7.22 Purchase Sale Contract Policy

1. Sale Contract Completion

As a member of the State and Local Association of REALTORS®, the Company uses the standard contract forms available through State and Local Associations (including Standard Forms such as “Purchase and Sale Agreements”, or an “Offer to Purchase and Receipt for Deposit,” or other similar forms that vary per State and all addenda thereto). Article 13 of the REALTOR® Code of Ethics governs an agent's conduct in this respect.

The Company adheres strictly to these provisions. Accordingly, sample contracts and forms are available to all agents of the Company on the Google drive. Agents must use the approved language and fill-ins included in the sample contract. If a situation is not covered, an agent is not authorized to alter a form or add language without prior approval from Company management. Company management maintains a file of pre-approved clauses for situations not covered by the forms.

Likewise, any amendments or supplements to sale contracts must be written on the standard addenda available from the Local and State Association library forms. These forms provide for the most typical amendments and changes to sale contracts. If an agent requires unusual language, he or she must consult Company management who will consult with legal counsel to determine the appropriate language to be used.

Licensees may not draft offers, sales contracts, options, leases, promissory notes, deeds, deeds of trust or other legal instruments by which the rights of others are secured. However, licensees may complete preprinted offers, option contracts, sales contracts, and lease forms. If a customer or client asks us to prepare any other type of document, the agent should ask the customer or client to seek the advice of her/his own legal counsel.

2. Sale Contract Terms

Several areas of contract terms are traps of risk for the unsuspecting agent. The Company maintains policies regarding these areas to reduce risk and heighten awareness. These are covered below.

1. Earnest Money: Several concerns regarding earnest money are involved. First is the "how much" issue. The Company cannot maintain a policy that requires any specific amount of earnest money as the Company and agent are not parties to the contract. However, if the Company represents the seller, the advice to the seller will be that sufficient earnest money is very important in that it shows how "earnest" a buyer is. The Company has seen many cases where low earnest money has resulted in a buyer simply defaulting on the contract and forfeiting the low amount of earnest money, banking on the fact that it is unlikely that a seller would sue. It has also seen many cases where sufficient earnest money has kept an anxious buyer in a contract to closing because of the prospect of losing a substantial amount of the earnest money. The timing that the earnest money needs to be deposited is also of concern.

If the Company represents the buyer, the classic approach to buyer representation might suggest recommending the lowest possible earnest money in every case. However, the agent is cautioned that this may not serve the best interests of the buyer in all cases. For example, because earnest money indicates how "earnest" a buyer is, or how "strong" an offer is, a buyer may be put at a competitive disadvantage if low earnest money is offered in a situation where the buyer's offer is competing with one or more other offers. As in all other situations, if the Company represents the buyer, its job is to give the buyer the best of the Agent's and Company's expertise, advice, and talent which may include advice which on first impression does not follow the "typical" rules.

The policy of the Company is that only wires, checks, or money orders are accepted as earnest money without further permission from the seller. The Company's policy regarding this rule is that items such as postdated checks are not acceptable. Although the Company may have a trust fund bank account in certain States, the Company does not accept earnest deposit funds unless it is mandated by the State. All funds should be deposited directly to escrow by the client.

A corollary issue occasionally arises regarding acceptance of a credit card or line of credit check (Visa, MasterCard, American Express, home equity loan). The Company takes a conservative position regarding these instruments and strongly discourages their use. The primary reason for this policy regards the difficulty in determining whether this instrument has "cleared". There is no easy way to determine whether the line of credit has been exhausted or overdrawn and upon presentation, will be rejected. In addition, a lender may require that such balances be paid off before loan approval or closing. A credit card or line of credit check should be accepted only with the written permission of the seller.

2. Inspection Contingencies: The intended purpose of these contingencies is to give the buyer the right to terminate the contract in the event inspections reveal extensive, unforeseen damage to the property, even though the seller may be willing to repair the damage. The contingency is not intended to give the buyer an “out” in cases where damage to the property falls within the range of what might be considered normal for a property of the type under contract.

If the company represents the buyer, the classic approach to buyer representation might suggest recommending the highest possible number of days in the contingency period in every case. However, the agent is cautioned that this may not serve the best interests of the buyer in all cases. For example, a buyer may be put at a competitive disadvantage if a high number of days is offered in a situation when the buyer's offer is competing with one or more other offers. As in all other situations, if the Company represents the buyer, its job is to give the buyer the best of the Agent's and Company's expertise, advice, and talent which may include advice which on first impression does not follow the "typical" rules.

3. Inclusions and Exclusions: The contract is the primary method to determine what is being sold with the property. Do not rely on the disclosures or listing data to establish what is included in or excluded from a contract.

This area is of great importance for risk reduction purposes. Personal property inclusions and exclusions cause a great number of the disputes in a sale contract and can be expensive for an unwary agent. As a general rule, try to keep the contract free from personal property matters. Not only do these matters "clutter" the real estate aspects of the transaction, but they may affect the maximum loan amount depending on the loan-to-value ratio. Be aware of the potential hazards in this area and act with caution, making sure inclusions and exclusions are clear in the contract. Agents/Loan Officers are cautioned not to use simple statements in the address section of the contracts stating "per MLS sheet" or "per MLS #XXXX." These create confusion as to what MLS sheet and when the MLS sheet was run.

4. "As-Is" Contracts: Most properties nationwide are now sold “as-is.” These listings often include text such as “offered in as-is condition”. This term is unclear, at best, and therefore should be clarified so that the parties have a clearer understanding of the intentions of the other. Generally speaking, there are three approaches for parties who wish to include an “as is” term in a MLS posting or contract. Those three approaches are as follows:

• The property is sold exactly as seen. No repairs or corrections will be made by the seller.

• While the property is being sold "as-is", the buyer is entitled to a building, mechanical, or structural inspection to determine the condition of the property and will have the right to cancel the contract if the seller refuses to make any necessary repairs.

• While the contract states the property is being sold "as-is", the buyer is entitled to all rights allowed in the building, mechanical, or structural inspection clauses of the contract, including the right to ask for repairs. Typically, this approach may be selected if the seller's statement of "as-is" is simply intended to convey the seller's position that it is unlikely the seller will repair any requested items.

If a customer or client asks us to include an “as is” term in a contract, the agent should ask the customer or client to seek the advice of his/her own legal counsel. In addition, an "as-is" sale does not relieve the licensee of the obligation to disclose all material facts of which he/she has knowledge or which are readily available to him/her relating to the condition of the property.

3. Sale Contract Negotiation

The techniques and principles of sale contract negotiation (the "how-to") are covered in the Company's and Board's training programs. Each agent is encouraged to take full advantage of these resources to improve her/his skill in this area which are vital to success in this business.

Aside from sale contract negotiation techniques, the Company maintains policies that are directed to the legal and ethical aspects of contract negotiation. These are listed below.

1. Presentation of Offers

In accordance with the Code of Ethics and State Real Estate Commission Rules, the Company requires its agents to present all offers to the seller until closing and all counter offers to the buyer, regardless of how many offers received or the order in which the offers were received. The Company urges any agent / loan officer involved in a multiple offer situation to contact management to review the proper procedures.

The Company will always be guided by lawful instructions of the client in any multiple offer situations. While the Company believes that these procedures protect the client, the client may choose to give the Company other lawful instructions. The agent should discuss with the client, whether seller or buyer, the customary procedures for handling multiple offers so that the client may determine whether the client wishes to give the agent or Company different instructions.

Standard of Practice 1-15 of the National Association of REALTORS® Code of Ethics requires that the listing agent/loan officer, in response to inquiries from buyers or cooperating brokers shall, with the sellers’ approval, divulge the existence of offers on the property. In addition, Standard of Practice 1-15 requires that, when disclosure is authorized, the listing agent has an affirmative obligation, if asked, to disclose who is representing the parties of any offer presented, i.e. whether the offer(s) is represented by the listing agent, another agent with the listing agent’s brokerage or another brokerage.

In the event of multiple offers on one property, the Company follows a policy, with the seller’s approval, of notifying all offerors that his/her offer is in competition with other offers as well as giving the opportunity to change the offer. The notification shall take place only after multiple offers actually exist and not when the listing agent may have knowledge of other offers being written or possibly being written.

The Company policy is to encourage buyers to “Submit your highest and best offer.” The listing agent is not advised to reveal any terms of the offer to any other party including expiration time of the offer, price, closing dates, earnest money amounts, financing types, amounts, dates, or other terms unless instructed by the seller(s).. Although it is not typically the best practice to reveal information on other offers. This may vary by state, the listing agent is required to know their states guidelines on any restrictions and protocol.

If another agent, whether from the Company, or another company, asks the listing agent to "let me know if another offer comes in", the Company has a general policy of not acknowledging such requests. If other offers come in, the agent should advise the client that inquiries of this nature have been made and ask the client whether those requests should be followed up.

The Company policy is to give sellers the option to accept Dual Agency (if permitted in that particular State), Single Agency, or Designated Agency before any listing is taken or offers are received. If the seller has no objections to dual agency, and if multiple offers exist and the listing agent has written one of those offers, the policy of the Company in such a circumstance is that the listing agent must present all the offers.

If the seller has opted for a designated agency and a customer of the listing agent asks to write an offer before or after other offers have been submitted, the policy of the Company is that the listing agent must ask the sales Manager, Broker, or other Company agent to write the offer for the listing agent's customer.

If the seller has opted for a Single Agency and a customer of the listing agent asks to write an offer, the policy of the Company is that the listing agent refuses to write an offer and let the customer know they will need to obtain their own representation. If the seller has opted for a Single Agency (or that particular State does not accept Dual Agency) the listing agent may only represent the seller.

In general, whenever the listing agent has knowledge of an offer presented, or could use information he or she has to the detriment of one of the competing parties, the Company strongly recommends that a third party agent, such as a Manager, Broker, or other agent, become involved to assist in the negotiations.

A final issue regarding presentation of offers regards whether an oral offer must be presented. Common law agency principles dictate that all material and relevant information of which the agent has knowledge should be given to the client. In addition, Standard of Practice 1-7 of the REALTOR® Code of Ethics speaks of submitting all offers to the seller.

In accordance with agency obligations of disclosure and loyalty and in the spirit of the National Association of REALTORS® Code of Ethics, the Company has a policy of giving the seller client all material and relevant information of which the agent has knowledge. In accordance with this policy, if a customer insists on an oral offer, the Company believes that the seller is entitled to that information.

The Company recognizes that such an oral offer alone is almost certainly unenforceable under most State laws. However, it is prudent to tell the seller what the agent knows, that is, an oral offer was made by this party and it is unknown whether the party will ultimately be willing to commit the offer to writing. At this point, a seller may choose to make a written offer to sell and thereby initiate the contract process him/herself.

Additional resources on this topic are available on www.realtor.org (opens in a new tab), Law and Policy. The NAR Professional Standards Committee has published a guide for agents and brochure for buyers and sellers on “Presenting and Negotiating Multiple Offers.”

2. Timing of Presentation

The Company strongly supports and maintains a policy to present all offers and counter offers as quickly as possible. Standard of Practice 1-6 of the REALTOR® Code of Ethics provides the standards in this area.

The policy of the Company is that these terms are to be interpreted to mean "immediately" or "as soon as humanly possible". As an example, a listing agent's receipt of an offer should immediately generate a telephone call/text to the owner to determine when the seller is available for presentation of the offer. Once contacted, the seller can then instruct the listing agent as to when to present the offer. The critical point is that the Company believes that the listing agent MUST make a diligent effort to contact the seller IMMEDIATELY upon receipt of the offer.

In the case of a buyer agency, the same principles apply with equal weight. The buyer is the client and must be treated with the same high levels of fiduciary duty as a seller who is a client. These same principles should be adhered to, even in the case of a buyer who is a customer and not a client. State Real Estate Commission Rules speak to the delivery of offers with no reference to client-agent relationship.

This is an extremely simple yet very important risk reduction technique. Every agent of this Company should consider this of prime importance. The obvious danger in not taking this issue seriously. The offeror can revoke or withdraw his or her offer at any time prior to a valid acceptance. The Company does not want to be in a position of defending an action where an offer was withdrawn before a seller was contacted or diligent efforts to contact the seller were not made.

These issues are common, daily events that the agent should learn to handle with skill and ease. The agent's ability to understand and deal with these issues will act as a significant risk reduction method and contribute to an agent's successful practice of the real estate business.