Legal Hotline Attorney, Vern Jarboe, answers this quarter’s most asked legal questions. Access live legal help and get answers to your transaction questions through the Legal Hotline. Subscribe today!
Contingent Contract or Sell the House Twice
It is sometimes true that in the real estate business we end up with more than one buyer interested in the same house at the same time. In those cases, the seller needs to make a choice about who to enter into a contract with. A seller cannot sell the same house twice – at the same time. The seller needs to enter into the first contract and if a second comes along make sure that it is contingent upon the first contract going away.
This could happen in the context of the house that goes under contract contingent upon the buyer being able to sell their other home. If that is true, then the second contract needs to be contingent upon the first one going away. It is typical that when we use a contingent on the sale of another home addendum the first buyer is told that they will have a relatively short period of time to remove the contingency or have their contract removed and become a second contract. However, that first contract remains a contract until it is cancelled. On that basis, if the first buyer simply refuses to cancel the agreement, even though the contingency addendum language would require it, there is still a first contract. Some title companies may not allow a closing on the second contract without resolution of the first.
Because there is always risk that the first buyer has the better argument, based on facts you do not even know, it is possible for the first buyer to come back in. The title company does not want to be in the position of risking their money by putting themselves in the middle of litigation over which contract has priority. Clear language that details the first contract is contingent upon the first one going away is therefore required.
Typical language in board approved forms for back contracts accomplish this goal.
Seller Responding to Offers
Some of us who have been around the industry for several decades remember the days of paper offers and contracts. The new age of electronic contracts creates a problem which we didn’t use to experience. Sometimes buyers in this modern electronic age are afraid that their offers are not presented. In the old days, we had a piece of paper presented to the seller and if they didn’t like the contract we wrote rejected across the front and returned it to the buyer.
Today in the electronic world, we sometimes have emails as the only proof of various activities. In a situation where a seller has rejected an offer from a buyer then it is really important that at least an email confirmation that the offer was presented and rejected exists. Some buyers are going to the Real Estate Commission and complaining that they don’t believe their offers were presented. This often happens when it turns out the “other” buyer came from a source that was within the same brokerage firm as the listing agent. When that “in house” buyer ended up buying the house after an outside the company buyer made a full price offer questions arise. It is important that you have good notes and records detailing that the offer was, in fact, presented.
If you can’t get the seller to send you an email saying that the offer has been rejected, then send the seller a reverse email. The reverse email would say to the seller I presented you an offer from Bill and Sally Smith dated ____ __________ _______ and you rejected it on ____________ ____________ ________. If I am mistaken, please advise immediately.
Disclosure of Previous Inspection Reports
A common question in the real estate industry is what needs to be disclosed by a seller. Sometimes a seller’s home goes under contract and buyer no. 1 pays for a series of inspections. That series of inspections leads to a period of renegotiation, which then fails. Buyer no. 1 asks to cancel the agreement and seller agrees to let them out of the contract.
The question then becomes whether or not disclosure should occur with respect to those inspections from the failed transaction. The license law is quite clear that a real estate agent owes a duty of disclosure with respect to conditions “actually known”. Since these inspections are “actually known” by the listing agent, then disclosure would seem to be a simple question. However, many people get confused by the fact that buyer no. 1 paid for these inspections and that therefore disclosing them to a buyer no. 2, in effect, gives away something that buyer no. 1 paid for.
Please note that the license law does not indicate information needs to be disclosed “unless it is in a report paid for by someone else”. The license law simply says you have to disclose all information that you “actually know”. On that basis, there should be no question with respect to these disclosure issues. You are legally obligated to disclose the report paid for by buyer No. 1. Even if a buyer No. 2 gets a report paid for by Buyer No. 1 then Buyer No. 2 should still get their own report that they can rely upon. Buyer 2 would clearly have no complaint against buyer 1 inspector.
Sometimes a listing agent will indicate that they do not have a copy of the inspections which arose from the failed transaction. If it is true that you actually have no copies of the inspections, then obviously you cannot disclose what you don’t know. However, intentionally not getting copies so that you “don’t know” is likely proverbial story of the ostrich with its head in the sand. Not knowing is not a good choice for either agents or sellers. Sellers attempting to intentionally “not know” something would, in my opinion, subject themselves to the same risks of a suit for fraud as a seller who does actually know and does not disclose. Even if you have not seen the report you know one was done and a buyer cancelled due to the report and you would have to disclose that fact.
Advertising for Agents
One of the most common violations by real estate agents in the modern age is advertising that does not comply with the rules of the Kansas Real Estate Commission. For a quick review of those rules take a look at Kansas Administrative Regulation 86-3-7. (Be sure to look at the new rule effective 7-1-20). Simply put, all advertising needs to have the name of the brokerage firm. Pursuant to regulation, there are rules with regard to the size (or font) that needs to be used with respect to the naming of the brokerage firm. The regulation also details certain words that are not acceptable.
Rather than trying to summarize or describe what is in the regulation, there is no substitute for actually reading it. Social media use is a part of advertising. On that basis, if an agent is using Facebook for part of their real estate marketing plan then the rules with respect to brokerage firm name would apply to those situations as well. Similarly, if an agent is using IDX to utilize listing information from another brokerage firm, then the listing information from the other brokerage firm needs to include the name of the brokerage firm that actually has the listing as well as the agent’s own brokerage firm name.
