WA Property Contract Forms Available for Free

This post about WA property contract forms - LIKE EVERY BLOG POST - is not legal advice, and Craig Blackmon is not your attorney. Like everything else on the internet, rely on this information at your own risk.

One of the hardest things about buying or selling a home without an agent? Trying to find the forms you need to create a written contract. There is no such thing as an "oral contract" when it comes to selling real estate. Either it's in writing, or there's no contract.

Of course, the best thing to do is to simply hire a lawyer. A good one with experience in the field of residential real estate will likely have her own set of forms. As a result, the cost is reasonable. And it's a massively expensive transaction with significant potential liability.

If you're selling, are you sure you won't be liable under the deed for a defect in title? Or a physical defect you didn't disclose? An attorney can help you make sure. And if you're buying, an attorney can help you through all of your due diligence so that you have the best chance of being successful.

An attorney isn't required, and you may decide to buy a home or sell property yourself (FSBO).

There are risks. But some people can reasonably assume those risks and save themselves a bunch of money in the process. Without a lawyer or a broker in the mix, a transaction will have minimal transaction costs (about 2.5% or so, but not the 9% that includes traditional brokers on each side). On the seller side, it's called For Sale By Owner, or FSBO. And buyers can do it to.

To help those consumers - who can reasonably assume the risks, and who have made the decision to do so - I am making my real estate forms available for free.

WA Property Contract Forms Available for FREE

But not here. Instead, please head on over to my real estate firm site, from there you're just a few minutes away from getting the free WA Property Contract Forms you need to buy property or sell a home in Washington.

Looking for a Form 17 (aka WA Seller Disclosure Statement)?

Free WA Seller Disclosure Statement (aka NWMLS Form 17)

This is the form required by law from most sellers of real property in Washington. If you're selling FSBO (For Sale By Owner) you may need a copy that you can use. You can get a free copy of the Seller Disclosure Statement (another version similar to the commonly used NWMLS Form 17) from my real estate firm RobotAgent.com. It's not the Form 17 of course, that is a specific, copyrighted form available only from NWMLS member brokers. But this form does the same thing and also satisfies the legal requirement.

Buying a House? Consider Using a Real Estate Lawyer Rather Than a Realtor

It's a cold, hard fact: You can save serious money if you skip a real estate agent and hire a lawyer instead. Your attorney will draft the offer, negotiate the contract, and do an even better job of protecting your interests. Check out my post - you just passed the link! - for an in-depth discussion of the issue.

How to Win a Bidding War - or Avoid One Entirely, plus the Future of the Market

I just updated a great post on the Quill Blog about how to be the winning offer when you have to compete against other buyers. Hopefully it is just a multiple offer situation, where the seller simply accepts the best written offer. But even if it devolves into a bidding war, follow these steps to have the best chances possible.

Confused about the difference between a bidding war and a multiple offer situation? As a buyer, ever wondered whether there were any limits at all on what sellers and their agents can disclose to other buyers? I've written all about the topic on Rain City Guide.

Finally, if you've learned all to well about multiple offer situations and bidding wars, and you'd like to avoid them for the rest of your life (or at least until you buy a home), then check out my post on MLS alternatives. Honestly, it shouldn't be so darn difficult to buy a house!

Thankfully, this low inventory will not last forever. With 18% appreciation in the city of Seattle last year, folks will soon have enough equity to consider selling. That should allow for a significant increase in inventory.

Quill Realty Provides Real Estate Agents, Real Estate Lawyers, and Commission Rebates

My new real estate firm Quill Realty is open for business!  Quill provides its buyers and sellers with two professionals: A real estate agent, who provides all of the typical real estate agent services; and an attorney, who makes sure the client understands the legal rights and obligations being assumed and the client's interests are protected throughout.  And on top of that, Quill charges a 2% fee, not the typical 3% commission charged by most agents.  Quill sellers save the difference; Quill buyers get a rebate at closing of the balance of the commission paid by the seller to the buyer's agent.  So Quill buyers usually get a big cash rebate at closing.

Got questions about Quill?  We've got answers!

Why should a lawyer be involved in the first place? 

I have an agent, why do I need a lawyer?

I’m a listing agent, what can I expect?

I’m a seller with an offer from a Quill buyer – should I be worried?

I’m a buyer, how will I benefitfrom working with Quill?

How does Quill get paid and why will I get a rebate?

Real Estate Negotiation Skills: What Are They, and Who Has Them

This post first appeared on Rain City Guide.

It’s not hard to find real estate agents who hold themselves out as “expert negotiators.”  There is even a certification – Certified Negotiation Expert, or CNE – that agents can obtain to further enhance their skills and reputation.  But really, what makes for a great negotiator when buying or selling real estate?  And who has those skills?

At it’s most basic level, “negotiation” is a subset of the art of persuasion.  An expert negotiator knows as much about the opposite party as possible, and in particular their motivation for entering into the proposed transaction and their desired result.  For example, when negotiating a purchase, the negotiator should be asking herself, “What is motivating this seller?  What can my buyer do to address the needs of this seller?”  The negotiator uses this knowledge to meet the seller’s needs as much as possible, which of course will help to facilitate the sale.

There are other elements to being a great negotiator.  For example, a negotiator may be able to extract a significant concession by setting up and standing on a bluff.  This is the “poker-face” aspect of negotiations.  Depending on the circumstances, a good negotiator may play it “close to the vest” and not reveal much about the party for whom she is negotiating.  This is, to a certain extent, the flip side of knowing the other party’s motivation.  If you don’t reveal your motivations, the other party will not be able to exploit them (although they won’t be able to address them either).  That said, this is  not a particularly helpful skill in real estate because the negotiations are in writing and not face-to-face.  Plus, there is always risk in bluffing, because if your bluff is called your position will be weaker in the future.

Empathy is also a good negotiation skill, particularly in the context of residential real estate.  Buyers and sellers of their homes have a significant emotional investment in the proposed transaction, and therefore they may not act “rationally.”  For example, a buyer may think he is requesting a modest concession following the inspection, but the seller is highly offended by the effort and the deal craters as a result.  A good negotiator takes this emotional component into account.

Finally, there is the most important negotiation skill (particularly in a highly competitive market like this one): The ability to assist the client in relinquishing some contractual rights and assuming some contractual risks in order to strengthen the offer.  Admittedly, this skill is only relevant, generally speaking, when there are multiple potential buyers and multiple offers.  But in that situation, there will be one winner and a whole bunch of losers, and everyone wants to be that winner.

Before going further, I must note: helping a client to understand and relinquish contractual protections is clearly the practice of law. I have long believed that consumers benefit when lawyers provide the legal services needed when buying or selling a home. So I've launched Quill Realty, where every buyer client and every seller client is paired with an attorney to protect their interests from start to finish..

When drafting an offer, a buyer generally includes several contractual terms that protect the buyer at the seller’s expense.  For example, there is a financing contingency, so if financing fails the buyer gets back his earnest money; there is an inspection contingency, so if the buyer is not satisfied with the condition of the property the buyer gets his earnest money back.  A good negotiator will have an intimate understanding of these potential contractual terms.  That negotiator will explain to the buyer how these terms protect him, and how buyer can forego some or all of those protections (like, for example, by foregoing the protections of the financing contingency).  The buyer can then make an informed decision about which protections, if any, to forego.

The expert negotiator can then specifically structure the offer, such as by using an addendum to alter the  terms, to make the offer much more attractive to the seller (basically eliminating the buyer’s protections so if buyer doesn’t complete the purchase for any reason the buyer must forfeit the earnest money).  In doing so, the negotiator will significantly increase the buyer’s chances of beating out other buyers.

So who has such skills?  Of the four examples above, a good real estate agent should fully understand and be able to apply the first three.  The fourth?  That is the practice of law.  Agents are neither trained nor authorized to apply this skill.  If you rely on a real estate agent for this service, you do so at your peril.  If you want a negotiator who has this skill, you should hire an attorney to assist you in the negotiations.

Great Resource for FSBO Sellers

I just came across this outstanding blog post that breaks down into exquisite detail the vast majority - if not all! - issues to be considered and addressed by anyone thinking of selling their home themselves and without an agent.  If you're considering FSBO, you gotta check it out!  A really great first resource, if not the only resource you'll need.  Thanks Catherine R. for the great work!

How to Strengthen an Offer where there are Multiple Buyers

This post first appeared on Rain City Guide .

This is not legal advice, and you should not rely upon it.  For legal advice, consult an attorney, not a blog.

In today's low-interest-rate, low-inventory, recovering-from-the-bubble housing market, there are more buyers than there are sellers.  This leads to routine instances of multiple offers, where only one buyer will get the home under contract and the rest will be disappointed.  So if  you're looking to buy, you need to be thinking about how to handle this likely scenario when you find "the one."  You want to be the sole winner, not one of the several losers.

There are many ways to enhance an offer, many of which are discussed in the link above.  However, these are generally "ham-fisted" attempts to strengthen the offer that are routinely employed by real estate agents and that really are not that effective.  For example, putting down a large amount of earnest money certainly doesn't hurt, but (a) the seller wants to sell, not keep the earnest money, and (b) presumably your competitors will bump up their earnest money as well.  Accordingly, increasing the earnest money is not a particularly effective way of strengthening your offer.

In a recent post, Ardell DellaLogia on Rain City Guide discussed the relationship between the "must appraise" clause and the recent increase in housing values.  She suggests that buyers are now waiving the "must appraise" clause in order to strengthen their offer.  In reality, removing the "must appraise" clause from the financing contingency is an ineffectual way of strengthening the offer.  [That said, Ardell is absolutely correct in warning buyers about entering into a contract where they will have to make  up the difference between the sale price and appraised value, a caution that fully applies to this post as well.]

If a buyer simply eliminates the "must appraise" clause of the financing contingency, the buyer really hasn't strengthened the offer at all.  In fact, just the opposite. Per the terms of the financing contingency, the buyer is relieved of the obligation to buy the home, and is entitled to a return of the earnest money, if the buyer's lender is unable to fund the loan per the terms of the contingency (most commonly the lender will provide 80% of the sale price).  When the financing contingency includes the "must appraise" clause, the buyer does NOT automatically get an "out" if the home appraises for less than the sale price.  Rather, the seller has the contractual right to "massage" the issue and to keep the sale on track.  If there is no "must appraise" clause, the seller loses this contractual right.  So if the property doesn't appraise, where the contract includes a financing contingency but no "must appraise" clause, the loan simply does not fund and buyer is at least arguably entitled to a return of the earnest money back.

Why "arguably"?  There would be a degree of ambiguity in the contract about whether the buyer "had sufficient funds to close" if there is no "must appraise" clause.  The buyer would argue that the "sufficient funds" refers to the buyer's portion of the sale price as set by the contract (e.g., if the contract requires 20% down and the sale price is $500k, then buyer must have $100k on hand).  The fact that the property did not appraise does not change the buyer's obligations.  Rather, it simply means that if the property doesn't appraise, the loan will not fund, and thus buyer is entitled to the protections of the contingency.  The seller will of course argue otherwise. But the goal here is to strengthen the offer, not set up a spitting match with the seller.

That being the goal, the best way to strengthen the offer?  Waive financing entirely.  Does this mean that the buyer is barred from financing the purchase?  Of course not.  There is no prohibition in the contract on getting a loan.  But if the buyer can't get a loan, then buyer will forfeit the earnest money. An offer without a financing contingency is considered a "cash offer" by sellers (and their agents).  This means that the appraisal is irrelevant in regards to buyer's obligation to complete the purchase.  And Ardell is right, THAT is the seller's goal, because bidding wars among buyers can elevate the price beyond "market value."

Sellers don't want the transaction to derail because of a low appraisal.  But you don't get there simply by eliminating the "must appraise" clause.  You need to forgo the financing contingency entirely. Which of course increases the risk to the buyer's earnest money.  If the buyer forgoes the financing contingency but must finance the purchase, and if the financing fails for ANY reason, the buyer loses the earnest money, period.  In other words, the risk of a failure of financing lies on the buyer, not the seller, where there is no financing contingency. 

If the property does not appraise for the sale price, the buyer will either have to go out-of-pocket for the difference (as noted by Ardell) or buyer will forfeit the earnest money.  So if you're thinking of going this route, make sure you understand and accept this risk.

Should you forego the financing contingency, but offer a small amount of earnest money?  This is a good option, in part because "CASH OFFER!" has such an appeal to sellers (and their agents).  There is a good chance that the seller will not even appreciate the need for a large amount of earnest money absent a financing contingency.  If seller does appreciate that issue, then at a minimum you have a good chance of getting a counteroffer from seller.  And if there are multiple buyers, that is about all you can ask for.

So good luck with the offers, and strengthen them in a focused and effective way, as long as you understand the resulting additional risk.

The Law Office of Craig Blackmon rides again!

In 2005, I left my in-house legal counsel position and launched my own solo practice, the Law Office of Craig Blackmon.  In 2009 the firm was renamed Blackmon Holmes with the addition of my new partner (and former associate) Marc Holmes.  At the same time, we launched Washington Lawyers Realty, a real estate brokerage that worked closely with the law firm in assisting folks in buying or selling a home.

While it was a pleasure working with Mr. Holmes, by the beginning of this year it was apparent that we had different visions in regards to the "mature" model and how we would grow the business to get there.  Accordingly, effective March 1 I am back out on my own.

I fully intend on posting to this blog on a regular basis going forward.  Please visit occasionally as the information here should be useful and informative.  And I also fully intend on re-imagining and re-launching my own "lawyer/broker" model that benefits consumers by providing lawyers for the legal work needed to buy or sell a home (rather than relying on a real estate agent for the work) at a substantial savings to the client.  I look forward to keeping everyone informed of this very exciting adventure.

Free Homebuyer Class

WaLaw and Cobalt Mortgage are sponsoring a free class designed for home buyers, whether first time or old hand. We'll be discussing the state of the market, financing options, and how you can save thousands of dollars! Light refreshments will be served, admission is free.

June 8, 2011
6:30pm - 8:30pm
Ballard Community Center, 6020 28th Avenue NW in Ballard

Please RSVP, but its not required. We hope to see you!!

For my insightful analysis...

Since we launched WaLaw, I've assumed responsibility for yet another blog. Ugh. Obviously, something has to give. Accordingly, I anticipate posting on this blog again sometime in -- well, perhaps when I retire. Until then, check out my current and regularly updated blog (which includes both press-related information about WaLaw plus analysis of interesting legal issues) at WaLawRealty.com.

Finally, an alternative to a "buyer's agent"

I've made a name for myself arguing that the RE agent model simply does not make sense in regards to representing a buyer in a transaction. Today, though, buyers of the world finally have an option. With my partner Marc Holmes we've launched a real estate brokerage that allows us to provide comprehensive legal representation to our buyer clients, PLUS those services of a real estate agent that are necessary for the buyer to be fully informed. The best part? We refund 100% of the buyer's agent commission to our clients.

Buying without an agent

I recently posted on Rain City Guide (my favorite real estate blog) about Buying without an agent. The post is pretty informative about the mechanics of actually looking at property listed on your local Multiple Listing Service without hiring an agent (who would otherwise have access to the properties in which you are interested by way of the keybox). The comments (hundreds of 'em!), in turn, raise several other interesting issues. And for a great overview of the topic, check out my recent post on using a lawyer versus a real estate agent when buying a home.

I'm BACK! And have you heard of buyer agent bonuses?

Well, life takes some funny turns. My pet project, FSBOLawCenter, has turned out to be significantly more complicated than I imagined. Go figure. It turns out that an internet business requires time and effort. I'll take this as my dotcom baptism. Plus, I still get traffic to this page. So, my latest revelation is that I should continue -- er, resume -- posting on this page. I'll be interspersing FSBO issues with posts more related to litigation, whether against another party to the contract or against an agent who failed to perform adequately/appropriately. The more I practice in this field, the more I learn about some fairly shady practices in the real estate business. This blog will be a good place to explore on an occasional basis.

So, to kick things off: did you know that, in this rapidly evolving buyers' market, it is not uncommon for sellers to offer "bonuses" directly to buyers' agents? It's true -- here's a lengthy post on the issue. These bonuses can take many forms, the most odious of which is the "full price offer" bonus. With such a bonus, a seller offers to pay a specific sum (perhaps $1k) directly to a buyer's agent if the agent procures a full priced offer.

What's the problem? Well, the agent has a duty to the client buyer to at least disclose any conflict of interest. In the current market, any particular property may be overpriced (even more likely if they have to offer extra money for a full price offer). In those situations, the buyer's agent presumably does not tell the client the property is overpriced, because the agent directly benefits from a full price offer. Pretty ridiculous -- and something you will avoid if you hire an attorney to draft the offer (although, to be fair, the attorney may be less of an "expert" in regards to valuation to begin with). If you paid full price for your home recently, and if you live in WA, give me a call to figure out whether or not you overpaid to your agent's benefit.

FSBOLawCenter -- a great FSBO resource

As promised (albeit after much delay), I finally launched a web site (FSBOLawCenter.com) that is a resource for FSBO sellers and buyers. Moreover, I launched a blog associated with that web site. Therefore, I will no longr be posting to this page. Thanks to my many loyal readers for several great months of blogging -- I hope to see you at the new site.

Changes are afoot...

I am in the process of building a web page designed to be a legal resource for FSBO sellers and buyers -- FSBOLawCenter.com. I've found that many of the topics I address here (e.g. the Integration Clause) are better suited to relatively static web pages that are easy to find, as the information is not time-sensitive. Accordingly, many of the posts here will reappear as pages there. In addition, because blogging is a great way to address time sensitive topics (e.g. a story in the NY Times about the future of FSBO) I will be maintaining a blog on that new web site. In the meantime, my enthusiasm for blogging here on blogspot has dropped to an extremely low level. Therefore -- and I apologize for this -- please do not look for new substantive posts at this address. When launched, I will post again about FSBOLawCenter.com, and I hope you will find the page useful and informative. In the meantime, I suggest you check Rain City Guide, an excellent real estate blog where I occasionally post. Thanks to any readers out there who have enjoyed this blog, and I hope to see you at my new address.

Different Perspective on the Housing Bubble

Here's an interesting NY Times article that gives a new perspective on the apparently now-deflating housing "bubble." As argued by the author, high home prices do not provide the greatest benefit to the greatest number of people -- sort of a utilitarian perspective. I wonder about his claims that only 1 in 10 homeowners have mortgage debt equal to 90% or greater of their home value. Regardless, even if true, if you're that one in ten, you've got a lot to fear from the bubble deflation, particularly if you've got an ARM that will require increasingly larger payments.

Flat Fee MLS

One of the great challenges of attempting an FSBO sale is marketing the home without using the Multiple Listing Service. The sad truth of the matter is that, at this time, the MLS is the de facto marketplace for home buying and selling. Thus, over the last several years, several businesses have offered "flat fee MLS" services. These brokers will provide access to the MLS, but generally will provide few if any other services to a seller. To fine a flat fee MLS service, just google that phrase and you'll get several links. A future post will discuss the process you can expect once you've decided to use such a service.

Failure to close on the Closing Date

I just authored a post on Rain City Guide (my second favorite real estate blog) that examines what can happen when transaction fails to close on the closing date. For you legal hardbodies out there, here are my authorities for that post: Willener v. Sweeting, 107 Wn.2d 388, 394-96 (1986); and Mid-Town Limited Partnership v. Preston, 69 Wn.App. 227, 233-35 (1993).

craigslist revisited

In a very recent post I encouraged people to list their home for sale on craigslist. In today's news, there's a story about a lawsuit filed against craigslist for alleged violations of the Fair Housing Act. The plaintiffs point out that some posts contain clearly discriminatory language, such as "no minorities." The lawsuit seeks to hold craigslist to the same standards as those applied to newspapers. Craigslist responds by pointing out that it is an entirely different animal and the same standards simply cannot apply. An interesting argument on both sides -- time will tell whether craigslist can continue in its current form in regards to posts for real property. In the meantime, it's still a great way to get free market exposure...

How to Shop for a Home on the Web

[A corrected post:]
Here's an informative post regarding how a buyer should search for homes on the web based on MLS listings. As related in that post, some search engines limit themselves only to "active" listings and do not display listings for properties sold but "Subject to Inspection" (i.e. "Offer STI"). A good search engine includes both, so that a prospective buyer gets a better understanding of houses that ARE available as well as those within the buyer's price range that are now off the market (at least pending the results of the inspection). So, while "Offer STI" listings will not necessarily help you find your perfect house today, it will educate you as to houses you can buy in the future if you are able to quickly find them and make an offer.

Given the advantage associated with finding a home as soon as it is on the market (or at least listed on the MLS), the best advice is buried deep in the post: use a search engine that is RSS-feed enabled. In brief, RSS allows a web page to alert a user when new content has been added. Thus, by using a search engine that offers an RSS feed, you can be alerted to a new home just as soon as it hits the market. If it's the "perfect" home, you can then make an offer right away before some else does so.

The search engine at Rain City Guide shows "Offer STI" listings, and more importantly it offers an RSS feed. Of course, given that I'm a big fan of FSBO, I suggest you find your home using a search engine and then give me a call -- I can help you make an offer on the home and save money in the process.

Marketing your FSBO home

When you sell your house by owner (For Sale By Owner, or FSBO), one of the biggest challenges is marketing the home. Currently, there is no FSBO system comparable to the Multiple Listing Service (MLS), the database of properties for sale maintained by real estate brokers/agents. Thus, when you use an agent, you know that your home will be listed for sale in a "marketplace" visited by virtually every home buyer (as every buyer, even one without an agent, checks the MLS listings via one or more of the many search engines available on the internet). On the other hand, when you sell FSBO, you have no method for advertising your home on such a broad basis, unless you are also willing to pay for a flat-fee MLS listing (which, in turn, requires you to offer a percentage commission to the buyer's agent, if any, thus reducing your profit).

This is a conundrum indeed and one that will continue to hamper the development of the FSBO marketplace. In the meantime, FSBO sellers should avail themselves of the existing methods for marketing their home, including the community bulletin board of our time, Craig's List.

What happens when you take a vacation -- Zillow Launches

As everyone else in the blogosphere has already announced and dissected, Zillow launched its web site last week. It certainly provides a very helpful tool for owners in determining the market value of their home. It should not be the only tool, however, as there are many other helpful resources. More knowledge is always better.

As for me, I've been scooped by every other blogger on the planet. This will teach me to take time out of the office...

Market Trends

The For Sale By Owner Center Blog has a nice post on the continuing downward trend in the national housing market. As the blogger notes, a sliding market makes it that much more important for a home seller to price the home appropriately. I have a recent post that provides some helpful internet resources to assist a homeowner in determining the market value of the home.

The Legal Description

I just authored a post on Rain City Guide (a smokin' hot real estate blog) regarding a property's legal description and the importance of including that description in a purchase and sale agreement. Check it out.

Successful FSBO web pages

Here's an interesting article from the front page of yesterday's NY Times regarding an FSBO web page in Madison, WI -- FSBOMadison.com. As discussed in the article, this web page has about 20% of residential listings in the area. Given the average value of a home in the area, sellers saved more than $17 million in commissions last year by using this site.

If you're looking for a similar page in the Seattle area, check out SeattleRealEstateByOwner.com. The site is owned and operated by two young guys who live here in the Seattle area. There are several other FSBO web sites with Seattle pages, such as HomesByLender.com, ForSaleByOwner.com, SeattleFSBO.com, and ByOwner.com.

In addition, 2006 will see the launch of several other sites that will, apparently, allow a user to search real estate data in a variety of ways. These sites (such as Zillow.com and Sellsius) will combine listings with a variety of other related data. They have significant financial backing and are generating a lot of buzz in the real estate industry. Time will tell whether they are of assistance to FSBO sellers.

Even the "Grunts" see value in FSBO

An interesting post regarding FSBO, with some nice comments, by a "soldier in the trenches of the Manhattan real estate" market. Trenches? Man, you know the market is expensive when people are paying to live in a trench...

The Role of the Real Estate Agent

In yesterday's Seattle Post-Intelligencer (one of the two daily papers here in town), there was an interesting article on discount real estate brokerages. Discount brokers list a property on the Multiple Listing Service (the database of properties for sale maintained by real estate brokers, who in turn employ real estate agents) for a low, flat fee. The lower the fee, the fewer the services associated with the listing. As discussed in the article, there are several discount brokers in the marketplace.

I found the article particularly interesting, however, for a slightly different reason. In assessing the "changing paradigm," the article discusses the services typically provided by a real estate agent. The article quotes a local attorney, Matt Davis, at length. Mr. Davis works with the Demco Law Firm, which represents "some of the largest real estate brokerages in Washington," according to the Demco web page. They "provide on-call counseling and consultation to [the firm's] broker clients on all aspects of their business." Given that brokers are an important Demco client, it is not surprising that Mr. Davis emphasizes the services that can be provided by real estate agents (thus encouraging consumers to utilize them).

Regardless, Mr. Davis is certainly correct, to a certain extent: real estate agents provide valuable services to their clients. However, he takes the point a little too far. It is established law here in Washington that real estate agents can engage in the very limited practice of law by completing blanks in preprinted legal forms that were drafted by lawyers. Cultum v. Heritage House Realtors, 103 Wn.2d 623 (1985). Agents may not provide legal counsel or services beyond this narrow scope. The rationale is simple: agents lack the professional knowledge and skills expected of a practicing attorney.

There is certainly no definitive answer as to when a real estate agent crosses the line and engages in the practice of law. Mr. Davis indicates that an agent can protect a client's interests by understanding the pitfalls in a boilerplate contract and insuring that the contract is enforceable. Perhaps, but that sounds a lot like the practice of law, as the agent is interpreting the contract and taking steps necessary to render it enforceable. Mr. Davis further suggests that an agent is an appropriate "steward of the transaction," particularly where the transaction has soured and turned into a "war zone." This goes too far. If the transaction has soured, there is an actual legal dispute between the parties. Any guidance offered by an agent under these circumstances must, by definition, extend beyond the filling in of blanks in a preprinted contract. Accordingly, a buyer or seller should not look to an agent for guidance under these circumstances. Rather, an attorney should be consulted. Notably, by law an agent must persuade the client to consult with an attorney if the transaction possibly involves complicated legal issues. Cultum, cited above; RCW 18.86.040(c) and RCW 18.86.050(c), requiring an angent to advise the client to seek "expert advice" on matters "beyond the agent's expertise."

A real estate agent can and should work with the client in regards to valuation, marketing, and details associated with a transaction. However, if there is a legal issue, the client is better served by consulting with an attorney.

That said, and like Mr. Davis, I have an interest in this debate, as I represent buyers and sellers in residential real estate transactions. Furthermore, to be fair to Mr. Davis, I will alert him to this post so that he has an opportunity to respond.

Another Attorney's Perspective

I came across this interesting post the other day, by an attorney in Chicago who handles estate planning and real estate matters. It provides another attorney's perspective on FSBO transactions.

Penny wise, pound foolish

Earlier this week, I had an opportunity to use this venerable English expresssion. I received a call from FSBO sellers who had received multiple offers on their home. Each offer contained an escalation clause, although they all contained different terms (as they used different forms). I explained to the sellers that they really would benefit from legal representation, as they might not appreciate the differences between the terms of the various offers. Moreover, escalation clauses can be difficult to interpret and, if misinterpreted, a seller will lose money. I told the sellers that I would represent them in the matter and protect their interests for my standard flat fee of $750. They called back and asked if I would charge less if they decided to forgo my review of the three offers. I indicated that I would do so, but that they were missing the point, as the purchase and sale agreement is the most important part of the deal. Moreover, because of the escalation clauses and differing terms, they really would benefit from legal representation. They did not call back. I hope they got the best price possible and the most advantageous contractual terms, but I will probably never know. Regardless, given that their house was undoubtedly selling for hundreds of thousands of dollars, they risked a much greater loss by saving the $750. I guess if you like to gamble...

Of course, don't just take my word on it -- many, many people strongly recommend you hire an attorney when you are an FSBO seller: the Seattle Times, About.com, and the University of Nebraska, to name a few.

Housing Market Info

I am a firm believer in the For Sale By Owner ("FSBO") transaction. Although there are many obstacles to selling a home FSBO, a seller can generally overcome those obstacles with a little bit of research. For example, FSBO sellers often do not fully understand the true value of their home (and thus are unable to identify an optimum sale price). However, there are several web pages that can assist a seller in determining the anticipated market value of the property. HousingTracker provides real time market data for dozens of markets. The Washington Center for Real Estate Research, operated by Wasington State University, has market information for the state of Washington. The King County Department of Assessments maintains an eSales Search database that contains sale information for Seattle and the surrounding area (King County). Finally, web sites such as Home Pages, Redfin, and ShackPrices.com allow a homeowner (or home buyer) to search the neighborhood for a variety of data, including recent sale information. By using these sites, a homeowner is able to gain a better understanding of the true value of the home.

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.

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.

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."

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).

The FSBO Experience

The NY Daily News has an interesting and informative article: For Sale By Owner: Getting a good price without broker expense. Sure, I'm biased, but take note of his final point: while it makes sense to save money without a broker, a lawyer is worth the money.

The 6% Commission and FSBO

There are many arguments to be made in favor using a real estate agent when buying or selling a home -- although there are many arguments against, as well. Particularly from a seller's perspective, the cost of using an agent is probably the number 1 reason why a seller might choose to forego an agent and sell "FSBO" (For Sale by Owner).

On today's CNNMoney page, there is an interesting article about the efforts of brokers and agents to maintain a standard 6% of the sale price commission for helping a seller sell a home. The article notes that the 6% works out to a "whopping" $12,000 on the sale of an average American home -- which means a sale price of $200,000. There are not too many homes in the Puget Sound area at that price, so if you live here and are thinking of selling with an agent, the cost to you would be significantly more -- closer to $21,000, given a King County median price of about $350,000. (Would that make it a "mega-whopping" commission? "Ultra-whopping"?)

There are many sources on the web regarding the costs and benefits of FSBO. There are also many web sites that will help you sell your home yourself. If you do it yourself, however, remember that you're participating in a legal transaction worth hundreds of thousands of dollars. Accordingly, "experts overwhelmingly suggest hiring an attorney to draft, or at least review, all the paperwork, making sure it's legal, complete and does exactly what the drafters want it to do."

The Financing Contingency

I just authored a post on Rain City Guide that addresses financing contingencies. Rain City Guide is an excellent blog operated by a real estate agent here in Seattle. I encourage you to surf liberally.

Escalation Clauses - Potential Pitfalls for Buyers

For a detailed description of escalation clauses (what they are, how they work), please see my prior post.

Buyers often include escalation clauses in their offers in an attempt to ensure that the offer will have the best purchase price. When sellers receive multiple offers, they will consider many factors in determining which one is best, but of course the purchase price is the primary consideration. Thus, in a hot housing market such as the current one, buyers often must compete with other buyers for a particular house, and the easiest way (but not only way) to win that competition is by offering the highest price. An escalation clause helps a buyer to put forth the best purchase price possible.

So what's the downside? Before going further, I must note: interpretation and use of an escalation clause is clearly the practice of law. I have long believed that consumers benefit when lawyers provide the legal services needed when buying or selling a home. So I've launched Quill Realty, where every buyer client and every seller client is paired with an attorney to protect their interests from start to finish.

By including an escalation clause, buyers tip their hands as to the highest price they are willing to pay for the home. Sellers can use this knowldege to their advantage -- and to the disadvantage of the buyers. For example, assume that a seller indicates she will entertain all offers on a particular date. Two buyers, Buyer A and Buyer B, each put in an offer at the asking price of $400k. Recognizing the likelihood that there would be multiple offers, both buyers included an escalation clause. Buyer A's clause escalates the price in $1k increments up to a cap of $405k; Buyer B's clause escalates in $2k increments up to $420k.

When considering these offers, the seller could simply sign and return Buyer B's offer with a contract price of $407k. However, Seller could also return the offer as a counteroffer with a sale price of $420k. Admittedly, this gives Buyer B the option of accepting or rejecting the price, versus binding Buyer B to a price of $407k. Nonetheless, the seller may be willing to take this risk given an extra gain of $13k -- after all, Buyer B has already indicated a willingness to pay that amount. Thus, by tipping the seller off to his maximum price, Buyer B may end up paying it.

Escalation Clauses - Potential Pitfalls for Sellers

An escalation clause is a clause in a purchase and sale agreement that, under certain circumstances, automatically elevates the offer price so as to beat any other offer. The offer will contain the buyer's initial offering price. If the seller receives another offer with the same price, an escalation clause will raise the first offer's price in specified increments until it beats the other offers, usually up to a maximum amount. In other words, escalation clauses act as de facto bidding wars, except that the bidding happens automatically by comparing the competing offers.

So what's the downside? Before going further, I must note: interpretation and use of an escalation clause is clearly the practice of law. I have long believed that consumers benefit when lawyers provide the legal services needed when buying or selling a home. So I've launched Quill Realty, where every buyer client and every seller client is paired with an attorney to protect their interests from start to finish.

In this hot housing market, it has been common for sellers to market their home so that they receive multiple offers. This is often accomplished by listing the house with a comment indicating that all offers will be considered on a particular date. The house may be slightly underpriced as well in order to attract more buyers. Buyers, recognizing that they are probably in a competitive situation, will often include an escalation clause in their contract. Thus, sellers are able to generate competitive bidding that drives up the final sales price.

If you are selling your home and hope to receive multiple offers, it is important that you know how to interpret escalation clauses. If there is a misunderstanding as to how they work, then you will not obtain the best possible sales price. If you are relying on your agent, make sure your agent has a solid understanding of this issue. I note that, in Washington, agents are not allowed to practice law -- they can only complete pre-printed legal forms. I question whether the interpretation of multiple escalation clauses constitutes the practice of law and thus should only be done by lawyers.

It is also important to understand the subtle differences that may exist in competing escalation clauses. Usually, the language is fairly straightforward: the offer price automatically escalates above a comparable competing offer. If the seller accepts this offer, the agreed price for the sale is determined by the escalation clause. For example, assume a seller receives two comparable offers, each offering to purchase the home for $400,000. Offer "A" contains an escalation clause that escalates the purchase price in increments of $2000, up to a maximum of $410,000. Offer "B" contains a similar clause that escalates the purchase price in increments of $2500, with no maxiumum amount. When the seller accepts Offer "B," the agreed purchase price will be $412,500 ($2500 above the competing offer's maximum price).

However, some buyers will write the escalation clause a little differently. For example, rather than automatically escalating the price, the clause may require that the final escalated amount be presented to the buyers as a counteroffer. Thus, when the seller signs and returns the offer as a counteroffer, the buyers retain the right to accept or reject the escalated purchase price.

This can cause problems and, if not handled correctly, lead to a less-than-optimum sales price. Returning to the example above, assume that Offer "B"s escalation clause required the escalated amount to be presented as a counter offer. Assume further that the seller did not appreciate this difference. Accordingly, the seller simply signed and returned the offer with the new purchase price of $412,500, thinking that he had sold his house for significantly more than the asking price. However, after receiving the signed offer (which was really a counteroffer), the buyers reconsidered and decided they did not want to pay that much. Accordingly, they decline the counteroffer. The seller is then left with only a single offer of $400,000 and has lost the advantage associated with the escalation clauses.

If the seller had appreciated the subtle differences in Offer "B"s escalation clause, he could have handled the matter a little differently. The seller could have encouraged the buyers to make a counter-counteroffer, if the price of $412,500 was too much. If these buyers had in fact come back with a counter-counteroffer, say $405,000, then Offer "A"s escalation clause would have escalated off of that amount to a price of $407,000. In other words, by handling the situation correctly in this case, the seller could have obtained an additional $7000 from the sale.

To gain the benefit of escalation clauses, it is important that sellers understand how such clauses work.

Welcome to my new blog!

In an effort to further market my law practice, as well as raise awareness about legal issues surrounding the residential real estate market, I decided to jump into the Blogger Pool -- with both feet! Well, not really, as blogspot appears to be a pretty easy way to get a blog up and running. Perhaps I'll get my own blog-shop one day, but for now this free blog sub-lease seems like the way to go. Please return on a regular basis, as I'll try to post something relevant at least once a week.