Okay, so Run-DMC’s 1987 song “It’s Tricky” wasn’t talking about real estate transactions, but instead, it talked about the fact that rapping is not as easy as it sounds. However, I believe there is a lesson applicable to real estate practitioners in the song.
There are two facts we all know to be true: First, it’s not as easy as it looks to be a real estate agent, and second, real estate transactions are complex.
I have always likened a good real estate agent to a duck on a pond: the duck is calm above the water but paddling like heck beneath. A good real estate agent makes the work look easy. You know better than anyone real estate transactions are tricky, tricky, tricky.
This article briefly highlights some of the commonly tricky parts of a real estate transaction for an agent.
1) Agency
The discussion of agency involves pre-agency, customer and client relationships. The concept is strange to consumers and for this reason frequently difficult for agents to communicate.
Often in teaching agency, the easiest way is to break down the concept into exactly what agency is: a relationship. Each discussion of agency creates a different level of commitment to the relationship. Pre-agency is the least committed while a client relationship is the most committed. See below for a brief summary of each.
-
Pre-agency resembles hanging out with one another; getting to know each other.
- A customer relationship is not a fully committed relationship, which basically places it right between pre-agency and client.
- A client relationship is the most committed of all the relationships. In a client relationship, the firm and the consumer — the seller in a listing contract and buyer in a buyer agency agreement — agree to contractual obligations. A client relationship exists only when there is an agency agreement between the firm and the consumer.
Further complicating the discussion of agency when it comes to a client is the fact the client is confronted with a choice. A choice relating to the future of the transaction: how the client wants the firm to proceed if the firm also has a client relationship with the other party in the transaction.
The client has three choices:
- Multiple representation relationship with designated agency.
- Multiple representation relationship without designated agency.
- Reject multiple representation relationships.
This is why the discussion is so strange for the client and hard for agents to explain because the client often doesn’t know who is going to purchase their home or which home they are going to purchase.
While tricky to explain, the concept is not impossible. One approach is by asking the client the following: “In the potential event our firm also has a client on the other side of the transaction, would you like — as long as there are two different agents on each side — for me to provide you opinion and advice and the other client the same? If so, then item number one is the choice. Or if you are okay with our firm having both you and the other party as a client in the same transaction, would you be more comfortable with us being neutral to both of you?”
For more information about agency relationships, see WRA’s Disclosure and Agency Law Resources page at www.wra.org/Disclosure.
2) Protected buyers/protected properties
Protected buyers and protected properties protect the commission of certain buyers that qualify during a listing contract and properties that qualify under the terms of the buyer agency agreement, respectively. The challenge for agents is trying to remember which buyers are protected under the listing contract or properties protected under the buyer agency agreement, how long the buyers/properties are protected, and what actions an agent can take if those buyers come back or the property is purchased.
For more information about protected buyers under the listing agreement, see the following Wisconsin Real Estate Magazine articles:
For more information about protected properties under the buyer agency agreement, see the June 2017 Legal Update, “Revised WB-36 Buyer Agency/Tenant Representation Agreement,” at www.wra.org/LU1706.
3) Copy of the RECR when the deal falls apart
The discussion of how to handle the inspection report after a transaction unravels has been a challenging conversation for real estate agents for a very long time.
The most common scenario involving the previous buyer’s home inspection report goes like this: The first buyer’s offer included a home inspection contingency, and the inspection revealed defects. Before the deadline of the inspection contingency expired, the buyer provided a notice of defects, and the seller did not have the right to cure. The buyer walked, and the listing agent has a copy of the inspection report. Now what?
For more information about what to do or what you cannot do relating to the previous buyer’s RECR when a transaction falls apart, see “Uncovering the Truth: The Inspection Report When the Deal Falls Apart,” in the February 2014 issue of Wisconsin Real Estate Magazine at www.wra.org/WREM/Feb14/UncoveringTheTruth.
4) Offer deadlines
Deadlines are everywhere in a real estate transaction, and it’s the agent’s responsibility to help keep track of dates and deadlines for your consumers. Understanding how to calculate deadlines is an important part of practice; see the definition of deadlines in the offer to purchase. Some deadlines in the offer to purchase are calculated as days, business days or hours.
In addition to the trickiness of the how to calculate the deadline and avoid missing a deadline, there has been a growing trend of deadlines being left blank in the offer to purchase. When drafting an offer to purchase, agents should ensure all necessary dates and deadlines are included. If a contingency does not include a deadline time frame, then the court will typically set a reasonable time frame.
For more information about calculating deadlines as well as the consequences of when a deadline is left blank, see the following articles:
5) Fixture vs. personal property
Whether an item is included or excluded in a real estate transaction often proves to be a challenging discussion for real estate agents and the parties. Is the item a fixture, is it personal property, is it rented? The questions can go on and on.
The offer controls what is or is not included in the transaction. In addition, the offer defines a fixture and the parties can agree to exclude a fixture or include personal property items from the real estate transaction. Further complicating the situation, parties commonly fail to address items that fall outside the definition of fixture as well as missing items that may be rented.
For more discussion about fixtures and personal property, see:
6) Delivery of loan commitment
Trickiness runs plentiful with the financing contingency and delivery of loan commitment. For example, common questions and concerns include: What is a loan commitment? Can the loan commitment be subject to conditions? How must it be delivered? Who can deliver it? What happens if the buyer cannot get the loan described? All of these questions are answered in the series of information below:
7) Testing vs. inspection
The contingency with the most frequently asked questions is the inspection contingency. In addition to the questions about the amendment vs. notice, which are covered in the next section of this article, the most common confusion surrounds understanding the difference between testing and inspections.
For more information about testing and inspections, visit:
8) Amendment vs. notice
One of the most commonly written about topics by the WRA legal staff and asked about on the WRA Legal Hotline is which form to use when dealing with an inspection contingency — a notice or an amendment.
And when I say the topic has been written about, I am not kidding. The following are some of the articles and videos from the WRA on this topic:
9) Bump clause
The bump clause has proven tricky for many real estate agents. The most common reason a bump clause is included in an offer is because a buyer needs to sell a house in order to purchase the property. However, tricky situations occur when the provision does not include a specific number of hours or parties do not understand when the bump notice is effective. In addition, confusion often occurs as to what happens when the buyer being bumped provides notice they cannot meet the bump requirements.
And for further clarification as to the bump clause, see the January 2005 Legal Update, “Contract Review,” at www.wra.org/LU0501.
For further discussion of bump clause issues, see the following Legal Updates:
- November 2009 Legal Update, “WB-11 Residential Offer to Purchase — 2010 Edition,” at www.wra.org/LU0911.
- August 2007 Legal Update, “'Favorite' Offer to Purchase Provisions,” at www.wra.org/LU0708.
10) Who gets the earnest money when the deal falls apart?
A common misconception and very tricky conversation is that the offer to purchase does not automatically give the buyer or seller the absolute right to the earnest money when certain situations occur in the transaction. For instance, even though the buyer cannot get the loan described in the offer, the buyer is not guaranteed the return of the earnest money.
A party does have the opportunity to draft the offer to include the return of the earnest money in certain events, but if the language is not added, then the agents and the parties will need to follow the terms of the offer to purchase.
“The Best of the Legal Hotline: Trust Accounts and Earnest Money Disbursements,” in the January 2013 issue of Wisconsin Real Estate Magazine at www.wra.org/WREM/Jan2013/LegalHotline provides additional details about earnest money.
Keep in mind that when you become frustrated with the tricky parts of a transaction, you can find solace in knowing Run-DMC understands the challenge of doing your job so well that others think it’s easy to do what you do.
Cori Lamont is Director of Corporate and Regulatory Affairs for the WRA.