget” to do your homework.  The statement or certificate can be quite intimidating, often including hundreds of pages of information.  Nonetheless, you need to sit down and dedicate some time to reviewing it in detail.  Reading it in bed, before drifting off to sleep, is NOT sufficient (although you may find a cure for your insomnia).  The disclosures contain information about the financial and physical health of the devlopment, as well as the rules that will govern how you can use the unit (such as renting it out).  Ignore this information at your peril — you may find years later that you made a very poor decision, all because you did not take the time to review the provided information.

Finally, given that the disclosure contains hundreds of pages, many of them written in dense “legalese,” you may wonder whether an attorney should also review it on your behalf.  An attorney can explain the disclosure and answer any questions you may have.  Moreover, the attorney may be able to identify issues of concern that you did not appreciate.  On the other hand, the attorney does not and can not know everything that is important to you.  Therefore, while you may benefit from an attorney’s review, the key is that YOU must take the time to review the disclosure carefully.  If, after doing so, you decide that the condo is not for you, both disclosures create a right of rescission (7 days for a public offering statement, 5 days for a resale certificate) so you can cancel your purchase and sale agreement and avoid the mistake entirely.

Where's the line between "agent" and "lawyer"?

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As with any blog post, this does not constitute legal advice. If you have a specific question, consult a specific attorney. 

Recents posts (first by Russ, then by Reba) have examined the role to be played in real estate transactions by agents and lawyers.  No doubt, everyone has a strong opinion based on their own personal experiences.  But what’s the law on the issue?

We all know that the seminal case on the issue is Cultum v. Heritage House Realtors, 103 Wn.2d 623 (1985). In that case, the buyer told the agent that she wanted to be able to inspect the home and rescind the contract based on her subjective interpretation of that inspection. Acting on this request, the agent used a form “drafted by an attorney” to include in the contract a very simple inspection contingency: “This offer is contingent on a satisfactory Structural Inspection, to be completed by 8/20/80.” The agent used the “single standard form” provided by the broker. The buyer performed a whole house inspection and was not satisfied with the results. The seller, however, refused to return the earnest money because the report did not objectively indicate any structural defficiencies.

The trial court found that the agent, in drafting the contingency, engaged in the practice of law.  The Supreme Court agreed, as the agent clearly created a document that affected the legal rights and obligations of the buyer. However, the Court decided that, in the interests of an efficient real estate market, an agent should be allowed to engage in the limited practice of law.  Thus, the Court concluded (using “agent” in place of “broker/salesperson”:

“[An agent] is permitted to complete simple printed standardized real estate forms, which forms must be approved by a lawyer, it being understood that these forms shall not be used for other than simple real estate transactions which arise in the usual course of the [agent’s] business and that such forms will be used only in connection with real estate transactions actually handled by such [agent] as [an agent] and then without charge for the simple service of completing the form.” 

However, “if [the agent] believes there may be complicated legal issues involved, he or she should persuade the parties to seek legal advice.” Moreover, “when completing form earnest money agreements, [the agent] must comply with the standard of care of a practicing attorney.” 103 Wn.d20 at 630-31.

So when does the agent cross the line and engage in the unauthorized practice of law?  Before rereading the case in response to the above posts, I thought that a Form 34 was a standing invitation for an agent to cross the line. However, that very probably is not correct. After all, the agent in Cultum wrote a simple contingency, and that fell within the Court’s rule allowing agents to practice law to a limited extent.  (The agent was ultimately liable for the buyer’s loss because the contingency was poorly written, but that’s another topic).

The answer, as suggested by the posts and the comments, turns on the complexity of the clause being inserted into the Form 34. If it’s a “complicated legal issue,” it’s not appropriate for an agent.  Seller wants to take chandelier?  Probably OK. Contract is contingent on events not directly within the control of the parties? Probably not OK. Unfortunately, there’s no bright line rule to be applied in every situation.

In light of that rule, should agents be trained in how to insert contractual language in a Form 34?  After reading Cultum, I think so. They have the legal authority to do so and almost certainly will if necessary to meet the needs of the client. If they can and will do so, then they should have appropriate training so that they can do so competently.

And a final note: should an agent review a non-client’s PSA? Well, the agent does so at his or her own risk, as that review clearly falls outside of the rule set by Cultum.  The review almost certainly constitutes the unauthorized practice of law.

 

Ah… the joys of a shared driveway

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In Seattle, many houses share a driveway with an adjacent property.  Typically, the driveway is created by an easement on each property running on either side of the common boundary.  Each property is burdened by a five foot easement that benefits the other property, thus creating a 10 foot strip of driveway.  Each property then has the legal right to use the driveway, and one neighbor cannot legally impede or impair the other neighbor’s reasonable use of the driveway.

So where’s the joy?  Well, it’s really more like “joy” — as in “Holy $#%*, what a giant pain in the ^*$!” The fact of the matter is that not every neighbor gets along well with others.  If you find yourself living next to such a person, the shared driveway can quickly become a flashpoint for conflict.  Because you each have a legal right to use the driveway, you legally must cooperate as to its use.  Such cooperation can quickly break down if there is some underlying dispute or existing friction.  You may need to resort to litigation simply to enforce your right to use your own driveway.  Litigation, of course, is neither pleasant nor cheap, and it certainly won’t help repair your relationship with your neighbor.

So how do you avoid this “joyful” arrangement?  When purchasing property, you should always include a title contingency. This allows you to review the title commitment and identify any existing easements or other restrictions on title that may not be consistent with your intended use.  If you need help in interpreting the title report, you should consult an attorney and not your real estate agent (another good reason to have both an attorney and a real estate broker on your team from the beginning).

If you see an easement for a shared driveway, remember that fences — not shared driveways — make for good neighbors. With such a contingency, you can then rescind the contract, get your earnest money back, and move on to another house that doesn’t include the seeds for a good ol’ fashioned neighborly feud.