Listings: Do you have the right signatures?

contracting signing

By Peg Ritenour, Ohio REALTORS Vice President of Legal Services/Administration

When listing a property for sale or lease it is important to make sure you have the signatures of all of the necessary parties. This is crucial to avoid any issues as to the validity of your listing and to protect your right to a commission. But equally important, you want to make sure that you are in compliance with Ohio license law.

Ohio license law requires licensees to obtain the knowledge and consent of the owner or the owner’s authorized agent before marketing or offering property for sale or lease. While the statute doesn’t mandate that such consent be in writing, of course that is the best practice to document that consent has been given.

In the case of  multiple owners of a property, the Division of Real Estate and Professional Licensing interprets the license law to require the consent of all owners of the property. Therefore, when the property is owned by spouses or joint owners such as heirs or multiple investors, the signatures of all of the property owners should be obtained to document that they consent to you listing and offering the property for sale or lease and to also confirm that they are in agreement with the sale price and other terms on which the property will be marketed. In the case of property titled in the name of one spouse only, technically you are only required that you obtain that spouse’s signature. However because under Ohio law the other spouse has dower rights, obtaining that person’s signature on the listing will assure that they are aware of the listing and will serve as an indicator that they will waive their dower rights at the point of sale.

In some cases it is also prudent to take steps to establish that the person listing the property has the authority to do so. Examples of such situations include divorcing spouses, persons with a power of attorney, REO properties, properties in an estate, or properties owned by a legal entity such a an LLC or a corporation. While most listings contain language stating that  the person signing the listing has the authority to do so, it is advisable to confirm this to avoid potential issues. Below are steps to take to assure you have the right signatures:

  • Divorcing spouses. If one spouse claims the court has authorized him/her to handle the sale of the property, ask for a copy of the court order.
  • Power of attorney. If a person purports to have power of attorney to sign for another, a copy of that power of attorney should be obtained for your files.
  • Property in an estate. The individual signing the listing should be either the executor or the attorney for the estate.
  • LLC. Determine if the person signing the listing is the managing member of the LLC or otherwise authorized in the operating agreement to sign documents for the LLC.
  • Corporate owned property. Obtain documentation that the person signing is an officer or duly authorized employee of the corporation.
  • Banked owned property. Obtain confirmation that the bank has title to the property. If the deed hasn’t been recorded yet the Division will allow the licensee to list the property if the sheriff’s sale has been confirmed by the court. In this instance, ask for a copy of the court order confirming the sale.

 

Legal articles provided in the OAR Daily Buzz are intended to provide broad, general information about the law and is not intended to be legal advice. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney. 

Tags: legal

Legally speaking: What you need to know when selling, buying or leasing your own property

lady justice

By Peg Ritenour, Ohio REALTORS Vice President of Legal Services/Administration

The Ohio REALTORS Legal Assistance Hotline receives an array of real estate-related legal questions — including license law issues, disclosure, contract law, ethics and commission problems, among others. In an effort to help you work within the law we spotlight some of the timely questions that are being asked by REALTORS. This one centers on properly handling the sale, purchase or lease of your own property…

Q: Do real estate agents have to purchase, sell, or lease their own property through their brokerage? If an agent is selling or leasing her own property, does she have to include the brokerage name in the advertisement?

A: While there is nothing in the license law that requires agents to purchase, sell or lease their own property through the broker with whom they are licensed, a broker can require this as a condition of working for the brokerage. If a broker wants to impose this requirement, it is advised that this be set forth in the independent contractor agreement with the agent and/or in the broker’s policy manual. The broker should also check with his E&O insurance carrier to make sure that there won’t be any issue with coverage on transactions involving agent owned properties.

Here are some other important issues related to licensees selling, buying, leasing and managing their own property:

  • As to whether the name of the brokerage must be included in advertisements, the answer depends on whether the property is listed with the brokerage. If it is, then the brokerage name must be included. If the property is not listed with the brokerage, then the brokerage name should not be included. In that case, only the agent’s name should appear in the ad. Regardless of whether the property is listed with the brokerage or not, under the license law any licensee who is marketing his own property must be identified in the advertisement by name and must indicate that the property is owned by the licensee. Examples of proper identification are “Tom Smith, Agent/Owner” or “Mary Jones, Broker/Owner.” This must be done in all forms of marketing, including yard signs, websites, print ads, etc.
  • Use of Forms. If the transaction is not being “run” through the brokerage, the agent should not utilize and documents or forms that include the brokerage name and that could create the appearance that the brokerage is involved in the transaction when it isn’t.
  • Disclosure of license status. Additionally, whenever an agent or broker enters into an agreement to sell or to purchase property for himself, Article Four of the NAR Code of Ethics requires written disclosure of the fact that he is a licensee. Such disclosure must be made  prior to entering into a contract. This is typically done in the purchase contract or lease, but it could be included in a separate document, e-mail etc.
  • Agency. Under Ohio license law a licensee cannot act as a dual agent in a transaction in which that licensee is a party. That means if you selling your own property you cannot also act as a buyer’s agent. Instead the buyer must be treated as a customer or referred to another licensee for representation. Likewise, if you are purchasing property for yourself you cannot also act as the seller’s agent, as this would make you a dual agent. For FAQ’s on this issue click here.

 

Legal articles provided in the OAR Daily Buzz are intended to provide broad, general information about the law and is not intended to be legal advice. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney. 

Tags: legal, Legally Speaking

Negative Inspection Reports: Is ignorance really bliss?

lady justice

By Peg Ritenour, Ohio REALTORS Vice President of Legal Services/Administration

The Ohio REALTORS Legal Assistance Hotline receives an array of real estate-related legal questions — including license law issues, disclosure, contract law, ethics and commission problems, among others. In an effort to help you work within the law we spotlight some of the timely questions that are being asked by REALTORS. This one centers on the handling of inspection reports…

Q: I represent a seller who has a pending purchase contract on his property that includes an inspection contingency. He has told me that if the buyer is unsatisfied with the inspection report that he will release the buyer from the contract with “no questions asked.” Moreover, he has instructed me to notify the buyer’s agent not to give me  a copy of the report or to communicate in any way what the issues are with the property. By doing this, the seller believes he won’t be faced with the problem of having to disclose findings that are contained in the inspection report to other potential purchasers. Is this OK? What if the buyer’s agent sends me the report anyway or tells me what defects were included in the report? Will I still need to disclose this information to subsequent buyers if the property goes back on the market?

A: Such instructions from sellers regarding inspection issues are occurring more frequently. And in some cases the listing agent is actually the one recommending this practice to their sellers. The rationale for this approach is that you can’t disclose what you don’t know. And while this may be is true, that doesn’t mean this is a good idea. And in some cases this approach of “no see , no hear, no speak” could actually create a potential risk for both the seller and agent.

So why is this a bad idea? First, by releasing a contract with no questions asked, the seller may be terminating a contract when the buyer has no legitimate basis for not performing. For example, the items that the inspector found may not be defects at all, but merely routine maintenance items. Or, the buyer may merely claim they were dissatisfied with the inspection report, when they really just have a case of “buyer’s remorse.” And there’s no guarantee that the next buyer’s inspection won’t find the same problems and the seller will be faced with the same issue again. This could result in delays in selling the property that could have been avoided by just dealing with the inspection issues with the first buyer.

But more concerning will be the situation where a defect that was found in that original report is not discovered by a subsequent buyer of the property until after closing, resulting in litigation against the seller, the listing brokerage and listing agent. In the course of discovery, it will invariably come out that there was a previous contract on the property that was terminated. Both the seller and listing agent will face questioning by the buyer’s attorney about the reason the first contract was released and the results of any inspection report. And when it is revealed that the listing agent instructed the first buyer not to provide a copy of their inspection report to the seller or to identify the unsatisfactory conditions that were found, the plaintiff’s attorney will have a field day with that listing agent and seller. It won’t take much for the buyer’s  attorney to convince a jury that the seller and the listing agent were trying to avoid disclosure of any defects to the subsequent purchaser. And that may not bode well for either the seller or their agent.

As to the situation in which — despite instructions from the listing agent — the buyer’s agent sends over the inspection report or otherwise shares information about the inspector’s findings, this places the listing agent in a precarious position. That is because the listing agent will now be considered to have knowledge of the information contained in the inspection report. And if that report disclosed any defects in the property, the agent will have a duty to disclose those defects to a subsequent buyer. If the seller instructs the listing agent not to make such a disclosure, the seller should be referred to an attorney for advice on the duty to disclose such information. The agent should also immediately bring this situation to the attention of her broker or manager. If the seller persists in instructing the agent not to disclose any defects discovered by that inspection, the listing broker should consider terminating the listing because following the seller’s instructions could put the listing agent and broker at risk of a license law violation, as well as potential civil liability.

The bottom line is that taking the approach that ignorance is bliss with respect to inspection reports is a strategy fraught with risks for not only the seller, but for the listing agent and the listing brokerage as well. For this reason listing agents should not recommend this approach to their sellers,  and agents should counsel their sellers against this practice and refer them to their legal counsel.

 

Legal articles provided in the OAR Daily Buzz are intended to provide broad, general information about the law and is not intended to be legal advice. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney. 

Tags: legal, Legally Speaking

So your buyer wants to see a FSBO

House For Sale By Owner Home Real Estate Sign

By Peg Ritenour, Ohio REALTORS Vice President of Legal Services/Administration

Recently the Ohio REALTORS Legal Hotline has received inquiries from brokers about representing buyers who want to look at For Sale By Owners. Of course, the issue of compensation in this situation is important, but also of concern should be agency disclosure.

Both Real Estate License Law and NAR Standard of Practice 16-11 provides that a buyer’s agent must disclose to a FSBO that he represents the buyer and make any request for compensation from the seller at first contact. Thus, if your intent is to have the seller pay your fee, you need to disclose this intent and explain that you are acting as the buyer’s agent in your first conversation with the seller and document this disclosure in your file.

If the seller agrees to pay your fee, it is important that you reduce that agreement to writing to protect your right to a commission. To do this, many agents will have the seller sign what they refer to as a “one party” listing, modifying the exclusive right to sell agreement of their brokerage or local Board of REALTORS to only require the seller to pay a commission if that particular buyer purchases the property.

While this practice can be followed, the buyer’s agent must consider the agency implications of using a listing agreement to secure payment of their fee by the seller.  By using an exclusive right to sell agreement, the buyer’s agent is creating an agency relationship with the seller. This may or may not be the intent of the agent, or more importantly, the intent of the buyers who asked the agent to show them the property.  Assuming the agent already has an established agency relationship with the buyer, by signing an exclusive right to sell agreement with the seller, the salesperson has created a dual agency relationship. Of course, dual agency is perfectly legal in Ohio if it is disclosed and the parties agree, but again, that may not have been the intent of the buyer.

If the buyer wants their agent to represent only their interests, but still wants the seller to pay the commission, a compensation agreement other than a listing contract should be used. Under such a compensation agreement, the seller agrees to pay the buyer brokerage fee, and acknowledges that the agent and brokerage represent only the buyer and not the seller. Although not technically required, it is recommended that such a fee agreement include an expiration date and the fair housing language and logo. Ideally, this agreement should be presented to the seller prior to showing the property.

Instead of using such an agreement, many REALTORS commonly include language in the purchase contract requiring the seller to pay the buyer brokerage fee. While this can be done, it is not the best practice for a few reasons. First, if this provision regarding compensation is the first time this is being discussed, the REALTOR may have violated his license law and ethical duty to disclose this intent at first contact.  Second, if the seller refuses to pay the compensation and the REALTOR has no written agreement with the buyer obligating the buyer to pay his fee, the REALTOR has placed himself in a situation where neither party is contractually obligated to pay for the services he provided.

Again, to avoid such a situation, it is recommended that if your expectation is for the seller to pay your fee, get it in writing upfront.

 

Legal articles provided in the OAR Daily Buzz are intended to provide broad, general information about the law and is not intended to be legal advice. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.

Tags: legal

Is your team violating Ohio License Law?

teamwork

By Lorie Garland, Ohio REALTORS Assistant Vice President of Legal Services

Are you a member of a team or thinking of forming one? Or are you a broker or manager who has agents who work as a team? Teams have become a very successful business model for many Ohio REALTORS for a variety of reasons. They allow agents to pool their resources and tap into the skills and experience of other licensees and provide support to assure that client needs are being met.

However there are some specific license law provisions that apply to teams as well as agency and commission issues that team members – and the brokers and managers who supervise them — must be aware of to avoid license law violations. Below are these key areas:

What is a team?

Ohio license law defines a team as any group of two or more associated real estate licensees affiliated with the same brokerage and/or other non-licensed professionals, such as administrative assistants and other professionals specializing in real estate related fields that advertise together. This means you must have at least two licensees who advertise together to be a team.

The most important thing that must be understood about teams is that they are not licensed by the Ohio Division of Real Estate and Professional Licensing. While the license law permits two or more licensees to work together and advertise as a team, the Division does not recognize the team as a licensed entity and instead the team members are still individually licensed agents and brokers.

Broker responsibility

Just because agents work together as a team doesn’t change the broker’s obligations. Under Ohio license law a principal broker has a duty to oversee the activities of the licensees affiliated with the brokerage. This includes agents and other brokers who are on a team. Therefore, even though a team may form an LLC, act like a “business” within the brokerage, have a team “leader” and even hire its own unlicensed staff, the principal broker is still obligated to oversee the activities of the licensees on the team.

Team name

The Ohio Division of Real Estate and Professional Licensing does not permit a team name to include the terms “Realty” or “Real Estate.” This position is based on the fact that because a team is not a licensed entity, the use of such terms by a team would be likely to mislead the public to believe the team is a brokerage, which of course it is not. Therefore, the use of team names such as “Awesome Real Estate Team” or “Smith Realty Team” are not permitted by the Ohio Division of Real Estate and Professional Licensing.

Advertising

In 2002 the Ohio Real Estate Commission adopted a team advertising rule that permits licensees to advertise as a team as long as they comply with certain requirements.

Here’s what’s required:

  • The brokerage name must be included in all forms of advertising by the team. That includes print, websites, yard signs, billboards, business cards, etc.
  • In addition to the team name, you have to include the name of at least one individual affiliated with the team in all ads. Therefore if the team name is The Smith Team, any advertising including yard signs must also include the full licensed name of at least one agent on the team, i.e. Jane Smith. The only exception to this requirement is if the team name includes the full licensed name of one of the agents (i.e., the Jane Smith Team).
  • The team name can’t be more prominent than the brokerage name – and neither can the individual name of a team member. This prominence rule applies to all ads including yard signs, newspaper ads, your website, etc. When determining prominence, the Division will compare the team name to the brokerage name as it appears on the brokerage license. That means any brokerage logos and franchise names will not be included when comparing the brokerage’s name with that of the name of the team or an agent.
  • If you include the name of an unlicensed team member in an ad (i.e., an unlicensed assistant) that person must be identified as unlicensed in the ad.

Agency issues

Another important issue that arises when agents work together as a team is identification of the agency relationship the team members have with buyers and sellers. Do all team members represent each other’s clients? Or do individual team members represent just their own buyers or sellers? This is crucial to establish for purposes of completing listing agreements and the Agency Disclosure Statement and more importantly, to assure that agency duties are met. It is crucial that the broker is involved in these issues to assure that the team is working in a manner consistent with the brokerage’s policy on agency and are in compliance with the license law.

First let’s look at how agency relationship can be established by team members. Many teams are set up where all the team members represent all of the clients of the team and this is reflected on the listing and other agency documents. Therefore, if one team member has a listing that is being purchased by a buyer who is represented by another team member, both agents would be dual agents. As such, both agents must conduct themselves in a manner that is consistent with dual agency. This means the agents must both remain neutral, cannot disclose confidential information, cannot negotiate or advocate for either party, etc. This practice often makes sense based upon the nature of the relationships of the agents within the team and also the relationship between the team and its clients.

Some brokers, however, allow teams to practice “split” agency within the team — meaning that the listing agent in the team can represent only the seller and another member of the team will represent only the buyer in a transaction. In order for this to work, each agent in the team must fulfill his fiduciary duties to his respective client, which includes the duty of loyalty, acting in the best interests of the client, and protecting the client’s confidential information. To comply with this duty of confidentiality, agents within the team cannot have access to the confidential information of the clients of the other agent in the team.

With respect to the issue of loyalty, it is also crucial that agents functioning as a team understand that the interests of their respective clients must come first and that their conduct should not be influenced by their relationship with other team members. For example, often a team may have one agent who is the primary team leader or “rainmaker.” This agent often takes the majority of the listings and refers any buyers to other team members. In this situation, even though a buyer’s agent may get most of her clients from the team leader, she must be careful not to be influenced by this relationship when representing a buyer in a transaction with that team leader.

In making decisions regarding the agency relationships of team members, it is important that a variety of factors be considered by the agents involved and of course it is the principal broker’s duty to supervise these agents and their conduct.

Listing agreements, agency disclosure form, etc.

Often on listing agreements the name of the team will be listed as the seller’s agent or on the Agency Disclosure form as representing a party to the transaction. While Ohio license law allows a team name to be included in advertising, the team itself has no recognized status as a real estate licensee. For this reason on documents such as listing agreements and the Agency Disclosure form the names of the individual licensees who are representing the seller, buyer or both must be identified. This is necessary so that the parties to the transaction know who the licensees are and who they represent. Thus, while it is OK to indicate the team name, you need to also indicate the names of the individual licensees in that team who represent the client.

In cases where there are numerous licensees in the team that are representing the seller or buyer it may be difficult to include all of their names in the space provided. In this case it is acceptable to indicate the team name on the document and then reference an attached list of the team members who represent that client.

Payment of commissions

Ohio license law provides that it is the duty of the broker to pay affiliated agents – including those who are on a team – their earned share of a commission. This is interpreted by the Ohio Division of Real Estate and Professional Licensing to mean an agent must receive payment of commissions from the brokerage directly. Therefore, a commission earned by an agent cannot be paid to the team or to a team leader and then disbursed to the team members.

The only exception to this rule is if a licensee is a member of an LLC or an owner or officer in a corporation. Ohio license law was amended several years ago to allow a broker to pay an agent’s commission to the LLC or corporation in that instance. A licensee who has an ownership interest in such an entity or is an officer of a corporation must provide verification of this fact to their broker and the broker can then legally pay their commission to that entity.

Therefore, if an agent is a member of a team, the broker can pay a commission earned by that agent to the team if:

  1. The team is an LLC and the agent who earned the commission is a member of the LLC (i.e., has an ownership interest in the LLC), or
  2. The team is a corporation and the agent who earned the commission is either an officer or a shareholder in that corporation.

If either of these situation exists, the broker can legally pay the agent’s commission to that LLC or corporation, which can them disburse payment to the agent.

If the team is not an LLC or corporation, or it is an LLC or corporation but the agent has no ownership interest in the entity or isn’t an officer, the agent’s commission cannot be paid to the team; instead the brokerage must pay the team member his/her commissions directly.

Avoiding team disputes

Teams are not for everyone. In some instances the team may dissolve or a team member may decide to leave the team, sometimes due to compensation disputes. This can result in the broker, who issues payment of commissions to the agents, being placed in the middle. Here are a few steps that should be done to avoid disputes:

  • Team members should have written agreements setting forth the terms of their working relationship, including specific commission agreements;
  • The broker should require that team members provide him with a copy of that commission agreement; and
  • The broker should require that team members sign a document agreeing that the broker will pay commissions owed to team members pursuant to that agreement unless the broker is provided with signed instructions from all affected members that provides otherwise.

 

Legal articles provided in the OAR Daily Buzz are intended to provide broad, general information about the law and is not intended to be legal advice. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.

Tags: legal

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