Law & Ethics Knowledgebase

The Law & Ethics Knowledgebase is intended to provide our members with the resources and answers they need to conduct their business. No information provided herein constitutes legal advice, and NVAR encourages everyone to consult their own attorney.

Articles are organized into different categories which you can scroll to view or select through the search feature. Additionally, you can search the entire knowledgebase across all categories by entering keywords below.

Frequently Asked Questions

Please select your question category

Search FAQs

Article 2 reads: Realtors® shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property or the transaction. Realtors® shall not, however, be obligated to discover latent defects in the property, to advise on matters outside the scope of their real estate license, or to disclose facts which are confidential under the scope of agency duties owed to their clients.

Obligation To Ascertain Pertinent Facts

Shortly after the Listing Realtor® closed the sale of a home to a buyer, a complaint was received by the Board. The complaint charged the listing broker with an alleged violation of Article 2 because he failed to disclose a substantial fact concerning the property. The charge indicated that the house was not connected to the city sanitary sewage system, but rather had a septic tank.

In a statement to the Board's Grievance Committee, the buyer stated that the subject was not discussed during his various conversations with the listing broker about the house.

However, the buyer pointed out that his own independent inquires had revealed that the street on which the house was located, was "sewered" and he naturally assumed the house was connected. He had since determined that every other house on the street for several blocks in both directions was connected. He stated that the listing broker failed to disclose this exceptional situation, thus failed to disclose a pertinent fact.

The Listing Realtor®'s defense in the hearing before a hearing panel of the Professional Standards Committee was:

  1. That he did not know this particular house was not connected with the sewer;
  2. That in advertising the house, he had not represented it as being connected;
  3. That it was common knowledge that most, if not all, of the houses in the area were connected to the sewer; and
  4. That the seller, in response to the listing broker's questions at the time the listing was entered into, had stated that the house was connected to the sewer.

What was the decision of the hearing panel?

The panel determined that the absence of a sewer connection in an area where other houses were connected was a substantial and pertinent fact in the transaction, but the fact that the house was not connected to the sewer was not possible to determine in the course of a visual inspection and, further, that the Listing Realtor® had made appropriate inquiries of the seller, and was entitled to rely on the representations of the seller. The panel concluded that the listing broker was not in violation of Article 2.

Case Interpretation 4-3

SCENARIO:

Realtor®, Mr. Lister, listed his client, Mr. Seller's home and subsequently advised him to accept an offer from Mr. Buyer at less than the listed price. Mr. Seller later filed a complaint with the association against Mr. Lister stating that Mr. Lister had not disclosed that Mr. Buyer was Mr. Lister's father-in-law. In addition, Mr. Seller said that Mr. Lister's strong urging had convinced him to accept an offer below the listed price; and that Mr. Lister had acted more in the interest of the buyer than in the best interest of the seller.

At the hearing, Mr. Lister defended his actions stating that Article 4, Disclosure of Family Interest, requires disclosure when the buyer is a member of the Realtor®'s immediate family, and that his father-in-law was not a member of his immediate family. Mr. Lister also demonstrated that he had presented two other offers to Mr. Seller, both lower than Mr. Buyer's offer, and stated that, in his opinion, the price paid by Mr. Buyer had been the fair market price.

ANSWER:

Mr. Lister's defense was found by the hearing panel to be inadequate. The panel concluded that Article 4 forbids a Realtor® to "acquire an interest in" property listed with him unless the interest is disclosed to the seller or the seller's agent. Additionally, the possibility, even remote, of Mr. Lister acquiring an interest in the property from his father-in-law by inheritance gave the Realtor®, in this case, Mr. Lister, a potential interest in it. Finally, Mr. Lister's conduct was clearly contrary to the intent of Article 4, since interest in property created through a family relationship can be closer and more tangible than through a corporate relationship, as cited in the Code of Ethics as an interest requiring disclosure. Realtor®, Mr. Lister, was found to have violated Article 4 for failing to disclose to client, Mr. Seller, that Mr. Buyer was his father-in-law.

Article 4 requires that Realtors® shall not acquire an interest in or buy or present offers from themselves, any member of their immediate families, their firms or any member thereof, any entities in which they have any ownership interest, or any real property, without making their true position known to the owner or the owner's agent. In selling property they own, or in which they have any interest, Realtors® shall reveal their ownership or interest in writing to the purchaser or the purchaser's representative.

<p>Mr. Sellers came to REALTOR®  Brown's office explaining that his company was transferring him to another city and he wished to sell his home.  In executing the listing contract, Mr. Sellers specified that the house had hardwood floors throughout and that the selling price would include the shutters and draperies that had been custom made for the house.  Mr. Sellers said that he would like to continue to occupy the house for 90 days while his wife looked for another home at his new location, and agreed that REALTOR®  Brown could show the house during this time without making a special appointment for each visit.  Accordingly, REALTOR®  Brown advertised the house, showed it to a number of prospective buyers, and obtained a purchase contract from Mr. Buyer.  Settlement was completed and at the expiration of the 90-day period from the date of listing, Mr. Sellers moved out and Mr. Buyer moved in.</p>
<p>On the day that Mr. Buyer moved in, seeing the house for the first time in its unfurnished condition, he quickly observed that hardwood flooring existed only on the outer rim of the floor in each room that had been visible beyond the edges of rugs when he inspected the house, and that the areas that had been previously covered by rugs in each room were  of sub-flooring material.  He complained that REALTOR®  Brown, the listing broker, had misrepresented the house in his advertisements and in the description included in his listing form which had specified  hardwood floors throughout.   Mr. Buyer complained to REALTOR®  Brown, who immediately contacted Mr. Sellers.  REALTOR®  Brown pointed out that the house had been fully furnished when it was listed and Mr. Sellers had said that the house had hardwood floors throughout.  Mr. Sellers acknowledged that he had so described the floors, but said the error was inadvertent since he had lived in the house for ten years since it had been custom built for him.  He explained that in discussing the plans and specifications with the contractor who had built the house, the contractor had pointed out various methods of reducing construction costs, including limiting the use of hardwood flooring to the outer rim of each room's floor.  Since Mr. Sellers had planned to use rugs in each room, he had agreed, and after ten years of living tin the house with the sub- flooring covered by rugs, he had simply forgotten about it.</p>
<p>REALTOR®  Brown explained, however, that Mr. Sellers description, which he had accepted, had resulted in misrepresentation to the buyer.   But it's a small point,  said Mr. Seller.   He'll probably use rugs too, so it really doesn't make any difference.   After further pressure from REALTOR®  Brown for some kind of adjustment for Mr. Buyer, Mr. Sellers concluded,  It was an hones mistake.  It's not important.   I'm not going to do anything about it.  If Mr. Buyer thinks this is a serious matter, let him sue me.</p>
<p>REALTOR®  Brown explained Mr. Sellers attitude to Mr. Buyer, saying that he regretted it very much, but under the circumstances could do nothing more about it.  It was at this point that Mr. Buyer filed a complaint with the Association.</p>
<p><strong>Did REALTOR®  Brown violate Article 2? </strong></p>
<p><strong>Answer:</strong> At the hearing before a Hearing panel of the Professional Standards Committee of REALTOR®  Brown's Association, during which all of these facts were brought out, the panel found that REALTOR®  Brown had acted in good faith in accepting Mr. Sellers' description of the property.  While article 2 prohibits concealment of pertinent facts, exaggeration and misrepresentation, REALTOR®  Brown had faithfully represented to Mr. Buyer information given to him by Mr. Sellers.  There were no obvious reasons to suspect that hardwood floors were not present throughout as Mr. Sellers had advised.   REALTOR®  Brown was not in violation of Article 2.</p>

Article 1: When representing a buyer, seller, landlord, tenant, or of the client as an agent, REALTORS® pledge themselves to protect and promote the interests of their client. This obligation of absolute fidelity to the client's interests is primary, but it does not relieve REALTORS® of their obligation to treat all parties honestly. When serving a buyer, seller, landlord, tenant, or other party in a non-agency capacity, REALTORS® remain obligated to treat all parties honestly.

Article 2: REALTORS® shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property or the transaction. REALTORS® shall not, however, be obligated to discover latent defects in the property, to advise on matters outside the scope of their real estate license, or to disclose facts which are confidential under the scope of agency duties owed to their clients.

REALTOR® Sellers owned a home which he listed through his own brokerage firm. The property was filed with the Multiple Listing Service of the Association. REALTOR® Buyer called REALTOR® Sellers and told him of his interest in purchasing the home for himself. REALTOR® Sellers suggested a meeting to discuss the matter. The two agreed upon terms and conditions and the property was sold by REALTOR® Sellers to REALTOR® Buyer.

A few months later during hard rains, leakage of the roof occurred with resultant water damage to the interior ceilings and side walls. REALTOR® Buyer had a roofing contractor inspect the roof. The roofing contractor advised REALTOR® Buyer that the roof was defective and advised that only a new roof would prevent future water damage.

REALTOR® Buyer then contacted REALTOR® Sellers and requested that he pay for the new roof. REALTOR® Sellers refused, stating that REALTOR® Buyer had a full opportunity to look at it and inspect it. REALTOR® Buyer then charged REALTOR® Sellers with a violation of Articles 1 and 2 of the Code of Ethics by not having disclosed that the roof had defects known to REALTOR® Sellers prior to the time the purchase agreement was executed.

At the subsequent hearing REALTOR® Buyer outlined his complaint and told the Hearing Panel that at no time during the inspection of the property, or during the negotiations which followed, did REALTOR® Sellers disclose any defect in the roof. REALTOR® Buyer acknowledged that he had walked around the property and had looked at the roof. He had commented to REALTOR® Sellers that the roof looked reasonably good, and REALTOR® Sellers had made no comment. The roofing contractor REALTOR® Buyer employed after the leak occurred told him that there was a basic defect in the way the shingles were laid in the cap of the roof and in the manner in which the metal flashing on the roof had been installed. It was the roofing contractor's opinion that the home's former occupant could not have been unaware of the defective roof or the leakage that would occur during hard rains.

REALTOR® Sellers told the panel that he was participating only to prove that he was not subject to the Code of Ethics while acting as a principal as compared with his acts as an agent on behalf of others. He pointed out that he owned the property and was a principal, and that REALTOR® Buyer had purchased the property for himself as a principal.

Was REALTOR® Sellers in violation of Articles 1 and/or 2?

The Panel concluded that the facts showed clearly that REALTOR® Sellers did have knowledge that the roof was defective and had not disclosed it to REALTOR® Buyer. Even though a REALTOR® is the owner of a property, when he undertakes to sell that property he accepts the same obligation to properly represent its condition to members of the public, including REALTORS® who are purchasers in their own name as he would have if he were acting as the agent of a seller.

The panel concluded that REALTOR® Sellers was in violation of Articles 1 and 2 of the Code.

Polybutylene Plumbing Nightmares
by Michael C. Morgan

"For thousands of homeowners, polybutylene plumbing has become a recurring nightmare . . ." Ed Bradley, CBS, "60 Minutes"

Nightmare 1 . . . A recent story in The Washington Post referenced a homeowner with more than $35,000 in damages from a single poly leak. Personally, I know of one local homeowner with more than $100,000 in damages from a single leak while they were away on vacation.

Nightmare 2 . . . ". . .some courts have imposed upon brokers participating in a real estate transaction a common law duty to disclose facts relating to any material defects of other material information known to the broker. Recently, a few courts have gone so far as to impose on brokers a duty to disclose not only known defects but also defects that are reasonably discoverable in the exercise of reasonable care." Arthur R. Gaudio, Real Estate Brokerage Law 344-46 (1987)

But that's just the tip of the iceberg. The biggest problem facing the residential real estate industry is that "the law appears to be working toward the ultimate conclusion that full disclosure of material facts must be made whenever elementary fair conduct demands it." Johnson v. Davis, 480 So. 2d at 628. Moreover, courts are moving towards eliminating the false sense of security sellers have relied on with "AS IS" clauses. Raynor v. Wise Realty Co., 504 So. 2d at 1364.

In the case of polybutylene, what could be more elementary fair than to disclose the fact that the home for sale has plumbing that was the center of one of the largest class action suits in the world. And the defendants have agreed to fund the Class Action settlement with an initial and minimum . . . billion dollars.

What is happening in courts throughout the country is the move away from the principle of "caveat emptor." In fact, for all intents and purposes this antiquated doctrine has all but been eliminated in the realm of residential real estate. Must Real Estate Brokers and Sellers Disclose? 27 Wake Forest L. Rev. 689 (1992).

There is no question that there are problems with polybutylene plumbing. The courts have competently addressed this issue. If we think these problems are going to reverse overnight, we are kidding ourselves. There are more than six million homes with polybutylene plumbing in the United States. If the industry does not address the issue, the industry faces the same ridicule the tobacco industry is facing for non-disclosure.

Buying clients rely on agents to show them the neighborhoods they are looking for, the style of home they want, and the location they desire. In addition to providing this service, agents make it a policy to point out features that will facilitate the home sale. So why would a buyer's agent hide defective plumbing from his or her client? We all know that is a complicated question with a multitude of answers.
However, we cannot ignore the move towards agents providing full disclosure of known defects, as well as reasonable efforts to determine discoverable defects. Moreover, the Code of Ethics of the National Association of REALTORS®¨ provides that a broker must avoid concealment and has an affirmative obligation to discover adverse factors that a reasonably competent and diligent investigation would disclose.

The issue here is simply how easy it is to spot poly. The issue here is not a hidden underground toxin or a gas we cannot see. And there is no issue here with an expensive inspection. If you see a gray plastic pipe under any sink, there is a problem. If you see a gray plastic pipe at the hot water heater, there is a problem. Basically, if you are doing a walk through and you see any gray plastic pipe anywhere in the house, there is a problem.

Are there any exceptions? Sure. In fact, a home may have copper plumbing on the interior, but poly as their yard service. Not sure if it's poly? A number of companies offer free inspections and estimates and specialize in replacement of polybutylene plumbing, including one of our divisions, Plumbing Express, which has performed more than 7,000 polybutylene replumbings.

Michael Morgan is executive vice president of Phoenix Renovation Corporation. He can be reached at Plumbing Express 800-501-7702.

This is the second article in a series entitled, "Top 10 Claims Against Realtors®". The #2 cause of claims against a Realtor®? Failure to Disclose.

Property value is affected by many physical and nonphysical factors. What matters to one buyer may not matter to another: noisy neighbors, train tracks or a proposed commercial development nearby.

A disgruntled buyer may sue a licensee who remains silent on these issues. In these cases, silence is not golden. If silence is meant to induce someone to enter into a transaction, the liability is the same as for affirmative misrepresentation.

Twelve percent of all claims against REALTORS®involve failure to disclose. The following conditions always require disclosure:

  • Those affecting the desirability or value of the property;
  • Those you know or should know will likely affect the buyer's decision to purchase; and
  • Those which will cause the buyer injury or monetary loss.

Some Interesting Nondisclosure Claims:

  • Barking dog problem;
  • Death took place in the home;
  • Odor in the house;
  • Previous fire in the house;
  • Presence of sink hole;
  • High voltage electric power line on property;

Claim Example: The buyer of a farm sued for failure to discover and disclose gasoline contamination resulting from an underground tank. The broker had merely told the buyer the property was suitable for business, residential recreation and family purposes. The court held that the broker's statement was a misrepresentation.

Different states have differing laws about the disclosure of deaths, murders or other violent crimes at a property. If your state mandates disclosure, this type of information must be disclosed, so this is an area where your knowledge of and adherence of your state's applicable law is imperative. With regard to properties where individuals with AIDS have lived, HUD advises that no disclosure be made - - even if a buyer asks
directly about such information.

Reprinted with permission from Letter of the Law, National Association of REALTORS®

RISK MANAGEMENT

Question: What disclosure responsibility does a Realtor® have beyond the "four corners of the property?

Answer: This requires an answer from a number of considerations and sources

STATE LICENSING AGENCY/REAL ESTATE BOARD (REB) RULES & REGULATIONS:

Disclosure to Client
A licensee acting as a standard agent must disclose in a timely manner to the licensee's client all material facts related to the property or concerning the transaction." Which means disclosure "beyond the four corners of the property" to clients is required.

Disclosure to Customer
A licensee representing a seller or landlord as a standard agent must disclose in a timely manner to a prospective purchaser or tenant all material adverse facts pertaining to the physical condition of the property which are actually known by the licensee." Which means no disclosure "beyond the four corners of the property" is required.

CODE OF VIRGINIA:

Disclosure to Client
A licensee shall disclose to his/her client material facts related to the property or concerning the transaction of which the licensee has actual knowledge. Which means disclosure "beyond the four corners of the property" is required.

Disclosure to Customer
A licensee engaged by a seller shall disclose to prospective buyers/tenants (customers) all material adverse facts pertaining to the physical condition of the property which are actually known by the licensee. Which means no disclosure "beyond the four corners of the property" is required.

There is no requirement for disclosure as referenced in the Code of Virginia by a licensee representing a buyer/tenant to a seller/landlord (customer) other than the requirement to "...treat all prospective sellers/landlords honestly and shall not knowingly give them false information..."

CODE OF ETHICS:

Disclosure to Client and Customer
Article 2 or the Code of Ethics requires "Realtors® shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property or the transaction. Realtors® shall not, however, be obligated to discover latent defects in the property, to advise on matters outside the scope of their real estate license, or to disclose facts which are confidential under the scope of agency duties owed to their clients."

This means disclosure of pertinent facts relating to the property and the transaction must be disclosed by a Realtor® to his client, but because state regulations and the Code of Virginia only disclosure of pertinent facts relating to the property may be disclosed by a Realtor® to a customer.

The EPA has established tough new standards to identify what it considers dangerous levels of lead in paint, dust, and soil through its final rule on Lead Hazard Identification released Jan. 5. Although other regulations may require property owners and sellers to evaluate properties for the presence or control of lead hazards, this EPA action does not. It may, however, be incorporated into current EPA and HUD regulations in the near future.

Under these new standards, federal agencies, including Housing and Urban Development, as well as state, local and tribal governments will have new uniform benchmarks on which to base remedial actions taken to safeguard children and the public from the dangers of lead. These standards will also apply to other Federal lead provisions, such as EPA's real estate disclosure requirements presently in place for people selling or renting a home or apartment.

These hazard standards will also serve as general guidance for other EPA programs engaged in toxic waste cleanups. In addition, these standards will provide landlords, parents, and childcare providers with specific levels on which to make informed decisions regarding lead found in their homes, yards, or play areas.

Health problems from exposure to lead can include profound developmental and neurological impairment in children. Lead poisoning has been linked to mental retardation, poor academic performance and juvenile delinquency. Nearly one million children in America today have dangerously elevated levels of lead in their blood. Because of the potential dangers, any exposure to deteriorated lead-based paint presents a hazard.

Under the new standards, lead is considered a hazard if there are greater than: 40 micrograms of lead in dust per square foot on floors; 250 micrograms of lead in dust per square foot on interior window sills and 400 parts per million (ppm) of lead in bare soil in children's play areas or 1200 ppm average for bare soil in the rest of the yard.

For more info, visit the EPA lead program Web page:

http://www.epa.gov/lead/new.htm>http://www.epa.gov/lead/new.htm.

Article 1 - When representing a buyer, seller, landlord, tenant, or other client as an agent, Realtors® pledge themselves to protect and promote the interests of their client. This obligation to the client is primary, but it does not relieve Realtors® of their obligation to treat all parties honestly. When serving a buyer, seller, landlord, tenant, or other party in a non-agency capacity, Realtors® remain obligated to treat all parties honestly.

Case # 1-25: Disclosure of Latent Defects
Realtor® Anders had listed seller Smith's vintage home. Buyer Brown made a purchase offer that was contingent on a home inspection. The home inspection disclosed that the gas furnace was in need of replacement because unacceptable levels of carbon monoxide were being emitted.

Based on the home inspector's report, Buyer Brown chose not to proceed with the purchase.

Realtor® Anders told Seller Smith that the condition of the furnace and the risk that it posed to the home's inhabitants would need to be disclosed to other potential purchasers. Seller Smith disagreed and instructed Realtor® Anders not to say anything about the furnace to other potential purchasers. Realtor® Anders replied that was an instruction he could not follow so Realtor® Anders and Seller Smith terminated the listing agreement.

Three months later, Realtor® Anders noticed that Seller Smith's home was back on the market, this time listed with Realtor® Crosby. His curiosity piqued, Realtor® Anders phoned Realtor® Crosby and asked whether there was a new furnace in the home. "Why no" said Realtor® Crosby. "Why do you ask?" Realtor® Anders told Realtor® Crosby about the home inspector's earlier findings and suggested that Realtor® Crosby check with the seller to see if repairs had been made.

When Realtor® Crosby raised the question with Seller Smith, he was irate. "That's none of his business," said Seller Smith who became even angrier when Realtor® Crosby advised him that potential purchasers would have to be told about the condition of the furnace since it posed a serious potential health risk.

Seller Smith filed an ethics complaint against Realtor® Anders alleging that the physical condition of his property was confidential; that Realtor® Anders had an ongoing duty to respect confidential information gained in the course of their relationship; and that Realtor® Anders had breached Seller Smith's confidence by sharing information about the furnace with Realtor® Crosby

Was REALTOR® Andrews in violation of Article 1?

ANSWER:
The Hearing Panel disagreed with Seller Smith's contentions. They noted that Realtors® do in fact have an obligation to preserve confidential information gained in the course of any relationship with the client, Standard of Practice 1-9 specifically provides that latent material defects are not considered "confidential information" under the Code of Ethics. Consequently, Realtor® Anders' disclosure did not violate Article 1 of the Code of Ethics.

MOLD: WHAT YOU NEED TO KNOW TO PROTECT YOURSELF & YOUR CLIENTS
Reduce their liability and avoid appearing on any nightly news magazine programs

Is there any single issue facing REALTORS®that has generated more hype, hysteria, and misinformation than Mold?

The news is filled with stories entitled, Mold is Gold, Black Mold: Creeping Destruction, Mold: The New Creeping Invader, and Death Mold Killed My Dog.

There are famous celebrities like Erin Brockovich and Ed McMahon who have had well publicized problems with mold in their own homes. It has even reached the comics section of the newspaper with the Rex Morgan, M.D. comic strip featuring a 20-week series on "Toxic Mold" in an apartment building. But what does all this mean to REALTORS®and the clients who look to you for advice?

First, to paraphrase a famous saying of Dr. McCoy from the original Star Trek Series, "Damn It, Jim, I'm a REALTOR® not a Doctor." A REALTOR® is not a medical expert, scientist, health inspector, or environmental hazard consultant. More importantly, you do not have to be an expert in any of these fields to help your clients better understand mold. However, REALTORS®do need to remain informed on the issues related to mold in order to help the public see past the hysteria and understand the facts.

Mold for Beginners
Molds are a fungus that can grow almost anywhere. It is important for people to remember that mold is a naturally occurring phenomenon. A variety of molds are always present in some minimal level in our homes and outdoor environments. Mold only requires an organic food source and water to grow. Wallpaper, drywall, ceiling tiles, carpets, wood, insulation and other commonly used building materials can serve as an organic food source for mold.

The water source can include leaks from plumbing, poor drainage, defective or improperly installed HVAC equipment, flooding or any other form of water intrusion. Mold does appear to thrive in warm and humid environments that can be found in basements, attics and crawlspaces.

Mold is a problem that is as old as the Bible. Leviticus 14:45 even talks about the dangers of mold in our homes. However, it does appear that attempts to make our homes more energy-efficient may have had the unanticipated consequence of trapping more moisture inside buildings. This may help explain why there were no reported problems in homes or buildings in the United States until the mid-1980's.

It does appear that mold affects people differently and that some individuals may be more sensitive to mold than others. "People with allergies may be more sensitive to molds. People with immune suppression or underlying lung disease are more susceptible to fungal infections." ( Source - National Center for Environmental Health Ð Questions and Answers on Stachybotrys chartarum and other molds).

The scientific community has not been able to determine what levels of mold exposure may pose a danger to our health. Therefore, no one has been able to establish any generally acceptable standards for mold exposure levels.

Mold is everywhere and will never be completely eliminated from any home or building. However, there are a number of things that a homeowner can do to minimize the growth of mold in his home. "The key to mold control is moisture control. It is important to dry water damaged areas and items within 24-48 hours to prevent mold growth." ( Source - U.S. Environmental Protection Agency Ð Mold Resources). Fixing the source of any leaks or water intrusion as soon as possible will also go a long way towards reducing the risk that a home will become infested with mold.

Mold can usually, but not always, be detected by visual inspection or smell. Early warning signs include evidence water stains, mildew and musty odors. However, you should remember that in some cases mold might not be visible if it is growing behind walls, paneling or wallpaper.

What does this mean for REALTORS®¨?
As a REALTOR® you are not an environmental expert but there are a number of steps that you can take to help your clients deal with mold. The first step is education. Explain to the client that the basics about mold:
>That a variety of molds are always present in some level in every house.
>That no house will ever be completely free of mold.
>That it affects people differently.
>That there are no established standards in Virginia for indoor mold levels.
>That everyone in our industry is still learning about mold and trying to sort out the fact from the fiction.

Remind the client that you are not an environmental expert, but that you can refer them to other outside resources that can help them with specific questions. It is always better to refer a client to an outside expert when you don't know all the answers or when the information you have is inconclusive. You may also want to start looking for any experts in our local area who have experience handling mold testing or remediation.

If your buyer is concerned about mold, you should tell them to pay particular attention to any signs of water damage, leaks, mildew or musty odors. I would recommend advising your buyer to have an independent home inspection conducted by a professional. The buyer may also want to consider specialists for inspecting the plumbing, HVAC, and drainage of the property in addition to a general home inspector. You may also want to inform your buyer that while there are no national standards, there are some companies that have begun specializing in mold and indoor air quality testing.

Mold is also quickly becoming an important disclosure issue related to the rental and sale of homes. Keep an eye out for any signs of obvious water damage, leaks, stains, mildew or odors. If you observe any signs of possible mold problems you should disclose this information to all parties. It is dangerous to downplay or ignore these warning signs because they may expose you to increased legal liability. However, one should also avoid reaching premature conclusions or making overreaching statements about "killer mold".

The best course of actions is to note any potential problems, such as signs of water stains, possibly from a leaky pipe - a musty odor was detected, provide a written notice to the client and recommend that they have a qualified specialist check the area to determine if there is a possible problem.

You should also be aware that many insurance carriers have started to revise their homeowner's insurance policies to exclude mold damage. Some carriers have gone as far as refusing to write policies for properties that have water damage or a record of previous mold claims against an insurance policy. As you know this can cause other complications in a real estate transaction if a buyer is unable to obtain an insurance policy to cover the property.

Risk Management for REALTORS®
The personal injury lawyers have been desperately searching for another environmental hazard to replace asbestos as their primary "rainmaker". These are the lawyers who have written articles in legal journals that discuss how "Mold is Gold" for attorneys who are looking for big money lawsuits that they can file in the courts.

REALTORS®should be aware that some of these lawsuits have resulted in substantial awards to plaintiffs. A Time magazine article, reported that "a jury found that Farmers Insurance should pay Melinda Ballard of Dripping Springs, Texas $32 million dollars for mold damage to her 22 room, hilltop mansion and for her ensuing mental anguish...the Delaware Supreme Court upheld a $1 million jury award to Elizabeth Stroot of Wilmington, Del., who claimed that moldy water leaking into the bathroom of her apartment aggravated her asthma and caused cognitive disorders." (Source Ð Beware Toxic Mold, June 24, 2001 by Anita Hamilton) .

Just like in the asbestos lawsuits, the personal injury attorneys will go after anyone involved in mold cases, including REALTORS®who may have participated in any transaction involving a house with mold. However, there are a number of risk management steps that a REALTORS®can take to minimize their legal exposure and protect their clients.

REALTORS®who are property managers can protect themselves and their clients by implementing a preventative maintenance program that regularly checks for leaks, water intrusion or other warning signs of mold as well as periodic inspections of the HVAC equipment. When problem arise from leaks or floods, maintenance people should fix the leak and clean up the area within the first 24-48 hours to reduce the risk of mold growth.

"Tenant education is another way to safeguard against mold claims. Ensuring that tenants know how to avoid creating an environment of mold growth in their homes can go a long way toward reducing your liability if claims are made," according to a piece by Kristen Bradfield in Apartment Finance Today.

REALTORS®acting as listing and buyer agents should remember that proactive disclosure is the best line of defense in minimizing legal liability for mold related claims. As a risk management specialist once told me, "A paper trail of written disclosures is kryptonite to a attorney." A signed, written disclosure serves to document that you advised the client or customer of the concern and may prove to be a lifesaver if a future dispute ever arises.

It is also important that REALTORS®avoid making any judgments or conclusions when possible warning signs of potential mold problems are detected. Refer your clients to outside experts who will be in a better position to identify possible types of mold and their potential health concerns.

Question:

A listing agent called about a sensitive problem with one of her listings that is currently under contract. The buyer's agent has notified her that the buyers learned from the neighbors that the seller's son committed suicide in the property a few years before. Now the buyers are angry because they believe the listing agent and seller deliberately "concealed" this pertinent fact from the buyers.

The buyers insist that the listing agent should have known this information and disclosed it to the buyers before contract ratification. Now the buyers want to be released from the contract and want to sue everyone for damages. The listing agent talked to her clients and confirmed that the seller's son did commit suicide in the property a few years ago.

The listing agent wants to know if she was obligated to disclose this information and if she is going to get into any trouble because she did not know about the suicide?

Answer:

Article 2 of the Code of Ethics and Standards of Practice does prohibit REALTORS® from exaggerating, misrepresenting or concealing pertinent facts relating to the property or the transaction. Please note that this standard usually requires REALTORS® to go beyond their normal, legal obligation to disclose "all material adverse facts pertaining to the physical condition of the property which are actually known by the licensee" (Code of Virginia ¤ 54.1-2131. Licensees engaged by sellers).

However, Standard of Practice 2-5 states that "Factors defined as 'non-material' by law or regulation or which are expressly referenced in law or regulation as not being subject to disclosure are considered not 'pertinent' for the purposes of Article 2." This limits the scope of Article 2 by exempting any factors that are defined as non-material by law or state regulation. The Virginia Association of REALTORS® (VAR) 2002 Ethics Training Guide states the following: "Virginia's Seller Disclosure law defines stigmatizing events (such as ghost, murders, etc.) that had no material effect on the property as non-material. Standard of Practice 2-5, combined with this disclosure law, releases Virginia's REALTORS® from the obligation of disclosing stigmatizing events."

Therefore, based on this prevailing interpretation on Article 2 and Standard of Practice 2-5, the Listing Agent was not under any obligation to disclose information about the suicide that occurred on the property. However, I have to warn REALTORS® that many buyers do not like this answer and become very upset when they learn that agents do not have to disclose the fact that a person committed suicide in a house.

Question
After taking a listing, a REALTOR® was informed by the neighbors that one of the residents in the area is listed on the Virginia State Police Sex Offender Web site. She wants to know if she must disclose this information to potential purchasers.

Answer
A few years ago the General Assembly in Richmond passed a Megan's Law statute that was intended to provide the public with more direct access to information on sex offenders. As part of this public policy initiative, the Virginia Residential Disclosure Act was amended to require the following:

¤ 55-519. Required disclosures
"The disclosure and disclaimer forms shall contain a notice to purchasers that whether the owner proceeds under subdivision 1 or 2 of subsection A [whether the owner provides the purchaser with a disclosure or disclaimer form mandated by the state], purchasers should exercise whatever due diligence they deem necessary with respect to information on any sexual offenders registered under Chapter 23 (¤ 19.2-387 et seq.) of Title 19.2, including how to obtain such information."

Real estate licensees acting as listing agents in Virginia need to ensure that the purchaser is provided with either the Virginia Residential Property Disclosure or Virginia Residential Property Disclaimer form to ensure that they have met their legal obligations regarding disclosure of this issue. Both forms contain information about how the prospective purchaser can obtain information from the Virginia State Police regarding sex offenders in their area.

In discussing the legal issues related to this question with Lawrence E. Marshall (Lem), Legal Counsel to the Virginia Association of REALTORS®, he brought up two points related to this question that I wanted to relay to our members.

First, Mr. Marshall emphasized that the REALTOR® should avoid representing any purchaser as a dual agent in this transaction. While a listing agent under the law would only have to disclose the information required under the Virginia Residential Property Disclosure Act (i.e. provide the information on how the purchaser can perform their own due diligence in regards to this issue), Mr. Marshall suggested that an agent representing a buyer would have to inform their clients of possible sex offenders in the area.

Second, he argues that Standard of Practice 2-5 of the Code of Ethics removes "sex offenders" from the list of pertinent facts that need to be disclosed under Article 2 of the Code of Ethics because this type of disclosure is specifically referenced in Virginia statutes. However, he does note that listing agents could not lie about this information if directly asked a question on this issue since Article 1 of the Code of Ethics would still apply.

I would also add two additional pieces of information for our members to consider regarding this issue. First, while real estate agents are frequently asked to advise clients on a wide range of issues related to purchasing a property, advising a client about the issues related to the dangers of sex offenders in the area is probably outside the scope of their real estate license because it deals with complex legal issues.

When looking at the information on the Virginia Sex Offender Web site, notice that only general information is provided. The average REALTOR® may not have a strong enough background in Virginia Criminal Statutes to distinguish between the various criminal violations listed on the Web site and advise purchasers on the potential threats of these individuals. After all, there have been cases in other states where the criminals listed on sex offender Web sites were convicted of crimes ranging from public nudity in the 1970s (remember that silly fad of streaking?) to teenage sweethearts having sex before either of them were legally considered consenting adults.

These types of crimes are substantially different from the very serious crimes regarding child molestation and rape that are of very real concern to members of the public. However, REALTORS® are not experts in this area and should refer their clients to the law enforcement officials or legal experts who could assist the purchasers in understanding the differences between all the criminal statutes involved and the possible danger posed by individuals convicted of these crimes.

Second, I would note also that the U.S. Supreme Court has agreed to hear a legal challenge to the Megan's Law statute in another state. It is possible that the Virginia Statutes discussed above could change depending on the outcome of the case. Therefore, members should remember that this area of the law may still be evolving and that they should look for future updates on this information in NVAR's InfoLink and Update Magazine.

The author would like to give full credit to VAR Legal Counsel Lawrence E. Marshall for the vital information he provided in this article.

Case Interpretation #1-25 (Adopted November, 2000)
REALTOR® A had listed Seller S's vintage home. Buyer B made a purchase offer that was contingent on a home inspection. The home inspection disclosed that the gas furnace was in need of replacement because unacceptable levels of carbon monoxide were being emitted.

Based on the home inspector's report, Buyer B chose not to proceed with the purchase. REALTOR® A told Seller S that the condition of the furnace and the risk that it posed to the home's inhabitants would need to be disclosed to other potential purchasers. Seller S disagreed and instructed REALTOR® A not to say anything about the furnace to other potential purchasers. REALTOR® A replied that was an instruction he could not follow so REALTOR® A and Seller S terminated the listing agreement.

Three months later, REALTOR® A noticed that Seller S's home was back on the market, this time listed with REALTOR® Z. His curiosity piqued, REALTOR® A phoned REALTOR® Z and asked whether there was a new furnace in the home. "Why no," said REALTOR® Z. "Why do you ask?" REALTOR® A told REALTOR® Z about the home inspector's earlier findings and suggested that REALTOR® Z check with the seller to see if repairs had been made.

When REALTOR® Z raised the question with Seller S, Seller S was irate. "That's none of his business," said Seller S who became even angrier when REALTOR® Z advised him that potential purchasers would have to be told about the condition of the furnace since it posed a serious potential health risk.

Seller S filed an ethics complaint against REALTOR® A alleging that the physical condition of his property was confidential; that REALTOR® A had an ongoing duty to respect confidential information gained in the course of their relationship; and that REALTOR® A had breached Seller S's confidence by sharing information about the furnace with REALTOR® Z.

Answer:
The Hearing Panel disagreed with Seller S's contentions. It noted that while REALTORS®do, in fact, have an obligation to preserve confidential information gained in the course of any relationship with the client, Standard of Practice 1-9 specifically provides that latent material defects are not considered "confidential information" under the Code of Ethics. Consequently, REALTOR® A's disclosure did not violate Article 1 of the Code of Ethics.

Question
An agent gets a call from a prospective client and schedules an appointment to make a listing presentation. During the listing presentation, a rather desperate seller informs the agent that her family wants to sell the house as soon as possible. The seller explains that a ghost is haunting their house. The seller's family is so distraught that they have moved out of the house and are staying with friends in the area. The seller explains that she wants a quick sale regardless of the price.

The listing agent admits that this sounds "a little wild." However, the agent takes the listing and begins marketing the property at the price set by her client. The listing is entered into the Multiple Listing System and an open house is scheduled for the weekend. During the open house a young man with a scruffy appearance enters the property and asks the listing agent for a tour. After taking the prospective buyer around the house the listing agent asks for the sale. Unfortunately, she gets a rather disconcerting answer.

"Yes, my dog Scooby-Dooª will love this place. I will give the seller whatever they want if they will let us move in right away. Scooby doesn't like the spooky mansion where we currently live because it is haunted by a ghost. We want to live in a nice, quiet home with no ghosts."

Now the listing agent wants to know if she was obligated to disclose the information about the ghost to the prospective buyer.

Answer
First, let me admit that I made up the part about Scooby-Doo. Unfortunately, the rest of this is frighteningly true, though a few details from multiple calls have been combined and altered to protect the identities of those involved.

Second, some people may believe in ghosts and other people may be skeptical. However, in the spirit of Halloween and for purely educational purposes, let's just skip the question of "Do ghosts exist?" and focus on the ethical issues involved.

Article 2 of the Code of Ethics and Standards of Practice does prohibit REALTORS®from exaggerating, misrepresenting or concealing pertinent facts relating to the property or the transaction. Standard of Practice 2-1 clarifies the article by stating that REALTORS®are only obligated to discover adverse factors reasonably apparent to someone with expertise in those areas required by their real estate license. Please note that this obligation goes beyond REALTORS®¨' normal, legal obligation to disclose "É all material adverse facts pertaining to the physical condition of the property which are actually known by the licensee" (Code of Virginia ¤ 54.1-2131).

Appendix II to Part Four of the Code of Ethics and Arbitration Manual states, "Absent a legal prohibition, any material fact that could affect a reasonable purchaser's decision to purchase, or the price that a purchaser might pay, should be disclosed as required by Standard of Practice 2-1 if known by the REALTOR®, again, unless prohibited by law or regulation." This is supported by Standard of Practice 2-5, which states, "Factors defined as 'non-material' by law or regulation or which are expressly referenced in law or regulation as not being subject to disclosure are considered not 'pertinent' for the purposes of Article 2." This limits the scope of Article 2 by exempting any factors that are defined as non-material by law or state regulation.

There is a state law that expressly references the disclosure of information related to ghosts and other stigmatizing events. Section ¤55-524 (Virginia Residential Property Disclosure Act) of the Code of Virginia states the following:
A. Notwithstanding any other provision of this chapter or any other statute or regulation, no cause of action shall arise against an owner or a real estate licensee for failure to disclose that an occupant of the subject real property, whether or not such real property is subject to this chapter, was afflicted with human immunodeficiency virus (HIV) or that the real property was the site of:

1. An act or occurrence which had no effect on the physical structure of the real property, its physical environment, or the improvements located thereon; or

2. A homicide, felony, or suicide.

Virginia's Seller Disclosure law defines stigmatizing events (such as ghosts, murders, etc.) that had no material effect on the property as non-material. Standard of Practice 2-5, combined with this disclosure law, releases Virginia's REALTORS®from the obligation of disclosing stigmatizing events.

Although you are not obligated to affirmatively disclose this information, you are still required under Article 1 of the Code of Ethics and state law (¤ 54.1-2131 B) to be honest with all prospective buyers. If the buyer in this case had directly asked about the presence of ghosts, the listing agent would be prohibited from providing any false responses to this question.

When listing agents ask for my advice on how to respond to such a direct question, I recommend avoiding the question. I recommend the following truthful but evasive response: "Ghosts, suicides or alien abductions are defined as non-material under state law, and agents are advised to avoid discussing non-material facts that stigmatize a property." It is important to avoid providing any answers that can be viewed as denying the existence of ghosts in this situation because that could open up a dispute over the honesty of such answers.

Many buyers become very upset when they learn that agents do not have an obligation to disclose the fact that the house is haunted. The buyers eventually will discover the issue, probably the first time they meet the neighbors. Please react professionally if a buyer becomes upset. It may help defuse or refocus their anger if you refer them to the statutes referenced above or provide them with a copy of this article. You also can refer their questions and concerns to the Professional Services Department if you need any help explaining this information to irate buyers. However, no matter how angry the buyers get, please don't tell them to "call Ghostbustersª" if they want to take care of the ghosts. That one I did not make up, though I really wish I had.

Case #3-10: Disclose Accepted Offers with Unresolved Contingencies (Adopted May, 2004.)

REALTOR® Eisenhower listed Seller Taft's house and placed the listing in the local association's MLS. Within a matter of days, REALTOR® Nixon procured a full price offer from Buyer Roosevelt. The offer specified that Buyer Roosevelt's offer was contingent on the sale of Buyer Roosevelt's current home. Seller Taft, anxious to sell, accepted Buyer Roosevelt's offer but instructed REALTOR® Eisenhower to continue marketing the property in hope that an offer that was not contingent on the sale of an existing home would be made.

A week later, REALTOR® Harrison, another cooperating broker working with an out-of-state
transferee on a company-paid visit, contacted REALTOR® Eisenhower to arrange a showing of Seller Taft's house for Buyer Clinton. REALTOR® Eisenhower contacted Seller Taft to
advise him of the showing and then called REALTOR® Harrison to confirm that he and Buyer Clinton could visit the property that evening. REALTOR® Eisenhower said nothing about the previously-accepted purchase offer.

REALTOR® Harrison showed the property to Buyer Clinton that evening and Buyer Clinton signed a purchase offer for the full listed price. REALTOR® Harrison left the purchase offer at REALTOR® Eisenhower's office.

REALTOR® Eisenhower informed Seller Taft about this second offer. At Seller Taft's instruction, Buyer Roosevelt was informed of the second offer, and Buyer Roosevelt waived the contingency in his purchase offer. REALTOR® Eisenhower then informed REALTOR® Harrison that Seller Taft and Buyer Roosevelt intended to close on their contract and the property was not available for purchase by Buyer Clinton.

REALTOR® Harrison, believing that REALTOR® Eisenhower's failure to disclose the existence of the accepted offer between Seller Taft and Buyer Roosevelt at the time REALTOR® Harrison contacted REALTOR® Eisenhower was in violation of Article 3 of the Code of Ethics, as interpreted by Standard of Practice 3-6, filed an ethics complaint with the association of REALTORS® .

At the hearing called to consider the complaint, REALTOR® Eisenhower defended his actions, noting that while Buyer Roosevelt's offer had been accepted by Seller Taft, it had been contingent on the sale of Buyer Roosevelt's current home. It was possible that Buyer Roosevelt, if faced with a second offer, could have elected to withdraw from the contract. REALTOR® Eisenhower argued that continuing to market the property and not making other brokers aware that the property was under contract promoted his client's best interests by continuing to attract potential buyers.

The Hearing Panel disagreed with REALTOR® Eisenhower's justification, pointing to the specific wording of Standard of Practice 3-6 which requires disclosure of accepted offers, including those with unresolved contingencies. REALTOR® Eisenhower was found in violation of Article 3.

*The names in this case are fictional and are based on the names of past presidents.

Staff Note: A few sellers have tried to get around these rules by including provisions in the sales contracts where the buyer authorizes the seller to leave the listing as "active" rather than as "under contract" or "contingent with kick out." Please be advised that such actions violate MRIS Rules and Regulations and could be the basis for a violation of Article 3 of the Code of Ethics. Your clients cannot instruct you to violate a rule simply because it would be in their interests for you to do so. If the seller does not like the MRIS rules then he or she is not obligated to authorize you to use the system to facilitate the sale of the property.

Background: You are approached by a client who has purchased a house built in 1950, and who intends to tear it down to build a new house on the land. At the time of contract ratification, the seller had not provided disclosure of lead-based paint on the property. Your client now wants to know if he can get out of the contract because the seller failed to provide the necessary lead-based paint disclosures.

Can either party get out of the transaction if there has been a failure to disclose?

No. The law states that the disclosure must occur before ratification of the contract, and failure to disclose lead-based paint will not affect the validity of the contract.

What can a buyer do if the seller fails to disclose lead-based paint?

If the seller has failed to disclose lead-based paint and the house was built before 1978, the only remedy available to the buyer is to sue for damages. The law does allow the buyer to sue for triple the amount of actual damages, as well as attorney fees if the buyer prevails.

At what point in the transaction must the existence of lead-based paint be disclosed?

The law requires that the seller disclose the existence of lead-based paint before the buyer becomes obligated to execute the contract. This does not mean that the seller must inform every person who expresses interest in the house of the existence of lead-based paint, but it does mean that after a buyer has submitted a written offer, the seller must provide notice of lead-based paint before ratifying the contract.

As the agent, can I be liable if my client does not disclose the existence of lead-based paint? If so, for how much?

Yes, as the agent, you can potentially be liable if your client does not provide the buyer with the necessary notice. If you know of any lead-based paint on the property, or fail to inform the sellers of their obligation to disclose the existence of lead-based paint, you could be liable for the same amount of damages as your client.

In addition to being liable for monetary damages in a law suit, you could be in violation of the Code of Ethics. As the seller’s agent, if you do not inform your client of the duty to disclose, you could be found to be in violation of Article 1, in that you are not protecting the interests of your client, who may be subject to a law suit. You may also be in violation of Article 2 if you know of the existence of lead-based paint on the property. As the buyer’s agent, you could also be in violation of Article 1 if you do not let your client know that the house was built before 1978 and that there might be lead-based paint on the property.

What are my responsibilities, as the listing agent, if the house was built before 1978?

As the listing agent, you must ensure compliance with the law. This means that you must inform the sellers of their obligations and make sure that either the seller or you personally complete all required activities. The law requires that the seller inform an agent of any known lead-based paint on the property. If you have informed the sellers of their obligations, you will not be responsible for information withheld by your clients.

Question:

When must a licensee disclose a brokerage relationship?

Answer:

Pursuant to Virginia Code §54.1-2138, a licensee must disclose any brokerage relationship that licensee has with another party to the transaction upon having a substantive discussion about a specific property or properties with an actual or prospective buyer/seller/landlord/tenant who is not the client of the licensee and who is not represented by another licensee. The disclosure shall be made in writing at the earliest practical time, but in no event later than the time when specific real estate assistance is first provided. The disclosure must be conspicuous, printed in bold lettering, all capitals, underlined, or within a separate box. NVAR form K1207 “Disclosure of Brokerage Relationship” meets all of the legally required notice requirements for formatting, and need only be completed with client and brokerage specific information to comply with the disclosure requirements.

Example 1:

Listing Agent is affiliated with ABC Brokerage and has entered into a brokerage relationship with Seller evidenced by a ratified listing agreement. Listing Agent holds an open house at Seller’s property. Mr. and Mrs. Buyer attend the open house, express that they are actively seeking to purchase a home, and ask several substantive questions of Listing Agent about the property. Listing Agent asks if Mr. and Mrs. Buyer are represented by an agent and is told that they do not have a brokerage relationship with another agent. Listing Agent must stop and provide Mr. and Mrs. Buyer with written disclosure of her brokerage relationship with Seller. In order to be prepared to make proper disclosure, Listing Agent should be equipped with completed copies of NVAR Form K1207 “Disclosure of Brokerage Relationship,” indicating clearly that Listing Agent represents Seller.

Example 2:

Buyer’s Agent is affiliated with XYZ Brokerage and has entered into a brokerage relationship with Buyer as evidenced by a ratified buyer/broker agreement. Buyer would like to purchase a home in a specific neighborhood where there are currently no homes listed for sale. Buyer’s Agent knocks on doors in the neighborhood with the intent of asking owners if they are interested in selling their home. Buyer’s Agent knocks on the first door and first asks if the owner is represented by an agent. The owner responds that he is not represented by an agent. Buyer’s agent must stop and provide the owner with written disclosure of her brokerage relationship with Buyer. In order to be prepared to make proper disclosure, Buyer’s Agent should be equipped with completed copies of NVAR Form K1207 “Disclosure of Brokerage Relationship,” indicating clearly that Buyer’s Agent represents Buyer.

 


Editor’s Note: This information was provided with input from NVAR’s Attorney Roundtable, a group of NVAR attorney members who meet bimonthly to discuss legal issues that affect Realtors®. For more information, contact NVAR General Counsel, Sarah Louppe Petcher at This email address is being protected from spambots. You need JavaScript enabled to view it. .

 

The Federal Trade Commission has issued a final rule which requires three different disclosures from real estate agents assisting their clients in selling or purchasing a short sale property. Please read below for more information.

http://www.realtor.org/letterlw.nsf/pages/0211mars?OpenDocument

By Sarah Louppe Petcher, NVAR General Counsel and Laura Farley, Law Clerk

When a foreign diplomat walks into your office seeking to rent a house or apartment from you, several thoughts might cross your mind: What do I do if this person defaults on the lease? Will I ever be able to get them out of the property? Do I have to rent to them? What should I do? When faced with this situation, you have three options available: 1) enter into a lease with the individual, 2) enter into a lease with the embassy or diplomatic mission directly, or 3) do not rent to the individual. Each option has different benefits and drawbacks, and you should carefully weigh all factors discussed below before making a decision.

Key Concepts Defined

Many of the terms that are used regarding diplomats are not fully understood by the public. Below are a few key issues to know when dealing with representatives of foreign governments:

Immunity – Most people think that immunity refers to a pardon or release from responsibility for one’s actions. It actually means that the U.S. court system may not hear any case against a person who has diplomatic immunity. This means that a person with immunity cannot be sued in a court of law unless the person’s country of origin waives immunity.

Waiver of Immunity – The individual who has immunity does not have the authority to waive it. Only the foreign government that is sponsoring the individual in the U.S. may waive the immunity, and this is a rare occurrence.

People with Immunity – Ambassadors are traditionally the representatives of one government to another and are entitled to immunity.

Consuls are people who help individuals of a particular country while they are traveling or are living abroad, and they are also entitled to immunity. For example, if you lose your passport while traveling in a foreign country, you would speak to someone at the consulate for assistance, rather than someone with the ambassador’s office.

Personnel at international organizations, such as the United Nations, International Monetary Fund and World Bank, are also frequently given some level of immunity.

Inviolability – This concept generally forbids U.S. authorities from entering the residences, automobiles or other property of a protected person. This means that even if a landlord was able to appear before a judge in court and get an eviction order, there is no police officer or individual in the United States who would be allowed to enter the property to remove the person.

Option 1: Lease between a Landlord and an Individual Diplomat

One important thing to understand before leasing to a diplomat is that there are different levels of immunity granted to the employees of a diplomatic mission. The U.S. Department of State issues identification cards to foreign officials who have been granted immunity. If a potential tenant presents you with a U.S. Department of State Identification Card that has a blue border, the individual is a diplomatic officer or immediate family member and has been granted full diplomatic immunity. This means that if you have not received a waiver of immunity from that individual’s government, any lease entered into cannot be enforced in the event of default.

If the individual has a U.S. Department of State Identification Card with a green border, the person is on the administrative, technical or service staff of the embassy, or the immediate family of one of these individuals. Again, if you do not receive a waiver of immunity from the individual’s government, any lease that is entered into cannot be enforced in the event of default.

The third type of U.S. Department of State Identification Card has a red border. Individuals carrying these cards work for a consulate and generally have immunity only for official acts, but the language on the back of the card should describe the specific immunity granted to the individual.

Generally, it is unlikely that any country will waive diplomatic immunity for an individual, especially in the case where the person has violated the terms of a lease. Because of the Geneva Convention, U.S. courts are not allowed to hear cases against people who have been granted diplomatic immunity, which means that you will not be able to enforce the lease.

While the U.S. Department of State may request that a country waive immunity for an individual, or request that a country recall an individual, this is not something that you should count on in the event that a diplomat stops paying rent and will not move out.

While there are potential risks associated with renting to someone with diplomatic immunity, many landlords have had extremely positive experiences. These individuals were selected to represent their respective countries in the United States, with all the responsibility that comes with such a position. In many instances it is the foreign government that pays the rent, not the individual, which can often mean fewer concerns about timely lease payments.

Option 2: Lease between the Landlord and the Foreign Government

One way to take advantage of all of the benefits of renting to a diplomat without having to worry about a tenant you cannot evict is to designate the embassy as the tenant. By renting the property to the embassy or consulate directly, and not the individual who is going to reside there, a different set of laws applies.

It may still be difficult to get a court ordered eviction, or any back rent owed to the landlord if the lease is directly with the embassy, but you will at least be able to have your day in court. Unlike individuals with diplomatic immunity, embassies that enter into lease agreements with landlords can be sued for non-payment of rent if the individual living in the home won’t move out.

Option 3: Not Renting to the Individual or Embassy

If the potential risks outweigh the benefits of renting to an individual with diplomatic immunity, and the embassy is not willing to enter into the lease on behalf of the individual, you may decide that this is not a good match. If this is the case, you need to be aware of potential discrimination claims against you.

In Virginia, it is not against the law to refuse to rent to individuals based on their profession, but it is illegal to refuse to rent because of their country of origin.

What this means is that you may adopt a policy of not renting to any diplomats, but if you decide not to rent to a specific individual based on the country that person represents, you may be breaking the law. The best practice is for landlords, leasing agents and property managers to consider what policy they believe is best for them, and make sure to apply it consistently in order to avoid any potential allegations of discrimination.

By George A. Hawkins, Esq.

Virginia’s Residential Property Disclosure Act (Virginia Code §55-517 et seq.) requires real estate licensees to inform the parties to a transaction with whom they deal of their rights and obligations under the Act. As a licensee providing this information to clients, you must be prepared to answer any questions and to furnish them with a copy of the Act at their request.

When does the Act apply?
The Act applies to sales, exchanges, installment sales or leases with option to purchase of residential real property improved with one to four dwelling units.

When won’t the Act apply?
The Act does not apply to sales of new homes (subject to certain exceptions discussed below); transfers pursuant to court order (in estate administration, pursuant to writ execution, foreclosure, bankruptcy, condemnation, or by decree for specific performance); transfers among co-owners; transfers among spouses; transfers among parents or grandparents and their children or grandchildren; tax sales; transfers involving a government or housing authority.

What does the Act require a seller to do?
The Act requires sellers to furnish purchasers with a disclosure statement developed by the Virginia Real Estate Board.

When does a purchaser get a disclosure statement?
A purchaser must be furnished with a disclosure statement signed by the seller prior to final ratification of the purchase contract. If such statement is not received by final ratification, the purchaser’s sole remedy shall be to terminate the purchase contract by sending written notice to the seller either by hand delivery or U. S. Mail, postage prepaid, at or prior to the earliest of (i)three days after receiving the statement (if delivered in person); (ii) five days after postmark (if sent by U. S. Mail, postage prepaid); (iii) settlement; (iv) occupancy by purchaser; (v) purchaser’s making written application for a mortgage loan if such application discloses that the termination right ends upon application; (vi) purchaser’s execution of a written waiver of the right to terminate (such waiver may not be in the purchaser contract).

What does the disclosure statement say?
Purchasers are advised to consult the DPOR webpage. The statement will direct purchasers to the RESIDENTIAL PROPERTY DISCLOSURES web page (http://www.dpor.virginia.gov/dporweb/reb_consumer.cfm) for important information about the real property.

What is disclosed by the seller?
A seller, in furnishing a disclosure statement, makes no representations or warranties as to the condition of the property or any improvements located thereon, nor with respect to the matters set forth and described at the RESIDENTIAL PROPERTY DISCLOSURES web page (http://www.dpor.virginia.gov/dporweb/reb_consumer.cfm).

What should a purchaser do?
Purchaser is advised to exercise whatever due diligence purchaser deems necessary, including a certified home inspection, as defined in §54.1-500, in accordance with the terms and condition of the purchase contract, but in any event prior to settlement.
What must builders do? A builder of a new home must disclose to a purchaser in writing all known material defects which would constitute a violation of any applicable building code. In addition, for property located wholly or partially in any locality comprising Planning District 15 (the City of Richmond, the Town of Ashland, and the counties of Charles City, Chesterfield, Goochland, Hanover, Henrico, New Kent and Powhatan), the builder (or seller, if the owner is not the builder) shall disclose in writing whether mining operations have previously been conducted on the property or the presence of any abandoned mines, shafts or pits. This disclosure does not abrogate any warranty or other obligations the builder may have to the purchaser, and must be made (i) when selling a completed home, before acceptance of the purchase contract, or (ii) when selling a home before or during construction, after issuance of a certificate of occupancy. No disclosure or statement of any kind is required if there is no such information to disclose. Any required disclosure may be, but need not be, contained in the disclosure statement described in this Summary.

What if a purchaser does not get a disclosure statement?
If the seller fails to provide the required disclosure statement, the contract may be terminated as set forth above. If the seller fails to provide the required disclosure statement, or the seller misrepresents, willfully or otherwise, the information required in such disclosure, except as a result of information provided by the locality in which the property is located, the purchaser may bring an action to recover actual damages suffered as a result of such violation. No purchaser of property located in a noise zone designated on the official zoning map of the locality as having a day-night average sound level of less than 65 decibels shall have a right to maintain an action for such damages.

Are there limits to seeking damages under the Act?
Yes. Any such action must be brought within one year of the date the purchaser received the disclosure statement. If no disclosure statement was provided to the purchaser, the action must be brought within one year of the date of settlement, or purchaser’s occupancy of the property by lease with option to purchase.

Are there things that are not disclosed?
Yes. Purchasers should be aware that neither a seller nor a real estate licensee is obligated to disclose facts or occurrences which have no effect on the physical structure of the property, its physical environment, or the improvements located thereon, or the fact that the property was the site of a homicide, felony, or suicide. Furthermore, it is a violation of federal law to disclose whether a previous occupant of the property was afflicted with the HIV virus or has AIDS.

What about noise?
If the property is located in a locality in which a military air installation is located, the seller, including builders or owners of new property, must provide purchasers with a disclosure statement setting forth whether the property is located in a noise zone or accident potential zone, or both, if so designated on the official zoning map of the locality. Such disclosure shall state the specific noise or accident potential zone, or both, in which the property is located.

Mr. Hawkins is a partner with the law firm of Peterson, Goodman & Hawkins PLC in Vienna, Virginia. He represents buyers, sellers, and developers in all phases of residential and commercial real estate transactions.


ARTICLE 16: Realtors® shall not engage in any practice or take any action inconsistent with the agency of other Realtors®.

Case Study: Buyer Agent Demands Listing Agent to Reduce Commission

The buyer's Realtor contacted the listing Realtor and notified her that he was a buyers agent and was interested in showing one of her listings to his client, a prospective purchaser. The listing Realtor made an appointment for the purchaser and the buyer's Realtor to view the property. Shortly thereafter, the buyer's Realtor presented the listing Realtor with a signed offer to purchase. The offer was contingent on the listing Realtor's willingness to reduce her commission by the amount she had offered through the MLS to subagents, and contingent on the seller's willingness to compensate the buyer for commission the buyer owed to the buyer Realtor. The listing Realtor presented the offer to her client, the seller, explaining that she would not agree to reduce the previously agreed commission as specified in their listing contract.

The listing Realtor filed a complaint with the local Association charging the buyer's Realtor with violating Article 16. She stated that the buyer's Realtor interfered in her agency relationship with the seller by encouraging the buyer to condition acceptance of his offer on the renegotiation of the lister's commission arrangement with her client, the seller.

The buyer's Realtor argued that the listing Realtor's refusal to reduce her commission by an amount equal to what she had offered other brokers for subagency services would have placed the seller in the position of having to pay an excessive amount of commission if the seller had accepted the offer and agreed to contribute to the buyer Realtor's compensation. In addition, the buyer Realtor felt that it was his duty to his client to get the best price for the property by encouraging the seller to reduce the costs of sale wherever practical.

What was the conclusion of the hearing panel?

DECISION

The hearing panel concluded that the actions of the buyer Realtor to encourage his client to pressure the seller to try to modify the listing agreement with the listing Realtor was an unwarranted interference in their contractual relationship. The hearing panel noted that Article 16, Standard of Practice 16-16, requires the buyer's Realtor to determine prior to presenting an offer to the listing Realtor and the seller, whether the listing Realtor was willing to contribute to the buyer Realtor's commission, either directly or by reducing the commission as agreed to in the listing contract, and if so, the terms and amount of such contributions. It was the decision of the hearing panel that the buyer's Realtor had violated Article 16.

Question:

Having had the occasion to receive a contract from a non-licensee, I am interested in what you recommend as the way to handle the situation in terms of the validity of the contract. Is a contract written by a non-licensee valid? If so, should the non-licensee be paid a commission?

Answer:

It is possible that a contract written by a non-licensee could be valid, because the fraud and misrepresentation are not being committed by the principals to the contract (buyer and seller) but by one of their agents. An attorney can tell you all about the legal claims and defenses for getting out of a contract. However, even if it may still be valid, I don't think it would be worth forcing the other party to stay in a contract that was written under such bad conditions if they want out. When you have bad facts some judges tend to look past the law to find a solution that they feel is fair.

How to handle the situation is more complicated. Circumstances will mandate your choices. However, the following is essential in all circumstances. Perform due diligence to verify beyond a doubt that the person is not licensed. Ask them to provide their licensee number or correct spelling of their name so you can verify their licensing status. Tell him you cannot find his licensing information on the state Web site and ask for an explanation.

Once you confirm he does not have a licensee and does not fall into any of the exemptions to the licensing requirements you should contact your client and inform them of the situation. Second, tell your broker and make sure that he or she is aware of what happens. Third, inform the other party that their agent does not appear to be licensed.

Some of how you handle the situation is going to vary depending on the circumstances. Does your client want to consummate the transaction? Does your client want to run for the hills? Remember your duty is to protect and promote your client's interests, without breaking the law yourself.

If your client wants to keep the transaction alive, do the best that you can with the bad hand you have been dealt. If this is a case where an unlicenced assistant was doing the work of a licensed agent - have a stern talk with the other side. Your broker should contact the other agent and broker (both) and inform them that from this point on only licensed individuals will be dealt with. In addition, tell them that, if in doubt, you will be checking licensee cards.

If the individual is not affiliated with any firm or licensee, tell the other principal you don't want to lose your license by working with someone who is unlicenced. Inform the party using the non-licensee that you will only deal directly with them until they get a licensed agent to represent them. Remember that it is considered "improper brokerage of a commission" to pay someone who does not have a real estate license.

Finally, to protect the contract if your client wants to go forward, try to get a signed disclosure from the other party saying they
1) have been informed that the individual in question is not licensed;
2) have been advised to seek legal counsel or representation from a licensed individual; and
3) still wish to proceed with the contract.

This disclosure should significantly decrease the possibility of the party being able to get out of the contract because it was written by an unlicenced individual.

After the transaction is done (if it settles or is released) you should contact the Virginia Real Estate Board and report the individual to the state. You did a lot of work to get your license, don't let someone compete against you because they're breaking the law.

Case Interpretation for Article 1 and Article 3

REALTOR® A listed Seller S's house. He filed the listing with the MLS and conducted advertising intended to interest prospective purchasers. Seller S's house was priced reasonably and attracted the attention of several potential purchasers.

Buyer B learned about Seller S's property from REALTOR® A's Web site; called REALTOR® A for information; and was shown the property by REALTOR® A several times. Buyer X, looking for property in the area, engaged the services of REALTOR® R as a buyer representative. Seller S's property was one of several REALTOR® R introduced Buyer X to.

After the third showing, Buyer B was ready to make an offer and requested REALTOR® A's assistance in writing a purchase offer. REALTOR® A helped Buyer B prepare an offer and then called Seller S to make an appointment to present the offer that evening.

Later that same afternoon, REALTOR® R called REALTOR® A and told him that he was bringing a purchase offer to REALTOR® A's office for REALTOR® A to present to Seller S. REALTOR® A responded that he would present Buyer X's offer that evening.

That evening REALTOR® A presented both offers to Seller S for his consideration. Seller S noted that both offers were for the full price and there seemed to be little difference between them. REALTOR® A responded, "They're both good offers and they'll both net you the same amount." Seller S asked about the feasibility of countering one or both of the offers. REALTOR® A agreed that was a possibility but noted that countering a full price offer could result in the buyer walking away from the table. Besides, he reminded Seller S, production of a full price offer triggered REALTOR® A's entitlement to a commission under the terms of their listing agreement.

Seller S acknowledged that obligation but expressed regret that, faced with two full price offers, there was no way to increase the proceeds he would realize from the sale of his property. "I'll tell you what," said Seller S, "if you'll reduce your commission, I'll accept the offer you procured. While you'll get a little less than we'd agreed in the listing contract, you'll still have more than if you had to pay the other buyer's broker."

Seeing the logic of Seller S's agreement, and realizing that he and the seller were free to renegotiate the terms of their agreement, REALTOR® A agreed to reduce his commission by one percent. Seller S, in turn, accepted Buyer B's offer and the transaction closed shortly thereafter.

Upset that his purchase offer hadn't been accepted, Buyer X called Seller S directly and asked, "Just to satisfy my curiosity, why didn't you accept my full price offer to buy your house?" Seller S explained that he had accepted a full price offer produced by REALTOR® A because of REALTOR® A's willingness to reduce his commission by 1%.

Buyer X shared Seller S's comments with REALTOR® R the next day. REALTOR® R, in turn, filed an ethics complaint alleging that REALTOR® A's commission reduction had induced Seller S to accept the offer REALTOR® A had produced; that REALTOR® A's commission reduction made his presentation of the competing offers less than objective and violated Article 1, as interpreted by Standard of Practice 1-6; and that REALTOR® A's failure to inform him of the change in his (REALTOR® A's) commission arrangement violated Article 3, as interpreted by Standard of Practice 3-4.

At the hearing REALTOR® A defended his actions stating that he had said nothing inaccurate, untruthful, or misleading about either of the offers; and that he understood that his fiduciary duties were owed to his client, Seller S, and that he and Seller S were free to renegotiate the terms of their listing agreement at any time. REALTOR® A acknowledged that by reducing his commission with respect to an offer he produced, he might arguably have created a dual or variable rate commission arrangement of the type addressed in Standard of Practice 3-4.

He pointed out that if that commission arrangement had been a term of their agreement when the listing agreement was entered into, or at some point other than Seller S's deciding which offer he would accept, then he would have taken appropriate steps to disclose the existence of the modified arrangement.

He noted that Standard of Practice 3-4 requires disclosure of variable rate commission arrangements "as soon as practical" and stated that he saw nothing in the Standard that required him and his client to call "time-out" while the existence of their renegotiated agreement was disclosed to other brokers whose buyers had offers on the table or to all other participants in the MLS.

He acknowledged that if the accepted offer had subsequently fallen through and Seller S's property had gone back on the market with a variable rate commission arrangement in effect (where one hadn't existed before) then the existence of the variable rate commission arrangement would have had to have been disclosed.

But, he concluded, the accepted offer hadn't fallen through so disclosure was not feasible or required under the circumstances.

Answer:
The hearing panel agreed with REALTOR® A's reasoning and concluded that he had not violated either Article 1 or Article 3.

Question: I represent the buyer in a transaction. The preliminary HUD sheet indicates a lower amount of commission than what I had calculated based on the gross sales price of the house. I call the settlement agent who informs me that the commission is to be paid on the net sales price. I review the short listing in the MLS and find no indication that commission is to be paid on the net sales price. What is a net sales price? Where is it indicated on the MLS listing?

Answer: The MRIS rules and regulations state in Section X:

“Sec.2. Compensation specified on listings filed in the service shall appear in one of three forms:
a) by showing a percentage of gross selling price
b) by showing a definite dollar amount
c) commission may be paid on Net Sales price (Sales Price minus seller concessions) or on base price in new construction if specified in the system.”

MRIS allows commissions to be paid on the net sale price, which it defines as sale price minus seller concessions. What does that mean? The net sale price is the gross sale price less any closing costs normally paid by the buyer, which in this transaction are paid by the seller. Costs to be deducted can include the home warranty, any inspection (home inspection, termite, radon), and all other closing costs paid by the seller.

Where should Realtors® look to find whether their commission is based on the gross sale price or the net sale price? This information is included under the “legal” category of the long version of the listing

What can Realtors® do to address this? For most transactions, the difference in the commission paid based on the net sale price and the gross sale price is generally a small portion of the total commission. However, to ensure that payment is based on the gross sale price, Realtors® should make sure to discuss this with their buyer clients and modify the buyer broker agreement to reflect that compensation will be based on the gross sale price of the property and that if commission is paid by the cooperating broker based on the net sale price, the client will make up the difference.

Question: In reviewing the MLS comment field, I find a lot of information that should not be there. Can you give us guidance about what information does not belong in the comment section?

Answer: The increase in listings of bank-owned properties in the MLS has led to an increase in improper listings. Many bank-owned listings include the name and phone number of the bank that owns the property. Telephone numbers should never be included in the comment section of the MLS. MRIS is currently auditing all listings to identify those that list the bank’s telephone number in the comment section.

Another common problem found in listings of bank-owned properties are words to the effect of: “you must use Lender X” or “you must use settlement agent X.” Both of these statements raise the specter of a potential RESPA violation. The legislature in Virginia was clear in its last session that such language constitutes a potential violation of CRESPA (the state equivalent of RESPA). Indeed, new legislation required an amendment to our Virginia Jurisdictional Addendum to include the following language:
“Variation by agreement: The provisions of the Consumer Real Estate Settlement Protection Act may not be varied by agreement, and rights conferred by this chapter may not be waived. The seller may not require the use of a particular settlement agent as a condition of the sale of the property.”

QUESTION: Must a lender pay agreed-upon commission on a short sale transaction?

ANSWER: This is an interesting question. For short sale listing agents and brokers who have struggled with banks to receive the full amount of the commission outlined in the listing agreement, a court in Iowa has offered some hope. The broker in that case not only got his commission, but the court awarded it to him despite the fact that the deal did not go to settlement!

Here is what happened in that case. The owner of a warehouse was in financial distress and was working with the bank to wind down his business activities and sell the warehouse. The warehouse was rented to a tenant who had a right of first refusal to purchase the property.

The listing broker listed the warehouse for sale and received an offer to purchase the property. The bank authorized the broker to counter the offer and the parties reached an agreement. The broker then drafted a document estimating the distribution of funds at closing, which reflected that the bank would net $110,000.

At this time, the tenant exercised his right of first refusal. The tenant gave his earnest money to the broker, and the broker informed the parties involved, including the bank. The bank responded by stating that it would not accept less than $130,000. The tenant refused the new terms and the deal died.

The broker filed suit asking for his commission stating that he had satisfied all the terms of the listing agreement by bringing a qualified buyer at terms the bank had agreed to. The Court found in favor of the broker, holding that the bank was not entitled to mislead the parties into thinking that they had agreed upon a price when the bank knew the price would not actually satisfy its requirements and that it would seek a higher amount through various concessions.

This case is illustrative only of the law in Iowa, but can give brokers and their attorneys useful information about how to handle lenders in short sale transactions. For the full text of the opinion, go to: http://www.iowacourts.gov/court_of_appeals/Recent_Opinions/20090529/8-872.pdf

Stewart v. All States Quality Foods, 2009 Iowa App. LEXIS 427, 2009 WL 1499539 (2009)

QUESTION: Can I enter a listing in the Metropolitan Regional Information Systems, Inc. (MRIS) that offers zero compensation to cooperating brokers?

ANSWER: MRIS is a regional multiple listing system. The distinguishing characteristic of a multiple listing system is that it serves as a marketplace for competing real estate brokers to offer cooperative compensation to their competitors if those brokers are able to procure a buyer for the listing. Without the offer of cooperative compensation between competing brokers you lose the distinguishing feature that differentiates an advertising mechanism like a postcard mailing, classified advertisement in a newspaper, or a FSBO Web site from a multiple listing system.
MRIS will only accept three types of listings as eligible for inclusion in their system. All three types involve listings in which the seller has authorized the listing broker to offer cooperation and compensation to other competing brokers. While the seller must authorize the offer of compensation, it is the broker entering the listing in MRIS who ultimately is held responsible for paying the cooperating broker who procures the buyer. When a listing agent enters zero compensation in the listing, he or she is using the MLS in a way that defeats its purpose. In other words, if you offer zero you are really offering nothing.


The language in “Listings Accepted” and “Definitions” presumes that the listing company is offering something of value in order to be eligible for inclusion in MRIS.


There is nothing wrong with taking a listing that offers zero compensation to cooperative brokers. A seller is under no obligation to authorize a listing broker to pay cooperative compensation to other brokers. Such listings are often referred to as private exclusives or office exclusives.


However, MRIS does not accept such listings because they are in the business of helping brokers extend offers of cooperation and compensation to competing brokers. This is reflected in Article XI, Section 4 Exempted and Office Exclusive Listings B where it states “Office Exclusive Listing - Listing where the offer of cooperation and compensation is not made to other brokers. These listings may not be entered into MRIS.”

If a specific listing is not offering compensation, it can be advertised through other means (newspaper advertisements, flyers, Web sites, etc.) but does not fulfill the criteria for listings that MRIS agrees to accept.

QUESTION: I represent a buyer in a transaction who made an offer on a property that was accepted by the seller. The MRIS listing stated under agent compensation that a bonus was going to be paid. At settlement, I received the commission offered, but no bonus. When I asked the broker, he told me that the offer of a bonus was predicated on a full price offer. However, that was not stated anywhere on the listing. Am I entitled to the bonus?

ANSWER: MRIS allows brokers to offer bonuses under agent compensation fields. However, because of space limitations, MRIS also further allows a broker to place parameters on the bonus in the agent remarks. These comments may include conditions such as “payable only with full price offer,” or “payable only if settlement occurs on or before a specified date.” However, if a listing offers a bonus with no conditions stated, then a cooperating agent can expect to be paid the bonus when he or she becomes the procuring cause of the sale. If you are the procuring cause for the sale of a property that was listed in MRIS as offering a bonus without any conditions, and you fail to receive the bonus, you can file a request for arbitration with your local association asking for the bonus.

So you listing agents out there offering bonuses, make sure that you state clearly the conditions that apply to the payment of the bonus, because if you fail to do so, the bonus will be due upon successful completion of the transaction.

The Northern Virginia Association of REALTORS does not fix, control, recommend, suggest, maintain or establish the fees that individual members may charge their clients for the services they provide. Nothing in this article should be construed as attempting to fix prices or fees. Michele Yam of MRIS contributed to this article.

QUESTION: I am an investor and a licensee in the Commonwealth of Virginia. In reviewing properties for sale, I located one that fit all my criteria. The property is an REO and the listing says that no commission will be paid to the cooperating broker if the party to the transaction is a licensee. Can they do that?

ANSWER: As it turns out, NAR recently addressed the issue. The MLS Cooperative Compensation Work Group of the Multiple Listing Issues and Policies Committee of NAR (the Work Group) acknowledged that in a number of instances financial institution and government agency asset managers, when entering into listing agreements with MLS participants, have asked to include terms in those listing contracts prohibiting listing brokers from offering or paying cooperative compensation to cooperating brokers if the successful purchaser holds a real estate license. In some instances, institutional sellers have insisted that cooperative compensation not be offered by listing brokers through MLS or paid to cooperating brokers in cases where the purchaser is related to a real estate licensee.

It was the consensus of the Work Group that any listing agreement between a seller and a listing broker that provides that cooperative compensation cannot be offered or paid to a cooperating broker if the purchaser holds a particular license or credential, engages in a particular trade or profession, or if the range of potential purchasers is otherwise arbitrarily restricted, is not and should not be eligible for inclusion in MLS.
Visit www.realtor.org for more details on the Work Group Report.

How do I get compensated when I represent a buyer who decides to purchase a property in an area that is not covered by MRIS, but serviced by another MLS?

MLS is a forum that not only allows listing brokers to advertise their properties for sale but also provides them with a means to make offers of cooperative compensation that can be reviewed and accepted by other members of the MLS. In order for a broker to accept an offer of compensation, he or she must be able to access the listing and, more specifically, the portion of the listing that reflects the offer of compensation. Those fields are only available to members of the MLS.

What does that mean in practical terms for your business? If you are going to sell real estate in areas in which you are not a member of the local MLS, and you wish to be compensated for your services by the listing broker, then you must establish a separate agreement for compensation. You cannot accept the offer made by the listing broker in the local MLS.

Below are tips to ensure that you will get paid for your cooperation:

  1. Call the listing broker and ask what the compensation is for a cooperating broker in this transaction, as set forth in the listing agreement.
  2. Tell them you have an interested buyer, but since you are not a member of the local MLS, both brokers must enter into a written compensation agreement that will outline how much a cooperating broker will be compensated upon successful completion of the transaction.
  3. Make sure that the agreement is signed by the brokers and not the agents. Agents do not have the right to enter into any agreement regarding cooperating compensation.

If you do not have such an agreement in place, you may well be unable to collect a commission at the time of settlement.

by NVAR General Counsel Sarah Louppe Petcher & Staff Attorney Laura Farley

Q. I am changing companies, and I currently have properties listed. What happens to those listings?

A. The listing agreement and the buyer/broker agreement are both agreements between the client and the broker – not you, the agent. This means that unless your client and the broker agree otherwise, the deal stays with the brokerage when you leave.
If your broker agrees to let you take the listing with you, you will need to submit a request through MRIS’ EZ-Transfer program. But your old broker is not required to release the listing. For more information, see NVAR’s “The Ins and Outs of Agency Termination” article.

In either situation, the Independent Contractor Agreement that you signed when you began working at the brokerage will govern what happens to your commissions when you leave with pending transactions. Whether your old broker agrees to release the listing or not, your Independent Contractor Agreement will dictate if and how compensation will be paid for any pending transactions you may have.


QUESTION: More and more assistants are taking calls and providing substantive answers to other agents or members of the public who enquire about a specific property. Here is a quick reminder of what an unlicensed assistant can and cannot do.

ANSWER: The Real Estate Board issued a few do's and don'ts for real estate assistants who are not licensed, but indicated that brokers should consult the Board's regulations and legal counsel when in doubt.

DO'S
1. Submit listings and changes to MLS
2. Follow up on loan commitments after contracts have been negotiated
3. Have keys made for listings
4. Compute commission checks
5. Place signs on properties
6. Act as a courier service
7. Schedule appointments
8. Record and deposit earnest money, security deposits and advance rents
9. Prepare contract forms (with approval of the licensee and supervising broker)
10. Prepare promotional materials and advertisements


DON'TS
1. Show property
2. Answer questions on listings, titles, financing or closings
3. Discuss or explain with anyone outside the firm a contract, listing, lease, agreement, or other real estate documents
4. Accept payment on the basis of real estate activity, such as a percentage of commission, or any amount based on listings or sales.


Question:
How can I tell if someone has a license to practice real estate.

Answer:
The Department of Professional and Occupational Regulation (DPOR) has a Web site that allows you to verify the licensee status, type of licensee, realty firm and address of other real estate agents and brokers in Virginia.

The Web site is at: http://www.dpor.state.va.us/regulantlookup/

Remember to check the box marked Individuals under the section marked Real Estate to verify real estate licensees. Anyone can access the Web site and check to see if a specific person has a real estate license. If you do not find the individual's name on the Web site, you should contact DPOR at 804/367-8526 to inform the state licensing authority. Only DPOR can take action against individuals who participate in real estate transactions without a license.

Question:

Having had the occasion to receive a contract from a non-licensee, I am interested in what you recommend as the way to handle the situation in terms of the validity of the contract. Is a contract written by a non-licensee valid? If so, should the non-licensee be paid a commission?

Answer:

It is possible that a contract written by a non-licensee could be valid, because the fraud and misrepresentation are not being committed by the principals to the contract (buyer and seller) but by one of their agents. An attorney can tell you all about the legal claims and defenses for getting out of a contract. However, even if it may still be valid, I don't think it would be worth forcing the other party to stay in a contract that was written under such bad conditions if they want out. When you have bad facts some judges tend to look past the law to find a solution that they feel is fair.

How to handle the situation is more complicated. Circumstances will mandate your choices. However, the following is essential in all circumstances. Perform due diligence to verify beyond a doubt that the person is not licensed. Ask them to provide their licensee number or correct spelling of their name so you can verify their licensing status. Tell him you cannot find his licensing information on the state Web site and ask for an explanation.

Once you confirm he does not have a licensee and does not fall into any of the exemptions to the licensing requirements you should contact your client and inform them of the situation. Second, tell your broker and make sure that he or she is aware of what happens. Third, inform the other party that their agent does not appear to be licensed.

Some of how you handle the situation is going to vary depending on the circumstances. Does your client want to consummate the transaction? Does your client want to run for the hills? Remember your duty is to protect and promote your client's interests, without breaking the law yourself.

If your client wants to keep the transaction alive, do the best that you can with the bad hand you have been dealt. If this is a case where an unlicenced assistant was doing the work of a licensed agent - have a stern talk with the other side. Your broker should contact the other agent and broker (both) and inform them that from this point on only licensed individuals will be dealt with. In addition, tell them that, if in doubt, you will be checking licensee cards.

If the individual is not affiliated with any firm or licensee, tell the other principal you don't want to lose your license by working with someone who is unlicenced. Inform the party using the non-licensee that you will only deal directly with them until they get a licensed agent to represent them. Remember that it is considered "improper brokerage of a commission" to pay someone who does not have a real estate license.

Finally, to protect the contract if your client wants to go forward, try to get a signed disclosure from the other party saying they
1) have been informed that the individual in question is not licensed;
2) have been advised to seek legal counsel or representation from a licensed individual; and
3) still wish to proceed with the contract.

This disclosure should significantly decrease the possibility of the party being able to get out of the contract because it was written by an unlicenced individual.

After the transaction is done (if it settles or is released) you should contact the Virginia Real Estate Board and report the individual to the state. You did a lot of work to get your license, don't let someone compete against you because they're breaking the law.

Question: In general, what information must I include in all of my advertisements to the public? Do I really have to include my firm name, the REALTOR® logo or the fair housing logo in all of my advertisements?

Answer: Virginia Real Estate Board Regulations from the Department of Professional and Occupational Regulation (DPOR) mandate the disclosure of different information depending on the method of advertising. The regulations provide two broad categories for advertising: online advertising and other advertising. Within these two categories, the DPOR regulations also create different standards for individual licensees and the firms they work for.

ONLINE ADVERTISING
Online advertising requirements adopted by DPOR were based on model rules developed by the Association of Real Estate License Law Officials (ARELLO). These regulations include a significant emphasis on disclosing the location of the advertising party in order to ensure that consumers and regulators can identify the source of any online advertising.

A real estate brokerage company's online advertising must include the licensed name of the firm, the city and state where the firm's main office is located, and the jurisdiction(s) in which the firm is licensed. When individual agents or associate brokers advertise on their own or through their company, their online advertisements must include the agent's licensed name, the name of firm, the city and state where the license is located (the office they report to rather than the main office) and the jurisdiction(s) where the agent holds a license.

The regulations provide strict requirements for when and where this information must be disclosed to the viewer/recipient of the advertisement. For example, the disclosure must be posted at the beginning or end of each message in an e-mail, newsgroup, discussion list, or bulletin board.

So the next time you post a message on Craig's List or the Washington Post's Real Estate Talk message board, remember that those postings count as advertisements under the regulations.

There is an exemption for correspondence in the ordinary course of business because it is presumed that if an agent has established a business relationship with an individual, then the information has previously been conveyed to the individual who has become a client.

A full copy of the regulations can be found at the following Web site:
http://www.dpor.virginia.gov/dporweb/reb_reg.pdf

Individuals or firms who own a Web site or have hired someone to operate a Web site on their behalf are required to provide a disclosure or a link to the disclosure on the viewable Web page. Disclosure is not necessary on instant messages if the firm or individual has provided the disclosure via another format prior to providing or offering to provide real estate related services. Disclosure is required on Voice Over Network (VON) sessions prior to advertising your services unless the disclosure text is visible on the same Web page that contains the VON session.

For online chat sessions, disclosure is required prior to providing or offering to provide real estate services. If the agent or firm own or control the Web site hosting the chat session, the disclosure requirement can be satisfied if the mandated information is visible on the same page that contains the chat session.

OTHER ADVERTISING
This category is much broader than online advertising, and includes advertising in other mediums. These run the gamut from classified ads, recorded messages, postcards, flyers, television commercials, radio spots, etc. They also often include giveaway items used to increase exposure for the firm or agent like calendars, pens, note pads, mouse pads, etc.

The disclosure requirement for these other forms of advertising is much simpler. The real estate brokerage firm must identify the firm's licensed name and address. Advertisements by licensed individuals must contain the licensee's name, the name of the firm the individual is affiliated with, and the firm's address.

There has been some confusion about the requirement to use your licensed name. A number of licensees often prefer to go by a nickname rather than their actual name. However, the regulations require licensees to use the name as it appears on their license. Individuals can register DBA (doing business as) name with DPOR if they wish to use their nicknames in their advertisements.

There is often some confusion about the requirement to include the REALTOR® logo or the term "REALTOR®" in the advertisements by firms or agents. While the use of the REALTOR® logo or the term "REALTOR®" is strongly encouraged by the National Association of REALTORS®¨, it is not required.

The actual ethical requirement is stipulated in Article 12 of the Code of Ethics and Standards of Practice of the National Association of REALTORS®¨, which states that "REALTORS®shall also ensure that their professional status (e.g. broker, appraiser, property manager, etc.) or status as a REALTOR® are clearly identifiable in any such advertising." Members can fulfill this ethical requirement by referring to themselves as a real estate salesperson, broker, associate broker, or other identifiable professional title without including the REALTOR® logo.

There is also some confusion about fair housing regulations. The absence of the fair housing logo is not automatically a violation of fair housing regulations. However, the use of the fair housing logo does provide an important advantage to firms and individuals. The presence of the fair housing logo in all advertising does create a presumption that the agent is attempting to comply with the regulations. The use is extremely important in reassuring the public that the agent and firm are committed to providing an atmosphere where clients and customers are treated equally regardless of race, color, religion, sex, handicap, familial status, elderliness, or national origin.

Furthermore, the selective use of the fair housing logo may lead to uncomfortable questions about why the individual or firm did not consistently indicate their commitment to fair housing in all their representations to the public. All things considered, any risk management expert would tell you to include the fair housing logo, statement or slogan on all advertising rather than risk having to explain to a fair housing investigator why you were committed to abiding by the fair housing laws but didn't want anyone to know it.

Click here for the PDF verison of the Broker Audit Form - DPOR Inspection Form

Death of a Title Owner: Managing the Potential Problems
by Tom Wiltshire

If you practice real estate sales long enough, you will encounter the "dead seller" problem. The death of a title owner may have an impact ranging from negligible to catastrophic.

The best time to begin managing the potential problems of such a sale is at the listingappointment. The principal issue to resolve is "who has the power to convey this real estate?" Deeds and wills usually hold the answer.

When taking a listing, ask the seller if any other owners have died
subsequent to the initial acquisition. Widows and widowers remarry, and therefore, Realtors® should ask if the prospective
sellers are the identical parties who took title in the past. If a title
owner has died, ask to see a copy of the current deed. The granting language in that deed will guide your next steps.
Generally, if (1) the parties took title as "joint tenants with common law rights of survivorship," and (2) the surviving "tenant" (owner) is signing the listing, then your problems are over. The
surviving tenant has the right to sell the property and he or she is capable of delivering clear title. Ask the seller for a copy of the death certificates and inform the settlement agent of your findings.

If you are dealing with an executor, or a relative of the decedent
homeowner, or a surviving co-owner who held title without "rights of survivorship" then different rules apply. It is more
complicated to identify who has the power to convey. The first step is to determine if the deceased owner left a will and whether the will has been "probated." (A "probated" will is one
that has been submitted to the court where the deceased last resided and has been determined by that court, to be the valid last will and testament of the decedent.) If there is a will it is probable that there are two groups of people empowered to convey the real estate of the decedent. The first group consists of the beneficiaries named in the will. For a valid conveyance, all these people must sign the appropriate documents.

The second group empowered to sell may consist of the Executor(s) named in the will. Professionally drafted wills frequently confer the power of sale on Executor(s). The second step in the process is to read the will to see if the Executor(s) is authorized to sell the real property of the decedent. The power of sale may be conferred by clear language or by reference to the powers of VA Code 64.1, which includes the power to sell. (A will probated in another state is satisfactory, but it must be recorded in the court where the property is located.) If a valid will grants the Executor(s), the power of sale, then the Executor(s) may sign the listing, the sales contract and the deed of conveyance. Be sure to identify the Executor(s) named in the will and ask them to
produce the clerk's certificate confirming their appointment as
Executor(s). Also note that Executor(s), unlike beneficiaries, are legally incapable of delegating their power of sale by power
of attorney.

If there is no probated will, then the heirs, as determined by Virginia law, must sign the listing contract, the sales contract and the settlement documents. In the case of a probated will that does not authorize the Executor(s) to sell real estate, the beneficiaries named in the will must sign the contracts and related documents.

After identifying who has the power of sale, the knowledgeable Realtor® should alert the seller to the possibility of an "estate escrow." Virginia law grants creditors of a decedent the power to file liens against the decedent's property. The period for filing is one year from the date of death. This type of lien is unforeseeable and could be catastrophic for purchasers and lenders. Generally, the risks posed by this possibility are unacceptable to title insurance carriers. The solutions are (1) an estate escrow, (2) a decedent's bond and, (3) payment of all proceeds to a
preferred creditor.

The estate escrow means that all or most of the proceeds of sale must be held in escrow for a year and a day from the date of death. Settlement costs and estate debts may be paid from these funds. These bills can be paid, in fact the title companies favor the payment of estate bills to discourage the filing of liens. The distressing fact is that sellers cannot get their proceeds immediately, which means the seller should not be out spending the inheritance on a new house or college tuition until
the one year period has lapsed.

Will the title company require an escrow of less than 100 percent of seller's proceeds? The answer is "sometimes." When the sellers are local homeowners with good financial standing and strong ties to the community, the title company will consider holding between 50 percent to 66 2/3 percent. Another solution is a decedent's bond. Estate proceeds may be expended to purchase a bond that will guarantee payment to creditors up to the net proceeds. The bonds can be expensive and if a claim is filed the bonding company can recover from the recipient of estate proceeds. A third alternative is to pay all the proceeds to a preferred creditor. This choice is best suited for exceptionally large estates that are liquidating holdings merely to pay inheritance taxes and all proceeds are paid to the IRS. There are a few possible ways to avoid the customary estate escrow but they are very fact specific and rare.

The estate escrow is held until the expiration of the year during at which time a second title search is conducted. If no recorded liens are found, the cash plus accrued interest is released from
escrow directly to the seller.

If you foresee a transaction involving the "dead seller" problem, you should alert the principals and the title company immediately. Advise your client or customer to consult an attorney to
interpret will provisions and to clarify the obligations of the parties. This early notification will permit the circulation of a deed or powers of attorney if the Executor(s) is without power of sale
or if there is no will.

Realtor® Lister had a 90-day exclusive listing on Mr. Seller's property. Mr. Seller instructed Realtor® Lister to list the property at $450,000 based upon the sales price of a neighbor's house, which had sold a month earlier.

Realtor® Lister aggressively marketed the property, filing the listing in MRIS, running a series of advertisements in the local newspaper, holding several open houses, and distributing flyers on the property at local supermarkets. Realtor® Lister, whose listing contract was nearing expiration, held another open house on the property, which resulted in an offer to purchase from Mr. Buyer at $15,000 less than the listed price. Realtor® Lister was convinced that this was the best offer Mr. Seller was likely to obtain, and persuaded Mr. Seller to accept the offer. Mr. Seller expressed dissatisfaction with Realtor® Lister's failure to obtain a full price offer, but signed the purchase agreement nonetheless.

The next day Mr. Cooperating Broker delivered to Realtor® Lister a full price offer on Mr. Seller's property from Mr. Second Buyer. Mr. Second Buyer had attended an earlier open house and was very enthusiastic about the home's location, stating that it would be perfect for his mother.

Realtor® Lister advised Mr. Cooperating Broker and Mr. Second Buyer that an offer had already been accepted by Mr. Seller and that he, Realtor® Lister, would not present Mr. Second Buyer's offer. Mr. Cooperating Broker and Mr. Second Buyer promptly filed a complaint with the Association charging Realtor® Lister with a violation of Article 1.

At the hearing, Realtor® Lister stated that he felt he was under no obligation to present Mr. Second Buyer's offer, since the listing agreement did not specifically provide that subsequent offers would be presented to Mr. Seller. Further, Realtor® Lister felt that such a practice could only result in breached contracts. "Why get everyone in an uproar by presenting offers after one has been accepted? And what would I do if Mr. Seller wanted to back out of the first purchase contract and accept Mr. Second Buyer's offer?, " questioned Realtor® Lister.

Was there a violation of Article 1, and if so, why?

The hearing panel found Realtor® Lister in violation of Article 1. In their "Findings of Fact and Conclusion," the hearing panel cited Realtor® Lister's lack of understanding of the requirements of Article 1.

"When representing a buyer, seller, landlord, tenant, or other client as an agent, Realtors® pledge themselves to protect and promote the interests of their client. This obligation of absolute fidelity to the client's interests is primary, but it does not relieve Realtors® of their obligation to treat all parties honestly. When serving a buyer, seller, landlord, tenant or other party in a non-agency capacity, Realtors® remain obligated to treat all parties honestly."

"When acting as listing brokers, Realtors® shall continue to submit to the seller/landlord all offers and counter-offers until closing or execution of a lease unless the seller/landlord has waived this obligation in writing. Realtors® shall not be obligated to continue to market the property after an offer has been accepted by the seller/landlord. Realtors® shall recommend that sellers/landlords obtain the advice of legal counsel prior to acceptance of subsequent offers except where the acceptance is contingent upon the termination of the pre-existing purchase contract or lease."

The panel noted that state law did not prohibit the presentation of offers after an offer had been accepted by Mr. Seller; that the fact that the listing contract was silent on whether subsequent offers would be presented did not relieve Realtor® Lister from the obligation to present such offers; that as the agent of the seller, Realtor® Lister must always act in the seller's best interest and advise the seller of all offers submitted; and should Mr. Seller wish to consider accepting a subsequent offer, Realtor® Lister must advise Mr. Seller to seek the advice of legal counsel.

Question: What is the difference between an addendum and an amendment to a contract?

Answer:
Black's Law Dictionary defines an addendum as a thing that is added or is to be added to a contract and an amendment is a change or modification of a contract.

What's Your Deed?
By David Jacobs and Beau Brincefield*

Question: Paragraph 16 of the Regional Sales Contract requires the seller to convey the subject property "by General Warranty Deed with English with Covenants of Title". What does that mean and how does such a deed differ from other types of deeds?

Answer: There are several different types of deeds that are used for different purposes. All deeds convey some form of title to real estate from a grantor to a grantee. The types of deeds that most REALTORS®see and work with most often are deeds of bargain and sale (which transfer title to real estate from a seller to a purchaser) and deeds of trust (which convey title to real estate from the owner of the real estate to a trustee who holds title in trust, usually for the benefit of the lender, to secure the repayment of some obligation by the owner of the property).

Whenever real estate is transferred by deed, it is important, for both the grantor and the grantee, to understand what their respective rights and responsibilities are with respect to the quality of title that is conveyed by the grantor. In other words, is the grantor conveying a "good and marketable title" and, if the title is challenged, who bears the cost of defense and, ultimately, the risk of any loss?

A properly drafted deed defines the respective rights and obligations of the grantor and grantee by specifying the type of warranty that the grantor gives the grantee. Basically, there are three mutually-exclusive possibilities: a General Warranty Deed, a Special Warranty Deed and a Quitclaim Deed.

GENERAL WARRANTY DEEDS

A General Warranty Deed is a deed in which the grantor warrants generally the title to the property conveyed to the grantee. That General Warranty of Title is a promise and representation by the grantor that the grantor will defend the title which the grantor conveyed to the grantee against the claims and demands of all persons whomsoever, back to the beginning of time. If anyone else (other than the grantee) comes along claiming any interest in the title conveyed, the grantor is obligated to defend the title of the grantee against any and all such claimants.

SPECIAL WARRANTY DEEDS

A Special Warranty Deed includes a promise and representation from the grantor to the grantee that the grantor will defend the grantee's title against any person who claims any interest in the title by, through, or under the grantor. In other words, the grantor does not warrant the quality of the title back to the beginning of time but warrants only that nothing has occurred during the grantor's time of ownership that would defeat or diminish the grantee's rights in the property. Obviously, the Special Warranty is more limited than the General Warranty. If a grantor conveys property with a Special Warranty and a claim later arises as a result of some circumstance that existed before the grantor's ownership, the grantor has no obligation to defend the grantee's title against such a claim.

"ENGLISH COVENANTS OF TITLE"

When a deed includes the phrase "with English Covenants of Title" or words of similar import, the effect of those words is to incorporate by reference certain very specific promises and representations by the seller. These specific promises and representations are defined in the Virginia Code in Sections 55-70 through 55-74.

To some extent, the English covenants of title merely reiterate, or provide further definition of, the promises and representations already expressed in the deed in the General or Special Warranty (legal scholars love to debate questions like "if the grantor gives a General Warranty of Title, what additional representations or promises do the English Covenants of Title add to the General Warranty"? Fortunately, for the practical purposes of this article, we don't have to deal with such issues).

For our purposes, incorporating the phrase "with English Covenants of Title" into a deed means that the grantor makes the following warranties and representations to the grantee with respect to the quality of title being passed by the grantor to the grantee:

1. The grantor owns all of the rights and interests in the property in their totality without any limitation or condition whatsoever.

2. The grantor has not done anything, or allowed anything to happen, that would create any encumbrance on the title to the property.

3. The grantor has the absolute right and authority to convey the property to the grantee.

4. The grantee shall be entitled to quiet possession of the property against the claims of all other claimants.

5. The grantor shall, upon any reasonable request, execute, or cause to be executed, such further documents as may be reasonably required to confirm the conveyance to the grantee.

QUITCLAIM DEEDS

Simply stated, a Quitclaim Deed is a deed that contains no warranty or covenant of title whatsoever. The grantor merely conveys such title as the grantor has, if any, without making any warranty or representation as to what it is.

Obviously, it is best for a grantee to receive a General Warranty Deed that incorporates the English Covenants of Title rather than either a Special Warranty Deed or a Quitclaim Deed. In Virginia, this is the customary way in which residential resale property is conveyed. Paragraph 16 of the Regional Sales Contract reflects this custom. In some other states (like Maryland, for example), Special Warranty Deeds are the more common practice.

When trustees or builder/sellers transfer title to real estate in Virginia, they typically use Special Warranty Deeds in order to reduce their exposure to later title claims.

David Jacobs and James C. "Beau" Brincefield, Jr. are attorneys with the Alexandria law firm of Brincefield Hartnett Maloof & Paleos, P.C.

Question:

Other agents in my firm keep mentioning something called a sales price escalation addendum. Where can I find a copy of this addendum and how does it work.

Answer:

The NVAR Standard Forms Committee developed a Sales Price Escalation Addendum that NVAR REALTOR® members can access on our website: nvar.com

My answer will deal mainly with how the Standard Forms Committee believed that agents in the field should use our form.

The Sales Price Escalation Addendum is only triggered if the "Seller receives one or more additional written bona fide offers to purchase the Property with terms acceptable to Seller" that have a higher net to the seller than the offer with the escalation addendum. The net is the contract sales price minus any seller concessions to the buyer.

If the escalation addendum is triggered, the contract sales price is automatically increased by X dollar amount (where X is the amount listed in the contract) over the next offer with the second highest net to the seller up to the maximum sales price listed on the addendum. Lets look at two examples to see how this would work using hypothetical offers.

Example 1

Contract A has a sales price of $500,000 with a sales price escalation addendum. The escalation addendum states that the contract sales price will be automatically increased by $1,000 over the next highest offers net to the seller up to a maximum sales price of $525,000. This contract contains no provisions for the seller to pay any concessions to the buyer.

Contract B has a sales price of $510,000 with no sales price escalation addendum and a clause that says the seller will pay $10,200 (2%) towards the buyer's closing costs.

Contract C has a sales price of $508,000 with no sales price escalation addendum and a clause that says the seller will pay $2000 concession to the buyer.

In this example Contract B does not trigger the sales price escalation addendum in Contract A, because the $10,200 that is paid towards the buyer's closing costs would only net the seller $499,800 ($510,000 minus $10,200). This is $200 lower than the net $500,000 that is contained in Contract A because the first contract does not give any concessions to the buyer.

However, Contract C has a net price that would trigger the escalation clause in Contract A. In Contract C the net $506,000 ($508,000 minus $2,000) is higher to the seller than the $500,000 in the contract price for Contract A before the escalation addendum is triggered. When the escalation clause is triggered in Contract A, it will increase the sales price to $507,000 ($506,000 plus the $1,000 stated in the escalation addendum).

Example 2

If the sellers receive a fourth contract, Contract D for $530,000 with a $4,000 concession from the seller to the buyer, then the sales price escalation addendum for Contract A would not be able to be able to exceed the sales price in Contract D because the net to the seller in this new contract is $526,000 ($530,000 minus $4,000) which is above the maximum limit of $525,000 on the escalation clause in Contract A.

This is a rough example of how the NVAR Sales Price Escalation Addendum was designed to work. You should note that the NVAR version does require the listing agent to provide some basic information that will allow a cooperating agent or buyer to exercise reasonable due diligence and confirm that the contract which triggers the escalation addendum was a "bona fide" offer to purchase the property in question.

Please let me know about your experience in the field with this form and what your opinion is about how this addendum is handled by other agents. All feedback is welcomed.

Purchasers' financing is contingent on the sale of their other property

A REALTOR® spoke to me at a sales meeting and expressed some concern about a common problem she is seeing in some of the purchase offers that buyer agents have been writing for her listings. Since I am receiving an increasing number of calls and email messages about this issue, I thought we should discuss it and nip this in the bud before this becomes a larger problem.

A few buyer agents are writing contracts for their clients using the Regional Sales Contract and failing to disclose that the Purchaser in the contract needs to sell their current home in order to obtain the financing specified in the contract.

Our current market causes part of the problem because many Buyer Agents and their purchasers are afraid that a seller will reject any offers with a contingency in favor of an offer with no contingencies. However, while a purchaser may decide that they want to take the risk of writing an offer that is not contingent on the sale of their current home, in this case it is not simply a matter of leaving out the contingency.

A buyer agent may argue that this should not be such a big deal because "We have a ratified contract [for the sale of the purchasers home] with no contingencies. It's basically a done deal, so I didn't put it on the contract. If this one falls through, I'll just sell their house again." While this may not be a big deal to the buyers agent who made the above referenced statements to one of the listing agents that emailed last week on this issue, the rest of us know the potential for big trouble if the contract on the purchasers property falls through two days before the second contract was supposed to settle.

However, I would go one step further by drawing your attention to Section 10 (Purchaser's Representations) of the Regional Sales Contract. Please pay special attention to the two sentences I have put in italics.

" 10. PURCHASER'S REPRESENTATIONS. The Purchaser [] will, OR [] will not occupy the Property as the purchaser's principal residence. Unless specified in a written contingency, neither this Contract nor the financing is dependent or contingent on the sale and settlement or lease of other real property. The Selling Company [] is, OR [] is not authorized to disclose to the Listing Company and Seller the appropriate financial or credit information statement provided to the Selling Company by the Purchaser. The Purchaser acknowledges that the Seller is relying upon all of the Purchaser's representations including without limitation the accuracy of financial or credit information given to the Seller, Broker or the lender by the Purchaser. "

Obviously a purchaser and his buyer agent will need to address the second sentence of Section 10 if the purchaser needs to sell their current home in order to obtain the financing for this property. The agent may want to consider the following options:

1) Striking the second sentence from the contract, or
2) Disclosing that the financing is dependent on sale of the purchasers other home, or
3) Taking some other reasonable action to ensure that the buyer does not misrepresent his finances in the contract

I want to remind REALTORS®that they should be familiar with all of the language in the Regional Sales Contract in order to avoid these types of problems. NVAR does offer a class on Introduction to Contracts that does cover an in depth review of the Regional Sales Contract.

Finally, I want to point out that the buyer agent in the above example was partially right in one way. It is not a big deal if a buyer needs to sell his current home to finance the purchase of another home if this information is disclosed properly. This can be a relatively minor contingency if handled properly. A good agent would emphasize the positive, that the purchaser already has a contract on their current home and that it has no contingencies. The agent may ask her client for permission to give the seller or listing agent a copy of the contract on the purchaser's house to show good faith.

However, by not taking these reasonable steps and failing to address the misrepresentations in section 10 of the contract, the buyer agent just created an ugly and potentially litigious situation for everyone else involved.

When must the earnest money be deposited in the brokers escrow account?

A member of the Virginia Real Estate Board (VREB) recently mentioned that the state licensing authority is hearing more cases involving licensees who were unaware of the VREB regulations regarding the deadlines for depositing earnest money in the brokers escrow account.

18 VAC 135-20-180, B., 1., a. of the Real Estate Board Regulations stated that for purchase transactions "Upon the ratification of a contract, earnest money deposits and down payments received by the principal broker or supervising broker or his associates must be placed in an escrow account by the end of the fifth business banking day following ratification, unless otherwise agreed to in writing, and shall remain in that account until the transaction has been consummated or terminated."

AVOIDING SETTLEMENT PROBLEMS: ASSIGNMENT OF FUNDS
By Jay Eskovitz

Assignment of funds occur when a purchaser is doing concurrent settlements, with one settlement agent handling the sale of the purchaser's first property and, immediately thereafter, a second settlement agent handling the purchase of the second property.

As a consequence of Virginia's Wet Settlement Act, which precludes the first settlement agent from disbursing funds until all monies are received and documents recorded, the purchaser arrives at the second closing with an assignment-of-funds letter, assuring the second settlement agent that the purchaser's cash to close will be arriving within two days.

Many times this occurs with no preliminary notice to the seller and listing agent. This then can become a problem for both buyer and seller and arguably a breach of contract by the purchaser.

The Regional Sales contract represents that the purchasers will provide liquid funds for their down payment at settlement, and a promise to provide liquid funds (an assignment of funds) does not comport to the contract.
Furthermore, the delay in the arrival of funds causes the second settlement agent to delay his or her recordation, whereby the seller continues to pay interest on the mortgage loan for as much as four additional days (the delay could go over the weekend).

Therefore, a selling agent faced with concurrent settlements may want to (1) have both closings with the same settlement agent, whereby the documents can be recorded sequentially; (2) notify the listing agent of the assignment of funds and get a signed addendum; or (3) close on the first settlement on an earlier day to assure the availability of liquid funds at the second settlement.

Jay Eskovitz, Key Title, is an NVAR affiliate member and sits on the Real Estate Finance Forum. He can be contacted at 703/522-3900 or via e-mail at This email address is being protected from spambots. You need JavaScript enabled to view it. .

<p>Don't you wish that you could be like your fellow agents in Maryland who get their commission checks at the settlement table? Well, that's a "no-no" in Virginia, and the legal basis for that comes from the Wet Settlement Act found in the Virginia Code at Sections 6.1-2.10 and following. The Act applies to those closings that involve first deeds of trust on one-to-four residential dwelling units. To better understand what requirements the settlement agent must observe and what you, the REALTOR®, can expect from him or her, you may want to be aware of the following aspects of the statute. <br /> <br /> The clock starts to run at settlement, which "means the time when the settlement agent has received the duly executed deed, loan funds, loan documents, and other documents and funds required to carry out the terms of the contract between the parties, and the settlement agent reasonably determines that prerecordation conditions of such contracts have been satisfied." For this code section, "parties" means the seller, purchaser, borrower, lender and settlement agent.</p>
<p>Sometimes the closing occurs before the loan funds have been received although it is the duty of the lender in a sales transaction to provide the loan funds to the settlement attorney/agent at or before closing. It should be noted that by definition as shown above, the "settlement" has not been completed -- and the clock has not started -- until the loan funds are received by the settlement agent, even though the deed may have been executed and delivered.</p>
<p>According to the statute, the settlement agent must record and disburse settlement proceeds within two business days of settlement. A settlement agent may not disburse any funds before recordation except for (1) overpayments to be returned to the provider, (2) recording fees, and (3) funds that the provider has by separate written instruction directed to be disbursed prior to recordation. Further, the settlement agent must provide notification to any purchaser of the availability of owners' title insurance.</p>
<p>A familiarity with the Wet Settlement Act should provide you, the REALTOR®, with an awareness of what you can expect and what you can reasonably demand from the other parties to the transaction.</p>

CLOSING CONUNDRUM: THE LOAN ISN'T READY
By Vincent J. Keegan and Grant Nelson

It's a familiar situation: The settlement date arrives and the loan or loan documentation is still not ready. What happens next? Ideally, an understanding and cooperative seller will agree to allow the purchaser additional time for settlement. To do so, the parties would simply execute an addendum to the sales contract extending the settlement date and the problem would be resolved. However, if the seller is unwilling to extend the time for settlement, what happens? Can the seller re-list the property, and if so under what terms? Who gets the deposit? What can the purchaser do?

Rights and Remedies of the Seller
If the sales contract did not contain a financing contingency, or if the financing contingency had been satisfied by the purchaser's previous delivery of a loan approval letter, then the purchaser bore the risk of having sufficient funds to tender at settlement, and the delay in obtaining a loan or in the delivery of loan documentation will not excuse the purchaser's lack of performance. In that situation the purchaser is in default of the contract. Ideally, the parties would sign a release of the contract and agree on the distribution of the earnest money deposit. If the parties fail to agree upon such a release, the default terms of the contract will determine the outcome.

Under the terms of the standard regional sales contract, the seller could retain the deposit as liquidated damages and/or reserve the right to pursue all available legal and equitable remedies. Arguably, the seller has a duty to mitigate, or minimize, their damages. Accordingly, the seller could reasonably re-list the property to avoid increased damages due to continued carrying costs or depreciation in sales price after the original contract fell through.

Prior to re-listing the property, a prudent seller would send a notice to the purchaser advising the purchaser of their default for failing to close on the property on the settlement date and notifying them of the seller's intent to re-list the property so as to mitigate the seller's damages. If done properly, the seller should not have to obtain a release from the purchaser prior to re-listing the property. If a release were required, the purchaser could, in essence, hold the seller hostage while negotiating the terms of the release.

The brokerage holding the earnest money deposit will, most likely, not disburse it to either party without (i) a signed mutual release, (ii) a court order or (iii) the failure of one of the parties to respond to a notice of the brokerage's intention to disburse. The failure to immediately receive the earnest money deposit from the brokerage should not stop the seller from proceeding to mitigate their damages and re-listing and selling the property to a second purchaser. As long as the brokerage continues to hold the deposit, the seller can always bring a court action for the deposit after the property is sold to a second purchaser. In such an instance, the brokerage would, most likely, interplead the deposit into the court and let the court decide who is entitled to the funds.

If the sales contract has a financing contingency, then the contract is contingent upon the purchaser obtaining loan approval. The terms of the standard regional sales contract financing contingency set forth that the contingency is satisfied once the purchaser delivers a lender letter stating, in essence, that the purchaser is approved for the loan. If the purchaser receives a written rejection of financing from the lender during the contingency period then the contract may be voided.

Assuming the purchaser did everything required to procure a loan approval letter, but has yet to obtain either approval or rejection, then the contingency of the contract is not fulfilled and, under the terms of the standard regional sales contract, the contingency continues unless the seller voids the contract pursuant to the terms set forth therein. In instances in which the contract is voided, the deposit would be returned to the purchaser and the seller may re-list the property.

Rights and Remedies of the Purchaser
What about the purchaser? Assuming the purchaser still wants to purchase the property, the purchaser may have several remedies. A well-financed purchaser could tender performance by closing with available funds and then financing the property after settlement.

A more typical purchaser relies on the loan for the necessary funds to go to settlement. That purchaser could consider the filing of a lis pendens against the real property thereby giving notice to all comers that the purchaser asserts an interest in the property and, in essence, hindering the seller from selling the property. In that situation, a purchaser could assert an equitable claim for reformation of the contract to give additional time to allow the purchaser to obtain financing.

A prerequisite for any action in equity is that the party bringing the action has acted fairly and equitably, i.e., that they have 'clean hands.' Accordingly, the purchaser would need to argue that the delay in the performance of the contract is caused by the lender and not by the purchaser. The purchaser could argue that there is minimal or little real harm to the seller attributable to the delay in the loan and that the purchaser would be so severely harmed by the failure to settle that it would be inequitable for the court not to reform the contract.

The court would look at several factors to determine the equity of the situation and the need for reformation of the contract. For example, the court might consider: (i) the actual time of delay, i.e., is it an hour or is it a week; (ii) what is the amount of the deposit that is at risk; and (iii) can the property sell now for more than the contract price and for so much more that it would be unfair to penalize the purchaser for the lender's delay. Prior to seeking a legal remedy, both seller and purchaser should carefully examine their true concerns and interests and assess whether their respective interests in the property merit the costs and delay of litigation.

As a final remedy, the purchaser could consider looking to the lender to recover its forfeited deposit if the lender's delay was so egregious and considerable as to be negligent or violative of the lending relationship. This remedy, however, will not assist the purchaser in enforcing the contract with the seller.

Conclusion
As in many cases, the best remedy for this type of problem is really to prevent it from occurring in the first place. Purchasers and their agents should exercise care and diligence in selecting and working with lenders and be realistic in setting times for settlement that the lender can reasonable expect to meet. In those instances when, despite the best efforts of all involved, the loan simply is not ready by the settlement date, the parties need to look to the contract for their rights and remedies. The best advice an agent can give their client in such situations is for the client to seek legal counsel.

ARE SURVEYS NEEDED?
By Jay N. Eskovitz

In today's climate of instant closings and trimming of closing costs, many lenders have programs that do not require surveys. Before your client agrees to take this route, make sure to read the fine print. When the lender says "no survey is required" they fail to add "provided our title insurance policy does not take exception".

It is important to look at what the lender is saying and its potential impact on the purchasers. The lender does not need a survey if the title insurance policy they receive still covers them for survey discrepancies. In most subdivision settings this can be accomplished, since title insurance underwriters do not perceive this as a great risk in a lender policy, given that this issue would only arise if the lender took title to the property due to non-payment by the purchaser.

However, under this scenario, the purchaser's standard title insurance policy does not cover them and should there be a survey problem on resale of the property, their home may be unmarketable. Purchasers are normally not told of this risk when they make their decision to bypass a survey.

Under the standard title insurance policy there is a preprinted exception (elimination from coverage) for any title problem that could have been discovered by an accurate survey. This exception is removed when a survey shows no title problem and coverage is thereupon provided. In instances where there are survey irregularities, which do cause title concerns, there may or may not be coverage available, or varying degrees of coverage, based on the circumstances, and each situation must be analyzed by counsel for the title insurance company, the lender, buyer and seller.

Therefore, any purchasers who wish to take advantage of "no survey" loans need to fully understand the magnitude of their decision and the potential risk involved.

WHAT HAPPENS WHEN THE LISTING REMARKS INCLUDE 'ALL OFFERS WILL BE SUBMITTED ON SUNDAY?'

Question
A listing agent entered a property into the MRIS with the following comment: "All offers will be submitted to the seller on Sunday at 6 pm" On Tuesday (five days prior to Sunday), a buyer submits a written purchase offer to buy the property. When does the offer have to be submitted?

Answer
I believe that the underlying ethical principle is fairly straightforward, noncontroversial and easy to understand. The seller has a right to know when an offer has been received and this information should be conveyed as quickly as possible. This is stated in the Code of Ethics under Standard of Practice 1-6: "REALTORS®shall submit offers and counter-offers objectively and as quickly as possible." This Standard of Practice supports Article 1 of the Code of Ethics, which reads in part, "... REALTORS®pledge themselves to protect and promote the interests of their client." Under normal circumstances I don't think anyone would disagree with this position.

However, our real estate market has been anything but normal. While outsiders may believe that multiple offers, escalating sales prices, and fierce competition for properties are good for agents, we understand how difficult and challenging this market can be. A buyer agent may have to write two, three, or more contracts for a purchaser before they can find a seller that will accept their offer. A listing agent can present a seller with a contract offer that is above list price and still hear complaints from the seller because a neighbor's property received more offers or sold for a better price. Agents are looking for the "holy grail" - new or innovative business practices that will maximize their advantages in this marketplace and help them do a better job for their client. In this environment we lose sight of a basic principle that we otherwise take for granted.

A growing number of listing agents have developed a practice of entering a comment in the MRIS listing that states that all offers will be presented Sunday at 6 pm (or Monday, Tuesday, etc.). The proponents of this practice believe this will give them the edge they need to better serve their client. The conventional wisdom is that these remarks generate more buzz about a property and encourage buyers to compete against each other. These listing agents argue that the seller can decide not to look at offers until Sunday.

This position relies on some false assumptions and fails to take into account a number of important factors. It assumes a connection between submitting an offer, doing a formal contract presentation and responding to an offer. It fails to take into account that the offer from the buyer may contain information that could change the seller's mind. Finally, the noise and confusion created by our current market conditions cause some people to lose sight of our basic principles.

Remember that the underlying principle is that the seller has a right to know when an offer is received. Just because a seller has indicated that he would prefer to wait until Sunday to make a decision does not mean that the seller cannot change his mind.

What happens if the offer is for $100,000 over list price, all cash, with no contingencies and a deadline that says the seller must respond by Wednesday at 6 pm? I don't think any reasonable agent would argue that it is acceptable to wait until Sunday to convey this offer to the seller and allow the deadline to lapse. After all, this offer may be enticing enough for the seller to change his mind.

So how does an agent know what will make a seller change his mind and when this instruction should be ignored? I don't think it's possible to ever know for sure. Therefore, I would argue that the seller couldn't really waive this right to be notified.

I would point out that it is very difficult to justify withholding information from the client. In most cases, it may be assumed that withholding information from a client violates an agent's duty to protect and promote the interest of the client. There are some exceptions to this general rule, but the example outlined above is clearly not one of them.

We should not confuse the submission of an offer with a typical contract presentation or a seller's response to an offer. These are three separate and distinct activities. I believe that Standard of Practice 1-6 only requires the agent to notify the seller that an offer was received and provide the seller with any information he may need to make an informed decision (price, contingencies, response deadlines or anything else that would be of interest to a reasonable seller). This does not mean agents should forgo formal contract presentations with net sheets and a discussion of the advantages and disadvantages of a contract. It just means that the seller should know the offer was received.

The seller should be given an opportunity to reaffirm his previous instruction or change his mind. Remember, just because the seller was told about the offer on Tuesday does not mean that he is obligated to wait until Sunday.

Is it unethical if the seller is not notified until Sunday at 6 pm? I believe that Standard of Practice 1-6 requires the listing agent to make a reasonable attempt to contact her client. Any delay would have to be reasonable.

If the seller is traveling abroad and is unreachable until he returns from his trip on Sunday, then this would not be a violation. However, an agent who was too busy to call her client for five days (Tuesday through Sunday), or who spoke to the client during this time frame and failed to mention the offer, may be in violation of the Code of Ethics. In the end it would be up to a Professional Standards Hearing Panel to determine if a violation has occurred. Who would prefer to take their chances with a hearing panel rather than avoid the whole issue by telling the seller the good news?

Can a buyer waive his or her right to cancel under the Property Owners Association (POA) Act?

Question: A listing agent called with a question about one of the contracts that was submitted on their listing. The purchase offer included an old standard form that indicated that the purchaser was agreeing to waive their right to cancel the contract based on the POA Act. The listing agent remembered taking Continuing Education classes several years ago where he was told that purchasers could not waive their rights under the POA Act. Was the instructor wrong or is there a problem with this form?

Answer: In the early 1990s NVAR had a standard form that allowed purchasers to waive their right to cancel the contract based on the POA Act. However, this form was discontinued in the mid-1990's when the Virginia General Assembly inserted the following language into Section 55-511 (Right of Cancellation) of the Property Owners' Association Act. "F. Except as expressly provided in this chapter, the provisions of this section and ¤ 55-512 may not be varied by agreement, and the rights conferred by this section and ¤ 55-512 may not be waived." The NVAR version of this form was discontinued after the law was revised because attorneys advised our association that the standard form conflicted with the statute and was no longer enforceable.

IMPORTANT CONSIDERATIONS ABOUT USE OF POWER OF ATTORNEY
By Jay N. Eskovitz

The use of a power of attorney (POA) in real estate transactions has become more popular recently because of increasing time and logistic constraints on real estate buyers and sellers.

Many people assume a POA is universally accepted and arrive with the document at settlement without prior notice to the settlement agent. This cavalier approach to the use of a POA can easily cause a delay of the scheduled settlement as many lenders have rigid rules pertaining to the use of the POA.

If a purchaser is obtaining a new commercial loan and is planning to use a POA, then the lender must be consulted. Some lenders will not permit the use of a power of attorney, whereas others only allow use of their own form.

Additionally, the settlement agent must see the power of attorney prior to settlement in order to ensure that the POA itself is "recordable." The clerk of the court has strict standards as to the "recordability" of documents; if the clerk rejects a POA, a new POA must be obtained, thereby causing days of delay in recording the new deed and deed of trust and subsequent disbursement of funds. In preparing a POA, it is essential that character size and margin requirements be adhered to and there be proper notarization.

The settlement agent also must be concerned with the acceptability of the POA to the title insurance company. The content and date of execution of a POA are important to title insurance underwriters. Most insurers want a POA that was executed relatively recently - within six months of settlement is usually acceptable.

Underwriters also will normally insist on a "specific" power of attorney as opposed to a general power of attorney. A specific POA will state the property address and legal description and whether the party giving the POA is buying or selling the property. A general POA allows the attorney-in-fact to do almost anything.

Another important consideration is the type of entity that is attempting to give a power of attorney. For example, a corporation cannot grant a power of attorney but acts through a corporate authorization. Likewise, a corporate officer cannot grant someone else the authority to sign for the corporation, since the officer is acting on behalf of the corporation.

A trustee or other fiduciary, such as an executor, cannot delegate his or her role to another by power of attorney. Someone who has been designated in a power of attorney cannot, through a second power of attorney, pass that authority to another.

Also, most jurisdictions require originals for recording, which may cause a hardship if this is the only general POA for an incapacitated individual.

Finally, the expiration of a power of attorney may become an issue. A person who grants a power of attorney can establish an expiration date for the authority conveyed in the POA. If the grantor of a power of attorney dies, the document is void. Additionally, if the grantor becomes disabled, the power of attorney will expire unless it is a "durable" power of attorney.

To be "durable," the document must contain specific language stating that it will not expire upon disability. When acting under a POA, the attorney-in-fact will be required at settlement to sign an affidavit that states that the grantor is alive, not disabled and has not withdrawn the POA.

With the many concerns about the use of a power of attorney in a real estate transaction, when the parties or agents realize there is a need for a POA to be used in a settlement, they should alert the settlement agent and lender as soon as possible to avoid any pitfalls that could delay the closing.

Question
My husband and I attempted to purchase a house in 2005 through our REALTOR®. We put down a $500 earnest money deposit. The deal fell through at the settlement table. The broker refused to give us our money back. The seller filed papers reserving the right to sue us, due to a supposed "breach of contract." We, in turn, contacted a lawyer, who responded with the legitimate reasons that the settlement did not proceed, including the fact that the seller "failed to provide all required statutory disclosures." The seller has not pursued this matter further.

We have been very patient over the past few years and have waited for the broker to return our money to us in full. We are contacting you in the hope that NVAR can inform us of any legal statutes and limits that would require the broker to refund our money without the use of the court system. However, we are willing to file a suit against the broker if necessary.

Answer
This is one of the three most frequently asked questions by members of the public who contact the Professional Services Department to complain about a REALTOR®. However, this question involves one of the areas that is outside the jurisdiction of NVAR and the Code of Ethics. The rules for releasing an earnest money deposit are governed by the state licensing regulations.

Brokers often are unfairly blamed in these situations for problems that are beyond their control. The state regulations contained in 18 VAC 13520180 B 1 (a) Disbursement
of Funds from Escrow Accounts prohibit a broker from releasing the earnest money deposit when a transaction falls through unless one of the following three conditions are met:

The first condition is mutual agreement of buyer and seller on the release of the money. The broker can assist clients by sending the other party a written Release of Sales Contract (NVAR K-1116) form and attempting to facilitate an agreement on the release of the earnest money deposit. However, the broker cannot compel his or her client to sign a release and should not be unfairly blamed if the client refuses to sign such a release. In some cases the client may be completely justified in refusing to sign a release, especially if the client wishes to preserve his or her right to sue the other party for failing to perform under the contract.

It also should be noted that brokers' signatures are not required for the release of the earnest money deposit. The real estate board regulations only require the signature of "all principals to the transaction." While the Release of Sales Contract provides signature lines for the listing broker and selling broker, these signatures are optional and not required for the release of the escrow account. These signatures are only required on the release form if the checkboxes for the listing company and selling Company in Section B 2 of the release form are marked "Yes." By checking yes, the brokers are releasing any potential claims against the parties arising out of the real estate transaction. The brokers' signatures are only required if one or more of the parties wish to condition their agreement to release the deposit on the broker's agreement to waive any and all claims arising out of this transaction. However, if the buyer and seller marked "No" prior to signing the form, then the deposit may be released without the signature of the brokers.

The second condition requires that one of the parties take legal action by filing a lawsuit against the other party to the transaction. It should be noted that the brokers are not a party to the sales contract and are acting as representatives of the parties in the transaction. The buyer or seller would have to sue the other, not the brokers, in order to receive the earnest money deposit. The broker is only holding the money as an escrow agent for the parties. In many cases, the earnest money is low enough that the parties can file a case in small claims court. Attorneys are not necessary in small claims court because the rules of procedure are designed to allow members of the public to present their own cases. If the amount is too large for small claims court, the parties may need the assistance of attorneys to file a claim through the general district or circuit courts.

Some brokers also will file an "interpleader" with the court. This allows the escrow agent with no interest in the earnest money deposit (or a broker who is waiving any claims to the deposit) to turn the money over to the court and allow the court to determine who is entitled to the money. This will allow a broker to wash his or her hands of a contentious dispute over an earnest money deposit, especially when one or more parties are acting unreasonably in the negotiations to release the deposit. This practice also can be effective if the broker has been holding a deposit for a transaction that fell through years or decades ago. This often is used when a broker is dissolving or merging a firm and wishes to resolve all of his or her outstanding cases. However, interpleading the funds with the court does require the broker to pay court costs and legal fees, which can make this a costly process.

The third condition is for the broker to send a broker's letter. If a broker believes the terms of the contract are "clear and explicit" regarding the entitlement to the earnest money deposit, the broker may send a letter to all the parties in the transaction. The Virginia Real Estate Board requires the broker to send a written notice to the party whom he or she believes is not entitled to receive the earnest money deposit. This notice must be hand delivered or sent certified mail return receipt requested with a copy to the other party.

This notice must state that a payment will be made to the other party in accordance with the clear and explicit terms of the contract unless a written protest is received from the party that would not receive the deposit within 30 days from delivery of the notice. The broker may send this notice by facsimile or e-mail if the recipient of the notice provides the broker with a fax number or e-mail address or if this information was provided in the original contract.

However, the broker cannot make this payment if the party files a written objection within 30 days of receiving this notice. For this reason the third option is not always successful in resolving these disputes.

It also should be noted that the broker cannot be compelled to send this letter, even by the written instruction of his or her client. The regulations specifically state that the broker is not required to make a determination about the clear and explicit language in the contract.

ESCROWS AT SETTLEMENT: WHY AND HOW TO AVOID THEM
By Marcus Simon

It is often tempting to suggest setting aside money at settlement to take care of problems that haven't solved by closing. This money, known as an escrow, won't really solve the problem. It merely delays the solution, compounding the problem and making it more difficult to solve at a later date. Buyers and sellers either move away or move on to more important issues in their lives.

Escrows often lead to further disagreements when work is not done on time, as planned, or to everyone's satisfaction. And escrows are not allowed as a condition of most loan programs.

How to Avoid Escrows
No house is perfect. Knowing your buyer's personality will help you establish some reasonable expectations. Help your seller understand and accept his obligations under the contract. Have inspections completed as soon as possible, with the reports circulated well before settlement so that issues can be spotted and dealt with prior to closing. Don''t wait to get to the settlement table to discuss why something wasn't done quite the way the buyers were expecting.

Be specific in any requests for repairs to avoid misunderstandings after the work is done. If you want receipts, ask for receipts. If you want a licensed contractor, ask for one.

For non-safety related repairs, one way around escrow problems is to ask for a closing cost credit. This way, buyers can't be unhappy that repairs are not done exactly as or when they expected. When using a closing cost credit, be careful not to change the terms of the deal or terms of the financing without first checking with the lender. Finally, if a closing cost credit is allowed by the lender, be sure to use all of it.

Question: A buyer agent writes a contract that does not include a home inspection contingency. Instead the buyer agent includes a handwritten provision, initialed by all parties, that states the home inspection conducted by the Purchaser will be for "informational purposes only." After the home inspection is conducted the purchaser asks for the seller to make some repairs. The seller refuses, claiming the Purchaser has agreed to accept the property "as-is." Purchaser insists that the seller must make the repairs.

Answer: Home inspections for "informational purposes only" are one of many recent changes to the customary practices in our industry. Like other changes it is a response to the ultra-competitive nature of our local real estate market. Whenever a change like this occurs there is always a period of adjustment. While using this clause has been very popular within the last few years, there is still widespread confusion about what it really means.

There are three separate contract issues involved - home inspection contingencies, contracts that are not contingent on a home inspection, and the "as-is" clause.

The Regional Sales Contract contains a number of representations and warranties by the seller about the condition of the property. Everyone is familiar with paragraph three (normal working order), paragraph twelve (well and septic), paragraph thirteen (termite inspection) and the other widely known contract terms. There are also some less well known provisions that may still require the seller to make repairs to the property. For example, paragraph sixteen (title) states that the seller will comply with all orders, requirements or notices of violations of any county or local authority, home owners association, or actions in court against or affecting the property. The seller can be required to make any repairs necessary to ensure that the property is delivered to the purchaser in the same condition that the seller promised in the ratified contract. These are commonly referred to as "walk through items."

The absence of a home inspection contingency, does not automatically mean that the purchase offer is "as-is." The existing terms and conditions of the contract, including but not limited to the paragraphs identified above, remain in full force and effect. If a seller wants an "as-is" contract, this can be done during the negotiations over the sale of the property by including an "as-is clause" in the contract. The Standard Forms Committee has developed an "as-is clause" in the NVAR Contingencies Clauses Addendum for our members' use. If the parties or their agents draft their own (not always the safest course of action) they should ensure that the language of the contract specifically states that the contract is "as-is" and that the seller is not required to make any repairs.

Some sellers have recently begun misinterpreting the language in the Residential Property Disclaimer Statement. These sellers have argued that the Statement, a legally mandated notice form, includes the words "as-is." Therefore, they mistakenly believe they do not have to make any repairs because this language has modified the provisions of the Regional Sales Contract. However, the Residential Property Disclaimer Statement actually states: "The undersigned owner(s) of the real property described above make no representations or warranties as to the condition of the real property or any improvements thereon, and the purchaser will be receiving the property "as is", that is, with all defects which may exist, if any, except as otherwise provided in the real estate purchase contract." The last phrase, which I have placed in italics for emphasis, makes it clear that the disclaimer statement does not affect any representations or warranties that are contained in the sales contract.

In Virginia it is common practice to conduct the home inspection after a contract is ratified. Therefore, the purpose of a home inspection contingency is to provide the purchaser with the option of requesting additional repairs that are not already covered within the contract or to cancel the contract if the inspection reveals information that makes the purchaser reconsider his intent to purchase the property. If a purchaser exercises the option of requesting repairs under a home inspection contingency, the purchaser is technically starting a new set of negotiations with the seller.

These negotiations were intended to involve additional items that fall outside the scope of the walk through items which are already covered within the contract. These additional items can include but are not limited to requests to replace doorknobs, repaint walls, install new carpet, fix windows, etc. If the parties reach a mutually acceptable agreement, then the seller may, based on the terms of the home inspection addendum, be required to make these additional repairs as part of the sale of the house. In the event the parties are unable to reach an agreement, the contract becomes void and the transaction falls through.

Home inspection contingencies were so common in the past that some agents began to confuse the regular contract provisions with the additional obligations that might be added through a home inspection contingency. This contributed to the confusion on home inspections for "informational purposes only."

The purpose of the home inspection contingency for "informational purposes only" is to make an offer more attractive against competing offers. The language is intended to limit rather than eliminate the purchaser's right to request repairs. It is not intended to go as far as an "as-is" clause by removing all the seller's repair obligations.

Purchasers have a right to ask sellers to fulfill their obligations under the contract that was negotiated between the parties. They can even bring in a third party, such as home inspector or other qualified expert, to verify that the sellers have fulfilled their obligations under the contract. If sellers want an "as-is" contract, they should negotiate for an as-is clause that clearly eliminates the sellers' responsibilities to make any repairs.

 

THE CALM BEFORE THE STORM: WHEN UNMARRIED COUPLES BUY A HOME TOGETHER
By Beau Brincefield

Today, more than ever before, unmarried couples are deciding to purchase homes together. In fact, in 2003 80 percent of all U.S. households were owned by unmarried couples. Although there may be many reasons why purchasing a home with a non-spouse is a good idea, the parties should realize that almost half of such arrangements break up within five years.

This statistic may not surprise anyone, considering that about half of all marriages end in divorce within a few years, too. But it is a fact that unmarried parties, especially, should take into consideration when they buy property together. When unmarried co-owners decide to go their separate ways, serious differences and problems usually arise just as they do when married co-owners split up.

Unfortunately for unmarried co-owners, they do not have:

  1. The benefit of the protections provided for married couples by the Virginia Code; or
  2. An established body of case law to rely upon, as married couples do.

Consequently, when unmarried couples purchase homes together - or any other significant property, for that matter - it is important for them to have a written agreement that spells out their respective rights and responsibilities with respect to the property. This agreement should address rights and responsibilities not only while they live together, but also if and when a time comes when they decide that living together is no longer working out the way that they had hoped it would. Anyone who has ever been through a messy breakup between unmarried co-owners can attest to the fact that it would have been a lot less expensive for them to have paid a knowledgeable real estate attorney to draft a proper Home Sharing Agreement before they bought the property, than it was to pay the attorneys they had to hire to resolve the contested issues after they decided that they no longer wished to be co-owners.

REALTORS®can do a great service for their clients who are unmarried couples seeking to buy a home together by suggesting that they consider obtaining a written Home Sharing Agreement that deals with at least the following issues:

Acquisition

  • Down payment: Who pays how much?
  • Closing Costs: Who pays how much?
  • Liability: Who signs the note for the loan?
  • Title: Who gets what percentage of ownership? Survivorship?

Ongoing Payments

  • Mortgage/Rent: Who pays how much?
  • Real estate taxes: Who pays how much?
  • Insurance: Who pays how much for property insurance? Real? Personal?
  • UOA/HOA/POA fees (if applicable): Who pays how much?
  • Utilities: Who pays how much?
  • Maintenance/Repairs/Replacements: Who pays how much for each type of expense? Who decides what is needed and when?
  • Improvements: Who pays how much? Who decides what is to be improved and when?
  • Other Expenses: Who pays how much?
  • Occupancy: Who is entitled to occupy what portions of the property? May a party lease their space to someone else?
  • Personal Property: Who owns what personal property acquired prior to home sharing? Who owns what personal property acquired during home sharing?
  • Sale or Transfer of Interest: Under what circumstances will a party be allowed to sell or transfer their interest in the property; or compel the sale or refinance of the entire property? Put/call options? Who is entitled to stay? Who must go?
  • Management/Control: What degree of agreement (unilateral? unanimous? majority?) is necessary between/among the parties before a decision can be made that materially affects the use and/or enjoyment of the property?
  • Default: What happens if one party cannot pay his/her share of any required payments?
  • Distribution of Proceeds Upon Sale: What is the priority of distribution of funds upon sale?
  • No Partnership: This agreement does not create a partnership for any purpose, including federal income tax.
  • Termination of Agreement: Under what circumstances, if any, can a party terminate this agreement?

IS DISCOUNTING TITLE INSURANCE LEGAL?
By J. Lawrence Murray, Lighthouse Title

Your client is purchasing a $2 million home in Great Falls. As a sophisticated commercial developer, he has always solicited bids from title insurance companies to insure his commercial projects. He asks you to shop title companies to see who will offer the lowest bid for an owner's title insurance policy on his new residence. Can you do that?

A client calls and tells you that she has just seen a title company ad for a 25% discount on title insurance this month. She has just signed a contract to purchase property and is excited that she can save a substantial amount of money on the title insurance premium. She asks you to contact the title company to conduct her closing. Should you do it?

Both of these questions were recently answered when the Virginia legislature passed a bill in February amending the title insurance laws to allow the longtime practice of negotiating title insurance premiums.

J. Lawrence Murray is an attorney and a co-founder of Lighthouse Title.

QUESTION: What is the strangest complaint that has ever been presented to the Professional Standards office?

ANSWER: Once, a seller called with a complaint about a transaction. He wanted to file a complaint because the listing agent had sold the family dog to the purchaser, and he claimed that the purchaser was holding the dog for ransom. His family was distraught and he insisted that the association do something about this immediately. The following is what was later discovered as we learned the facts. All names (and a few identifying facts) have been changed to protect the identities of those involved in the transaction.

The seller had a dog named Gizmo. The children had spent years begging their parents for permission to adopt a pet. From the moment he was brought home, Gizmo became an important and valued member of the family. When the listing agent first met the seller during the listing presentation, the agent made sure to take copious notes about everything related to the sale of the property.

During the conversation the seller mentioned Gizmo. The agent and seller discussed all the normal concerns about pets in the property. The seller was worried that someone might accidentally let Gizmo out of the house, so the seller agreed to cage Gizmo during the hours when no one was home. The agent made a notation in his records that a comment about Gizmo should be put in the listing for the multiple listing system (MLS). When the agent returned to the office, he turned his notes in to his assistant and asked her to enter the listing into the MLS. She wrote the following comment in the remarks field, based on the agent’s notes: “Owners have a pet dog. Gizmo will be kept in the basement when sellers are out.”

A buyer agent came across the listing a few weeks later when looking for properties for her client. The agent noticed the warning but she didn’t think much of it. She was a savvy, veteran agent who could handle pets. She scheduled an appointment with her buyers to show the property on the weekend. She called the seller on Saturday before the showing to let him know that she was on her way with her clients. The seller thanked her for the call and said he would “just take the dog for a walk” while she showed the property.

While showing the property to her clients, the prospects commented on an electronic gadget that the seller kept in the basement. The agent noted the prospective buyer’s interest. A few days later the buyer decided to make an offer on the property. While preparing the offer with her clients, the buyer agent continually referred back to the MLS printout so she would be sure the contract was filled out properly. In the course of writing the offer, she asked if the buyers wanted the electronic gadget in the basement since the listing indicated that “Gizmo will be kept in the basement when the Sellers are out.” The buyer said yes, so the buyer agent included the following handwritten provision in a blank in the Regional Sales Contract for Paragraph 2 (Personal Property, Fixtures and Utilities): “Gizmo conveys.” This offer was submitted to the listing agent.

The listing agent arranged a meeting with seller to present the offer. When the listing agent reviewed the contract with the seller, they focused their attention on the sales price, settlement date and contingencies. The listing agent and seller later acknowledged that they did not see the “Gizmo conveys” provision that was added to the contract, despite the fact that it was inserted in the appropriate part of the Regional Sales Contract. The seller accepted the offer and the contract was ratified.

The buyer agent proceeded to schedule a home inspection for the property pursuant to the terms of the contract. After the home inspection was conducted, the buyer submitted a home inspection addendum with a list of requested repairs. The parties negotiated the list of repair items and finally reached agreement on what items would be repaired by the seller. The terms of this agreement clearly indicated that the repairs would be done by professional or licensed contractors. The listing agent asked his client if he could recommend some contractors to make the repairs but the seller declined. The seller insisted that he would handle this on his own, despite his agent’s offer to manage the repairs on behalf of the seller. The seller called a friend who did odd jobs on the side and asked him to repair the items on the list.

On walk-through day, the buyer agent and her clients noticed that many repairs had been done improperly. An ugly fight ensued at the settlement table over the repair of the items. The seller insisted all items on the list had been fixed and were in working order. The buyer demanded that the repairs be done by a professional. The lender refused to escrow any money for repairs. While the parties were at an impasse, the settlement agent asked the following, seemingly innocent question to everyone at the table, “What Gizmo was supposed to convey with the contract?”

One can imagine what happened next. The seller replied, “Gizmo isn’t in the contract, he is our dog.” The buyers suddenly seized upon an idea to resolve the impasse and said, “Really, well, then we want the dog if you won’t repair these items.” The seller quickly caved in rather than face his kids and have to explain why Gizmo would have to stay with the house.

So what lesson can we learn from this case? Jeremy Kirkham told me this story when first started at NVAR. It won an unofficial contest for best call of the year. For me it always represented a prime example of a call in which there is more to the story than what is told in the first telephone call. There are often two or more sides to a dispute, and they rarely agree on the facts. Without the perspective from the other side, you can be misled easily about a case. For Realtors®, it shows why it is important to review the contracts carefully and to pay particular attention to conveyance paragraphs. And leave all four-legged pets out of the regional sales contract.

QUESTION: A listing languishes on the market. The original list price is $400,000, but it is gradually reduced to $350,000. A buyer makes an offer for $400,000 with a $40,000 down payment. However, the offer has a condition based on the acceptance of an addendum that requires the seller to give the purchaser $40,000 in cash after closing. This little detail is "withheld" from the lender. Is this legitimate?

This offer may be real, but that doesn't make it legal. Any time someone Indicates he or she will withhold a detail about a transaction from the lender or underwriter, this should be a red flag that potential mortgage fraud may be occurring. In this case it appears that someone may try to hide the fact that the buyer doesn't really have the down payment for the loan. Some disreputable individuals may try to conceal this by using a secret addendum that is signed by the parties but never provided to the lender or underwriter.

With the recent changes in the market, a few crooks have been targeting sellers who may be desperate enough to "look the other way" in order to sell their homes. Anyone involved in this type of transaction, even those who may simply be "looking the other way" could face fines and possible jail time. Mortgage fraud is a crime.

QUESTION: A listing agent has had at least five agents who entered her listing without calling first. The showing instructions in MRIS clearly state that cooperating agents must "Call before showing.” Can the listing agent file a complaint?

ANSWER: This type of behavior is a violation of the Regional Lockbox Rules and Regulations. Article II, Section 3 (Purpose) of these regulations clearly states that SentriCards may only be used “for the purposes of gaining authorized entry into real property.” A cooperating agent must receive authorization before entering a property.

The authorization is often contained in the showing instructions of the MRIS listing. When an agent follows those instructions, he or she receives authorization to access the property. Therefore, if the listing states “call before showing,” then an agent must call the property prior to using the Supra key to gain entry access.

The mere presence of a lockbox is not an invitation to enter a property. Card holders have been sanctioned for entering a property without authorization due to their failure to follow the showing instructions.

by NVAR General Counsel Sarah Louppe Petcher & Staff Attorney Laura Farley

Q. I represent the landlord. We have a signed lease and are half way through the lease term. I received an email from the tenant stating that there was a bedbug infestation in the unit, and that she wanted the landlord to remedy the problem because the unit is now uninhabitable.

A. When NVAR last revised the lease forms in 2009, this issue was specifically addressed, as bedbug infestations were becoming more prevalent. Paragraph 19 in both the VRLTA and the Common Law Lease clearly places the obligation of keeping the unit or the property free of vermin, including bedbugs, on the tenant:

“19. TENANT OBLIGATIONS… The Tenant is responsible for…
J. Controlling and eliminating household pests including but not limited to fleas, ticks, bedbugs, roaches, silverfish, ants, crickets, and rodents during occupancy. Upon vacating the Premises, the Tenant shall be responsible for the costs of the elimination of all such pests and vermin.”


QUESTION:

In his offer, the buyer selected delivery by facsimile, and not by e-mail; the seller selected delivery by e-mail and not by facsimile. During the course of negotiations, the seller submitted his counter-offer by e-mail and the buyer accepted by facsimile. Is there a valid contract?

ANSWER:

Paragraph 1 of the Virginia Jurisdictional Addendum allows the parties to decide the method of delivery for all other documents associated with the contract. Unlike condo and homeowner association documents, the parties can agree on the delivery method and are not restricted by the statute. However, if the buyer elects delivery via facsimile and not by e-mail and the seller sends his counter-offer to the buyer via e-mail, we do not have valid delivery per the contract, and therefore, no counter-offer. To remedy this problem, make sure you explain to your client in detail each method, and then he or she will be bound by the selection made in the Jurisdictional Addendum. If your client is unsure which method is more practical, he or she can select more than one method. However, each party is limited to the methods of delivery expressly selected in the Jurisdictional Addendum. If such confusion occurs during the course of negotiations, you can correct it by creating an addendum that allows for the delivery method actually used.

QUESTION:

What are the tenant’s rights when the property is foreclosed upon?

ANSWER:

The law provides that the lender must inform only the owner of the property at his or her last known address of the foreclosure proceedings. There is no requirement that tenants be notified by the lender. The landlord however, must abide by the provisions in the lease that provide for early termination of the lease. It may be difficult for the landlord to provide the notice within the requisite timeframe because of uncertainties present in the foreclosure process: will the house sell at the foreclosure sale? Will the landlord be able to make the necessary payments prior to the foreclosure sale and thus prevent foreclosure?

The NVAR lease comports with the majority of deeds of trusts and provides that the lease is a junior interest to that of the mortgage. In practical terms, that means that once the property is sold at the foreclosure sale, then the lease is wiped out. The tenants become tenants at sufferance, and the new owner can begin eviction proceedings or continue to lease, as he chooses.

QUESTION: I represent a buyer who wishes to make an offer on a property listed by a limited service broker. The seller is reviewing our offer and asking me many questions. May I answer his questions?

ANSWER: This is often a difficult situation to gauge. We have been trained to be wary of “going behind the sign,” i.e. violating Article 16 of the Code of Ethics as well as Virginia agency laws. In a limited service situation, the listing broker has typically not contracted to do more than list the property, much less assist the seller in evaluating an offer. The new limited services provisions in the Code of Virginia allow a standard agent to provide to the party represented by a limited service broker the following: (1) information about the transaction and/or (2) aid in securing the contract or performing any contract obligations.

However, it is important to note that these services must be provided to the other party free of charge. The buyer agent can also offer a menu of services for a fee to the seller represented by a limited service broker.

One of the concerns for the buyer’s agent is whether he or she created an unintended dual agency situation by aiding the seller in the transaction. If you are involved as a buyer agent in a transaction with a seller represented by a limited service broker, you may want to provide the seller notice that you represent the buyer and not the seller. In addition, you may want to limit the amount of advice you provide to ensure that you do not appear to represent the seller. Of course, this is easier said than done. If you withhold too much assistance to the seller, he or she may be unwilling to transact with your buyer. So perhaps a solution is to refer the seller to alternate sources of information, or suggest that the seller speak with an attorney.

QUESTION: The seller is represented by a limited service broker. The buyer has reason to believe that the furnace in the property emits high levels of carbon monoxide. As the buyer agent, I have tried to contact the limited service broker to obtain the information, and I was informed this was not part of the services for which he was contracted. Does the limited service broker have a duty to disclose this information?

ANSWER: This question requires a two-step answer.
The Code of Virginia has made it clear that a limited service agent/broker “shall provide the client, at the time of entering the brokerage agreement, copies of any and all disclosures required by federal or state law.” In addition, the limited service broker shall disclose to the client the following in writing: (1) the rights and obligations of the client under the Virginia Residential Property Disclosure Act; (2) the rights and obligations of the client to deliver or receive the condominium documents or the condominium resale certificate, as applicable; and (3) the rights and obligations of the client to deliver or receive the Property Owners Act association disclosure packet, as applicable. Furthermore, the limited service broker must disclose to potential buyers all material adverse facts pertaining to the physical condition of the property actually known by the broker. This requirement is the same as for a standard agent. The Code of Virginia, therefore, requires a limited service broker to disclose the presence of carbon monoxide (a material adverse fact pertaining to the physical condition of the property) if he actually knows about it. However, a limited service broker often has access to much less information than a standard agent and, therefore, may not actually know of the material adverse fact.

The Code of Ethics does not differentiate between the duties owed by a Realtor® engaged as a limited service agent and those of a standard agent. Article 2 of the Code of Ethics requires that Realtors® discover and disclose adverse factors reasonably apparent to someone with their expertise. However, they are not required to discover and disclose latent (hidden) defects in property or to advise clients or customers on matters requiring specialized knowledge and training not required by the state licensing authority or in the Realtor's® area of expertise. Standard of Practice 1-2 helps define this duty. The duty is to discover and disclose "adverse factors reasonably apparent."

Is the defective furnace an “adverse factor which is reasonably apparent?” The answer lies in the listing agreement. If the listing broker's agreement did not involve an inspection of the property, then it is hard to say that a defective furnace would have been an adverse factor reasonably apparent to the listing broker. As a result, the listing broker would only have a duty to disclose this adverse factor if he had inspected the property.

QUESTION: A tenant signed a 12-month lease and sent me a note saying he was moving out. He lived in the property for only three of the 12 months of the lease term. What are my remedies?

ANSWER: As always, it depends on whether your lease is governed by common law or by the Virginia Residential Landlord Tenant Act (VRLTA). At common law, whether the tenant remains in the property is not a determining factor as long as he continues to pay the rent. However, if the tenant also stops paying the rent, the landlord must post a “notice to pay” before taking back possession of the property. The landlord will be able to recoup any unpaid rent while the tenant was in possession but may not be able to recoup the rent for the remainder of the lease. Under the VRLTA, the landlord can recoup the past-owed rent as well as the rent which accrues until the property is rented again. If the tenant tells the landlord that he has left and the property otherwise appears to have been abandoned, then it is presumed to be abandoned. The NVAR lease provides that unpaid rent for the entire remaining lease term shall become immediately due and payable. The landlord shall also be entitled to possession of the premises, any unpaid rent, additional rent, and administrative charges, any damages sustained, court costs and reasonable attorney’s fees, and all other remedies provided by law or equity.

QUESTION: How does the Home Inspection addendum work?

ANSWER: Many brokers and agents have posed this question recently, so this example offers an illustration:

The selling agent completes the Home Inspection Contingency form correctly and selects Friday as the Home Inspection Deadline. On Friday, one of three things can happen:

(1) The Buyer provides to the Seller a Home Inspection Report and an addendum requesting replacement or repairs (paragraph i); or

(2) The Buyer provides a Home Inspection Report along with a Notice to void the contract (paragraph ii). At this time the contract is void; or

(3) The Buyer remains silent. The contingency expires and the contract continues as if there never had been a Home Inspection Contingency (bolded language below paragraph ii). This means that the Buyer takes the property “As-Is”.

In the event the Buyer provides a Home Inspection Report and an addendum requesting replacement or repairs ((1) above), the Seller then has a number of days to respond. If the Seller does not respond or makes a counter offer, the Buyer has some time to consider the Seller's response or lack of response and can still choose from any of the three options above (submit a revised addendum, void the contract or take the property “As Is”).

A word of caution! In this very common fact pattern the Buyer may lose the deal over a very small amount of money.

To illustrate, Buyer selects option (1), and provides the Seller with a list of items he wants replaced or repaired. The addendum requests that the Seller change the carpet in the living room, fix a hole in the basement wall, fix a leak in the bathroom and make the necessary repairs to the ceiling below that bathroom. The Seller counters agreeing only to some of the changes. She agrees to repair the leak in the bathroom and the ceiling below. However, she does not agree to change the carpet in the living room or the hole in the basement wall. If the Buyer counters once again, he essentially re-opens the deal for negotiations. By countering, the Buyer may risk losing the deal or any concessions he may have won with the Seller’s initial response. Agents should explain to their clients that attempting to save just a few hundred dollars could result in a lost transaction.

I have received a number of calls on the following issue: You represent a buyer. You make an offer using the Regional Sales Contract and attach the VA Jurisdictional Addendum. You fill in Paragraph 1, regarding delivery, correctly. The seller accepts the offer but his agent refuses to fill in the seller’s information in the Delivery paragraph. What do you do?

First, let’s address why it is important to fill out the Delivery paragraph of the Virginia Jurisdictional Addendum. The paragraph sets forth methods by which the delivery of offers, counter offers, addenda and other amendments to the contract will be delivered back and forth between parties.

Delivery will be deemed to have occurred:
(1) on the day delivered by hand, or
(2) on the day delivered by a professional courier service (including overnight delivery service), or by United States mail, return receipt requested, or
(3) on the day sent by facsimile or email transmission, either of which produces a tangible record of the transmission.

This presumes that both parties properly entered their preferred method and address for delivery in the Delivery paragraph. If, as in our example, the seller fails to complete the information correctly, then the buyer will never be able to deliver any documents in a manner that satisfies the contractual requirements and thus the existence of a contract may be in doubt. To avoid issues with the Seller side of the transaction, the new form creates a default place of delivery of contract notices and addenda to the Seller’s if no delivery address for the Seller is specified. In the event those items are left blank, Seller agrees to accept delivery at the property address.

Another question that pops up regularly is how to fill in the delivery provision. The Virginia Jurisdictional Addendum is set up to allow for delivery of the originals to the parties and a courtesy copy to the agent. However, the Addendum is flexible enough to allow agents to operate within their comfort zone. If your office policy allows your client to select that all original documentation is to be forwarded directly to you, then enter your information in the delivery paragraph.

The next section in the form is to be filled in with your address only if you are receiving courtesy copies and the originals go directly to your client. Language was added to make it clear that when primary delivery was to be made to one of the real estate agents, there was no need to ALSO delivery courtesy copies.

Remember that the delivery terms found in this paragraph do not apply to the delivery of Property Owner’s Association or Condominium resale documents.

By Toula Gross, Branch Manager and Counsel, MBH Settlement Group, L.C.

Back to the Basics of Title Search, Title Binder and Title Insurance

The state of title to real property is central to the transfer of real property – and raises a host of questions. Who owns the property? Who must sign the listing agreement and sales contract? Who must sign the deed? Are there encumbrances that must be removed in order to transfer title by deed? Are there clouds on title that will hinder or prevent the sale of the property?

These are all important questions that can be addressed by a thorough search of the title to real property, and securing insurance to give the buyer and lender peace of mind that their investment in real estate is sound. It is important for Realtors® to understand the processes involved in investigating and insuring title to real estate, and how these processes impact real estate sales.

Title Search

Upon receiving a ratified sales contract, the title agent first orders a title search of the real property to be transferred by sale. A title search is the process of investigating the public records to establish the chain of title to a parcel of real property. This will determine if there is a continuous chain of ownership demonstrated by successive recorded deeds or passage through will or intestate succession.

It will also identify any restrictions or encumbrances affecting the parcel. The result of a title search is a report from the title abstractor that contains: copies of the deeds and other documents forming the chain of title, any deeds of trust secured by the property, and a report of any restrictions (e.g. HOA covenants and private road maintenance agreements), liens or judgments affecting title.

Upon receipt of the title search, the settlement agent performs a thorough examination of the report to determine how the identified matters affect title to the real property. This investigation confirms the ability of the agent to insure the title and the ability of the sellers to transfer title as agreed upon in the sales contract.

Title Binder

The title agent, as an agent of the title insurance underwriter, uses the contents of the title search and the results of the title examination to prepare a document called a “title insurance binder” or “title insurance commitment.” This document contains a digest of the issues affecting title, a list of the requirements that must be met in order to issue title insurance and a list of any exceptions to title insurance coverage.

The binder names the buyer as the "proposed insured" for owner’s title insurance coverage, and the buyer’s lender, if applicable, as the “proposed insured” for lender’s title insurance coverage. The issuance of lender’s title insurance coverage is generally a condition of closing if a lender is providing funds, since the real property is the lender’s collateral for the loan being issued.

Accordingly, the buyer’s lenders will review the title binder to determine if they are willing to lend with this particular property as collateral, and if so, to confirm that title insurance will be issued to them upon closing to protect their interest in the real estate.

Title Insurance

Put simply, title insurance coverage is indemnity protection against financial loss resulting from defects in title to real property. Lender’s title insurance also protects an insured lender against financial loss resulting from the unenforceability of a mortgage or deed of trust.

For a one-time premium payment, owner’s title insurance protects buyer/owners for their entire lives on the insured property and lender’s title insurance protects lenders for the term of the loan. Real-life examples of claims made against title insurance policies include unreleased liens or judgments, instances of forged deeds, claims of heirs against estates and overlapping legal descriptions in deeds where litigation is required to determine ownership.

When a covered claim arises, the insured makes a claim against the title insurance policy and the attorneys for the title underwriter represent the insured. The insured is made whole for a financial loss up to the policy limit. When protected by owner’s title insurance coverage, the insured is given the financial and legal resources needed to resolve a title issue.

These matters can take significant time and money to pursue, and may not have a resolution in the event of a fundamental defect or cloud on title. Title insurance offers invaluable protection for an investment that is often hundreds of thousands of dollars.

By Sarah Louppe Petcher, NVAR General Counsel & Lisa Vierse May, NVAR Government Affairs Manager

Association Resale Disclosures: Separating Fact from Fiction

The passage of every new law brings its share of questions. Revisions to the Condominium (Condo) and Property Owner’s Association (POA) Acts, in particular, always generate numerous inquiries.

New regulations governing the Condo and POA Acts that went into effect on July 1 have certainly continued this trend. NVAR has learned of inconsistent, if not contradictory, implementation of this legislation by associations and their community managers in regard to fees charged, deferral of payment and other matters.

So, what are the fees? When is payment due? What are the rules for resale disclosure packet (“packet”) and Condo resale certificate (“certificate”) delivery? Below, we tackle these and other of the most frequently-asked questions from Realtors® and their clients.

Q: I thought fees for resale packets were capped at $100. Why am I being charged more?

ANSWER: Legislation in the 2007 General Assembly session changed the fees that associations may charge for packets or certificates delivered in connection with the sale of a property. Legislation passed during this year’s session further clarified allowable charges. The amount of the packet or certificate fee now hinges on whether the association is professionally managed by a common interest community manager (“CIC managed association”).

Associations that are not CIC managed may charge the actual cost for the preparation of the packet, not to exceed 10 cents per page, up to a total of $100.

CIC managed associations may charge the following:

  • $125 for two electronic copies and $150 for two hard copies of the packet or certificate;
  • $100 for a physical inspection of the property, if the association has architectural control over the unit; and
  • A post-closing fee to change the association’s records to reflect the new purchaser.

The association or its manager may charge for the following items requested by the seller or seller’s agent:

  • $25 for each additional hard copy of the packet or certificate.
  • $50 to expedite delivery of the packet or certificate.
  • Actual cost paid to a third-party for hand-delivery or overnight delivery of the packet or certificate.

The fees for professionally managed associations shall adjust in accordance with the United States Average Consumer Price Index every five years.

Q: What exactly is a “common interest community manager”?

ANSWER: A common interest community (CIC) manager is defined as a person or business entity that provides management services to an association for a fee or other compensation. Those management services may include the following:

  • acting for the association in its business, legal, financial, or other transactions with association members and nonmembers;
  • executing the resolutions and decisions of an association or enforcing the rights of the association secured by statute, contract, covenant, rule, or bylaw;
  • collecting, disbursing, or otherwise controlling money or other property belonging to an association;
  • preparing budgets, financial statements, or other financial reports for an association;
  • arranging, conducting, or coordinating meetings of an association or the governing body of an association;
  • negotiating contracts or arranging for services or the purchase of property and goods for or on behalf of an association; or,
  • offering or soliciting to perform any of these services on behalf of an association.

Q: The property that I am listing has more than one community association. What are the fees in that case?

ANSWER: The Code specifically mentions this scenario. Each association may charge the fees allowed under the law, with the provision that no CIC managed association shall charge inspection fees unless it has architectural control over the lot. If the association does not have architectural control, it may only charge those fees related to the preparation and delivery of the packet or certificate.

Q: In the past, I’ve requested expedited delivery for the packet or certificate and paid the appropriate fee, only to have it take just as long as a normal request. What am I actually getting for the extra fee?

ANSWER: The law states that the association or manager may only charge $50 for expedited delivery if the inspection and the packet or certificate are completed within five business days of the request.

Timetables for other deliveries are as follows:

  • initial disclosure packet or certificate: 14 days from request
  • disclosure packet or certificate updates: 10 days from request
  • financial updates for settlement agents: 3 business days from request

Q: I heard that fees are now deferred until settlement, but an association is asking for payment up front. How can this be?

ANSWER: The Code is very clear on this issue for CIC managed associations. It states that no association or CIC manager shall require cash, check, certified funds or credit card payments at the time requests are made for packets or certificates, packet or certificate updates or financial updates. The fees shall be collected at the time of settlement and shall be payable from the settlement proceeds. If the property does not settle within 90 days, the association or its manager may then assess those fees against the lot owner.

For non-CIC managed associations, payment deferral options are less clear. The Code is silent on when payment is due for the initial packet or certificate request. The law does state that payment for updates shall be collected at the time of settlement. One may argue that the intent of the legislation was to defer all payments to settlement. However, until this section is clarified, associations without professional management may continue to request payment at the time of the packet request.

Q: I would like to order two copies of the packet or certificate. Will I be charged for the second one?

ANSWER: The new statute has clarified this issue for CIC managed associations. The first two copies are included in the initial packet or certificate fee. If you want a third copy, the association may only charge you $25, for each additional hard copy requested. For certificates, this fee structure applies for both CIC and non-CIC managed associations.

For non-CIC managed associations, the statute is less clear. The maximum fee that can be charged for packets is $100. The statute does not provide for a second free copy. However, the statute does provide that if requested in electronic format, the seller may designate up to two additional recipients to receive the packet in electronic format at no additional charge.

Q: I would like to order two copies of the packet or certificate update. Will I be charged for the second one?

ANSWER: In this case, the new statute is the same for CIC managed and non-CIC managed associations. If someone other than the seller or his agent asks for the update in electronic format, that person may designate no more than two additional recipients to receive the specified update in electronic format at no additional charge.

In whatever format the update is requested, the seller or his agent shall receive a copy at no additional cost. However, unlike the provisions for the original disclosure packet, the statute does not provide for additional free copies of the update other than to the seller or his agent when they are not the ones requesting the update.

For certificates, the statute provides for the same fee structure as for CIC managed associations.

Q: My clients prefer to receive a paper copy of the packet or certificate, but the association prefers electronic delivery. Do I have to agree to electronic delivery?

ANSWER: No. The seller or his authorized agent may request that the packet or certificate be provided in either hard copy or electronic form. The seller may also pick up a hard copy of the packet or certificate at the association’s place of business. Packet and certificate updates and financial updates must also be provided in hard copy if requested.

Q: I ordered a packet or certificate and it was delivered but upon review it is incomplete. What can I do?

ANSWER: If the association fails to provide the documents substantially in the form dictated by the statute, then the association shall be deemed to have waived any claim for delinquent assessments or of any violation of the declaration, bylaws, rules and regulations, or architectural guidelines existing as of the date of the request with respect to the subject lot.

However, this waiver is a limited waiver. If indeed there is a violation, or a delinquent assessment, the buyer will still have to bring the unit into compliance. The association will have to pay either the first $500 for a non-professionally managed association or the first $1000 for a professionally managed association. Any cost above and beyond will be borne by the purchaser.

So what can you do? You can accept the packet or certificate as is, or you may cancel the contract. If you agree to accept it as is, as noted above the purchaser may be liable for any non-compliance with the association rules.

Q: What happens if the disclosure packet is not delivered within 14 days or if I received a disclosure packet that is dated more than 12 months ago?

ANSWER: This is the portion of the Q&A where we get repetitive! You can accept the packet or certificate as is, or you can cancel the contract. If you agree to accept the packet as is, please read the answer above as the purchaser may be liable for any non-compliance with the association rules.

Q: An association is telling me that the resale packet is only good for two months. If the property doesn’t settle by then, I’ll need to order a whole new packet at full price. Can they do this?

ANSWER: If you have requested a packet or certificate within the past 12 months, you can request an update at a cost of $50. These updates shall include a copy of the original packet or certificate. There is no requirement that you pay the initial fees unless the request comes after the 12-month period has expired.

Q: I ordered and received a complete packet or certificate (remember this is only a hypothetical!) but it is 11 months old. My client wants to order an update. The association has 10 days to provide it to me, but doesn’t my client only have three days to make up his mind?

ANSWER: Well by now you know the answer: you can accept the packet or certificate as is, or you can cancel the contract. If you agree to accept it as is, the purchaser may be liable for any non-compliance with the association rules.

While the statute provides for a three-day right of rescission upon receipt of the packet or certificate, it does not provide a right of rescission upon receipt of an update to the disclosure. So what can you do? When drafting an offer, add language to the contract that mirrors the right of rescission language for the packet or certificate, making it applicable for an update.

Q: A Community Association told me that they were exempt from certain provisions in this law. Does this not apply to all associations?

ANSWER: The POA Act Allows associations to derogate from the act in a very limited way. In order to derogate from the Act, the association must have had, prior to the effective date of the law, specific provisions in its declaration. For example, an association may only impose a transfer fee, or require up front payment for a packet rather than deferral until settlement, if and only if there are specific provisions in its declaration to that effect and such provisions were in place prior to the effective date of the law. There is no blanket exception for associations established prior to the effective date of this law.

Q. The packet or certificate was hand delivered and the agent asked me to sign a receipt for it. I always recommended that my Purchasers not sign the “Purchaser’s Acknowledgement of Receipt […]” (forms K1126 for POA and K1025 for Condo) because it states that the packet or certificate was complete when received and there is not time to review the packet for completeness when delivered. Must my client sign the receipt?

ANSWER: NVAR published updated versions of these forms when the new statute went into effect. The new versions state that when the purchaser now signs the receipt, he only agrees that the package received should contain all the statutorily required disclosures. The forms no longer affirmatively state that the packet or certificate is complete.

As for the obligation to sign the receipt, while the Code places the burden on the sender to prove delivery for a Notice of Cancellation, it does not do so for delivery of the packet or certificate. The statute does not require a signed receipt for the hand-delivery of the packet. The statute requires a receipt only when the packet is delivered by electronic means. Delivery by United States mail is deemed to have occurred within six days after the postmark date.

Q: What can we do if an association or management company isn’t following the law?

ANSWER: One of the more significant changes in the law relates to the establishment of a Common Interest Community Board. This Board was established to regulate management companies and their supervisory and managerial employees. The Board will also receive complaints against associations for alleged violations of the Code.

Virginia’s Department of Professional and Occupational Regulation is currently hiring Board staff, accepting nominations for Board member appointments and promulgating regulations. Until these tasks are completed, the Virginia Real Estate Board will continue to oversee these areas of the Code. For further information, please contact the Real Estate Board Licensing Section at 804.367.8510 or This email address is being protected from spambots. You need JavaScript enabled to view it. .

Question:

Under what circumstances is a manufactured [mobile] home a “vehicle” versus “real estate?” When may it be listed for sale or lease in the MLS?

Answer:

If a manufactured [mobile] home has wheels and/or other equipment used for mobility, it is considered to be a vehicle, and therefore personal property, and should accordingly be titled through the Virginia Department of Motor Vehicles. A Virginia real estate license does not authorize the licensee to assist clients in buying/selling/leasing manufactured [mobile] homes as personal property.

A manufactured [mobile] home is considered to be real estate if: (i) its wheels and/or other equipment used for mobility have been removed; (ii) it has been attached to real estate; and (iii) the vehicle title has been cancelled via surrender to the Virginia Department of Motor Vehicles. See DMV Guidelines: dmv.virginia.gov/webdoc/citizen/vehicles/mobile.asp. Pursuant to Virginia Code §46.2-653, once the manufactured [mobile] home has been converted to real estate, then it can only be sold as real estate is sold. As Virginia real estate agents are licensed to assist clients in buying/selling/leasing real estate, they are therefore able to assist clients with buying/selling/leasing manufactured [mobile] homes that have effectively been converted from personal property to real property.

In addition to determining whether the structure is a vehicle or real estate, it is also important for the agent to determine if the underlying land is owned by the owner of the manufactured [mobile] home, or if it is leased from the landowner. If the owner of a manufactured [mobile] home which has been effectively converted to real estate also owns the underlying land, then that owner may list the land and improvements for lease/sale just as they would any other improved real estate. If the owner of a manufactured [mobile] home which has been effectively converted to real estate does not own the underlying land, then that owner only has the right to sell the structure, and would only be able to negotiate a transfer of the lease of the underlying land as allowed by the home owner’s specific lease agreement.

Accordingly, if a manufactured [mobile] home is a vehicle with wheels and/or other equipment used for mobility intact, it may be transferred only as a vehicle, which is personal property, and which may not be listed for sale/lease through the MLS. If a manufactured [mobile] home has been effectively converted to real property, it may be listed for sale/lease through the MLS. Note that the listing agent will need to be clear in the listing whether the underlying land is included in the sale/lease.

 


Editor’s Note: This information was provided with input from NVAR’s Attorney Roundtable, a group of NVAR attorney members who meet bimonthly to discuss legal issues that affect Realtors®. For more information, contact NVAR General Counsel, Sarah Louppe Petcher at This email address is being protected from spambots. You need JavaScript enabled to view it. .

 

by John Marion, Manassas House Deals & Real Estate Investor
Manassas, VA, Atlanta, GA

Originally published September 9, 2011:
http://www.biggerpockets.com/blogs/809/blog_posts/18043-is-the-nvar-regional-sales-contract-assignable

Real estate agents and investors ask, is the purchase contract used for real estate transactions in Northern Virginia assignable to another buyer?

You may have heard agents tell you that the contract cannot be assigned. Let me share a story with you.

Recently a new investor doing business in Northern Virginia contacted me about assigning contracts. In his quest for getting his business up and running, he is wisely consulting with and networking with other professionals who have been in the business for a while.

One of this investors long term friends has made a career as a licensed real estate agent who is also a Realtor®. Not all real estate agents are REALTORS®. To earn the title of REALTOR®, a licensed real estate agent must pass the rigorous standards set by the National Association of REALTORS®.

The investor in my story reports his friend saying that no REALTOR® would take part in assigning a contract. Since the contract cannot be assigned, according to the REALTOR®, he could lose his real estate license if he were to partake having the purchase contract assigned to another buyer.

This story is not uncommon. Many investors report similar reactions by real estate agents when it comes to doing an assignment of contract.

For more information, let’s take a look at the purchase contract used in Northern Virginia.

The contract used by REALTORS® in Northern Virginia is called the Regional Sales Contract which agents get from the Northern Virginia Association of REALTORS®.

As of September 9, 2011, the latest edition of the Regional Sales Contract is labeled NVAR –K1321 –Rev 03/09.

The section of the purchase agreement which addresses assignability is Paragraph 28 on page 8 of the contract. This paragraph states,

This Contract may not be assigned without the written consent of Purchaser and Seller. If Purchaser and Seller agree in writing to an assignment of this Contract, the original parties to this Contract remain obligated hereunder until Settlement.

Ok, let me re-read it just to make sure I understand.

“This Contract may not be assigned without the written consent of Purchaser and Seller.”

I think this means that both the Purchaser and the Seller must agree that the contract may be assigned in order for the buyer to assign it to another buyer. And their agreement has to be in writing.

Ok, I got it. Now the next sentence.

“If Purchaser and Seller agree in writing to an assignment of this Contract, the original parties to this Contract remain obligated hereunder until Settlement.”

I think this is saying that the original buyer can’t escape their obligation to perform under the terms of the contract, even if the original buyer assigns it to another buyer.

Ok, I think I understand now.

Is the NVAR Regional Sales Contract assignable? The answer is yes!

I have assigned the contract more than one time and I’ve even done it on a Short Sale subject to bank approval, something that many people tell me can’t be done. But that is another story.


John Marion is an investor working in Northern Virginia and North Metro Atlanta.
http://www.johnmarion.com

 

By Laura M. Farley, NVAR Staff Attorney

Q: I don’t know anything about septic inspections – what do all of the new options in the Well & Septic Addendum mean?

A: Under the old Virginia Jurisdictional Addendum, certified test results were required from either the appropriate local government authority and/or a private company licensed to perform these types of inspections. This language did not specify what type of inspection would be performed, which meant that the seller could be expecting a walk-over visual inspection of the drain field, while the buyer was planning to dig up the entire system to inspect it. In order to ensure that both buyer and seller agree about what type of inspection is going to be done, the new Well and Septic Addendum provides for three levels of review:

1. Walk-over visual inspection of the drain field with probing – the least invasive method of inspection, which many in the industry consider to be the basic inspection.

2. Pumping and inspection of all tanks – provides a more thorough inspection of all tanks, but this is not enough to determine if the system is working. Buyers who would like to have the tanks pumped should consider adding this service onto a walk-over inspection.

3. Excavation and visual inspection of all distribution boxes or systems – the most intensive inspection, which involves digging up portions of the yard.

Experts recommend that, at a minimum, buyers should have a walk-over visual inspection, and if they want a more comprehensive inspection, they should consider also pumping the tanks and/or excavating all distribution boxes or systems.

Q: Since a walk-over visual inspection is the base test and the others are more extensive, won’t checking the second or third box include a walk-over inspection?

A: No, simply checking the second or third option does not mean that you are entitled to conduct the other inspections. It is not like a car wash package where purchasing a “deluxe” package also includes all of the items that come with the basic wash. If your buyers want to have the walk-over inspection in addition to pumping the tanks, they will need to check both sets of boxes.


by NVAR General Counsel Sarah Louppe Petcher & Staff Attorney Laura Farley

Q: We have a ratified contract on a property. Because of unforeseen delays, settlement has been postponed. I have sent the Seller an addendum changing the settlement date, but while I have an email from the Listing Agent, the Seller never returned the signed addendum. Now the original settlement date has passed. The Seller is still acting as if we are under contract, and the Buyer really wants the property. What is the status of the contract?

A. This is a two part question:
1) What happens when the settlement date in the contract comes and goes and settlement does not occur?
2) Can we revive the contract after the settlement date has passed?

In this situation, the first item on your list should be to draft an addendum to the contract and propose a new settlement date. Deliver it to the other party according to the delivery instructions in paragraph 1 of the Virginia Jurisdictional Addendum. If you reach an agreement on the new date, make sure everyone signs the addendum and that your client gets a copy of the signed addendum before the settlement date.
In the question posed here, the other party has not signed before the settlement date. Unfortunately, the parties have not performed on the agreement, and the contract has become void. Whether the Buyer is in default as a result of the settlement date passing without settlement will depend on the facts of your particular case.

If your clients want to proceed with this transaction despite the lack of addendum, can they? Well, as some of our favorite settlement attorneys have been known to say, it would not be the first voided contract to result in a settlement. However, be aware that if any further problems arise during the transaction, , it will add a layer of difficulty in trying to determine fault, resulting damages or disposition of the earnest money deposit.


When can a Buyer's Agent call a Seller Directly?

Question:

If a Buyer Agent is unable to contact the Listing Agent or fails to receive a response after repeated attempts to contact the Listing Agent, can the Buyer Agent directly contact the Seller? When is it permissible for a Buyer's Agent to contact the Seller directly?

Answer:

The restriction on contacting the clients of other agents comes from Article 16 of the Code of Ethics and Standards of Practice of the National Association of REALTORS®¨. Article 16 states that "REALTORS®shall not engage in any practice or take any action inconsistent with the agency or other exclusive relationship recognized by law that other REALTORS®have with clients." In support of this Article, Standard of Practice 16-13 also states that "All dealings concerning property exclusively listed, or with buyer/tenants who are subject to an exclusive agreement shall be carried on with the client's agent or broker, and not with the client . . ." This is generally known as the prohibition against "going behind the sign."

However, there are some exceptions to this rule that are contained in the Standards of Practice that are related to Article 16. The following are some examples of the exceptions to this rule and the Standards of Practice that created these exceptions.

Standard of Practice 16-13
The most common example is in the second portion of Standard of Practice 16-13 that states: "Éxcept with the consent of the client's agent or broker or where such dealings are initiated by the client." The Listing Agent can give the Buyer's Agent permission to contact the seller. This permission can be very broad or narrow, depending on the Listing Agents preference. One common example of narrow permission is when a Listing Agent states in MRIS that the cooperating agents should contact the seller prior to showing the property. I would remind everyone that this permission is limited to calling to arrange a time when the agent can show the property to the prospective buyers. This permission does not extend to having a discussion about the terms or conditions the seller is interested in seeing in the contract. One example of broad permission is when a Listing Agent states in the MRIS that all contract negotiations are to be conducted directly with the seller. In this example you could have a discussion about the terms or conditions that the seller is interested in seeing in the potential contract.

Standard of Practice 16-2
The exception allows agents to make general advertisements (mass mailings, telephone cold calls, etc) as long as the advertising is not targeted to individuals who have been identified by a real estate sign, multiple listing compilation or other information source that indicated that the person receiving the advertising was already represented by another agent.

Standard of Practice 16-3
You may contact the client of another broker to offer a different type of real estate service. For instance, if the other broker has an exclusive right to sell agreement, you may talk to the client about obtaining an exclusive right to lease or about an exclusive right to represent buyer agreement. However, you may not use information from MRIS compilation to identify and target the clients of other brokers.

Standard of Practice 16-4 and 16-5
You may not solicit a listing that is currently listed with another broker. If the other broker refuses to disclose the expiration date and type of agency agreement (open listing, exclusive right to sell, etc.) the agent has with the client, then a REALTOR® may contact the client to obtain this information. Please note that the exception only exists if the broker refuses to provide this information. If the information is provided the REALTOR® would not be allowed to contact the client directly. A broker may establish reasonable rules for releasing information about their listings that other brokers may need to follow (all requests must be in writing, must be made directly to the Sales Manager or Main office, etc.) and these rules do not constitute a refusal unless they were viewed as unreasonable.

Article 16 and the related Standards of Practice are the principles we need to keep in mind when we consider the answer to our questions. The Standards of Practice created a few exceptions to the general rule against contacting another Brokers client directly. However, none of them appear to authorize the Buyer Agent to contact the seller when a Listing Agent fails to respond.

My advice is to always first try the listing agent at the numbers listed in the system. When that fails I would recommend contacting the listing agent's firm to determine if there are alternative means of contacting the agent (other telephone numbers, email, fax machines, etc.). Also try to determine if another agent in the office is covering for the listing agent (this frequently occurs when the agent goes out of town). If that does not work I recommend contacting the listing agent's broker or sales manager or having your broker make one of those broker-to-broker telephone calls that tend to resolve these situations.

However, if all of these methods fail, I do not see any exceptions in the rules that allow the Buyer Agent to go behind the sign. Please believe me when I say I don't necessarily like this answer. There are days I wish we had an ethical requirement that agents return phone calls, but that is one Standard of Practice that has not been passed yet.

QUESTION: An agent is supposed to disclose his or her agency relationship upon having a substantive discussion about a specific property with an actual or prospective buyer. What constitutes “substantive discussion about a particular property?”

ANSWER: There is a difference between a general conversation about real estate and a discussion about a specific property. If someone talks about general preferences in his or her own taste for homes, then that discussion is not about a particular property.

For example, a statement like “I love (or hate) Tudor-style homes” is about taste; meanwhile, “How does this Tudor home compare to the one down the street,” moves the conversation into a discussion about a specific property.

QUESTION: I just went to a listing presentation and the customer asked me more details about non-agency than I knew about. What is a non-agent?

ANSWER: A non-agent is a person who does not represent the customer as an agent of that client. Rather that person is simply performing ministerial acts on behalf of the customer. As a result, there is no agency relationship formed between the person and the customer, and therefore the person owes no fiduciary duties to the customer. Ministerial acts are those routine acts that a licensee can perform for a person that do not involve discretion or the exercise of the licensee’s own judgment. Ministerial acts are activities that assist the transaction to go forward, rather than being a service to the individual "customer." When working with a "customer," be very careful not to perform acts that might be considered a service to a "customer." Such service to a "customer" might be interpreted as being contrary to the best interest of the "customer."

The official position of NVAR is that the exclusive representation agreements developed by the Standard Forms Committee are intended to create legally binding contracts between clients and Realtors®. Anyone with specific legal questions regarding the terms of the agreement or contract law should contact an attorney to receive legal advice. However, there are three ways to terminate a written exclusive representation agreement.

QUESTION: Can a client unilaterally terminate an agency agreement?

ANSWER: There are two relevant parts to a listing or buyer broker agreement. The first part outlines the duties and obligations of each party for purposes of the agency relationship. The other deals with compensation.

A client can choose to terminate the agency relationship with his agent/broker at any time by executing a written document to that effect. However, this termination of the agency relationship will not affect the client’s duties to perform under the compensation clauses of these agreements. Once the agent/broker receives this termination, he or she no longer has the authority to act on behalf of the client, and therefore, all advertising, MLS entries, etc. MUST be withdrawn.

If your client is looking to terminate both the agency and the compensation agreement, three options are available:

If the parties mutually agree to release each other from the contract then you will have a valid termination of the agreement. Some firms have included handwritten language in the Other Terms section of the representation agreement that allows either party to terminate the agreement with advanced written notice to the other party.

Another method of terminating the agreement is to check the contract for the termination date in the agreement. Any representation agreement should have a termination date that clearly indicates when the agreement ends if the contract has not been fulfilled. However, if the agreement does not specify a definite termination date, the brokerage relationship terminates 90 days after the date the brokerage relationship was entered into (Code of Virginia § 54.1-2137). Realtors® are also reminded that while a representation agreement without a definite termination date may still be enforceable in the courts, the lack of a definite termination date may be a violation of the Virginia Real Estate Board Rules and Regulations (18 VAC 135-20-290 Improper Dealing). The client can choose to wait until the agreement expires and then work with another Realtor® after the termination date.

Q: What is sub-agency?

A: Sub-agency is one type of brokerage relationship. Today, everyone is familiar with buyer-agency brokerage relationships in which a buyer is provided with services by the firm that represents the buyer in a real estate transaction. However, veteran agents may remember a time when buyers did not have their own representation. Sub-agency was the predominant method of establishing a brokerage relationship until the mid 1990s.

A sub-agent is a real estate licensee who provides real estate services to a buyer while actually representing the seller in a real estate transaction. A defining characteristic of sub-agency is that a listing firm extends its agency relationship with a seller outside the firm’s own agents and authorizes other cooperating brokerage firms to represent the seller in a transaction. When this happens, the other cooperating broker becomes a “sub-agent” of the listing broker. By extending this agency relationship, the listing firm authorizes the other firm and its agents to represent the seller’s interests in any potential real estate transaction.

Q: Who represents the buyer when a sub-agent is involved in the real estate transaction?

A: When a buyer works with a sub-agent, he or she is not represented by any of the real estate licensees involved in the transaction. The listing agent and sub-agent both represent the seller while the buyer remains unrepresented in the real estate transaction.

Q: Does the seller have to consent to sub-agency?

A: Yes. Agency relationships are consensual in nature and require the informed consent of the principal (i.e. the seller). A listing agent should discuss sub-agency with a seller when taking a listing to determine whether or not the seller will consent to sub-agency. Agents should consult with their brokers about their firm’s policies on offering and accepting offers of sub-agency.

Q: Does the buyer have to consent to sub-agency?

A: Yes. Even though a sub-agent does not represent the buyer, the licensee must still discuss agency relationships as mandated by state law. A buyer may decline to work with a sub-agent if he or she prefers to work with a real estate licensee under a buyer agency or non-agency (i.e. transactional brokerage) relationship. Failure to disclose a sub-agent’s representational relationship with the seller to a buyer can create the potential for undisclosed dual agency, which is a violation of Virginia law. One contributing factor to the decline of sub-agency has been the rapid increase in the number of lawsuits from buyers regarding undisclosed dual agency.

Q: Why even consider sub-agency if it is so rarely used by real estate brokerage firms?

A: This will seem out of date for those who remember the battles within the industry between supporters of sub-agency and buyer-agency. However, many REALTORS® who joined the industry within the last decade have misunderstood the meaning of the term sub-agency. Agents who do not understand the term can not properly explain it to a seller when reviewing a listing agreement. A few listing agents have mistakenly told clients that sub-agency is a listing firm’s share of the commission while buyer agency is the buyer-broker’s share. This has also lead to misunderstandings about how to input this information into MRIS.

Q: How can I, as the listing agent, avoid paying the “cooperative compensation” twice if I offer compensation to both sub-agents and buyer agents (or three times if I offer cooperative compensation to sub-agents, buyer agents and non-agents)?

A: This is a growing myth we are trying to debunk. A listing agent does not have to pay a cooperative compensation to more than one cooperating firm. Offers of cooperative compensation created within MRIS are unilateral in nature. Entitlement to compensation is determined by performance. Therefore, a firm that procures cause of a sale is entitled to the cooperative compensation for a property listed within MRIS, while other firms are not, because they do not procure the buyer. The amounts in the buyer-agency, sub-agency and non-agency fields simply determine how much a cooperating broker receive if he or she procures cause.

What is sub-agency?

Sub-agency is a type of brokerage relationship that was predominant until the mid 1990s.

A defining characteristic of sub-agency is that the listing firm, with the permission of the seller, has extended its agency relationship with the seller outside the firm’s own agents and authorized other cooperating brokerage firms to represent the seller in a transaction. When this happens, the other cooperating broker becomes a “sub-agent” of the listing broker.

A sub-agent is a real estate licensee who provides real estate services to a buyer while actually representing the seller in a real estate transaction. It is important to note that sub-agency cannot take place within a firm. For an agent to be a sub-agent, he or she must work for a different brokerage than the listing agent.

Who represents the buyer when a sub-agent is involved in the real estate transaction?

When a buyer is working with a sub-agent he or she is not being represented by any of the real estate licensees involved in the transaction. The listing agent and sub-agent both represent the seller, while the buyer remains unrepresented in the real estate transaction.

Does the seller have to consent to sub-agency?

Yes. Agency relationships are consensual in nature and require the informed consent of the principal (i.e. seller). The listing agent should discuss sub-agency with sellers when taking the listing to determine whether or not the seller will consent to sub-agency. Agents should consult with their brokers about their firm’s policies on offering and accepting offers of sub-agency.

Does the buyer have to consent to sub-agency?

Yes. Even though the sub-agent does not represent the buyer, the licensee must still discuss agency relationships as mandated by state law. The buyer may decline to work with a sub-agent if he or she prefers to work with a real estate licensee under a buyer agency or non-agency (i.e. transactional brokerage) relationship.

Failure to disclose the sub-agent’s representational relationship with the seller to the buyer can create the potential for undisclosed dual agency which is a violation of state law. One contributing factor to the decline of sub-agency was the rapid increase in the number of lawsuits from buyers about undisclosed dual agency.

Why is a discussion of sub-agency important if it is so rarely used by real estate brokerage firms?

Many Realtors® misunderstand the meaning of the term “sub-agency.” Those agents who do not understand the term can not properly explain it to a seller when reviewing the listing agreement.

A few listing agents have mistakenly told their clients that “sub-agency” is the listing firms’ share of the commission while “buyer-agency” is the buyer broker’s share of the commission. This has also led to misunderstandings about how to input this information into the MRIS system, as explained below.

How can the listing agent avoid paying the “cooperative compensation” twice if compensation is offered to both sub-agents and buyer agents (or three times if cooperative compensation is offered to sub-agents, buyer agents and non-agents)?

This is one of those myths we are trying to debunk. You do not have to pay the cooperative compensation to more than one cooperating firm.

The offers of cooperative compensation that are created within MRIS are unilateral in nature. Entitlement to the compensation is determined by performance.

Therefore, the firm that is the procuring cause of the sale would be entitled to the cooperative compensation for a property listed within MRIS; the other firms would not, because they did not procure the buyer. The amounts in the buyer-agency, sub-agency and non-agency fields just determine how much the cooperating broker would receive if he or she were the procuring cause.

Question:

When must a licensee disclose a brokerage relationship?

Answer:

Pursuant to Virginia Code §54.1-2138, a licensee must disclose any brokerage relationship that licensee has with another party to the transaction upon having a substantive discussion about a specific property or properties with an actual or prospective buyer/seller/landlord/tenant who is not the client of the licensee and who is not represented by another licensee. The disclosure shall be made in writing at the earliest practical time, but in no event later than the time when specific real estate assistance is first provided. The disclosure must be conspicuous, printed in bold lettering, all capitals, underlined, or within a separate box. NVAR form K1207 “Disclosure of Brokerage Relationship” meets all of the legally required notice requirements for formatting, and need only be completed with client and brokerage specific information to comply with the disclosure requirements.

Example 1:

Listing Agent is affiliated with ABC Brokerage and has entered into a brokerage relationship with Seller evidenced by a ratified listing agreement. Listing Agent holds an open house at Seller’s property. Mr. and Mrs. Buyer attend the open house, express that they are actively seeking to purchase a home, and ask several substantive questions of Listing Agent about the property. Listing Agent asks if Mr. and Mrs. Buyer are represented by an agent and is told that they do not have a brokerage relationship with another agent. Listing Agent must stop and provide Mr. and Mrs. Buyer with written disclosure of her brokerage relationship with Seller. In order to be prepared to make proper disclosure, Listing Agent should be equipped with completed copies of NVAR Form K1207 “Disclosure of Brokerage Relationship,” indicating clearly that Listing Agent represents Seller.

Example 2:

Buyer’s Agent is affiliated with XYZ Brokerage and has entered into a brokerage relationship with Buyer as evidenced by a ratified buyer/broker agreement. Buyer would like to purchase a home in a specific neighborhood where there are currently no homes listed for sale. Buyer’s Agent knocks on doors in the neighborhood with the intent of asking owners if they are interested in selling their home. Buyer’s Agent knocks on the first door and first asks if the owner is represented by an agent. The owner responds that he is not represented by an agent. Buyer’s agent must stop and provide the owner with written disclosure of her brokerage relationship with Buyer. In order to be prepared to make proper disclosure, Buyer’s Agent should be equipped with completed copies of NVAR Form K1207 “Disclosure of Brokerage Relationship,” indicating clearly that Buyer’s Agent represents Buyer.

 


Editor’s Note: This information was provided with input from NVAR’s Attorney Roundtable, a group of NVAR attorney members who meet bimonthly to discuss legal issues that affect Realtors®. For more information, contact NVAR General Counsel, Sarah Louppe Petcher at This email address is being protected from spambots. You need JavaScript enabled to view it. .

 

Question:

Under what circumstances is a manufactured [mobile] home a “vehicle” versus “real estate?” When may it be listed for sale or lease in the MLS?

Answer:

If a manufactured [mobile] home has wheels and/or other equipment used for mobility, it is considered to be a vehicle, and therefore personal property, and should accordingly be titled through the Virginia Department of Motor Vehicles. A Virginia real estate license does not authorize the licensee to assist clients in buying/selling/leasing manufactured [mobile] homes as personal property.

A manufactured [mobile] home is considered to be real estate if: (i) its wheels and/or other equipment used for mobility have been removed; (ii) it has been attached to real estate; and (iii) the vehicle title has been cancelled via surrender to the Virginia Department of Motor Vehicles. See DMV Guidelines: dmv.virginia.gov/webdoc/citizen/vehicles/mobile.asp. Pursuant to Virginia Code §46.2-653, once the manufactured [mobile] home has been converted to real estate, then it can only be sold as real estate is sold. As Virginia real estate agents are licensed to assist clients in buying/selling/leasing real estate, they are therefore able to assist clients with buying/selling/leasing manufactured [mobile] homes that have effectively been converted from personal property to real property.

In addition to determining whether the structure is a vehicle or real estate, it is also important for the agent to determine if the underlying land is owned by the owner of the manufactured [mobile] home, or if it is leased from the landowner. If the owner of a manufactured [mobile] home which has been effectively converted to real estate also owns the underlying land, then that owner may list the land and improvements for lease/sale just as they would any other improved real estate. If the owner of a manufactured [mobile] home which has been effectively converted to real estate does not own the underlying land, then that owner only has the right to sell the structure, and would only be able to negotiate a transfer of the lease of the underlying land as allowed by the home owner’s specific lease agreement.

Accordingly, if a manufactured [mobile] home is a vehicle with wheels and/or other equipment used for mobility intact, it may be transferred only as a vehicle, which is personal property, and which may not be listed for sale/lease through the MLS. If a manufactured [mobile] home has been effectively converted to real property, it may be listed for sale/lease through the MLS. Note that the listing agent will need to be clear in the listing whether the underlying land is included in the sale/lease.

 


Editor’s Note: This information was provided with input from NVAR’s Attorney Roundtable, a group of NVAR attorney members who meet bimonthly to discuss legal issues that affect Realtors®. For more information, contact NVAR General Counsel, Sarah Louppe Petcher at This email address is being protected from spambots. You need JavaScript enabled to view it. .

 

By Sarah Louppe Petcher, NVAR General Counsel

In July 2012, Virginia laws governing agency will change significantly. In anticipation of this change, some of the basics of agency law are explained below.

NEW!: Guidance Document on the Necessity of Brokerage Agreements

Agency defined

In the context of a real estate transaction, the term “Agency” refers to every relationship in which a real estate licensee acts for or represents a person by such person’s express authority in real estate transactions, unless a different legal relationship is intended and is agreed to as part of the brokerage relationship.

Briefly stated, the law provides that Realtors® establish their relationship with a client as part of the brokerage relationship. Agency requires express authority unless something different is agreed to as part of the brokerage relationship. Always get the express authority in writing!

Agency includes representation of a client as a standard agent or a limited service agent.

When do I become an agent, and when does that relationship end?

There are three components required in the contract establishing the brokerage relationship.
1. The brokerage relationship shall commence at the time that a client engages a licensee and shall continue until the termination date or other conditions prescribed in the contractual agreement.

2. The brokerage relationship shall have a definite termination date; and if not, the brokerage relationship shall terminate 90 days after the date upon which the brokerage relationship began.

3. After termination, expiration, or completion of performance of the brokerage relationship the licensee owes no further duties to the client except that the licensee shall:
a. Account for all monies and property relating to the brokerage relationship, and
b. Keep confidential all personal and financial information received from the client during the course of the brokerage relationship and any other information that the client requests during the brokerage relationship be maintained confidential. This applies unless otherwise provided by law or the client consents in writing to the release of such information. This obligation continues after termination of the relationship.

What is a designated agent and what services can a designated agent provide?

“Designated Agent” or “Designated Representative” means a licensee who has been assigned by a principal or supervising broker to represent a client while a different client in the same transaction is represented by another “licensee” affiliated with the same principal or supervising broker in a transaction. (The designated broker remains the “dual agent” in the transaction.)
A designated agent provides full representation to his or her client.

What is a dual agent?

“Dual Agent” or “Dual Representative” means a licensee who has a “brokerage relationship” with both seller and buyer in the same real estate transaction.

As a dual agent what services can you provide?

The code of Virginia sets forth what services a dual agent cannot provide.

1. The agent will be unable to advise either seller or buyer as to the terms, offers or counteroffers (except, however, that the dual agent may have already provided such advice to the seller prior to representing the buyer);

2. The agent cannot advise the buyer as to the suitability of the property, its condition (other than to make any disclosures as required by law of any licensee representing a seller), and cannot advise either party as to repairs of the property (to make or request);

3. The agent cannot advise either party in any dispute that might later arise relating to the transaction;

4. The agent will be acting without knowledge of the client’s needs, client’s experience in the market, or client’s experience in handling real estate transactions unless he has gained that information from earlier contact with the client.

Remember that either party may engage another licensee if additional representation is required.

What is a sub-agent?

Sub-agency is a type of brokerage relationship. A defining characteristic of sub-agency is that the listing firm, with the permission of the seller, has extended its agency relationship with the seller outside the firm’s own agents and authorized other cooperating brokerage firms to represent the seller in a transaction. When this happens, the other cooperating broker becomes a “sub-agent” of the listing broker.

A sub-agent is a real estate licensee who provides real estate services to a buyer while actually representing the seller in a real estate transaction. It is important to note that sub-agency cannot take place within a firm. For an agent to be a sub-agent, he or she must work for a different brokerage than the listing agent.

Who represents the buyer when a sub-agent is involved in the real estate transaction?

When a buyer is working with a sub-agent he or she is not being represented by any of the real estate licensees involved in the transaction. The listing agent and sub-agent both represent the seller, while the buyer remains unrepresented in the real estate transaction.

Does the seller have to consent to sub-agency?

Yes. Agency relationships are consensual in nature and require the informed consent of the principal (i.e. seller). The listing agent should discuss sub-agency with sellers when taking the listing to determine whether or not the seller will consent to sub-agency. Agents should consult with their brokers about their firm’s policies on offering and accepting offers of sub-agency.

Does the buyer have to consent to sub-agency?

Yes. Even though the sub-agent does not represent the buyer, the licensee must still discuss agency relationships as mandated by state law. The buyer may decline to work with a sub-agent if he or she prefers to work with a real estate licensee under a buyer agency or non-agency (i.e. transactional brokerage) relationship.

Failure to disclose the sub-agent’s representational relationship with the seller to the buyer can create the potential for undisclosed dual agency which is a violation of state law. One contributing factor to the decline of sub-agency was the rapid increase in the number of lawsuits from buyers about undisclosed dual agency.

Why is a discussion of sub-agency important if it is so rarely used by real estate brokerage firms?

Many Realtors® misunderstand the meaning of the term “sub-agency.” Those agents who do not understand the term cannot properly explain it to a seller when reviewing the listing agreement.

A few listing agents have mistakenly told their clients that “sub-agency” is the listing firms’ share of the commission while “buyer-agency” is the buyer broker’s share of the commission. This has also led to misunderstandings about how to input this information into the MRIS system.

Does a limited service agent have an agency relationship with the client?

Yes. The agency relationship is limited in scope to the services the client has selected. However, a limited service agent still owes all the same duties (e.g., confidentiality, protecting and promoting the interest of the client, etc.) to the client as a regular agent. Regardless which services are selected, the duties created by the agency relationship remain the same.

What is a limited service agent?

A limited service agent is an agent who performs limited services selected by the client. This can only be done pursuant to a written brokerage agreement in which the limited service representative (i) discloses that the licensee is acting as a limited service representative; (ii) provides a list of the specific services that the licensee will provide to the client; and (iii) provides a list of the specific duties of a standard agent that the limited service representative will not provide to the client.

Such disclosure shall be conspicuous and printed either in bold lettering or all capitals, and shall be underlined or in a separate box. In addition, a disclosure that contains language that complies substantially in effect with the following shall be deemed in compliance with this disclosure requirement:

“By entering into this brokerage agreement, the undersigned do hereby acknowledge their informed consent to the limited service representation by the licensee and do further acknowledge that neither the other party to the transaction nor any real estate licensee representing the other party is under any legal obligation to assist the undersigned with the performance of any duties and responsibilities of the undersigned not performed by the limited service representative.”

If a Buyer Agent is unable to contact the Listing Agent, or fails to receive a response after repeated attempts to contact the Listing Agent, can the Buyer Agent directly contact the Seller? When is it permissible for a Buyer's Agent to contact the Seller directly?

The restriction on contacting the clients of other agents comes from Article 16 of the Code of Ethics and Standards of Practice of the National Association of REALTORS®. Article 16 states that “REALTORS® shall not engage in any practice or take any action inconsistent with the agency or other exclusive relationship recognized by law that other REALTORS® have with clients.” In support of this Article, Standard of Practice 16-13 also states that “All dealings concerning property exclusively listed, or with buyer/tenants who are subject to an exclusive agreement shall be carried on with the client’s agent or broker, and not with the client . . .” This is generally known as the prohibition against ‘going behind the sign.’

However, there are some exceptions to this rule that are contained in the Standards of Practice under Article 16.

Standard of Practice 16-13
The most common example is in the second part of Standard of Practice 16-13 that states: “Except with the consent of the client’s agent or broker or where such dealings are initiated by the client.” The Listing Agent can give the Buyer’s Agent permission to contact the seller. This permission can be broad or narrow, depending on the Listing Agent’s preference.
One common example of narrow permission is when a Listing Agent states in MRIS that the cooperating agents should contact the seller prior to showing the property. I would remind everyone that this permission is limited to calling to arrange a time when the agent can show the property to the prospective buyers. This permission does not extend to having a discussion about the terms or conditions the seller is interested in seeing in the contract.
One example of broad permission is when a Listing Agent states in the MRIS that all contract negotiations are to be conducted directly with the seller. In this example, a discussion about the terms or conditions that the seller is interested in seeing in the potential contract is permitted.

Standard of Practice 16-2
This exception allows agents to make general advertisements (mass mailings, telephone cold calls, etc.) as long as the advertising is not targeted to individuals who have been identified by a real estate sign, multiple listing compilation or other information source that indicated that the person receiving the advertising was already represented by another agent.

Standard of Practice 16-3
You may contact the client of another broker to offer a different type of real estate service. For instance, if the other broker has an exclusive right to sell agreement, you may talk to the client about obtaining an exclusive right to lease or about an exclusive right to represent buyer agreement. However, you may not use information from an MRIS compilation to identify and target the clients of other brokers.

Standards of Practice 16-4 and 16-5
You may not solicit a listing that is currently listed with another broker. If the other broker refuses to disclose the expiration date and type of agency agreement (open listing, exclusive right to sell, etc.) the agent has with the client, then a REALTOR® may contact the client to obtain this information. Please note that the exception only exists if the broker refuses to provide this information. If the information is provided, the REALTOR® would not be allowed to contact the client directly. Brokers may establish reasonable rules for releasing information about their listings that other brokers may need to follow (all requests must be in writing, must be made directly to the sales manager or main office, etc.), and these rules do not constitute a refusal unless they were viewed as unreasonable.

Article 16 and the related Standards of Practice have created a few exceptions to the general rule against contacting another Broker’s client directly. However, none of them appear to authorize the Buyer Agent to contact the seller when a Listing Agent fails to respond.

Always first try to contact the Listing Agent at the numbers listed in MRIS. When that fails, contact the Listing Agent’s firm to determine if there are alternative means of contacting the agent (other telephone numbers, email, fax machines, etc.). Also try to determine if another agent in the office is covering for the Listing Agent (this frequently occurs when the agent goes out of town). If that does not work, then contact the Listing Agent’s broker or sales manager, or have your broker make one of those broker-to-broker telephone calls that tend to resolve these situations.

There do not appear to be any exceptions in the rules that would allow the Buyer Agent to ‘go behind the sign.’ While this answer is not the one most Buyer Agents prefer, these rules must stand until there is a Standard of Practice requiring that agents return phone calls.

What is a non-agent?

A non-agent is a person who does not represent the customer as an agent of that client. Rather that person is simply performing ministerial acts on behalf of the customer. As a result, there is no agency relationship formed between the person and the customer, and therefore the person owes no fiduciary duties to the customer.

Ministerial acts are those routine acts that a licensee can perform for a person that do not involve discretion or the exercise of the licensee’s own judgment. They are activities that assist the transaction to go forward, rather than being a service to the individual customer. They do not require any expertise or substantive real estate knowledge. They may include transcribing the terms of an offer into the appropriate paperwork, opening the door to the home inspector, forwarding paperwork to the lender, forwarding offers and counteroffers to the other side etc. When working with a customer, be very careful not to perform acts that might be considered a service to a customer. Such service might be interpreted as being contrary to the best interest of the customer.

Click here to view an interactive map on agency relationships. link to this url:
http://www.inman.com/news/2012/02/14/the-new-agency-laws-real-estate


VAR recently conducted a webinar to inform members about the new agency laws that go into effect July 1. The webinar is now available online. Please note that this video is over on hour long, so please consider your data plan usage limits.


 

By: Sarah Louppe Petcher, NVAR General Counsel, Blake Hegeman, VAR Legal Counsel and Mike Lafayette, RAR General Counsel

Q. When does the new law take effect?
A. Changes to Virginia agency law take effect July 1, 2012. In the coming months, a variety of resources will be provided to help you adapt to the revisions, including videos, webcasts, articles, new forms, and classes.

Q. I heard that I will need a written Buyer Broker agreement for every transaction. Is that true?
A. All licensees will need to have to written agency and brokerage agreements with clients they represent. These agreements must, at a minimum:
o Provide a list of services that the agent will deliver;
o Provide a schedule of fees that will be associated with services offered, and when those fees are payable; and
o Provide a definite termination date.

Q. What do I do if the Buyer wants to be represented by an agent but refuses to sign a Buyer Broker Agreement?
A. The new requirement that all Buyer Brokerage Agreements be in writing does not specify the duration of the agreements. For example, suppose a buyer is looking for a house and knows that he or she wants representation, but is not sure from whom. Does that buyer want to sign a Buyer Brokerage Agreement tied to a specific agent for 180 days? Absolutely not! However, the buyer may be willing to sign an agreement for a few days, or for a specific property while getting to know the agent. If after a trial period, both the agent and the buyer decide that the relationship will be a good one, then the agent may propose a long-term Buyer Broker Agreement.
Agents should also point out that they are required by law to have the agreement in writing. A consumer education form is being developed to help agents in this situation.

Q. What if I represent a seller and an interested buyer wants me to write the offer but does not want representation? Will I have to have a Buyer Broker Agreement with the buyer?
A. No. The new law does not force buyers to be represented by an agent. In this scenario, if assistance is limited to ministerial tasks such as filling in the blanks on a contract, then no agreement is required. However, if the buyer does want to be represented by an agent, then an agreement must be in writing.

Q. I heard that the law dramatically changes the way dual agency works in Virginia. Is that true?
A. No. The disclosure requirements for dual agency have not changed. What has changed is the Dual Agency Disclosure Form. Dual agents will now provide, and have signed by the clients, a new form expressly describing the limitations on what dual agents can do for parties to a transaction. Please note that the new disclosure requirements apply only to residential transactions and that enhanced disclosure only applies when an existing client and new client of the firm are represented by the firm in a dual agency relationship.

Q. When do I have to take the three-hour class to learn about these changes?
A. Agents must take a three-hour course on the provisions of the agency statute and the changes made in the legislation. This means that if your current license expires after July 1, 2012, you may take the three-hour agency course at any time.. In fact, if your license expires in July 2012, you will need the course soon. However, if your license expires in February through June of 2012, you should wait to take the course until after you have renewed your license. You may take the course now, but you will need to take it again –for credit – in your next license cycle.

Q. How do teams disclose a brokerage relationship?
A. While the legislature has not addressed the use of “teams” in real estate transactions, we recommend that the names of all licensed members of a team be included in the Disclosure of Brokerage Relationship to Unrepresented Parties. Further, for dual or designated agency/representation, the agent’s name who is specifically assigned to the client should be inserted on the disclosure form.

Q. Do I need to enter into a written brokerage agreement to provide a Broker Price Opinion?
A. Yes. If you have been requested to provide a BPO, then that is providing licensable service to a client, and a written brokerage agreement is necessary to perform the service. You may elect to represent the client in an agency relationship (standard agent or limited service agency) or non-agency relationship (independent contractor).
Please note that a more comprehensive Q and A concerning the new agency law was in development at press time, and should be available online at nvar.com in May, 2012.


 

By General Counsel Sarah Louppe Petcher & Staff Attorney Laura Farley

We have talked a lot about how the new agency laws that came into effect on July 1, 2012 have affected sales transactions. In this column, we will review how the new agency law affects leasing and property management.

To facilitate the discussion, we have created a chart representing the four main scenarios that occur in leasing transactions. For each scenario, the chart shows which forms are required and how commissions are to be paid under the new law.

When the term “represented” is used, it is intended to include all forms of agency and non-agency relationships, including standard agent, independent contractor or limited service agent. Please note that this chart only addresses NVAR forms. Your brokerage may require additional forms or may use its own forms. Please contact an attorney for further clarification on the use of non-NVAR forms.

Landlord Tenant Forms Commission

*K1281 – Exclusive Right to Represent Landlord Agreement
*K1282 – Exclusive Right to Represent Tenant Agreement
*K1207 – Disclosure of Brokerage Relationship for Unrepresented Parties
*K1361 – Disclosure of Dual Representation
*K1362 – Disclosure of Designated Representation

What happened to the Disclosure of Brokerage Relationship Form?
This is one of the most asked Legal Hotline questions we have received since new NVAR forms were released on July 1, 2012.

As you may have noticed by now, K1207, which used to be called “Disclosure of Brokerage Relationship,” has a new title: “Disclosure of Brokerage Relationship for Unrepresented Party(ies).” This change was recommended by the Standard Forms Committee to clarify that this form did not need to be used in every transaction. Form K1207 is only required in transactions (sales or leases) where one party is unrepresented. The form also now clearly identifies who represents a particular party, and for which property the disclosure is being made.

When do I need to use the Disclosure form?
In Virginia, licensees are only required to make a disclosure of brokerage relationship when one of the parties to the transaction is unrepresented. This means that if you are representing a seller, the only time you will need to use the form is if you have an unrepresented buyer interested in purchasing or leasing the property. This situation usually arises when the listing agent is holding an open house or when a buyer calls based on a sign in the front yard. Likewise, if you represent a buyer, the only time you should use this form is if the seller is unrepresented. This usually will occur if you are taking your clients to “For Sale By Owner” properties.

The disclosure requirements apply in rental situations as well as in sales situations. If your clients are looking for property to rent and you show them a unit that is being rented by a landlord who is not represented, you will need to provide the landlord with the disclosure statement. Likewise, if you represent a landlord and you are contacted by an unrepresented tenant you would need to provide that prospective tenant with the disclosure.

This chart illustrates when Form K1207 should be used in a transaction:

Seller/Landlord Represented Seller/Landlord Not Represented
Buyer/Tenant Represented K1207 not used as both parties are represented. K1207 provided by Buyer/Tenant representative to Seller/Landlord
Buyer/Tenant Not Represented K1207 provided by Seller/Landlord representative to Buyer/Tenant K1207 not used, as neither party is represented.

How do I get every buyer who walks into an open house to sign one of these forms, and what do I do if a buyer refuses to sign it?
One way to provide the required disclosure to each person who comes into an open house is to print the disclosure statement at the top of your sign-in sheet and request that all buyers who come into the open house sign in. If you do this, make sure that the disclosure statement at the top of the sheet is conspicuous.

If you present the disclosure to an unrepresented party and he or she refuses to sign it, give the unrepresented party a copy of the disclosure anyway. Make a note on a copy that you keep that includes the following information: the individual’s name, the date and time you presented the disclosure, and the fact that the party refused to sign the form.

The law does not require that unrepresented parties sign the disclosure statement, simply that it be provided to them. We encourage all Realtors® to use K1207 and have it signed so that you are not put in a position later of having to prove that you provided the disclosure to the unrepresented party. If the form is signed, it is much harder for someone to later deny that you provided the required disclosure.

How do I know if the other person contacting me is representing a party to the transaction or not?
Under Article 3 of the Code of Ethics, when seeking information from another Realtors® concerning property under a management or listing agreement, Realtors® are required to disclose their Realtors® status and whether their interest in a particular property is personal or on behalf of a client and, if on behalf of a client, their relationship with the client. This means that if you receive calls from Realtors® about a property , they are required under the Code of Ethics to tell you not only that they are a Realtor®, but what their interest in the property is and if they have a relationship to a client.

 

New Agency Law Brochures - Available in Print or Online
Virginia's new Agency laws are explained for consumers in a concise, easy-to-understand format. Download a free copy online or purchase them for 15 cents each from the NVAR Realtor® Shop at realtorshop.com.


Every real estate transaction presents potential legal pitfalls for the real estate licensee. Buyers and sellers may bring suits against their brokers or agents, based on both statutory and common law causes of action, for a variety of issues of importance to buyers and sellers, including misrepresentation or non-disclosure of property conditions, breach of fiduciary duty, negligent referral and unlawful discrimination, to name a few. To help you avoid these pitfalls, Update magazine will present a series of articles reviewing the Top 10 types of claims in the real estate industry, based on statistics maintained by Employers Reinsurance Corporation, the endorsed carrier for the REALTOR®¨ Guard Program sponsored by the National Association of REALTORS®¨. In this first article, the focus is on the number one cause of claims: misrepresentation.

Fifty-seven percent of all claims against Realtors® involve misrepresentation --

Licensees are most apt to incur legal liability for misrepresenting material facts regarding the condition of the subject property. In most states, "Caveat emptor" no longer applies to real estate transactions. Instead, it is the licensee who bears responsibility for making disclosure of all material facts of which he or she has knowledge.

Some interesting Misrepresentation Claims:

**Home was falsely advertised as having hardwood floors (broker's assistant told the
buyers and made a flyer showing hardwood floors in the home);

**Buyer bought house on understanding that home had maintenance-free vinyl siding; actually it had aluminum siding which would need continual painting;

**Alleged misrepresentation that home was "like new" when, in fact, the renovations were done poorly and with inferior materials;

**Salesperson stated in MLS that home was 60 years old; actually it was more than 103 years old;

**Buyers bought property without knowing about the faulty furnace; after three of the four family members died from carbon monoxide poisoning, the listing agent was sued for failure to disclose the furnace problems and for failure to recommend an inspection.

**The real estate broker sold a newly built home to a buyer, stating that there was "nothing wrong" with the house. Unknown to the broker, an improper fill had been placed on the land before it had been purchased by the seller, causing settling and eventual displacement of the house. The broker was found liable for misrepresentation, since the broker had said that there was "nothing wrong" with the house. The court held that the buyers could reasonably have interpreted that statement as an assertion that the broker had sufficient factual information to justify his general opinion about the quality of the house.

**Buyer was informed the land could be used for horses, but later was informed by a water engineer that it was illegal to water domestic animals from the well and they would need a permit to do so.

**Broker listed a home that seller said sat 14' above sea level, with annual flood insurance premiums totaling approximately $350.00. Having sold a few homes in the area, the broker was somewhat surprised by the seller's claim, but believing he only acted as a conduit of information, the broker advertised the house as the seller represented it. Buyers later learned that the house was only 4' above sea level, and that flood insurance ran $36,000 per year. The buyers filed suit, and the court held the broker jointly liable with the seller for the misrepresentation.

Reprinted with permission from Letter of the Law, National Association of REALTORS®¨.

CASE INTERPRETATION # 3-4

REALTOR® Ambrose, who operated a brokerage business in many areas of the city, was also a home builder. For the homes he built, he maintained a separate sales force and had consistently refused to permit other REALTORS®¨ to show his new homes.

This practice came to the attention of an officer of the Association of REALTORS®¨ who made a complaint which was referred to the Professional Standards Committee by the Grievance Committee.

At the hearing, the Hearing panel asked REALTOR®¨ Ambrose to answer charges that his policy was in violation of Article 3 of the Code of Ethics.

REALTOR®¨ Ambrose's defense was that Article 3 requires a REALTOR®¨ to cooperate with other brokers "whenever it is in the interest of the client." He contended that in the activity in question, there was no client; that he was not acting in the capacity of a broker, but as owner-seller; and that, under the circumstances, Article 3 did not apply to his method of marketing the houses that he built.

ANSWER
It was concluded by the Hearing Panel that REALTOR®¨ Ambrose's defense was valid; that he was in the position of a principal; that Article 3 permitted him, as the builder-owner, to make the decision s=as to what marketing procedure would be in his own best interest ; and that although other REALTORS®¨ might disagree with the wisdom of his decision, he was not in violation of Article 3.

An Antitrust Primer for Realtors®
By Henry A. Hart, Esq.

In order to comply with federal and state antitrust laws, REALTORS® must have a general understanding of how these laws apply to both their practice and to their operations within their local REALTOR® Association. What are the most pertinent federal and state antitrust provisions? And how do REALTORS® avoid violating these antitrust laws?

Relevant Federal And State Antitrust Laws

The federal antitrust provision which is most pertinent to REALTORS® is Section 1 of the Sherman Act which prohibits any contract, combination or conspiracy in restraint of interstate commerce. Violation of the federal Sherman Act carries significant civil penalties, including treble damages and stiff criminal penalties. Actions prohibited by Section 1 of the Sherman Act include most importantly the following:

Price Fixing - (e.g., an agreement among competing real estate firms to charge the same commissions or to increase their commissions, or an agreement among REALTORS® to use a form listing agreement which includes a set commission rate).

Division Of Markets - An agreement among competing real estate firms to allocate customers (e.g., each firm agrees not to solicit the other firm's customers).

Group Boycotts - An Association of REALTORS® denies to a competing real estate agent or broker, without any reasonable basis, competitive advantages which are derived from membership in the Association, (e.g., denying access to a multiple listing service to a competing real estate agent or broker because a director of the Association has a personal grudge against such agent or broker).

Section 5 of the Federal Trade Commission Act prohibits unfair methods of competition. Essentially, any violation of Section 1 of the Sherman Act would also violate Section 5 of the Federal Trade Commission Act.

Virginia, Maryland and District of Columbia all have so-called "mini-Sherman Acts" which contain provisions essentially identical to Section 1 of the Sherman Act, except that they apply to restraints upon Virginia, Maryland and District of Columbia commerce respectively. Therefore, even if a REALTOR®'S¨ actions were found not to affect interstate commerce, they would in all likelihood affect Virginia, Maryland or District of Columbia commerce, and would therefore be subject to the Virginia, Maryland or District of Columbia antitrust laws.

Guidelines For REALTOR® Compliance With Antitrust Laws

To avoid the substantial expense, risk, time and distractions of antitrust litigation, it is advisable for all REALTORS®¨ to avoid not only actual violations of antitrust laws, but also any conduct which might create the appearance of a violation of the antitrust laws. REALTORS® should take care that neither their statements nor their written documents contain any information which would allow a judge or jury to make the inference that an agreement restraining competition had been reached with another REALTORS®.

REALTORS® must be cognizant of antitrust issues arising not only from their professional practice, but also from their volunteer activities within their local association of REALTORS®. Here are some guidelines for avoiding antitrust problems in both arenas.

Four Key Guidelines For REALTORS® Engaged In Real Estate Brokerage Activities

1. NAR Publication -- For a detailed discussion of REALTORS®¨ engaged in real estate brokerage activities see the below-referenced NAR publication Antitrust Pocket Guide for REALTORS®¨ and REALTOR®¨-Associates.

2. Do Not Discuss Your Business Pricing Or Strategy With Competitors - In particular do not discuss commissions or other charges, and do not suggest to any other competitor that the two of you should act in a concerted manner with respect to any particular business practice.

3. Be Careful In Your Statements To The Public - Do not make any statements to clients or the general public which imply that competing REALTORS®¨ have agreed upon commissions or other particular business practices. For example, do not attempt to justify a commission by stating that "this is what we all charge." Not only is such a statement clearly untrue, but it also incorrectly and unfairly implies to the public that REALTORS®¨ are violating the antitrust laws.

4. Do Not Disparage The Idea Of Competition - Do not suggest to REALTORS®¨ in other firms that close friends should not compete.

Guidelines For REALTORS®Acting Within The Association Context

1. NAR Publication - See the below-referenced NAR Publication entitled Antitrust Pocket Guide for Association Leadership for an excellent antitrust compliance program for REALTOR®¨ association leaders.

2. Meetings - All association meetings should be conducted pursuant to written agendas. Only items on the written agenda should be discussed.

3. Minutes - Minutes should be prepared of all association meetings which accurately reflect official action taken.

4. Arbitration And Grievance Proceedings - REALTOR®¨ association grievance and arbitration proceedings should strictly comply with practices, policies and procedures set forth in the Ethics and Arbitration Manuals of NAR and the applicable local REALTOR®¨ associations.

5. Denial Of Access To Association Services - Where any association member or prospective member is denied association services for reasons other than uncontested non-payment of dues, legal counsel for the association should be consulted to assure that proper procedures are followed.

If In Doubt, Consult . . .

No antitrust compliance program or article can anticipate or adequately address all antitrust questions which may arise. If you do have doubts about any antitrust issues which arise in your practice, consult the broker under whose license you work, or legal counsel knowledgeable about antitrust matters. Similarly, if you have doubts about antitrust issues which involve your association, consult your association's executive officer, who should have access to legal counsel knowledgeable in antitrust matters.

A Case of Ethics: When Is The Agent Representing Seller?

Article 1 - "When representing a buyer, seller, landlord, tenant, or other client as an agent, REALTORS®pledge themselves to protect and promote the interests of their client. This obligation of absolute fidelity to the client's interests is primary, but it does not relieve REALTORS®of their obligation to treat all parties honestly. When serving a buyer, seller, landlord, tenant or other party in a non-agency capacity, REALTORS®remain obligated to treat all parties honestly

Case # 1-8: Fidelity to Client's Interests
REALTOR® Andrews managed an apartment building owned by his client Mr. Butler. In his capacity as property manager, REALTOR® Andrews received a written offer to purchase the building from a prospective buyer Mr. Curtis. REALTOR® Andrews responded that the building was not for sale. A few days later the prospective buyer Mr. Curtis met the owner Mr. Butler and told him that he thought he had made an attractive offer through his agent, and indicated that he would be interested in knowing what price would interest him. The owner answered that he had received no offer through his agent Mr. Andrews and asked for the details.

Mr. Butler then filed a complaint against REALTOR® Andrews with the local Association of REALTORS®charging failure to represent and promote his interests. His complaint specified that while Mr. Andrews had been engaged as a property manager, he had at no time told him not to submit any offers, to buy, and that in the absence of any discussion whatever on this point he felt that REALTOR® Andrews should have recognized a professional obligation to acquaint him with the prospective buyer's offer which, he stated in the complaint, was definitely attractive to him.

REALTOR® Andrews was notified of the complaint and directed to appear before a panel of the Association's Professional Standards Committee. In his defense, Mr. Andrews stated that his only relationship with his client Mr. Butler was as a property manager under the terms of a management contract; that he had not been engaged as a broker; that at no time had the client ever indicated an interest in selling the building; that in advising the buyer Mr. Curtis that the property was not on the market, he felt that he was protecting his client against an attempt to take his time in discussing a transaction which he felt sure would not interest him.

Was REALTOR® Andrews in violation of Article 1?

ANSWER:
It was the conclusion of the Hearing Panel that REALTOR® Andrews was in violation of Article 1; that in the absence of any instructions not to submit offers, he should have recognized that absolute fidelity to his client's interest, as required under Article 1 of the Code of Ethics, obligated him to acquaint his client with a definite offer to buy the property, and that any real estate investor would obviously wish to know of such an offer.

Question:

A listing agent called with a question. An appraiser had contacted her about a listing and informed her that he wanted to show her listing to some buyers. The appraiser said that he was working with the agents as a "consultant" and that this entitled him to show a property. The listing agent wanted to know if this was true.

Answer:

The state licensing regulations say that anyone who receives compensation or other valuable consideration for working with a buyer to assist them in buying or offering to buy a property must have a real estate salespersons or brokers license unless they fall under one of the exemptions to the licensing regulations.

An Appraiser does have license from the state; however, this license authorizes him or her to perform an appraisal of property. An appraisal is defined in the Code of Virginia as follows:

'" 'Appraisal' means an analysis, opinion, or conclusion relating to the nature, quality, value, or utility of specified interests in, or aspects of, identified real estate or identified real property. An appraisal may be classified by subject matter into either a valuation or analysis. A 'valuation' is an estimate of the value of real estate or real property. An 'analysis' is a study of real estate or real property other than estimating value. The term 'appraiser' or 'appraisal' may be used only by a person licensed or certified by the Board.

The key question is what kind of "consulting" was the appraiser doing? If the buyers only wanted someone to tell them what the house was worth or would appraise for when the buyers are writing their own offer to purchaser a house that may reasonably fall under an Appraiser's licensed activities. However, if the appraiser was trying to "show" the house to the buyers, negotiating the terms of the offer with the sellers, or obtaining information about the property for the buyers then I believe that may cross over the line to the activities that require a real estate salespersons or brokers license.

However, since these issues involve the state licensing regulations I spoke with Regina Green at the Department of Professional and Occupational Regulation (DPOR) to get the official answer to this question.

Regina indicated that I might be correct in believing that showing a property falls outside the area of an appraiser's license and recommended that the listing agent file a complaint with the DPOR to determine if it was a violation of the regulations. Complaints on this issue can be filed by calling 804-367-8504.

I would also recommend looking up the appraiser's license status with both the Real Estate Appraiser Board and Real Estate Board to ensure that the individual in question does not have a real estate salespersons license. Remember that many people do have both licenses and therefore can perform appraisals and show properties. You can check for both licenses at the DPOR's Licensee Lookup website by clicking the link below:

http://www.dpor.state.va.us/regulantlookup/

DOES AN AGENT HAVE TO INDICATE THE NAME OF HIS OR HER FIRM?
By Jesse Dennehy, Director of Professional Services

Question:

A broker recently called me with a complaint about an advertisement by a competitor that appeared in a local community newspaper. The ad featured a detailed description of the other agent's services and two listings the agent currently had available for sale. Unfortunately, the advertisement failed to identify the agent's brokerage firm. The broker wanted to know if this was a violation or if there had been a change in the rules.

Answer:

This advertisement has probably broken several rules. First, Standard of Practice 12-5 of the states "REALTORS® shall not advertise nor permit any person employed by or affiliated with them to advertise listed property without disclosing the name of the firm." If a listing is advertised without indicating the name of the agent's firm, the agent and their broker may both be in violation of the Code of Ethics.

Unfortunately, this advertisement is also in violation of the state licensing regulations. This is one of those few cases where the VREB regulation is broader in scope than the Code of Ethics. The Department of Professional and Occupation Regulation (DPOR) current rules state [18 VAC 135-20-190 Advertising by licensees (B)] "ÉThe firm's licensed name must be clearly and legibly displayed on all display signs and other types of advertising and marketing." So even if the advertisement had not included any listings, the agent would still have been in violation of DPOR's rules.

DPOR is currently revising their existing regulations. However, in this area of the rules the requirement will only become stricter and cover more forms of advertising than in the past. The proposed revisions, if adopted, would delete the references to display signs and marketing and expand the scope of the regulation quoted above to "all advertising".

These rules would also expand the definition of advertising to include "all forms of representation, promotion and solicitation disseminated in any manner and by any means of communication to consumers for any purpose related to licensed real estate activity." So now those email messages, Web sites, chat room discussions, etc. will also be covered by the requirement to disclose the name of your firm.

In my experience, most advertising-related complaints are a result of agents who did not know the rules and committed an unintentional violation as opposed to flagrant violations of ethical responsibilities. Therefore, I want to ask all of our Principal Brokers to take a closer look at the advertising of your agents to help catch these mistakes before they become an official complaint with NVAR and/or DPOR.

After all, no one wants to appear in a hearing to explain why the firm's name is missing from an advertisement with his or her name on it.

Case Interpretation #1-25 (Adopted November, 2000)
REALTOR® A had listed Seller S's vintage home. Buyer B made a purchase offer that was contingent on a home inspection. The home inspection disclosed that the gas furnace was in need of replacement because unacceptable levels of carbon monoxide were being emitted.

Based on the home inspector's report, Buyer B chose not to proceed with the purchase. REALTOR® A told Seller S that the condition of the furnace and the risk that it posed to the home's inhabitants would need to be disclosed to other potential purchasers. Seller S disagreed and instructed REALTOR® A not to say anything about the furnace to other potential purchasers. REALTOR® A replied that was an instruction he could not follow so REALTOR® A and Seller S terminated the listing agreement.

Three months later, REALTOR® A noticed that Seller S's home was back on the market, this time listed with REALTOR® Z. His curiosity piqued, REALTOR® A phoned REALTOR® Z and asked whether there was a new furnace in the home. "Why no," said REALTOR® Z. "Why do you ask?" REALTOR® A told REALTOR® Z about the home inspector's earlier findings and suggested that REALTOR® Z check with the seller to see if repairs had been made.

When REALTOR® Z raised the question with Seller S, Seller S was irate. "That's none of his business," said Seller S who became even angrier when REALTOR® Z advised him that potential purchasers would have to be told about the condition of the furnace since it posed a serious potential health risk.

Seller S filed an ethics complaint against REALTOR® A alleging that the physical condition of his property was confidential; that REALTOR® A had an ongoing duty to respect confidential information gained in the course of their relationship; and that REALTOR® A had breached Seller S's confidence by sharing information about the furnace with REALTOR® Z.

Answer:
The Hearing Panel disagreed with Seller S's contentions. It noted that while REALTORS®do, in fact, have an obligation to preserve confidential information gained in the course of any relationship with the client, Standard of Practice 1-9 specifically provides that latent material defects are not considered "confidential information" under the Code of Ethics. Consequently, REALTOR® A's disclosure did not violate Article 1 of the Code of Ethics.

Case #1-29: Multiple Offers to be Presented Objectively (Adopted November, 2002)

REALTOR® Alex listed Seller Sam's house. He filed the listing with the MLS and conducted advertising intended to interest prospective purchasers. Seller Sam's house was priced reasonably and attracted the attention of several potential purchasers.

Buyer Betty learned about Seller Sam's property from REALTOR® Alex's website, called REALTOR® Alex for information, and was shown the property by REALTOR® Alex several times.

Buyer Xavier, looking for property in the area, engaged the services of REALTOR® Renee as a buyer representative. Seller Sam's property was one of several REALTOR® R introduced to Buyer Xavier.

After the third showing, Buyer Betty was ready to make an offer and requested REALTOR® Alex's assistance in writing a purchase offer. REALTOR® Alex helped Buyer Betty prepare an offer and then called Seller Sam to make an appointment to present the offer that evening.

Later that same afternoon, REALTOR® Renee called REALTOR® Alex and told him that she was bringing a purchase offer to REALTOR® Alex's office for REALTOR® Alex to present to Seller Sam. REALTOR® Alex responded that he would present Buyer Xavier's offer that evening.

That evening, REALTOR® Alex presented both offers to Seller Sam for his consideration. Seller Sam noted that both offers were for the full price and there seemed to be little difference between them. REALTOR® Alex responded, "I'm not telling you what to do, but you might consider that I have carefully pre-qualified Buyer Betty. There's no question but that she'll get the mortgage she'll need to buy your house. Frankly, I don't know what, if anything, REALTOR® Renee has done to pre-qualify her client. I hope he'll be able to get a mortgage, but you never can tell." REALTOR® Alex added, "Things can get complicated when a buyer representative gets involved. They make all sorts of demands for their clients and closings can be delayed. You don't want that, do you? Things are almost always simpler when I sell my own listings," he concluded.

Seller Sam, agreeing with REALTOR® Alex's reasoning, accepted Buyer Betty's offer and the transaction closed shortly thereafter.

Upset that his purchase offer hadn't been accepted, Buyer Xavier called Seller Sam directly and asked, "Just to satisfy my curiosity, why didn't you accept my full price offer to buy your house?" Seller Sam explained that he had accepted another full price offer, had been concerned about Buyer Xavier being able to obtain the necessary financing, and had been concerned about delays in closing if a buyer representative were involved in the transaction.

Buyer Xavier shared Seller Sam's comments with REALTOR® R the next day. REALTOR® Renee, in turn, filed an ethics complaint alleging that REALTOR® Alex's comments had intentionally cast Buyer Xavier's offer in an unflattering light, that his comments about buyer representatives hindering the closing process had been inaccurate and unfounded, and that REALTOR® Alex's presentation of the offer had been subjective and biased and in violation of Article 1 as interpreted by Standard of Practice 1-6.

At the hearing, REALTOR® Alex tried to justify his comments, noting that although he had no personal knowledge of Buyer Xavier's financial wherewithal and while he hadn't had a bad experience dealing with represented buyers, it was conceivable that an overzealous buyer representative could raise obstacles that might delay a closing. In response to REALTOR® Renee's questions, REALTOR® Alex acknowledged that his comments to Seller Sam about Buyer Xavier's ability to obtain financing and the delays that might ensue if a buyer representative were involved were essentially speculation and not based on fact.

Answer:
The Hearing Panel concluded that REALTOR® Alex's comments and overall presentation had not been objective as required by Standard of Practice 1-6 and found REALTOR® Alex in violation of Article 1.

Case Interpretation for Article 1 and Article 3

REALTOR® A listed Seller S's house. He filed the listing with the MLS and conducted advertising intended to interest prospective purchasers. Seller S's house was priced reasonably and attracted the attention of several potential purchasers.

Buyer B learned about Seller S's property from REALTOR® A's Web site; called REALTOR® A for information; and was shown the property by REALTOR® A several times. Buyer X, looking for property in the area, engaged the services of REALTOR® R as a buyer representative. Seller S's property was one of several REALTOR® R introduced Buyer X to.

After the third showing, Buyer B was ready to make an offer and requested REALTOR® A's assistance in writing a purchase offer. REALTOR® A helped Buyer B prepare an offer and then called Seller S to make an appointment to present the offer that evening.

Later that same afternoon, REALTOR® R called REALTOR® A and told him that he was bringing a purchase offer to REALTOR® A's office for REALTOR® A to present to Seller S. REALTOR® A responded that he would present Buyer X's offer that evening.

That evening REALTOR® A presented both offers to Seller S for his consideration. Seller S noted that both offers were for the full price and there seemed to be little difference between them. REALTOR® A responded, "They're both good offers and they'll both net you the same amount." Seller S asked about the feasibility of countering one or both of the offers. REALTOR® A agreed that was a possibility but noted that countering a full price offer could result in the buyer walking away from the table. Besides, he reminded Seller S, production of a full price offer triggered REALTOR® A's entitlement to a commission under the terms of their listing agreement.

Seller S acknowledged that obligation but expressed regret that, faced with two full price offers, there was no way to increase the proceeds he would realize from the sale of his property. "I'll tell you what," said Seller S, "if you'll reduce your commission, I'll accept the offer you procured. While you'll get a little less than we'd agreed in the listing contract, you'll still have more than if you had to pay the other buyer's broker."

Seeing the logic of Seller S's agreement, and realizing that he and the seller were free to renegotiate the terms of their agreement, REALTOR® A agreed to reduce his commission by one percent. Seller S, in turn, accepted Buyer B's offer and the transaction closed shortly thereafter.

Upset that his purchase offer hadn't been accepted, Buyer X called Seller S directly and asked, "Just to satisfy my curiosity, why didn't you accept my full price offer to buy your house?" Seller S explained that he had accepted a full price offer produced by REALTOR® A because of REALTOR® A's willingness to reduce his commission by 1%.

Buyer X shared Seller S's comments with REALTOR® R the next day. REALTOR® R, in turn, filed an ethics complaint alleging that REALTOR® A's commission reduction had induced Seller S to accept the offer REALTOR® A had produced; that REALTOR® A's commission reduction made his presentation of the competing offers less than objective and violated Article 1, as interpreted by Standard of Practice 1-6; and that REALTOR® A's failure to inform him of the change in his (REALTOR® A's) commission arrangement violated Article 3, as interpreted by Standard of Practice 3-4.

At the hearing REALTOR® A defended his actions stating that he had said nothing inaccurate, untruthful, or misleading about either of the offers; and that he understood that his fiduciary duties were owed to his client, Seller S, and that he and Seller S were free to renegotiate the terms of their listing agreement at any time. REALTOR® A acknowledged that by reducing his commission with respect to an offer he produced, he might arguably have created a dual or variable rate commission arrangement of the type addressed in Standard of Practice 3-4.

He pointed out that if that commission arrangement had been a term of their agreement when the listing agreement was entered into, or at some point other than Seller S's deciding which offer he would accept, then he would have taken appropriate steps to disclose the existence of the modified arrangement.

He noted that Standard of Practice 3-4 requires disclosure of variable rate commission arrangements "as soon as practical" and stated that he saw nothing in the Standard that required him and his client to call "time-out" while the existence of their renegotiated agreement was disclosed to other brokers whose buyers had offers on the table or to all other participants in the MLS.

He acknowledged that if the accepted offer had subsequently fallen through and Seller S's property had gone back on the market with a variable rate commission arrangement in effect (where one hadn't existed before) then the existence of the variable rate commission arrangement would have had to have been disclosed.

But, he concluded, the accepted offer hadn't fallen through so disclosure was not feasible or required under the circumstances.

Answer:
The hearing panel agreed with REALTOR® A's reasoning and concluded that he had not violated either Article 1 or Article 3.

Case #1-22: REALTOR® Offers To Buy Property He Has Listed

Doctor A, a surgeon in a major city, inherited a summer house and several wooded acres on the shores of a lake over a thousand miles from his home. Being an extremely busy individual, Doctor A paid little attention to his inheritance for almost two years. Then, planning a vacation trip, Doctor A and his wife decided to visit their property since it was located in a part of the country they had never seen. Doctor A and his wife spent a week in the house during which they concluded that it was too far from their hometown to use on a regular basis. Consequently, Doctor A decided to sell the property and made an appointment with REALTOR® B whose office was located in a town nearby.

Doctor A explained that he had inherited the summer house two years earlier and wanted to sell it since it was impractical to keep for his personal use. Doctor A mentioned that he had no idea what the property was worth since it had not previously changed hands in 40 years and that he was not familiar with local property values.

REALTOR® B explained that sales of vacation homes had been slow for a number of months and recommended a listing price of $75,000. When Doctor A commented that the price seemed low given that the house was located on a lake and included several wooded acres, REALTOR® B responded by asking Doctor A what he thought the property was worth. Doctor A repeated that he really had no idea what it was worth since he was completely unfamiliar with the area and concluded he would have to rely on REALTOR® B's judgment. Doctor A and REALTOR® B executed an exclusive listing on the property and two days later Doctor A and his wife returned home.

Three weeks later, Doctor A received a letter from REALTOR® B to which was attached a purchase contract for $75,000 less the amount of the listing commission signed by REALTOR® B as the purchaser. REALTOR® B's letter indicated his belief that Doctor A should not expect any other offers on the property due to the slow market and that REALTOR® B's "full-price" offer was made to "take the property off Doctor A's hands."

Doctor A immediately called REALTOR® B and advised him that while he might agree to sell the vacation house to REALTOR® B, he would not do so until he could have the property appraised by an independent appraiser. Under no circumstances, continued Doctor A, would he recognize REALTOR® B as his agent and pay a commission if REALTOR® B purchased the house.

REALTOR® B responded that there was no reason to obtain an independent appraisal since Doctor A had little choice in the matter. In REALTOR® B's opinion, Doctor A could either sell the property to REALTOR® B for $75,000 less the amount of the commission or, should Doctor A refuse REALTOR® B's offer, REALTOR® B would be entitled to a commission pursuant to the listing agreement.

Believing that he had no choice, Doctor A signed the purchase agreement and returned it to REALTOR® B. Shortly thereafter, the transaction closed.

Several weeks later, reading a local news article, Doctor A learned that Boards of REALTORS®had Professional Standards Committees that considered charges of unethical conduct by REALTORS®and REALTOR® -associates. He wrote a detailed letter to REALTOR® B's board, spelling out all of the details of the sale of his summer house.

In his letter, Doctor A indicated that he had no problem with REALTOR® B offering to purchase the property but rather his unhappiness resulted from REALTOR® B's insistence on being compensated as Doctor A's agent even though he had become a principal in the transaction. Doctor A quoted Article 1 questioning how REALTOR® B's duty to promote Doctor A's interests could have been served when REALTOR® B had taken an essentially adversarial role in the transaction. Finally, Doctor A commented, REALTOR® B's "take it or leave it" attitude had certainly seemed less than honest.

The board's secretary referred Doctor A's letter to the Grievance Committee, which concluded that a hearing should be held. At the hearing before a panel of the board's Professional Standards Committee, both Doctor A and REALTOR® B told their sides of the story.

Answer:
After all of the evidence and testimony was heard, the Hearing Panel went into executive session and concluded that while the Code of Ethics did not prohibit REALTOR® B's offering to purchase property listed by him, REALTOR® B had stepped out of his role as agent and had become a principal in the transaction. Article 1 of the Code of Ethics requires the REALTOR® to "protect and promote the interests of the client."

Once REALTOR® B expressed his interest in purchasing the property, he could no longer act as Doctor A's agent except with Doctor A's knowledgeable consent. This consent had not been granted by Doctor A. Further, REALTOR® B's advice that Doctor A had no choice but to view REALTOR® B as his agent and to compensate him accordingly had been incorrect and had been a decisive factor in Doctor A's decision to sell to REALTOR® B. The Hearing Panel also found that REALTOR® B had significantly influenced Doctor A's decision as to the listing price, perhaps with knowledge that he (REALTOR® B) would like to purchase the property for himself. Consequently, the Hearing Panel found REALTOR® B in violation of Article 1.

Case #3-10: Disclose Accepted Offers with Unresolved Contingencies (Adopted May, 2004.)

REALTOR® Eisenhower listed Seller Taft's house and placed the listing in the local association's MLS. Within a matter of days, REALTOR® Nixon procured a full price offer from Buyer Roosevelt. The offer specified that Buyer Roosevelt's offer was contingent on the sale of Buyer Roosevelt's current home. Seller Taft, anxious to sell, accepted Buyer Roosevelt's offer but instructed REALTOR® Eisenhower to continue marketing the property in hope that an offer that was not contingent on the sale of an existing home would be made.

A week later, REALTOR® Harrison, another cooperating broker working with an out-of-state
transferee on a company-paid visit, contacted REALTOR® Eisenhower to arrange a showing of Seller Taft's house for Buyer Clinton. REALTOR® Eisenhower contacted Seller Taft to
advise him of the showing and then called REALTOR® Harrison to confirm that he and Buyer Clinton could visit the property that evening. REALTOR® Eisenhower said nothing about the previously-accepted purchase offer.

REALTOR® Harrison showed the property to Buyer Clinton that evening and Buyer Clinton signed a purchase offer for the full listed price. REALTOR® Harrison left the purchase offer at REALTOR® Eisenhower's office.

REALTOR® Eisenhower informed Seller Taft about this second offer. At Seller Taft's instruction, Buyer Roosevelt was informed of the second offer, and Buyer Roosevelt waived the contingency in his purchase offer. REALTOR® Eisenhower then informed REALTOR® Harrison that Seller Taft and Buyer Roosevelt intended to close on their contract and the property was not available for purchase by Buyer Clinton.

REALTOR® Harrison, believing that REALTOR® Eisenhower's failure to disclose the existence of the accepted offer between Seller Taft and Buyer Roosevelt at the time REALTOR® Harrison contacted REALTOR® Eisenhower was in violation of Article 3 of the Code of Ethics, as interpreted by Standard of Practice 3-6, filed an ethics complaint with the association of REALTORS® .

At the hearing called to consider the complaint, REALTOR® Eisenhower defended his actions, noting that while Buyer Roosevelt's offer had been accepted by Seller Taft, it had been contingent on the sale of Buyer Roosevelt's current home. It was possible that Buyer Roosevelt, if faced with a second offer, could have elected to withdraw from the contract. REALTOR® Eisenhower argued that continuing to market the property and not making other brokers aware that the property was under contract promoted his client's best interests by continuing to attract potential buyers.

The Hearing Panel disagreed with REALTOR® Eisenhower's justification, pointing to the specific wording of Standard of Practice 3-6 which requires disclosure of accepted offers, including those with unresolved contingencies. REALTOR® Eisenhower was found in violation of Article 3.

*The names in this case are fictional and are based on the names of past presidents.

Staff Note: A few sellers have tried to get around these rules by including provisions in the sales contracts where the buyer authorizes the seller to leave the listing as "active" rather than as "under contract" or "contingent with kick out." Please be advised that such actions violate MRIS Rules and Regulations and could be the basis for a violation of Article 3 of the Code of Ethics. Your clients cannot instruct you to violate a rule simply because it would be in their interests for you to do so. If the seller does not like the MRIS rules then he or she is not obligated to authorize you to use the system to facilitate the sale of the property.

QUESTION: As a landlord, when do I have to pay interest on a security deposit?

ANSWER: Paragraph 17 of the NVAR Deed of Lease states that “the Security Deposit will be placed in a federally insured depository and accrue interest to the account holder in the manner and to the extent required by law.” As with all landlord tenant questions, you must first ascertain whether your lease is subject to common law or whether it is subject to the Virginia Residential Landlord Tenant Act (VRLTA). If your lease is subject to common law, then there is no statutory requirement for the payment of interest on deposits. The parties are free to negotiate the issue. However, if your lease is subject to the VRLTA, then interest is due if the lease term is for more than 13 months. Interest is calculated at 1 percent below the Federal Reserve Board Discount Rate as published January 1 of each year. The Code has published calculated rates for the following years:

Year(s) Rate is in Effect Interest Rate
July 1, 1975 - December 31, 1979 3.0 %
January 1, 1980 - December 31, 1981 4.0 %
January 1, 1982 - December 31, 1984 4.5 %
January 1, 1985 - December 31, 1994 5.0 %
January 1, 1995 - December 31, 1995 4.75 %
January 1, 1996 - December 31, 1996 5.25 %
January 1, 1997 - December 31, 1998 5.0 %
January 1, 1999 - June 30, 1999 4.5 %
July 1, 1999 - December 31, 1999 3.5 %
January 1, 2000 - December 31, 2000 4.0 %
January 1, 2001 - December 31, 2001 5.0 %
January 1, 2002 - December 31, 2002 0.25 %
January 1, 2003 - December 31, 2003 0.0 %
January 1, 2004 - December 31, 2004 1.0 %
January 1, 2005 - December 31, 2005 2.25 %
January 1, 2006 - December 31, 2006 4.25 %
January 1, 2007 - December 31, 2007 5.25 %

Keeping In Line While Going Online:
Avoiding Pitfalls in the World of Social Media

By Sarah Petcher, NVAR General Counsel

Social media has become a new medium through which Realtors® can reach broader audiences and potential clients. Many Realtors® have a Facebook page, use Twitter and LinkedIn or write a blog. As your use of these technologies expands, it is very important to keep in mind a few do’s and don’ts.

QUESTION: Are there rules for Realtors® that apply to blogs, Facebook and other similar interactive Web sites?

ANSWER: If you operate a blog, be mindful of the following: While there is some case law indicating that bloggers are not liable for information posted by third parties on their blogs, NAR has taken a different approach. A new Standard of Practice, SOP 15-3 states:

“The obligation to refrain from making false or misleading statements about competitors, competitors’ businesses, and competitors’ business practices includes the duty to publish a clarification about or to remove statements made by others on electronic media the Realtor® controls once the Realtor® knows the statement is false or misleading.” (Adopted 1/10)

As a Realtor®, you therefore have a higher level of duty than a member of the public. If you operate a blog, you must delete false or misleading comments or publish clarifications about them as soon as you have determined they are false or misleading.

Question: An agent has a listing for a property. One day while searching the real estate advertisements posted on craigslist (a popular Web site featuring classified advertisements), the agent discovers the following posting for her listing: “A Stunning 2 Bedroom, 2.5 Bathroom Townhouse. Best Price in Cedar Lakes. Located on Sutler Hill Court. Call Jesse at 207-3214 to Schedule a Showing.” The listing agent is curious and calls the number. She discovers in talking with Jesse that he is another agent who placed the advertisement on craigslist in order to attract potential buyers. Is this ethical?

Answer: This question poses so many potential violations of the Code of Ethics and state licensing regulations that it is difficult to know where to start! Standard of Practice 12-4 of the Code of Ethics states “REALTORS® shall not offer for sale/lease or advertise property without authority.” That authority can only come from the seller or the listing agent. Since it was the listing agent who called Jesse about the craigslist posting, we can assume that she did not give this other agent permission to advertise her listing. If Jesse did not receive the seller’s permission to advertise the property on craigslist then this may be a breach of his ethical obligations. The Virginia Real Estate Board (VREB) Rules and Regulations also contain a similar requirement. These regulations prohibit a licensee from advertising a specific, identifiable property if she does not have the written consent of the seller (18 VAC 135-20-190 D 4).

If Jesse did receive permission from the seller then that would raise a separate question about how he was able to do so without interfering in the listing agent’s relationship with the seller. Standard of Practice 16-13 states that all dealings regarding a property listed with an agent must be conducted through that agent unless the agent or broker has given the other agent permission to contact the seller directly or the seller has initiated the conversation. It is possible that the seller contacted both the listing agent and Jesse to advertise this listing. It is also possible that the listing agent’s broker (without the agent’s knowledge) gave Jesse permission to contact the seller about advertising a property on craigslist. Neither of these situations seems likely.

Some have defended this practice by arguing that it does not harm the seller’s interest to provide additional advertising exposure. This argument misses the point, however. The seller has a right to control who can advertise the property for sale. There are a number of reasons why a seller may not wish to allow someone who does not represent her interest to be advertising the property. Therefore, we can not assume the seller would consent to another agent advertising the property for sale. The rules outlined above recognize the seller’s right to authorize other agents to advertise the property and allow for that possibility.

The problems with this listing do not end with Jesse’s unauthorized advertising. This advertisement also does not disclose the fact that the person who posted it on craigslist is a real estate licensee. Realtors® are required under Article 12 of the Code of Ethics to ensure that their professional status is clearly identifiable in any advertisement. In Virginia, this may be done by using any job title that indicates the person is a licensee. Examples would include, but are not limited to the following: salesperson, broker, agent, associate broker, Realtor® (including use of the Realtor® Logo), broker-owner, sales associate, etc. The advertisement also does not indicate what firm the agent who posted the advertisement is affiliated with. Standard of Practice 12-5 requires that a Realtor® must disclose the name of her firm when advertising a property for sale.

This is one area in which the state licensing regulations go further then the Code of Ethics. The VREB Rules and Regulations state that a licensee is required to disclose specific information in online advertisements. For notices posted on bulletin boards such as craigslist, the following four pieces of information must appear at the beginning or end of the message.
1. The licensee’s full name (as it appears on the license). A “Doing Business As” (DBA) name may be substituted for the name on the license if it has been properly registered with VREB.
2. The name of the firm with which the licensee is affiliated.
3. The city and state where the licensee’s offices are located; and
4. The jurisdiction where the person holds a license. This includes all jurisdictions where his or her license is held, not just the state in which the property is located.

The disclosure rules can vary depending on the whether the advertisement is on a Web page, email message, banner ad, etc. Agents and brokers are advised to carefully review section 18 VAC 135-20-190 C 2 (a-f) of the VREB Rules and Regulations in order to familiarize themselves with the conditions that trigger the requirements identified above.

Finally, the wording of the advertisement in this case may also lead a potential buyer to believe that it was placed by an unrepresented seller rather than a real estate licensee. A real estate agent who implies in an advertisement that the seller is a FSBO may be in violation of the state licensing regulations (18 VAC 135-20-190 D 1).

GUIDELINES FOR UNLICENSED PERSONAL ASSISTANTS (Revised May 2011)

The following is intended to serve as a guideline of “Dos and Don’ts” for Unlicensed Personal Assistants (UPA). The licensee, who may serve as the employer of the UPA, must follow all applicable laws.

DO'S

  1. Perform general clerical duties, including answering the phones and reading information shown on the listing.
  2. Submit listings and changes to MLS.
  3. Follow up on loan commitments after contracts have been negotiated.
  4. Have keys made for listings.
  5. Compute commission checks.
  6. Place signs on properties.
  7. Act as a courier service.
  8. Schedule appointments.
  9. Record and deposit earnest money, security deposits and advance rents.
  10. Prepare contract forms for approval of the licensee and supervising broker*. (*administrative task only; presentation of contract remains with licensee)
  11. Prepare promotional materials and advertisements for approval of the licensee and supervising broker.
  12. Assemble closing documents.
  13. Obtain required public information from governmental entities.
  14. Monitor license and personnel files.
  15. Order routine repairs as directed by licensee.
  16. May be compensated for their work at a predetermined rate that is not contingent upon the occurrence of a real estate transaction.

DON'TS

  1. Show property.
  2. Give opinions or advice on a listing.
  3. Preview, inspect or determine (measure) the square footage of any property unless accompanied by a licensee.
  4. Answer questions on listings, titles, financing or closings, unless to confirm that a property is listed, to identify the listing broker or sales agent and to provide such information as would normally appear in a simple, classified newspaper advertisement (location and/or address.)
  5. Discuss or explain with anyone outside the firm a contract, listing, lease, agreement, or other real estate documents.
  6. Attend pre-closing walk-through or real estate closing unless accompanied by a licensee.
  7. Negotiate the amount of rent, security deposit, or other lease provisions in connection with a rental property.
  8. Represent themselves as being a licensee or as being engaged in the business of buying, selling, exchanging, renting, leasing, managing, auctioning, or dealing with options on any real estate or the improvement thereon for others.
  9. Compensate UPAs on the basis of real estate activity, such as percentage of commission, or any amount based on listings, sales, etc.

Do Rental Transactions Mirror the Practices in Sales?

A prospective tenant submits an application for rental. The listing status is changed to application registered. Over the weekend another prospect submits an application for the same rental. The owner dropped the first application and accepted the second application. How could the property manager accept another application after the status was changed in the system?

The customary practice in leasing is to consider all applications on a “first come, first served” basis. Even if there are multiple offers, the property managers typically follow this practice. This custom is different than residential brokerage where people consider all offers together and “cherry pick” the best one.

Here a property manager has deviated from the customary practice in rentals and borrowed a practice from sales. There is nothing automatically unethical or illegal about departing from customary practice.

We have the same Code of Ethics for all real estate disciplines. Shouldn’t the practices for rental transactions mirror the practices in sales?

These customs reflect the differences between these separate and distinct real estate disciplines. A rental transaction is a long term commitment. Parties continue to work with each other for months, if not years, after the original transaction. They also feature less negotiation then sales transactions. Few if any tenants offer to pay more rent for the property then the advertised price. Landlords are also more conscious about lease terms because many rental disputes eventually wind up in court.

In contrast a sales transaction is a temporary relationship. The parties have little contact with each other after settlement. Buyers will go above the list price if there is competition for the house. Sellers are more willing to compromise on contract terms because they are focused on making this one deal work and less concerned with the long term implications of contract language. A dispute in a sale often ends with parties walking away rather then suing.

Customs are merely prevailing practices that developed as a response to common issues or experiences. The practice of cherry picking works well in those situations where there are significant differences between competing offers. If the differences between prospects are insignificant then following the practice of first come, first served makes more sense. The best REALTORS® are flexible. They know when it may be necessary to depart from customary practice by using another otherwise legal and ethical option to better serve the client’s interests.

Is there any way this could be a violation of some rule?

You could have a fair housing issue here. If the only difference between those two prospective tenants was their race, color, religion, sex, etc. then it may look like the property manager was discriminating. The first come, first served practice is favored by property managers because it is a fair way to breaking any ties between otherwise equal applicants. It also saves the landlord the expense of running multiple credit checks if the first applicant qualifies.

Q: During negotiations, what duties are owed to clients?

Duties to your client—seller or buyer—are established by the Realtor® Code of Ethics and by state laws and regulations. (Revised 05/01)

The Code requires you to protect and promote your client’s interests. State law or regulations will spell out duties you owe to your client.

The Code requires that you be honest with all parties. Also be aware of your duties to other parties—both as established in the Code of Ethics and in state law and regulation.

Q: In transactions requiring lender approval, the lender may require that offers continue to be submitted even when there is a ratified contract on a property. What are the duties of a Realtor® in these circumstances?

If representing the seller:
Remember that the seller—not the listing broker ? makes all offer decisions: how offers will be presented, how offers will be negotiated, whether counter-offers will be made and ultimately which offer, if any, will be accepted. (Revised 05/01)

When taking listings, explain to sellers that receiving multiple, competing offers is a possibility. Explain the various legitimate ways that these offers may be dealt with (e.g., acceptance of the “best” offer; informing all potential purchasers that other offers are on the table and inviting them to make their best offer; countering one offer while putting others to the side; countering one offer while rejecting other offers, etc.). Also make sure to explain to your client the role the lender will have in the review and acceptance of offers by potential buyers.

Explain the pluses and minuses of each approach. Patience may be necessary in a transaction subject to lender approval. In a multiple-offer situation, inviting each prospective buyer to make his or her “best” offer, may produce a better offer than what is currently on the table. Conversely, such an invitation may discourage some prospective buyers and cause them to pursue other properties. There is no “right answer” for every situation.

If the possibility of multiple offers—and the various ways they might be dealt with—were not discussed with the seller when the property was listed and it becomes apparent that multiple offers may be or were made, immediately explain the options and alternatives available. Then, and get direction from the seller.

Tell the seller that your advice is just a suggestion and that your past experience cannot guarantee how a particular buyer may respond.

Remember—and remind the seller—that the decisions are theirs to make—not yours, and that you are bound by their lawful and ethical instructions.

If representing the buyer:
Decisions about how counter-offers will be presented, negotiated, and accepted, are made by the buyer—not by the buyer’s broker. (Adopted 05/01)

When entering into buyer representation agreements, explain to buyers that you or your firm may represent more than one buyer-client who is interested in purchasing the same property, and how offers and counter-offers will be negotiated in that situation. (Adopted 05/01)

Explain the pluses and minuses of various negotiating strategies. A “low” initial offer may result in a contract for less than the listed price. On the other hand, a higher offer from another buyer could be accepted and approved by the lender. Also inform your client that even a full price offer may not be approved by the lender, as the seller may have failed to obtain approval from the lender when he listed the house and as a result listed the house at a lower price than required.

In contrast, a buyer may make a full-price offer that is accepted; however, the seller or the lender may have been willing to agree on a less than full-price offer.

For buyers, as with sellers, remind them that the decisions are theirs to make—not yours, and that you are bound by their lawful and ethical instructions. (Adopted 05/01)

While the Code of Ethics does not expressly mandate “fairness” (given its inherent subjectivity), remember that the Preamble has long noted that “. . . Realtor® has come to connote competency, fairness, and high integrity. . . .” If a seller directs you to advise offerors about the existence of other purchase offers, fairness dictates that all offerors or their representatives be so informed.

Q: I represent a buyer who made an offer on a short sale property more than two weeks ago. I have yet to hear back from the listing agent. What are the listing agent’s duties?

Article 3 of the Code calls on Realtors® to “[…]cooperate with other brokers except when cooperation is not in the client’s best interest.” Implicit in cooperation is forthright sharing of information related to cooperative transactions and potential cooperative transactions. Much of the frustration that occurs results from cooperating brokers being unaware of the status of offers they have procured. Listing brokers should make reasonable efforts to keep cooperating brokers informed. Similarly, buyer brokers should make reasonable efforts to keep listing brokers informed about the status of counter-offers their seller-clients have made. (Revised 05/01)

When representing sellers or buyers, be mindful of Standard of Practice 1-6’s charge to “[…]submit offers and counter-offers objectively and as quickly as possible.” (Revised 05/01)

Realize that in multiple offer situations only one offer will result in a sale and one (or more) potential purchasers will be disappointed that their offer was not accepted. While little can be done to assuage their disappointment, fair and honest treatment throughout the process, coupled with prompt, ongoing and open communication, will enhance the likelihood they will feel they were treated fairly and honestly. In this regard, “[…]Realtors® can take no safer guide than that which has been handed down through the centuries, embodied in the Golden Rule, ‘Whatsoever ye would that others should do to you, do ye even so to them.’ ” (from the Preamble to the Code of Ethics). (Revised 11/01)

Adapted from NAR’s Code of Ethics and Arbitration Manual, Appendix IX to Part Four Presenting and Negotiating Multiple Offers.

As you know, the terms REALTOR® and REALTORS® are trademarks of the NATIONAL ASSOCIATION OF REALTORS®. The trademarks, along with the Code of Ethics and Standards of Practice, set members apart from other real estate licensees. NAR has adopted certain rules intended to preserve the value of the REALTOR® trademarks for all members, current and future.

Take this quiz to see how much you know about the proper use of the REALTOR® trademarks.

1. Which of the following terms is NOT one of the REALTOR® trademarks owned by NAR?
a) REALTOR®
b) REALTORS®
c) BROKER-OWNER®
d) REALTOR-ASSOCIATE®

2. Which of the following is the incorrect way to write or display the term REALTOR®?
a) REALTOR®
b) REALTOR
c) Realtor®
d) realtor®

3. When the term REALTOR® is used with a member's name, it should appear as follows:
a) William Smith REALTOR®
b) William Smith, REALTOR®
c) William Smith, realtor®
d) William Smith Realtor®

4. The term REALTOR® is used correctly in the following phrase:
a) Bob Smith, Your REALTOR® for Life
b) Tom Jones — The Commercial REALTOR®
c) Mary White / South Dakota's Top REALTOR®
d) Jane Brown — REALTOR® and Lakefront Realty's top salesperson

5. When an NAR member identifies his or her profession, it is correct to say:
a) I am a commercial REALTOR®
b) I am a real estate broker and a REALTOR®
c) I am an independent REALTOR®
d) I am a top REALTOR®

6. The term REALTOR® when used with a real estate company name should appear as follows:
a) Sunshine Company, REALTORS®
b) Sunshine REALTORS® Company
c) Sunshine, REALTORS®, Company
d) Sunshine Company REALTORS®

7. Which of the following would be an incorrect use of the term REALTOR® in a Web site domain name?
a) www.RealtorJohnSmith.com
b) www.NorthShoreRealtor.com
c) www.MaryJonesRealtor.com
d) www.BobSmiththeRealtor.com

8. How may the principal of a real estate company who is a REALTOR® use the REALTOR® trademarks in company advertisements if the company has both member and non-member salespeople?
a) The REALTOR® trademarks may only be used with the name of the principal of the firm.
b) The REALTOR® trademarks may be used with the names of the firm, the principal, and all of the salespeople who hold membership. But the trademarks may not be used in connection with the names of the non-member salespeople.
c) The REALTOR® trademarks may only be used with the name of the firm.
d) The REALTOR® trademarks may not be used at all in the advertising of the firm.

9. Which is true with regard to the color of the Block "R" Logo?
a) The official colors of the Block "R" Logo are red and green.
b) The color of the block and the term REALTOR® below the block will always be the same.
c) When using a single color, the logo may only be printed in blue or black.
d) There are no limits on the number of colors that may be used to create the logo.

10. Which of the following is a true statement regarding how the Block "R" Logo may be used?
a) Combined with other geometric shapes to provide a more colorful appearance.
b) As the first letter in a word beginning with the letter "R."
c) On advertising promotional materials as long as the member's name and address also appear on those materials.
d) On the business card of a non-member salesperson affiliated with a REALTOR® principal.


ANSWERS:

1. Which of the following terms is NOT one of the REALTOR® trademarks owned by NAR?
c) BROKER-OWNER®
The NATIONAL ASSOCIATION OF REALTORS® owns numerous trademarks, including but not limited to the terms REALTOR®, REALTORS®, REALTOR-ASSOCIATE®, and the REALTOR® block "R" Logo. These trademarks are used to identify members of NAR and distinguish them from non-members.

Since 1916, when the unique term REALTOR® was first created, the public has come to recognize those who use the trademarks to be members of NAR and, as such, providers of real estate-related services consistent with the REALTOR® Code of Ethics and Standards of Practice, the highest standard of professionalism in the real estate industry. Member boards, through their use of the trademarks, are recognized as member organizations. In 2005, NAR released a research study that revealed the average member with six to 10 years' experience realizes $4,500 a year in incremental income due to the marketplace advantages the REALTOR® brand brings to his or her business.

2. Which of the following is the incorrect way to write or display the term REALTOR®?
d) realtor®
The most preferred form for the term "REALTOR®" is in all uppercase letters with the federal registration symbol (®) following it. Less preferred, but still acceptable, forms would be "REALTOR" in all uppercase letters without the registration symbol or "Realtor®" with an initial uppercase "R" with the registration symbol. Using all lowercase letters in "realtor," with or without the registration symbol, is not considered proper form for the term REALTOR®.

3. When the term REALTOR® is used with a member's name, it should appear as follows:
b) William Smith, REALTOR®
One of the rules governing the proper form for displaying the trademark terms is the requirement to separate the trademark terms from the words and phrases that surround it, even when the term appears on separate lines. That means that the trademark terms need to be separated from the name of the member or the member's firm by commas or other appropriate punctuation.

4. The term REALTOR® is used correctly in the following phrase:
d) Jane Brown — REALTOR® and Lakefront Realty's top salesperson
Use of descriptive words or phrases either preceding or following the term REALTOR® or REALTORS® (i.e., "REALTOR® Professional" or "Professional REALTOR®") is expressly prohibited in Article V, Section 7 or NAR's Bylaws. Therefore, saying "Your REALTOR® for Life," "The Commercial REALTOR®," or "South Dakota's Top REALTOR®" are all prohibited uses of the REALTOR® trademarks. But answer choice D is correct because the term "REALTOR®" is used without any descriptive word or phrases.

5. When an NAR member identifies his or her profession, it is correct to say:
b) I am a real estate broker and a REALTOR®
The term REALTOR® identifies the person's status as a member of NAR. While all REALTORS® are in the real estate business, not all are engaged in the same facet of that business. The term REALTOR® should never be used as a synonym for the services a member provides. A simple test to check whether the term REALTOR® is used correctly is to substitute the phrase "member of the association" for the term REALTOR® and then see if the statement has the intended meaning.

6. The term REALTOR® when used with a real estate company name should appear as follows:
a) Sunshine Company, REALTORS®
NAR members are authorized to use the term REALTOR® or REALTORS® with the name of their company, but not as a part of the legal name of that company. The term should be separated from the company name with appropriate punctuation (e.g., a comma or a dash) to emphasize that the term is separate from the company name.

7. Which of the following would be an incorrect use of the term REALTOR® in a Web site domain name?
b) www.NorthShoreRealtor.com
NAR members may use the term REALTOR® in their domain name or e-mail address provided that the term appears with the member's name or the name of the member's company. So a general descriptive URL that seeks to identify a characteristic of the member, such as where he is located or the type of property she specializes in with the term REALTOR®, like www.NorthShoreRealtor.com, would not be a correct use of the term REALTOR® in a domain name.

8. How may the principal of a real estate company who is a REALTOR® use the REALTOR® trademarks in company advertisements if the company has both member and non-member salespeople?
b) The REALTOR® trademarks may be used with the names of the firm, the principal, and all of the salespeople who hold membership. But the trademarks may not be used in connection with the names of the non-member salespeople.
If the principals of the firm are NAR members, they can use the REALTOR® trademarks with their names and the name of their firm. Similarly, if a salesperson named in the ad is a member, he or she also may use the REALTOR® trademarks with his or her name. The REALTOR® trademarks may not, however, be used with or in connection with the names of the non-member salespeople appearing in the same ad.

9. Which is true with regard to the color of the Block "R" Logo?
When using a single color, the logo may only be printed in blue or black.

Correct Answer: The color of the block and the term REALTOR® below the block will always be the same.
The official colors for the logo when it is reproduced in two colors are blue and gold (or red and gold for commercial members), but there may never be more than the two colors in the logo. When using a single color, the logo may appear in any color that clearly contrasts with the color of the paper or other background on which the logo appears.

10. Which of the following is a true statement regarding how the Block "R" Logo may be used?
c) On advertising promotional materials as long as the member's name and address also appear on those materials.
Members may use the Block "R" Logo in connection with their own name on advertising and promotional materials for their real estate business.

Q: In what situations can NVAR’s new Citation System be used in lieu of an ethics violation hearing?

A: As many of you know, NVAR has recently implemented a new Citation System, which allows the Grievance Committee to issue a citation, similar to a speeding ticket, for a very limited number of violations to the Code of Ethics and the Lockbox Rules & Regulations. For information on the citation policy, see Legal Lines on page 20 of the March/April 2011 Update magazine. Below are examples of what might qualify for the Citation System:

Code of Ethics Violations
Article 1:
If you are acting as a dual agent in a transaction, and do not explain what this means to both parties and obtain their consent in writing before proceeding, you could be issued a citation for $500. This agreement by the parties is reflected on either the disclosure of brokerage relationship form or on the listing or buyer broker agreements.

Article 3:
In some listing agreements, sellers agree to pay a reduced commission if the listing agent or someone else in the brokerage is representing the buyer. If you have a listing agreement with a seller that contains a variable rate commission, and do not tell other potential cooperating brokers about it, the Grievance Committee could issue a $500 citation.

Article 4:
If you have some interest in a property, either financially or otherwise, that is being bought or sold, you must disclose that you are a Realtor® and what your interest in that property is. For example, when you decide to purchase a house and act as your own agent, you must tell the seller that you are a Realtor®. If you fail to do so, the Grievance Committee could issue you a $300 citation. Also, keep in mind that this applies to Realtors® acting on behalf of members of their immediate family, and certain other groups.

Article 5:
If you agree to provide an opinion on the value of a property in which you have an interest, either prospective or current, you must disclose this interest to the parties. For example, if you are considering buying a house, but have not acted on it yet and are asked to provide an opinion on the value of that house, you must disclose that you are considering purchasing the property. Failure to disclose this potential interest could cost $300 under the Citation System.

Article 6:
If you are the property manager for a particular property, and you receive a rebate from a contractor you hire to do some work, you could be liable for a $400 fine under the Citation System if you don’t disclose the rebate to the property owner.

Article 9:
NVAR sees many examples of agents who, despite their best intentions, do not fill out necessary forms completely. Frequently missed fields include: sales price on the listing agreement, contact information on forms, and obtaining the broker’s signature on listing agreements. Any of these could result in a $200 or $400 fine under the Citation System.

Similarly, when a listing agreement has expired, sellers often verbally extend the term of the listing agreement, without completing required paperwork. But failure to complete all necessary forms in writing could subject you to a $200 fine under the Citation System.

Article 12:
As Realtors®, Article 12 of the Code of Ethics requires you to disclose certain information in advertisements. For example, if you put an ad in a newspaper listing a house for sale, but do not include the fact that you are a Realtor®, or the name of your firm, you could be facing a $150 fine for each omission.

Failure to clearly represent the current condition of a house could subject you to a citation for $250 from the Grievance Committee under this article. One way to fail to present a true picture of a property would be to retouch a photograph, or even to use older photographs that may display the house in a better light than a current picture would. If, for example, the seller had the house re-painted five years ago and would like you to use pictures from that time period, those pictures would not clearly represent the current state of the house.

Another possible $250 citation could result from continuing to list properties you sold while at one brokerage after moving to another, without clarifying that some of the sales may have occurred while you were affiliated elsewhere.

Article 14:
If you receive a notice from NVAR that you have been named in an Ethics complaint or Arbitration request and that you must respond, failure to do so in the time set forth could cost you $500 under the Citation System.

Article 16:
Any offers to purchase a house that are contingent upon a reduced commission or the other party paying both commissions would be considered using the terms of an offer to modify the listing broker’s offer of compensation. Doing this could result in a $400 fine under the Citation System.

Lockbox Rules & Regulations
Policy 3:
Policy 3 of the Lockbox Rules & Regulations states that you may only enter a property using your SentriCard? when authorized. If the listing requires that you call before showing and you fail to do so, then you may be subject to a $500 fine under this policy.

Policy 5:
Policy 5 of the Lockbox Rules & Regulations prohibits you from sharing your SentriCard?, pin, or the property key with anyone else. If you loan or duplicate your SentriCard? or the property key to a property to another person, you may be fined $500.

Policy 10:
If for some reason your Virginia Real Estate License is not current, you cannot use a lockbox to enter a property. Please note that if you are in the 30-day-grace period that DPOR provides for licensees before imposing a re-activation fee, you CANNOT conduct real estate business (including using a lockbox to enter a property) because your license has lapsed. Doing so may result in a $500 fine.

Policy 17:
The Lockbox Rules & Regulations require that you keep all Call Before Showing codes confidential and only give them out on a case-by-case basis. If you put a CBS code in a listing, send it out in an unsolicited email or post it on a website, the Grievance Committee may fine you $450 under the Citation System.

Realtors® know that the Code of Ethics is a dynamic set of rules that adapts to the marketplace and its current issues. This has never been more evident than in the 2011 Code revisions. In addition to NAR’s fairly radical amendments to Article 10, NVAR has also made some internal changes, instituting an optional shortened complaint filing process.

2011 Code of Ethics – Summary of Changes

This year NAR updated Article 10, the article that addresses discrimination, to add sexual orientation as a protected class. Article 10 previously protected the public from discrimination by Realtors® on the basis of race, color, religion, sex, handicap, familial status or national origin. The addition of sexual orientation will modify practices in Virginia, where, on a state-wide level, sexual orientation has not been a protected class. Please note that the article covers discrimination in your real estate business and in your employment practices.

NAR also clarified Article 3. This Article obligates Realtors® to cooperate with other brokers to promote their clients’ interests. A new Standard of Practice 3-10 explains that the duty to cooperate includes a duty to share information about a listed property and to make a property available to other brokers for showing to prospective purchasers. In addition, Standard of Practice 3-7 was clarified, substituting "relationship with the client" for "representational status." This acknowledges that a Realtor® performing an appraisal may be seeking information about a property, yet not actually be "representing" a buyer or seller.

In the last few years, NAR has focused its attention on ensuring that the Code of Ethics stays relevant in light of the new marketing tools that become available to Realtors®. Prior to amendment, Standard of Practice 12-5 required Realtors® to disclose the name of their firm in all advertising of real estate services and listed property. However, in an evolving social media platform, Realtors® could no longer comply with these disclosure requirements. If this requirement were enforced, limited character posts (such as those on Facebook and Twitter) would only show the name of a firm and maybe that of the agent, but never get to the substantive messages. Standard of Practice 12-5 was amended to take these limitations into account, and now provides that these displays are exempt from the requirement to disclose the firm’s name, but only if they are one click away from these disclosures. Please note that this tracks the disclosure requirements set forth by DPOR for electronic advertising.

NVAR Citation Policy

Realtors® have often called the NVAR Professional Services department wanting to file a complaint against another Realtor®, but were reluctant to do so because it is time consuming.

We heard you; and now, in a case where the Grievance Committee issues a citation and the Respondent pays the fine, neither the Complainant nor the Respondent is required to attend a hearing.

As of January 1, 2011, NVAR complaint procedures were amended to allow for a citation policy.

QUESTION: More and more assistants are taking calls and providing substantive answers to other agents or members of the public who enquire about a specific property. Here is a quick reminder of what an unlicensed assistant can and cannot do.

ANSWER: The Real Estate Board issued a few do's and don'ts for real estate assistants who are not licensed, but indicated that brokers should consult the Board's regulations and legal counsel when in doubt.

DO'S
1. Submit listings and changes to MLS
2. Follow up on loan commitments after contracts have been negotiated
3. Have keys made for listings
4. Compute commission checks
5. Place signs on properties
6. Act as a courier service
7. Schedule appointments
8. Record and deposit earnest money, security deposits and advance rents
9. Prepare contract forms (with approval of the licensee and supervising broker)
10. Prepare promotional materials and advertisements


DON'TS
1. Show property
2. Answer questions on listings, titles, financing or closings
3. Discuss or explain with anyone outside the firm a contract, listing, lease, agreement, or other real estate documents
4. Accept payment on the basis of real estate activity, such as a percentage of commission, or any amount based on listings or sales.


Listing agreements are contracts between the broker and the seller. The listing agent acts as a representative of the broker in the transaction.

If a subscriber transfers from one broker to another broker, the listings do not automatically go to the new office with the agent. The old listing broker and seller must agree to release each other from the listing agreement. The new broker and seller must sign a new listing agreement. MRIS will transfer a listing provided both the old and new brokers agree in writing.

To facilitate this change, the Customer Transfer Form (Document # 805) must be submitted. Listings will be transferred if both the previous and new broker/manager sign the document.

Question:
A landlord wants to restrict the number of people who are able to rent his three-bedroom condo unit. Therefore, he instructs his Property Manager to advertise the property as "two bedrooms with a den". The Property Manager knows this is wrong and wants a reason why he can not comply with this request.

Answer:
I think that this could be a misrepresentation of a pertinent fact, false advertising and dishonest. If the moral argument does not convince the Landlord you may recommend the following statement: "I am not an attorney, but that sounds like a good way to get sued by a fair housing advocacy group. Maybe you should consult an attorney about how much it will cost to fight that kind of lawsuit?" (Sorry, I could not resist a little Professional Services humor. )

What happens when the listing remarks say, "All offers will be submitted on Friday"?

Question:

A listing agent entered a property into MRIS with the following comment: "All offers will be submitted to the buyer on Sunday at 6:00 pm." On Tuesday a buyer submits a contract to purchase the property. When does the contract have to be submitted?

Answer:

I know that this is something that we are seeing frequently in the MRIS listings.

Standard of Practice 1-6 states, "REALTORS®shall submit offers and counter-offers objectively and as quickly as possible." This Standard of Practice supports Article 1 of the Code of Ethics which reads in part "...REALTORS®pledge themselves to protect and promote the interests of their client." These are the two principals from the Code of Ethics which I think are directly relevant to the question. Email me if you think there are other principals that should be considered.

When I apply these two principals from the Code of Ethics to this issue I encounter other questions. When was it possible to submit the offer to the client? Was their any reason why the offer could not be submitted prior to Friday?

Is there a reason why the offer can not be submitted in the three days prior to Friday? A good example of a compelling reason why the offer could not be submitted until Friday is that a client is traveling abroad and is unreachable until they return on Friday. A bad reason would be an agent who only entered these remarks into MRIS in order to try to generate "buzz" and never discussed with his client the issue of delaying the submission of offers until a specific time and day. Most reasons will probably fall between these two extremes

Please remember, that submitting an offer is not the same as doing a formal presentation of contracts. While I strongly encourage formal presentation of contracts, with Net Sheets and a discussion of the advantages/disadvantages of each contract, I would point out that for the purposes of the Code of Ethics, submitting an offer is simply providing the client with information about the offer.

An agent could submit an offer to a client via a fax, voice mail, or email mail message notifying the client that an offer was received, providing a brief description of the relevant terms of the offer and informing the client that arrangements can be made to formally review the full contract at a later time and date prior to ratification. This would probably be sufficient for showing that an offer was submitted. A dual agent who intentionally delays informing the seller about one offer that has been received so that he can meet with his own buyer clients in two days and write a competing offer may be failing to submit the offer quickly and objectively.

Some people may argue that holding off on submitting an offer does not harm the clients interest and may actually help the clients interests if the buzz that is generated leads to more competing offers. However, the intention here is that agents must keep their clients informed about relevant information regarding the property or the transaction. I would point out that it is very difficult to justify withholding information from the client. In most cases, it may be assumed that withholding information from a client violates an agents duty to protect and promote the interest of the client.

In summary, the offer has to be submitted "as soon as possible". Regardless of the remarks that are entered into the MRIS listing, if it was possible to submit the offer before Friday, it must be done.

Question:

A listing agent wants to "list" a mobile home for sale in the Metropolitan Regional Information System (MRIS). The broker is not sure if the mobile home qualifies as real estate and called me to find out if this is something that a licensed real estate agent can "sell". The current seller is leasing the land where the mobile home is located and once the mobile home is "sold" it will have to be moved because the lease is not part of this transaction. Does a mobile home fall under the practice of real estate.

Answer:

It depends. The important question is the following question - Is the mobile home attached to the land? Mobile homes and trailers fit into a gray area between real property (land) and personal property (material goods). If you remember your pre-licensing classes, then you will remember the information you received on "fixtures" (I bet you never thought you would need to remember that stuff.)

If the mobile home is physically attached to the land in a way that prevents one from easily moving the object then it is real property. However, if the mobile home is not physically attached and could be easily moved then it is personal property.

As an example, if the trailer were still on two wheels and only needs to be hitched to a truck to be pulled away, than it would probably be personal property. However, if a welder would have to come out to unbolt the mobile home from the foundation before it could be "hitched and hauled" then it could be considered real property.

So one needs a real estate license to sell a mobile home or trailer when it fulfills the criteria for being considered real property. However, when it fits the criteria for being considered personal property (i.e. is not attached to the land) then the mobile home would not be covered by the real estate licensing laws.

Furthermore, if the mobile home is considered real property, it could be listed in MRIS. According to Michelle Yam at MRIS, at any one time there are always a handful of mobile homes listed in their system for our area. However, if the mobile home is considered personal property, then it should not be listed in MRIS.

Question

A Buyer Agent called me with a question about the remarks that were entered in a specific listing in the MRIS system. The remarks made a referenced to "Value Range Pricing." The Agent wants to know what that means.

Answer

This is a marketing technique that was originally developed in Australia. I think the best explanation of this term is a definition from the South Central Wisconsin MLS Corporation (that I have edited slightly to remove any reference regarding their MLS rules for entering these listings).

Value Range Pricing:

"Traditionally, when a property is listed for sale, it is placed on the market at a fixed price. Under value range pricing, the property is marketed within a range of values, rather than one specific price. It is important to understand that value range pricing is simply a marketing tool which brokers and sellers can elect to utilize (or not)."

My understanding is that some brokers and agents in our area did experiment with the value range pricing about 5 or more years ago. Some people at the time believed it would be the next big thing in the real estate industry. The way it worked was is that under value range pricing you did not use a specific price but a range (i.e. $245,000 to $255,000). The idea was to let everyone know that the seller would entertain offers within the price range and to encourage buyers to negotiate.

I am not completely clear on why it did not catch on in the area at the time but according to news reports at that time the Metropolitan Regional Information System was not originally set up to properly display prices in a range (it has since been updated to allow this practice).

Question:
An agent called with some questions about our NVAR standard forms. First, she wanted to know what the difference was between the "Listing Agreement - Exclusive Right to Sell" and the "Listing Agreement - Exclusive Agency" forms. She read both forms and said they looked exactly the same.

Answer:
The critical difference is a few little words buried in the middle of all that text. While the rest of the forms are almost exactly the same, those few words can have an important impact on the listing firm's entitlement to compensation.

I have taken the liberty of underlining the relevant portions of the first sentence of Section 6A (Section 7A when the new revised forms are released in a few months) to emphasize the difference between the two forms:

Listing Agreement - Exclusive Right to Sell
"The Seller shall pay the Broker compensation of ______ in cash if, during the term of this Agreement, anyone produces a buyer ready, willing and able to buy the Property."

Listing Agreement - Exclusive Agency
"The Seller shall pay the Broker compensation of ______ in cash if, during the term of this Agreement, the Broker or any other broker(s) (or agent thereof) produces a buyer ready, willing and able to buy the Property."

Under an exclusive right-to-sell agreement, the listing firm is offered compensation in the event of a sale regardless of who procured the eventual purchaser. In contrast, under an exclusive agency agreement, the seller only offers the listing firm compensation if the purchaser is procured through the firm's efforts or the efforts of other real estate firms. This means that in certain situations the listing firm may not receive compensation if the property is sold. In the exclusive agency agreement, the listing firm or another firm working with the listing firm must procure the purchaser in order to have a claim on compensation.

An example is when the seller sells his property to his niece. If the niece discovered that the house was for sale during a conversation at a family gathering without any assistance from the listing firm (or any other real estate firm), then the seller could argue that the listing firm is not entitled to compensation under their agreement. However, if the niece discovered the house was for sale when her buyer agent sent her a list of recently listed properties in the Multiple Listing Service that met the criteria they discussed last week, then the listing firm (and the buyer broker) could argue that they are entitled to compensation if they can show that their efforts procured the buyer.

However, under the exclusive right to sell, the listing firm could still claim entitlement to compensation even if the niece learned of the property's availability without using the services of the listing firm or other firms. The exclusive right to sell was intended to provide compensation to the listing firm if "anyone" produces a ready, willing, and able buyer. This anyone could include the seller finding his own buyer for the property.

THE PROBLEMS OF LISTING A PROPERTY AS AVAILABLE WHEN IT IS UNDER CONTRACT

Question:
A listing agent takes a listing for a property and enters the listing in the Metropolitan Regional Information System Inc. (MRIS) database. A cooperating broker procures an offer from a potential purchaser. The seller ratifies the offer. However, the seller asks the listing agent to keep the status of the listing as "active" in the MRIS system rather than updating the listing to indicate that the seller has accepted an offer. The listing agent then calls the Professional Services Department to ask if this violates any rules. The listing agent explained that the seller wanted to encourage backup offers because a contract had previously fallen through on the property.

Answer:
This practice could be a hat trick of potential rules violations. If the listing agent complied with this request, he or she would probably be in violation of the MRIS Rules and Regulations, Code of Ethics and Standard of Practice of the National Association of REALTORS®and the Rules and Regulations of the Virginia Real Estate Board. Michelle Yam of MRIS also has advised me that this practice could potentially violate advertising laws. With the increasing distribution of listing information on the Internet, the potential jurisdiction for complaints about inaccurate listings has expanded beyond these traditional forums for disputes. Some federal agencies such as the Federal Trade Commission are reviewing advertising practices of various industries using the Internet, including the real estate industry. REALTORS®may not understand why such a minor request could have such significant ramifications. However, due to the evolving nature of our industry, what may have once been the REALTOR® equivalent of jaywalking could now have risen to the level of a federal offense.

A fundamental part of any multiple listing system is the need for accurate information about the properties listed in the system. This includes the need to ensure that the information in the system is updated in a timely manner. The MRIS rule for updating the information in a listing within 48 hours of any change is a reflection of this need. When a seller ratifies a contract, the listing agent is obligated to update the status of the listing in the system from fully available ("Active") to under contract ("Contract"), contingent with a kick-out ("CNTG / KO") or contingent without a kick-out ("CNTG / NO KO"). The new status of the listing will depend on the terms and conditions of the ratified contract. If a listing agent fails to update the status of the listing within 48 hours, he or she may face a possible fine from MRIS.

The Code of Ethics and Standard of Practice of the National Association of REALTORS®could be applied to this situation. Standard of Practice 3-6 states the following: "REALTORS®shall disclose the existence of an accepted offer to any broker seeking cooperation." The primary purpose of the MRIS database is to facilitate the offering and acceptance of cooperation between brokers. When the listing agent enters the property into the system, he or she is creating the offer of cooperation to all the other MRIS subscribers who are eligible to accept the offer (i.e., Virginia real estate licensees who may have a potential buyer). Now that we rely on the MRIS database to establish the offers of cooperation that we depend on to facilitate transactions, it is incumbent on the listing agent to use the same means (i.e., the MRIS listing) to notify those agents who may still be seeking cooperation that an offer has already been accepted.

This is only the tip of the iceberg in regard to the problems that could result from the seller's request. Recent changes in our industry have resulted in greater access to the data within the multiple listing system. Brokers are now using virtual office Web sites and Internet data exchange (IDX) platforms to better serve their customers and clients by providing information that in the past was only available to other MRIS subscribers. The information from these listings also routinely appears on the Web sites of third-party aggregators such as REALTOR®.com.

The active listing status creates the false impression that the property is still fully available and that no contract has been ratified. In fact, REALTOR®.com, homesdatabase.com and the IDX platforms used by brokers would automatically remove the listings from their Web sites if the listing status was changed from active to "Contract," "CNTG / KO" or "CNTG / NO KO." These Web sites do not display information about properties that are subject to a ratified contract. Therefore, a potential buyer could reasonably assume that the seller had not yet accepted any offer on the property if the listing information still appears on one of these other Web sites.

This transforms the problem from a simple issue of failing to update the MRIS listing to potential misrepresentation and false advertising. The display of the listing on these other sites is a result of the false information that was not corrected by the listing agent. In this situation, a listing agent would have actual knowledge that the property was already under contract. If the listing agent agrees to leave the property as active after the listing is supposed to be updated, then the agent would have intentionally misrepresented the actual status of the property.

Other sections of the Code of Ethics and Standard of Practice of the National Association of REALTORS®apply to issues related to advertising and misrepresentation. Article 2 of the Code of Ethics states the following: "REALTORS®shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property or the transaction." It would be reasonable to assume that the status of the property could be defined as a pertinent fact. The presence of another ratified contract could have an effect on a potential purchaser's decision to pursue the property. Therefore, a REALTOR® could be charged with concealing a pertinent fact if he or she followed the seller's request by leaving the listing as active after a contract was ratified.

Article 12 also states that "REALTORS®shall be careful at all times to present a true picture in their advertising and representation to the public." An important test in applying this article is how a reasonable member of the public would perceive the advertisement or representation. This article can be applied to the situation because the information within the multiple listing system is now routinely distributed through other venues (e.g., REALTOR®.com, IDX platforms, third-party aggregators) that advertise the property for sale. Anyone viewing the inaccurate listing information through these venues could argue that a listing agent's failure to update the status of the listing created a false and misleading advertisement even in a situation in which the listing was advertised by someone other than the listing agent.

Issues related to misrepresentation and false advertising also may fall within the state licensing regulations. Real estate licensees are prohibited from "knowingly making any material misrepresentation or making a material misrepresentation reasonably relied upon by a third party to that party's detriment" (page 27, Rules and Regulations of the Virginia Real Estate Board). For the same reasons listed above, a potential buyer could file a complaint alleging that any listing agent who agreed with the seller's request would have knowingly made a material misrepresentation.

The potential for ethics and state licensing complaints is less serious than the worst-case scenario for this agent. Michelle Yam at MRIS notes, "Information that appears on the Internet is being looked at by federal agencies. They are looking for any false advertising on the Internet. This practice could be construed as classic bait-and-switch advertising." In particular, the Federal Trade Commission and a number of states have begun examining how real estate listings are advertised on the Internet.

These agencies are reacting to a number of problems that have occurred nationwide. Many Web sites advertise properties for sale weeks or months after the property was already under contract. In some cases these transactions have already settled and other potential buyers are still being misled into believing that a property is fully available. This has resulted in the increased focus on the accuracy of real estate listing data that appear on the Internet, especially in situations in which another purchaser's contract has already been ratified.

Some of the agents I have talked to express concerns about the seller's ability to attract backup offers and to continue to market the property after a contract is received. There is a strong argument to be made that many cooperating agents do not look at listings after the status changes from Active to Contract, CNTG / KO or CNTG / NO KO. It is common practice for MRIS subscribers to search for active listings in the MRIS database when looking for properties to show to potential clients. There also may be bias in the real estate industry against submitting backup offers. Some agents are reluctant to encourage buyers to write a backup offer or to work on a property that is already under contract. However, the tendency of agents to focus on active listings and the bias against being second in line do not justify misrepresentations, false advertisements or intentionally leaving inaccurate information within the MRIS system. Unfortunately, soliciting backup offers is difficult and there is no shortcut in MRIS that will improve a listing agent's predicament in that situation.

Some agents have pointed out that the MRIS listings have a disclaimer that states, "Information is believed to be accurate, but should not be relied upon without verification." MRIS subscribers have argued that this disclaimer should protect them from any responsibility in the matter. This disclaimer was intended to cover those situations in which an inadvertent mistake was made in the system. A listing agent who knowingly leaves inaccurate information in the MRIS database will have a hard time convincing anyone that this disclaimer should absolve the agent of responsibility.

Agents also have argued that they should be allowed to leave the listing status as active if they enter a disclaimer in the remarks section that notes that the property is under contract and the seller is looking for backup offers. In the past this argument may have been more persuasive because only MRIS subscribers had access to the listing information. However, as the listing information from the MRIS database is used by outside entities, this is no longer a solution to the problem. Information from the remarks section or many other fields in the system may not be displayed on all the Web sites and other venues where the MRIS database is reproduced. Two of the most popular sites for our region, homesdatabase.com and REALTOR®.com, do not display the remarks section to potential buyers who are accessing their Web sites. Listing agents are aware that not all the fields are displayed when the listing data are aggregated to other Web sites. Therefore, notes in the remarks section cannot be relied upon to properly disclose the existence of an accepted offer.

A few agents, who have called NVAR to determine if a property can be listed as active while it is subject to a ratified contract, have indicated other motivations for leaving inaccurate information in the system. Many agents have expressed an interest in the potential leads that come from the display of a listing on REALTOR®.com, homesdatabase.com or other Web sites. However, the prohibition against bait-and-switch advertising was intended to specifically end the practice of advertising products (i.e., the listing) that were not available with the intent of finding potential purchasers for other, different products (i.e., another property). Now that federal regulators may be interested in investigating these cases, the potential repercussions of this type of violation are much greater than before.

Sellers often place agents in compromising positions by asking them to take actions that break or skirt the rules. However, the sellers quickly disappear when the complaints are filed. Therefore, it is the listing agent and his or her firm that may suffer the negative consequences of this practice.

PRACTICAL CONCERNS ARISE WHEN AN OLD PRACTICE MEETS A NEW BUSINESS MODEL

Question: Some agents following time honored practice of soliciting listings from owners who are selling their homes on their own have run into the following problem. Agents often identify potential clients from the classified advertisements in the newspapers and the For Sale By Owner ("FSBO") signs on their properties. However some such sellers have already listed their properties with other brokers. The FSBO signs on the property and advertisements in the newspaper do not indicate that the sellers are already represented by another firm. After further research, the agents discover that these sellers have hired firms that offer Menu of Services or MLS Entry Only services. Is the absence of a firm's name from the for sale sign a violation of rules?

Answer: It all depends on whether the seller, or the firm, was responsible for advertising the property for sale. If a real estate licensee submitted the advertisement to the newspaper or provided the signs to the seller, then they may have violated the rules. If the seller handled these activities on their own without any assistance from the firm, then there is probably no violation of the rules. Let's take a step back and walk through the issues to understand what is going on.

A number of brokerage firms are offering a Menu of Services to potential clients. The basic concept is a departure in the practice of offering the client an all-inclusive package of services. Instead, this business model provides the client with the option of choosing which individual services they will receive from the firm. The client may choose to forgo any number of services that they wish to perform on their own without the help of a licensed agent. Under this model each individual service may be given a separate price point and the seller is only required to pay for the services they wish to receive. The most popular variation of this model is the MLS Entry Only listing agreement where a listing agent is only hired to place the listing in MRIS and offer compensation to other cooperating brokers. Under this program the seller does not authorize the listing company to provide other marketing or real estate services.

This model often frustrates real estate licensees who prospect for business by searching for FSBO signs or advertisements in order to identify prospects. Such licensees have argued that the listing broker's sign should be on the property and name should be in the advertisement. These agents often argue that they waste time and money prospecting after sellers who have already signed with another firm or agent. They argue that the state licensing rules and Code of Ethics require that agents put the name of their firm in all advertisements. While the argument is correct under different circumstances, it may be misapplied to these situations.

Under the Code of Ethics, a REALTOR® is required to ensure that the name of their firm is on all advertising that is done by the REALTOR®. This ethical requirement is substantially similar to the state licensing regulations that apply to all real estate licensees. However, sellers are not bound by these ethical requirements or state regulations.

Traditionally, sellers have consented to the listing broker placing the brokerage firm's sign on the property. This reflected the fact that the firm was expected to handle the initial buyer contact and screening process. However, those sellers who hire an agent under a Menu of Services or MLS Entry Only basis may intentionally chose to withhold permission from their agent to perform other advertising or marketing services. In this case the listing agent may not have permission to put a sign on the property or run an advertisement in the newspaper. This is often the case when a seller has declined to pay the additional fees that the listing broker may charge for such activities.

As a general rule, agents may only be held liable for their actions, not the actions of their clients. In these situations it is unfair to hold a real estate licensee responsible for the actions of the client in advertising the property on their own if the agent was not involved in placing the newspaper advertisement or sign.

Question:
What is the legal definition of a bedroom? I have a listing for a condo in Fairlington Villages that the seller told me had two bedrooms. Upon visiting the condo I did confirm that the owner was using the "second bedroom" as a sleeping area. Since it had a closet and a window I assumed it was a bedroom. On this basis I marketed the property as a two-bedroom condo. The home inspector later informed the buyer that the other bedroom did not meet the local zoning requirements for a legal bedroom.

The buyer did further research and provided me with a copy of the floor plan for the Hermitage Model that identified the other room as a den. The buyer also provided me with a copy of the Arlington County Regulations that indicate the other room could not be considered a bedroom because the window is too high off the ground. Now the first contract has fallen out. Can I remarket the property as a two-bedroom condo or must I correct the listing? Have I already acted unethically by misrepresenting the number of bedrooms in the condo?

Answer:
The legal definition of a bedroom is determined by the appropriate zoning codes of the local municipality. This definition can vary between local jurisdictions, the type of building, and the zoning for the lot. The assumptions that the average person makes about what constitutes a bedroom can differ substantially from the requirements of the zoning codes. For example, many people may assume that a room is not a bedroom if it does not have a window.

The interpretation of these rules can be very difficult for those without a background in the construction industry or related trades. For this reason, matters related to the zoning of property are typically considered outside the scope of a real estate agent's licensed area of expertise. REALTORS® engaged in the practice of residential brokerage are not often aware of how to interpret the myriad of regulations and special exceptions that make up the zoning codes for local jurisdictions. This is typically something reserved for agents engaged in commercial brokerage who often need to know how a building is zoned in order to ensure their client's intended use for the property complies with zoning codes.

In the fact pattern provided above, the REALTOR® could argue that she did not act unethically when the property was initially advertised for sale. The listing agent was reasonably relying on the seller's statement that the property was a two-bedroom condo. REALTORS® are allowed to rely on the representations of their clients.

There are two exceptions to this rule. If the REALTOR® has actual knowledge that the client's information is incorrect or the issue involves an area within the scope of a real estate agent's license area of expertise. The REALTOR®'s¨ defense would be that she did not have actual knowledge about the true status of the bedrooms until the buyer presented her with evidence to refute the seller's statements. A hearing panel may accept this defense if they agree the legal definition of a bedroom is outside the scope of the agent's license. However, once the agent receives valid information that calls into question the validity of the seller's representation, she would no longer be allowed to continue claiming the property is a two-bedroom condo. We recently had a complaint where an agent continued to market a property as a two-bedroom condo after being advised that the Hermitage model in Fairlington Villages was only a one-bedroom condo with a den. The agent made three arguments for why she should be allowed to continue marketing the property as a two-bedroom unit even after learning it really was a one-bedroom condo with a den.

The first argument was that the seller used this room as a sleeping area. The agent argued that it was common for owners to use the den as a sleeping area. Since the county failed to enforce the prohibition in the zoning code against using the den as a sleeping area, these regulations should not be considered in an ethics hearing. People often use the rooms in their house in a way that fits their lifestyle rather than in compliance with obscure zoning regulations.

The second argument was that the seller's interests would be harmed if the listing agent were forced to advertise the property as a one-bedroom condo when a substantial number of other listings for the Hermitage model in Fairlington Villages were listed as two-bedroom units. The agent provided documentation that indicated that 81% of the listings in Fairlington Villages since 1995 have identified the Hermitage and Monticello models as two-bedroom units. The agent correctly pointed out that the seller's property would sell for less than the similar property that was marketed as a two-bedroom unit.

However, this argument was based on a false assumption. An agent cannot misrepresent a property as a two-bedroom condo when she knows this to be false simply because other agents may not have the same level of actual knowledge about the requirements of the Arlington County Zoning Codes. This evidence of a 81% error rate may help prove that the zoning codes are outside the area of expertise of a real estate agent. However, unless it can be shown that all these other agents knew about the zoning code or had received a copy of the original floor plans for the Hermitage and Monticello model, we cannot assume they acted unethically.

The final argument was that the agent would be at a competitive disadvantage with the other agents who compete for listings in Fairlington Villages. This argument is based on the assumption that sellers will continue to incorrectly tell the other competing agents that their Hermitage and Monticello models are two-bedroom units. Since these other agents may not have a copy of the original floor plan or understand the requirements for a bedroom under the zoning code, they could continue to mistakenly represent these properties as two-bedroom units.

Everyone can sympathize with the agent in this situation. It does appear to place her in an unfavorable position. Unless information about this case is disseminated to the general membership, these other agents may never learn that Hermitage and Monticello models in Fairlington Villages are one-bedroom condominiums. While the agent in question could advise the other agents in the development about the actual number of bedrooms in the Hermitage and Monticello models, this would place a burden on the agent. Furthermore, it may require the agent to acknowledge that she was the subject of a complaint.

Normally our established rules of confidentiality would preclude providing enough detail about a complaint to the general membership to rectify this situation. Only the Board of Directors can authorize any disclosure of the information from a hearing that withholds the agent's name and changes certain facts to protect the REALTOR®'s¨ identity. Thankfully, in this case they did authorize the release of enough information to assist members in avoiding this problem in the future.

Information about the models in Fairlington Villages may be found at www.fairlingtonvillages.com.

LOCAL ZONING OFFICES:

City of Alexandria Department of Planning and Zoning
703/838-4666

Arlington County Department of Planning, Housing and Development
703/228-3883

Public Works and Environmental Services for Fairfax County
Building Plan Review Office
703/222-0114

City of Fairfax Community Development and Planning
703/385-7930

City of Falls Church Zoning Division
703/248-5015

Town of Herndon Department of Community Development
703/787-7380

Town of Vienna Planning and Zoning Department
703/255-6341

QUESTION: A listing languishes on the market. The original list price is $400,000, but it is gradually reduced to $350,000. A buyer makes an offer for $400,000 with a $40,000 down payment. However, the offer has a condition based on the acceptance of an addendum that requires the seller to give the purchaser $40,000 in cash after closing. This little detail is "withheld" from the lender. Is this legitimate?

This offer may be real, but that doesn't make it legal. Any time someone Indicates he or she will withhold a detail about a transaction from the lender or underwriter, this should be a red flag that potential mortgage fraud may be occurring. In this case it appears that someone may try to hide the fact that the buyer doesn't really have the down payment for the loan. Some disreputable individuals may try to conceal this by using a secret addendum that is signed by the parties but never provided to the lender or underwriter.

With the recent changes in the market, a few crooks have been targeting sellers who may be desperate enough to "look the other way" in order to sell their homes. Anyone involved in this type of transaction, even those who may simply be "looking the other way" could face fines and possible jail time. Mortgage fraud is a crime.

QUESTION: A listing agent has had at least five agents who entered her listing without calling first. The showing instructions in MRIS clearly state that cooperating agents must "Call before showing.” Can the listing agent file a complaint?

ANSWER: This type of behavior is a violation of the Regional Lockbox Rules and Regulations. Article II, Section 3 (Purpose) of these regulations clearly states that SentriCards may only be used “for the purposes of gaining authorized entry into real property.” A cooperating agent must receive authorization before entering a property.

The authorization is often contained in the showing instructions of the MRIS listing. When an agent follows those instructions, he or she receives authorization to access the property. Therefore, if the listing states “call before showing,” then an agent must call the property prior to using the Supra key to gain entry access.

The mere presence of a lockbox is not an invitation to enter a property. Card holders have been sanctioned for entering a property without authorization due to their failure to follow the showing instructions.

Question:

I'm a Realtor® with a question concerning signage. I have a client who is almost ready to put a house on the market and would like me to put up the “for sale” sign with a "coming soon" rider. The house will be ready for viewing in a week, but the seller would like to stir up some anticipation. Is this acceptable?

Answer:

I have a predisposition to be suspicious of "coming soon" signs. In the past, there was some abuse of these signs by a few disreputable agents who want to “pocket listings” or find a buyer on their own before placing the property in the MRIS system. It seems that this practice has taken a new turn in recent months. I have received numerous calls from buyer agents who try to see a property with a “coming soon” sign and are told that it is not available, but when their clients call without the agent, suddenly the property is available. I also get calls about properties that keep their “coming soon” signs diplayed for extensive periods of time.

This specific question illustrates why the use of a “coming soon” sign is not automatically unethical. The practice can be ethical when the sign is used properly and certain relevant information is disclosed to the Seller.

The MRIS Rules and Regulations state that all eligible properties must be entered into the system within 48 hours of signing the listing agreement, not counting evenings and weekends, unless the seller has given the agent written instructions to the contrary (in the listing agreement). The rules also stipulate that the property must be listed in MRIS before other advertising may be done unless the Seller has given the agent written instructions to the contrary (in the listing agreement). These regulations do recognize that a client can instruct the listing company to withhold the listing from MRIS for longer than 48 hours. If the clients suggest this practice of their own accord, without any prompting from the listing agent or firm, then it is perfectly ethical to put a “coming soon” sign on the property before the listing is entered into MRIS.

However, agents have to exercise some care when recommending that clients withhold their listings from MRIS. When agents "tell" their clients to issue this instruction then it is necessary to examine the motives and rational for the recommendation. If the intent is to keep the property off the market while repairs are made or some other work is done to the property, then such a recommendation may be appropriate. If the recommendation is made so the firm or listing agent could have an exclusive window of opportunity to sell it themselves, then it becomes more questionable. One has to ask the following questions:

Did the Seller intend/want to give the listing firm an exclusive opportunity to sell the property in-house or through only one agent?

Was the Seller informed that other agents/firms would be excluded from showing the house or may not know it is available for sale?

Was the Seller advised of the disadvantages of withholding a property from MRIS?

If the answer to any of these questions is “No,” then one has to wonder if this recommendation was in the best interest of the client or the agent.

However, if this is simply a case of the Seller needing to make additional preparations before any buyers are allowed into the property, then a “coming soon” sign would be appropriate. If this is the case, I recommend having the clients sign a letter directing the agent to withhold the listing from MRIS and not to allow anyone into the property until the work is completed.

My main concern about the “coming soon” sign rider is the situation in which only certain potential buyers are being given access to the property. If no one can get into the house yet because the property is not on the market, that seems acceptable. If only buyers working with the listing agent or firm can see the house while it is advertised as “coming soon,” this raises a red flag. In this situation, ask the three questions listed above to determine whether this is really an unethical “pocket listing.”

QUESTION: I represent a buyer who wishes to make an offer on a property listed by a limited service broker. The seller is reviewing our offer and asking me many questions. May I answer his questions?

ANSWER: This is often a difficult situation to gauge. We have been trained to be wary of “going behind the sign,” i.e. violating Article 16 of the Code of Ethics as well as Virginia agency laws. In a limited service situation, the listing broker has typically not contracted to do more than list the property, much less assist the seller in evaluating an offer. The new limited services provisions in the Code of Virginia allow a standard agent to provide to the party represented by a limited service broker the following: (1) information about the transaction and/or (2) aid in securing the contract or performing any contract obligations.

However, it is important to note that these services must be provided to the other party free of charge. The buyer agent can also offer a menu of services for a fee to the seller represented by a limited service broker.

One of the concerns for the buyer’s agent is whether he or she created an unintended dual agency situation by aiding the seller in the transaction. If you are involved as a buyer agent in a transaction with a seller represented by a limited service broker, you may want to provide the seller notice that you represent the buyer and not the seller. In addition, you may want to limit the amount of advice you provide to ensure that you do not appear to represent the seller. Of course, this is easier said than done. If you withhold too much assistance to the seller, he or she may be unwilling to transact with your buyer. So perhaps a solution is to refer the seller to alternate sources of information, or suggest that the seller speak with an attorney.

QUESTION: The seller is represented by a limited service broker. The buyer has reason to believe that the furnace in the property emits high levels of carbon monoxide. As the buyer agent, I have tried to contact the limited service broker to obtain the information, and I was informed this was not part of the services for which he was contracted. Does the limited service broker have a duty to disclose this information?

ANSWER: This question requires a two-step answer.
The Code of Virginia has made it clear that a limited service agent/broker “shall provide the client, at the time of entering the brokerage agreement, copies of any and all disclosures required by federal or state law.” In addition, the limited service broker shall disclose to the client the following in writing: (1) the rights and obligations of the client under the Virginia Residential Property Disclosure Act; (2) the rights and obligations of the client to deliver or receive the condominium documents or the condominium resale certificate, as applicable; and (3) the rights and obligations of the client to deliver or receive the Property Owners Act association disclosure packet, as applicable. Furthermore, the limited service broker must disclose to potential buyers all material adverse facts pertaining to the physical condition of the property actually known by the broker. This requirement is the same as for a standard agent. The Code of Virginia, therefore, requires a limited service broker to disclose the presence of carbon monoxide (a material adverse fact pertaining to the physical condition of the property) if he actually knows about it. However, a limited service broker often has access to much less information than a standard agent and, therefore, may not actually know of the material adverse fact.

The Code of Ethics does not differentiate between the duties owed by a Realtor® engaged as a limited service agent and those of a standard agent. Article 2 of the Code of Ethics requires that Realtors® discover and disclose adverse factors reasonably apparent to someone with their expertise. However, they are not required to discover and disclose latent (hidden) defects in property or to advise clients or customers on matters requiring specialized knowledge and training not required by the state licensing authority or in the Realtor's® area of expertise. Standard of Practice 1-2 helps define this duty. The duty is to discover and disclose "adverse factors reasonably apparent."

Is the defective furnace an “adverse factor which is reasonably apparent?” The answer lies in the listing agreement. If the listing broker's agreement did not involve an inspection of the property, then it is hard to say that a defective furnace would have been an adverse factor reasonably apparent to the listing broker. As a result, the listing broker would only have a duty to disclose this adverse factor if he had inspected the property.

QUESTION: Let’s now turn our attention to pictures. It has become standard for MLS listings to include photos of the advertised property. How do you select your pictures, can you alter them, and what are the consequences of posting pictures on your MLS listing?

ANSWER: First, let’s address the issues surrounding the choice of pictures. If the pictures of the house reveal some of the problems with the property, is it permissible to “clean them up?” I believe that any time you make a material change to a photo that alters the physical condition of the property; you may be violating Article 12 of the Code of Ethics. Article 12 requires that Realtors® present a true picture in their advertising and real estate communications. As always, some scenarios will be clear code violations and others would get different results from different panels. An example of a clear violation would be to erase a visible crack in the foundation, or fill in a hole in the roof. But what about removing the dandelions in the grass, or removing a cloud in the sky? For these I would say that reasonable people could disagree.

Once the photos have been selected and you are about to post them on MRIS, other rules come into play. MRIS has a “Photo Upload Terms of Use” that you agree to every time you post a picture. Here is a summary of their rules:
(1) Photos and images are uploaded on a per listing basis and are not transferable to another listing.
(2) The photos and images are copyrighted by MRIS.
(3) You assert that you will not submit an image or photo that you do not have the right to assign to MRIS.

Finally, other articles, such as Article 2 (misrepresentation or concealment of pertinent facts about a property) and 10 (prohibits discrimination based on race, color, religion, sex, handicap, familial status or national origin), also impact how social media can be used by Realtors®. Agents should also familiarize themselves with those Articles.

Editor’s Note: Michelle Yam of MRIS provided the summary of the Photo Upload Terms of Use.

QUESTION: The listing agent, Sarah, receives an offer from Ann-Lewise, the buyer’s agent. Ann-Lewise’s offer is a full price offer, all cash deal. Leslie, another buyer’s agent, submits a second offer. She asks Sarah if there are other offers on the property. Sarah answers that she just received another offer. Leslie then asks for the terms of the other offer. Sarah musters all the righteousness she can, and replies, “I cannot tell you, such information is confidential!” Is Sarah correct? Was Leslie unethical in her request for details about the offer?

ANSWER: There seems to be some confusion among agents about the confidentiality of an Offer to Purchase a property. Certainly we all know that contracts, once ratified, are confidential; but what about the buyer’s Offer to Purchase the property? The short answer? Absent an agreement between buyer and seller, there is no requirement for the seller or listing agent to keep an offer confidential. It is the property of the seller, once delivered.

When Leslie asked Sarah about the presence of other offers – Sarah could tell her that there were offers pending AND include details of such offers. Surprised? So are a lot of other Realtors®. That is why the Code of Ethics has made it a requirement to disclose to the purchaser that the offer may not be confidential. Absent an agreement to keep the offer confidential, Sarah, with permission from the seller, could send copies of Ann-Lewise’s offer to purchase to any buyer agents who are being encouraged to write superior offers.

The Code of Virginia specifically addresses the duty of confidentiality that is born out of the agent-client relationship but does not impose any duty of confidentiality for offers received by a seller. In this matter, agents are bound by the provisions of the Code of Ethics. In 2006, the Code was updated to bring clarity to this issue.

Standard of Practice 1-13
“When entering into buyer/tenant agreements, Realtors® must advise potential clients of: 1) the Realtor’s® company policies regarding cooperation; 2) the amount of compensation to be paid by the client; 3) the potential for additional or offsetting compensation from other brokers, from the seller or landlord, or from other parties; 4) any potential for the buyer/tenant representative to act as a disclosed dual agent, e.g., listing broker, sub-agent, landlords agent, etc., and; 5) the possibility that sellers or sellers representatives may not treat the existence, terms, or conditions of offers as confidential unless confidentiality is required by law, regulation, or by any confidentiality agreement between the parties.” (Adopted 1/93, Renumbered 1/98, Amended 1/06)

Standard of Practice 1-15
“Realtors®, in response to inquiries from buyers or cooperating brokers shall, with the sellers’ approval, disclose the existence of offers on the property. Where disclosure is authorized, Realtors® shall also disclose whether offers were obtained by the listing licensee, another licensee in the listing firm, or by a cooperating broker.”(Adopted 1/03, Amended 1/06; emphasis added)

Note that in Standard of Practice 1–15, the Realtor® is advised that they must disclose the other offers (with seller’s approval). The Realtor® must also tell the inquiring buyer agent who the author of the Offer to Purchase is. This is important to the buyer agent, in that a dual agent writing an offer; or designated agent in the same office writing an offer may have benefits they can negotiate away to position their offer more favorably.
How does the Realtor® protect his or her buyer from having the Offer to Purchase used to facilitate better offers? The practitioner needs to disclose to the buyer client that neither the seller nor the seller’s agent is subject to confidentiality. If the purchaser wishes to make the offer confidential, then that person will need to make a written request to the seller before submitting their offer. The seller and buyer should have a written and signed agreement to maintain the offer in confidence, and then at that point the buyer agent can submit the offer to the seller.

For too long listing agents have been under the false impression that they must keep these offers and their existence secret. No longer. The Realtor® acting on behalf of the seller is required to protect and promote the interests of his or her client, which may mean disclosing the content of an offer to obtain a better bargain on another offer.

Do Rental Transactions Mirror the Practices in Sales?

A prospective tenant submits an application for rental. The listing status is changed to application registered. Over the weekend another prospect submits an application for the same rental. The owner dropped the first application and accepted the second application. How could the property manager accept another application after the status was changed in the system?

The customary practice in leasing is to consider all applications on a “first come, first served” basis. Even if there are multiple offers, the property managers typically follow this practice. This custom is different than residential brokerage where people consider all offers together and “cherry pick” the best one.

Here a property manager has deviated from the customary practice in rentals and borrowed a practice from sales. There is nothing automatically unethical or illegal about departing from customary practice.

We have the same Code of Ethics for all real estate disciplines. Shouldn’t the practices for rental transactions mirror the practices in sales?

These customs reflect the differences between these separate and distinct real estate disciplines. A rental transaction is a long term commitment. Parties continue to work with each other for months, if not years, after the original transaction. They also feature less negotiation then sales transactions. Few if any tenants offer to pay more rent for the property then the advertised price. Landlords are also more conscious about lease terms because many rental disputes eventually wind up in court.

In contrast a sales transaction is a temporary relationship. The parties have little contact with each other after settlement. Buyers will go above the list price if there is competition for the house. Sellers are more willing to compromise on contract terms because they are focused on making this one deal work and less concerned with the long term implications of contract language. A dispute in a sale often ends with parties walking away rather then suing.

Customs are merely prevailing practices that developed as a response to common issues or experiences. The practice of cherry picking works well in those situations where there are significant differences between competing offers. If the differences between prospects are insignificant then following the practice of first come, first served makes more sense. The best REALTORS® are flexible. They know when it may be necessary to depart from customary practice by using another otherwise legal and ethical option to better serve the client’s interests.

Is there any way this could be a violation of some rule?

You could have a fair housing issue here. If the only difference between those two prospective tenants was their race, color, religion, sex, etc. then it may look like the property manager was discriminating. The first come, first served practice is favored by property managers because it is a fair way to breaking any ties between otherwise equal applicants. It also saves the landlord the expense of running multiple credit checks if the first applicant qualifies.

by NVAR General Counsel Sarah Louppe Petcher & Staff Attorney Laura Farley

Q. I am changing companies, and I currently have properties listed. What happens to those listings?

A. The listing agreement and the buyer/broker agreement are both agreements between the client and the broker – not you, the agent. This means that unless your client and the broker agree otherwise, the deal stays with the brokerage when you leave.
If your broker agrees to let you take the listing with you, you will need to submit a request through MRIS’ EZ-Transfer program. But your old broker is not required to release the listing. For more information, see NVAR’s “The Ins and Outs of Agency Termination” article at go.nvar.com/agencytermination.

In either situation, the Independent Contractor Agreement that you signed when you began working at the brokerage will govern what happens to your commissions when you leave with pending transactions. Whether your old broker agrees to release the listing or not, your Independent Contractor Agreement will dictate if and how compensation will be paid for any pending transactions you may have.


A new guide that further explains HUD's RESPA Statement of Policy on Unearned Fees is now available online. NAR asked a well known RESPA expert to develop this guide that details what the new HUD statement means to real estate brokers about the legality of charging fees, such as transaction fees, available at:

http://www.realtor.org/Realtororg.nsf/pages/respasec8b?open

HUD, of course, has issued an official statement that administrative fees in excess of the value of services rendered for those fees are a violation of RESPA, whether there's a sharing of such fees or not.

The 7th Circuit Court (Illinois, Indiana, Wisconsin) has ruled that RESPA does not prohibit such fees unless they are shared, although courts in other circuits could affirm the HUD ruling at some point...in which case REALTOR® firms in that area could face substantial lawsuits (possibly class action) for all such fees
charged.

Firms which charge this fee should document that the fee
DOES represent a service which is NOT included with the usual
brokerage commission...and the amount is reasonably commensurate with the cost of the service.

Myth: It is illegal to rebate your commission.
Fact: There are some limited legal ways to rebate a portion of your commission.

By Marcus Simon, attorney

Many buyer agents have begun to offer to credit a portion of the real estate commission to their clients. It is not illegal for an agent to offer to pay money to a purchaser as an inducement to have them sign an exclusive agency agreement. However, this practice can lead to other problems for both purchasers and their agents further down the road, particularly at settlement.

Anytime a purchaser expects to receive a cash credit at closing, it is essential that they make their lender aware of the amount and nature of the credit as soon as possible. The lender will need to adjust the financing appropriately. Failure to do so can easily result in the lender disallowing the payment to the purchaser and possibly causing the entire transaction to unravel.

Commission credits can be accounted for correctly in a number of the ways on the HUD-1 settlement statement:

1) The seller may give the purchaser a credit at closing and reduce the commission paid by that same amount. The listing broker and/or agent must agree to this, however, as the broker is party to the listing agreement, which is a contractual arrangement between the seller and the broker. The seller may not be able to alter the commission amount or split on his or her own initiative.

2) If the listing broker or agent objects to a reduction in the commission paid, the selling agent may collect the full commission on page two of the settlement statement, then show it as a credit to the seller on page one. The seller then credits the same amount to the buyer.

3) A third method, which doesn't involve the seller at all, is to simply show a credit from the selling agent to the buyer on the buyer's side of the settlement statement.

Solutions two and three are problematic as they may create an issue under Virginia's Wet Settlements Act. Virginia law requires that all funds be received by the settlement company prior to recordation, and that no funds, including commissions, be disbursed until after the title documents have been recorded. If a commission credit is being used as part of the down payment, then arguably not all of the funds required to settle are available until the commission is actually disbursed.

The biggest problem with all three of these scenarios, however, is that the lender often is not willing to allow cash credits at closing. Most lenders will not allow any escrows, and may limit cash credits to the amount of closing costs actually incurred. Some loan programs do not allow for any closing cost credit. Third party credits, which include a credit from the real estate agent at closing, are often forbidden as well. Underwriters may treat the credit to the purchaser as a reduction in the sales price, affecting the loan to value ratios. Lenders have strict requirements regarding the source of funds of the down payment and the purchaser cash contribution at closing.

In order to make clients happy and "save" the transaction, there may be pressure brought on the settlement agent or the real estate agents to manipulate the numbers on the HUD-1. A real estate agent should be very wary of these schemes and avoid being made a party to loan fraud. It is important that the HUD-1 settlement statement accurately reflect the entire transaction.

KICKBACK: An offer to pay a third party to win a client's business.
Example: A lender pays $1 to an agent in exchange for the agent referring the buyer to the lender.

Is it legal? A kickback is viewed as increasing the costs to consumers without providing anything of value. In certain circumstances, such as those covered under the Real Estate Settlement Protection Act, a kickback may be illegal.

REBATE: An offer to return part of a payment to a client to induce the client to use the firm's services.
Example: A real estate firm offers to give back $1 of its commission to a client in exchange for the client using the firm's services to purchase a property.

Is it legal? The offering of a rebate is generally viewed as a legal and ethical part of negotiating compensation. State and Federal regulators have taken the position that such rebates ultimately reduce the cost to consumers. Any attempt to prohibit, restrict or discourage the negotiation of commission is considered an illegal restraint of trade under established antitrust law.

REALTORS® & RESPA: ARE REALTORS® GETTING RELIGION?
By Lawrence E. "Lem" Marshall, Esq., Counsel to Virginia Association of REALTORS®

Most REALTORS® are aware of the anti-kickback provisions of the Real Estate Settlement Procedures Act. "No man shall giveth, Yea, neither shall he receiveth, any thing of value pursuant to any covenant under the heavens that calleth for referrals of settlement services." Book of RESPA 8:4.
This well-known proverb articulates the received wisdom of Congress that referral fees unnecessarily add to the cost of settlements, and thus make housing less affordable for everyone.

The essence of Section 8 of RESPA seems to be that while the business expense of a targeted and highly effective referral fee paid by a lender to a referral source must be recovered by the lender in the form of higher loan costs, the highly inefficient advertising that replaces the referral source does not. However, we have to live with the RESPA prohibition against paid referrals as valueless acts that serve only to drive up costs.

Paying for Services (other than referrals)
RESPA acknowledges that it is legal to be paid for services actually performed, up to the value of the services, if the services are not referrals (which by definition have no value).

Because RESPA permits service providers to pay for service actually performed, some have tried - with varying degrees of success - to skirt RESPA by paying more than the service is worth, or for duplicative efforts, or even for only nominal - or no - service. These "disguised" referral fees are illegal and much despised by HUD.

Joint Ventures
It is legal to refer business to an entity of which you are an owner, as long as your compensation is based on your profit from the entity and not linked to the referral per se. And thereon hangs an interesting tale.

Lenders and other settlement service providers long ago discovered that offering a piece of the pie to sources of referrals made good business sense. Thus we have seen a proliferation of real estate broker-lender, lender-title company, broker-settlement agency joint ventures over the years. These couplings make great sense and afford the participants incentives to refer business to the joint venture partner. This type of relationship does not violate RESPA if the benefit accruing to the referral source is strictly according to ownership interest in the benefited entity, and the consumer to whom a referral is made is given the RESPA Miranda warning - basically that the person making the referral may benefit from it, that the service will cost a certain amount, and that the consumer might find the service cheaper elsewhere. These relationships are legal and ethical and can be quite beneficial.

Hiring Referral Sources as Employees
That brings us to a more recent phenomenon, the efforts of some mortgage brokers and lenders to avoid the strictures of RESPA by hiring referral sources as employees and paying them for work they do as employees. Of course, much or all of that work will be for clients referred by the employee, but if the employer/employee relationship is bona fide, and the salary is for - and commensurate with - services actually performed, the relationship can be legal. It's likely that HUD will apply something like the IRS test to determine whether the employee really is an employee, and virtually everyone acknowledges that merely giving the "employee" a W-2 and calling her an employee will not be enough.

Virginia Law
We also need to be aware of another limitation imposed by Virginia law even when the labyrinth of RESPA has been negotiated. The Virginia Mortgage Lender and Broker Act provides in Section 6.1-422 that a person may not receive a fee as a mortgage broker and a real estate broker for services performed in the same transaction unless the person was licensed and regularly engaged in mortgage brokerage in Virginia as of February 1989. This resolution of a turf battle between mortgage and real estate brokers was weakened by a provision permitting real estate brokers (but not salespersons) who are owners of a real estate firm to own an interest in a mortgage brokerage and to profit from such investment and be compensated for services actually performed for those entities. But the prohibition on dual brokerage fees to non-grandfathered persons persists.

In Summary...
These are only a few examples from the veritable patchwork quilt of efforts to overcome RESPA's prohibition on referral fees. Perhaps what REALTORS®need most to be aware of is that HUD approaches what it sees as RESPA violations with a fervent zeal displayed few other places. If you are looking for a way to receive a fee for referring settlement business, look for another way to make a buck. If you're willing to work legitimately for a service provider and get paid for the value of what you do - and no more - there are opportunities out there awaiting you. Be wary of the "easy" ways around RESPA, and don't forget the limitations on real estate brokers and salespersons imposed by the Mortgage Lender and Broker Act.

And blest be he who maketh not the unclean referral, for he shall know salvation, even though he profiteth not, and loseth his shirt, and his donkey.

REALITY CHECK: WHAT YOU DON'T KNOW ABOUT RESPA CAN COST YOU THOUSANDS
Part 2 of 2

In our last Reality Check quiz, we looked at the general provisions of RESPA, the Real Estate Settlement Procedures Act. You now know that RESPA rules cover residential transactions and settlement services that occur prior to closing.

With that under your belt, we'll now turn to RESPA's Section 8, which covers in-house settlement services and referrals. Confusion over this section results in a majority of RESPA violations, so choose your answers carefully!

QUESTION: Two companies that provide settlement services and have some degree of common ownership are considered affiliated businesses under RESPA. When there is a referral from one of these companies to the other, RESPA requires that the customer receive an affiliated business disclosure that contains specific information, including:
A. A statement that use of referred service is not required
B. Names of other providers of the same service
C. A statement that the property is pest-free
D. The commission is being paid by the property seller.

ANSWER: (A.) A statement that use of referred service is not required

The disclosure must state the existence of an affiliated business arrangement between you and the company to which you are referring your clients. As part of the disclosure, your clients must be provided a written estimate of the charge or range of charges made by the company to which the clients are being referred and information that makes clear that your clients are not required to use that company.

QUESTION: The affiliated business provision, which is an exception to the general RESPA rule regarding compensation for referrals, allows:
A. The real estate professional making the referral to receive a small referral fee
B. The party making the referral to receive a return on its ownership interest in the company receiving the referral
C. The buyer to avoid having to pay real property transfer tax
D. The seller to require buyers to use the seller's attorney.

ANSWER: (B.) The party making the referral to receive a return on its ownership interest in the company receiving the referral

The only thing of value that can be received from an affiliated business arrangement, other than the payments permitted under other subsections of Section 8 of the Act, is a return on the ownership interest. These payments cannot vary based on the volume of referrals to the joint venture company.

The affiliated business must be a bona fide, stand alone business with sufficient capital, employees, and separate office space, and must perform core services associated with that industry.

QUESTION: To combat higher costs in real estate transactions, Section 8 of RESPA makes it a criminal act for settlement service providers to pay fees for the referral of business. One exception to this rule allows a real estate professional to pay a referral fee to:
A. A mortgage broker who refers a buyer who has been pre-approved
B. A previous customer who refers a neighbor
C. Another licensed real estate broker who refers a buyer from another part of the country
D. A relative who overhears a customer saying he or she is moving.

ANSWER: (C.) Another licensed real estate broker who refers a buyer from another part of the country

Section 8(c) of RESPA includes an exception to the general prohibition on the payment of referral fees for payments pursuant to cooperative brokerage and referral arrangements or agreements between real estate salespeople and brokers.

QUESTION: Another exception to the RESPA rules contained in Section 8 allows real estate professionals to receive compensation for:
A. Filling out a mortgage application
B. Telling the home inspector the address of the property to be inspected
C. The reasonable value of goods and services actually provided or performed
D. Doing the same thing they have been paid to do as a real estate professional.

ANSWER: (C.) The reasonable value of goods and services actually provided or performed

Section 8(c) of RESPA states that nothing in the section prohibiting the payment of referral fees shall be construed as prohibiting the payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed. Payments may not be tied to the success of the real estate broker/agent's efforts (transactionally based), but must be a flat fee that represents fair market value.

The amount paid to a real estate broker or agent must be commensurate with the value of those goods and services. If the payment exceeds market value, the excess will be considered a kickback and violates RESPA.

The state of Virginia imposes an additional limitation on the receipt of transaction fees. Under the Virginia Mortgage Lender and Broker Act, a person may not receive a fee as both a mortgage broker and a real estate broker in the same transaction unless that person was licensed and regularly engaged as a mortgage broker in the state prior to February 1989.

QUESTION: RESPA allows title companies to provide real estate professionals:

  1. $50 for every client referred to the title company by the real estate professional
  2. An entry in a contest to win a car for every $1,000 in premiums paid by the real estate professional's clients
  3. Tickets to a baseball game once a week for the entire season.
  4. Notepads that have been imprinted with the title company's name and phone number.

ANSWER: (#4 is the correct answer!) Notepads that have been imprinted with the title company's name and phone number
The RESPA provision prohibiting the payment of a referral fee does not include normal educational and marketing activities that are not contingent on the referral of business. These activities must not defray the expenses that the real estate broker/agent otherwise would have had to pay and cannot be in exchange for or tied in any way to referrals.

Since the notepads were not contingent on the referral of business and are typical marketing materials for a title company, they are not prohibited.

Remember, HUD is stepping up its RESPA enforcement, and has made it clear that ignorance of the law will not be a defense. The anti-kick-back provisions in section 8 of RESPA may result in a fine of up to $10,000, up to one year in prison, or both. REALTORS®should speak with an attorney familiar with RESPA to ensure that their activities comply not only with federal regulations, but also with applicable state and local settlement laws.

For more information on RESPA compliance, please contact Mike Thiel in NAR's Legal Department at 312-329-8373 or MThiel@Realtors®.org.

Most people, including REALTORS®, would jump at the chance for free sporting event tickets or a restaurant gift certificate. But if those items are from a settlement service provider, agents must be careful in accepting the gift.

The reason lies in the Real Estate Settlement Procedures Act (RESPA). Passed in 1974, the Act sought to address abusive practices, such as referral fees between settlement service providers, that increased costs to homebuyers.

Recently, HUD has stepped up its RESPA enforcement, and has made it clear that ignorance of the law is not a defense for committing a violation. Such violations should be taken seriously by REALTORS®¨: the anti-kick-back provisions in section 8 of RESPA may result in both criminal and substantial civil penalties.

Even though the law has been in place for 30 years, there still is a great deal of uncertainty over which fees are permitted and which are prohibited. To ensure that you are complying with the provisions of the Act, take the following RESPA Reality Check quiz to test your knowledge on settlements and fees.

QUESTION: Which of the following is NOT a settlement service that is covered by RESPA?
A. Mortgage loan origination
B. Furniture moving
C. Real estate brokerage services
D. Lender's credit report

ANSWER: (B.) Furniture moving

"Settlement services" relate to the federally-related mortgages covered under RESPA. Services that occur at or prior to the purchase of a home are typically considered settlement services. These services include title insurance, mortgage loans, appraisals, abstracts, and home inspections. Services that occur after closing, such as moving, generally are not considered settlement services.

QUESTION: Under RESPA, what may a real estate professional give to a colleague who refers real estate settlement service business?
A. A thank you
B. A thing of value
C. A kickback
D. A fee

ANSWER: (A.) A thank you

RESPA prohibits any person from giving or receiving a fee, kickback, or "a thing of value" for referring business to a settlement service provider, or SSP, such as a mortgage banker, mortgage broker, title company, or title agent. Saying thank you is not considered a thing of value for purposes of the Act.

QUESTION: RESPA rules do NOT cover this type of transaction:
A. Purchase of a small warehouse financed with a Small Business Administration loan
B. Purchase of a condominium with a Federal Housing Administration mortgage
C. Purchase of a single-family home with a Veteran's Administration loan
D. Purchase of a two-flat that the owners plan to live in and rent out the other unit financed with a conventional loan

ANSWER: (A.) Purchase of a small warehouse financed with a Small Business Administration loan

RESPA's coverage is limited to transactions involving a federally-related mortgage with a first or subordinate lien on residential real property (including individual units of condominiums and cooperatives) designed principally for the occupancy of one to four families. This includes any loan that is used to prepay or pay off an existing loan secured by the same property. Properties used for business purposes are not covered by RESPA.

QUESTION: The penalty for illegally giving or receiving a kickback, which is covered in Section 8 of RESPA, is:
A. Up to 90 hours of community service
B. Loss of real estate license
C. Requirement to attend a RESPA education program
D. A fine of up to $10,000 or up to one year in prison, or both

ANSWER: (D.) A fine of up to $10,000 or up to one year in prison, or both.

Before undertaking any activity with a settlement service provider or accepting any payments, goods, or services from a provider, NAR recommends speaking with an attorney familiar with RESPA and making sure that the activity complies with state and local laws. Some of these laws prohibit activities that are otherwise permissible under RESPA.

When are perks and gifts considered kickbacks? What about the in-house settlement services that my brokerage provides? We'll dive into RESPA's Section 8 in our second half of the RESPA Reality Check. Look for part two in our next issue of Update.

For more information on RESPA compliance, please contact Mike Thiel in NAR's Legal Department at 312/329-8373 or MThiel@REALTORS®.org.

Question: I represent the buyer in a transaction. The preliminary HUD sheet indicates a lower amount of commission than what I had calculated based on the gross sales price of the house. I call the settlement agent who informs me that the commission is to be paid on the net sales price. I review the short listing in the MLS and find no indication that commission is to be paid on the net sales price. What is a net sales price? Where is it indicated on the MLS listing?

Answer: The MRIS rules and regulations state in Section X:

“Sec.2. Compensation specified on listings filed in the service shall appear in one of three forms:
a) by showing a percentage of gross selling price
b) by showing a definite dollar amount
c) commission may be paid on Net Sales price (Sales Price minus seller concessions) or on base price in new construction if specified in the system.”

MRIS allows commissions to be paid on the net sale price, which it defines as sale price minus seller concessions. What does that mean? The net sale price is the gross sale price less any closing costs normally paid by the buyer, which in this transaction are paid by the seller. Costs to be deducted can include the home warranty, any inspection (home inspection, termite, radon), and all other closing costs paid by the seller.

Where should Realtors® look to find whether their commission is based on the gross sale price or the net sale price? This information is included under the “legal” category of the long version of the listing

What can Realtors® do to address this? For most transactions, the difference in the commission paid based on the net sale price and the gross sale price is generally a small portion of the total commission. However, to ensure that payment is based on the gross sale price, Realtors® should make sure to discuss this with their buyer clients and modify the buyer broker agreement to reflect that compensation will be based on the gross sale price of the property and that if commission is paid by the cooperating broker based on the net sale price, the client will make up the difference.

Question: In reviewing the MLS comment field, I find a lot of information that should not be there. Can you give us guidance about what information does not belong in the comment section?

Answer: The increase in listings of bank-owned properties in the MLS has led to an increase in improper listings. Many bank-owned listings include the name and phone number of the bank that owns the property. Telephone numbers should never be included in the comment section of the MLS. MRIS is currently auditing all listings to identify those that list the bank’s telephone number in the comment section.

Another common problem found in listings of bank-owned properties are words to the effect of: “you must use Lender X” or “you must use settlement agent X.” Both of these statements raise the specter of a potential RESPA violation. The legislature in Virginia was clear in its last session that such language constitutes a potential violation of CRESPA (the state equivalent of RESPA). Indeed, new legislation required an amendment to our Virginia Jurisdictional Addendum to include the following language:
“Variation by agreement: The provisions of the Consumer Real Estate Settlement Protection Act may not be varied by agreement, and rights conferred by this chapter may not be waived. The seller may not require the use of a particular settlement agent as a condition of the sale of the property.”

Q: I heard about a ruling stating that RESPA prohibits agents from charging administrative fees separate from commission based on a percentage of the sales price. What can we do to avoid having our fees invalidated?

The case in question was decided in April 2009. As you know, RESPA allows compensation to be paid in cash amounts and percentages of a sales price. In this case, the brokerage charged both an administrative fee and a commission based on a percentage of the gross sales price. Upon reviewing the administrative fee, the court found that the brokerage could not justify the charge of an administrative fee above and beyond the commission. The court’s statement was broad and went against other rulings by other courts on the same issue.

In light of this decision, NVAR has amended its listing forms. All of the language that identified an “Administrative Fee” has been removed. However, this does not mean you cannot charge such a fee, just that it must be done differently. Here are some tips on how you can achieve the same result without running into the same problem as the brokerage in question:

Don’t:
• Label the fee differently than the commission so that it follows as a separate service.
• Disclose the broker compensation in different sections of the listing agreement or on different lines of the HUD sheet.

Do:
Disclose that all payments, the commission-based and the flat fee components, represent payment for services rendered by the brokerage.

Q. I am a broker with many licenses hanging in my office. I reviewed them the other day and discovered that a large number of the licensees were no longer current. What am I supposed to do?

As a broker, it is your responsibility to ensure that agents who are practicing real estate under your brokerage all have active licenses. (18VAC135-20-330)

If one of your agent’s licenses has expired, please send the license back to DPOR. The Code states that when a salesperson or broker’s license is no longer active, it is the duty of the principal broker to return the license by certified mail to DPOR so that it is received within 10 calendar days of the date of termination or status change. The principal broker must indicate on the license the date of termination, and sign the license before returning it. (18VAC135-20-170)

Any real estate activity conducted subsequent to the expiration date of a license may constitute unlicensed activity and be subject to prosecution. (18VAC135-20-140)

What does it mean for your office? You should set up a system by which someone checks the status of licenses once a month. If a license is about to expire or if an agent whose license hangs with your brokerage is no longer practicing, then inform the agent. Give the agent a reasonable number of days to remedy the problem.

If the agent does not renew or no longer wishes to practice real estate, send the license back to DPOR. The Code will only impose liability on brokers who knew or should have known of a problem and failed to take adequate measures to remedy the problem. By instituting such a system, you will ensure that all agents who work for the brokerage have active licenses. This will avoid problems associated with agents who continue to practice with expired licenses, or whose licenses are registered with you but do not practice real estate.

The U.S. Department of Housing and Urban Development has received a number of questions concerning whether all payments made to subordinate lien holders to release liens must be disclosed on the HUD 1/1A Settlement Statement.

The September, 2010 RESPA Roundup publication states:
In summary, yes, all payments made in connection with a RESPA-covered transaction must be disclosed on the HUD-1/1A Settlement Statement.

This answer is based on a number of provisions in the statute and regulations, including Section 4 of RESPA which requires the use of a standard form for the statement of settlement costs. This form, the HUD-1/1A, must “conspicuously and clearly itemize all charges imposed” upon the borrower and the seller “in connection with the settlement….” 12 USC § 2603.

Further, the regulations, at 24 CFR § 3500.8, require the use of the HUD-1/1A settlement statement in RESPA-covered transactions. Section 3500.8(b) requires that “each third-party charge paid by the borrower and seller” must be itemized on the HUD-1/1A and that the HUD-1/1A must be completed in accordance with the instructions in Appendix A of the regulations. Both § 3500.8(b) and Appendix A require that the “actual charges paid by the borrower and the seller” be shown on the HUD-1/1A.

The instructions for particular lines on the HUD-1 provide additional guidance about how to disclose payments to subordinate lien holders.

• Lines 504 and 505 are to be used for the amount of any first or second loans which will be paid as part of the settlement. Accordingly, the instructions are explicit that the payoff for the second loan is to appear as an item on Line 505 on the HUD-1.
• For payments to the subordinate lien holder, any amounts paid must appear inside the column on line 505, and other amounts paid by or on behalf of the seller must appear as P.O.C. outside of the column, either on Line 505 or on Lines 506-509.
• Finally, with respect to the buyer, Lines 204-209 are to be used for items, except for earnest money, that are paid by the buyer for financing arrangements other than new or assumed mortgages. For payments to the subordinate lien holder by or on behalf of the buyer, Lines 204-209 may be used to disclose, outside of the column, any amounts paid outside of closing in connection with the second mortgage payoff. The instructions also provide that such amounts entered on Lines 204-209 should also be entered (outside of the columns) on Lines 506-509.

To contact HUD representatives with questions on RESPA, send an email to This email address is being protected from spambots. You need JavaScript enabled to view it. or call 202.708.0502.

The following is a summary of Virginia code language and local ordinances. The information should be considered reliable, but not guaranteed, and should not be considered legal advice. Please see the applicable code sections for further information.

The following sign information is taken from state laws that pertain to ALL jurisdictions.

1. No signs may be placed in the public right-of-way unless otherwise specified by a jurisdiction for a certain time period. In districts where signs are prohibited in the right-of-way, no special permits will be issued for signs to be placed in the right-of-way. The public right-of-way, a distance from the curb to a certain point inward, varies for every highway and street. Contact the local zoning office for specifications. Please note that a median strip is characterized as a public right-of-way.

2. Offsite signs addressing the sale, rental or lease of real estate are not permitted. However offsite directional signs may be permitted by the locality only in those locations approved by the Virginia Department of Transportation (VDOT).

3. Signs should be free-standing. They should not be posted on trees, utility poles, traffic-control signs, fire hydrants, or any other public property.

4. Reflectors or flashing lights are prohibited, and real estate signs should not be illuminated in any way.

5. Moving signs intended to attract attention (i.e. balloons, streamers, pennants, etc.) are forbidden.

6. REALTORS® should always obtain permission from home owners before they place signs on private property. (Some jurisdictions even require that written approval from the affected home owners be submitted to the Zoning Administrator.)

7. If applicable, abide by all Home Owners' regulations in regards to sign placement.

8. REALTORS® who display signs in violation of the ordinances can be fined and signs can be removed and disposed of without notice.

9. If counties enter into agreements with VDOT, county employees and volunteers must comply with state regulations. If a lawfully placed sign is confiscated by an employee or volunteer, the sign owner shall have the right to reclaim the sign within five business days of the date of such confiscation.

Code of Virginia, Title 33.1, Chapter 7, Section 33.1-369 and Section 33.1-370

The following sign placement information is taken from local ordinances and is divided by locality.

City of Alexandria

Prohibited signs:

  1. No sign may be placed in the public right-of-way.
  2. Moving or windblown signs and banners are prohibited.
  3. No sign may be displayed which obstructs, obscures or impairs the free and clear vision of motorists.

Zoning Ordinance, Article IX, Section 9-104

On-site sign regulations:

  1. Only one sign is permitted on the property.
  2. Signs must be removed 30 days after settlement.
  3. Signs shall not exceed four square feet in area in residential and mixed-use zones.
  4. Signs shall not exceed 12 square feet in RA and RB residential zones.

Zoning Ordinance, Article IX, Section 9-105 (E), 9-201 (A)(5)

Off-site sign regulations:

  1. No permit is required for signs displayed less than three days. For signs displayed for more than three days, both a building code permit and a permit from the Director of Planning are required. Written permission from the owner of the property on which the sign is to be placed must be submitted with permit applications.
  2. Signs must not exceed six square feet in area.
  3. No two signs are permitted within 150 feet of each other.
  4. Signs must be set back at least five feet from the front property line.

Zoning Ordinance, Article IX, Section 9-201 (7)

Back to top

Arlington County

Prohibited signs:

  1. Signs should not constitute a vision obstruction for pedestrians or motorists and should not block county or state signage.
  2. Any moving sign or device to attract attention is prohibited, including signs with pennants, discs, banners, or balloons.
  3. Any sign which falsely presents or implies the need or requirement of stopping or caution or which for any reason is likely to be confused with a public authority sign is prohibited.

Zoning Ordinance, Section 34 (C)

On-site sign regulations:

  1. Only one sign is permitted on the property.
  2. Signs shall not exceed 4.5 square feet in area.
  3. Signs must be located 15 feet from any street lines.
  4. Signs shall be removed within 20 days of settlement.

Zoning Ordinance, Section 34 (D)(4), (E)(7)(a)

Off-site sign regulations:

  1. Signs may be displayed only from sundown on Friday to sundown on Sunday and on legal holidays.
  2. No more than one sign for each real estate agency shall be displayed on any one street intersection.
  3. Signs may only be posted on that portion of the right of way adjacent to a street, road, highway or sidewalk.
  4. Each directional sign placed in the public right-of-way shall contain the name of the real estate company or agency which posted the sign.
  5. Signs shall not exceed 1.5 square feet in area.
  6. Signs should not be placed on utility poles or trees, landscaped beautification area, traffic circle, control device, sign or any paved portion of a pedestrian refuge area. Signs shall not be placed adjacent to other public lands including schools and parks.

Zoning Ordinance, Section 34 (E) (9)

Back to top

City of Fairfax

Prohibited signs:

  1. Moving signs or devices intended to attract attention, including balloons, flags and pennants are prohibited.
  2. Signs that are located in a manner that would constitute a hazard to public safety are prohibited.
  3. Signs attached to trees, utility poles, street light poles, public benches, refuse containers parking meters hydrants or like structures are prohibited.

City Code, Chapter 110, Article II, Division 7, Section 110-183

On-site sign regulations:

  1. Only one sign shall be permitted for each unit to be rented, sold or leased.
  2. Signs shall not exceed a total area of four square feet or a maximum height of five feet.
  3. Signs shall be placed no closer than eight feet from any public right-of-way.
  4. Signs must be on the property that is being sold..

City Code, Chapter 110, Article II, Division 7, Section 110-186 (1)

Off-site sign regulations:

  1. Open house signs must not exceed two square feet, shall be posted no more than 24-hours in advance of the event, shall be posted no longer than three consecutive days, and shall be removed by 9:00 pm on the final day of the event.
  2. Each open house sign placed off-site shall require the permission of the owner of the property on which the placement of sign is sought.
  3. Open house signs shall not be located within any public right-of-way or placed on a median strip.
  4. Residential directional signs over 2 feet in area require a permit. These signs can be displayed for up to 90 days on private property with the permission of the owner. Such signs shall not exceed 3 feet in height nor 4 feet in area, and shall be placed no closer than 8 feet from the public right of way.

City Code, Chapter 110, Article II, Division 7, Section 110-186 (2); Section 182 (5)

Back to top

Fairfax County

Prohibited signs:

  1. Any sign in which all or part is in motion or set in motion by the atmosphere is prohibited.
  2. Any sign located in the vision triangle formed by any two intersecting streets or that projects beyond a lot line is prohibited.
  3. No sign may obstruct, impair, obscure interfere with or be confused with any traffic control device or be confused with any traffic control device.
  4. Any sign that is attached to an object within the limits of any highway is prohibited.

Zoning Ordinance, Article 12, Section 12-104

On-site sign regulations:

  1. All properties may have one sign only. Only corner lots are permitted two signs on the premises.
  2. Signs must be removed seven days after settlement, rental or lease.
  3. A sign advertising a single-family or multiple-family dwelling unit shall not exceed a total area of four square feet nor a maximum height of six feet.
  4. A sign advertising a commercial property or a property over 20 acres shall not exceed a total area of 32 square feet nor a maximum height of eight feet.

Zoning Ordinance, Article 12, Section 12-103 (3)(D)

Off-site sign regulations:

  1. Signs are permitted in only those locations approved by the Virginia Department of Transportation.
  2. Signs must not exceed a total area of three square feet nor a maximum height of four feet.
  3. Signs may not exceed five per property and no two signs advertising the same property and beside the right-of-way are permitted within 500 yards of each other.

Zoning Ordinance, Article 12, Section 12-103 (3)(E)

Back to top

City of Falls Church

Prohibited signs:

  1. No sign shall be located less than five feet from a property line or within a public right of way.
  2. Balloons , pennants, pieces of material and other devices which move in the breeze are prohibited.
  3. No sign shall be located where it impedes use of any door, window, sidewalk, walkway, driveway or other vehicle area.
  4. Signs shall not be on any property without the express written permission of the property owner or his agent.
  5. Signs bearing the words Stop, Go Slow or other similar words which imply official warning are prohibited.
  6. Signs using traffic symbols or red, amber and green in such combinations as to be confused with traffic control devices are prohibited.
  7. Signs which advertise a use that has been discontinued for a period of 30 days or more are prohibited.

City Code, Chapter 48, Article VI, Division I, Sec. 48-1242

On-site sign regulations:

  1. Only one sign is permitted per property.
  2. In residential districts, signs shall not exceed six square feet in area. In other districts, signs shall not exceed 16 square feet in area.
  3. Signs shall be removed within one week of occupancy of the property.
  4. One additional "open" sign is permitted on the premises during an open house. No such sign shall exceed six feet in height.

City Code, Chapter 48, Article VI, Division I, Sec. 48-1241(b)(7)

Off-site sign regulations:

  1. Signs shall only be displayed on Saturdays, Sundays, and holidays.
  2. Signs shall not exceed six square feet in area nor three feet in height.
  3. No more than four signs may be displayed per property.
  4. Signs shall be made of a weatherproof material.

City Code, Chapter 48, Article VI, Division I, Sec. 48-1241(b)(15)

Back to top

Town of Herndon

Prohibited signs:

  1. Signs which are likely to create unsafe conditions by diverting the attention of motorists from their driving for periods likely to result in accidents are prohibited.
  2. No sign simulating or which is likely to be confused with a traffic control sign or other sign displayed by a public authority may be posted.
  3. Moving signs intended to attract attention of which all or any part moves by any means or is set in motion by the atmosphere is prohibited.
  4. Signs are not permitted in the public right-of-way.

Town Code, Chapter 78, Article II, Sec. 78-202.7 (b)(1) and Article V, Sec. 78-508 (7)

On-site sign regulations:

  1. A sign advertising a single-family dwelling shall not exceed a maximum of four square feet in area.
  2. A sign advertising a multi-family dwelling shall not exceed a maximum of 12 square feet in area.
  3. Free-standing signs shall not exceed a height of six feet.
  4. A permit is required for signs erected for a period of more than 12 months.
  5. All free-standing signs shall be at least 15 feet from any public right-of-way or travel way, and shall be located no closer than 25 feet to another property line. Real estate signs in townhouse districts shall be located no closer than nine feet to the right-of-way or another property line.

Town Code, Chapter 78, Article II, Sec. 78-202.7 (c)(10)

Off-site sign regulations:

None are permitted.

Town Code, Chapter 78, Article II, Sec. 78-202.7 (c)(10)

Back to top

Loudoun County

Prohibited signs:

  1. Balloons, banners, pennants, or inflated devices with the intent to draw attention are prohibited.
  2. No sign shall be located in such a manner as, in the opinion of the zoning administrator, to cause a traffic hazard.

Zoning Ordinance, Division C, Section 5-1202(A)(5) and (D)

On-site sign regulations:

  1. Only one sign is permitted on a property lot that is less than 10 acres. Two signs are permitted on properties of 10 acres or more.
  2. Residential for sale signs may not exceed six square feet in area.
  3. All signs must be set back a minimum of five feet from the public right-of-way and may not exceed six feet in height.
  4. No sign shall be erected without first obtaining a permit from the Zoning Administrator.

Zoning Ordinance, Division C, Section 5-1203 (A) and Section 5-1204 (D), Sign Matrix Section 6(a)

Off-site sign regulations:

  1. Signs shall be located only at controlled intersections where there is a change in direction.
  2. Signs shall be located on private property only.
  3. A maximum of four open house signs per property are permitted. Each sign must include a company name with direction arrow.
  4. Signs may not exceed an area of four square feet and must be set back 5 feet from the public right of way. They may not be taller than four feet in height.
  5. Signs shall be in place only during hours the house is open, plus one hour before and two hours after the event. The owner or his agent must be present at all times.
  6. Signs may be used for two days on the weekends (three days when there is a Monday holiday), as well as one-half day during the week.
  7. Signs must have a metal frame and be of semi-permanent material.
  8. All off-site signs require a permit.

Zoning Ordinance, Division C, Section 5-1204 (D), Sign Matrix Section 6(d) and Note 4

Back to top

City of Manassas

Prohibited signs:

  1. Any sign in which all or part is set in motion by any means, including the atmosphere, is prohibited.
  2. Signs shall not be posted on utility poles, public signposts or trees.
  3. No sign simulating or which is likely to be confused with a traffic control sign or other sign displayed by a public authority may be posted.

Zoning Ordinance, Article IV, Sec. 130-128

On-site sign regulations:

  1. For single-family or townhouse properties, the sign shall not exceed four square feet in area.
  2. All primary ground signs shall be required to be set back from any public right- of-way at least half the height of the sign.

Zoning Ordinance, Article IV, Sec. 130-124 and 130-129 (e)

Off-site sign regulations:

  1. A permit and cash bond of $500 is required to post temporary, directional signs.
  2. No more than 20 signs are permitted and each shall be marked with a numbered sticker.
  3. Sign area shall be no larger than three square feet.
  4. Signs may not be posted until after 12:00 noon on Friday and must be removed by 12:00 noon on Monday. On holiday weekends, temporary directional signs may be posted after 12:00 noon the day prior to the holiday, and need not be removed until 12:00 noon the day after the holiday if the holiday falls on a Monday.
  5. On each block, each REALTOR® is permitted only one sign. The signs will be posted only on the utility strip between a sidewalk and the curb or along the shoulder of the street where no curb, gutter, or sidewalk exists. Signs will not be placed on median strips.
  6. The locations of the signs shall be subject to the prior approval of the zoning administrator and shall be shown on a map filed as part of the permit application.
  7. No advertising figures, such as purchase prices, rates of interest, etc., shall be displayed on a temporary directional sign.

Zoning Ordinance, Article IV, Sec. 130-122 and 130-127

Back to top

City of Manassas Park

Prohibited signs:

  1. Any sign in which all or part is in motion or set in motion by the atmosphere is prohibited.
  2. Posting of signs upon trees, utility poles, traffic control signs, lights or devices is prohibited.
  3. No signs may be posted in the triangular area at the street corner of a corner lot.

City Code, Chapter 31, Article VI, Section 31-29; City Building Code, Chapter 7, Section 16

On-site sign regulations:

  1. The area of signs cannot exceed four square feet in residential districts.
  2. Sign area may be as large as 20 square feet in other zoning districts if the sign is set back at least 15 feet from any lot line.

City Code, Chapter 31, Article VI, Section 31-29 (D)(2)(b)

Off-site sign regulations:

  1. Signs are permitted only in those locations approved by the Virginia Department of Highways and Transportation.
  2. No such sign shall exceed three square feet in area nor four feet in height.
  3. There shall be no more than five signs per property being advertised. In addition, any two signs beside the right-of-way advertising the same property must be at least 500 yards apart.

City Code, Chapter 31, Article VI, Section 31-29 (D)(2)(j)

Back to top

Prince William County

Prohibited signs:

  1. Signs to be located within the proposed public right of way shall receive written approval from VDOT.
  2. Signs shall be located and maintained in a manner that does not obscure sight distances.
  3. No sign shall consist of any moving parts, including streamers, balloons, banners, helium-filled or inflated signs.

County Code, Chapter 32, Section 32-250.22

On-site sign regulations:

  1. For residential use, signs shall not exceed a maximum area of 16 square feet not a maximum height of 6 feet; larger signs require a permit.
  2. Signs should be set back from all property lines one foot for each foot in height of the sign.
  3. There may be no more than two signs per property.
  4. Signs shall be removed within 15 working days after the property is sold or leased.
  5. Signs located on waterfront property shall be permitted both at the water frontage and road frontage, provided all other regulations are met.

County Code, Chapter 32, Section 32-250.22, 32-250.26 and 32-250.27

Off-site sign regulations:

  1. Up to three temporary signs associated with an open house may be placed on or off-site for up to four hours before and up to two hours after the activity and may contain an arrow.
  2. Up to three off-site, directional signs associated with real estate may be erected while the property is being actively marketed. Such signs may be placed on private property only with the consent of the owners.
  3. Signs cannot exceed four square feet in size or three feet in height and only one such sign shall be permitted per lot.

County Code, Chapter 32, Section 32-250.27

Back to top

Town of Vienna

Prohibited signs:

  1. Signs which involve motion or rotation of parts are prohibited. Banners, streamers, and similar devices used for advertising purposes are prohibited.
  2. Under no circumstance should any such signs be positioned within the public street right of way. Signs should only be posted on private property with the express written permission of the owner or agent.
  3. It is unlawful to place signs on street lights, telephone poles, markers or other signs or to place a sign without a permit within 10 feet of the curb or edge of pavement.
  4. Free-standing signs and any permanent wall signs are prohibited from displaying phone numbers, email or internet addresses except where required by federal, state or local law. Evidence of such requirement must be submitted with any permit application for a sign containing a telephone or facsimile number, or an Internet or electronic mail address.

Town Code, Chapter 18, Article 19, Section 18-178

On-site sign regulations:

  1. Only one sign is permitted on the property.
  2. Signs shall not exceed six square feet in area.

Town Code, Chapter 18, Article 19, Section 18-177

Off-site sign regulations:

  1. Signs must be a minimum of 10 feet from the street curb or edge of pavement without a permit.
  2. A maximum of two real estate directional signs may be displayed on Saturday and Sunday only.
  3. A temporary real estate sign not exceeding 50 square feet in area may be erected upon issuance of a six-month permit. Such a sign must be at least 75 feet from any dwelling, and shall be dismantled within five days of the expiration of the permit.

Town Department of Planning and Zoning, Sign Ordinance Summary, “Temporary Signs”

Back to top

 

FY 2012-2013
Real Estate Tax Rates
 
All rates are per $100 of assessed value
   
City of Alexandria $1.00
Arlington County $0.97
Town of Clifton $1.08
City of Fairfax $1.01
Fairfax County $1.08
City of Falls Church $1.27
Town of Herndon $0.265 + Fairfax County Tax
Loudoun County $1.24
Prince William County $1.21
Town of Vienna $0.2421 + Fairfax County tax
   
Commercial Property Tax – Transportation Surcharge
These amounts are in addition to the general tax rate above
   
Arlington County $0.13
City of Fairfax $0.06
Fairfax County $0.11

Adapted from: Friedlander, Virginia Practice - Landlord-Tenant Handbook pp4-13 (2009-2010 Edition)

ITEM

COMMON LAW

VRLTA

Warranty of habitability & duty if repair duty of repair. Deposit

There is now imposed on residential landlords a statutory warranty of habitability, compliance with building codes, as well as other duties which are the same of those imposed in VRLTA with the exception that the landlord and tenant may waive non-building code requirements in writing.
§ 55-225.3
Before July 1, 2001, the tenant took the property as is, with no such warranty or burden. The landlord now has statutory duties similar to those under VRLTA including requirements for mold disclosure and remediation. §§ 55-225.1 thru 55-225.10 & 8.01226.12.

Landlord warrants the property to be fit and habitable as well as other obligations to comply with the building codes, provide running water and hot water, etc. The landlord can only shift some of these duties to tenant. § 55-248.13

Deposit

There are no statutory requirements in reference to security deposits. No interest is required and there are no specific requirements as to inspection of the property.

Both refundable and non-refundable are now OK. Interest must be paid on deposits held more than 13 months.
Pre-paid rent is now allowed if landlord puts it into an escrow account.
45 days are allowed for return of deposit with 15-day possible extension. The court is to return the deposit, over and above unpaid rent, if the landlord fails to comply with the time requirements under this section.
§ 55-248.15:1

Rent Escrow

There is no rent escrow permitted under the common law.

Rent escrow permitted under specified conditions.
§§ 55-248.27 et seq.

Retaliatory Eviction

Landlord may evict tenant regardless of his reason if based on default, or 30-day notice to quit a month to month tenancy.

Tenant may defend an eviction or prosecute an affirmative action for the landlord’s retaliatory conduct as defined in the Act. § 55-248.39

Self-Help

Self-help in all residential situations is now prohibited. Self-help IS still available in nonresidential situations.
§ 55-225.1

No self-help is permitted for either the landlord or the tenant. § 55-248.36

Attorney's Fees

No attorney's fees can be awarded unless they are provided for in a written lease or by a statute.

Reasonable attorney's fees are awarded to either the landlord or tenant unless the action complained of is shown to have been reasonable under the circumstances. §§ 55-248.21 and 55-248.31.

Access

A landlord has no right of access to the property except where provided in a written lease.

Reasonable access to leased property is permitted the landlord with safeguards against abuse of access for the protection of the tenant. § 55-248.18

Waste

A landlord can recover double damages for willful waste. §§ 55-212 to 55-214

A landlord may recover actual damages plus his attorney's fees. § 55-248.16

Constructive Eviction

A tenant must vacate the property before he can recover diminished rent. If he stays he only recovers his cost to repair. There IS no rent abatement if the tenant stays. THERE IS NO RENT ESCROW AT COMMON LAW.

A tenant may offset rent, claim reduction, use rent escrow (with conditions) plus recover actual damages, and attorney's fees. He does not have to leave the property to escrow his rent with the court. § 55-248.27

Notice to Cure Breach

No notice to cure is required unless called for III the lease or a breach is for nonpayment of rent, in which case a 5-day notice to cure may be mandated by § 55-225. A reasonable notice to landlord of breach is required by Restatement

A 5-day notice to payor quit for nonpayment of rent is required. A reasonable notice to repair (without terminating lease) IS necessary. A 21-day notice to cure or terminate In 30 days is required to terminate for a breach other than a recurrent one or certain criminal! willful conduct. §§ 55-248.21, 55-248.31

Waiver

Accepting rent knowing of a default, especially rent into the future, is a waiver under the common law. The reservation letter may establish no intent to waive and thus be effective. There is no statutory provision on waiver in the common law. It IS recommended that the VRLTA provision on waiver be incorporated, in some form, into a common law lease.

Accepting rent from a defaulting tenant is not a waiver if the landlord gives a written notice to the tenant, within 5 business days of receipt of the rent, that the acceptance of rent is made with reservation of the landlord's rights. Landlord may Include the reservation of rights in the written notice to cure. § 55-248.34:1

Redemption

A tenant still may redeem possession under § 55-243 if he tenders all rent due, costs and attorney fees to landlord on before first return. This right is available to tenant only once every 12 months. It occurs automatically upon payment of the required amount. § 55-243

A tenant still may redeem possession under § 55-243 if he tenders all rent due, costs and attorney fees to landlord on before first return. This right is available to tenant only once every 12 months and is automatic upon payment. § 55-248.34:1

Prohibited Terms

OK to waive remedies; OK to exculpate landlord; OK to exact specific attorney's fees; OK to indemnify landlord; OK to confess judgment against tenant.

A lease may not: waive any remedies; exculpate landlord; indemnify landlord; confess judgment; call for other than "reasonable" attorney's fees. § 55-248.9

Assignment

The assignment of a lease by a landlord will not release him from liability on the lease.

A landlord's assignment of lease will relieve him of liability to the tenant. § 55-248.14

Abandonment

Physical possession is not necessary so long as rent is paid. If abandoned without rent being paid, the landlord must post a 10-day notice to cure; landlord's retaking is a surrender. No rent accrues after surrender unless a contrary provision is written into the lease OR Landlord retakes to re-let premises. § 55-224

A lease may provide for deemed abandonment if the unit is left vacant without notice for more than 7 days if appropriate language is written in the lease. A landlord may accrue rents after abandonment up to the re-let of the unit. If abandonment status is unclear, then the code permits a 7-day notice to determine abandoned status. §§ 55-248.33, 55-248.38:1

Mandatory
Disclosures

There are none

Landlord must disclose the present of visible evidence of mold to the tenant on the move-in inspection, giving the tenant the opportunity to terminate or accept. § 55-248.11:2 Landlord must disclose the agency, new owners, certain conversion information. § 55-248.12 Disclose presence within a "noise zone or accident potential zone" where located near a military air installation. § 55-248.12:1

Delivery of Possession 10

Delivery of possession is not mandatory at common law if lease gives tenant a right to possession.

 

If a landlord willfully fails to deliver possession, then tenant's rent abates and tenant may terminate lease on a 5 day notice or regain possession through court action. §55-248.22

Military

Mere change of duty station of a military tenant will not entitle the tenant to terminate lease unless governed by the Service members Civil Relief Act. Provided however, if the rental IS exempt from VRLTA because of the number of single family homes or condominiums that the landlord owns, then § 55248.21:1 applies and permits the military tenant to terminate a lease on 30 days' notice upon a permanent change of duty station of more than 35 miles or a TDY of more than 35 miles and 3 months. § 55-248.21.1

A military tenant may terminate the lease on 30 days' notice upon a permanent change of duty station of more than 35 miles or a TDY of more than 35 miles and 3 months. § 55-248.21:1

Rules &
Regulations

Nothing is specified in the common law about rules and regulations. Traditional contract law bars unilateral modification of a written lease unless the terms of the lease otherwise provide.

Rules and regulations are automatically deemed a part of the lease, including certain later unilateral modifications. § 55-248.17 (See also definition of "rental agreement.")

Effect of Unsigned Lease

Traditional contract formation rules apply where one of the parties fails to sign or deliver the signed lease. Any such tenancy would be month-to-month, if the rent IS paid monthly, unless the court finds acceptance of the lease has occurred by conduct.

If a landlord fails to sign but accepts rent from tenant who does sign, the lease has same "effect" as if signed for up to one year. Same "effect" is given if a landlord signs but tenant does not and tenant takes possession and pays rent. § 55-248.8

Pre-trial rent
protective order

The pre-trial rent escrow is limited by its terms to actions for possession under VRLTA and is not applicable to rent cases exempt from VRLTA.

A pre-trial rent escrow protective order applies when requested by the landlord in the situation where the tenant is sued for non payment of rent and the tenant seeks a continuance or a trial date. This code section is limited to VRLTA situations and requires the escrow of past, present and future rent unless the court finds that the tenant is asserting a good faith defense. The landlord may obtain early judgment for rent and possession if the tenant fails to pay the court ordered rent escrow. § 55-248.25:1

Landlord may bar
a tenant's guest or
invitee from
landlord's property

The law governing trespass and public nuisance at the state and local levels may apply to non-VRLTA situations. §§ 48-1 et seq.; §§ 15.2-900 et seq.

Under VRLTA, a landlord may bar a tenant's guest or invitee from the premises on written notice if the person's conduct violates the rental agreement or the law. The tenant may challenge the landlord's action by filing for court action to vacate the bar notice. § 55-248.31:01

Confidential Information Landlord

No corresponding code section exists for common law situations

Under VRLTA, disclosures by land-lord without writ-ten consent of tenant are listed. § 55-248.9:1

Accelerated rent

Accelerated rent at common law is permitted as liquidated damages pro-vided it is not deemed a penalty.

Under VRLTA, actual damage only. No accelerated rent is permitted. § 55-248.35

Injunctive relief

Injunctive relief governed by common law.

Under VRLTA, any person aggrieved may seek injunction relief as well as damages in circuit court. § 55-248.40

By Sarah Louppe Petcher, NVAR General Counsel and Laura Farley, Law Clerk

When a foreign diplomat walks into your office seeking to rent a house or apartment from you, several thoughts might cross your mind: What do I do if this person defaults on the lease? Will I ever be able to get them out of the property? Do I have to rent to them? What should I do? When faced with this situation, you have three options available: 1) enter into a lease with the individual, 2) enter into a lease with the embassy or diplomatic mission directly, or 3) do not rent to the individual. Each option has different benefits and drawbacks, and you should carefully weigh all factors discussed below before making a decision.

Key Concepts Defined

Many of the terms that are used regarding diplomats are not fully understood by the public. Below are a few key issues to know when dealing with representatives of foreign governments:

Immunity – Most people think that immunity refers to a pardon or release from responsibility for one’s actions. It actually means that the U.S. court system may not hear any case against a person who has diplomatic immunity. This means that a person with immunity cannot be sued in a court of law unless the person’s country of origin waives immunity.

Waiver of Immunity – The individual who has immunity does not have the authority to waive it. Only the foreign government that is sponsoring the individual in the U.S. may waive the immunity, and this is a rare occurrence.

People with Immunity – Ambassadors are traditionally the representatives of one government to another and are entitled to immunity.

Consuls are people who help individuals of a particular country while they are traveling or are living abroad, and they are also entitled to immunity. For example, if you lose your passport while traveling in a foreign country, you would speak to someone at the consulate for assistance, rather than someone with the ambassador’s office.

Personnel at international organizations, such as the United Nations, International Monetary Fund and World Bank, are also frequently given some level of immunity.

Inviolability – This concept generally forbids U.S. authorities from entering the residences, automobiles or other property of a protected person. This means that even if a landlord was able to appear before a judge in court and get an eviction order, there is no police officer or individual in the United States who would be allowed to enter the property to remove the person.

Option 1: Lease between a Landlord and an Individual Diplomat

One important thing to understand before leasing to a diplomat is that there are different levels of immunity granted to the employees of a diplomatic mission. The U.S. Department of State issues identification cards to foreign officials who have been granted immunity. If a potential tenant presents you with a U.S. Department of State Identification Card that has a blue border, the individual is a diplomatic officer or immediate family member and has been granted full diplomatic immunity. This means that if you have not received a waiver of immunity from that individual’s government, any lease entered into cannot be enforced in the event of default.

If the individual has a U.S. Department of State Identification Card with a green border, the person is on the administrative, technical or service staff of the embassy, or the immediate family of one of these individuals. Again, if you do not receive a waiver of immunity from the individual’s government, any lease that is entered into cannot be enforced in the event of default.

The third type of U.S. Department of State Identification Card has a red border. Individuals carrying these cards work for a consulate and generally have immunity only for official acts, but the language on the back of the card should describe the specific immunity granted to the individual.

Generally, it is unlikely that any country will waive diplomatic immunity for an individual, especially in the case where the person has violated the terms of a lease. Because of the Geneva Convention, U.S. courts are not allowed to hear cases against people who have been granted diplomatic immunity, which means that you will not be able to enforce the lease.

While the U.S. Department of State may request that a country waive immunity for an individual, or request that a country recall an individual, this is not something that you should count on in the event that a diplomat stops paying rent and will not move out.

While there are potential risks associated with renting to someone with diplomatic immunity, many landlords have had extremely positive experiences. These individuals were selected to represent their respective countries in the United States, with all the responsibility that comes with such a position. In many instances it is the foreign government that pays the rent, not the individual, which can often mean fewer concerns about timely lease payments.

Option 2: Lease between the Landlord and the Foreign Government

One way to take advantage of all of the benefits of renting to a diplomat without having to worry about a tenant you cannot evict is to designate the embassy as the tenant. By renting the property to the embassy or consulate directly, and not the individual who is going to reside there, a different set of laws applies.

It may still be difficult to get a court ordered eviction, or any back rent owed to the landlord if the lease is directly with the embassy, but you will at least be able to have your day in court. Unlike individuals with diplomatic immunity, embassies that enter into lease agreements with landlords can be sued for non-payment of rent if the individual living in the home won’t move out.

Option 3: Not Renting to the Individual or Embassy

If the potential risks outweigh the benefits of renting to an individual with diplomatic immunity, and the embassy is not willing to enter into the lease on behalf of the individual, you may decide that this is not a good match. If this is the case, you need to be aware of potential discrimination claims against you.

In Virginia, it is not against the law to refuse to rent to individuals based on their profession, but it is illegal to refuse to rent because of their country of origin.

What this means is that you may adopt a policy of not renting to any diplomats, but if you decide not to rent to a specific individual based on the country that person represents, you may be breaking the law. The best practice is for landlords, leasing agents and property managers to consider what policy they believe is best for them, and make sure to apply it consistently in order to avoid any potential allegations of discrimination.

By Sarah Louppe Petcher, NVAR General Counsel

On April 22, 2010, a new rule that affects our industry in varying degrees will come into play. It will impact property managers the most, but all agents involved in selling or leasing real estate must understand this new rule. This column is meant as an alert to our membership and to ensure compliance, but all NVAR members should read the complete rule on which the program is based. In addition, the EPA has summarized the provisions of the rule in a guide. Both the rule and the guide are available on the EPA’s Web site at www.epa.gov/lead.

What is this new rule?

The full name of the program created by this rule is the “Lead-Based Paint Renovation, Repair and Painting Program.” As the name indicates, it is intended to make home renovation safer by ensuring that lead-based paint is contained and cleaned up so as to minimize exposure. Renovation is broadly defined as any activity that disturbs painted surfaces and includes most repair, remodeling, and maintenance activities, including window replacement.

To whom does the rule apply?

Anyone performing renovation work for compensation that disturbs more than 6 square feet of paint inside or 20 square feet of paint outside, or undertaking any demolition or window replacement in residential housing or child-occupied facilities built before 1978 needs to comply with this rule. These mandates generally apply to residential rental property owners/managers, general contractors and special trade contractors, including painters, plumbers, carpenters or electricians, among others. See page 35 for exceptions to the rule.

“For compensation” is interpreted broadly. If property managers undertake renovations themselves, they are deemed to be doing it for compensation. If a tenant does some renovation or painting work in exchange for an abatement of rent, then the renovation work is performed for compensation and thus falls under the rule.

Six square feet of paint may not seem like much but remember, anytime paint is disturbed, the rule applies. However, simply adding another layer of paint without disturbing the existing ones does not require compliance with these new requirements.

Certification process:

It is necessary to obtain a certification prior to undertaking renovation work that would fall within the rule. While the certification application is free, there is a charge for the one-day required course. Currently several local organizations offer the certification course: Training Network, Inc., based in Reston and Alliance for Healthy Homes, based out of Washington D.C. In addition, there are a number of national training firms listed on the EPA’s Web site.

What are the responsibilities of a certified renovator?

The rule provides guidelines to ensure that the renovation releases the least possible amount of lead into the air. Some examples of lead-safe work practices include:
1. Work-area containment to prevent dust and debris from leaving the area.
2. Prohibition of certain work practices like open-flame burning and the use of power tools without HEPA exhaust control.
3. Thorough clean up followed by a verification procedure to minimize exposure to lead-based paint hazards.

Certified renovators are responsible for ensuring overall compliance with the Program’s requirements for lead-safe work. Prior to beginning work, the certified renovator must provide the home owner or the tenant with a copy of the new brochure entitled “Renovate Right” and must also obtain the home owner’s or tenant’s signature acknowledging receipt of the brochure.

In addition, a certified renovator must:
1. Use a test kit acceptable to EPA, when requested by the party contracting for renovation services, to determine whether components to be affected by the renovation contain lead-based paint. EPA will announce which test kits are acceptable prior to April 2010. Check www.epa.gov/lead for the list.
2. Provide on-the-job training to workers on the practices they will be using in performing their tasks.
3. Be physically present at the work site when warning signs are posted, while the work-area containment is established and while the work-area cleaning is performed.
4. Regularly direct work performed by other individuals to ensure that the work practices are followed, including maintaining the integrity of the containment barriers and ensuring that dust or debris does not spread beyond the work area.
5. Be available, either on-site or by telephone, at all times renovations are being conducted.
6. Perform project cleaning verification.
7. Have available at the work site copies of the certificates for the initial course completion and the most recent refresher course completion.
8. Prepare required records.

The major exclusions to the rule:
The new rule will not apply in the following circumstances:
1. The residence or childcare facility was built after 1978.
2. A certified renovator conducts a lead-based paint test in various locations around the house to determine the presence of lead. The areas certified to be lead free can be renovated freely.
3. Less than six square feet of paint inside or 20 square feet of paint outside is disturbed.
4. The work is done by a tenant without compensation

How are Realtors® Affected?

Any Realtor® involved in a real estate transaction for a home built prior to 1978 must understand the rule. Why? Because it will affect the Lead Based Paint Disclosure form. If there was a renovation performed with testing that revealed lead paint, the home owner must now disclose the presence of lead-based paint in the home. Any Realtor® who will represent a buyer with a house that has been renovated some time after April 22, 2010 should ask questions about lead-based paint. Please note that the law still requires that an agent ensure the accurate completion and disclosure on the sales contract of the existence of lead-based paint in a home built prior to 1978, even if no renovation has occurred.

In addition, Realtors® with clients considering renovations should make sure that the contractor is properly certified. It is important to ask for a copy of the certification and make sure it is current. HUD is developing a list of contractors who have obtained the certification, which will be available on its Web site.

What are the penalties?

The penalties are stringent. The fines can be up to $37,500 per day per occurrence. Anyone can file complaints against an alleged violator. It is not limited to a home owner or landlord.

This article provides only a summary of the main provisions of this new rule. NVAR encourages its members to read the information provided by the EPA on its Web site for a more comprehensive overview of the matter.
This article quotes sections of a guide entitled “Small Entity Compliance Guide” published by the EPA which can be found at www.EPA.gov/lead.

State and local Realtor® associations were successful in passing a robust legislative agenda that benefits you and your clients. These measures were approved by your elected association leaders, lobbied by association public policy staff members, and met with overwhelming approval by the General Assembly. (All Legislation is effective July 1, 2011 unless otherwise stated.)

The measures are:

Realtor®-Sponsored Legislation

Increasing Agent Professionalism and Minimizing Liability:

HB 1907 Real Estate Licensure and Practice. Includes the following provisions:

Effective July 2012:

  • All brokerage agreements must be in writing;
  • Dual Agency will be permitted only after an enhanced disclosure is given to both parties;
  • Three hours of CE must be completed on the changes resulting from this bill;

Effective July 2011:

  • The Residential Property Disclosure Act will be kept on a website maintained by the Real Estate Board, and purchasers will be given a form referring them to that website;
  • Real estate licensees will be provided immunity from lawsuits for relaying publicly available information from localities that turns out to be inaccurate; and
  • All required records can be maintained electronically according to the Uniform Electronic Transactions Act.

Prohibiting Private Developer Transfer Fees:

SB 931 Transfer fee covenants. Some developers have attempted to secure future revenue streams by recording a 1 percent transfer fee, payable to the developer each time a property is sold for 99 years. This legislation prohibits such transfer fee covenants from being recorded in Virginia on or after July 1, 2011. Property Owners’ and Condo Associations may still enact these fees, as they are approved by and for the benefit of association members.

Protecting the Public by Disclosing Chinese Drywall:

HB 1610/SB 942 Chinese Drywall disclosure. Requires real estate licensees and landlords who have actual knowledge of defective Chinese drywall in a dwelling unit to disclose that information to a prospective tenant or buyer. A tenant may terminate the lease if the disclosure is not provided within 60 days of the discovery of defective drywall.

Clarifying Condo and POA Resale Packet Requirements:

HB 1674 Fees for disclosure packets. Responding to complaints from agents that Condos and POAs are still overcharging, this legislation explicitly prohibits unauthorized resale packet fees. It also amends the Condo Act to include a right of cancellation if a resale packet is unavailable, and to make packets available prior to purchase of a unit at auction.

Making it Easier for Homeowners to Appeal Property Tax Assessments:

HB 1588/SB 1350 Assessment appeals. Lowers the burden of prooffrom “clear and convincing evidence” (80 percent) to a “preponderance of the evidence” (51 percent) to successfully appeal an assessment to aboard of equalization or to a circuit court in tax years beginning after January 1, 2012. Assessors are required to provide certain information regarding the assessment, and home owners are allowed to request a physical inspection of the property.

Preventing Anti-Growth Ordinances:

HB 1931/ SB 783 Zoning; clustering. Prevents a locality from using its cluster development authority to impose more stringent land use requirements for a cluster development than what is allowed under state code or to prohibit extension of water or sewer to adjacent property.

Other Real Estate Legislation

Disclosures and Settlements

HB 2099 Settlement and disclosures. Allows disclosures required under the Virginia Residential Property Disclosure Act to be provided by electronic means and overnight delivery. When making a referral to an affiliated settlement service provider, referring persons must disclose their percentage of interest in the provider if more than 1 percent, and must state that the service provider is a subsidiary if the percentage is more than 50 percent.

Condos and POAs

HB 1741 Books and records. Effective July 1, 2012, charges for access to association books and records may be imposed only in accordance with a cost schedule adopted by the association board..

HB 2188/SB 1323 Resale disclosure packet fees. When settlement does not occur on a property within a professionally-managed association, payment of the resale disclosure fee may be assessed by the HOA no sooner than 45 days and no later than one year after packet delivery.

HB 2289/SB 1327 Rules violations. Allows associations to seek a General District Court ruling against unit owners in violation of community rules in order to correct the violation.

HB 2290 Pesticide use. Requires the association to post notice of all pesticide applications on common areas at least 48 hours prior to an application.

Mortgage Lending

HB 1682 Subordinate mortgage. Increases the maximum amount of a subordinate mortgage for refinancing from $50,000 to $150,000.

SB 1009 Mortgage lenders, brokers and originators. Repeals State Corporation Commission authority to issue provisional licenses to loan originators, but authorizes cease and desist orders for violations by loan originators. Requires applicants for a lender or broker license to pay an application fee of $150 for each office at which licensed activity will be conducted.

Landlord-Tenant and Property Management

HB 1461 Trespassing. Gives an agent of the property owner the authority to prohibit trespassing on the property.

HB 1611 Landlord and tenant laws.

  • Requires localities to have a uniform set of standards for smoke detectors, and requires that tenants must maintain smoke detectors;
  • Prohibits tenants from painting or altering a unit built prior to 1978 without prior written approval;
  • Allows a landlord to take legal action against a relocated tenant for noncompliance;
  • Allows disposal of a deceased tenant's property if not claimed by an authorized person after the 10-day notice;
  • Shortens landlord termination notice to 30 days for fire or casualty damage;
  • Sets the interest rate on security deposits at 0 percent for 2011;
  • Removes requirement to withhold tax for a nonresident landlord owning no more than four dwelling units; and,
  • Requires Fairfax City to bring its rental inspection district provisions into compliance with state code.

HB 1768 Mold remediation. Clarifies that a tenant is still responsible for payment of rent for the remainder of the rental term following a temporary relocation for mold remediation. The tenant is not entitled to terminate the tenancy when mold is remediated according to professional standards.

HB 2425/SB 1216 Delinquent utility fees. Requires a water or sewer authority to provide 30 days' written notice to the owner before recording a lien for a tenant’s unpaid charges. The owner may request email notification when a tenant becomes 15 days delinquent. The authority may not deny service to a new tenant for a prior tenant’s unpaid charges unless a lien has been recorded against the property owner.

SB 829 Adverse conditions. Incorporates sections from the Virginia Residential Landlord and Tenant Act (VRLTA) into the Virginia Landlord Tenant Act (VLTA) to direct a tenant on procedures, including escrow of rent, when the tenant asserts that adverse conditions exist within the rental unit.

SB 1220 VRLTA foreclosure notice. If a landlord has received a notice of foreclosure and fails to notify a tenant, the tenant may terminate the rental agreement upon 5 days’ written notice. Landlords must give written disclosures of the same to any prospective tenant.

Assessments and Appeals

SB 784 Affordable housing. Requires owners of four or fewer rental units of real property to furnish statements of income and expenses to determine status as affordable rental housing.

HB 1899/SB 785 Partial tax exemptions. Clarifies that a partial real estate tax exemption given for improvements to rehabilitated property shall not be reduced unless the locality gives written notice to the property owner at the initial approval that it may be reduced.

HB 1526 Property tax appeal. Allows information regarding the income and expenses of rental property to be used at board of equalization hearings if it is submitted before the appeal filing deadline of the board.

Property Taxes

HB 1645/ SB 987 Exemption for disabled veterans. Codifies the constitutional amendment adopted in November, 2010, which provides for a property tax exemption on the principal residence and one acre of land for veterans who have a 100 percent, service-related disability beginning in 2011 tax year.

HB 2278/ SB 1073 Real estate tax relief. Codifies the constitutional amendment adopted in November, 2010, which allows local governments to establish annual income limitations for property tax relief for the elderly and disabled.

HB 1820/SB 1232 Land preservation tax credits. Allows the Tax Commissioner to have a second appraisal conducted on the property with 30 days’ written notice, and requires a final determination be made within 180 days.

SB 1153 Land preservation. Prohibits reduction of a land preservation tax credit by the amount of unclaimed credits from prior years.

HB 1851/SB 860 Historical buildings. Creates a separate property tax rate for buildings that are on the Virginia Landmarks Register.

Courts

HB 1534 Unlawful entry or detainer. Provides that claims for unlawful entry or detainer are not subject to the $15,000 limit applicable in general district court, regardless of the purpose for which the occupant is using the premises.

SB 1369 Electronic filing. Circuit Court clerks may provide official certificates and certified records in digital form.

SB 1478 Sale of real estate. Authorizes a locality to sell property within or abutting a community development authority upon which there are unpaid special taxes. Owner-occupied single-family residences and individual residential units in a multi-unit structure are not affected.

Business Taxes

HB 1437 BPOL tax. Allows localities to impose the BPOL tax on gross receipts, as is the current practice, or Virginia taxable income.

SB 1408 BPOL tax exemption. Allows localities to waive BPOL taxes on businesses that lose money and are unprofitable during the taxable year on or after January 1, 2012.

Land Use and Development

HB 1844 Zoning determination. A locality must give written notice to a property owner within 10 days of a request of a zoning determination by a non-owner.

SB 873 Family Subdivision of a Lot. Authorizes localities to provide for subdivision of a lot for conveyance to a family member if the land is held in trust and is not transferred to a non-family member for 15 years.

Eminent Domain

HB 1522 Water and Waste Authorities. Amends the current law so that water and waste authorities have the power to exercise eminent domain as set out for other political subdivisions rather than by the powers given to the Commonwealth Transportation Commissioner.

HB 1693 Waiver of appraisal. Changes the maximum limit on waiver of appraisals for real property being acquired by a state agency to $25,000. If the value of the property is determined to be between $10,000 and $25,000, the property owner may request that an appraisal be made.

HB 2161/SB 1436 Procedures. After July 1, 2011 if a condemnor is required to provide an appraisal to the owner, copies of all those appraisals must be provided prior to making an offer or initiating negotiations for the property.

Conservation and Environment

HB 1831/SB 1055 Fertilizer. Beginning December 31, 2013, the sale, distribution and use of lawn maintenance fertilizer containing phosphorus or any deicing agent containing urea, nitrogen or phosphorus is prohibited.

SB 1375 Building analysts. Provides for the licensure of residential building energy analysts by the Board for Contractors.

Water and Sewer

HB 1492/SB 766 Well Systems Providers Clarifies that a water well systems provider is qualified to install, remove or repair geothermal water well systems to the point of connection to the ground source heat pump.

HB 1626 Onsite Sewage Systems. Allows the owner of an onsite or alternative discharging sewage system to upgrade it for the purposes of reducing threats to the public health or the environment.

SB 1160 Connection to Systems. A water or sewer authority may require adjacent property owners to connect their buildings to the authority's system.

Transportation

SB 1446 Transportation funding. Creates the Virginia Transportation Infrastructure Bank to make grants to localities or loans to private or public entities for transportation projects. It also accelerates the Commonwealth’s bonding authority and revenue sharing funds for transportation improvements.

SJ 292 Public transportation on Route 1. Requests an evaluation of potential public transportation services to Fort Belvoir and the Marine Corps Base at Quantico.

The Mortgage Assistance Relief Services (MARS) Rule was issued by the Federal Trade Commission to protect distressed homeowners from mortgage relief scams that have sprung up during the mortgage crisis. The MARS Rule imposes an advance fee ban, advertising restrictions as well as disclosure and recordkeeping requirements on companies and individuals involved in MARS related activities.

Who is covered?

The rule applies to real estate brokers, agents and mortgage lenders who provide, offer to provide, or arrange for others to provide mortgage relief services or refer a client or customer to a MARS services provider in an attempt to halt a foreclosure or obtain lender approval of a short sale.

The FTC Rule defines MARS activity as including negotiating, obtaining and arranging a short sale. Under this definition, an agent or broker who performs the following services would fall under the definition of a MARS services provider and would be covered by the MARS Rule:

  • negotiates a short sale with a lender or servicer on behalf of a client
  • represents to consumers that they are engaged in the business of assisting consumers to avoid foreclosure by negotiating a short sale with a lender. This means that if you advertise your ability to assist clients with avoiding a foreclosure by negotiating a short sale, you are covered.
  • refers a consumer to someone who is a MARS provider of short sale negotiation services.

What must you do?

If you have done any of the activities listed above since January 1, 2011, you will need to make the appropriate disclosure(s) and meet certain record keeping requirements. Under the MARS Rule, depending upon what activity you have or are performing, you must provide one or more of the following types of disclosure:

  1. The General Commercial Communications Disclosure: You must include this disclosure when you advertise in any way MARS services that are not directed to a specific consumer. This includes any written material, radio or television commercials, advertisements on the internet, etc.

    In print advertisements, the following language must be used: IMPORTANT NOTICE: (Name of company) is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan.

    In communications disseminated orally or through audible means, the following language must be used: Before using this service, consider the following information. (Name of company) is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan.
  2. The Consumer-Specific Commercial Communications Disclosure is consumer specific and must be provided at the time the consumer enters into an agreement for MARS. For example, when a consumer walks into your office and enters into an agreement with you for any of the covered activities, you must immediately provide them with this disclosure. In the event that you refer a consumer to someone who will provide them with MARS, you must provide still provide this disclosure and you should do so at the time you make the referral. (NVAR Form K1357 – MARS Consumer Specific Disclosure)
  3. The final type of disclosure is the Disclosure When Providing an Offer of Mortgage Relief. This disclosure must be made when the lender provides an offer of mortgage relief to the seller. For example, the disclosure must be provided when the seller receives a short sale approval letter incorporating the offer of mortgage relief. (NVAR Form K1358 – MARS Offer of Mortgage Relief Disclosure)

I don’t charge an additional fee for assisting my seller/buyer with a short sale transaction, so the MARS Rule would not apply to me, right?

Wrong. If you have substantive conversations with your client concerning a short sale and/or direct contact with the seller’s lender concerning a short sale pre-approval or the negotiation of a short sale contract, you are subject to the MARS Rule regardless of whether or not you charge a fee over and above the agreed upon real estate commission.

A house I listed last month is a short sale. Do I need to include the disclosure forms?

Yes. The rule went into effect on January 1, 2011, and so if you are providing any advice to the seller concerning their short sale and/or communicating and negotiating a short sale pre- approval or short sale purchase, offer disclosure is required.

What if the house is already under contract, but hasn’t closed yet? Do I need to go back and provide the disclosures now?

If the sale has already closed, you do not need to make the disclosure. Just be sure to make the appropriate disclosure(s) from this point forward.

Besides providing the disclosure, is there anything else I must do?

Yes. In addition to providing the appropriate disclosure statement(s), you must keep a copy of all contracts between the provider and the consumer, copies of all written communication (including emails and text messages) between the consumer and MARS provider prior to entering into the agreement for MARS services, copies of all document or recordings or any other commercial communications for MARS services, all consumer files containing contact information and descriptions of MARS services for 24 months from the date the record is created.

I represent the buyer in a short sale, I don’t have to worry about these disclosures, right?

Not necessarily. If you contact the bank in order to help facilitate a deal for a short sale property, you will need to provide the appropriate disclosure, even if you represent the buyer.

What are the penalties for non-compliance?

Fines of $11,000 per occurrence and $11,000 per day may be incurred for violations, so it is important that you understand the new regulations and are compliant. In addition, consumers may sue the MARS services provider (broker/agent) if their damages exceed $50,000.

Where can I read more about the MARS Rule duties and requirements?

The FTC has issued a compliance guide for businesses. It is available for download as a pdf file on the FTC web site. http://business.ftc.gov/documents/bus76-mortgage-assistance-relief-services-rule.

 


Drafted with the assistance of NVAR, RAAR and VAR.

 

The article was published as a memorandum by the U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, titled:

New ADA Regulations and Assistance Animals as Reasonable Accommodations under the Fair Housing Act and Section 504 of the Rehabilitation Act of 1973

It is available in it's entirety as a PDF document:
http://www.nvar.com/images/documents/law-service-animal-memo.pdf

By Laura Farley, NVAR Staff Attorney

Most real estate professionals are familiar with the term “Section 8 housing,” but few really understand what it means. This primer explains the basics of government assistance for housing rental programs.

What is Section 8 housing?
There are a number of government housing programs which offer different types of assistance to individuals with low income. Two primary options exist for people who want to rent: public housing and subsidized housing. Public housing units are those which the government owns, and either operates or has contracted with a third party to operate for it. Subsidized housing programs include Multifamily Subsidized Housing and the Housing Choice Voucher Program (formerly known as “Section 8” – from Section 8 of the United States Housing Act of 1937).
Multifamily Subsidized Housing refers to specific properties that are approved by the local housing authority, and the subsidy remains with the property even when tenants change.
Under the Housing Choice Voucher Program, individuals or families apply with the local housing authority to receive a voucher which they can use to rent any appropriate available unit. Under this system, the tenants retain the subsidy even if they choose to move to a different property.

Who is eligible for assisted housing?
Each of the assisted housing programs has its own specific qualification requirements, and all programs have income requirements. In general, to qualify for assistance, the household income can be no greater than 80 percent of the area median income. In the Washington Metro area, this means that in 2011, a family of four making $67,600 or less would qualify.
Who is in charge of the Housing Choice Voucher Program?
While the Housing Choice Voucher Program is a federal program, it is administered by local public housing agencies. In Northern Virginia, each city or county has its own public housing agency. The Virginia Housing Development Authority runs the Housing Choice Voucher Program for most of the rest of the state.

Why do I need to know about the Housing Choice Voucher Program?
Nationwide, more than 1.8 million households have received tenant-based voucher assistance from July 2010 to November 2011. In Virginia, almost 43,000 households received tenant-based vouchers during the same period. In the Northern Virginia area, there are nearly 9,000 tenant-based vouchers that are used in Alexandria City, Arlington, Fairfax, Loudoun and Prince William counties. With Housing Choice Voucher Programs so pervasive in Northern Virginia, landlords may want to consider participating.
Breakdown of participants by jurisdiction:
• Alexandria City: 1,283
• Arlington County: 1,260
• Fairfax County: 3,303
• Loudoun County: 695
• Prince William County: 2,014

What should I tell my clients who are landlords faced with a tenant who is a Housing Choice Voucher Participant?
Many landlords may be wary of individuals participating in the Housing Choice Voucher program, yet there are a number of benefits to accepting these tenants. First, the landlord will receive regular monthly payments directly from the local housing agency. If the tenants’ income is reduced, their portion of the rent will be adjusted and the housing agency will make up the difference. This means that the landlord is guaranteed the full rental amount.
Additionally, the local housing agency pre-screens applicants for prior criminal activity, and the agency will work with landlords if any problems arise with the tenant. While the local agency will also screen tenants for compliance with the program requirements, landlords may still screen voucher-holding tenants in the same manner as they would any prospective tenant.
Housing Choice Voucher participants are motivated to be excellent tenants because if they are evicted for any reason, they will likely lose their subsidy. This means that these tenants have more than just their security deposit at risk when it comes to lease compliance.
Many local housing authorities, including Loudon County, maintain their own list of property managers in charge of units that are willing and interested in renting to those with vouchers. This provides another, free, source of advertising for these landlords.

What is the process for accepting a tenant with a Housing Choice Voucher?
While most local housing authorities do not maintain a list of units that are certified as having met the stated safety requirements, many do have lists of such properties where the landlord has indicated a willingness to rent to individuals using the Housing Choice Voucher Program.
Once a family has approached the landlord and filled out an application, they should be treated like any other applicant – the landlord should perform any background checks that would be conducted for a regular applicant. If the landlord decides to rent to the applicant, together they will fill out a Request for Tenancy Approval which is sent to the local housing authority.
The local housing authority will review the request to ensure that the rent charged is in line with similar properties in the area and that the gross rent does not exceed certain caps. If the rent is within acceptable limits, the housing authority will prepare a Housing Assistance Plan, which is a contract between the landlord and the housing authority. This becomes an addendum to the lease.
At this point, the housing authority will contact the landlord to set up a Housing Quality Standards Inspection and a time to sign the paperwork. The Housing Quality Standards Inspection must be conducted before the housing authority gives final approval, and again each year that the tenant is in the property. The purpose of the inspection is to check that the plumbing, electric, heating and air conditioning systems are in good working condition, and that there are functioning smoke detectors on each level.

Do the landlords give up any rights by accepting a tenant with a Housing Choice Voucher?
No. The landlord can still screen the tenant and require a security deposit, as long as these are done in a manner similar to other applicants. Landlords retain all of their rights as property owners and may set rent at whatever rate they want. Landlords may also request increases in the rent, as long as they are the same as increases for other units, and do not move the unit out of the Fair Market Rent Schedule used by the program.

How is the Fair Market Rent amount determined?
Each year, the Department of Housing and Urban Development establishes the Fair Market Rent rates. VHDA’s payment standards are set at 110 percent of the area Fair Market Rent. This means that if the Fair Market Rent on a one-bedroom unit is set at $1,000/month, the landlord can receive up to $1,100/month rent for that unit. In general, the local housing authority will pay up to 70 percent of the monthly rent while the tenant pays the difference.

What happens when a landlord wants to terminate a lease with a tenant who has a Housing Choice Voucher? Are there different standards?
HUD has stated that the landlord may only terminate the lease for four reasons:
• Serious or repeated violations of the terms and conditions of the lease;
• Violations of federal, state or local law that directly relate to the occupancy or use of the unit or premises;
• Criminal activity or alcohol abuse; or
• Other good cause.
During the initial term of the lease, the landlord is limited in what qualifies as “other good cause” to things that are within the renter’s control. After the initial term of the lease, “other good cause” can include the owner’s desire to use the unit for personal or other use, or for business or economic reasons.
For example, during the initial lease, the landlord may only use “other good cause” to terminate a lease for a tenant who has caused a disturbance for neighbors or has living or housekeeping habits that cause damage to the unit. After the initial term, the landlord may terminate the lease for a number of reasons, including the owner’s desire to use the unit for personal use or to rent the unit for more money than the local housing authority will pay.


By Sarah Louppe Petcher, NVAR General Counsel and Katie Barnes, Law Clerk

As the market gets hot(ter), there are a few rules to remember when advertising yourself and your listings, whether electronically or through traditional methods. Above all, don’t forget to comply with Article 12 of the Code of Ethics, which requires that you be truthful in your advertising and that you disclose your status as a real estate professional. Beyond this underlying requirement, here are answers to some often-asked advertising questions.

Q: How much touching up of property photos is too much?

As we all know, there is only one chance to make a first impression, so pictures posted in the MLS should show a property at its best. You should, however, be careful of “touching up” photos, and avoid making any changes that alter the property’s physical condition, like erasing cracks or filling in holes. You should also be aware of the MRIS “Photo Upload Terms of Use.” By agreeing to the “Terms of Use,” you give MRIS a copyright over all photos you upload. You cannot submit a photo without having the authority to assign it to MRIS, nor can you transfer a photo uploaded from one listing to another.

Q: I want to place directional signs to a property. What can I do?

There are certain rules regarding signage that you must keep in mind. Generally, you should avoid posting any signs in the public right of way or offsite, as you risk incurring a fine and/or having your sign confiscated. You should always obtain permission from home owners or property owners and abide by Home Owners’ regulations before posting your signs. Any signs you post should be free-standing, stationary and should not light up.

In Fairfax County, signs cannot be up for more than three consecutive days. Legislation has been passed allowing the county to select which three days are permissible, but the county has yet to enact it. For now, your sign can go up one day but come down three days later. In Alexandria, you must remove onsite signs 30 days after settlement, and you must get a permit for any offsite sign if it is up for more than three days.

In Arlington, onsite signs must be removed within 20 days of settlement, and you may post your offsite sign only on weekends (sundown Friday to sundown Sunday) and on legal holidays. If you are in Falls Church, you must remove your onsite sign within one week of occupancy, and your offsite signs are only permitted on Saturdays, Sundays and holidays. Loudon County allows the posting of two onsite signs on property that is 10 acres or more. Offsite signs may only be posted on private property for two days on weekends and one half-day during the week.

Q: I have seen “Coming Soon” signs up for months. What is a reasonable use for a “Coming Soon” sign?

You should be particularly careful about using “Coming Soon” signs. While some agents use these riders legitimately, other agents use them as a way to pocket listings. If you want to use a “Coming Soon” sign, to comply with the Code of Ethics you must use it properly and make sure it discloses certain information. Normally, you must enter the property into MRIS within 48 hours of signing the listing agreement.

You may, however, post a “Coming Soon” sign before listing the property in MRIS if your client tells the listing company to withhold entering the listing. As an agent, you may recommend that your client withhold it if he or she has a legitimate reason for keeping the property off the market. Repairs are an example of a legitimate reason. An illegitimate reason would be keeping the property off the market to give you or your firm sole access to the property.

Q: Are the requirements different for electronic advertising?

When you advertise electronically, you should keep certain things in mind. For example, Article 12 prohibits you from posting misleading information on your website(s) or using misleading URLs or domain names that would present less than a true picture.

Remember that anytime you advertise online, such as on bulletin boards and message boards like craigslist, only the seller and you as the listing agent have the authority to advertise property. Keep in mind that the guidelines you must adhere to when you are advertising as an individual differ from those that apply when you are advertising as a company.

If you are advertising as an individual or associate broker, the advertisement must include your licensed name, your firm’s licensed name, the city and state of the office that holds your license, and the jurisdiction(s) where you hold your license. You must use your name as it appears on your license, unless you have registered a “Doing Business As” name with DPOR.

If you are a brokerage company, you must include the firm’s licensed name, the city and state of its main office, and the jurisdiction(s) where the firm is licensed.

Article 12 requires that you either provide this information at the beginning or the end of the advertisement, or provide a link so that the recipient can access this information within “one click.”

Since disclosure rules vary depending on the type of online advertisement, please review 18 VAC 135-20-190 C 2 (a-f) of the VREB Rules and Regulations for more information.

Q: How about fax and e-mail advertising campaigns?

Special rules also apply when you choose to advertise by email or fax. When sending commercial advertisements by email, you must make sure it is clear that the message is an advertisement. The header must correctly identify who the sender is, and the email’s subject line cannot be misleading.

You must also provide a valid physical mailing address, as well as an easy way for the recipient to opt out of receiving the advertisement. If a recipient opts out, you are required by law to stop sending that recipient emails within 10 days.

Before sending commercial advertisements by fax, you must first receive the recipient’s permission. If you already have an established business relationship with the recipient, you may advertise via fax if you obtained the fax number either from the recipient, from the recipient’s advertising, or from a third party with the recipient’s consent.

On the first page of the fax, you must both inform the recipients that they can opt out and provide necessary contact information (telephone number, fax number and a cost-free mechanism, such as email). If the recipient opts out, you must stop sending fax advertisements to that recipient within 30 days.

Q: I want to start using Social Media to advertise my business. Are there specific requirements?

Social media is another widely used means of electronic advertising. If you choose to advertise on social media websites, to comply with state rules you must indicate your firm’s name in the advertisement, even if the advertisement does not include a listing. If you advertise through message postings on social media sites, you do not have to list your firm’s name as long as you provide a link so that your firm’s name is “one click away.” If you advertise through a blog, you must delete or correct false or misleading statements posted by a third party.

Q: When should I use the Realtor® logo or the term Realtor®?

While you are strongly encouraged to use the REALTOR® logo or the term "REALTOR®" in your advertisements, this is not required. You are required, however, to state your professional status, such as principal broker, associate broker, appraiser, sales associate, property manager, real estate licensee, etc. If you do choose to use the logo, you must include the registered trademark symbol “®.”


The Federal Trade Commission’s (“FTC”) Business Opportunity Rule (“BOR”) is an outgrowth of the FTC’s Franchise Rule. A “business opportunity” is typically offered as a “turnkey” business, where the tools needed to operate the business are provided to the buyer by the seller in return for a payment. While the BOR isn’t likely to affect the operations of most real estate brokerages, brokerages that actively recruit new licensees need to be familiar with the BOR, which took effect on March 1, 2012.

Business Opportunity Rule
A “business opportunity” has three elements: first, a seller must solicit a prospective purchaser to enter into a new business; second, the purchaser must make a “required payment”; and third, the seller must promise to provide one of the three types of business assistance set forth in the BOR. If the BOR applies, then the prospective seller must provide an FTC-mandated one-page disclosure form that is attached to the BOR. The BOR only applies to the recruitment of new entrants into the business, and so would only affect Brokerages that recruit new licensees. Visit here to download the BOR and the required disclosure form.

Examples provided by the FTC as to what constitutes a “business opportunity” are vending machine/rack displays, work-at-home businesses, medical billing, and multilevel marketing (i.e., Amway-type operations). These transactions usually involve a fairly simple contract which does not require the extensive disclosures needed in a franchise situation.

A brokerage that needs to comply with the BOR will need to closely review the BOR’s disclosure requirements, and it is recommended that the brokerage work with legal counsel when making these disclosures. The required disclosure form contains the following information: the seller’s identifying information; whether the seller makes an earnings claim (if so, will need to provide additional information to support the claims); any legal actions brought against the seller; the seller’s refund or cancellation policies; and list of purchasers who acquired the opportunity within the prior three years.

BOR’s Impact on Real Estate Brokerages
As stated above, the BOR will impact brokerages that actively solicit new licensees and thus satisfy the BOR first prong. If a brokerage satisfies the solicitation prong, it will need to review the other two prongs to determine if it is subject to the BOR.

The “assistance” prong is the most important consideration for brokerages that actively solicit new licensees. The relevant “assistance” section states that the BOR is triggered when the solicitation promises “assistance” to the “buyer” (in this case, the salesperson) in return for a payment. Business “assistance” constitutes “providing accounts, including but not limited to, Internet outlets, accounts, or customers for prospective purchaser.” The BOR also states that “advertising and general advice about business development and training shall not be considered” as providing the assistance triggering the BOR.

A brokerage that does not want to trigger the BOR needs to be careful about the tangible assistance it promises to provide to salespeople, such as a customer list or other tangible support. The BOR is designed to cover a business model where the buyer purchases all of the tools needed to enter the business. Salespeople are traditionally left to develop their own real estate business, and so brokerages do not usually provide the assistance required by the BOR. However, if the necessary “tools” to enter the business are promised to a salesperson in a solicitation, then the BOR may be triggered.

Examples of the types of assistance that may trigger the BOR would be the promise of a client list or other types of lead assistance, such as promising a salesperson all the leads from a property development. Another type of support which could qualify as assistance would be the promotion of a training program as leading to success of salespeople. While the rule excludes general advice, advertising, and training from its definition, the BOR could apply if certain representations are made about any of those elements in the solicitations it makes to salespeople, such as the example above about the training program. The more “assistance” that a brokerage promises to the salesperson in its solicitation in return for joining the brokerage (and also a payment), the more likely the BOR could be triggered.

The “required payment” section is another prong in the test. If a brokerage has solicited a salesperson, promised tangible assistance covered by the BOR, and then requires a direct payment to the brokerage, the brokerage would be covered by the BOR. It is less clear whether a brokerage would need to make the required disclosures if it met the other two prongs but didn’t require a direct payment in return for the assistance promised, and instead simply retained a portion of all the salesperson’s commissions.

The commentary accompanying the BOR does not elucidate whether the required payment element would be satisfied in the traditional brokerage arrangement, where the broker receives all of the salesperson’s commissions and provides a prearranged payment split to the salesperson. Therefore, a brokerage seeking to avoid making the BOR’s required disclosures should focus on the assistance promised in its solicitation, as that is the clearest way for a brokerage to avoid triggering the BOR.

Penalties
Failure to comply with the BOR’s disclosure requirements within seven calendar days of the earlier date of the buyer signing the contract or making a payment to the seller constitutes an “unfair or deceptive trade practice.” The FTC can seek civil penalties of up to $16,000/day per violation, which adjusts periodically to account for inflation. However, in addition to seeking civil penalties, the agency can also seek equitable monetary relief for consumer redress or the disgorgement of ill-gotten gains.

Conclusion
The BOR impacts any brokerage that actively solicits new licensees and offers tangible assistance to the salesperson in return for a required payment. Brokerages should review their recruiting solicitations to determine if they are impacted by the BOR.

Copyright National Association of Realtors®, reprinted with permission.


By Liz Milner

Real estate law was the focus of this first-ever event that took place on Wed., June 20 at NVAR’s Herndon Center. Members of NVAR’s Attorney Roundtable, a group that meets quarterly to discuss real estate law issues, selected topics from agency to listing syndication.

Alternative Financing
John F. Pitrelli, a Principal of Key Title and an Attorney Roundtable member, explained how the “contract for deed” method of financing is gaining new popularity in the wake of the foreclosure crisis.

The contract for deed is underused but has great potential because it can bring people who have previously suffered a foreclosure or a short sale back into the market. In this approach, sellers become lenders, using their existing loan to make a loan to the buyer. For example, a seller who purchased property with a mortgage loan of 4 percent could offer the buyer a loan at 6 percent. The buyer pays the seller and seller pays the loan officer. A joint account is set up so that the buyer deposits a payment into the account each month and the money is automatically transferred to the seller. The deed is signed at settlement and held in escrow until the purchaser pays off the seller, which usually happens in three to five years.

The contract for deed has two components:
1) A typical contract, with an addendum specifying that it’s a contract for deed.
2) The “Contract for Deed,” which gets recorded in the land records immediately; later another deed is recorded when final payment to the seller is made.

The contract for deed is different from lease-purchase because the buyer gets the tax benefits, and the agent gets the commission immediately. Buyers also have the right to treat the property as their own and make any alterations they see fit.

The seller meanwhile is in the position of a lender; not a landlord. The seller is not liable for maintaining the property once the contract is signed. Virginia courts have ruled that the contract for deed doesn’t violate the “Due on Sale” clause, and the IRS considers the contract for deed to be a sale of the property.

The contract for deed is especially good when the market interest rate is high in that it enables the seller to offer the buyer a lower price because they don’t have to pay higher interest rates. It is also useful in our present market because it permits people who can’t qualify for conventional credit, such as those who’ve recently suffered a foreclosure or a short sale, to reenter the market.

In the event of a default, the seller files an affidavit to the escrow agents and requests that the buyer’s rights in the property be extinguished. The defaulting buyer then must pay liquidated damages of 10 percent and lose all the money already paid for the property.


The New Agency Laws
Vince Keegan of Hometown Title and Escrow provided a summary of the Virginia residential agency laws that went into effect on July 1, 2012. These laws are intended to ensure that consumers understand their relationship with their real estate agent. The laws protect Realtors® because they require formal, written evidence that the client was fully informed regarding the relationship with the agent. Understanding the impact of the new legislation is important because failure to comply could result in civil liability and/or disciplinary action by the Virginia Real Estate Board.

Keegan’s presentation included a review of the new dual agency/dual representation and designated agency/designated representation requirements, Virginia agency law terminology, the different types of brokerage relationships and the duties of a standard agent, a limited service agent and an independent contractor. He also reviewed potential liability issues and strategies for avoiding VREB violations. To view a one-hour webinar about the New Agency Laws on the NVAR web site, visit go.nvar.com/newagencylaws.

Teams: A Brand, A Challenge
The new agency rules have put a spotlight on the role that effective team management plays in avoiding conflicts of interest. In his presentation, “A How-to Guide for Operating Teams in Virginia,” Lem Marshall, attorney and former VAR General Counsel, explained the role that team management can play in mitigating the risk being of sued or running afoul of the VREB.

Teams, Marshall said, are more common and established in commercial real estate. They first became important to residential real estate during the real estate bubble of the 1980s and 1990s. As larger residential real estate firms gobbled up smaller ones, teams emerged as a natural outgrowth of the larger sized firm.

While teams increase efficiency, they can also be a management challenge, Marshall explained. Virginia law permits the operation of the team autonomously within a firm without that team having a separate corporate identity. A team may, however, establish a separate corporate identity under the Virginia Code. This business entity salesperson status is advantageous for tax, succession and liability purposes, Marshall said.Va. Code Ann. §54.1-2100. The license that is issued to the business entity is distinct from the individual licenses that each team member possesses.

Marshall warns that business entity salesperson licensees must pay attention to corporate niceties. They must be sure to have annual reports, regular meetings, meeting minutes, notices to shareholders, and current filings with the Virginia Corporation Commission.

Brokers are ultimately responsible for the actions of the business entity salespersons who operate out of their offices, Marshall cautions. This is a potential source of friction because the teams, by their very nature, have a separate identity and all that comes with it — separate branding, advertising, hiring and compensation. The broker and the team leader both want control over the team. In the eyes of the VREB, the team leader has zero legal responsibility for the actions of team members, unless he is also the broker of record. The broker, however, has the ultimate responsibility and can lose his/her license for actions taken by team members.

Brokers should be aware of the tension between a team’s desire to brand itself as unique, and the VREB’s requirement that in all ads the firm name must be clearly and legibly displayed. Ads must make clear that the team is operating under the supervision of the brokerage firm.

Personnel practices present another area of potential friction, Marshall said. The team members’ first loyalty will be to the team leader, Marshall explained, not the brokerage. At the same time, he added, the broker is the one who will be held liable for any unfair employment practices within a team.

E & O Coverage: Zero Gaps
Real Estate “Errors and Omissions” coverage was the subject of a presentation by Debbie Bindeman of Pearl Insurance and Liz Ives of XL Group.

Opening with some “scary” statistics, Bindeman said NAR estimates that one in four Realtors® will have a claim made against them at some point in their career. “In other words,” Bindeman said, “Realtors® run a 25 percent risk.” What makes it scarier, she said, is that they aren’t always aware that a claim is going to be made.

In a car accident, Bindeman explained, a driver knows immediately if there’s likely going to be a claim made against him. Realtors®, however, can be liable for past incidents that they may not even aware of. Depending on the issue, the time limit imposed by the statute of limitations may not even begin until the problem is discovered and the claim is made. For this reason, Bindeman recommended that Realtors® have continuous coverage with no gaps, and make sure that this insurance covers liabilities in the past. She advised the audience that when they switch carriers, to make sure that the coverage offered covers all past actions.

E&O coverage, also known as professional liability coverage, confers blanket coverage on the broker-owner and his or her agents, agent’s personal assistants, former agents and former employees. As long as the broker keeps coverage in place, agents are covered for their actions with that broker.

Real estate E&O policies do not cover every source of risk, and agents need to be aware of common exclusions. Bodily injury and property damage are the most common exclusions from professional real estate E&O policies, Bindeman said. Recently there has been an increase in claims associated with REO properties, she cautioned.

Banks are shifting the risk of maintaining foreclosed properties onto Realtors®. Since the Realtors® want to sell these properties, they have been taking on duties that aren’t covered by their E&O policies. Some have been held liable for damaging the property or failing to maintain it. These Realtors® could also be held liable if a client is injured while viewing the property. To protect themselves, Bindeman said, Realtors® should be sure that they, and the contractors they hire, have good general liability insurance.

Serving as a power of attorney for a client also is not covered under E&O policies, said Bindeman. Realtors® who have acted in that capacity at closing have been held liable for actions that their clients didn’t approve of.

Other exclusions that Bindeman noted include the sale of agent-owned property; the failure to advise clients of possible pollution such as radon, mold, lead-based paint and underground storage tanks; and intentional fraud and illegal activity.

Distressed Property: Sometimes a Source of Stress
Virginia case law covering distressed properties recently took an unexpected turn as the Virginia Supreme Court ruling in Mathews v. PHH interpreted HUD regulations on FHA-backed loans to give distressed homeowners broader grounds for contesting foreclosures. In his presentation, “Distressed Property Sales: How to Spot Issues Before they Become Problems,” Chris Brown, attorney with Brown, Brown & Brown, PC, gave an overview of Mathews v. PHH and other recent precedents and explained how they could affect foreclosure sales.

Brown said that he expects to see more loan modifications and short sales in the wake of these legal decisions. Brown’s strategy in formulating a foreclosure defense for Virginia homeowners rests on citing Mortgage Electronic Registration Systems (MERS) as the owner on title documents. MERS was created to facilitate real estate transactions because the bundling and trading of risky debt before the real estate bubble burst made it difficult to ascertain who actually owned the title to a specific property.

Foreclosure proceedings that cite MERS as the title owner are wrongful because MERS doesn’t have the authority to foreclose, said Brown. He argues that before a foreclosure can go forward, the “cloud” on the title must be removed, pursuant to Va. Code Ann. § 55–153. The burden, he said, is on the party that is foreclosing to produce an “instrument of assignment” that proves the right to enforce the Deed of Trust. This defense is still working its way through the courts. If it is upheld, Brown said, it could alter the way titles are recorded.

Listing Syndication
Erik Feig, MRIS General Counsel, and Sarah Louppe Petcher, NVAR General Counsel, led a workshop on the benefits and liabilities of listing syndication. This “obscure and misunderstood method of advertising,” they said, has suddenly become “a hot-button discussion topic.” Realtors® and the public need online listings to be accurate and up-to-date, said Petcher, but there is no means of ensuring that information on third-party real estate sites is dependable.

Commenting about the role of multiple listing services in distributing real estate listings, Feig said that while MRIS computers host the information, the data is the property of the brokers. MRIS relies on the brokers to use their discretion in deciding where the listings will go.

Feig described the three ways that listings are typically distributed:

  • Internet Data Exchange Program (IDX). IDX is a data feed for distributing information that resides in the MRIS database. Only MRIS brokers have access to IDX. It is broker-to-broker cooperative advertising.
  • Virtual Office Websites (VOW). VOWs are intended to provide online broker-to-client services. It is an online equivalent of a bricks-and-mortar brokerage.
  • Third party advertising sites. Examples are Zillow and Trulia.

MRIS cannot police real estate sites on the Internet, Feig explained. MRIS’s role, he said, is that of distributor, “We’re providing a service by facilitating your ability to do your marketing.” Ensuring the accuracy of the information on third-party sites is the responsibility of the broker, he said, not MRIS.

Petcher noted that there is rising concern among brokers regarding the consequences of having inaccurate data on third-party sites. Virginia law holds brokers responsible for that the accuracy of all on-line brokerage listings. The law obligates the broker to “make timely written requests for updates reflecting material changes to the listing status or property descriptions” even when the website is controlled by a third party. With the proliferation of third party real estate sites, this creates a situation where brokers, to be in compliance with state law, must spend an inordinate amount of time sending update requests to these sites.

The market must exert pressure on these sites, Feig said, and brokers are the logical ones to do due diligence. They should send letters to syndicators requesting that they modify inaccurate information, he added. Only brokers can force these sites to correct listings.

* * *

Is there a Real Estate Law issue you’d like clarified? Send e-mails suggesting topics for next year’s Legal Summit to NVAR’s General Counsel, Sarah Louppe Petcher (This email address is being protected from spambots. You need JavaScript enabled to view it. ) or Staff Attorney Laura Farley (This email address is being protected from spambots. You need JavaScript enabled to view it. ).


Question:
A seller called with a question regarding access to the lockbox system. The seller complained about a recent experience with the home inspection of her property. She arrived at her property before the inspection was completed. The buyer's agent was not present when she arrived. Only the buyers and the home inspector were in the property. This caused the seller a great deal of concern. When she asked how the buyers had gotten into the property, the home inspector responded, "I also have a real estate license in addition to my home inspection practice. I am affiliated with another real estate company [one unrelated to the listing or selling firm], so I just used my own REALTOR® card to gain access to the property." The seller felt that this was inappropriate and wanted to know if this was permissible under our rules.

Answer:
The answer to this question may surprise many REALTORS®¨, but this is a violation of our lockbox security rules.

The rules state the the Card Holder will be granted a revocable license to use the SentriCard in connection with the Holder's normal and customary activities while acting as a real estate agent or appraiser on the terms and conditions set forth in the referenced User Agreement.

This reference was intentional. The REALTORS®who drafted the lockbox rules believed very strongly that it was necessary to limit the use of full-access keys (keys used by REALTORS®¨) to the situations when the holder is practicing real estate as defined by state law. Anyone interested in performing home inspections, pest inspections or other services that are outside the practice of real estate is limited to the use of more restricted SentriCards which require a Call Before Showing Code. This includes REALTORS®who operate other businesses such as home inspection, pest inspection/remediation or other ancillary services that do not require a real estate license.

The foundation of this policy is that sellers have agreed to allow real estate licensees to have liberal access to the property but expect that all other professionals related to a real estate transaction will be limited to access that is under the control or supervision of the agents. This ensures that REALTORS®remain central to the real estate transaction and informed about all aspects of the transaction. In the feedback we have received from listing agents and sellers, this is where we have been told the focus should remain.

If a home inspector or other service provider is an affiliate member of NVAR, he or she can receive limited access to the lockbox system with a CBS Code. This key requires a code that is unique to each lockbox. In order to obtain the CBS code, the inspector must contact the listing agent and ask for the code. This system provides a mechanism that ensures the listing agent maintains control over the access to the listing. The listing agent has the option of providing the CBS code for the lockbox to the affiliate member or requiring that the affiliate wait until the listing agent can be present to allow him or her into the property.

Additionally, limiting access for non-REALTORS®significantly reduces the legal liability of the listing agents and the firms that use the lockbox system to provide access to the property. While the lure of convenience may be enticing, with issues of security it is more prudent to take reasonable steps to protect our agents, their clients and the reputation of our industry.

WHY DO WE REQUIRE CBS CODES?

Affiliate members play a vital role in facilitating real estate transactions. The inspectors, contractors, appraisers and other professionals who have joined NVAR as Affiliate members provide a wide range of services that are necessary for the successful closing of a real estate transaction. The nature of their work requires some of these Affiliate members to obtain access to a specific property. Homeowners and REALTORS®are not always available to allow the Affiliate member into their house at a time that would be convenient. In the past this would lead to delays and missed appointments that would add unnecessarily delays for everyone. Recognizing the needs of our Affiliate members, we worked to develop a process that would allow them access to these properties through our lockbox system. Our lockbox policies were revised to allow Affiliate members to have limited access to the property.

The Perspective of Homeowners
One important hurdle to overcome was the homeowners' permission. A homeowner decides if and when a lockbox may be placed on a property. While REALTORS®often advise their clients on this issue, homeowners make the final decision in this matter and are not required to follow their REALTORS®¨' advice. The inspections, appraisal, remediation and other work performed by the Affiliate member may be required under the sales contract but the homeowner may determine how such access will be provided. It is important to remember that without the homeowners' consent, a lockbox may not be placed on a property.

Therefore, the primary focus of our lockbox access policies has always been to provide the level of access that homeowners are most comfortable with allowing. We must ensure that homeowners have trust and confidence in the lockbox system if we want these homeowners to authorize the use of a lockbox on their property. Without this acceptance, lockboxes would remain in storage and we would revert to waiting on the availability of the homeowner to access the property.

It's no secret that the primary reason homeowners agree to use the lockbox system is to provide greater marketing exposure for their property. During the marketing phase of the sale, these homeowners are willing to accept an increased access to their property in exchange for the increased potential of a faster sale at a better price. The average homeowner wants the widest possible exposure to potential buyers when marketing a property. Therefore, REALTOR® members have been provided with full access keys that allow them greater access to accomplish this for the seller.

However, in regard to inspections, repairs, appraisals and the other work necessary to complete a real estate transaction, homeowners are more reluctant to allow access to their property. While a large number of agents and buyers may need to see the house before a buyer will be found, there is rarely a need for more than a few affiliate members to access a specific property. Unlike the marketing phase of a transaction, after a contract is ratified there is normally only one home inspector, exterminator and so forth who is needed to complete each subsequent step in the transaction. It is rare for more than one inspection, appraisal or other real estate service to be ordered for a typical real estate transaction. Therefore, access to the lockbox system for these types of activities is limited to lockbox keys that can verify that the specific Affiliate member has authorization to access the property.

Using CBS Codes
The limited-access keys that are used by Affiliate members require a special code ("Call Before Showing," or CBS, code) to open each lockbox. The listing agent who owns the lockbox that is placed on the property can provide the lockbox code to the Affiliate members. This system allows the listing agent to verify that only the appropriate service providers are given access to the property. This limitation on access is a safeguard that has been built into the system because Affiliate members only need to access specific properties rather than all properties in our market area. Without the necessary code for that specific lockbox, a service provider would be unable to obtain access to the property.

Homeowners have indicated a preference for this type of restriction on Affiliate members. While homeowners prefer the greatest possible access to a property during the marketing phase of the transaction, after a contract is ratified the majority of homeowners become reluctant to continue providing unrestricted access to their property. In some cases, homeowners have specially requested that the lockbox be removed after the contract is signed. Our limits on Affiliate access to the lockbox system have helped reassure homeowners that the lockbox should continue to be used by Affiliate members because the access will be controlled by the agent representing the homeowner.

Lockbox Rules and Regulations
Affiliate members who wish to have access to the lockbox system are required to abide by the NVAR Rules and Regulations for Lockboxes. These are the guidelines that have been established by NVAR to regulate the use of the lockbox system. Specific security provisions have been adopted to protect the homeowners and ensure a safe system for everyone's use.

These rules include, but are not limited to, the following provisions:

  • Card holders (REALTORS®and Affiliates) are required to keep the key in their possession or in a safe location at all times.
  • Card holders may not attach the personal identification number (PIN) to the key, disclose their PIN to another person or lend the card to anyone for any reason.
  • Card holders may not allow anyone who has been admitted to the property by their use of the card to remain in the property when the card holder leaves except with the consent of the property owner.

NVAR is aware that some individuals have attempted to circumvent the Affiliate lockbox access policies by obtaining a real estate license and joining NVAR as a REALTOR® member. Unfortunately, this practice also violates our rules for REALTOR® member access to the lockbox system. REALTOR® members are limited to accessing a property only in connection with his or her normal and customary activities while acting as a real estate agent. REALTORS®who are not acting in the capacity of a real estate agent are not permitted to access a property through the lockbox. REALTORS®who use their card for the purpose of providing a different service outside the scope of their customary activities as a real estate licensee may be sanctioned and lose access to the lockbox system.

Risks of the Lockbox System
The vast majority of our Affiliates and REALTOR® members are responsible professionals who respect the homeowner's property. However, there is always a risk of abuse by a lone, disreputable individual. When such abuse has occurred in other parts of the country, lawsuits and the negative publicity that accompanies such suits have often resulted in a loss of confidence in the lockbox system. It can take years to regain the widespread acceptance of homeowners in the lockbox system once their trust has been lost or damaged.

Real estate firms, brokers, agents and local REALTOR® associations have been held liable in those cases in which they failed to provide sufficient measures to protect the homeowners from harm. Our legal counsel has advised NVAR that in order to protect homeowners, members and the association, we must protect the integrity of the lockbox system and the properties of homeowners. A critical factor in our defense would be our ability to show that we took every reasonable precaution to limit access to the system. Therefore, we believe that the extra precautions that require Affiliate members to use a CBS code are an inconvenient but necessary part of our responsibilities for providing lockbox services.

QUESTION: What are the advantages and the disadvantages of using combo boxes versus lockboxes?

ANSWER: First, a little clarification. The use of combo boxes is not regulated by our Regional Rules and Regulations for the Supra Keybox System for Realtor® Members (lockbox rules). Lockboxes on the other hand, which are available for purchase through NVAR, are covered by the lockbox rules. What does this mean for Realtors®? First, the level of protection offered for the owners of a property differs. Access to properties with lockboxes is limited to Realtors® and their clients. In contrast, while MRIS restricts the publication of combo box combinations to the “Agent Remarks” field, there are no regulations preventing agents from publishing these codes on other Web sites, such as Craig’s List. Once the code is published, anyone can access the property at any time without leaving a record of it. When someone enters a property through a lockbox, there is a record of the visit. Each lockbox key is assigned to one agent and thus the owner can trace who has entered his or her property. Since combo boxes are not regulated, their use is unchecked, whereas lockbox rules violations can be brought to the attention of the Board and compliance can be enforced through NVAR’s Grievance Procedures.

So why are some owners requiring the use of a combo box? There are some advantages. Since they are not regulated, the owner or the agent can give the combination out to all who need access to the property without having a representative present. The contractor, home inspector and appraiser can all access the property conveniently. On the other hand, the lockbox rules require that the agent, who owns the lockbox key, be present and secure the property upon the departure of these contractors.

Combination Boxes: Not The Lockbox Of Choice, Always Follow Listing Agreement Rules And Our Code


By Sarah Louppe Petcher, NVAR General Counsel

It has recently come to the attention of the Board of Directors that the use of combination boxes by members has reached epidemic proportions. To this end, we reprint this July/August 2008 Update Magazine Q&A with some enhancements to help our members understand the risks associated with the use of a combination box.

  1. First, A Little Clarification:

    The use of combination boxes is not regulated by our Regional Rules and Regulations for the Sentrilock Lockbox System for Realtor® Members (lockbox rules). Lockboxes on the other hand, which are available for purchase through NVAR, are covered by the lockbox rules.

    What does this mean for Realtors®? First, the level of protection offered for the owners of a property differs. Access to properties with lockboxes is limited to Realtors® and their clients. In contrast, while MRIS restricts the publication of combination box combinations to the “Agent Remarks” field, there are no regulations preventing agents from publishing these codes on other Web sites, such as Craig’s List. Once the code is published, anyone can access the property at any time without leaving a record of it.

    When someone enters a property through a lockbox, there is a record of the visit. Each SentriCard® is assigned to one agent and thus the owner can trace who has entered his or her property. Since combination boxes are not regulated, their use is unchecked, whereas lockbox rules violations can be brought to the attention of the Board and compliance can be enforced through NVAR’s Grievance Procedures.

    So why are some owners requiring the use of a combination box? There are some advantages. Since the boxes are not regulated, the owner or the agent can give the combination out to all who need access to the property without having a representative present. The contractor, home inspector and appraiser can all access the property conveniently. On the other hand, the lockbox rules require that the agent, who owns the lockbox key, be present and secure the property upon the departure of these contractors.

    Agents who elect to place a combination box on a property and publish the access code on a publicly accessible Web site may be facilitating unauthorized access to the property. By way of example: A house is listed for sale, the listing agent advertises the listing on Craig’s List and includes the access code on the ad. Any member of the public may now enter the property, whether for real estate-related activities or not. They could be entering the property for other reasons, including vandalism and general mayhem. The listing agent has no control over access to the property and no way of knowing who comes in and out.

    In addition to these general problems that may arise from the use of a combination box, consider the following two more specific issues.
  2. The Use Of Combination Boxes And The NVAR Listing Agreement.

    The NVAR listing agreement specifically provides that you, the agent, will use a lockbox, not a combination box on your listing

    F) Broker shall show the Property during reasonable hours to prospective buyers and shall accompany or accommodate, as needed, other real estate licensees, their prospective buyers, inspectors, appraisers, exterminators and other parties necessary for showings and inspections of the Property, to facilitate and/or consummate the sale of the Property. Broker shall install an electronic keybox on the Property to allow access and showings by real estate licensees who are authorized to use the electronic keybox system by area Realtor® Associations.

    What does that mean for you? Unless you have modified the listing agreement with your client to allow the use a combination box, as soon as you install a combination box on the property, you have breached your obligations under the listing agreement. Some may ask, so what?

    The listing agreement specifically protects agents from liability associated with the listing of a property:

    C. Seller Assumption of Risk. The Seller retains full responsibility for the property, including all utilities, maintenance, physical security and liability until title to the property is transferred to purchaser. Seller is advised to take all precautions for safekeeping of valuables and to maintain appropriate property and liability insurance through Seller’s own insurance company. Broker is not responsible for the security of the property or for inspecting the property on any periodic basis. If the property is or becomes vacant during the Listing Period, Seller must notify Seller’s home owner’s insurance company and request a “Vacancy Clause” to cover the property. In consideration of the use of Brokers services and facilities and of the facilities of any Multiple Listing Service, the Seller and Seller’s heirs and assigns hereby release the Broker, sales associates accompanying buyers or prospective buyers, any Multiple Listing Service and the Directors, Officers and employees thereof, including officials of any parent Association of REALTORS®, except for malfeasance on the part of such parties, from any liability to the Seller for vandalism, theft or damage of any nature whatsoever to the Property or its contents that occurs during the Listing Period. Seller waives any and all rights, claims and causes of actions against them and holds them harmless for any Property damage or personal injury arising from the use or access to the Property by any persons during the Listing Period.

    As you can see, the listing agreement shifts the risk to the seller for any vandalism, property damage and personal injury that the seller may suffer as a result of his or her property being listed by the agent. However, if you place a combination box on the property, your client may now argue that he did not agree to assume the risk associated with your use of a combination box and thus the risk may shift back to you.
  3. The Use Of Combination Boxes And Your E&O Insurance.

    You should consider checking your E&O insurance policy for any coverage exemptions. Some policies may specifically decline coverage if you fail to abide by your contractual obligations and thus may decline to cover you for any damage that the seller has incurred as a result of your use of a combination box on their property.

The following guidelines have been prepared by the Risk Management Committee of the National Association of REALTORS®to supplement the REALTOR® association's long standing antitrust compliance program. Their purpose is to assist members in applying these principles in their individual offices when confronting issues raised by the presence of new business models offered by competitors.

Real estate is and always has been a very competitive business. The multitude of firms that are active in the business in most markets, the entrepreneurial spirit that is a trademark of the sales people who make up the bulk of the industry, and the relative easy entry into the real estate business combine to insure competition. Over the years the real estate business has benefited from that aspect by seeing the different possible business models employed by competitors. Successful innovations take root and spread among the industry. Less successful ones fall by the wayside.

Our industry finds itself in another period where new business models are being introduced. That increases challenges and competition, just as new models have in the past. The law and our Code of Ethics serve to assure that consumers have the complete and accurate information they need to make their marketplace decisions. In the end, consumers decide which business methods will prevail and survive and which will fail. That, of course, is the heart of the REALTOR® association's antitrust compliance program.

One of the bedrock principles of antitrust compliance is that neither associations nor their members collectively set the price of services provided by real estate professionals. That is a decision that is made independently by each firm. The firm's sales associates must take care to present pricing policies to prospective clients in a manner that is consistent with the fact that the fees or prices are independently established. This means they should never respond to a question about fees by suggesting that all competitors in the market follow the same pricing practices or to a policy of the local board or association of REALTORS® that supposedly prohibits or discourages price competition.

Never say things that could be understood to suggest a conspiracy or falsely disparage a competitor:

"This is the rate every firm charges. I'd like to lower the commission, but no one else in the MLS will show your house unless the commission is X%."

"I have to charge you this rate because this is the rate the Board of REALTORS®set for all real estate agents."

"Before you decide to list with XYZ Realty you should know that because they are "discount" brokers, members of the association won't show their listings."

Focus on the positive aspects of doing business with you and the services that distinguish your firm:

"I have a marketing program that gets results. Let me explain my 60-day marketing plan and all it includes."

"Our company has been in business for Y years and has serviced thousands of clients with the highest professionalism. We choose to charge X% and our clients have chosen to pay X% because of the service provided."

"Yes, our company charges a commission of A% and company 2 charges a commission of B%, but at the same time you are comparing commission rates, Mr. Seller, be sure to compare services, in order to get an apples-to-apples analysis."

"I appreciate your comments, my interest is in helping you meet your goals by getting you the best price, in the quickest amount of time, with the least amount of problems. Let me show you how I do it."

"I am proud of my company's reputation for professionalism and getting things done. Let me show you some of our sales (or whatever) statistics that prove we do what we say."

Additionally, the obligations of a member of the REALTOR® association impose a higher standard with regard to the statements made about competitors. Article 15 of the REALTOR® Code of Ethics states, "REALTORS®shall not knowingly or recklessly make false or misleading statements about competitors, their businesses, or their business practices."

The National Association's Professional Standards Committee has said the Article logically flows from the REALTOR®'s duty established in Article 12 "to present a true picture in É representations." This includes comparisons with competitors, and comments or opinions offered about other real estates professionals. While the Article is not intended to limit or inhibit the free flow of the commercial and comparative information that is often of value to potential users of the many and varied services that REALTORS®provide, it does require a good faith effort to ensure that statements and representation are truthful and accurate.

The path to managing this risk is really consistent with the philosophy of the REALTOR® organization. By focusing on the positive and presenting it honestly, the potential risks posed by the antitrust laws will be minimized and you will not only have avoided that legal and ethical liability, but you will probably elevate yourself and your firm in the eyes of the most important audience, the people who are going to be selecting you to represent them in the sale or purchase of their home.

Excerpts from Antitrust and Real Estate for REALTORS®and REALTOR®-ASSOCIATE's (5th ed.) and Professionalism in Real Estate (2003).

Additional Resources:

Avoiding Antitrust Risk (a REALTOR® Magazine Toolkit)

Antitrust and the Real Estate Brokerage Firm (The Letter of the Law)

REALTOR® Code of Ethics

PROTECTING YOURSELF FROM THE IMPRUDENT BUYER
By Beau Brincefield

"I don't care what it takes. Tell the sellers we'll pay $1,000 more than anybody else for their house and we'll waive all of the contingencies."

Sound familiar? In the hot seller's market that we are currently experiencing in Northern Virginia, it is not uncommon for frustrated homebuyers to throw caution to the wind in order to be the successful bidders for a desirable home. It is also not uncommon for the successful bidders to blame their real estate agent for allowing them to act imprudently by offering too high a price for the property or by waiving contingencies that, with the benefit of 20/20 hindsight, should not have been waived. How do prudent buyer agents protect themselves from imprudent purchaser clients who decide to compromise their transactional protections in order to be the successful bidders for a hot property?

In the highly competitive residential real estate market that exists in Northern Virginia today, it is not uncommon to have 20 or 30 offers submitted for a home. Many hopeful homebuyers find themselves disappointed five, 10 or 15 times before they are successful in obtaining a contract with a seller. More buyer agents and home seekers realize that in order to be competitive with other similarly situated buyer agents and home seekers, they must submit contract offers that push the upward limits of reasonableness in price and they must consider waiving contingencies that, in more normal times, they would never even consider waiving. This situation can present real dangers for buyer agents who fail to counsel their clients as to the risks involved in waiving various contingencies and making offers at amounts that do, or may, substantially exceed the list price and fair market value of the property. Furthermore, even when the prudent buyer agent properly counsels the client against getting caught up in the competitive frenzy, how does the agent protect against the client's inevitable memory lapses when the deal goes sour?

Like most other aspects of the homebuying process, the answer is deceptively simple: Just get a written acknowledgment from the clients that you have given them appropriate cautionary advice concerning the potential consequences of whatever options, rights or protections they are waiving.

There are several important subjects that either should be dealt with in every purchase offer or, if not included in the offer, their absence should be explained in a separate, written acknowledgment that the buyer agent obtains from the client.

Price. Obviously, every purchase offer has to include a price. If the potential purchaser decides to offer a price that is in excess of the list price and/or especially if the purchaser wants to build in some kind of automatic price escalation provision into the offer, get a written acknowledgment from the client that the agent has warned the client that the price which the client is offering to pay may exceed the fair market value of the property and the consequences of that (e.g., the property may not appraise for the price, which may then require the purchaser to substantially increase the down payment in order to obtain financing or suffer a default under the contract).

Financing Contingency. If the client is certain of his or her ability to obtain financing for the property, it may be relatively safe to remove the financing contingency. However, if the financing contingency is removed and the purchaser cannot thereafter obtain financing, the purchaser will probably default under the contract. If the financing contingency is waived, get the purchasers' written acknowledgement that they have been advised of the potential consequences of doing so.

Condition of the Property. There are several different sections of the typical sales contract that deal with different aspects of the physical condition of the property. For example:

The purchaser must decide whether to accept a statutory disclaimer statement from the seller or whether the purchaser will require a disclosure statement. If the purchaser accepts a disclaimer, make sure that he or she acknowledges the receipt of a complete explanation as to the significance of that decision.

Waiving the usual inspection contingency can be disastrous if significant defects are later discovered in the home. Other significant contingencies relating to the condition of the property may be included or waived in the typical contract. See, for example, the standard contingencies for termite inspections, radon testing, lead-based paint and the lender-required repairs contingency. If the client elects not to include these contingencies in the contract, document your cautionary warning and the purchaser's decision.

At this point, it might be worthwhile to note the difference between the acknowledgments that this article recommends obtaining and the numerous disclaimers of real estate agent and broker liability that are found in Section 24 of the standard NVAR Sales Contract form. The disclaimers in Section 24 of the standard form contract state that the agent and broker are not responsible for numerous aspects of the property (e.g., physical condition, restrictions on use, noise pollution, planned land uses in the area). It is doubtful that these disclaimers would protect the buyer agent from liability for failing to inform clients of the consequences of waiving the protections described in this article.

Coinciding Settlements/Sale of Other Property. If the client needs to sell an existing property or requires simultaneous settlements, but decides to waive these provisions in the purchase offer, document the fact that the purchaser made an informed decision after a full discussion of the potential consequences with you, the buyer agent.

Good, Marketable and Insurable Title. So far, I have not seen any purchasers waiving this contingency, but I have no doubt that there have been some home seekers out there desperate enough to do so. Of course, if the clients were sufficiently motivated to do so, they could have the title searched before submitting an offer on the property, but that does not usually happen. Even though the chance of a title defect is relatively small, if your clients happen to be the unfortunate purchasers of a property with a title defect, they are probably going to be looking for somebody to blame for not protecting them from their own foolishness.

In any case involving any of the situations described above, the prudent buyer agent would be well advised to obtain a written acknowledgment from the clients that the agent has fully informed them as to the potential risks involved in waiving these protections in order to be the successful bidder for a property. Using a short, simple, written acknowledgement form can protect you from an enormous amount of aggravation and potential liability.

Myth: It is illegal to rebate your commission.
Fact: There are some limited legal ways to rebate a portion of your commission.

By Marcus Simon, attorney

Many buyer agents have begun to offer to credit a portion of the real estate commission to their clients. It is not illegal for an agent to offer to pay money to a purchaser as an inducement to have them sign an exclusive agency agreement. However, this practice can lead to other problems for both purchasers and their agents further down the road, particularly at settlement.

Anytime a purchaser expects to receive a cash credit at closing, it is essential that they make their lender aware of the amount and nature of the credit as soon as possible. The lender will need to adjust the financing appropriately. Failure to do so can easily result in the lender disallowing the payment to the purchaser and possibly causing the entire transaction to unravel.

Commission credits can be accounted for correctly in a number of the ways on the HUD-1 settlement statement:

1) The seller may give the purchaser a credit at closing and reduce the commission paid by that same amount. The listing broker and/or agent must agree to this, however, as the broker is party to the listing agreement, which is a contractual arrangement between the seller and the broker. The seller may not be able to alter the commission amount or split on his or her own initiative.

2) If the listing broker or agent objects to a reduction in the commission paid, the selling agent may collect the full commission on page two of the settlement statement, then show it as a credit to the seller on page one. The seller then credits the same amount to the buyer.

3) A third method, which doesn't involve the seller at all, is to simply show a credit from the selling agent to the buyer on the buyer's side of the settlement statement.

Solutions two and three are problematic as they may create an issue under Virginia's Wet Settlements Act. Virginia law requires that all funds be received by the settlement company prior to recordation, and that no funds, including commissions, be disbursed until after the title documents have been recorded. If a commission credit is being used as part of the down payment, then arguably not all of the funds required to settle are available until the commission is actually disbursed.

The biggest problem with all three of these scenarios, however, is that the lender often is not willing to allow cash credits at closing. Most lenders will not allow any escrows, and may limit cash credits to the amount of closing costs actually incurred. Some loan programs do not allow for any closing cost credit. Third party credits, which include a credit from the real estate agent at closing, are often forbidden as well. Underwriters may treat the credit to the purchaser as a reduction in the sales price, affecting the loan to value ratios. Lenders have strict requirements regarding the source of funds of the down payment and the purchaser cash contribution at closing.

In order to make clients happy and "save" the transaction, there may be pressure brought on the settlement agent or the real estate agents to manipulate the numbers on the HUD-1. A real estate agent should be very wary of these schemes and avoid being made a party to loan fraud. It is important that the HUD-1 settlement statement accurately reflect the entire transaction.

KICKBACK: An offer to pay a third party to win a client's business.
Example: A lender pays $1 to an agent in exchange for the agent referring the buyer to the lender.

Is it legal? A kickback is viewed as increasing the costs to consumers without providing anything of value. In certain circumstances, such as those covered under the Real Estate Settlement Protection Act, a kickback may be illegal.

REBATE: An offer to return part of a payment to a client to induce the client to use the firm's services.
Example: A real estate firm offers to give back $1 of its commission to a client in exchange for the client using the firm's services to purchase a property.

Is it legal? The offering of a rebate is generally viewed as a legal and ethical part of negotiating compensation. State and Federal regulators have taken the position that such rebates ultimately reduce the cost to consumers. Any attempt to prohibit, restrict or discourage the negotiation of commission is considered an illegal restraint of trade under established antitrust law.

QUESTION: Can an owner of a condo advertise a rental listing for a roommate and request “women only?”

ANSWER: Under normal circumstances, it is a violation of fair housing laws to express a preference toward a tenant of a specific gender. However, there is an exception under the law in which the advertisement is for a roommate to live in the same property as the landlord. According to the Virginia Fair Housing Office Web site, “This limited exception applies only to sex and only where the owner lives in the house and wants to rent rooms to same sex roommates.”

QUESTION: Someone told me that it is a violation of fair housing law to talk about schools. Is that true?

ANSWER: According to a recent report by the National Fair Housing Alliance, comments about schools have been used as a proxy to steer clients to specific neighborhoods. The report indicated that those who seek to steer clients often attempt to conceal their illegal activity by avoiding direct comments about the racial or ethnic makeup of the neighborhood.

Instead, they simply describe schools with large populations of minorities as “bad” while identifying schools with small numbers of minority students as “good.” In these situations, the comments are made without regard to the actual quality of the school or objective criteria for measuring school performance. Comments about the quality of a school based on racial or ethnic makeup rather than on the actual quality of the school are a form of discrimination.

This has caused concern for reputable, professional agents about what they can say about schools. Some have even gone so far as to decline commenting about schools for “fair housing reasons.”

REALTORS® can give clients objective information about schools without violating fair housing laws. It is perfectly acceptable to identify the name of the schools that serve a specific neighborhood, such as Fairfax High School or Graham Road Elementary. The name of the school is an objective fact.
But REALTORS® should exercise care when discussing the quality of schools. We recommend that REALTORS® cite information from objective sources such as reports from government agencies, newspaper articles or other third parties that discuss objective criteria.

E-mails and fax advertisements have become common tools for REALTORS®. However, federal law places limits on the use of these tools. Presented below are some questions and answers to help you comply with the federal laws.

Question: How can I launch a successful e-mail advertisement campaign and comply with the CAN-SPAM Act?

Answer: The CAN-SPAM (Controlling the Assault of Non-Solicited Pornography and Marketing) Act, sets requirements for any e-mail that advertises or promotes a commercial product or service, including Web site content. Here are four key requirements for commercial e-mails:

(1) Accurate header information. Your e-mail's “To” and “From” fields, as well as the originating domain name and e-mail address, must be accurate and identify the person who initiated the e-mail.

(2) No deceptive subject lines. The subject line can’t mislead the recipient about the content or subject matter of the message. Your message must contain clear notice that the content is an advertisement or solicitation and that the recipient can opt-out of receiving more commercial e-mail from you.

(3) Easy opt-out method. You must provide a return e-mail address or another Internet-based response mechanism that allows recipients to ask you not to send future e-mail messages. When you receive an opt-out request, the law gives you 10 business days to stop sending e-mail to the requester’s e-mail address.

(4) A valid physical mailing address.

Question: Can I send advertisements for my services by fax to clients, customers or prospective clients?

Answer: It is unlawful for you to send unsolicited advertisements to any fax machine, including those at both businesses and residences, without the recipient’s prior express invitation or permission. An “unsolicited advertisement” is “any material advertising the commercial availability or quality of any property, goods, or services which is transmitted to any person without that person’s prior express invitation or permission, in writing or otherwise.” However, you may always send fax advertisements to recipients with whom you have an “established business relationship” (EBR), as long as the fax number was provided voluntarily by the recipient.

An EBR is “a prior or existing relationship formed by a voluntary two-way communication between a person or entity and a business or residential subscriber, […] on the basis of an inquiry, application, purchase or transaction by the business or residential subscriber regarding products or services offered by such person or entity, which relationship has not been previously terminated by either party.”

Specifically, you can send such a fax to an EBR customer if you also:

(1) obtain the fax number directly from the recipient, through, for example, an application, contact information form, or membership renewal form; or

(2) obtain the fax number from the recipient’s own directory, advertisement, or site on the Internet, unless the recipient has noted on such materials that it does not accept unsolicited advertisements at the fax number in question; or

(3) take reasonable steps to verify that the recipient consented to have the number listed, if obtained from a directory or other source of information compiled by a third party.

If you had an EBR with the recipient and possessed the recipient’s fax number before July 9, 2005, you may send the fax advertisements without demonstrating how the number was obtained.

If pursuant to these rules, you can send a fax advertisement, you must provide notice and contact information on the fax that allows recipients to “opt-out” of future faxes. The notice must:

(1) be clear, conspicuous and located on the first page of the advertisement;

(2) state that the recipient may make a request that you not send any future faxes and that failure to comply with the request within 30 days is unlawful; and

(3) include a telephone number, fax number, and cost-free mechanism (including a toll-free telephone number, local number for local recipients, toll-free fax number, Web site address, or e-mail address) to opt-out of faxes that must be available 24 hours a day, seven days a week.

If you receive a request not to send more faxes, you must honor that request within the shortest reasonable time from the date of the request, not to exceed 30 days. You are also prohibited from sending future fax advertisements to the recipient unless the recipient subsequently provides prior express permission to the sender.

Sources: Federal Communications Commission at www.FCC.gov
and Federal Trade Commission at www.FTC.gov

I represented a seller, who, upon expiration of our listing agreement, selected to go to another real estate firm. His listing with the second firm has now expired. Can I call him to inquire about his listing?

The general rule is that you, as a real estate professional, cannot call a person on the Do Not Call Registry unless you have an “existing business relationship” with the person. The rules define an “existing business relationship” as one which extends for eighteen months after the end of the transaction. As long as your call to the seller occurs within eighteen months after the expiration of the agreement, you will not run afoul of the rules.

It is also important to note that Virginia law further restricts your ability to make solicitation calls to the hours of 8 a.m. to 9 p.m. See Va. Code Ann. §59.1-511.

Can I call a person with an expired listing?

Before you initiate any such call you must verify that the number has not been registered on the Registry. You can find the Registry at: http://telemarketing.donotcall.gov/. If you see their name on the Registry you should refrain from contacting them by telephone. Federal law requires that all companies keep their own internal Do Not Call List. You must therefore also check with your company’s list before contacting the seller. If the seller is on your internal list, then you cannot call them, regardless of your relationship. However, the fact that their number is on the Registry does not prevent you from sending them a mailing or approaching them in person.

Can I call a FSBO seller?

If you are seeking to list the FSBO seller’s property and his number is on the Registry, then the rules are the same as for a seller with an expired listing. However, if you are a buyer’s representative, you may contact the FSBO seller about a client’s potential interest in the property. However, you can only discuss with the FSBO seller your client’s interest in the property and cannot use your client’s interest as a way to discuss the possibility of the FSBO seller listing his property with your agency.

A person calls my office to inquire about a listing. Can I call this person back if their number is on the Registry?

This is another exception to the general rule. When a person initiates the contact, then you have the right to contact that person for the next three months. Your calls are not limited to their original inquiry. There is no limit on what you may discuss with the person during those three months and thus you could discuss other listings.

I placed a sign-in sheet at an open-house. Must I verify whether each person is on the Registry? And if they are on the Registry, can I still call them?

The first question is whether this constitutes an inquiry by the person which would then allow you to contact them for the next three months. The second concern is whether the person had a reasonable expectation of getting a follow-up call when he/she signed the sheet . As you can see, whether the rules apply is a question of interpretation. Under these circumstances, it would be safer to place a notice on your sign-in sheet which would alert the person that they are consenting to receive a follow-up call, and giving the person the ability to decline receiving such a call.

Background: During a self-conducted audit, you discover that after receiving and depositing an Escrow Money Deposit in a timely manner, the check has bounced. Your ordinary practice is to check the company’s bank account once a month, so you don’t discover that the check bounced until almost 30 days after you deposited it. Knowing that this is a violation of the duty to deposit funds within five business days, what you do next can determine whether or not you face penalties.

What should I do if I discover that my firm, or a member of my firm, has violated the law?

If you conduct a self-audit, or hire an outside firm to conduct an audit for you, and you discover a violation, you may be able to avoid penalties if you notify VREB within 30 days of discovering the violation. When you contact VREB, you should also include a written plan explaining how you will remedy the problem to bring your firm into compliance within the next 90 days.

Once you have implemented your plan, and you have brought your firm into compliance, you will need to again contact VREB to certify that you have taken the steps laid out in the voluntary compliance plan. If an outside firm conducted the audit and discovered the problems, you will need to have the firm certify that you have implemented the plan.

Will submitting a voluntary compliance plan to VREB shield me from penalties?

There are two instances in which a voluntary compliance program will not protect you: if the original violation was intentional or the result of gross negligence. If the violation was not intentional or the result of gross negligence, then once you have followed the steps in the voluntary compliance program, you will not be subject to penalties for that particular violation.

Question:

When must a licensee disclose a brokerage relationship?

Answer:

Pursuant to Virginia Code §54.1-2138, a licensee must disclose any brokerage relationship that licensee has with another party to the transaction upon having a substantive discussion about a specific property or properties with an actual or prospective buyer/seller/landlord/tenant who is not the client of the licensee and who is not represented by another licensee. The disclosure shall be made in writing at the earliest practical time, but in no event later than the time when specific real estate assistance is first provided. The disclosure must be conspicuous, printed in bold lettering, all capitals, underlined, or within a separate box. NVAR form K1207 “Disclosure of Brokerage Relationship” meets all of the legally required notice requirements for formatting, and need only be completed with client and brokerage specific information to comply with the disclosure requirements.

Example 1:

Listing Agent is affiliated with ABC Brokerage and has entered into a brokerage relationship with Seller evidenced by a ratified listing agreement. Listing Agent holds an open house at Seller’s property. Mr. and Mrs. Buyer attend the open house, express that they are actively seeking to purchase a home, and ask several substantive questions of Listing Agent about the property. Listing Agent asks if Mr. and Mrs. Buyer are represented by an agent and is told that they do not have a brokerage relationship with another agent. Listing Agent must stop and provide Mr. and Mrs. Buyer with written disclosure of her brokerage relationship with Seller. In order to be prepared to make proper disclosure, Listing Agent should be equipped with completed copies of NVAR Form K1207 “Disclosure of Brokerage Relationship,” indicating clearly that Listing Agent represents Seller.

Example 2:

Buyer’s Agent is affiliated with XYZ Brokerage and has entered into a brokerage relationship with Buyer as evidenced by a ratified buyer/broker agreement. Buyer would like to purchase a home in a specific neighborhood where there are currently no homes listed for sale. Buyer’s Agent knocks on doors in the neighborhood with the intent of asking owners if they are interested in selling their home. Buyer’s Agent knocks on the first door and first asks if the owner is represented by an agent. The owner responds that he is not represented by an agent. Buyer’s agent must stop and provide the owner with written disclosure of her brokerage relationship with Buyer. In order to be prepared to make proper disclosure, Buyer’s Agent should be equipped with completed copies of NVAR Form K1207 “Disclosure of Brokerage Relationship,” indicating clearly that Buyer’s Agent represents Buyer.

 


Editor’s Note: This information was provided with input from NVAR’s Attorney Roundtable, a group of NVAR attorney members who meet bimonthly to discuss legal issues that affect Realtors®. For more information, contact NVAR General Counsel, Sarah Louppe Petcher at This email address is being protected from spambots. You need JavaScript enabled to view it. .

 

The article was published as a memorandum by the U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, titled:

New ADA Regulations and Assistance Animals as Reasonable Accommodations under the Fair Housing Act and Section 504 of the Rehabilitation Act of 1973

It is available in it's entirety as a PDF document:
http://www.nvar.com/images/documents/law-service-animal-memo.pdf

Question: I represent the buyer in a transaction. The preliminary HUD sheet indicates a lower amount of commission than what I had calculated based on the gross sales price of the house. I call the settlement agent who informs me that the commission is to be paid on the net sales price. I review the short listing in the MLS and find no indication that commission is to be paid on the net sales price. What is a net sales price? Where is it indicated on the MLS listing?

Answer: The MRIS rules and regulations state in Section X:

“Sec.2. Compensation specified on listings filed in the service shall appear in one of three forms:
a) by showing a percentage of gross selling price
b) by showing a definite dollar amount
c) commission may be paid on Net Sales price (Sales Price minus seller concessions) or on base price in new construction if specified in the system.”

MRIS allows commissions to be paid on the net sale price, which it defines as sale price minus seller concessions. What does that mean? The net sale price is the gross sale price less any closing costs normally paid by the buyer, which in this transaction are paid by the seller. Costs to be deducted can include the home warranty, any inspection (home inspection, termite, radon), and all other closing costs paid by the seller.

Where should Realtors® look to find whether their commission is based on the gross sale price or the net sale price? This information is included under the “legal” category of the long version of the listing

What can Realtors® do to address this? For most transactions, the difference in the commission paid based on the net sale price and the gross sale price is generally a small portion of the total commission. However, to ensure that payment is based on the gross sale price, Realtors® should make sure to discuss this with their buyer clients and modify the buyer broker agreement to reflect that compensation will be based on the gross sale price of the property and that if commission is paid by the cooperating broker based on the net sale price, the client will make up the difference.

Question: In reviewing the MLS comment field, I find a lot of information that should not be there. Can you give us guidance about what information does not belong in the comment section?

Answer: The increase in listings of bank-owned properties in the MLS has led to an increase in improper listings. Many bank-owned listings include the name and phone number of the bank that owns the property. Telephone numbers should never be included in the comment section of the MLS. MRIS is currently auditing all listings to identify those that list the bank’s telephone number in the comment section.

Another common problem found in listings of bank-owned properties are words to the effect of: “you must use Lender X” or “you must use settlement agent X.” Both of these statements raise the specter of a potential RESPA violation. The legislature in Virginia was clear in its last session that such language constitutes a potential violation of CRESPA (the state equivalent of RESPA). Indeed, new legislation required an amendment to our Virginia Jurisdictional Addendum to include the following language:
“Variation by agreement: The provisions of the Consumer Real Estate Settlement Protection Act may not be varied by agreement, and rights conferred by this chapter may not be waived. The seller may not require the use of a particular settlement agent as a condition of the sale of the property.”

QUESTION: Let’s now turn our attention to pictures. It has become standard for MLS listings to include photos of the advertised property. How do you select your pictures, can you alter them, and what are the consequences of posting pictures on your MLS listing?

ANSWER: First, let’s address the issues surrounding the choice of pictures. If the pictures of the house reveal some of the problems with the property, is it permissible to “clean them up?” I believe that any time you make a material change to a photo that alters the physical condition of the property; you may be violating Article 12 of the Code of Ethics. Article 12 requires that Realtors® present a true picture in their advertising and real estate communications. As always, some scenarios will be clear code violations and others would get different results from different panels. An example of a clear violation would be to erase a visible crack in the foundation, or fill in a hole in the roof. But what about removing the dandelions in the grass, or removing a cloud in the sky? For these I would say that reasonable people could disagree.

Once the photos have been selected and you are about to post them on MRIS, other rules come into play. MRIS has a “Photo Upload Terms of Use” that you agree to every time you post a picture. Here is a summary of their rules:
(1) Photos and images are uploaded on a per listing basis and are not transferable to another listing.
(2) The photos and images are copyrighted by MRIS.
(3) You assert that you will not submit an image or photo that you do not have the right to assign to MRIS.

Finally, other articles, such as Article 2 (misrepresentation or concealment of pertinent facts about a property) and 10 (prohibits discrimination based on race, color, religion, sex, handicap, familial status or national origin), also impact how social media can be used by Realtors®. Agents should also familiarize themselves with those Articles.

Editor’s Note: Michelle Yam of MRIS provided the summary of the Photo Upload Terms of Use.

QUESTION: Can I enter a listing in the Metropolitan Regional Information Systems, Inc. (MRIS) that offers zero compensation to cooperating brokers?

ANSWER: MRIS is a regional multiple listing system. The distinguishing characteristic of a multiple listing system is that it serves as a marketplace for competing real estate brokers to offer cooperative compensation to their competitors if those brokers are able to procure a buyer for the listing. Without the offer of cooperative compensation between competing brokers you lose the distinguishing feature that differentiates an advertising mechanism like a postcard mailing, classified advertisement in a newspaper, or a FSBO Web site from a multiple listing system.
MRIS will only accept three types of listings as eligible for inclusion in their system. All three types involve listings in which the seller has authorized the listing broker to offer cooperation and compensation to other competing brokers. While the seller must authorize the offer of compensation, it is the broker entering the listing in MRIS who ultimately is held responsible for paying the cooperating broker who procures the buyer. When a listing agent enters zero compensation in the listing, he or she is using the MLS in a way that defeats its purpose. In other words, if you offer zero you are really offering nothing.


The language in “Listings Accepted” and “Definitions” presumes that the listing company is offering something of value in order to be eligible for inclusion in MRIS.


There is nothing wrong with taking a listing that offers zero compensation to cooperative brokers. A seller is under no obligation to authorize a listing broker to pay cooperative compensation to other brokers. Such listings are often referred to as private exclusives or office exclusives.


However, MRIS does not accept such listings because they are in the business of helping brokers extend offers of cooperation and compensation to competing brokers. This is reflected in Article XI, Section 4 Exempted and Office Exclusive Listings B where it states “Office Exclusive Listing - Listing where the offer of cooperation and compensation is not made to other brokers. These listings may not be entered into MRIS.”

If a specific listing is not offering compensation, it can be advertised through other means (newspaper advertisements, flyers, Web sites, etc.) but does not fulfill the criteria for listings that MRIS agrees to accept.

Question:

Under what circumstances is a manufactured [mobile] home a “vehicle” versus “real estate?” When may it be listed for sale or lease in the MLS?

Answer:

If a manufactured [mobile] home has wheels and/or other equipment used for mobility, it is considered to be a vehicle, and therefore personal property, and should accordingly be titled through the Virginia Department of Motor Vehicles. A Virginia real estate license does not authorize the licensee to assist clients in buying/selling/leasing manufactured [mobile] homes as personal property.

A manufactured [mobile] home is considered to be real estate if: (i) its wheels and/or other equipment used for mobility have been removed; (ii) it has been attached to real estate; and (iii) the vehicle title has been cancelled via surrender to the Virginia Department of Motor Vehicles. See DMV Guidelines: dmv.virginia.gov/webdoc/citizen/vehicles/mobile.asp. Pursuant to Virginia Code §46.2-653, once the manufactured [mobile] home has been converted to real estate, then it can only be sold as real estate is sold. As Virginia real estate agents are licensed to assist clients in buying/selling/leasing real estate, they are therefore able to assist clients with buying/selling/leasing manufactured [mobile] homes that have effectively been converted from personal property to real property.

In addition to determining whether the structure is a vehicle or real estate, it is also important for the agent to determine if the underlying land is owned by the owner of the manufactured [mobile] home, or if it is leased from the landowner. If the owner of a manufactured [mobile] home which has been effectively converted to real estate also owns the underlying land, then that owner may list the land and improvements for lease/sale just as they would any other improved real estate. If the owner of a manufactured [mobile] home which has been effectively converted to real estate does not own the underlying land, then that owner only has the right to sell the structure, and would only be able to negotiate a transfer of the lease of the underlying land as allowed by the home owner’s specific lease agreement.

Accordingly, if a manufactured [mobile] home is a vehicle with wheels and/or other equipment used for mobility intact, it may be transferred only as a vehicle, which is personal property, and which may not be listed for sale/lease through the MLS. If a manufactured [mobile] home has been effectively converted to real property, it may be listed for sale/lease through the MLS. Note that the listing agent will need to be clear in the listing whether the underlying land is included in the sale/lease.

 


Editor’s Note: This information was provided with input from NVAR’s Attorney Roundtable, a group of NVAR attorney members who meet bimonthly to discuss legal issues that affect Realtors®. For more information, contact NVAR General Counsel, Sarah Louppe Petcher at This email address is being protected from spambots. You need JavaScript enabled to view it. .

 

An agent is contacted by a seller who wishes to engage her services to sell his house. The agent and the seller sign a listing agreement. After signing the listing agreement the agent discovers that the seller forgot to mention that he is having trouble making his monthly mortgage payments and because of the market, he now owes more than the house is worth. The agent is concerned because she has never done a short sale before.

Article 11 of the Code of Ethics states that REALTORS® shall not undertake to provide specialized professional services that is outside their field of competence unless they fully disclose their lack of experience to the client or engage the assistance of one who is competent in the area. The REALTOR® must therefore disclose to their client that they do not have experience handling short sales. If the agent chooses to continue representation and the seller agrees to proceed after disclosure of the agent’s lack of experience, or in the alternative, if the agent selects to employ the assistance of a person competent to handle such a transaction, then Article 11 is satisfied.

In 2004, an agent sold a house located on 444 Ramshackle Rd to a buyer for $500,000. In October 2007, the owner contacts the agent and wants him to list the house at 444 Ramshackle Rd. The agent receives an offer of purchase for $450,000. In light of the market conditions, the agent believes this would be a good deal for the owner. However, upon receipt of the offer, owner informs the agent that he is not sure the offer will be sufficient to reimburse the outstanding mortgage balance. What can the agent do?

First and fore most, in this market, before accepting a listing, an agent should always ascertain a few vital pieces of information. Doing this due diligence check before an agent accepts a listing will spare future headaches. Ask a potential client: (1) do you have enough equity in the home to pay off all the liens against the home; (2) have you made all your mortgage payments in a timely fashion; if not (3) how far behind are you on your payments; (4) have you talked to your lender(s) about the situation; and most important (5) are you currently in bankruptcy?

So now the agent knows it is a short sale. What next? Short sales can have potentially devastating tax consequences as well as an impact on the owner’s credit therefore, the agent must inform the client that he should seek the advice of an attorney and a tax advisor. Informing a client in writing is the best and recommended practice, however an agent’s verbal recommendation, within the context of the Code of Ethics, is sufficient for a REALTOR® to discharge their ethical duties.

Next, an agent should obtain written permission from the client to talk to the lender(s). This will allow the agent to ascertain the client’s true position. The agent should ask the lender if they will consider a short-sale on the property? If the lender(s) agree, then the agent should ask for the information they will need from the client to approve the short sale and what commission they will approve as part of a short sale. It is important to ascertain this information prior to entering into a listing agreement as lenders may not accept the terms of the agent’s listing agreement.

Then run a title search to make sure the property is free and clear and the deal will be able to go through.

I am the listing agent. As part of the listing I made an offer for cooperation of three percent (3%). Now that we have a ratified contract, the lender will approve the transaction but wants to reduce the amount of commission. What do I do?

Standard of Practice 3-2 states that a change in the offer of compensation to another REALTOR® shall be timely communicated prior to the time such REALTOR® produces an offer to purchase the property. However, Standard of Practice 3-3 states that after an offer is made, the listing broker and the cooperating broker may enter into an agreement to modify the cooperative compensation. The Code of Ethics does not address the situation the agent finds himself in where the lender is requiring a modification of the cooperative compensation. Is the agent in violation of the Code of Ethics?

Unfortunately, the agent could be in violation of the Code of Ethics. However, the fact that the lender is driving the modification of the compensation is a defense available to the agent. To get around this problem, the listing broker should contact the cooperating broker and explain the situation. If the cooperating broker agrees, then the agent has satisfied Standard of Practice 3-3 and is no longer in violation of the Code of Ethics. Note that these modifications to the cooperative compensation agreement must be approved by the brokers. An agent’s agreement to a modified compensation is not binding upon his or her broker and therefore does not guarantee the modified compensation.

Please also note that according to the MRIS Rules and Regulations, the obligation to compensate a cooperating broker may be excused by an Arbitration Panel if, through no fault of the listing broker, and if the listing broker exercised good faith and reasonable care, it was impossible or financially unfeasible for the listing broker to collect the commission per the listing agreement.

Prior to agreeing to a listing, I have ascertained that my client is upside down on her house and therefore any contract and compensation will be subject to lender approval. What information do I include in the MLS when I list the property in the system?

The MRIS Rules and Regulations state that the offer of compensation shall be specified in the system. It goes on to state that the MRIS system will only accept listings (three types are identified as acceptable) where the Seller has authorized the listing broker to offer cooperation and compensation to other competing brokers. But you already knew how to list a property for sale in the MRIS when there are no issues of future modification of offers of compensation.

In response to the increase in short sales, our regional MRIS just added two pick list items to assist both listing and selling agents. “Short Sale” has been added under the “Current Financing/Loan” pick list. Selecting this option will disclose to other agents that the property is subject to a short sale and therefore any contract will require lender approval. Additionally, MRIS has added a field which allows listing agents to inform others that the offer for cooperative compensation is also subject to third party approval. In the event your listing is a short sale, you can now select from the “Contract Info Pick” list the following option: “Comp-Subject to third Party Approval.”

However, before you select either options, consider your client’s privacy and the confidential nature of the information you would be disclosing. Article 1 of the Code of Ethics states that REALTORS® pledge themselves to protect and promote the interests of their clients. If you select an option in your listing which indicates that it is a short sale, or is subject to lender approval, you could be communicating that you have a distressed seller which may, in turn, affect the offers your client will receive. However, if you do not disclose that the offer of compensation is subject to lender approval, you may violate Article 3 of the Code of Ethics down the line. Before you put a listing on MRIS, discuss these factors with your client and obtain from your client approval to select options from the pick lists which reflects that not only the contract but also the offer of compensation is conditioned upon third party approval.

For further information on the use of MRIS in short sales, please refer the MRIS’ website.

The Federal Trade Commission has issued a final rule which requires three different disclosures from real estate agents assisting their clients in selling or purchasing a short sale property. Please read below for more information.

http://www.realtor.org/letterlw.nsf/pages/0211mars?OpenDocument

The Mortgage Assistance Relief Services (MARS) Rule was issued by the Federal Trade Commission to protect distressed homeowners from mortgage relief scams that have sprung up during the mortgage crisis. The MARS Rule imposes an advance fee ban, advertising restrictions as well as disclosure and recordkeeping requirements on companies and individuals involved in MARS related activities.

Who is covered?

The rule applies to real estate brokers, agents and mortgage lenders who provide, offer to provide, or arrange for others to provide mortgage relief services or refer a client or customer to a MARS services provider in an attempt to halt a foreclosure or obtain lender approval of a short sale.

The FTC Rule defines MARS activity as including negotiating, obtaining and arranging a short sale. Under this definition, an agent or broker who performs the following services would fall under the definition of a MARS services provider and would be covered by the MARS Rule:

  • negotiates a short sale with a lender or servicer on behalf of a client
  • represents to consumers that they are engaged in the business of assisting consumers to avoid foreclosure by negotiating a short sale with a lender. This means that if you advertise your ability to assist clients with avoiding a foreclosure by negotiating a short sale, you are covered.
  • refers a consumer to someone who is a MARS provider of short sale negotiation services.

What must you do?

If you have done any of the activities listed above since January 1, 2011, you will need to make the appropriate disclosure(s) and meet certain record keeping requirements. Under the MARS Rule, depending upon what activity you have or are performing, you must provide one or more of the following types of disclosure:

  1. The General Commercial Communications Disclosure: You must include this disclosure when you advertise in any way MARS services that are not directed to a specific consumer. This includes any written material, radio or television commercials, advertisements on the internet, etc.

    In print advertisements, the following language must be used: IMPORTANT NOTICE: (Name of company) is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan.

    In communications disseminated orally or through audible means, the following language must be used: Before using this service, consider the following information. (Name of company) is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan.
  2. The Consumer-Specific Commercial Communications Disclosure is consumer specific and must be provided at the time the consumer enters into an agreement for MARS. For example, when a consumer walks into your office and enters into an agreement with you for any of the covered activities, you must immediately provide them with this disclosure. In the event that you refer a consumer to someone who will provide them with MARS, you must provide still provide this disclosure and you should do so at the time you make the referral. (NVAR Form K1357 – MARS Consumer Specific Disclosure)
  3. The final type of disclosure is the Disclosure When Providing an Offer of Mortgage Relief. This disclosure must be made when the lender provides an offer of mortgage relief to the seller. For example, the disclosure must be provided when the seller receives a short sale approval letter incorporating the offer of mortgage relief. (NVAR Form K1358 – MARS Offer of Mortgage Relief Disclosure)

I don’t charge an additional fee for assisting my seller/buyer with a short sale transaction, so the MARS Rule would not apply to me, right?

Wrong. If you have substantive conversations with your client concerning a short sale and/or direct contact with the seller’s lender concerning a short sale pre-approval or the negotiation of a short sale contract, you are subject to the MARS Rule regardless of whether or not you charge a fee over and above the agreed upon real estate commission.

A house I listed last month is a short sale. Do I need to include the disclosure forms?

Yes. The rule went into effect on January 1, 2011, and so if you are providing any advice to the seller concerning their short sale and/or communicating and negotiating a short sale pre- approval or short sale purchase, offer disclosure is required.

What if the house is already under contract, but hasn’t closed yet? Do I need to go back and provide the disclosures now?

If the sale has already closed, you do not need to make the disclosure. Just be sure to make the appropriate disclosure(s) from this point forward.

Besides providing the disclosure, is there anything else I must do?

Yes. In addition to providing the appropriate disclosure statement(s), you must keep a copy of all contracts between the provider and the consumer, copies of all written communication (including emails and text messages) between the consumer and MARS provider prior to entering into the agreement for MARS services, copies of all document or recordings or any other commercial communications for MARS services, all consumer files containing contact information and descriptions of MARS services for 24 months from the date the record is created.

I represent the buyer in a short sale, I don’t have to worry about these disclosures, right?

Not necessarily. If you contact the bank in order to help facilitate a deal for a short sale property, you will need to provide the appropriate disclosure, even if you represent the buyer.

What are the penalties for non-compliance?

Fines of $11,000 per occurrence and $11,000 per day may be incurred for violations, so it is important that you understand the new regulations and are compliant. In addition, consumers may sue the MARS services provider (broker/agent) if their damages exceed $50,000.

Where can I read more about the MARS Rule duties and requirements?

The FTC has issued a compliance guide for businesses. It is available for download as a pdf file on the FTC web site. http://business.ftc.gov/documents/bus76-mortgage-assistance-relief-services-rule.

 


Drafted with the assistance of NVAR, RAAR and VAR.

 

NVAR Locations

NVAR FAIRFAX HEADQUARTERS
8407 Pennell Street
Fairfax, VA  22031

NVAR HERNDON CENTER
520 Huntmar Park Drive
Herndon, VA  20170

Contact Us

703.207.3200  MAIN
703.207.3244  Education
703.207.3256  Membership
703.207.3215  Realtor® Shop
703.207.3228  Herndon Center

Hours of Operation

8:30 a.m. to 5 p.m.
Monday through Friday

Questions? - Contact Us