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Top 10 Pitfalls in Dealing with the RPA – Buyer’s Agent

Listed below are Ten issues for Buyer’s Agents to pay particular attention to when dealing with a residential sale. They are listed in no particular order. This list is not meant as an exhaustive list of all issues that the Listing agent should evaluate, but rather focuses in on the particular areas that often create confusion and misunderstandings.

1.  Closing Costs

Very often, the buyer’s agent will put a clause in the Purchase Agreement requiring the seller to credit the buyer for buyer’s closing costs.  Many lenders will allow sellers to credit buyers up to 3% of the purchase price towards buyers closing costs, if the buyer’s closing costs turn out to be that much.   Herein lies the rub.  While the lender may indicate that the seller is permitted to pay up to 3% of the purchase price towards closing costs, when the actual closing costs are determined, often this amount is less than the 3% approved in the Purchase Agreement.  The lender will then not allow the seller to pay the full 3%, but only the actual closing costs incurred by buyer. This often creates a misunderstanding between buyer and seller.  Buyer assumes that buyer will receive this 3% regardless of the actual closing costs incurred.  The seller assumes that seller is only responsible for buyer’s actual closing costs.  The agents can avoid this misunderstanding with the use of more precise language in dealing with credits for closing costs.  Often, the language used is “Seller shall credit buyer 3% towards buyer’s closing costs” or “Seller shall credit buyer up to 3% towards buyer’s closing costs.”  It is suggested that this be expanded to state the following:  “Seller shall credit buyer up to a maximum of 3% of the purchase price towards buyer’s closing costs.  However, in the event that the amount of buyer’s closing costs that the lender will allow seller to pay turns out to be less than 3%, seller will only be responsible for the amount allowed by lender.”

2.  Home Warranty Issues

In filling in paragraph 4D(6) of the Purchase Agreement, the buyer’s agent should be careful to match the coverage to the house in question.  If the property has air conditioning, pool and/or spa, the buyer’s agent should make sure to check the optional coverage for these items.  Even if the buyer’s agent puts a dollar amount in the blank space for home protection plan that would cover the various different options along with the basic coverage, there is no guarantee that the seller will cooperate with buyer in allowing the buyer to add optional coverages that are not referenced in the Purchase Agreement.

3.  Personal Property Included in Sale

The buyer’s agent should pay particular attention to stove(s) and refrigerator(s) located at subject property.  While built in appliances are normally included in the sale, free standing stoves and refrigerators are not normally included.  There are now separate boxes to check for stove(s) and refrigerator(s) in paragraph 8B(2) of the Purchase Agreement.  The buyer and buyer’s agent cannot rely on the MLS information or flyers that might indicate that stoves or refrigerators are included in the purchase price.  This information must appear in the offer or other written agreement between buyer and seller.  If the buyer’s agent is in doubt as to whether a stove or refrigerator is a built in, and if the buyer wants those items, the safest approach is to check the boxes in question.

4.  Agency Confirmation

The agency confirmation in the Purchase Agreement is often filled out incorrectly by the buyer’s agent.  In such event,  a supplemental agency confirmation form must be prepared to correct the mistake.  There are several common mistakes made by agents in filling out the agency confirmation section of the Purchase Agreement.  First, the buyer’s agent should fill in both the Listing agent information and the Selling agent information.  Leaving the listing agent information blank leaves the confirmation section incomplete.  Second, the Listing Agent and Selling agent should be the firm name, not the individual agent’s name.  Finally, agency is determined by the broker of record for the company, not the individual agent.  Two agents in the same office, or same brokerage, are, by definition, dual agents.

5.  No Loan Contingency Paragraph in Purchase Agreement

Paragraph 3H(4) of the Purchase Agreement is a paragraph with a check box which, if checked, would remove the loan contingency on any loan buyer is obtaining to purchase the subject property.  This paragraph should be used with caution.  Checking the box removing the loan contingency removes any and all protection buyer has with regard to obtaining the loan(s).  Often a buyer will ask the buyer’s agent what the buyer can do to strengthen the offer.  An offer with no loan contingency would appear more attractive to a seller than one with a loan contingency.  But such a non contingent offer is risky for the buyer and may place buyer’s deposit at risk should buyer be unable to obtain the necessary loans.  It is suggested that if buyer wishes to remove the loan contingency at the time of writing the offer, that the buyer’s agent have all buyer’s initial right next to the check box so that there is documentation that buyer was aware of the fact that this contingency was being removed at the outset of the transaction.  In addition, it is suggested that the buyer’s agent send an email to the buyer documenting the fact that by removing the loan contingency at the outset, the buyer is aware that should buyer be unable to obtain the financing necessary and thus be unable to close the escrow, the buyer would be in breach of the contract and could be responsible for damages to seller.  If, at a later date, the buyer cannot obtain a loan and buyer wishes to cancel based upon the loan contingency, the buyer’s agent would have this documentation to show that buyer was aware of the fact that no loan contingency existed.

6.  Loan Contingency vs. Appraisal Contingency

Paragraph 3(I) (Appraisal Contingency and Removal) is designed to have the appraisal contingency run for the same length of time as the loan contingency and the language states that removal of the loan contingency will also remove the appraisal contingency.  This situation can be altered by checking certain boxes in this paragraph, but in the absence of any checked boxes, the loan and appraisal contingency will both be removed when buyer removes the loan contingency.  There are times when the buyer may be willing to remove the loan contingency but not the appraisal contingency.  The buyer’s agent should be very careful to avoid inadvertently removing the appraisal contingency when removing the loan contingency.  There should be specific language indicating that while the loan contingency is being removed the appraisal contingency is still in place.

7.  Deposit

The current C.A.R. Purchase Agreement has a new default with regard to the deposit.  The default position is that the buyer will not have to write or present a check at the time of writing the offer.  Rather, the buyer will be responsible for getting the deposit directly to escrow once the offer is accepted by the seller.  There is a checkbox in Paragraph 3(A) to change the procedure to have the buyer present a check to the buyer’s agent at the time the offer is written.  This procedure would require the buyer’s agent to insure that the check is recorded in the office trust log.  Once recorded in the trust log, the agent must make sure that the final disposition of the check is also recorded in the broker’s trust log.  Per the Purchase Agreement, unless changed in writing by all parties, the check must be deposited in escrow within 3 business days of acceptance of the offer.  It is the buyer’s agent who is responsible to make sure this happens.

With regard to whether or not a deposit must be recorded in the broker’s trust log, the rule is simple.  If the agent touches the check, whether the check is made payable to the broker’s trust account or escrow, the agent must record the check in broker’s trust log.

8.  Offer Contingent on Seller Finding Home of Choice

Occasionally, a seller will counter an offer with a statement that the offer is contingent on the seller finding a home of seller’s choice.  This is a negotiable item between buyer and seller.  Buyer may accept the fact that the offer is contingent on such event or the buyer may counter this provision to delete this contingency.  If the buyer is willing to accept such a contingency, it is very important that the buyer’s agent have proper language to protect the buyer.  Use of the C.A.R. form entitled “Contingency for Sale or Purchase of Other Property” is strongly recommended in such a situation.  Paragraph B of that form provides language to add time frames and specific detail to this contingency so both parties are aware of the time frames in question and their obligations associated with this contingency.

9.  Arbitration Clause

The Arbitration of Disputes paragraph in the Purchase Agreement creates a difficult situation for both listing and selling agents.  Buyers and sellers will often ask their agent whether they should initial the Arbitration of Disputes paragraph.  Providing a yes or no answer could be interpreted as practicing law and an agent should not be engaging in the practice of law.  So what is the buyer’s agent expected to do with regard to this paragraph?  The good news is that most agents use the CAR Statewide Buyer and Seller Advisory form along with the Purchase Agreement.  Paragraph 49 of that addendum has an excellent explanation of the Arbitration Process.  It is suggested that you advise your client to carefully review Paragraph 49 of this addendum and read the Arbitration of Disputes paragraph in the Purchase Agreement.  Upon reviewing these 2 paragraphs, the client should have a better understanding of the Arbitration of Disputes paragraph.  If they still have questions regarding this issue, they should be directed to obtain legal advice regarding whether or not to initial said paragraph.

10.  Liquidated Damages Clause

The Liquidated Damages paragraph in the Purchase Agreement presents the same difficult situation for both listing and selling agents.  Buyers and sellers will often ask their agent whether they should initial the Liquidated Damages paragraph.  Once again, a yes or no answer would put the agent in a position of providing legal advice.  The agent should recommend that the client read paragraph 47 of the aforementioned Statewide Buyer and Seller Advisory form.  In addition, the client should carefully read the entire Liquidated Damages Paragraph in the Purchase Agreement.  Initialing this paragraph could have significant legal consequences in the event of a breach of contract by the buyer.  If the client cannot decide whether or not to initial this paragraph, they should be advised to contact legal counsel for an explanation of the possible legal ramifications of having said paragraph initialed or not.

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