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Monthly Archives: November 2015

Buyer’s Deposit and Broker Duties

6th November, 2015 · Samira Kermani

In my law practice, I often counsel buyers who are in escrow and can cancel escrow as they have not released some contingencies, but the Seller refuses to release the buyer’s deposit.

In California, if you are using the C.A.R. (California Association of Realtors) RPA (Residential Purchase Agreement) form, the buyer  can elect to have several types of contingencies.

In some cases, it may not be clear to a buyer or agent whether a particular “issue” is covered by one or two different contingencies.  This is where the buyer’s agent must discharge his or her Fiduciary Duty of Care, Diligence and Loyalty and advise the Buyer to either seek legal advice or not remove any contingencies until all due diligence items are clarified, lest they be in jeopardy of losing their deposit.

For example, let’s suppose you are a Buyer and you have made it clear to your agent that “square footage” of the house is very important for you. Your agent advises you to release your “physical inspection” contingency while you wait to release your “appraisal” contingency.   Let’s further suppose that you may not receive complete and accurate information regarding square footage until your appraisal report comes in, and you have not received the report yet.

How safe is it for you to remove your “inspection” contingency even if you still have your appraisal contingency open, despite your agent’s assurances to move forward with the sale?

The NAR and California Code of Ethics and the Standard of Care in California set the bar high for real estate agents and brokers, in terms of what their obligations are to their clients.

In California, Agents and brokers are held to be “fiduciaries.”   Under California law, fiduciaries are held to a very high standard much like “Trustees” of a trust.

In these circumstances, I believe that California’s “standard of care” and the law of fiduciary duty requires that a real estate agent not advise their client to lift contingencies rather protect their client by creating the necessary time and space for the client to receive, review and understand the ramifications of the material information obtained prior to lifting a contingency.

Creating this time and space, free from pressure, starts when a real estate agent is first drafting the offer. It continues in the “manner” in which the agent documents the client’s file so as to make the client’s subsequent requests be deemed “reasonable.”

Creating additional time may become increasingly difficult if the agent is a dual agent.  Dual agency is fraught with peril and covered in my other posts.

The best practice is to draft long enough contingencies and set them all to expire at the latest date possible, so as to avoid this type of scenario.

In this particular case, the appraisal contingency will not be the appropriate vehicle to use to cancel escrow due to square footage issues, if the buyer has already removed his “physical inspection” contingency.

 

Posted in Buyer's Deposit, Duties of Real Estate Brokers | Tags: broker duties, Buyer's deposit, duties of real estate agent |

Procuring Cause

2nd November, 2015 · Samira Kermani

If you are a real estate Broker suing a Seller or another Broker over a real estate sales commission, or defending against such a claim, you deserve to be represented by a qualified real estate attorney.

Hire an attorney who is familiar with how the process works in your particular forum, not just with what real estate laws require –any attorney can look up the law.  Arbitration panels many not always follow case law.

Just as critical is an attorney who is aware of what precise evidence to develop, what questions to ask during the deposition/hearing/trial or Arbitration to increase your likelihood of prevailing.

I serve as an Arbitrator and regularly hear and decide commission disputes.

As a neutral decision maker, I sometimes see key evidence not being addressed by a party.  The Elephant in the room.  Evidence that could have helped them win the case. As a neutral, I am not allowed to advocate for any party.  All I can do is rule upon the evidence presented.

Posted in Procuring Cause | Tags: #brokercommissiondispute, commission disputes between brokers |

Buying a New Construction Condo or House?

1st November, 2015 · Samira Kermani

Buying a new construction house or condo? Over the years, savvy real estate agents have referred their buyers of new construction to my law office to review and explain the New Construction Purchase Agreement *before* their buyer signs the contract. That is because custom drafted New Construction Purchase Agreements contain terms very different from the C.A.R forms for the purchase of existing homes.

With the CAR Forms, agents can receive extensive continuing education training on how to interpret and navigate the forms. Whereas “Custom” drafted forms are drafted by the Developer’s real estate attorneys. I have yet to review two that were identical.

Every such custom drafted contract I have reviewed contains draconian terms that greatly restrict the buyer’s rights during and post close of escrow.

Said agreements are drafted by attorneys specifically hired by the Developer to protect the Developer seller against potential future claims brought by buyers. That attorney owes the Developer a fiduciary duty of care, including protecting them from exposure and liability for construction defect despite California laws seemingly drafted to protect consumers.

These contracts are NOT buyer friendly. I’ve seen buyers in dispute over their Deposit because they failed to object to an item or the contract had NO inspection contingency. Neither the buyer nor their agent picked up on the fact that the contract contained NO such contingency.

Most such custom contracts lack the generous terms and contingencies that the CAR forms offer.

For example, the current CAR purchase agreement for existing homes provides an “active” removal of contingencies, which means a buyer HAS their inspection and due diligence contingencies open until they actually remove them in writing. Did you know that it’s the exact opposite in most new home construction purchase agreements?

Agents owe buyers a fiduciary duty of care, which includes referral to a competent real estate attorney when faced with a brand new custom drafted Contract they have never seen before.

After all, you are purchasing an asset worth several hundred thousand dollars or millions.

Invest some time in researching an attorney familiar with this area of California real estate law and brokerage law. Retain one to protect your rights and guide you. The Seller already did.

Posted in New Construction |

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