Tuesday, November 29, 2005

Terminating a Contract

I just authored a lengthy post on Rain City Guide that discusses a recent case in which the buyers terminated the purchase and sale agreement. The case provides some interesting insight on factors to consider before walking away from a contract. Don't forget to check out the rest of Rain City Guide -- it's a good blog.

Thursday, November 17, 2005

Real Estate Agents and Dual Agency

As noted in earlier posts, there are both advantages and disadvantages to using an agent when selling (or buying) your home. If you decide to use an agent, you should understand the nature of an agency relationship, and in particular the implications of dual agency.

The term "agent" refers to a person who acts on behalf of another. The person for whom the agent acts is called a "principal." Thus, when you hire a real estate "agent," you hire that person to act on your behalf in buying or selling your home; you are the "principal." The law requires the agent to be loyal to the principal and to act in the principal's best interest.

In some instances, an agent may be acting on behalf of two different principals -- a "dual agent." When acting as a dual agent, the agent must be aware of his or her responsibility to each principal. If the principals have conflicting interests (such as negotiations between a seller, who wants the highest price, and the buyer, who wants the lowest), then it may not be appropriate for the agent to continue as a dual agent.

In Washington, statutes address the rules of agency as they relate to real estate professionals. These laws (RCW Chapter 18.86, "Real Estate Brokerage Relationships") spell out the scope of an agent's responsiblity to you as the principal. If you use an agent to sell your home, you will probably be asked to sign an Exclusive Sale and Listing Agreement. You should appreciate the nature of an agency relationship before you sign that agreement. In fact, by law an agent must provide you with a pamphlet entitled "The Law of Real Estate Agency" (which is simply a reprint of the applicable laws in RCW 18.86) before you sign a Listing Agreement or otherwise accept the agent's services (see RCW 18.86.030(1)(f)).

The standard form Exclusive Sale and Listing Agreement contains language that addresses the agency relationship. Specifically, the Listing Agreement as written allows the agent to represent both a buyer and a seller of the same property. This is permissible under Washington law (see RCW 18.86.060). However, you should seriously consider whether you want to permit your agent to represent the other party in the transaction. If you decide that your agent should work exclusively for you, then you should change the Listing Agreement before you sign it. Of course, you should also discuss this issue with your agent. Although the agent may indicate that he or she will not represent the other party, regardless of what the Listing Agreement says, note that your contractual rights are generally determined by the contract, not by comments made when the contract was signed. An attorney can assist you in understanding your rights under the Listing Agreement and can suggest changes to further protect your interests. Of course, you must consult with the attorney before you sign the contract.

Thursday, November 10, 2005

The Integration Clause -- put ALL terms in contract!

I recently spoke with a buyer who just purchased a conversion condo (it had previously been a rental apartment). The buyer was upset with the seller, as the seller had promised to do a significant amount of work on the unit prior to closing but had failed to do so. These promises had been made orally by the seller and had not been incorporated into the written purchase and sale agreement. Unfortunately, I had to tell this buyer that she probably did not have any legal remedy due to the presence of an integration clause in the purchase and sale agreement.

An integration clause in a contract indicates that the written agreement is the final and complete agreement of the parties in regards to the contractual terms. The written contract supersedes all prior or contemporaneous understandings and representations. Moreover, the clause requires that any modification to the contractual terms be in writing and signed by all parties. The law favors such a clause because it provides for certainty as to the rights and obligations of the parties to the contract. Most real estate form contracts (including the one used by this particular buyer) include an integration clause.

When I spoke with this buyer, she indicated that the seller had repeatedly promised to replace all of the old appliances with brand new ones. He also indicated that he would be doing a significant remodel of the unit, and in fact told her that she could not do an interior inspection of the unit as a result. He promised to repair the elevator and re-pave the driveway. The buyer made sure to make notes of all of these conversations. When she closed on the sale and moved in, she was understandably upset that none of this work had been performed.

Unfortunately for the buyer, none of the seller's promises had been incorporated into the original purchase and sale agreement, nor had they been included in the agreement as written (and signed) amendments. Given the presence of the integration clause, the buyer almost certainly would not be able to enforce these promises by legal action or obtain compensation from the seller due to his failure to keep them. Thus, this buyer learned the hard way that ALL relevant terms should be included in the purchase and sale agreement. If you fail to include certain terms, you run the risk of not having any legal remedy in the event that the other party fails to abide by those omitted terms. Ronald Reagan said, "Trust -- but verify." In the world of contracts, "Trust -- but include in the contract."

Thursday, November 03, 2005

FSBO Experience in Seattle

Here's another "from the trenches" account of a homeowner who sold the home without the services of an agent -- right here in the Seattle area, no less. It's a two part post: Part 1 and Part 2. In particular, the author provides several useful tips regarding the marketing of the home. Of note, the author makes no reference to using the services of an attorney. Thankfully, it appears that the deal went smoothly, although time will tell whether the seller will have to deal with legal issues down the road (a claim arising out of a poorly worded deed, perhaps?) as a result of not obtaining legal counsel. This author's willingness to forego an attorney stands in contrast to other FSBO accounts and the advice of "experts," as related in my previous two posts (here and here).

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