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Weekly Q&As

Can brokers advertise a “Free Home Valuation"?

Release Date: 06/06/2017

This email address is being protected from spambots. You need JavaScript enabled to view it., Martin & Gifford, PLLC

QUESTION: I am a broker-in-charge. Recently, I met with some appraisers who expressed concerns about a service that is being offered on the websites of several brokers in my firm. These websites include a link that says "What is your home worth?" or "Free Home Valuation". If a user clicks on the link, the user is directed to a separate website where the user is invited to fill in an address in a box under the words "How much is your home worth?" Upon doing so, the user instantly receives an estimate of the value of the property. No fee is charged for this service. My brokers are not licensed appraisers. Is it legal for them to advertise and provide this type of "valuation" service?

ANSWER: We believe that the both the advertising and the service you describe are legal. However, we have a suggestion about how any future advertising should be handled.

The Real Estate Commission has acknowledged that while most appraisals of real property must be performed by licensed or certified appraisers, the North Carolina Appraisers Act has an exception which allows real estate licensees to perform a "comparative market analysis (CMA)" as long as the licensee does not represent himself or herself as a licensed or certified appraiser. The Act defined a CMA as "the analysis of similar recently sold properties in order to derive an indication of the probable sales price of a particular property by a licensed real estate broker." The term "broker price opinion (BPO)" is considered synonymous with the term CMA.

In 2012, the North Carolina General Assembly enacted amendments to the Real Estate License Law and the Appraisers Act. One of those amendments reads as follows: "A BPO or CMA that estimates the value or worth of a parcel of real estate rather than sales price shall be deemed to be an appraisal and may not be prepared by a licensed broker." While this language would seem to bar the service you have described, another section of the License Law states that the requirements relating to CMAs and BPOs do not apply to those CMAs and BPOs performed for no fee. Furthermore, the License Law's definition of a BPO/CMA expressly excludes an "automated valuation model (AVM)".  

In February 2015, the Real Estate Commission published an article defining an AVM as a computer software program that analyzes data from various sources and uses automated processes to produce a value or range of values for a particular property. The estimate of value that you have described almost certainly falls within the Commission's definition of an AVM. As such, brokers advertising that estimate do not need to follow the guidelines governing the preparation and issuance of CMAs and BPOs.

Our advice to brokers advertising AVMs is to avoid using terms that suggest what is being provided is a home's "value" and to instead use words that suggest that what is being provided is the probable selling price. While the concepts of value and probable selling price are similar, appraisers and the Commission are more likely to have a problem with the former. In our view, they have no grounds to complain about the latter. 

 

NC REALTORS® provides articles on legal topics as a member service. They are general statements of applicable legal and ethical principles for member education only. They do not constitute legal advice. The services of a private attorney should be sought for legal advice.

© Copyright  2017. North Carolina Association of REALTORS®, Inc. This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.

 

 

Is a back-up buyer entitled to conduct due diligence before becoming the primary buyer?

Release Date: 05/30/2017

This email address is being protected from spambots. You need JavaScript enabled to view it., Martin & Gifford, PLLC

QUESTION: A buyer with a back-up contract on my listing has requested permission to conduct due diligence on the property. I am uncomfortable with the idea of the back-up buyer doing inspections before the due diligence fee has been paid. But, even though the back-up contract is not primary, it is still a contract, and the effective date is still the effective date. The Back-up Contract Addendum (Form 2A1-T) addresses when the due diligence period will end, but as far as I can tell, the due diligence period still starts on the effective date with all due diligence activities being permitted for the back-up buyer.

Do I have to allow the back-up buyer access to the property to conduct due diligence?

ANSWER: No. Form 2A1-T states that neither party is obligated to perform until the primary contract terminates and the seller notifies the back-up buyer. This includes the seller's obligation to let the buyer perform due diligence. This is why the due diligence period in paragraph 9(b) of Form 2A1-T runs from the time the seller informs the back-up buyer that the primary contract has terminated through the number of days specified in that same paragraph.

It should be noted that payment of the due diligence fee is not a prerequisite to the due diligence period beginning under the contract. A contract becomes effective once all parties sign and such signing is communicated. If the due diligence fee is not paid, the buyer is in breach, and the seller is entitled to give notice of potential termination as provided at the bottom of page 1 and the top of page 2 of the standard form Offer to Purchase and Contract (Form 2-T).

And finally, as a practical matter, it is simply a very bad idea to let the back-up buyer on the property when the seller is under an obligation to deliver the property to the primary buyer in its current condition. If the back-up buyer were to cause any damage, the seller would have a complicated, and potentially expensive, legal problem.

 

NC REALTORS® provides articles on legal topics as a member service. They are general statements of applicable legal and ethical principles for member education only. They do not constitute legal advice. The services of a private attorney should be sought for legal advice.

© Copyright  2017. North Carolina Association of REALTORS®, Inc. This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.

 

 

Effect of Seller's delay in delivering an "unconditional" acceptance

Release Date: 05/23/2017

This email address is being protected from spambots. You need JavaScript enabled to view it., Martin & Gifford, PLLC

QUESTION: I am representing a buyer. We attached the Additional Provisions Addendum (Standard Form 2A11-T) to my client's offer and noted in that Addendum that, in the absence of unconditional acceptance being delivered to Buyer, the offer would expire today at noon. The listing agent called me before noon today and told me that her client had signed the contract but that she is holding off sending the signed contract to me because she has another interested buyer who has scheduled a second showing. If the listing agent sends me a signed contract after the deadline, but that contract was signed before the deadline, can my buyer get out of the contract if he chooses?

ANSWER: You have raised an interesting question. Paragraph 1(g) of the Offer to Purchase and Contract (Standard Form 2-T) states that the "Effective Date" of the Contract is the date that the last one of Buyer and Seller have signed the Contract and such signing is communicated to the party making the offer or counteroffer, as the case may be. Here, the Seller signed the Buyer's offer before the noon deadline, and the fact of that signing was also communicated to you prior to that deadline. These facts give the Seller an argument that the Contract was effective and that the Buyer is bound by its terms.

However, the fact that Seller did not communicate "unconditional" acceptance of the Buyer's offer prior to the noon deadline gives the Buyer what we believe is a stronger argument. As noted above, the Addendum that was part of the Buyer's offer clearly states that Buyer's offer would expire unless "unconditional" acceptance is delivered to Buyer by the noon deadline. Here, what was communicated by the listing agent was merely the signing of the contract. That is not always the same thing as "unconditional" acceptance. Here, the listing agent informed you that she was intentionally withholding delivery of the signed contract in the hopes that a second buyer would come forth with a better offer.

We believe that a court would determine that Buyer's offer expired by its own terms when Seller failed to deliver an unconditional acceptance by the noon deadline. Any "Contract" delivered after the deadline was nothing more than a counter-offer which Buyer could then accept or reject as he chooses.  

 

NC REALTORS® provides articles on legal topics as a member service. They are general statements of applicable legal and ethical principles for member education only. They do not constitute legal advice. The services of a private attorney should be sought for legal advice.

© Copyright  2017. North Carolina Association of REALTORS®, Inc. This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.

 

 

Who pays special assessments that come due after Settlement?

Release Date: 05/16/2017

This email address is being protected from spambots. You need JavaScript enabled to view it., Martin & Gifford, PLLC

QUESTION: I represent the seller in a transaction that went under contract using the Offer to Purchase and Contract (form 2-T).  The owners association that regulates the development in which the property is located recently imposed an assessment that is payable in equal monthly installments over a period of two years.  We disclosed the existence of the assessment in paragraph 7(c) of the Contract. 

The property is about to close and a disagreement has come up over who is responsible for making the monthly assessment payments after the property has closed.  The buyer agent says the seller has to pay the entire amount of the assessment at Settlement but it doesn’t sound right to me that the seller is responsible for payments that don’t come due for a year or more after the closing. What’s the answer?

ANSWER: The seller is responsible for paying the entire outstanding balance of the assessment.  We refer you to two sections in the Contract in support of this answer.  The first is the definition of a “Confirmed Special Assessment” in paragraph 1(n) of the Contract.  A “Confirmed Special Assessment” is “[a] Special Assessment that has been approved prior to Settlement whether or not it is fully payable at time of Settlement” (emphasis added).  This definition makes it clear that the character of a special assessment that has been approved by an owners association or governmental authority isn’t changed by the fact that the full amount isn’t payable as of the time of Settlement.

The second section of the Contract that is relevant in answering your question is paragraph 8(k).  Paragraph 8(k) provides that the “[s]eller shall pay all Confirmed Assessments, if any, provided that the amount can be reasonably determined or estimated” (emphasis added).  The assessment in question is, as noted above, a “Confirmed Assessment,” and its outstanding balance can be determined exactly by simply multiplying the amount of a monthly payment by the number of months remaining on the payment schedule.  Thus, according to paragraph 8(k), the seller is responsible for paying the outstanding amount of the assessment.

This situation underscores the importance of brokers understanding how the Contract allocates responsibility for payment of Proposed and Confirmed Special Assessments.  The “Seller Representations” section of the Exclusive Right to Sell Listing Agreement (form 101) includes a representation about the existence or absence of pending and confirmed special assessments (see paragraph 8(l)).  In completing this section of the listing agreement, listing agents should educate their seller clients about the meaning of those terms and why it matters, and question the seller carefully regarding the possible existence of any special assessments. 

 

NC REALTORS® provides articles on legal topics as a member service. They are general statements of applicable legal and ethical principles for member education only. They do not constitute legal advice. The services of a private attorney should be sought for legal advice.

© Copyright  2017. North Carolina Association of REALTORS®, Inc. This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.

 

 

Can property damage be a material fact even if the damage has been fully remediated?

Release Date: 05/09/2017

This email address is being protected from spambots. You need JavaScript enabled to view it., Martin & Gifford, PLLC

QUESTION: I have a listing under contract, and the parties are in the Due Diligence Period. Yesterday, the buyer’s agent informed me that his clients requested an insurance quote, and after the insurance company ran a C.L.U.E. report, the insurance carrier informed them that the insurance rate would be much higher than the buyers anticipated. The quote was higher than expected because the sellers recently had a plumbing issue in the kitchen that was fully remediated and paid for by another insurance carrier.

The buyers are now claiming that the kitchen remediation was a material fact that should have been disclosed. They are also demanding a return of their Due Diligence Fee and Earnest Money Deposit. Was the damage in the kitchen a material fact that should have been disclosed?

ANSWER: Under these facts, the answer is “no.” If a property has been partially destroyed, and the damage has been fully remediated by a licensed professional, then the damage is not a material fact that needs to be disclosed. (NC REC, Material Facts, pp. 28-29) The buyers have agreed in paragraph 4(b)(iii) of the contract that part of Due Diligence is the buyers’ right to investigate “the availability and cost of insurance for the Property.” Therefore, the buyers paid the Due Diligence Fee for the “right to conduct Due Diligence during the Due Diligence Period” and determine the cost of insurance.

Unless the buyers can show some other reason they should be entitled to a refund of the Due Diligence Fee, then the sellers are not under an obligation to return it because the kitchen damage was not a material fact. Of course, since the parties are still in the Due Diligence Period, the buyers can terminate and receive a refund of their Earnest Money Deposit. 

 

NC REALTORS® provides articles on legal topics as a member service. They are general statements of applicable legal and ethical principles for member education only. They do not constitute legal advice. The services of a private attorney should be sought for legal advice.

© Copyright  2017. North Carolina Association of REALTORS®, Inc. This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.