Robert Nagle 0000-00-00 00:00:00
Now’s the Time for Real Estate Attorneys to Embrace the Residential Client Unfortunately, Arizona residential real estate sellers and buyers rarely seek an attorney’s counsel. The resulting system is one which favors and protects residential real estate brokers and title companies at the expense of the home seller and buyer. Below are a few examples of the imbalance presently built into the system by parties represented by attorneys (agents, brokers and title companies) and why attorney involvement for residential real estate sellers and buyers is important now, perhaps more than ever. The Dice are Loaded When hiring an agent, sellers are instructed to sign the standard listing agreement. No one really reads this: it’s like reading an insurance policy. But, the listing agreement, recently updated by the Arizona Association of Realtors (AAR) for use by its members, is written with two overarching principles – (1) protect Arizona realtors from liability, and (2) increase the likelihood/requirement for commission payment. The seller who does not read the listing agreement carefully, and have an attorney review it on their behalf, is squarely at the mercy of the agent and his form. For instance, the standard form requires only that a realtor provide a “ready, willing and able purchaser” in order to have earned a commission and not, as common sense tells us, require the transaction to actually close (lines 66-68). Another example is that the seller agrees to sign “all standard documents used by Broker and the escrow and title companies” (lines 146-147). One escrow company actually threatened to kill a deal if the seller refused to sign documents requiring he indemnify the title company for its own errors. Talk about a rock and hard place! Buyers are also at risk from the standard forms. Contrary to popular belief, if a buyer defaults under the purchase agreement, and such default does not involve getting financing to purchase (pay attention, cash buyers!), the seller has the option to choose (a) to keep the earnest money, (b) sue for specific performance, or, (c) sue for actual damages (particularly harsh in a market with declining prices and non-purchase money second mortgages). Attorneys are Needed Now, More Than Ever The Arizona Constitution gives realtors the right to draft or fill out and complete, without charge, preliminary purchase agreements, earnest money receipts, deeds, mortgages, leases, assignments, releases, contracts for sale of realty, and bills of sale (Article 26, Section 1). So, the AAR attorneys draft the form, and the realtors complete the form. It is my opinion that when the realtors complete the forms, inserting clauses, and making carve-outs, they are practicing law – on their own behalf. But, they act as if they are representing the interests of buyers and sellers! We all know representing both parties to a deal poses a conflict of interest. The AAR understands this conflict as evidenced by the facts that (a) the buyer attachment to the form purchase agreement states “you are urged to consult with an attorney”; (b) the realtors’ short sale advisory provides that “the importance of competent legal counsel… cannot be overemphasized” (page 5, line 5); and, (c) the standard purchase agreement contains an express release and indemnification from the seller and buyer in favor of the realtors for any “financial, legal or tax advice” the realtors may give them (lines 377-383). In sum, agents, brokers, and title companies urge buyers and sellers to seek legal counsel. It’s time for them to accept that advice and that we step up to guide them. In any business transaction, parity requires each party have legal counsel. Why should the purchase of a home be any different? For most Arizonans, buying or selling a home will be the largest single transaction they undertake during their lifetime. Shouldn’t they be entitled to receive the same advice….an attorney looking out for their interests? Examples of How Attorneys Can Help Today, after representing numerous parties in residential real estate transactions, I’d like to share some real life scenarios with you which will exemplify how having a lawyer on their side has helped some buyers and sellers. 1. Seller was my client, I reviewed the standard purchase agreement and made comments. In response, (a) buyer rejected all comments (even those that helped him vis-à-vis the title company), and (b) buyer’s agent, his broker, and the escrow company emphatically told my client that none of my comments were necessary. Seller was sophisticated and understood the risks I had explained to him. He was not willing to be bullied. He pushed back. We held several conference calls in which we discussed that the dangers posed to seller by a few of these standard terms greatly outweighed the benefits. Finally, most comments were accepted, the agreement was signed, and the deal has closed. 2. In another matter, an escrow company provided two form documents to my seller client to sign at closing. Seller asked me to review and I pointed out that 13 provisions were for the escrow company’s protection. The escrow agent accepted this but threatened that if seller refused to sign as presented, the title company would not close. We switched to another title company and closed the deal. Imagine, the escrow agent knew and agreed that the forms were adverse to seller’s interest and yet, refused to discuss them – its lawyers felt it was better to lose the deal than to consider the changes! 3. In another matter, I reviewed a short sale purchase offer for seller. There were several unnecessary risks inherent in the standard language and I sent my comments to his agent requesting that he prepare a counter offer. The agent told me my comments weren’t necessary and that “all I needed to do was make sure seller didn’t have further liability to his lender”. My comments dealt with potential issues with the buyer and the escrow company (you see, these things are complicated). To my surprise, the agent refused to write the counter offer. The listing with that agent was terminated, a new agent retained, and seller is in escrow duly protected. The Bottom Line The existing system is stacked against buyers and sellers. Agents, brokers, and title companies have attorneys. And, while documents advise buyers and sellers to seek legal counsel, they are discouraged from doing so. Consequently, when a buyer or seller is damaged, their recourse is limited while the agents/brokers point to (a) the buyer/ seller’s knowing acceptance of the risk of failing to consult an attorney as advised, and (b) the release/indemnity clause in the standard form documents. The time has come for fundamental change. Let’s embrace this opportunity to provide solid legal advice to home sellers and buyers.
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