25 Real Estate Legal FAQs by Virginia REALTORS®

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One of our most important jobs at VAR is helping to keep you on the right side of the law. That’s why we offer brokers access to our Legal Hotline and Legal Resources Center. They call with questions, we give them answers. Often, though, they call with the same questions as someone else — the so-called frequently asked question. If so many people want to know this, we thought, we should compile them in a single document. You’re looking at the result.

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The VAR Legal Resources Center is online and open to all members. It includes: • Legal Hotline answers archive • Articles on how new laws affect your business • Info on the Realtor® Code of Ethics • Legal webcasts (including Lem Marshall’s recent Short Sales Road Show!) • Links to dozens of NAR legal resources

Visit the Legal Resources Center today for more information on: agency, earnest money, fraud, disclosure, tax regulations, and RespA

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Advertising

What are my disclosure obligations for online and print advertising? Online ads for a firm must have: • Firm name; • City and state of main office; and • All jurisdictions in which the firm is presently licensed That’s it. No phone number, fax, “Realtor®,” or street address are necessary. However, phone numbers are required under the Federal “CAN-Spam” statute, so it’s a good idea to require a phone number for all firm e-mails. Online ads for a licensee (not a firm) must have: • Licensee’s and firm’s name; •C ity and state of the licensee’s office (not necessarily firm’s main office); and • J urisdiction(s) (usually states) in which licensee holds a license, active or not. For all other ads, the requirement is simply this: The firm’s name must be clearly and legibly displayed. No address, states of licensure, phone, etc. — just firm name.

I have a team in my office doing business as a John Doe Real Estate that wants to use their own signs. They have developed a sign that makes it appear as if John Doe Real Estate is the real estate company, and they only want to install a sign rider with the name of my firm. Is this legal? The sign sounds very ill-advised. It’s inevitable that it will create the impression that John Doe Real Estate is a brokerage firm. The Virginia Real Estate Board will almost certainly not approve of it, and you are as likely to be in trouble as the team if you permit it. Also, “John Doe Real Estate” should not be used as a team name. Again, it’s almost certain to create the impression that the entity is a brokerage firm. You should avoid “realty”, “real estate”, “properties”, “land”, “associates” and similar terms in the names of teams. The bottom line is that all advertising – including team ads – must be clear and unambiguous as to the identity of the firm and that the team is a team, not a brokerage. If the ad fails this test, the team and the firm are all at risk.

Agency If a broker finds that it is too difficult to deal with a client whose home he has listed, can that broker simply release the listing and resign? Would the seller have some recourse against the broker? The contract is bilateral, so each side has binding commitments. However, if the seller is acting in an unreasonable way, or making it difficult or impossible for the broker to do the job he was hired to do, it is probably a breach entitling the broker to terminate. Even if not, it’s hard to imagine what damage the seller will suffer from the broker’s withdrawal. It’s not like the seller can’t relist with another agent and get the house right back on the market. The broker should discuss a mutual release with the seller as a first step.

Agency Listing agent Joe is leaving Firm A and going to Firm B, and the sellers want to transfer their listing from Firm A to Firm B. Can they do that? Firm A owns the listing and is not obligated to release the sellers simply because Joe is leaving. Sellers may request that Firm A release them from the listing, but the firm is not obligated to do so unless the listing agreement itself specifies that the sellers will have the right to terminate the listing if Joe leaves the company. Even if Firm A agrees to release the sellers from the listing, Firm B would have to agree to enter into a listing. The listing can’t just be “transferred” from A to B without all parties’ consent, including the sellers (who might want to leave Firm A now that Joe is gone, but don’t want to list with Firm B for whatever reason). Even if Firm A doesn’t agree to release the sellers from their listing, they may unilaterally remove the firm’s power of agency and right of sale and demand that the firm remove the property from the MLS. Therefore, if the sellers say, “Joe’s gone, please remove our listing from the MLS,” Firm A must comply. However, this action would, in all likelihood, be a breach of their agreement with Firm A, entitling it to damages as set out in the listing agreement or at law.

Agency A buyer agent has exclusive buyer representation agreements with two separate buyers. The agent has already submitted an offer on a home for one buyer, and now the other buyer wants him to submit an offer on the same home. Can the buyer agent do this without running afoul of the law if he keeps the confidences of both clients? Also, is disclosure to both parties necessary? The Virginia Code (§ 54.1-2132) specifically permits this, but the agent owes a disclosure to each buyer that he is representing a competing buyer. If either is the least bit uncomfortable, he should back out of one or both of the representations, depending on the wishes of his clients.

Reach the VAR Legal Hotline at (800) 755-8271 or browse the Hotline archives at www.VARealtor.com 1

Commissions

In a nutshell, how is the procuring cause of a deal determined?

What if the listing agent puts the wrong commission offer in the MLS?

All procuring cause inquiries are fact-specific, depending on all the facts and circumstances in a given situation. The procuring cause of a deal is the party who sets in motion the unbroken chain of events that leads to procuring a buyer who is ready, willing, and able to purchase the property on terms acceptable to the seller. It’s the party whose efforts predominate in making the deal happen. It is not necessarily the person who first shows the house, first brings it to the buyer’s attention, writes the offer, or is the buyer agent. These factors might be relevant, but the main issue is whose efforts resulted in the deal. If you want detailed information on procuring cause, you’ll find it in the NAR Code of Ethics and Arbitration Manual: www.VARealtor.com/procuringcause.

Confidentiality If my seller consents, may I share offers we receive with prospective purchasers? Yes. Absent a confidentiality agreement with the buyer making the offer, there’s no duty of confidentiality to the buyer. Furthermore, the offer can be used in any manner the seller and listing agent decide best suits the seller’s interests. Any and all information about the offer can be disclosed as the seller sees fit.

Consider the following example: The MLS shows an offer of 2.5% to cooperating brokers, and the buyer’s agent responds by producing a buyer. The listing agreement stated that the listing firm’s compensation offer would be 3%, the HUD-1 actually showed 3%, and 3% was disbursed to the selling firm at closing. A month later, the listing firm called demanding the return of the half percent. Is the selling firm obligated to return the purloined half percent? Yes. Virginia law is very clear that with open-ended offers (offers that are accepted by performance), the offer you respond to is binding. The selling firm responded to an offer of 2.5%, and that’s what it earned. Similarly, if the listing firm had offered 3% but had intended to offer only 2.5%, it will owe the 3%.

Disclosure As a listing agent do I have to disclose that someone has been murdered in the house? The Code of Virginia makes clear that licensees are not obligated to disclose whether a property was the site of a homicide, suicide, felony, or other act having no effect on the improvements. However, because neighbors will talk, the listing agent and seller should consider getting this information to the buyer in their own way. Agent may not disclose whether previous occupant had HIV or AIDS.

Contract Formation

Contract Formation If an offer has been accepted and signed, how must delivery occur? Delivery, as a part of acceptance, is a requirement for the creation of a bilateral contract. Delivery can occur in many ways, and unless the offer specifies some sort of physical delivery (fax, actual document, etc.), then verbal communication of the fact of acceptance is adequate in Virginia. Therefore, if an offer has been fully executed with the intent of accepting the offer, and the agent notifies the other side of that fact, you will ordinarily have a contract. A phone call, e-mail, voicemail, or fax will all work, assuming you can demonstrate you actually sent the notice.

A buyer received a counteroffer and verbally accepted it, such acceptance being communicated to the seller. The buyer later signed the counteroffer and gave it to her agent to deliver to the seller. Before the signed contract could be delivered, the buyer changed her mind and instructed her agent not to deliver it. The seller wants to enforce the contract. Is there a valid contract? Is it enforceable? Yes to both questions. As to the validity of the contract, we know that a contract existed as of the time of the verbal acceptance of the counteroffer. At that point, of course, the contract was not enforceable against the buyer under the Statute of Frauds because she hadn’t signed anything1. However, once she signed something (in this case, the counteroffer), the already-valid contract became enforceable. The buyer’s effort to withdraw acceptance came too late because the valid contract had become enforceable. 2

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Contract Formation

Disclosures

May a real estate contract be signed electronically? Under the Virginia Uniform Electronic Transactions Act (UETA), any document that the law requires to be signed (tax returns, etc.) can be signed electronically. Real estate purchase agreements are not in that category, but if the parties agree to conduct their deal electronically, the e-signature works. Either party, however, may require paper.

Contract Termination What is the difference between terminating and releasing a contract? Termination is generally the unilateral act of a party declaring the contract at an end. For example, the buyer terminates upon being refused a loan, or because the seller refuses to make agreed-upon repairs. A termination of this sort does not rely upon the agreement of the other party but is a unilateral act. A release is a mutual act of the parties by which one or more of the parties are released from obligations under the contract pursuant to whatever agreements the parties have reached. For example, Firm A can release sellers from a listing and sellers agree to pay Firm A’s advertising expenses. Or sellers can release buyers if buyers forfeit the deposit. The point to remember is that just sending a release to the other side does not usually constitute the act of termination. If your client wants to terminate, do so unambiguously.

Do property owners’ association (POA) packets, condominium resale certificates, lead-based paint disclosures, and Residential Property Disclosure Statements have to be provided for both foreclosures and REO properties? • If a property is sold at foreclosure, none of these disclosures is required. • If the property is REO (where the bank has taken the property back in foreclosure or by deed in lieu and intends to sell it), the following disclosures are required: • POA packet/condominium resale certificate • Lead-based paint disclosure for properties built prior to 1978 • In either case, the Residential Property Disclosure Statement is not required.

Contract Termination The buyer has breached the purchase contract with the seller. With my seller’s permission, should I inform the buyer that we are terminating the contract? Be careful here. If the seller terminates the contract, she might release the buyer from his obligation for damages due to his breach. If the buyer breaches or repudiates the contract — refusing or failing to close — and the buyer does not have a reason to do so under the contract, the seller should declare a default but not terminate. The seller can then remarket the property and hold the buyer responsible for resulting damages, if any. As always, when issues of breach and default arise, please urge your client to seek legal counsel.

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Disclosures What are material adverse facts pertaining to the physical condition of the property? The Code of Virginia obligates listing agents to disclose to prospective purchasers all “material adverse facts pertaining to the physical condition of the property which are actually known” by the listing agent. Material. Something is material if it could affect the decision of a reasonable person about whether to buy. Adverse fact. Contrast this with “defect.” The difference may be along the lines of polybutylene pipes and fittings that haven’t leaked yet. Their existence is probably an adverse fact (buyers will want to check it carefully, especially the fittings) but not a defect if everything is properly functioning now. In short, at least consider that “adverse fact” may be more broadly construed than “defect.” Pertaining to the physical condition of the property. The statute provides that “the term ‘physical condition of the

Earnest Money Deposit (EMD) What is the Thirty-Day Letter? There is a species of mutual consent acknowledged in the regulations that permits a variation on the basic rule that you must have the parties’ written consent to disbursement or a court order to release the EMD. This provision of the regulations permits a licensee escrow agent who can pay the EMD “in accordance with the clear and explicit terms of the contract” to do so provided he has notified the person not receiving the money in writing of his intent to give the deposit to the other party and hears no objection within 30 days after the notice. The letter must be delivered either by hand (receipted) or by certified mail. No objection within 30 days implies consent, and the money may be disbursed. For a more detailed discussion of this topic, check out the complete EMD article in the Legal Resources Center: www.VARealtor.com/EMD.

property’ shall refer to the physical condition of the land and any improvements thereon, and shall not refer to: (i) matters outside the boundaries of the land or relating to adjacent or other properties in proximity thereto, (ii) matters relating to governmental land use regulations, and (iii) matters relating to highways or public streets” (section 54.1-2131B). Actually known by the licensee. When do you actually know something? First, remember that only material issues are subject to the obligation to disclose. Remember that receipt of the entire inspection report probably imposes a duty to read it and decide what is and is not material. It may also be at odds with a prior report, and may be prepared by a high-strung inspector. With dueling inspectors, try to put the two together, which resolves a large majority of all conflicts. If the two still don’t agree, a third opinion may be necessary.

Earnest Money Deposit (EMD)

Fair Housing

I am the buyer’s agent and holding the EMD. The deal has fallen through because the seller has clearly defaulted; may I release the EMD to my client even though the seller won’t sign a release of the funds?

If a buyer client states to his agent “I want to live within one mile of my church,” may the agent assist the buyer with this request without being concerned about a possible Fair Housing violation (steering)? What if the buyer client wanted to purchase in a Hispanic neighborhood?

No. A licensee holding the EMD is bound by the Virginia Real Estate Board’s regulations that provide, in a nutshell, that you may not disburse without either the written consent of both the buyer and seller, or a court order. This is because the party holding the EMD is an escrow agent, and escrow agents are bound not by their affiliation to one of the parties but to the faithful handling of the money entrusted to them.

You may accommodate the buyer client concerning housing near his church. Also, the United States Department of Housing and Urban Development (HUD) has issued an opinion letter making clear that agents may accommodate the legal requests of their clients as to what type of neighborhood they want to live in but may not suggest or originate such discussions. You may show the client homes in predominately Hispanic neighborhoods at his direction.

Fair Housing My seller client has instructed me not to sell to sex offenders; could I be in violation of the Fair Housing laws if I comply? Sex offenders are not yet a protected class under the Fair Housing laws, and sellers may legally refuse to sell to them.

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Property Management

May an agent engage in property management outside of his brokerage firm? If by “property management” you mean he is engaging in both leasing and management, no, he may do this only through a licensed brokerage firm. If he is only managing but not leasing, then legally he can do the management in a separate, unlicensed firm. Management alone is not a licensed activity and can be done outside a brokerage firm if not inconsistent with his broker’s policies.

If a rental property is subject to the Virginia Residential Landlord Tenant Act, may the parties waive applicability of the Act? No. Section 55-248.9A1 prohibits waiver of the applicability of the Act. A landlord who is not otherwise subject to the Act may opt in the lease for the Act to govern the lease, but the reverse is not true.

Property Owner’s Association Act The seller requests that my buyer client waive his right to receive a POA packet. Is that legal? The POA Act makes clear that buyers may not waive their rights under the Act, even by written agreement.

Property Owner’s Association Act How long does a buyer have to rescind the purchase contract after receiving the POA packet by hand delivery or electronically (receipt obtained)? Three days or 72 hours? The buyer has three days and the difference is important. Example: Assume delivery to buyer at noon on day one. If the deadline is 72 hours, buyer must act by noon on day four. If the deadline is three days, the buyer must act by midnight on day four.

Short Sales My seller (short sale) has completed contract negotiations with a buyer and contract has been fully executed. The contract contains a contingency making seller’s obligations contingent on lender approval. The buyer is now threatening to walk from the deal saying that until the lender approves the terms, there’s no ratified contract. Is that true? No. Under the facts as presented here, there’s a ratified, contingent contract. We’re used to contracts containing contingencies that benefit the buyer (e.g., inspection, financing, title, POA, well and septic, walkthrough) but are less familiar with contingencies that benefit the seller. That’s what we have here – a title contingency that says essentially that if the seller cannot obtain the willingness of the lender to release its lien for less than is owed, the seller cannot give good title and is relieved from performing. Subsequent offers must be handled carefully. First, we must know the lender’s wishes and policies. For example, does the lender want to see better offers that arise? (Most will.) Will subsequent contracts start the review process over from the beginning, potentially costing the seller time he does not have? (Most will not, but with some lenders they will. If yours lender starts over with new offers, be sure the offer your seller accepts is a good one.) If a better contract comes in, and your seller is inclined to accept it, be sure that seller’s obligations under this contract are also made explicitly contingent on lender approval.

Property Owner’s Association Act Does delivery of the POA packet to the buyer agent start the three-day rescission period? Yes. Delivery to the agent constitutes delivery to the buyer unless specific instructions are provided to the contrary.

Short Sales Do I have to disclose in the MLS that my seller client is facing a short sale? This will be a function of your local MLS rules and your client’s needs. Your client is generally entitled to confidentiality as to this sort of financial information. However, many MLSs require sellers to waive this right if they wish to use the service. Listing agents who are using such a MLS should be sure to obtain the client’s consent to the disclosure of this information. l As a reminder, the Statute of Frauds requires contracts for the sale of real property to be in writing and signed. Such a contract cannot be generally enforced against a party who does not sign the contract.