As originally published in Miami Herald and Boston Globe (September 2013) by David Soble
With the spike in home sales, buyers and sellers alike are feeling the pressure to quickly close on their purchase transaction before mortgage rates go up and demand for new homes slip. But before rushing to “ink the deal”, understand that real estate professionals are required to provide written disclosures to their clients on a variety of important items necessary to the transaction as they directly affect the buying or selling decision. Here are eight areas where written disclosure should be, or are required:
Affiliate Disclosures. These days it’s common for a mortgage company to have a business interest in a title company or a real estate brokerage and to also own a mortgage company. These are called “affiliate” relationships, and the relationship must be disclosed to the potential end users of these services. For instance, a mortgage company must disclose in writing to its loan applicants that it also owns a title company that will close on the mortgage and purchase transaction. A loan applicant is not required to use the “affiliate” title company and can use another suitable title provider instead. Most importantly, a home seller or buyer cannot be pressured to use an affiliate service or be prevented from seeking a loan or making an offer on a home just because one chooses to do business with an “unaffiliated” business.
Third-party Services. Similar to the above paragraph, a home seller and real estate agent cannot require someone to use a third-party service in order to purchase a home. A third- party could mean a lender, a title company, an appraiser, or inspector. However, one can give better pricing to a buyer who uses their services. For example, a lender can waive fees if the buyer uses one of their “affiliates,” however they cannot prevent you from making a loan application or denying a loan for refusing to use their business affiliates.
Real estate agent disclosure. If a real estate agent is selling a home that they own, they must disclose that they are a licensed real estate agent. Some states limit this disclosure to only an agent’s primary residence. Other states require the disclosure for any properties that the agent owns.
Dual agency. In a real estate transaction, a seller’s agent or “listing agent” represents the seller. The seller’s agent does not have any professional duty to a buyer who is not represented by their own agent. The buyer should hire their own agent. A dual agent is an agent or real estate broker that represents both parties in the transaction. Agents must provide written disclosures to both parties when they act as dual agents. In theory, this disclosure is supposed to make a dual agent in a transaction neutral. However, a real estate deal is never without some controversy and give and take, and therefore, this writer suggests that a prospective purchaser hire their own “buyer’s” agent.
Title agency. A title company’s function is to insure that the ownership of a specific property is valid according to public property records, so that a lending institution can provide a mortgage on the property or a purchaser can take proper title from the rightful owner. Title agents represent the insurance companies that provide this coverage. They do not dispense legal advice to buyers or sellers. They do not represent lenders or real estate brokers. Title companies must disclose when they have an affiliate relationship with a real estate service provider, meaning that they are owned by the lender or real estate brokerage, or even an appraiser.
Provide all offers. A real estate agent is required to provide its sellers with all offers. Unless a seller specifically instructs an agent not to bring certain offers—say, one below a certain price or time frame—the agent must present the offer. Therefore, if a buyer feels that an offer was not presented, they should contact the agent’s broker. In some states, it’s customary for a buyer or their agent to present the offer directly to the seller. But nothing prevents an enthusiastic buyer from directly speaking with a seller—it’s just not commonplace.
Terminating a real estate agent. It is a common misconception among sellers that they cannot fire or terminate their listing agent. They can. However, the best way to continue to market one’s property without bad feelings is to approach the agent’s broker and have the broker assign a new agent to the listing. Understand that the agent and broker still have a “protection period” that protects them against the seller closing a transaction with a buyer that the agent, through their business efforts, had previously procured. The period is usually for 180 days, but at the time of listing a property this period can be negotiated down to 90 or even 60 days. Regardless of the time limits, it is wrong for a seller to take advantage of the agent’s efforts and are grounds for legal action.
Attorneys. Like a real estate professional, an attorney cannot represent a buyer and a seller in a transaction unless the attorney discloses the conflict in writing and both parties sign the disclosure. If two parties to a transaction have completely different versions of a transaction, then it’s time that one party hires their own attorney.
In a residential real estate transaction, written disclosures comprise most of the real estate package. For those new to real estate, hire the right adviser to guide one through a successful transaction. But make sure to read and understand the disclosures and how they apply to one’s deal as they are there for the buyer or seller’s benefit.
About the Author: Since 1990, David Soble has been a real estate and finance attorney in Ohio and Michigan. He advises national banks, lenders, loan servicers, consumers and business owners on residential and commercial real estate, finance and compliance issues. He has been involved in thousands of real estate transactions, being responsible for billions in real estate loan portfolios throughout his career. He has 23 years of real estate and lending law experience and the battle scars to support his tempered cynicism.