Attorney Jim Goldsmith - Important Calendar Dates

Deadline Dates and Times Can Impact Real Estate Deals

Does anybody really care what time it is?

Attorney Jim Goldsmith - Important Calendar Dates

By: James L. Goldsmith, Esquire

You don’t need to be reminded how time-sensitive the business of real estate can be.

Timing is not always everything, but it is critical in the executory period that exists between signing an agreement and settlement. A good practitioner should never lose sight of the timing of events, the periods within which tasks must be completed and even the timing of settlement.

Recently I received a last-minute request to accompany a seller to her closing. The closing took place on a Friday afternoon at 4 p.m., as an accommodation to the buyer. When the title agent reviewed the amount required to pay off her mortgage, the seller was surprised that it didn’t compare to what was shown on her amortization schedule as the balance due. Some of the discrepancy could be attributed to interest that had accrued since her last payment, but approximately $75 was attributed to the fact that the payoff would not occur until the following Monday. Even though the funds to satisfy the mortgage would be wired that Friday afternoon, they would not be credited until the mortgage company’s opening on Monday. Most of the time, this would not be noticed by a seller, but it was hard to argue with my seller’s position that it was her $75 interest and her $25 wire fee. She wanted to know who scheduled the settlement and why she was not told of the additional interest she had to pay because of the hour of the day that closing took place. Her ire eventually focused on her listing agent who, she claimed, should have told her about the additional amounts to which she would be subject if settlement occurred later in the afternoon. What is your thought, do you have a duty to discuss this with your seller?

Most of the problems involving timing have to do with inspection contingencies and other temporal obligations imposed by the agreement. Everyone in the business knows of horror stories arising from a missed date or even a missed hour. Unfortunately, these horror stories recur with more frequency than any other problem.

When it comes to counting days, there are plenty of myths out there. If a deadline falls on a Saturday, Sunday or holiday, the period for performance is automatically extended until the next business day. Wrong. And there seems to be no consensus whether a day is limited to 24 hours or whether it extends to midnight of the last day of the period.

Lawyers catch a break. We have rules of civil procedure that include a rule entitled “computation of time.”  It provides that when the last day falls on a Saturday or Sunday or any legal holiday as defined by state or federal law, the day is omitted from the time computation. Real estate licensees have no such rule. So a day is… a day.

As for the day consisting of 24 hours or extending to midnight, that is covered by the Agreement of Sale, which just happens to borrow language from the Pennsylvania Rules of Civil Procedure stating that the computation of time includes “ …the last day of the time period.” So, if the last day is Tuesday, you get all of Tuesday, right up to midnight.

Given the relative importance of time to a real estate transaction, you’d think that agents would be at the top of their game so that their clients never miss a deadline. My experience representing licensees suggests that that is not the case. Fortunately, most parties focus on getting the deal done and that they overlook breaches, higher mortgage payoffs and the like. But if you are going to rely on the reasonableness of buyers and sellers, you are playing a game of Russian roulette.  One day you are going to have a seller who demands that you pay the additional $75 interest because you set a 4 p.m. Friday settlement without explaining the additional interest the seller would be charged.

Copyright © James L. Goldsmith, Esquire, 2019
All Rights Reserved

Independent Contractor Agreement

Independent Contractor Agreement

Independent Contractor Agreement

By: James L. Goldsmith, Esquire

Real estate licensees can be transient.  When a sales associate moves on, the broker will likely take one of three paths: 1) congratulate and thank the associate and release her listings and buyer agency contracts; 2) go berserk and escort the associate to the door; or 3) take a path somewhere in between.   In general, I am inclined to believe that moves are to be expected and that sales associates will bring and take business and in the long run it all evens out.  I suppose if that were true, and brokers always held that belief, then sale associates would be more forthcoming with their plans and mutual respect would prevail and life would be beautiful.  But we all know that sometimes departures are horrible for all sorts of reasons.

The fights and litigation that follow departures do not have to be.  Brokers and sales associates form relationships knowing they are likely to end, sooner or later.  All involved know that when the relationship ends there will be questions of entitlement to files and commissions.   So why aren’t these inevitable questions resolved before they ever arise?

If you look to the agreement of sale you will see that most of its 13 pages deal with the common issues that may arise post-execution.  Maybe notice of a municipal improvement will be issued that no one anticipated when the agreement was signed.  We deal with that.  Maybe the buyer’s lender will reject the loan application.  We deal with that, and we deal with many other things as well.   So why don’t we deal with the questions that will arise when the sales affiliate departs the brokerage?

The obvious manner of addressing these issues is in a broker/sales agent independent contractor agreement and PAR has published such a form.  It provides a template for dealing with issues of departure that may or may not suit all situations.  Many brokers provide their own such agreements, but not all set forth the path for resolving commissions and other issues that arise with the departure of a sales associate.

There is no better time to negotiate an agreement than at the outset of a relationship.   Brokers and associates will never have a better opportunity to chart a mutually agreeable path.

Frequently I am consulted by employers and employees who ask that I review their employment agreement.  But rarely am I asked by a broker or salesperson.  What comes to my mind is “RELWOC.”  It is an acronym I use as frequently as “FSBO,” but I don’t hear it used by anyone else (maybe because I invented it).  It stands for real estate licensee without counsel.  You don’t suggest that sellers manage and market the sale of their own property without a licensee so why would you seek to manage your legal affairs without the benefit of counsel?

Back to the question of who gets paid and what when the relationship ends.  The argument that brokers will use is that the broker or brokerage owns the listing agreement and the buyer agency agreement.  It is not appropriate to talk about service agreements in terms of ownership.  Agreements are between parties and they set forth the corresponding responsibilities.  In the case of a listing agreement, the seller has engaged the brokerage under the terms of the contract.  This is because affiliates (salespersons and associate brokers) cannot work outside the auspices of a single broker.  The services will be provided by an agent of the broker, but nevertheless the broker is the contractor.  The name of the licensee, designated or not on the contract, does not establish anything more than that the licensee, as an agent of the broker, will be the primary source of services.   Generally then, the broker can hold the seller, or the buyer under the terms of a buyer agency contract, to the terms of the contract.  Again, let’s not talk about who “owns” the contract, but rather what the contract establishes.   Whether a broker will require a buyer or seller to stay with the brokerage when an affiliate departs is a choice the broker will have to make.   In many cases it would not make sense to require a reluctant seller to stay with the brokerage when that seller may have only known the affiliate handling his listing.  Circumstances vary and the facts in each matter are important.

When attempts to resolve questions of control of the listing or buyer agency contract or the payment of commission post-termination do not resolve, parties find their way to the courts.  There are very few appellate decisions that offer guidance.  Most post-employment commission cases are borrowed from other industries and prevailing case law suggests that no commission is due post-termination unless a written contract provides otherwise.  In rare cases, a contract can be established by “custom and usage,” but establishing an obligation by custom and usage is an extremely difficult burden.

Resolving a commission dispute post-termination can be very expensive.  Parties frequently forego entitlement to payment for this reason alone.  Further, post-relationship litigation leaves indelible bruises and tarnishes the industry.  Law suits are not confidential and names are going to appear on the trial list for all to read.

Most importantly, disputes don’t have to be.  It is all smiles when a new relationship is being forged.  Take advantage of that opportunity to discuss the inevitable departure and how it is to be handled.   It is the best opportunity to create a path to fairness and post-termination respect.

Copyright © James L. Goldsmith, Esquire, 2019
All Rights Reserved

 

Thank You Note

Is It Legal For Real Estate Brokers To Give Gifts For Referrals?

Thank You Note

The answer is simple: it depends

By: James L. Goldsmith, Esquire

“It depends” is the right answer to most questions. Here the question is whether it is legal to give thank you gifts to people who refer buyers and sellers to real estate licensees. The reason I can’t give a straight answer to this simple question is because it lacks the details that accompany real life situations.

If a salesperson announces that she is offering a $100 gift card to anyone referring a buyer/seller of a $100,000-$200,000 home, a $200 gift card to a buyer/seller of a $200,000-$300,000 home, and so on, my answer is no, it is not legal.  If a $300 gift card was presented to a person who referred a seller/buyer of an average priced home without having forecast this gift then I would be inclined to say it is legal. What’s the difference?

Referral fees may not be paid to persons who refer buyers and sellers to a licensee. Gifts are legal. Referral fees masquerading as gifts are illegal. Announcing ahead of time that you will give a gift for a referral establishes a “quid pro quo” or “this for that.” It is a bargained for exchange of things of value.  It is nothing more than a tacit contract for payment for a referral. That the payment is a gift card or something other than cash is of no consequence.

A real thank you gift is not bargained for or exchanged. It is a unilateral act based on appreciation and generosity and not a trade. It is a gesture indicating gratitude and designed to bestow an unexpected pleasure thereby demonstrating appreciation. It is genuine, heartfelt and legal.

There are situations that are very challenging when it comes to the legal/illegal question. For example, what if it is widely known that a brokerage gives substantial gifts to people who refer business? Is the gift no longer a heartfelt thank you and instead a tacit agreement to provide something of value in exchange for a referral?  If so, then it is likely an illegal referral fee. That conclusion is even more likely where the company makes an effort to broadcast the message that a referral will yield a gift or when the gift is of unusually high value. A heartfelt thank you need not be expensive, but a payment or referral fee is generally commensurate with the value of the referral given.

Gifts are nice when they are from the heart. That a heartfelt gift might be rewarded by another referral, does not make the gift illegal. It is a combination of intent and execution that may define the gesture as gift or payment. Clearly, when a gift is a dressed-up referral fee it represents a deal or contract, whether expressly or tacitly created. It may be difficult to paint the bright line between gift and referral fee, but you should have enough information from this article alone that will help you clearly stay on the side of right.

NOTE:  This article addresses referral fees paid by licensees to those who refer business. It is not illegal for a licensee to provide an incentive to a client or customer.  The advertisement of an incentive to be paid or given to a buyer or seller who buys or lists with a licensee is controlled by regulation 35.306 of the Rules and Regulations of the State Real Estate Commission.

Copyright © James L. Goldsmith, Esquire, 2019
All Rights Reserved

Mr. Goldsmith is an attorney with Mette, Evans & Woodside and serves as general counsel to PAR. A substantial portion of his practice is dedicated to providing advice and counsel to real estate licensees. He and his firm represent and defend real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. Jim also defends Realtors® in disciplinary hearings conducted by the Real Estate Commission. Jim has been one of the voices of the PAR Legal Hotline since its inception in 1992.

Lawyer Typing with Justice Scales in Front

When Real Estate Brokers are Forced to Sue for Their Fees

Lawyer Typing with Justice Scales in Front

By: James L. Goldsmith, Esquire

My mentor and former PAR legal counsel, the late Tom Caldwell, used to caution brokers intent on suing clients for fees by asking that. The clear message is that when you sue for a fee, the client is going to bite by claiming that no fee was owed because of the malpractice committed by the broker or salesperson.

I represent brokers who sue for their fees and the defenses always include claims of malpractice.  It is true that my clients win most of these cases, though the only credit I lay claim to is that I am selective about the cases I take. The reasons for success, however, I attribute to my clients. In this article, I’ll present several tips for success. I could drag the list out to 15 or 20 tips beginning with don’t accept a jerk for a client, but I’d rather provide you with the core. While these tips work regardless of your representing a buyer, seller, landlord or tenant, I’ll provide a context from a case I most recently resolved.

In that case, the broker was the buyer’s agent for a married couple seeking a new home. The wife was an in-house lawyer for a retail chain and the husband an engineer. They signed a standard buyer agency agreement. During the course of his efforts, the broker wrote an offer that did not result in a signed agreement of sale. He continued to identify properties, but ultimately, the buyers went dark and ceased communicating with him. He doubled his effort to solicit a response. Eventually, he reached the wife by telephone. She reluctantly revealed that she and her husband had purchased a home, but that she would consider hiring the broker to list her former home for sale.

My client was far from delighted by her “generous” offer and told her that he expected her to pay his commission. While that call ended abruptly, the wife replied with an email several days later. She said she and her husband owed no fee because the broker was “not the procuring cause of the sale.”  At this point I was engaged, and suit was filed. The complaint was less than three full pages and consisted of about 15 enumerated paragraphs and an exhibit, the executed buyer agency contract. The amount sought was the percentage fee recited in the buyer agency contract multiplied by the purchase price of the home the buyers bought during the term of that buyer agency contract. In our case, the fee came to $19,500.

The answer to the complaint included the affirmative defense of malpractice: The buyers alleged that the broker failed to make a continuous and good faith effort to find a property for the buyers as required by the Real Estate Licensing and Registration Act. To allay what little suspense there may be, my client prevailed. We moved quickly to get this matter on a trial list (believe it or not it happened within months) and on the eve of trial, the defendants agreed to pay $15,000 and it was accepted. Why did my client prevail? Consider the following.

First, my client had a nearly perfect file. He had a fully executed buyer agency agreement. If your client bails on you and you don’t have an executed agency agreement, forget it. Further, he had every email and text from his first meeting with the buyers to the last exchange. No impartial judge or jury could reasonably conclude from the string of email that the broker abandoned his clients. Every step taken by the broker was memorialized by email to his buyers reciting their most recent telephone conversation or what his recent research had revealed. It easily demonstrated that it was they who had abandoned him.

Take any risk reduction seminar and something will be said of the importance of maintaining a file and corroborating and confirming all actions and discussions by mail or email. Usually, it’s suggested that this will assist in the defense of any malpractice claim should it be asserted. A good, comprehensive file also will enable you to recover a fee when your client breaches his or her contract with you.

Second, pursue the claim and march steadily to trial. Engage counsel who know license law and the standards of practice of real estate brokers and salespersons. Don’t assume that every real estate lawyer knows anything about how brokers work, their duty or how they get paid.

These files don’t have to be over litigated. When the amount in controversy is less than $50,000, the case will first be heard by arbitrators in the court of common pleas of the county where suit is filed. I take limited discovery to assure I have every document that might be asserted as a defense, I don’t take depositions because I’ll get the testimony at the arbitration and can have it recorded there by a stenographer for use if the case is appealed to a trial before a judge and jury.  Discuss these matters with your counsel and keep in mind that your claim is for a liquidated amount (an amount certain). A realistic projection of costs and taking measures by which they are reasonably limited will assure that your net recovery is good. Unfortunately, no matter how efficient your attorney is, the other side can delay, obfuscate and over-litigate.

Third, the broker was first to demand payment, not me, his attorney. To be clear, I am not suggesting that you don’t engage counsel before demanding payment. I have found, however, that when the broker makes his or her demand directly to the client, the client will respond. If I write a letter of demand, the response will be from an attorney whose words I can’t use as evidence in court.

In our example, the buyers’ first response was that the broker was not the procuring cause of the sale. Of course not, the buyers had abandoned their broker and did not give him the chance to put them in a property. This defense was dropped and in the answer to the complaint it was replaced by the defense that the broker committed malpractice by abandoning his buyer clients thereby justifying their non-payment.

This change in the defense would make good fodder for cross-examination. Don’t most people who have a legitimate reason for non-payment know that reason? Here it was evident that the buyers were searching for a pretext and the original procuring cause defense was put together before they engaged counsel who realized it was a losing argument. Again, if I had been the first to demand payment, the matter would have gone straight to counsel and we wouldn’t have had this switch in defenses that made buyers look particularly weak. I don’t encourage self-representation but a simple request for payment might be reasonable coming from you, the broker. This too is a matter for discussion with your counsel.

My experience suggests that brokers are generally successful in recovering fees that have been earned. That judges and juries favor clients over their real estate brokers is not true in my experience, especially for those brokers who maintain good files and can establish that they provided the services that a reasonable prudent licensee is to provide.

Copyright © James L. Goldsmith, Esquire, 2019
All Rights Reserved

Super Lawyers

Four Mette, Evans & Woodside Attorneys Named “Super Lawyers”

Super Lawyers

Attorneys pictured (left to right): Kathryn Simpson, James Goldsmith, Michael Farrell & Victoria Edwards

Mette, Evans & Woodside attorneys Kathryn L. Simpson, James L. Goldsmith and Michael A. Farrell were named as top attorneys in Pennsylvania by Super Lawyers. Attorney Victoria P. Edwards was also recognized by Super Lawyer as a Rising Star. The Super Lawyers honor is reserved for attorneys who exhibit excellence in their legal practice with just five percent achieving the recognition in the state.

Ms. Simpson’s practice is in commercial litigation, professional liability defense, labor and employment, and health law. Since 2004, Ms. Simpson has been recognized as a Super Lawyer for her litigation work. She is a frequent speaker and author of continuing legal education course materials for the Pennsylvania Bar Institute.

Mr. Goldsmith focuses his practice on professional liability defense, professional licensure defense and real estate litigation. Since 2006, he has been recognized in the professional liability defense category. Mr. Goldsmith also provides legal expertise to professional trade associations such as the Pennsylvania State Association of Boroughs, and several Associations of REALTORS® across Pennsylvania.

Mr. Farrell, who has been recognized for seven years, has been practicing in the field of insurance defense litigation for 32 years. He is a certified specialist in the practice of workers’ compensation law by the Pennsylvania Bar Association’s Section on Workers’ Compensation Law as authorized by the Pennsylvania Supreme Court. He has published articles and has taught seminars relating to Pennsylvania Workers’ Compensation Law.

Ms. Edwards dedicates her practice to workers’ compensation and social security disability. Since 2016, she has been recognized as a Rising Star by Super Lawyers. Ms. Edwards also is a certified specialist in the practice of workers’ compensation law by the Pennsylvania Bar Association’s Section on Workers’ Compensation Law as authorized by the Pennsylvania Supreme Court.

“Having so many of our attorneys recognized as “Super Lawyers” over the last decade is a testament to Mette, Evans & Woodside’s dedication to providing top-notch legal counsel,” said the firm’s President Tim Hoy. “We’re proud to have these outstanding attorneys as a part of our legal team.”

Mette, Evans & Woodside has a long-standing tradition of providing comprehensive legal representation in Litigation, Estates and Trusts, Business and Real Estate. Founded in 1969, the firm provides clients throughout Pennsylvania with sound legal counsel for all facets of their professional and personal life.

Understanding Pennsylvania’s Real Estate Commercial Broker Lien Law

Realtor Property Lien

By: James L. Goldsmith, Esquire

A majority of states, including Pennsylvania, have enacted broker lien laws that enable real estate brokers to file liens on commercial property in the full amount of their commission.  There are prerequisites to be satisfied before a lien can be asserted.  The terms of engagement of the broker and the conditions to be satisfied in exchange for the commission must be specified in writing between the broker and client. When the client is a seller or lessor, this agreement is generally referred to as a listing for sale or rent agreement.  The terms should be clear so that there is no ambiguity as to when a fee is earned.  It is also imperative that the broker asserting the lien establish that the broker and/or agents affiliated with the broker “have provided licensed services that result during term of the written agreement in the procurement of a person or entity that is ready, willing and able to purchase, lease  . . . as evidenced by a written agreement signed by the owner or owner’s agent.”  Generally, the mere marketing of the property’s availability has been deemed to satisfy the requirement that the broker provided licensed services.

Notice of a broker’s intent to file a lien must be served on the owner and purchaser at least three days prior to the filing of the lien with the prothonotary in the county in which the property exists.  This requires the broker to anticipate that the seller won’t pay a commission since the lien has to be filed before settlement when the commission is ordinarily paid

If a lien is asserted but the transaction does not settle through no fault of the owner, the lien must be removed voluntarily and promptly.  Failure to do so on the part of the broker can result in additional assessments including expenses and attorneys’ fees.

When a lien is asserted before settlement sums sufficient to satisfy the lien can be taken from the proceeds of the transaction and held in escrow in order to allow the transaction to proceed.  If such an account is established, the parties may not refuse to close.  Ultimately the sums held in escrow will be paid to the broker as a commission or returned to the seller if a commission has not been earned.  This may be determined by trial.

Broker liens can be asserted against a buyer who has agreed to pay a commission, but has failed to do so.  A lien against a buyer or tenant can be filed up to 90 days following the date of the purchase or lease.  There would also have to be clear agreement between the buyer/tenant and the broker and broker’s services would have to been provided pursuant to the agreement.

Waivers of a broker’s right to file a lien are ineffective by the terms of the lien law.  For this and other reasons it is imperative that a clear consumer/broker agreement is established at the outset of the relationship.  There should be no uncertainty as to when and how a fee is earned.

Copyright © James L. Goldsmith, Esquire, 2019
All Rights Reserved

Real Estate Claims

Taking Real Estate Cases To Magisterial District Courts

Real Estate Claims

By: James L. Goldsmith, Esquire

The magisterial district courts are the small claims courts of Pennsylvania. The magisterial district justices (MDJs) are the small claims judges. It is within their jurisdiction to conduct preliminary hearings in criminal matters where the only issue is whether there is sufficient evidence to send the matter to the common pleas court for trial. Hopefully your interest in this article has nothing to do with the criminal functions of the court!

Among the other responsibilities of the magisterial district courts is the resolution of cases involving evictions and civil cases where the amount in controversy is $12,000 or less. MDJs may hear cases involving larger sums, but can only award the maximum amount of $12,000. The attractiveness of the magisterial district courts is the low cost and that the proceedings can be navigated without legal counsel. Legal counsel is not required in the court of common pleas or the appellate courts, but try navigating your way without one!

For obvious reasons, many cases rooted in real estate find their way to the MDJs. Though more and more MDJs are lawyers, it is not a requirement of the job. Before being sworn into the position, all MDJs must pass a test that includes civil law including real estate and landlord/tenant law. One would hope that the MDJ before whom you appear would be expert in the law, and most fit the bill. A Hotline caller, however, recently relayed how the MDJ refused to enforce his lease because it was a lease in writing for more than one year, and, according to the MDJ such leases were not enforceable!! Most MDJs are willing to be persuaded that the law is other than what they had thought, but a gentle and non-condescending approach is suggested. Providing a legal opinion or treatise on the matter is also suggested.

A limitation on taking a matter before an MDJ is the ease in which it is appealed. This can also be a benefit, but it certainly means that complete resolution before the MDJ is not a certainty. Appeals can be taken for any reason, or no reason. An appeal from the court of common pleas is a different matter; the appeal must be based on an error of law and not merely because the appellant is unhappy with the decision.

Despite the ease with which an appeal is taken from an MDJ decision, there are benefits. First, many cases are resolved without appeal. Second, a hearing before an MDJ gives one a relatively inexpensive rehearsal. On appeal, the shortcomings in one’s presentation can be rectified. Third, a hearing before an MDJ is inexpensive discovery. Practice in the court of common pleas enables one to take depositions and serve written discovery seeking information well in advance of trial. You can get much of the same by trying a case before the district justice. In fact, you can request that the testimony of a witness or the entire hearing for that matter, be transcribed for later use. The person seeking the transcription is the person who pays for the cost.

Landlord and tenant practice is primarily relegated to the magisterial district courts. If you manage property you should get to know the MDJ(s) that will entertain your cases. Judges are nuanced and some have requirements that others may not observe. Most would welcome an introductory visit. State that your objective is to simply become aware of the procedures to be applied by the MDJ. Don’t expect all MDJs to be open to this kind of introduction and don’t ask for favors. Do your homework and be conversant with Pennsylvania’s Landlord and Tenant Law. Don’t expect the MDJ to teach you the law; rather, you are there to determine if there are any special procedures or practices that the MDJ prefers so that you can comply. Hopefully the introduction will enure to the benefit of you and your client.

Copyright © James L. Goldsmith, Esquire, 2019
All Rights Reserved

How long to return deposits?

How Long to Return Deposits?

How long to return deposits?
By: James L. Goldsmith, Esq.

As a broker holding a deposit, how long should it take you to return it pursuant to the terms of a release signed by both parties or when sufficient time has passed (the 180 days or whatever it has been reduced to) and not litigation/mediation has been initated? I am hearing complaints that listing brokers are taking “too long” to return deposits when buyers are the recipients. I’ve not verified any of these complaints, but they are the focus of a good number of Hotline calls so I thought it merited discussion.

There are times when a deposit cannot be returned despite how evident one party’s entitlement to that deposit may be. We need an agreement between the parties which usually is in the form of a release; or we wait the passage of time and follow the formula for the deposit’s return that is set forth the agreement of sale. Rarely do we await a court order. These issues, however, are not the subject of the more recent complaints.

What I am hearing is that the escrow holding broker has received a release or has received the buyer’s letter demanding return of the deposit given the passage of time without resolution. In those circumstances, the broker has no skin the game and the parties have agreed (in the release or have pre-agreed in the agreement of sale) where that deposit is to go.

In most cases, deposits are returned to buyers because of a termination resulting from an inspection contingency, or, because the buyer did not get the necessary mortgage. Sellers, and in many cases listing brokers who hold the deposit, may be suspect that the buyer’s stated reasons for terminating are bogus, or that the buyer did not make a good-faith effort to get that mortgage. To punish the buyer for their pretextual termination sellers may encourage the broker to hold that deposit as long as possible.

So the question frequently is asked: how long does the broker have to return a deposit once entitlement is established? The agreement provides no answer. So we look to what a court would do.

I think just about any lawyer would give you the same answer. The broker has a “reasonable period of time to return the deposit.” What is “reasonable” depends on the circumstances, but it is hard to fathom that it would take a broker more than several days to issue a check. Perhaps if termination happens so early in the transaction, the broker might be justified in waiting until the buyer’s deposit check clears before making the return. A seller who wants a listing broker to drag his or her feet when returning the deposit should be ignored. If a complaint is made to the Real Estate Commission, it’s not the seller who is under the gun.

I understand that there are pockets in Pennsylvania where buyer brokers hold deposits. It is a practice I think that should be considered by those who don’t. Holding a deposit does not give the broker an advantage over the other. The situations when it should be released and the time of release are not dependent on which broker is holding the deposit. The ability to fund a transaction with a deposit, however, is shorter when the buyer broker holds the deposit simply because there is one less step in the process. A buyer makes their check payable to the selling broker and hands it to their agent when close to a decision. Then, even if the contract is executed via software, the buyer agent merely needs to hear that the offer has been accepted and then place it in his broker’s escrow account. Voila! The transaction is funded rather than having to await the additional step of transfer from the buyer broker to the listing broker.

Lastly, and while we are on the subject, why am I still taking Hotline calls involving convoluted facts of the transaction and questions of breach and entitlement to a deposit when the it is only $1,000? The fight is so greater than the reward and the cost to litigate so much greater than the amount in controversy that nobodies’ interests are served!

Home Inspectors

Attend Inspections

PART TWO

By: James L. Goldsmith, Esq.

Home Inspectors

 

Who, if anyone, should attend home inspections has been a topic of debate for as long as home inspections have been a standard element in a residential transaction.  Year ago when the topic came up at an NAR meeting of attorneys who represented state associations of Realtors, the room was divided, with roughly 50% saying that buyers should attend, but not their agents.  I remember one outspoken attorney claiming that if an agent was not present to hear the spoken word of the inspector, he/she could not be charged with failing to pass the inspection comments on.  As for me, I am not a supporter of “see no evil” or “head in the sand” approach.

Most of the lawyers at that NAR meeting, however, agreed that buyers should attend inspections.  The reason should be obvious, but consider a recent transaction where the buyer sought an inspection of the sewer lateral from the home to the municipal system located in the street.  The inspection primarily consisted of snaking a video camera through the lateral and visually assessing its condition.

The seller agreed to be present for the inspection so he could open the door to the inspector and direct him to the location of the line in the basement.  Neither the buyer nor the salespersons involved in the transaction chose to attend.  The seller, who was curious, watched the process and conversed with the inspector during the inspection.  As they watched the monitor, the inspector pointed out dips in the lateral and explained they were probably caused by substandard work when the house was constructed.  The inspector felt that the stone bed in which the lateral was placed was not sufficiently compacted and offered other criticisms that were either an educated opinion or complete conjecture.  He also expressed that the dips would get worse over time.  When the seller read the report he was surprised to see that, while the dips were mentioned, there was no reference to the hypotheses that were verbally expressed by the inspector.  The seller was so concerned that he contacted his lawyer questioning whether he had a disclosure obligation that went beyond the written report.

It happens all the time.  The inspector is generally all too happy to discuss his findings and the possible implications of those findings as he pokes about shining a flashlight in dark corners, behind water heaters and above drop ceilings.  Yet, it’s very likely that what will appear in the written inspection report will be an abbreviation of those comments, if they are mentioned at all.  Wouldn’t it be beneficial to the buyer to have the opportunity to ask the sewer inspector what causes dips, whether they remain stable and what is likely to happen over how many years?  More information is better.  When buyers are told to focus not only on written conclusions, but also the inspector’s musings and mutterings they will get more out of the inspection.

Home Inspectors

Untimely Repairs

PART ONE

By: James L. Goldsmith, Esq.

Home Inspectors

 

It happens.  Sellers agree to make repairs suggested by a home inspection, but fail to complete the job timely.  When this happens a buyer is faced, unfairly, with proceeding under a contingent plan (e.g., having repairs made post-settlement or taking cash in lieu of repair) or of delaying settlement.  Usually there is little choice.  The buyer is packed and ready to move or the mortgage commitment can’t be extended, etc.

What prompted this article was a recent call to the Hotline involving a transaction where seller was to have conditions repaired before settlement.  For any number of reasons the repairs were not made.  Buyers only learned of sellers’ failure at the pre-settlement walk-through.  The seller acknowledged the failure but offered to issue a check payable to the repairperson that would be given to buyers at settlement.  When the buyers expressed their dissatisfaction, sellers became indignant.  How unreasonable of the buyers not to accept a check in the full amount the repairperson had estimated!   Likewise, the listing agent was incredulous that the buyer agent didn’t find this to be an acceptable alternative to what had been agreed to: repairs made before settlement.

An agreement is an agreement is an agreement.  If it was agreed that repairs were to be made before settlement!  It really doesn’t matter that the sellers and listing agent feel that providing a check in the amount of the repairs is an equivalent.  It is not.  Repairs frequently lead to the revelation of other issues requiring repair.  The cost of materials can rise.  Estimates are not always guaranteed.  Repairpersons go out of business or get sick or worse.  Further, the parties agreed that the burden of resolving the matter would be borne by sellers.  When the sellers deliver a check at settlement, the burden of repair falls on the buyer.  This was not the bargain the parties struck.

Certainly a buyer can hold firm and demand that the terms of the agreement are honored.  But, at the price of delaying settlement and the well-made plans of buyer, this is usually not a satisfactory alternative.  Further, listing agents and sellers quickly understand that buyers may have little choice.  What do you, as a listing agent, consider appropriate?   Beyond the legal obligation, is there a moral obligation that your sellers complete the tasks that they agreed to undertake?  RELRA requires licensees to advise their clients of the status of the transaction and an argument can be made that as a listing agent you have an obligation to poke in every now and then to determine that your seller is complying with their agreement.  Should a buyer agent be inquiring as to the status of repairs at the risk of being labeled a pest?

The fact is, buyers have a right to enforce the agreement, including seller-promised repairs.  While it is rare that a buyer will refuse to attend settlement until the terms of the agreement are satisfied, it happens.  Further, if I were negotiating on buyer’s behalf, I might anticipate delays in repair and, as part of the change in terms agreement, require that repairs not made by settlement will exact a payment into escrow at settlement of 1 ½ to 2 times the projected cost of repair.  It’s not customary, but I do know agents who make this a routine point of negotiation when repairs have to be undertaken.

The best transactions occur when a seller receives all of the purchase money at settlement and where the buyer receives all of the property promised, at settlement.