Must Disclosure of Ownership Interest in Buyer Client be in Contract?
QUESTION: I recently submitted an Offer to Purchase and Contract (form 2-T) for a buyer client. The buyer is an LLC, and I am a part owner of the LLC. The LLC has purchased a number of properties previously. As I have done in the past, I included an addendum to the Offer which states that the buyer agent has an ownership interest in the LLC buyer, and I referenced the addendum in the “Other Provisions” paragraph of the Offer.
I just received the Offer back from the listing agent. The reference to the addendum in the “Other Provisions” section was marked out and the addendum was returned unsigned.
Why would the listing agent have marked out the reference to the addendum in the Offer? Isn’t disclosure of my relationship to the LLC ethically required? What should I do?
ANSWER: We can’t begin to guess why the listing agent marked out the reference to the addendum in the Offer. Article 4 of the REALTOR® Code of Ethics does require you in this situation to make your “true position” known to the listing agent by disclosing the fact that you have an ownership interest in the buyer entity making the Offer. Standard of Practice 4-1 requires this disclosure to be in writing and provided prior to the signing of any contract.
Although this disclosure commonly is made in the Offer and becomes a part of any resulting contract, it doesn’t have to be. In our view, you complied with the requirements of Article 4 when you submitted the Offer with the addendum attached. The fact that the addendum wasn’t signed doesn’t matter. If a question arises later about whether you complied with your Article 4 ethical obligation, you can produce a copy of the original Offer which was submitted with the addendum attached and referenced in the “Other Provisions” paragraph. To be on the safe side, you might consider dropping the listing agent a quick email confirming the fact that the original Offer included an addendum disclosing your ownership interest in the LLC buyer.
Since in striking the reference to the addendum the listing agent/seller varied the terms of the original Offer, it would be wise to have the parties initial and date the change in order to be certain that there is a binding contract for the property.
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