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.
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.
Acceptance requires both a written acceptance and delivery.
The GAR Purchase and Sale Agreement requires that an offer (or a counteroffer) be both 1) accepted in writing and 2) delivery back to the offeror, prior to the expiration of the time limit of the offer, to be effective.
For example, suppose the Time Limit of an Offer is 12:00 pm on May 1. The Seller accepts the offer through Remine at exactly 12:00 pm on May 1, but the accepted offer is not delivered to the Buyer until 12:01 pm. Is there an agreement? According to the provisions of the GAR Purchase Agreement, the answer is no. The acceptance was delivered after the expiration of the time limit. Of course, the parties can agree to accept by sending a binding date confirmation, an amendment or even a Reinstatement of Contract, but the party that set the time limit can also decide to back out.
In this very hot Seller’s market, these things really happen. Consider the opposite situation. The Seller sends a counteroffer to the buyer. In the meantime, the seller receives a better offer. The Seller can’t act on the new offer, because the counteroffer is in play until 12:00 pm. The Buyer signs at 12:00, but the agent does not deliver the acceptance until 12:01 pm. Is there an agreement? No. The Seller is free to accept a different offer.
Withdrawal of the Counteroffer.
An alternative to the above example is that, if the seller receives a new offer that the seller wants to accept (while the time period for acceptance by the first buyer is still open) the seller can withdraw the counteroffer to the 1st buyer prior to the 1st buyer signing. Once it is properly withdrawn, the seller is free to accept a new offer.
The requirement of delivery of an acceptance is covered in 3 different places in the GAR Purchase and Sale Agreement: 1) Time Limit of Offer, 2) Delivery of Notice and 3) Notice of Binding Agreement. It is also covered in the Counteroffer language at the bottom of page 1.
Remine tracks and time stamps.
Remine tracks and time stamps each signature and delivery of documents. To conform times in Remine, select the Audit Report and the time stamp information can be downloaded.
A late acceptance is a counteroffer.
When an express time limit is included in a contract, but the offer is not accepted within the time limit, no agreement is formed. If, however, the offer is accepted at a later time, it is generally considered a counteroffer that the original offeror can accept or not.
There is a lot of confusion regarding the new FMLS “Marketing Commencement Date” and the “Coming Soon” status. They are 2 separate policies, though they can be used together.
Marketing Commencement Date
The newest iteration of the Exclusive Seller Brokerage Engagement (GAR F101), added on April 15, 2021, separates the Listing Period from Marketing to avoid the confusion that has existed. The Start Date and the End Date of the Listing Period are clearly separated from Marketing. Section 3 is the Marketing portion and includes the Marketing Commencement Date and a time period for adjustment of that date by the Seller. If Marketing Commencement is the same date as the Start Date of the Listing, insert the start date. If it is later, insert the later date. The ability of the Seller to adjust the date allows for changes to Seller or property readiness. It can be completed with a zero or any number of days.
Prior to the Marketing Commencement Date, during the delay period, it is “off market” and is not seen by anyone. (Versus the Coming Soon period.) The Marketing Commencement Date can be as far away from the Starting Date or Listing Commencement Date as the Ending date. It is limited only by the expiration date of the listing. In theory, the property can sold, but never be marketed If the listing was Exclusive, however, and even it never goes into FMLS, a fee is still due to FMLS.
Practice tip: It is recommended that the Listing Period be measured from the date of the commencement of marketing., rather than the start date of the listing. If it takes a month or more to get the property ready for sale, valuable time is lost by measuring from the List Date. You want your listing period to be the maximum time for marketing and not wasted on a preparation period.
"Coming Soon" is also an "off-market” status, but is very different from a delayed Marketing Commencement. "Coming Soon" properties CAN be seen by FMLS members who are logged into Matrix, but are not distributed to agents, public or syndication websites, including GeorgiaOpenHouses.com, ShowingTime, or the Matrix Consumer Portal.
Properties listed as "Coming Soon" are limited to a period of 21 days prior to going active. At midnight of the Go Active date, when the 21-day period ends, Matrix automatically changes the listing status to Active. You can, of course, change the status to Active prior to that date. You must include a Go Active date when entering the listing under the "Coming Soon" listing status.
No Marketing to the Public under “Coming Soon”
A property under “Coming Soon” cannot be marketed to the public in any manner. Marketing of the property to the public includes, but is not limited to, flyers displayed in windows, yard signs, digital marketing on public facing websites, brokerage website displays (including IDX and VOW), digital communications marketing (email blasts), multi-brokerage listing sharing networks and applications available to the general public.
There is a marketing exception for the “Coming Soon” status. Internal marketing that only goes to other licensees within the Seller’s Broker’s firm is not considered public marketing unless it is distributed to licensees outside of the brokerage firm.
A listing that was under the "Coming Soon" status cannot be extended beyond 21 days or re-listed as “Coming Soon” unless it has been off-market for 90+ days.
DEFINITION OF SECURITY DEPOSIT
The term "security deposit" refers to money or other valuable items given by a tenant to a landlord in conjunction with renting property and can include damage deposits, advance rent deposits, and some pet deposits. If the landlord charges the tenant a nonrefundable fee such as a cleaning fee or a pet fee, the nonrefundable fee is not part of the security deposit. The security deposit protects the landlord against losses from default in rent payment and from losses due to the tenant's negligent behavior in relation to the landlord's property. Security deposits are not a source of funds for the repair of damages to the property that result from normal wear and tear.
Typically, the security deposit is a fund established by the tenant to guarantee faithful performance of the tenant’s obligations incurred under the lease with regard to the property and to mitigate any losses by the landlord. This interpretation entitles the tenant to a return of the security deposit at the end of the lease if the tenant meets their obligations. If no damages occur due to negligence by the tenant, the tenant receives the entire deposit. Disagreement can arise, however, about what is damage resulting from negligent behavior and what is normal wear and tear. For example, wear and fraying of carpeting may be a consequence of normal wear and tear, whereas rips and discoloration from spills may be the result of the tenant's negligent behavior. The "move-in, move-out inspection form" can head off potential disputes over responsibility for damages to the property.
ESCROW ACCOUNTS FOR SECURITY DEPOSITS
Under Georgia law if a person individually or collectively owns with his or her spouse and/or minor children more than ten residential rental units, the Georgia law has stringent requirements for collecting and handling security deposits. When the landlord owns more than ten units, the landlord must place all security deposits in an escrow account to hold them in trust for the tenants during the tenancy. These requirements also apply whenever third persons (agents) manage rental property for a fee, whether or not the owner owns more than ten units.
MOVE IN AND MOVE OUT INSPECTIONS
Move In: Before accepting a security deposit on residential property, the landlord must give the tenant a list of all existing damages to the premises and allow the tenant to inspect the premises to ensure the accuracy of the list. In practice, most brokers give tenants a GAR move-in, move-out inspection form for the tenant to fill out. Once the tenant and landlord agree upon the condition of the items listed on the form, both must sign it; and it serves as evidence of all known defects to the property at the beginning of the lease. If the tenant refuses to sign the list, the tenant must state specifically in writing the items on the list to which he or she dissents and sign such statement of dissent.
Move Out: Within three days after the date of the termination of occupancy, the landlord must (a) use the original inspection list to determine if any additional damage has occurred during the tenancy; (b) determine the estimated dollar value of such damage to charge against the tenant's security deposit; and (c) notify the tenant in writing. The tenant has the right to inspect the property within five business days after the termination of occupancy in order to ascertain the accuracy of the list of damages. Both parties sign a statement indicating their agreement on the final damage assessment. If they cannot come to an agreement over the damages, the tenant must specifically state in writing the items on the landlord's list to which he or she dissents and must sign that statement of dissent. If the tenant vacates the property without notifying the landlord, the landlord's final inspection may come within three days after the landlord discovers the termination of the occupancy.
Treble Damages Possible: When the parties cannot come to an agreement over the damages, then the tenant may institute a legal action in any court of competent jurisdiction against the landlord for the amount of the security deposit that the tenant believes was wrongfully withheld. If the tenant prevails, the landlord can be liable for up to three times the improperly held deposit plus attorney's fees.
RETURN OF RESIDENTIAL SECURITY DEPOSITS
The landlord must return the security deposit within thirty days after the termination of the rental agreement or the surrender and acceptance of the premises, whichever occurs later. A landlord may not withhold a security deposit for ordinary wear and tear of the premises. If the landlord retains any portion of the security deposit, the landlord must provide the tenant with a written statement listing the exact reasons for doing so. If the landlord retains the deposit to pay for repairs of damages to the premises, the landlord must list the damages. Upon delivering the written statement to the tenant, the landlord must accompany it with a payment of the difference between any sum deposited and the amount retained. The landlord may mail the statement and any payment required to the last known address of the tenant by first class mail. If the letter containing the payment is returned to the landlord undelivered and the landlord is unable to locate the tenant after reasonable effort, the payment will become the property of the landlord ninety days after mailing.
In addition to compensation for damages, the landlord may also lawfully retain amounts from the security deposit for mitigating damages caused by nonpayment of rent or of fees for late payment, unpaid utility charges, cleaning charges, or other damages caused by a tenant's breach of contract. The landlord must give notice to the tenant and use the funds specifically for those purposes. If the landlord fails to return the security deposit or fails to comply with the special legal requirements, the landlord forfeits all rights to retain any of the funds in escrow, forfeits the right to sue the tenant for damages to the premises, and can become liable to the tenant for three times the amount withheld plus reasonable attorney's fees.
If the damages to the property exceed the amount of the security deposit, the property owner can sue the tenant for the additional funds to fix the damage. Unpaid rent amounts and late fees can be included in this suit.
If a financing contingency has ended without a Buyer terminating, the GAR Conventional Finance Contingency VA and FHA exhibits all give the Seller the right to demand evidence confirming the Buyer has funds or a loan commitment to close. After a demand by the Seller, the Buyer has 7 days to provide evidence of ability to close. If the evidence is not provided, the Seller can notify the Buyer that the Buyer is in breach. The Buyer then has a 3-day cure period. Absent a cure, the Seller can terminate the contract.
This is an important protection for the Seller. First, Sellers generally need to move. Many are reluctant to start the moving process without assurance that the sale is moving forward. Second, the Seller really doesn’t have another way to protect himself if the buyer isn’t showing signs of progress toward closing. In this extraordinary market, buyers do extraordinary things. Holding a property off the market and risking a loss of earnest money is, unfortunately, a possibility.
Types of Evidence of Ability to Close
What if there is no Finance Contingency?
In this hot Seller’s market, buyers are waiving their right to a finance contingency. Often, the finance contingency is still included with the contract, but with zero days in the finance contingency. Therefore, the Seller’s right to demand evidence of ability to close and the right to terminate are in place. However, if there is no finance contingency at all, it is important to include an All Cash Sale exhibit in the contract. The All Cash Sale exhibit includes a verification of funds by the Buyer and the right of the Seller to terminate if the Source of Funds evidence is not sufficient or timely. Sometimes we see a simple Special Stipulation that the sale will be all cash, with neither a finance contingency nor an All Cash Sale exhibit included. Unless there is an anticipatory breach by the Buyer, the Seller has no way to terminate prior to closing day, if he is not satisfied that the Buyer has the funds to move forward.
A person who has been given a Power of Attorney (“POA”) may execute a Purchase Agreement for the sale or purchase of real estate, so long as very specific required conditions are met.
The grantor of the POA is referred to as the Principal. The grantee of the POA is referred to as a Representative or agent. The POA may be recorded, but it is not required.