Real Estate Tales from the Courtroom: The Buyers’ Broker’s Signature

 

The buyers signed the Buyer-Broker Employment Agreement.  Did the buyer’s agent?

Over an 18–month period the buyers and buyer’s agent entered into three Buyer–Broker Employment Agreements for a property with a desired purchase price of under four million dollars.

After the third Buyer-Broker Employment Agreement expired, the buyer’s agent sent an e-mail message to the buyer regarding four properties and asked the buyers to sign a new Buyer–Broker Employment Agreement.  The buyers signed the Agreement and sent it back to the buyer’s agent, who responded “thank you” with an email that ended with an electronic business card consisting of her name, business address, e-mail address, telephone numbers, website address, and photograph.

During the term of this forth Buyer–Broker Employment Agreement, the buyers purchased a home using another real estate agent and paid that agent a commission. The buyer’s agent sued the buyers for the commission set forth in the Buyer-Broker Employment Agreement.

The buyers argued there was no enforceable agreement because neither the buyer’s agent nor the agent’s broker had signed the Buyer-Broker Employment Agreement, as required by A.R.S. 32-2151.02(a)(4) . The buyer’s agent argued that A.R.S. §32–2151.02 is an Arizona Department of real Estate “regulatory statute” that did not bar this civil cause of action for the commission and that the buyers’ signatures on the Buyer-Broker Employment Agreement satisfied the Statute of Frauds. A.R.S. 44-101.

The buyer’s agent also claimed she had in fact signed the Buyer-Broker Employment Agreement by virtue of the thank you e-mail, which was “intended to be [her] signature and acceptance of the contract” pursuant to the Arizona Electronic Transactions Act. See A.R.S. 44-7001-7052.

The Court stated that the buyer’s agent was required to sign the Buyer-Broker Employment Agreement for it to be enforceable.  Further litigation ensued regarding whether the buyer’s agent’s electronic thank you email qualified as her signature. 

The ultimate outcome of the case is unknown to this author, but the lesson is clear.  To avoid this type of costly and time-consuming litigation, make sure and obtain all necessary signatures on all documents – including your own. 

Young v. Rose, 230 Ariz. 433

Michelle Lind is Of Counsel to the Arizona REALTORS® and the author of Arizona Real Estate: A Professional’s Guide to Law and Practice.  This article is of a general nature and may not be updated or revised for accuracy as statutory or case law changes following the date of first publication. Further, this article reflects only the opinion of the author, is not intended as definitive legal advice and you should not act upon it without seeking independent legal counsel.  7/28/22

The Risky Facts of Real Estate Life – Pre and Post Possession Agreements

 Buyers and sellers who want to enter into pre-possession and post possession agreements are a risky fact of real estate life.  There are times when a buyer wants to move into the property before close of escrow (pre-possession) or the seller wants to stay in the property following close of escrow (post possession).  

 

The first thing that a real estate agent absolutely needs to know and follow is their broker’s policy on these types of agreements.  Also, be aware that the Arizona Department of Real Estate Commissioner’s Rule requires that a salesperson or broker recommend “that the client seek appropriate counsel from insurance, legal, tax, and accounting professionals regarding the risks of pre-possession or post possession of a property” – and this recommendation should be done in writing. 

 

So why are these agreements risky?  They are risky because in both pre and post possession agreements, the people occupying the property are not the owners, which sounds a lot like a rental.  If the Arizona Residential Landlord Tenant Act applies (and there is a strong argument that it does) there are statutory rights and obligations applicable to these agreements.  As a result, the risk of a dispute increases, especially if all the parties’ rights and obligations are not addressed in a well-drafted written agreement. 

 

Post Possession by the Seller

Because the obligations in the purchase contract are fulfilled at close of escrow, the obligations to repair and maintain the property are no longer the seller’s responsibility; they are the buyer’s responsibility – but the seller is still occupying the property.  Therefore, post possession issues include:

 

·         Who is responsible for repairs?

·         What if there is a fire, monsoon or other damage?  Do the parties have the appropriate insurance policies (homeowners’/rental) in place and whose insurance policy will cover any damage? 

• Will a security deposit be required in case the seller damages anything in the property? If so, how much?  (The amount of a security deposit in a rental is limited to 1.5 times the amount of one month’s rent).

And other matters to be addressed are:

• How much is payment/rent? Will the payment/rent be prorated?

• Who pays the utility bills? Will the utilities be transferred into the buyers’ name?

• Who will occupy the property? Are pets allowed? Is smoking permitted?

 

Information about these and other issues are discussed in the Post Possession Agreement Checklist here:  https://www.aaronline.com/wp-content/uploads/2015/12/Post-possession-checklist-11-19-15.pdf

 

Pre-possession by the Buyer

Typically, the seller is responsible for any damage to the property prior to close of escrow.  However, in the event a buyer prepossesses the property, the buyer is now responsible. 

The same issues as discussed above regarding post possession agreements apply to pre-possessions.  But there are additional pre-possession risks, such as: 

 

• What if there are buyer contingencies that have not been met prior to the buyer’s pre-possession? Have the parties decided to waive the contingencies or are they still in place allowing the buyer to cancel the purchase contract if a contingency fails?

• What if the buyer moves in and begins to remodel the property, then thereafter either cannot or will not close escrow? 
• If the sale is not completed, when does the buyer have to move out? What happens if the buyer refuses to move out?

 

Information about these and other issues are discussed in the Pre-Possession Agreement Checklist here:  https://www.aaronline.com/wp-content/uploads/2015/12/Pre-possession-checklist-11-19-15.pdf

 

A written agreement and decision of which type of agreement is appropriate should be addressed regardless of whether a pre or post possession is for 3 days or 30 days or more. The Arizona REALTORS® has some additional resources to assist:

 

·         A sample Arizona REALTORS® Residential Lease Agreement at:  https://www.aaronline.com/wp-content/uploads/2022/02/04/Residential_Lease_Agreement_October_201-9-SAMPLE.pdf 

·         A sample Post Possession Agreement (not an Arizona REALTORS® form) at:  https://www.aaronline.com/wp-content/uploads/2021/05/03/Post-Possession-Agreement-SAMPLE.pdf

·         A sample Pre-Possession Agreement (not an Arizona REALTORS® form) at:  https://www.aaronline.com/wp-content/uploads/2021/05/03/Pre-Possession-SAMPLE.pdf

 

Due to the risk and liability involved with pre-possession and post possession of a property, the best practice is for the parties to not enter into such an agreement. However, if the parties insist, the real estate agent should consult with their broker and advise the parties in writing to seek appropriate counsel from insurance, legal, tax, and accounting professionals regarding the risks.

 

 

Michelle Lind is Of Counsel to the Arizona REALTORS® and the author of Arizona Real Estate: A Professional’s Guide to Law and Practice.  This article is of a general nature and may not be updated or revised for accuracy as statutory or case law changes following the date of first publication. Further, this article reflects only the opinion of the author, is not intended as definitive legal advice and you should not act upon it without seeking independent legal counsel. 

Representing a Buyer in a New Home Subdivision

 

Representing a buyer who is purchasing a home in a new home subdivision involves different considerations than representing a buyer in a resale home transaction.  A new home purchase transaction is generally much different than a resale transaction, but the role of a buyer’s agent is just as important. 

 

Ensure that the Buyer Understands that You Should Accompany Them to Their First Visit to any Model Home or New Home Sales Office

Generally, a buyer’s agent must accompany the buyer on their first visit to a new home subdivision and register to be eligible to receive a commission. As a buyer’s agent, if you do not accompany the buyer on the first visit to any property, including a model home, new home/lot or “open house” the builder, seller or seller’s broker may refuse to compensate you.  Consider using the Arizona REALTORS® Buyer-Broker Exclusive Employment Agreement, which confirms the buyer’s agreement not to make a first new home visit without you.  https://www.aaronline.com/wp-content/uploads/2021/01/12/Buyer-Broker-Exclusive-Agreement-BBEEA-SAMPLE-FEB-2021-1.pdf

 

The Buyer Should Always Read the Public Report Before Signing the Purchase Contract

A subdivider (anyone who offers six or more lots for sale in a subdivision) must give a prospective new home buyer a copy of the Public Report and an opportunity to read and review it before the prospective buyer signs a contract to purchase a home in the subdivision. A.R.S. §32-2183(A).   Encourage your buyer client to read the Public Report thoroughly before signing a purchase contract because the report contains important information, such as:

• disclosure of conditions or provisions that may limit the use or occupancy of the home;
• homeowners association information;
• whether the subdivision is subject to any known flooding or drainage problems;
• existing and proposed adjacent land use, including any unusual safety factors and uses that may cause a nuisance or adversely affect homeowners;
• street and road maintenance;
• available utilities;
• any environmental factors;
• whether any portion of the subdivision is located in territory in the vicinity of a military or public airport;
• locations and availability of schools, shopping facilities, public transportation, medical facilities, ambulance service, and police service.

 

The purpose of the law requiring a Public Report for subdivided lands “is to insure that consumers who purchase lots in residential developments are provided with adequate streets, utilities, drainage, and generally pleasant, healthy and livable surroundings.” Alaface v. National Investment Co., 181 Ariz. 586, 596, 892 P.2d 1375, 1385 (App. 1994).

 

The Buyer Should Always Read the CC&Rs and Other Homeowners Association Rules Before Signing the Purchase Contract

Most new homes are in a homeowner’s association. Covenants, Conditions and Restrictions (CC&Rs) generally empower a homeowner’s association to control certain aspects of home’s use. The CC&Rs may be very strict, especially those addressing landscaping, RV parking, and play equipment. It is essential that the buyer review and agree to these restrictions prior to entering a contract; afterwards is generally too late. In addition to the CC&Rs, a homeowner’s association may be governed by articles of incorporation, bylaws, rules and regulations, and often architectural control standards, which should also be reviewed.

 

The Buyer Should Always Read the Purchase Contract Before Signing

Each new home seller/builder/subdivider generally has its own purchase contract, so there is no “standard” contract as there is in the resale market. And these new home purchase contracts are generally much different than the Arizona REALTORS® Resale contract. Therefore, buyers must read the purchase contract carefully before signing and be advised to keep the following questions in mind: 

 

• Who will hold the earnest money and other advance deposits? If possible, all earnest money and other advance deposits should be held by the escrow company.  If the deposits are held by the seller, the buyer may have a difficult time recovering those funds in the event the seller fails to perform.

 

• Does the contract contain a financing contingency for the benefit of the buyer?  Unless the buyer plans to pay cash, the contract should contain a financing contingency stating that the contract is contingent upon the buyer qualifying for a loan. If the buyer is unable to qualify for a loan to buy the home, the buyer should be entitled to a return of the earnest money. Some new home contracts provide only that the seller has the right to cancel the contract if the buyer fails to qualify for a loan, which does not protect the buyer.

 

• If the home is still under construction, when will the home be completed? The seller should be asked to include a realistic estimate as to when construction will be completed in the contract. A realistic completion date is important so that the quality of the construction will not be compromised by a contractor who is rushing to complete the home. If the completion date is critical, the buyer may be able to negotiate a contract provision in which the seller agrees to pay a certain dollar amount to the buyer per day for late completion.

 

• What are the buyer’s remedies if there is a problem? The remedies for problems are likely specifically set forth in the contract. The contract may require that any disputes be resolved by binding arbitration, which may eliminate the right to a trial by judge or jury and the right to appeal.   

 

Remember, educate the buyer about the importance of a buyer’s agent when purchasing a new home to guide them through the process and advocate on their behalf.  And, remind the buyer that the subdivision sales agent represents the seller and, as nice as they may be, is looking out for the seller’s best interests – not the buyer’s. 

 

Michelle Lind is Of Counsel to the Arizona REALTORS® and the author of Arizona Real Estate: A Professional’s Guide to Law and Practice.  This article is of a general nature and may not be updated or revised for accuracy as statutory or case law changes following the date of first publication. Further, this article reflects only the opinion of the author, is not intended as definitive legal advice and you should not act upon it without seeking independent legal counsel.