A CONTINGENCY OFFER IS A LOT BETTER THAN NO OFFER AT ALL

Now that the market has slowed a bit – i.e. returned to normal— contingency offers are more common and, I would argue, more palatable than they have been during the past few years.

By contingency offer I mean an offer to purchase that comes from a buyer who still has to sell his house (or some other property) in order to perform.  His purchase offer is contingent on the sale and close of escrow of his property.  There are many other types of contingencies, and in that sense just about every purchase offer is contingent.  Some are contingent on the close of escrow on a property already sold.  Most offers are contingent on the buyer receiving full loan approval.  Most are also contingent on inspections yielding satisfactory results, or fixing things that need to be fixed.  Nonetheless, in the business, a contingency offer usually means one where the buyer has not yet sold his property.

There are certainly situations where it makes sense to entertain and perhaps accept a contingency offer.  It certainly makes sense when the number of potential buyers is not large.  This could be because of general market conditions, or it could be attributed to the fact that the property you want to sell has limited appeal, or maybe it is just in a price range out of reach to most.  In any of those conditions it makes sense to try to work with the proverbial bird in the hand.

Naturally there are factors to take into consideration.  A primary one is the salability of the buyer’s property.  What one especially wants to know is whether it is or will be priced right.  If the property is local, a listing agent should be able to get a good fix on this.  If it is out of the area it will probably be necessary to establish contact with a knowledgeable broker in that locale.  Some have suggested the strategy of insisting that the buyer’s listing price be reduced by a certain amount if a sale has not occurred within a specified amount of time.

Another consideration that has to be faced when considering a contingency offer is that you don’t want to lose potential market exposure while you are waiting for the buyer to try to sell his house.  The purchase contract (RPA-11) produced by the California Association of Realtors® (CAR) provides a means for dealing with this.

There is a provision in an addendum to the CAR contract that allows for the seller who is accepting a contingency offer to keep his property on the market, with the provision that, should he receive another acceptable offer, the contingency buyer has a specified amount of time (usually 72 hours) to remove the sale contingency, to remove the loan contingency, and to do whatever else will satisfy the seller.  Usually the latter means demonstrating that he, the contingency buyer, has the ability to close even if his house isn’t sold.

Frequently this condition is characterized, albeit inaccurately, as a 72-hour first right of refusal.  Regardless of the terminology, the point is that the contingency buyer has that amount of time to, as it were, fish or cut bait.

Sellers or their agents have often been reluctant to be in this “first right of refusal” situation, because they felt that no other agent would show their property.  Part of the reason for this concern was that the property would no longer be listed in “active” status in the multiple listing system (MLS), hence buyer’s agents would not even see it when they did a computer search.  In some MLS systems (such as California Regional MLS) there is a “middle ground” known as back-up status which means the property is still on the active market and the seller is soliciting further offers.  Good agents who are looking for property will not ignore such listings, but will call the listing agent to find out what the situation is.  Many would be willing to write a back-up offer, knowing of the contingency situation.

Needless to say, there are other factors to be considered as well when entertaining a contingency offer, but these are the primary ones.  One thing is for certain, there can certainly be worse things for sellers than a contingency offer – no offer at all.

 

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Bob Hunt is a CAR director and is the author of Real Estate the Ethical Way.  His email address is scbhunt@aol.com

CALIFORNIA BUREAU OF REAL ESTATE ROLLS OUT “CITE AND FINE” POLICY

The Summer 2014 issue of the Real Estate Bulletin, produced by the California Bureau of Real Estate, announces that the Bureau has finalized its authority to issue citations and assess fines without first going through a lengthy, and sometimes expensive, process of administrative hearings.  The details of the “cite and fine” program can be found in Business and Professions Code 10080.9 and Commissioner’s Regulations 2907 (effective July 1, 2014).  These codes not only set forth procedures for citing and fining errant real estate licensees, but also they provide for similar procedures to be applied to unlicensed persons who are doing things that require a license.

How will “cite and fine” work?  The Bulletin explains it thus:  “A citation or other formal action will be considered when a violation is found after an investigation, audit, or examination of a licensee’s records by CalBRE in response to a complaint, through random selection of a licensee for an office visit, or from completion of a routine audit.  Depending upon the nature (such as the level of seriousness and potential for harm) and type of the violation, the appropriate action will be determined.”

The Bureau says that “a citation is likely the appropriate action”  in cases of “relatively minor and technical violations, especially in those instances where there has been no injury or loss to a consumer…”.  They include in their examples of relatively minor violations “failure to disclose a real estate license identification number in their first point of contact advertising material”.  It seems a safe bet that another kind of violation that will make “easy pickings” and that will fit the “minor violation” criterion will be non-compliant signage such as signs that do not adequately identify the employing broker — signs where the agent or team name is in very large print and the broker’s name is in very small print.

The Bureau says that a citation will most likely “include an administrative fine assessed for each violation.  The range of a fine — or the total of a fine assessed to a licensee — is set by statute at $0 to $2,500.  The maximum fine amount for real estate licensees is $2,500 per citation…”  (Fines assessed against non-licensees may go considerably higher.)  “Before a fine amount is assessed, each violation is evaluated according to specified criteria, which helps establish an appropriate fine amount.”

Suppose a citation has been received.  “The citation will identify the violation(s) you committed, provide information on how to pay the fine, describe any corrective action needed (if necessary), and explain the process for contesting the citation, if you choose to.”  This process will be familiar to Californians who have already had experience with various traffic citations.  It is a bit of a twist on the principle of being assumed innocent until proven guilty.  You are presumed guilty unless you want to go to the time and expense of proving yourself innocent.

A cynic might perceive the cite-and-fine policy as a quick and easy way for the BRE to replenish its administrative coffers after years of budget cuts and restraints.  But this is not so.  “As for fines received by CalBRE, all money will go into CalBRE’s Real Estate Consumer Recovery Account, which is used to assist victims of real estate fraud committed by licensed agents and brokers.”

Offenders will appreciate the policy that “information regarding specific citations issued — and any fines paid — will not be posted on CalBRE’s website, nor will such information be attached to one’s individual public licensee website record.”  As it stands now, if there has been a hearing and a violation has been found, that information appears on the publicly-accessible website.  Still, the information is public and can be obtained through a Public Records Act request.

The Bureau says that it “considers the issuance of citations an opportunity to help educate both licensees and nonlicensees alike and to encourage and reinforce compliance with Real Estate Law.”  If that can be accomplished at a reasonable cost without a lot of hassle, it will be a good thing.

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Bob Hunt is a director of the California Association of Realtors and is the author of Real Estate the Ethical Way.  His email address is scbhunt@aol.com

 

 

THERE’S A LOT TO CONSIDER WHEN CHOOSING A HOME INSPECTOR

Many times, in the course of reviewing transaction files, I will read that an agent has recommended to the buyer that he or she should have the home inspected by a licensed home inspector.  While one has to appreciate the earnestness of such advice, it is nonetheless at least a trifle amusing.  This is because there is no licensing of home inspectors here in California.  California is one of 21 states that do not regulate home inspection services via some sort of licensing mechanism.

Of all people, real estate agents know that the mere possession of a license is no particular guarantee of service quality.  Nonetheless, when there is no licensing of what, to many, would seem a fairly technical business, questions do arise as to how one goes about selecting a practitioner.  One approach is to look for some sort of professional validation such as certification.

Indeed, a number of professional liability (Errors and Omissions) insurance companies provide incentives to their real estate customers to use certified home inspectors (or, to do the equivalent, obtain a “certified home inspection”).  But then the question arises, “Certified by whom?”  In some cases the insurance company may name which certifying organizations are acceptable; but, in others, the choice is left to the agent or broker.  The insurance company just wants to know the inspector is certified.

Just as possession of a license to do something is not guarantee of quality, neither is the fact that someone has been certified.  There are dozens of organizations that provide certification in the home inspection field, just as there are dozens of organizations that provide certifications in various aspects of the real estate business.  (One can only imagine how many real estate agents became “certified short sale specialists” during the past few years.)

Some certifying agencies are undoubtedly quite rigorous and good; others, not so much.  (As far as home inspectors go, I am neither qualified nor brave enough to single out here which are the really good ones.)

So what is a real estate agent to do when it comes to choosing or referring a home inspector?  (I include choosing because that is often what the client wants and requests.)  Obviously, in a state where licensing is required, then a license is a must.  Secondly, despite what has been said, an inspector should be sought out who has membership and training through one of the professional societies.  (It really doesn’t take a whole lot of effort to get an idea of which organizations seem substantial and which appear to be on the fly-by-night side.)

One of the most important things that an agent can do – that most consumers are just not in a position to do – is to ask around amongst one’s peers.  And I don’t mean that from the perspective that you want to avoid inspectors who have the reputation of being “deal killers.”  Sometimes that reputation just means that they are thorough, which, as a fiduciary, is just what you want.  (Although, on the other hand, it is perfectly legitimate not to want someone who is a bad communicator or who leans toward negativity.)

There are many specific questions to be asked: “What are their reports like?”  “Do they welcome buyers being present at the inspection?”  “What is their level of experience?”  “Do they carry professional liability (Errors and Omissions) insurance?”

A home inspection is one of the most important parts of a real estate transaction.  Not only should agents recommend that buyers obtain one, they should make every effort to see to it that the inspector is really good at what he or she does.  After all, you’d rather have the inspector tell you about a defect or problem, then to hear about it, after closing, from the buyer’s lawyer.

 

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Bob Hunt is a director of the California Association of Realtors® and is the author of Real Estate the Ethical Way.  His email address is scbhunt@aol.com

POLICY ON REAL ESTATE TEAM NAMES IS CLOSE TO BECOMING LAW

Assembly Bill 2018 (Bocanegra) is quickly working its way through the California legislature in Sacramento.  The bill deals with the use of team names and fictitious business names in the real estate business.  The bill is the result of collaborative work by The California Association of Realtors® (CAR) and The California Bureau of Real Estate (CalBRE).  It has no known opposition.  The bill passed out of the Assembly in May and is moving through Senate committees.  Its passage is extremely likely.  Real estate professionals should pay attention to provisions of the bill.

Some will remember that a little more than a year ago, the California BRE advised the real estate community of new guidelines it was adopting regarding team names.  This was occasioned by the Bureau’s concern that the increased use of team names made it difficult for consumers to identify who were the actual responsible parties of real estate activity conducted by agents affiliated with a team.

The initial guidelines published by CalBRE were fairly clear, but complying with them posed a variety of difficulties.  One problem was that they required that all team names be registered as fictitious business names (more commonly known as DBAs — for “doing business as”) of the broker, not the agent(s).  Thus, if I had a team name (“The Bob Hunt Team”) that became a DBA of the brokerage.  Of course, this, too, was somewhat misleading.  Because of this and other problems, CAR created a task force to work with the BRE on creating a policy that would be mutually satisfactory and that could be put into legislation (as an amendment to the Business and Professions Code).  Hence AB 2018.

The bill recognizes two kinds of names in addition to the use of a person’s actual name: team names and fictitious business names.  The following descriptions are taken from the actual language of the bill.  Any emphasis is added by me.

“Team name” means a professional identity or brand name used by a salesperson or broker associate.  A team name does not constitute a fictitious business name if all of the following apply:

(A)  The name is used by two or more real estate licensees.

(B)  The name includes a licensee’s surname in conjunction with the term “associates,” “group,” or “team.”

(C)  The name does not include terms that imply the existence of a real estate entity independent of a supervising broker.

Additionally,

(a) …advertising that contains a team name, including print or electronic media and “for sale” signage, shall include the licensee’s name and license number.

(b) The supervising broker’s identity shall be displayed as prominently as the team name in all advertising.

(c) The advertising material shall not contain terms that imply the existence of a real estate entity independent of the supervising broker.

As for fictitious business names, “A supervising broker may, by contract, permit a salesperson to do all of the following:

(A)  File an application with a county clerk to obtain a fictitious business name.

(B)  Deliver to the bureau an application, signed by the supervising broker, requesting the bureau’s approval to use a county approved fictitious business name that shall be identified with the broker’s license number.

(C)  Pay for any fees associated with filing an application with a county of the bureau to obtain or use a fictitious business name.

(D)  Maintain ownership of a fictitious business name, as defined…, that may be used subject to the control of a supervising broker.

Additionally,

Marketing materials, including print or electronic media and “for sale” signage, using a fictitious business name obtained in accordance with [the above] shall include the supervising broker’s identity in a manner equally as prominent as the fictitious business name.

… advertising, including print or electronic media and “for sale” signage, containing a fictitious business name obtained in accordance with [the above] shall include the salesperson’s name and license number.

There still may be some “tweaking” to do with AB 2018 – I know I can think of a few things – but no one should expect any substantial changes.  One thing in particular seems particularly unlikely to be changed.  That is the requirement – for both kinds of names – regarding the inclusion of the broker’s identity in all marketing materials and “for sale” signage.  In both cases, this is to be “equally as prominent” as either the fictitious business name or the team name.

It’s hard to see how this can be interpreted any other way than to mean that, on for sale signs and marketing material, the broker’s name will need to be no smaller in font size than the team or fictitious business name.  This represents a major departure from current practices where one is likely to see a Team Name this Big and a Broker Name this Big on the same sign.

AB 2018 is not emergency legislation and shouldn’t be expected to take effect immediately.  It probably won’t become effective until next year, maybe not even until June.  So why should real estate professionals be paying attention now?  Well, if you’re going to buy signs this year, you will probably expect them to last at least a couple of years.  It makes sense to give some thought to creating signs now that will be compliant in the years to come.

 

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Bob Hunt is a CAR director and the author of Real Estate the Ethical Way.  His email address is scbhunt@aol.com

CALIFORNIA RESIDENTIAL PURCHASE AGREEMENT UNDERGOES THOROUGH REVISION

California’s standard Residential Purchase Agreement (RPA), produced by the California Association of Realtors® (CAR) is undergoing a major revamping.  While the changes being made do not represent a radical transformation or restructuring of the nature of the agreement, there are still many, many changes.  Some of them are only slight alterations in wording; others are “tweaks” on the way certain issues are handled; and a few will constitute substantive changes in transactional practice.

It is often said that the armed forces of nations are constantly preparing to fight the last war in which they were engaged.  Something of that goes on in the revision of standard contracts as well.  We try to make revisions that will accommodate and account for the peculiarities and problems encountered in the most recent market.  But, sometimes, as markets inevitably change, those recent issues and problems just fade away.  To be replaced by new ones, no doubt.

In no particular order, then, we review some of the more noticeable changes to the California Residential Purchase Agreement.

  1. Added to the Financing section is a paragraph entitled Lender Limits on Buyer Credits.  It reads:  “Any credit to Buyer, from any source, for closing or other costs that is agreed to by the Parties (“Contractual Credit”) shall be disclosed to Buyer’s lender.  If the total credit allowed by Buyer’s lender (“Lender Allowable Credit”) is less than the Contractual Credit, then (i) the Contractual Credit shall be reduced to the Lender Allowable Credit, and (ii) in the absence of a separate written agreement between the Parties, there shall be no automatic adjustment to the purchase price to make up for the difference between the Contractual Credit and the Lender Allowable Credit.”

This is to say, a buyer who offers a big price, but then seeks to reduce it by asking for big credits, had better be prepared to deal with the lender’s disallowance of those credits.

  1. Another addition to the RPA is a section entitled “Representative Capacity.”  It deals with parties who are signing “in a representative capacity and not for him/herself as an individual.”  Such parties must complete a specified addendum and must deliver within three days after acceptance of the contract “evidence of authority to act in that capacity.”  Failure to deliver such evidence triggers a Seller’s right to cancel.
  2. Loan contingency is not automatically tied to appraisal.  “If there is no appraisal contingency or the appraisal contingency has been waived or removed, then failure of the Property to appraise at the purchase price does not entitle Buyer to exercise the cancellation right pursuant to the loan contingency if Buyer is otherwise qualified for the specified loan.”
  3. Added to the section detailing what items are included and excluded from the sale is a section for Leased or Liened Items and Systems. The need for this was occasioned primarily by the increasing presence of solar systems that come with a long-term lease.  The Buyer’s approval of and ability to assume the lease is made a contingency of the purchase.
  4. A large Scope of Duty section has been added to the purchase agreement.  It has nothing to do with contractual terms between buyer and seller.  It is a CYA section for the protection of brokers.  It details the many things that the brokers are not responsible for and that they are not required to do.  The entire section was taken from an existing buyer and seller advisory, which, unfortunately, is not always used by agents.
  5. A major change that will particularly be noticed by Southern California agents is the removal of the termite report from the list of inspections whose cost is allocated, by negotiation, either to the buyer or the seller.  Additionally, a widely-used addendum (WPA) – indicating who will pay for termite repairs – is no longer referenced in the contract.

This is not to say that buyers can’t get termite reports and request that repairs be made.  They can, just as they can with respect to roofs, windows, etc.  The point is that termite inspections will now be treated the same as any other inspection a buyer might want to make.  The same with the request to make repairs.  Termite work is no longer, so to speak, enshrined in the contract, and there is no implication that sellers must agree to bear the entire cost of termite repairs.

The revised purchase agreement is in its fourth and final draft form.  CAR members can view it on the Association Web Site at www.car.org.  Only a short period remains for comments to be submitted.  In August, CAR legal staff members will begin teaching courses on the new document.  It will be released for use in November.

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Bob Hunt is a CAR director and a former chair of its Standard Forms Committee.  He is the author of Real Estate the Ethical Way.  His email address is scbhunt@aol.com

CALIFORNIA BUREAU OF REAL ESTATE ROLLS OUT “CITE AND FINE” POLICY

Law book

The Summer 2014 issue of the Real Estate Bulletin, produced by the California Bureau of Real Estate, announces that the Bureau has finalized its authority to issue citations and assess fines without first going through a lengthy, and sometimes expensive, process of administrative hearings.  The details of the “cite and fine” program can be found in Business and Professions Code 10080.9 and Commissioner’s Regulations 2907 (effective July 1, 2014).  These codes not only set forth procedures for citing and fining errant real estate licensees, but also they provide for similar procedures to be applied to unlicensed persons who are doing things that require a license.

How will “cite and fine” work?  The Bulletin explains it thus:  “A citation or other formal action will be considered when a violation is found after an investigation, audit, or examination of a licensee’s records by CalBRE in response to a complaint, through random selection of a licensee for an office visit, or from completion of a routine audit.  Depending upon the nature (such as the level of seriousness and potential for harm) and type of the violation, the appropriate action will be determined.”

Read more

DUAL AGENCY UNDER SCRUTINY IN CALIFORNIA

DualAgencyA recent California Appellate Court ruling is liable to have major long-term consequences for the real estate practice of dual agency in the Golden State.  In this case (Hiroshi Horiike v. Coldwell Banker, Second Appellate District, April 9, 2014), the dual agency was not a matter of a single person – real estate agent – representing both buyer and seller.  Rather, it was a case of different agents from different offices (of the same firm) representing the two parties. Read more

WHAT ADVERTISING WORKS AND WHAT DOESN’T?

AdvertisingIt’s an old adage. “We know that half of advertising doesn’t work.  The problem is… We don’t know which half.”

Realtors® are fortunate in this regard.  They do know what advertising doesn’t work.  Or, if they don’t, at least they have the information available to them.

The information can be found in the annual National Association of Realtors® (NAR) Profile of Home Buyers and Sellers.  Unfortunately, the information about advertising effectiveness – or the lack thereof – is easily overlooked, as it is somewhat buried in a literal mountain of other data.  There are lots of gems in the Profile that are, similarly, easy to overlook.  Read more

BORROWING FROM A 401(k) TO FINANCE HOME PURCHASE

According to the National Association of Realtors® 2013 Profile of Home Buyer and Sellers, 8% of first-time buyers borrowed from their 401(k) retirement accounts as a source of downpayment money.  It’s a good bet that a significant number of potential first-time buyers, as well as others, are not acquainted with how this works.  It’s also a good bet that, among those with the ability to use 401(k) funds, many are not familiar with the pros and cons of doing so.401K

In what follows I will make a brief attempt to address such issues.  This will certainly not be a complete treatise.  Those who are truly interested should contact a competent financial advisor.  Moreover, to find out if borrowing downpayment money from one’s 401(k) is feasible, it will also be necessary to discuss this with both your lender and your employer’s benefits administrator.

Not every 401(k) plan allows for borrowing.  (Just one reason to talk first with the plan administrator.)  Of those that do, typically the amount available for borrowing is the lesser of $50,000 or one-half the value of the account.  In some cases, plans allow for a larger amount to be borrowed if it is to be used for a downpayment on the borrower’s home. Read more

GUIDELINES HELP IN CONSIDERATION OF PROCURING CAUSE CASES

ArbitrationThe residential real estate business is quite competitive, and it is no surprise that from time to time disputes between agents rise to a level that calls for formal arbitration.  One of the most common real estate arbitration themes has to do with claims to a commission.  Generally this involves agents who have worked with the same buyer, and the issue is which agent is the one who has earned a commission by “…procuring a buyer which ultimately results in the creation of a sales or lease contract.” Read more

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