ARE INTEREST RATES ON THE RISE???
Recent findings from MBA SVP & Chief Economist, Mike Fratantoni, indicate that the talks about interest rates going up are beginning. See his comments below:
“Longer term interest rates, including mortgage rates, jumped earlier this year as vaccinations began and the government pushed more fiscal stimulus into the economy. In the past few months, mortgage rates have moved within a very narrow range. While the Fed has not yet laid out specific plans with respect to tapering their Treasury and MBS purchases, the changes in the forecasts for the economy, and for their rate target, suggest that tapering is close at hand. As a result, mortgage rates are likely primed to move at least somewhat higher.” Mike Fratantoni, MBA SVP & Chief Economist.
Rates have been so good for over a year now and we all know that they have to go up at some point. It seems that earlier forecasts that called for rates to be in the upper 3’s by the end of the year may still hold true. Only time will tell, but for all the agents out there, the time to buy and sell is right now.
The NAR Code of Ethics, Article 11, states that REALTORS® shall not provide specialized professional services that are outside their field of competence, unless they engage the assistance of one who is competent on such types of property or service, or unless the facts are fully disclosed to the client.
What is a licensee’s field of competence?
Consider the boundaries of your own field of competence and experience. Certainly, real estate licensees are trained to assess property values. But are we trained to assess all property values? An opinion by a licensee with residential experience may be quite valid for a residential property but valuing a commercial or an industrial property is very different. Likewise, an agent may have ample experience listing properties for rent and preparing lease agreements but no experience in property management. Most frequently, we see agents who do not have experience or education and are presented with opportunities in commercial real estate, multi-family and property management.
A licensee must be careful to not present a value opinion as an appraisal. It is a violation of license law to indicate that an opinion given to a potential seller, purchaser, landlord, or tenant regarding a listing, rental, or purchase price is an appraisal unless such licensee holds an appraiser classification in accordance with the Georgia Real Estate Commission.
Every licensee has their own unique experience. If you are asked to perform a service that is not within your own experience, remember that the Code of Ethics, Article 11, requires you to get assistance from someone that is competent in the field or to disclose the fact of your inexperience to the client (in writing). The client can then decide if an assignment should be yours despite inexperience.
Keep in mind, you can always refer business and collect a referral fee. Focus on what you know, and if you want to expand your expertise, be sure to get proper training so that you can best represent your client.
Yikes! We weren’t told about the bats in the attic!
What do we do now?
Your buyers have closed on the property and moved in. The water pressure is low. There are termites. The attic has bats. The foundation has a hidden crack that your inspector didn’t see and the seller didn’t disclose.
Can the Buyer Sue?
Maybe, but first, what you can and cannot say.
Real estate agents are (generally) not lawyers and do not have the expertise or the license to provide legal advice to a client. The information in this article is for your knowledge. Always recommend that a client seek advice from their legal counsel.
The Seller Must have known about the defect.
Georgia is a Caveat emptor or Buyer Beware State. The legal rule caveat emptor basically means that once you buy the home, whatever you paid for is what you got, and buyers have a limited ability to sue the seller for any defects discovered.
Under Georgia law, the Seller is obligated to disclose material facts that 1) he is or should have been aware of, 2) could not be discovered by the buyer’s exercise of due diligence, and 3) the seller knows the buyer is unaware of and would be important to the buyer’s decision to buy or the price the buyer would pay. These 3 elements are fact-intensive and, if your buyer wants to sue, could be very expensive to prove.
The defect must be a “material” defect. That is, an item that would have been important to the buyer in making a decision of whether or not to purchase or how much the buyer would have been willing to pay or that poses a safety risk.
Bottom line, unless the seller intentionally tried to conceal a defect, for example, by lying or hiding it, buyers often cannot get relief.
The Buyer has responsibility too. If defects could have been discovered by the exercise of reasonable due diligence by the buyer, the buyer generally can’t get relief. At a minimum, the buyer should have an inspection by a professional inspector. However, generally, home inspectors have minimal liability for missed conditions or items. What responsibility they do have is typically capped at the cost of the inspection.
If there is a unique condition or feature in the home, it is recommended that the buyer hire an inspector that is a specialist in addition to the general inspector. Think septic, pool, radon, etc.
The Four Corners Rule and Merger Doctrine
Any conversation or any information stated outside the “Four Corners” of the contract cannot be relied upon in litigation. Merger Doctrine in Georgia says that, generally, the Deed at closing merges with the contract and extinguishes the terms of the PSA. If you want terms to survive the closing, state that specifically in the Special Stipulations.
Bottom line: If information from the seller is important, include it in the contract. (All parties acknowledge and agree that..). If you want to rely on it after closing, state that the term survives the closing of the contract.
Fraud is an exception to the four corners rule and the merger doctrine. However, fraud is very hard to prove. Facts must be gathered by the Plaintiff, which is expensive. The Buyer must prove justifiable reliance on a misrepresentation of the seller (or the listing agent), that the misrepresentation was meant to induce the buyer to purchase the property and that the buyer was damaged by that reliance.
Builder Liability for Post-Closing Defects
Builder contracts in Georgia generally include reference to the Right to Repair Act. Georgia is a contractor friendly dispute resolution statute. Under the terms of the Act, the Builder cannot be sued until the buyer goes through a specific resolution process. The process takes months and gives the builder the option to offer to repair.
Litigation is a last resort.
Before considering undisclosed material defect litigation, consider negotiation. Litigation is a last resort to resolving conflict. It is expensive, uncertain and time consuming.
Temporary Occupancy and Homeowner’s Insurance Coverage Don’t Get Caught Unaware!
We are seeing more and more Temporary Occupancy Exhibits in this Seller’s market. Consider the following scenario:
The Owner of a property sells and includes a 60-day temporary occupancy in the purchase agreement. The Property closes. The old owner is still in the house and the new owner has not yet moved in.
Yikes! The property burns down! Yikes, a tree falls on the roof! Yikes, a guest slips and falls!
Whose Insurance Pays?
Whose insurance pays for the damage to the real property? Whose insurance pays for the loss of the former owner’s personal property? Whose insurance pays for the slip and fall?
Not the former owner’s policy. They are no longer an owner occupant. Their policy is no longer valid for any of it.
Not the new owner’s policy. The new owner was not occupying the property when it burned. Their policy would not cover either.
Reviewing the language of the GAR F219, Temporary Occupancy for the Seller, the Seller has agreed to hold the other parties harmless from liability to people and property.
6. Seller hereby expressly releases Buyer, Seller’s Broker, Buyer’s Broker and their Affiliated Licensees from any and all liability of any nature whatsoever which may arise as a result of the Seller’s acts or the acts of anyone else entering the Property, including, but not limited to, liability for injury to persons and/or damage to personal property resulting from or in any manner occasioned by such
occupancy. Seller further agrees to hold harmless and indemnify the Buyer, Seller’s Broker, Buyer’s Broker and their Affiliated Licensees from any claim or loss arising out of or occasioned by the Seller’s occupancy of the Property.
7. It is specifically understood that should the Property be destroyed by fire or other occurrence, Seller shall bear the risk of loss to Seller’s personal property.
Buyer’s Temporary Occupancy Prior to Closing
The reverse situation is true. Consider a buyer’s temporary occupancy prior to closing. The Buyer has agreed to hold the seller harmless from liability and loss of personal property.
9. Seller shall, at Seller’s expense, retain fire and extended insurance coverage on Property until the date of closing. Buyer acknowledges
that such insurance coverage does not cover Buyer’s personal possessions and that Buyer shall bear the risk of loss on Buyer’s personal
property or for injuries sustained should Property be destroyed by fire or any act of nature during the time that the Buyer is in possession.
12. Buyer agrees to indemnify and hold Seller harmless from any claim or loss which results from the actions of Buyer or anyone else
entering Property while Property is occupied by Buyer under this Exhibit.
Recommendations in a Temporary Occupancy Situation
First, we recommend that there be a Special Stipulation in the Purchase Agreement for either situation as follows:
The Temporary Occupant
Inquiries as to the best way to handle the temporary insurance should be directed to the insurer. Real estate agents are not qualified to answer that question.
The New Owner
If there is a loan on the property, the lender would have required property insurance. However, unless the property was an investment property, it would have been an owner’s policy. The buyer/new owner should get a rider to their policy to cover during the time the Seller is maintaining possession of the Property or confirm in writing from their insurance company that none is required because it is considered short-term (typically 60 days). Alternatively, if the insurance company will not use a rider or will not confirm that none is required, the buyer/new owner should take out a temporary landlord’s policy. Again, that question must be directed to the buyer’s insurer.
What if the Occupancy is for days, not for weeks or months?
A shorter time period is less risky, but it really doesn’t change the situation. Although a period of days might be overlooked by an insurer, it can’t be assumed. It’s up to the insurer. The buyer and the seller should consult with their insurers, weigh their risks and make their own decisions. We can only make them aware of the risks.
Time Limit of Offer and Notice to Withdraw
This super-hot seller’s market just keeps offering challenges.
Here’s a new example we should be watching:
Trying to be the offer that gets accepted, a Buyer makes an offer with no due diligence and no time limit for acceptance of the offer. The Buyer did not win the multi-offer situation initially and went under contract on another house. Three weeks later, the listing agent sent over an acceptance of offer. The Buyer had to cough up earnest money on that deal which, of course, the Buyer lost when they couldn’t perform on both deals.
No Time Limit for Acceptance of Offer
The mistake? The time limit of the offer was open and the offer was not
withdrawn. Under contract law, an open time allows an acceptance for a
reasonable time period. Whether or not the time period is reasonable, however,
is a question of fact for a judge or jury. It depends on the situation. Had the
buyer sent a Notice to Withdraw Offer prior to submitting another offer to another
seller, the buyer would have been protected against acceptances on 2 contracts.
(Guess who the Buyer is going to be pointing the finger toward?)
Time Limit Not Expired
The same holds true even if there is a time period for acceptance in the Offer, but
the time period has not expired. Again, send the Notice to Withdraw Offer before
a second offer is made.
Time limit Expired
Of course, if the time limit for acceptance of the offer has expired, the offer is no
longer open for acceptance. Any acceptance after the time limit has expired is
legally a counter-offer. There is no need for a Notice to Withdraw Offer, if the
offer has expired.
Moral of the story: If your buyer has made an offer with no time limit for acceptance or has made an offer with a Time Limit that has not expired, send a Notice to Withdraw Offer prior to the Buyer is making an offer on another property.
The form is GAR F285 Notice to Withdraw Offer and the content is:
Buyer hereby gives notice to all parties of the immediate withdrawal of the signer’s last offer or counteroffer to purchase the above referenced Property. It is the intent of the signer(s) that upon the delivery of this notice to the other parties, no offer(s) or counteroffer(s) of Buyer to purchase the Property shall remain open for acceptance.
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