According to Inman News, more homebuyers are blaming their agents for their
purchases — and hauling them to court. The extreme seller’s market of 2021 and
early 2022 pushed a lot of buyers to forego inspections in bidding wars and hope for
the best. Then something bad happens. According to Victor Insurance Managers a
growing number of recent homebuyers are blaming their real estate agents — in court.
Buyers that often overpaid for the property want someone to pay.
More Lawsuits. Higher Judgments.
Victor Insurance Managers, a large underwriting firm, reports it saw a 9% rise in errors
and omissions lawsuits against real estate professionals in 2022. (Inman News) These
lawsuits have also become even higher-stakes ordeals in recent months, running an
agent or broker an average of $39,000 in a typical losing case. That’s 13 percent
higher than it was in 2021, Victor Insurance Managers reports.
Protect Yourself and Prevent Lawsuits.
Many of you used the “Disclosure to Buyers Purchasing Property in a Seller’s Market”
on the recommendation of RMAA. It includes a Buyer acknowledgment that making an
aggressive offer to purchase a property, whether it is an aggressive price or waiving an
inspection or financing contingency, involves taking greater risks. That was smart.
There are other actions that will help to insulate you against a buyer lawsuit, especially
when you do not include the Purchasing Property in a Seller’s Market disclosure.
1. Communicate risks early and clearly. Buyers will take risks when they want
something even when we are not in a hot seller’s market. Make sure buyers
know what risks they are taking.
2. Document conversations with clients in written form. Follow a conversation up
with an email that confirms the conversation. People often do not hear what
you are saying. Save that email.
3. Get a “Read Receipt” when you send the email. A “Read Receipt” will come in
very handy to prevent a lawsuit.
4. Maintain communication after the sale. Buyers are less likely to sue an agent
that is present with them. If something does go wrong, use the conversation to
remind them that this was a risk they knowingly undertook to win the property!
Document that conversation in writing too. Even if you don’t think it’s
appropriate to send a confirming email to the client after the sale, send it to
your file. It will jog your memory when you need it!
5. Be patient, helpful and kind. It goes a long way.
If prospects or their broker are injured while viewing a listed property (either
inside an improvement or on the land) because of an unsafe condition, both
the owner of the property and the broker can be sued for premises liability
damages. Most premises liability injury claims come down to proving that
the property owner failed to take reasonable steps to fix a known (or
reasonable knowable) unsafe condition or to otherwise prevent an injury on
the property. That is, the owner was negligent in its duty to make sure
invitees are safe from known dangers on the property. The law defines
"reasonable" as what a person of ordinary intelligence and judgment would
do under the same circumstances. If a premises liability case goes to trial,
it is left up to a jury to decide what is reasonable under the circumstances.
Damages can include a wide range of losses, including medical bills, time
missed at work, physical and mental pain and suffering resulting from the
injuries, and more.
The Injured Party Cannot be Careless or Negligent
In Georgia, a visitor to a property cannot be careless or negligent either. If
an injured person could have exercised ordinary care to avoid an injury on
a property, they will not be able to recover damages.
This brings us to the real world of listing property that may be dilapidated or
may have unsafe conditions.
Preventing Injury and Liability
The best-case scenario prior to listing a property with unsafe or dilapidated
conditions would be to have a professional inspection of the property and to
correct any revealed conditions.
If the owner is unwilling or unable to make such repairs, the inspection
report can be given to buyers before their tour of the property as a form of
disclosure. (Even if the repairs are made, the report should be given out.)
In the real world, owners are often unwilling to have a property inspection.
If a condition is known, reasonably knowable or even suspected, warning of
it will go far in protecting the owner and broker from liability. Remember, a
visitor to a property cannot be careless or negligent either. If visitors ignore
clear posted warnings, they are far less likely to recover damages.
If you can provide evidence that you took reasonable efforts to prevent
harm to others, you are much less likely to be found liable. Consider the
following preventive actions:
Seth Weissman offers several Special Stipulations in the Red Book to use
when selling a property with unknown or unsafe conditions. Consider the
Not Familiar with the Condition of the Property
SS: Buyer acknowledges that Seller is not familiar with the condition of the
Property. The Property is therefore being sold in “as is” condition. The
Property contains numerous conditions that are in need of repair or
replacement. While Seller is unaware of latent or hidden defects in the
Property or safety concerns, Seller has not examined the Property in
search of latent or hidden defects. Buyer agrees to have the Property
inspected by a professional home inspector, engineer, and/or other
construction experts to ensure that Buyer is familiar with the condition of
the Property. Buyer covenants not to sue Seller for any matter arising out of
or relating to the condition of the Property.
When the Seller Knows or Suspects the Property to Be in a Dilapidated or
SS: The Seller is not providing the Buyer with a Seller’s Property
Disclosure Statement Exhibit because the Seller is unfamiliar with the
condition of the Property. The Property and improvements upon the
Property may contain defects and dangerous conditions. Consequently, the
Buyer and Buyer’s Agent(s) are encouraged to use the utmost of caution
while in and around the Property to avoid injury. The Buyer is strongly
encouraged to have the Property carefully inspected by a professional
inspector because of the Seller’s lack of familiarity with the condition of the
GAR financing contingencies, including Conventional, FHA, VA and USDA-
RD, include a very specific, time limited provision regarding Loan Denial
Letters. If your buyer is denied a loan and the buyer can legitimately use
the denial to terminate and get their earnest money back, don’t forget to
timely send the Loan Denial Letter or the earnest money might go to the
These are the steps to be taken and the rules to follow.
1) The Buyer must notify the Seller (Seller’s agent) of the loan denial
within the contingency time period. Use the GAR Notice form F816
and ask for a Read Receipt.
2) The Buyer must provide the Seller with a Loan Denial Letter from the
lender within seven (7) days from the date of Notice. It’s ok if the 7
days falls outside of the contingency period, but the notice of denial to
the seller must be within the contingency time period. The reason for
the additional 7-day period to produce the Loan Denial Letter is
because lenders may not be timely. It may take days for the lender to
produce the letter. If the lender does not produce the letter within the
7-day period, the finance contingency is completed and the Buyer
can lose the earnest money. In effect, the sale becomes a “no
financing” sale and the buyer’s earnest money is at risk if the buyer
does not close.
3) A Loan Denial Letter must be for the Loan(s) described in the
Finance Contingency. If the interest rate in the contingency says Not
greater than 5.00% for a 30-year term, getting denied for a 15-year
term at 6.00% doesn’t work. A buyer may apply for different loans;
however, the denial of other loans may not be a basis for a buyer to
4) If there was an Approved Lender, the denial letter must be from that
5) A Loan Denial Letter from a non-institutional mortgage lender (private
lender) cannot be the basis for Buyer to terminate this Agreement.
6) The Loan Denial Letter may not be based solely upon one or more of
the following 4 reasons. However, even though one of the 4 reasons
may apply, if the buyer has an additional legitimate reason to
terminate, such as insufficient income, then the “solely” provision
makes the Loan Denial Letter valid and allows the buyer to terminate
o Buyer lacks sufficient funds other than the amount of the
Loan(s) to close;
o Buyer not having leased or sold other real property (unless
such a contingency is expressly provided for in this
o Buyer not having provided the lender(s) in a timely fashion with
all information required by lender, including but not limited to,
loan documentation, Official Wood Infestation Reports,
structural letters, well tests, septic system certifications, flood
plain certifications and any other similar information required by
lender (hereinafter collectively “Required Information”); or
o Buyer making purchases that adversely affect Buyer’s debt to
February 24, 2023
If you have ever sold or leased a property and the agreement was on a non-GAR form,
it is very possible that your agency relationship, the RMAA Firm License number or
your license number was omitted from the agreement. Sometimes the selling or
leasing agent is not even mentioned in the non-GAR agreement at all. If you have an
exclusive buyer brokerage agreement or tenant brokerage, the buyer or tenant is your
client and you need to disclose all of the above to be in compliance with GREC.
GAR provides 2 forms for agency disclosure for non-GAR contracts. One for sales and
the other for leases. They are GAR F119 (Sales) and GAR F143 (Leases)
The situation is easily handled one of 2 ways.
1. If the original purchase agreement or lease HAS NOT been bound and you are
the named agent in the agreement, but your relationship to the client is not
disclosed, an agency disclosure can be attached to the original purchase
agreement or lease agreement. It discloses your relationship to the client.
2. If the original agreement HAS been bound, an exhibit will have to be added by
amendment. The agency disclosure would be an exhibit to the amendment. The
amendment will disclose your license numbers in the signature block. The
exhibit will disclose your relationship to the client. All the amendment needs to
say is “Agency Exhibit is hereby attached as Exhibit ____.”
Sometimes, especially in builder contracts, just a license number is missing. In those
cases, when you are signing your name, just include any missing license numbers in
the signature block. If the relationship as a client is not disclosed, you can even add
“RMAA Agent is working with the Buyer/Tenant as a client.” So long as the
relationship and license numbers are disclosed, you are golden!
2023 GAR Lead Based Paint Changes
The federal government pays a lot of attention to lead based paint (LBP) requirements, so does GAR and so do we. The new 2023 GAR forms have 2 changes regarding LBP that you need to know. They are in 2 different documents, the listing agreement and the LBP disclosure exhibit.
The Exclusive (and the Non-Exclusive) Seller Brokerage Engagement Agreement (Listing Agreement)
The listing agreement now includes a section that requires the Seller to complete and sign an LBP Disclosure at the time of listing and it is required to be attached to the listing as an exhibit, if the property or a portion of it was constructed prior to 1978. The new language alerts the seller that federal law requires the disclosure of lead-based paint in homes constructed prior to 1978 and eases the agent’s job of explaining to the seller why
it has to be done. This is the language: Lead-Based Paint Disclosure. Federal law requires disclosure of lead-based paint in homes/residential properties, or a portion thereof, constructed prior to 1978. [select one below]
a. A dwelling on the Property, or portion thereof, was constructed prior to 1978, Seller agrees to complete and provide Broker with a signed Lead-Based Paint Disclosure Exhibit (F316) at the same time as the signing of this Agreement and is attached as Exhibit “____”.
b. No dwelling on the Property, or portion thereof, was constructed prior to 1978.
The Lead Based Paint Disclosure Exhibit (LBP)
New language in section (e) clarifies that the buyer has the right to a 10 day period to test for lead. This 10 day period is separate from any other due diligence or contingency rights and stands on its own unless the buyer waives the 10-day right at (e)(ii). This is the language:
(e) Buyer has: [initial (i) or (ii) below]:
(i) ___________________________ Received a ten (10) day opportunity (or mutually agreed upon period) to conduct a risk assessment or inspection for the presence of lead-based paint and/or lead-based paint hazards (prior to Buyer being obligated under the Purchase and Sale Agreement); or
(ii) ___________________________ Waived the opportunity to conduct a risk assessment or inspection for the presence of lead-based paint and/or lead-based paint hazards (which shall not prevent Buyer from evaluating the Property for lead-based paint and lead-based paint hazards during any Due Diligence or Right to Request Repairs Period).
Compliance officers for the Environmental Protection Agency will drop into real estate office unannounced to audit contracts for residential properties constructed prior to 1978. The fine for omissions and violations to the LBP law has just increased from $16,000 per violation to over $19,000 per omission. Either or both of the selling and listing agents can be fined. Yikes. Let’s get it right!
There is a requirement in the Conventional, FHA and VA Loan Contingencies that a buyer is
required to promptly notify the seller of any mortgage lender to whom Buyer has sent a notice
of intent to proceed with loan application, along with the name and contact information for the loan originator.
Further, in another section of all 3 loan contingencies, there is a qualification that in order for a buyer to terminate without penalty (get their earnest money back) based on a loan denial, the buyer must have fulfilled all of the applicable requirements in the exhibit. That includes having promptly sent the notice of intent to proceed with loan application. Put another way, if the Notice of Intent to Proceed with Loan Application was not sent to the seller, the seller can
legally keep the buyer’s earnest money even when the buyer was legitimately denied a loan
and supplied the denial letter to the seller within the allowed time period.
This is the relevant language:
Buyer to Notify Seller of Intent to Proceed.
When it is known, Buyer shall promptly notify seller of any mortgage lender to whom Buyer has sent a notice of intent to proceed with loan application and the name and contact information for the loan originator.
Use of Approved Mortgage Lender and Loan Denial Letter.
Buyer may terminate this Agreement without penalty based upon an inability to obtain the
Loan(s) only if Buyer fulfills all of the applicable requirements set forth in this Exhibit. (at the
bottom of the section)
Notice Must be Sent Promptly
What is “promptly?” It’s as soon as the buyer proceeds with a loan application. It is probably
prior to ordering the appraisal. And if the loan is already in denial stage, it’s too late to send it.
This requirement is not new. It has been in the loan contingencies for at least the last 2 years.
What’s new is that we are now seeing that sellers are using an omission of the notice as a
reason to keep earnest money, even when there has been a loan denial within the relevant
time period and a good denial letter.
Approved Mortgage Lenders and Pre-Approval Letters
Including the name of an Approved Mortgage Lender and including a pre-approval letter from a lender are NOT substitutes for the notice. In fact, including the name of an approved lender in the financing contingency may not be to your buyer’s advantage because then a denial letter must come from that particular approved lender.
Add the Notice to Proceed to Your Contract to Close Process
You should add “Send Notice of Intent to Proceed with Loan Application” to your process.
Yes, this is another step, but it is also another way to demonstrate your value to your client by
managing the time limits and requirements to make sure clients are protected.
Intent to Proceed is a step in the loan process which takes place between the Borrower and
the Lender. The Buyer’s Agent needs to tell both Buyer and Lender to alert the agent once
this is done.
On the other side, if you are representing a seller as a client and you did not receive a Notice
of Intent to Proceed with Loan Application from a buyer that did not qualify for a loan and is
terminating for that reason, you should and must inform the seller of the option to retain the
earnest money because ethe buyer has not fulfilled its requirements. Once again, this is
another way to demonstrate your value to your client.
Notice Form GAR 816
The general notice form from GAR should be used to send the notice. The language is simple:
“The Buyer hereby notifies the Seller that Buyer has communicated their Intent to Proceed with Loan Application with (Lender) _______________, Loan Officer, ____________ at (contact
What If the Buyer Decides to Change Lenders?
If the buyer changes lenders, a new Notice of Intent to Proceed with new information must be
promptly sent to the seller.
In most contract situations, disclosure of agency, the type of representation and
license numbers is pretty straight forward. The GAR Purchase and Sale Agreement
includes disclosures in the Agency and Brokerage section and the signature block
includes spaces to complete with the RMAA Firm License number and your personal
license number. So long as the sections are completed correctly, you are golden.
However, we are often forced to use non-GAR lease agreements and builder
developer sales contracts that are not GAR based. In some cases, RMAA is not even
included in the contract, even though we are acknowledged as the selling agent and
we have a client relationship with the buyer or tenant. To be compliant with GREC and
license laws and to protect yourself, make sure that RE/MAX Around Atlanta is
included as the agency (whether RMAA is representing the party as a client or working
with the party as a customer) and include the RMAA firm license (H-53737) and your
personal license. The key is full disclosure to both parties. If all of the required
elements are not included, the review will be asking for the paperwork to be corrected.
GAR Forms to the rescue.
Missing License Number Can Be Added
Builder/developer contracts often omit one or both of the license numbers, even if they
include RMAA as the agency. Watch for both numbers! So long as you catch it before
the contract is fully executed, you can write the missing information into the signature
block area even if there is not a space for it.
This is a repeat Broker Corner because we keep seeing condominium properties
rejected for FNMA and Freddie Mac financing for HOA issues.
After the terrible condominium collapse in Florida, Fannie Mae and Freddie Mac
created additional conditions to the HOA Approval process. Significant deferred
maintenance at the Florida condominium was a factor in the building collapse.
Condominium associations cannot be approved by lenders for Fannie Mae and
Freddie Mac loans if there is significant deferred maintenance (like the Florida
collapse), unpaid monthly assessments above 15%, insurance coverage deficiencies,
and other HOA issues. If the HOA is rejected, the loan is rejected.
Condominium management companies are now required by FNMA and Freddie Mac to
answer additional questions regarding deficiencies, defects, substantial damage and
deferred maintenance, as well as other new questions. Some management companies
either answer very slowly (after a loan contingency has expired) or refuse to answer
the questions at all for fear of liability. If a lender cannot get the questionnaire
completed, the loan cannot be approved. If the financing contingency has expired, the
Protect Your Condominium Buyer Clients
To protect a buyer’s earnest money in the event that the approval process takes longer
than the time limits of finance contingency or if the HOA cannot be approved at all, we
recommend adding a Special Stipulation to all condominium purchase agreements that
allows the buyer to terminate if the property cannot be qualified by FNMA or Freddie
Mac. If such a stipulation is not included and the HOA is not approved by the lender,
there is no protection for the buyer after the finance contingency has expired. The
following is a new Special Stipulation to cover the situation. There is also a GAR
Special Stipulation that calls for the buyer’s termination right based on a number of
days from the binding date. The time period can, of course, be adjusted as the
situation requires. We suggest that instead of days from binding that the time period be
written as any time prior to closing. The following Special Stipulation is suggested as it
covers both ineligibility for financing, an uncooperative HOA and can be used at any
time prior to closing.
If you are a Buyer’s agent selling a condominium property and you are seeking a
conventional loan, we highly recommend that you protect your client by including the
following special stipulation:
Contingency for Condominium Eligibility for Financing
If the Property is a condominium unit, this Agreement shall be contingent upon
the condominium in which the unit is located being eligible for financing and
approved by Buyer’s lender. If Buyer obtains written notice from Buyer’s lender
indicating that (1) it is declining Buyer’s loan application because the
condominium in which the unit is located is ineligible for financing, (2) Buyer’s
lender is unable to determine whether the condominium in which the unit is
located is eligible for financing because the HOA or management company for
the condominium has not provided sufficient information for the lender to make
such a determination, or (3) Buyer’s lender cannot approve financing until the
Association fills out a FNMA or other secondary mortgage market questionnaire
on whether the Association has done inspections of the Condominium and the
amount of reserves for needed repairs, then Buyer may terminate this
Agreement by providing written notice to Seller, along with the notice from
Buyer’s lender, prior to closing date. If Buyer timely provides such notice, then
Buyer shall be entitled to the return of their earnest money. If Buyer does not
timely provide such notice, then the contingency contained in this paragraph
shall be waived and of no further force or effect. This contingency is applicable
irrespective of whether there is any loan contingency, financing contingency, or
“No Financing” contingency exhibit attached hereto and shall survive the
expiration, wavier, or satisfaction of the same.
REFERRAL FEES CAN BE ILLEGAL
It’s so easy to get into trouble.
A small token of appreciation, even a Starbucks card, to an unlicensed
person can lead to a violation of both Georgia License Law and RESPA
(Real Estate Settlement Practices Act).
There are 2 key elements of a violation:
1. A licensed agent gives an item of value to an unlicensed person, and
2. The gift is a quid pro quo for a referral or settlement service.
What Does Quid Pro Quo Mean?
Quid pro quo means "something given or received for something else."
There is nothing inherently illegal in giving or receiving something in
exchange for something else, but in the context of real estate payments
to an unlicensed individual for referrals it is illegal.
If you provide a payment (or anything else of value) in return for a
recommendation of a settlement service, you are in violation of RESPA.
And yes, real estate brokerage services are a settlement service. (See
below for the list.) For example, HUD recently reached an agreement with
an appraiser who paid restaurant gift cards to workers of a mortgage firm in
return for recommendations. HUD received $4,000 in compensation from
the appraiser. They also had to promise to cease giving gifts and help HUD
with its probe into the mortgage firm.
Broker To Broker Referrals
Note that Georgia License Law and RESPA do NOT prohibit the payment of
referral fees between real estate licensees, so broker-to-broker referrals are
acceptable and perfectly legal.
Gifts To Unlicensed Parties Can Be Legal
You can send a gift as a general appreciation to promote relationship
building. You can pay for breakfast, lunch or dinner to build relationships.
(You may even be able to deduct them.) The key is that there cannot be
a direct nexus between a specific thing of value given and an unlicensed
These are the laws:
Georgia Code Title 43. Professions and Businesses § 43-40-25
Licensees shall not engage in any of the following unfair trade practices:
(b) (17) Paying a commission or compensation to any person for performing
the services of a real estate licensee who has not first secured the
appropriate license under this chapter or is not cooperating as a
nonresident who is licensed in such nonresident's state or foreign country of
RESPA § 8: Kickbacks and Referral Fees Includes Real Estate Brokerage
REALTORS® are generally most familiar with § 8 of RESPA which prohibits
referral fees and kickbacks to settlement service providers. Section 8(a) of
RESPA prohibits any person from giving or accepting any fee, kickback or
thing of value, pursuant to any written or oral agreement or understanding,
for the referral of settlement service business involving a federally related
12 CFR Part 1024 - Real Estate Settlement Procedures Act (Regulation X)
§ 8 Definitions of Settlement Service: any service provided in connection
with a real estate settlement including, but not limited to:
1. The origination, processing or funding of a federally related mortgage
2. Mortgage broker services such as counseling, taking applications,
obtaining verifications and appraisals, lender, borrower communications,
3. Title searches, title examinations, title commitments, title insurance,
abstracts and other related services.
4. An attorney’s legal services.
5. Closing document preparation, notarization, delivery and recordation.
6. Credit reports.
8. Property inspections.
9. Pest and fungus inspections.
10. Property surveys.
11. Conducting the closing or settlement.
12. Mortgage insurance.
13. Hazard, flood or casualty insurance; and home warranties.
14. Flood zone certification.
15. Mortgage, life, disability or similar insurance.
16. Real property taxes and assessments.
17. Real estate brokerage services.
This list is broad but not all-inclusive. Services that occur at or prior to the
purchase of a home are typically considered settlement services. Anything
listed on a HUD-1 and paid for by the buyer or seller could be a settlement
service, and the company providing the service could be a settlement
The Affiliated Business Arrangement Disclosure (ABAD)
Affiliated Business Arrangements that are disclosed are not subject to a
violation of RESPA. The Act includes a specific carve out for fees paid per
disclosed marketing agreements. That’s why the Affiliated Business
Arrangements Disclosure is a requirement in every RMAA brokerage
The GAR Purchase and Sale Agreement gives the buyer and the buyer’s agents the right to enter and to thoroughly inspect, examine, test, and survey the property under contract. This right exists regardless of whether the property is being sold “as is,” subject to a due diligence period, or with a right to request repair of defects. The right to inspect has to be exercised at reasonable times and exists up to the time of closing. The buyer not only has a right to inspect the property, but under the doctrine of caveat emptor (buyer beware), also has a duty to do so. The underlying principle of law is that the buyer cannot claim that he has been deceived by false misrepresentations about defects that the buyer could have discovered.
If the discovery of a condition would cause a reasonably prudent buyer to investigate further, the buyer is under an obligation to investigate further. There are a lot of situations that might require a further investigation: mold, termites, ceiling stains, even a blocked passage. Consider the situation of a burst pipe after the initial inspection. The seller repairs the pipe and repairs the sheetrock. The seller must inform the
buyer of the change in condition (the burst pipe and repair) and the Seller Property Disclosure would need to be updated to reflect the condition and repair. The buyer has the right to reinspect to evaluate the repair, but is also responsible for the cost of repair following the reinspection. So long as the seller repairs the burst pipe and delivers the property in the same or better condition as it was on the offer date, the seller has fulfilled its obligation.
Does the Buyer Have to Hire A Professional Inspector?
There is no legal duty for a buyer to hire a professional home inspector or to hire an inspector at all. However, the failure to retain a professional home inspector can be used as a defense against a purchaser who subsequently discovers damage to the property. The argument is that the buyer failed to exercise due diligence by not retaining a professional. Remember, Georgia is a Buyer Beware state.
Language Change for Buyer’s Payment of the Cost of Inspection Damage
If the property suffers damage by the inspection, the buyer is also required to pay for the repair of any damage to the property caused by the inspection. The language has been modified in the 2023 contract forms.
This section previously provided that:
“Buyer agrees to hold Seller and all Brokers harmless from all claims, injuries and damages relating to the exercise of these rights and shall promptly restore any portion of the Property damaged or disturbed from testing or other evaluations to a condition equal to or better than the condition it was in prior to such testing or evaluation.”
For 2023, the section was revised so that the buyer, rather than actually restoring the property damaged in an inspection, agrees to pay to seller the actual cost to restore the damage. This change was made so that the seller could control the repairs being made to the seller’s property. In addition, the entire section was added in a boldface font so that the buyer’s indemnification obligations are now very prominent. By doing this, it will also make it harder for buyers to argue that they did not see this section and should therefore, not be bound by it.
Reference: Weissman, Seth. The Red Book on Real Estate Contracts in Georgia (p. 821-836). BookBaby. Kindle
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