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CASE STUDIES: 2) CODE OF ETHICS, AFFIRMATION THAT OFFER WAS PRESENTED 3) LICENSED CONTRACTORS REQUIRED PLUS 2 ADDENDUMS 4) NEW DISCLOSURE, TITLE/OWNERSHIP DISPUTE DURING ESCROW 5) NAME OF PLLC MUST MATCH NAME ON ADRE LICENSE 6) CAN BUYER MARKET THE HOME FOR LEASE DURING ESCROW? 7) UNFULFILLED LOAN CONTINGENCY NOTICE TO RESOLVE CURE NOTICE 8) CAN BUYER PAY ALL FEES INCLUDING COMMISSIONS? 9) REC’D UPDATED SPDS WITHOUT SIGNATURE, IS IT VALID…? 10) LISTING INCOME PROPERTY WITH TENANT IN PLACE, CBS CODE, ADDENDUMS 11) CAN THE NEW BUYER GET A COPY OF THE OLD INSPECTION? 12) POST POSSESSION COMPENSATION AND DEPOSITS 13) ZILLOW REFERRAL PROCESS 14) LSU-LOAN STATUS UPDATE, BUYER MUST SIGN LINE #40 OF LSU 2) CODE OF ETHICS: AFFIRMATION THAT OFFER WAS PRESENTED: Email language when no confirmation of offer being presented: Attach copy of Code, include SOP 1-7 language: As outlined in NAR’s Code of Ethics and Standards of Practice, Article 1, Standard of Practice 1-7: I am requesting written confirmation and affirmation that my client’s offer dated xx/xx/xxxx for the property at 123 Main Street, Tempe, AZ has been presented to the seller, or written confirmation that the seller has waived the obligation to have the offer presented. The reasons I am requesting this written confirmation are: (Examples) 1) the deadline for sellers response to my client’s offer has passed, 2) I have not received page 10 of the purchase contract returned with line #473 marked “offer rejected” with sellers initials, 3) I have not received any other written notice as to the status of my client’s offer. Please provide this as soon as practical as my client is asking me for confirmation that their offer was presented to the seller. A copy of the NAR 2019 Code of Ethics is attached for your use and review. SOP 1-7 is also included here for your reference. Thank you for your prompt attention to this matter. https://www.nar.realtor/about-nar/governing-documents/code-of-ethics/2019-code-of-ethics-standards-of-practice Standard of Practice 1-7 3) LICENSED CONTRACTOR EMAIL & ATTACHMENTS & OWNER IMPROVEMENT ADDENDUM X, I have attached the legal hotline opinion article concerning remodels and the new HomeSmart form whereby a seller will disclose contractor information. If a seller makes improvements and does not use licensed contractors and the aggregate cost of those improvements is greater than $1000, the seller would need to disclose that "licensed contractors were not used" in their disclosures to a prospective buyer. ADRE and AAR have been clamping down on this for some time now, and HomeSmart is following their lead and industry best practices regarding seller disclosures. Please let me know if you have any additional questions about this. Thanks, Jeff. 2 ATTACHMENTS: 1) aaronline.com remodel attachment 2) HomeSmart owner improvement addendum END 4) DISCLOSE TITLE/OWNERSHIP DISPUTE THAT OCCURS DURING ESCROW: Seller received letter from ex spouse stating she is still on title and will file a lis pendens Long, I spoke with Laurie and we are in agreement that you must advise the seller to disclose this issue immediately to the buyer. The proper format would be to use the form titled "Notice/Disclosure" (you can find this on zipForms), draft a brief narrative stating there is now a legal dispute regarding title to the property and that the seller has received legal notice challenging sellers ownership. This is a unilateral document that will be signed by the seller. Our expectation is that the buyer would use this new disclosure from the seller to cancel the contract. Otherwise, the claimant will most likely file a lawsuit and record notice of lis pendens to prevent the sale from going through. At this point, because it’s just a demand, the buyer could theoretically complete the transaction, but that may result in the buyer being brought into a later lawsuit. Please note that if the seller refuses to make this disclosure, then you must make the disclosure. There is a Commissioner’s Rule known as AAC (Arizona Administrative Code) R4-28-1101b that states that a licensee shall disclose anything that could materially affect the transaction to all parties in the transaction, in writing. Please let me know if you have any questions regarding this, I would also appreciate updates as to the status. Can I ask for a cancellation fee…? I would say no since the reason for cancellation is cloud on title and therefore the listing agreement would be unenforceable. You can't charge a fee to a party in a transaction if they are not able to perform due to the validity or enforceability of the contract. END 5) NAME OF PLLC MYST MATCH YOUR NAME ON LICENSE WITH ADRE Brokers, Attached is the AZ DRE application to change from an Licensed Individual to a PLLC that I need your authorization so that I can file with the AZDRE. Thank you, Allan Your PLLC name must be exactly as your name shows with the Dept. of Real Estate. So you would have to use Edward Allan Harsh, PLLC. I realize you have a registered nickname of "Allan", but I just confirmed with Kyle that the nickname can be used for marketing, but your PLLC must reflect your name as registered with ADRE. Please correct and resend and we'll have Laurie sign this. END 6) INVESTOR MARKETING A HOME FOR RENT PRIOR TO OWNING THE HOME (DURING ESCROW) 10/31/2019 Hi Mike, see my response in RED...Jeff. I have a pending Sale transaction where I'm representing a buyer, expected COE 11/26/2019. I am initiating a Rental transaction for this buyer as landlord. This will not be listed on MLS and will be advertised through alternate sites
I have questions regarding the options to show or take applications, deposits, and potential lease signing prior to the buyer closing on the property sale transaction. My understanding is the buyer has equitable title and a right to enter into a lease agreement (buy may be contingent on closing the sale). We have a desire to advertise as early as possible to procure a tenant as soon as possible after closing. Questions: Is it acceptable to advertise property prior to ownership/closing? (with sellers' permission)-Only with the seller's written authorization to advertise the property as a rental prior to COE. Is it acceptable to take applications prior to ownership/closing?-You would need to include the disclosure language that the processing of all applications received are contingent upon the successful close of escrow of the subject property. Application fee's will be fully refunded with x days if the property fails to close escrow. (x days should be short, ie, 5 business days...) Is it acceptable to take deposit to hold the property, contingent on closing? (deposit would be fully refundable if property is not available by an agreed date)-You would need to include the disclosure that any agreement entered into is contingent upon the successful close of escrow of the subject property. I would also include language that if the property fails to close escrow, all deposits will be returned within x business days...you will need to speak with your buyer about how many days for that, the fewer the better. Be sure the LL is prepared to account for all funds that are received throughout the process. You should also have additional language between the seller and buyer that the seller is indemnified by buyer from any and all claims that might occur as a result of buyers marketing/advertising of the subject property should it fail to close escrow. Any guidance is appreciated. END 7) EARNEST MONEY IS REFUNDABLE TO BUYER IF BUYER SUBMITS AN UNFULFILLED LOAN CONTINGENCY NOTICE DUE TO LOAN DENIAL DURING CURE NOTICE PERIOD: Our agent Rutilio Garcia sent me a copy of your response regarding EM for this property. We go through this same type of cancellation from time to time. The reason I am writing is to tell you that we believe your response to be incorrect. Please see the attached highlight on page 2 of your response. This is directly from the purchase contract. It is not ambiguous. EM is released to buyer if they provide "Inability to Obtain Loan Approval" prior to the expiration of any cure period. Our agent provided that to you and you acknowledge that. There is nothing else required. This resolves the cure notice. No funds need to be deposited. Escrow will not close. This is a valid cancellation as per the contract and the contract states that EM shall be returned to the buyer and that the contract is to be used as escrow instructions. Please review your response and make the necessary corrections to release the EM to the buyer. Please feel free to reach out if you would like to discuss further or if you have any questions or need any further clarification. Copy PC, Unfulfilled Loan Contingency, Line #’s 76-82, Inability to obtain Loan Approval Section 2c: Unfulfilled Loan Contingency: This Contract shall be cancelled and Buyer shall be entitled to a return of the Earnest Money if after diligent and good faith effort, Buyer is unable to obtain loan approval without PTD conditions and delivers notice of inability o obtain loan approval no later than three (3) days prior to the COE Date. If Buyer fails to deliver such notice, Seller may issue a cure notice to Buyer as required by Section 7a and, in the event of Buyer’s breach, Seller shall be entitled to the Earnest Money pursuant to Section 7b. If, prior to expiration of any Cure Period, Buyer delivers notice of inability to obtain loan approval, Buyer shall be entitled to a return of the Earnest Money. Buyer acknowledges that prepaid items paid separately from the Earnest Money are not refundable. END 8) CAN BUYER PAY ALL TRANSACTION FEE’S INCLUDING REAL ESTATE COMMISSIONS…? Jeff, My client received an offer on a listing that I have from an investor and buyer states that they will pay seller's title/escrow fees and both broker commissions up to 6%. I've never had a transaction like this. What can I do to make sure my client, I, and HS are protected. Sincerely, Hector Alvarez, Realtor® Hi, As long as the buyer made it part of their offer to pay those fees, that would be fine. Title will use the contract as escrow instructions so the settlement statement should reflect those terms and conditions. Let me know if you have any questions. Jeff. END 9) RECEIVED UPDATED SPDS VIA EMAIL.WITHOUT SIGNATURE OR DATE, IS IT VALID…? David, keep me posted if anything comes up. My guess is that they'll likely stay silent on this whole issue, but maybe not. Ultimately, if the Cure Period Notice (CPN) was sent yesterday the 24th, they will have the 25th, 26th, and 27th to remedy it or the Buyer can cancel on the 28th based on the CPN not being remedied. Kyle The seller's agent submitted the updated SPDS this morning with the correction but did NOT have the seller initial and date line 285. I did print the email page from the agent indicating that the updated SPDS is attached and is dated for today (10/26). Will this suffice for a date or should I pursue the agent for line 285 dated and initial? Good evening David, Yes as long as it’s been updated, you can prove when it was delivered to you so even without the updated date on page 7 you can still use this as the updated version. Kyle END 10) LISTING INCOME PROPERTY WITH TENANT IN PLACE: Hi Dianna, please see my response in RED below. Please feel free to reach out with any further questions. Jeff. I'm listing a condo with a tenant in place and it is furnished. I'd like your advice regarding a couple of things. Other than stating in the MLS that there is a tenant in place and observing Tenant's Rights, is there anything else that I should be aware of or do?-The important thing is to make sure you have an agreement with the tenant as to showing instructions and how the property will be shown. For example, call the tenant for an appointment? Call you to coordinate with the tenant? Remember too that we need the tenants written authorization to have a lockbox at the property, and it is best to have a CBS code so agents do not show up unannounced which could cause major issues. Just make sure everyone is in agreement and clear on the showing plan. The unit is fully furnished. Since there is a tenant in place, the unit will be sold with the furniture. Is the best approach to include the furniture in the price and not give any value to the furnishings? The price point on this unit is $120k.-We should always try to make the furniture separate from the real estate via a separate Bill of Sale. You could say "furniture available by separate bill of sale" or something like that. When you do get a contract, here is furniture language to include. It can be at no value or you could include a price: FURNITURE INCLUDED: “All furniture included as seen on xx/xx/xxxx. Furniture to convey on separate bill of sale AS-IS with no warranties at no monetary value. Bill of sale to be agreed upon and finalized during the inspection period.” Should the purchase contract include wordage regarding the security deposit and other fees that the current landlord/owner is in possession of?-There is a form called the Residential Income Property Addendum to the Residential Purchase Contract. Make sure this form is included with any offer, it talks about security deposits, providing copies of the leases, etc. If an offer comes in without it, you should counter back to include the addendum. NOTE: Per lines 8-11 on this form, the seller will also provide a second SPDS called the Residential Income Property Addendum to the SPDS. Please review both forms so you can be ready to include them in your income property transaction. If the current tenant has personal items, such as a TV, at the unit, how would that be disclosed?-An inventory list will need to be agreed to, see my note above regarding furniture language. END 11) CAN THE NEW BUYER GET A COPY OF THE OLD INSPECTION? ALSO SEE PRIOR INSPECTION AND NOTICE/DISCLOSURE FORM Q: Attached please find an inspection waiver for my buyer who is receiving a copy of the prior inspection report for this property. Can a broker sign please? (See USB document). A: You should advise the buyer(s) in writing (email) that this prior inspection report is really just a continuation of the SPDS and that the buyers are STRONGLY advised to order and pay for their own home inspection from an inspector/inspection company of their own choosing END 12) POST POSSESSION AGREEMENT: COMPENSATION AND DEPOSITS TO SELLER: Compensation and Deposits The seller shall compensate the buyer at a per diem rate of $x for a total of $x. The seller shall pay the buyer by one of the following: 1) a credit toward closing costs at close of escrow 2) a check disbursed from closing proceeds 3) a cashier's check delivered prior to the close of escrow
The seller shall retain $x in escrow from the sale proceeds as a damage and security deposit. This deposit shall be held in escrow until the earlier of the end date or the date the seller returns the keys to the buyer. Buyer is entitled to use the security deposit to recover any unpaid compensation for use of the premises, costs to clean or repair the premises necessitated by the seller's possession, and any costs incurred for collection, including attorney's fees. Buyer may collect from Seller any amounts due that exceed the deposits. After a satisfactory assessment and examination of the premise, the buyer shall instruct the title company to release funds to the seller, less any amounts for damage or service. END
13) ZILLOW REFERRAL: Q: My broker still needs the Zillow brokerage license copy for the referral, please. I reached out to my manager again on this. We are trying to escalate to the right people but it’s a bit of a challenge since no other DB has ever asked this. I will keep pushing. I'm fighting with Zillow about getting a copy of their broker license for a Zillow referral. They are claiming that no other broker has required this. I was wondering if you have anything that I can forward to them showing that this is a normal requirement that all brokers should be requiring?
A: This is the broker note that goes into transaction files: This is the broker note that goes into a transaction file when there is a referral. Obviously we can't pay a referral fee to anyone who is not licensed, this has been a mandatory requirement since I've been with HomeSmart for over 4 years. As a best practice, I would not waive this requirement since we would be in violation of ADRE guidelines if we did pay anyone who is not licensed. "Just a reminder that HomeSmart will require 1) a signed copy of the referral agreement, 2) a completed W9 and 3) a copy of the Brokerage's license prior to paying any referral to an outside Brokerage. Copies of most real estate licenses can be obtained online through the Department of Real Estate for each particular state. ": END
14): LOAN STATUS UPDATE (LSU): BUYER LOST EM DUE TO NOT SIGNING LINE #40 OF LSU: (OCTOBER 1, 2020)
Laurie: FYI Risk Management just heard discussions on the LSU. A buyer was cured because it was requested they provide the LSU. The buyer complied, but didn't sign it. Buyer lost EM for failure to sign. There is an instructor out there teaching this, so we need to make sure buyers understand they need to sign to comply with the PC 1-40 being complete. Trudy: Title made the wrong decision on the earnest money - in my opinion. But good to know and also if we need to use it to kick a buyer to the curb! Laurie: But the contract is clear. Agreed, but instructor is showing the letter and teaching as such. It's an education matter not a form revision. In my opinion. Trudy: Agreed, the term is black and white, a LSU with lines 1-40 completed. What is the instructor teaching? To leave the LSU unsigned, or to send a Cure Notice if the Seller sees that it's unsigned?? Laurie: To Cure and if not signed make demand for EM Trudy: Right so the lender is sending direct to the listing agent unsigned
Laurie made us aware that a buyer recently lost their EM due to line #40 (signature) not being signed. Buyer received a cure notice and did not remedy within the 3 day cure period. Sect 2e of the purchase contract LOAN STATUS UPDATE clearly states that lines 1-40 of the LSU must be completed, so signature is required on line #40 of the LSU. See screenshots and highlights.. Jeff.
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