Lock box access to buyers…a BIG NO-NO!

real estate lock box

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

So you’re running late to a showing appointment and the buyer arrives before you. Or you have a listing that is vacant, in contract and the buyer just wants to enter the property with their contractor two days before closing to do some quick measurements. Is it OK in either of these instances to give the buyer the lock box code to enter the house without you? The answer is NO!

While this may seem obvious, unfortunately the Ohio Division of Real Estate and Professional Licensing is seeing an increased number of complaints where real estate licensees are giving buyers lock box codes or keys to enter a listed property on their own. There have also been instances where buyers who are in contract to purchase a home have been given unauthorized access to enter the property prior to closing without the permission of the seller or listing agent. Such conduct has been found by the Ohio Real Estate Commission to be a violation of the license law and has resulted in disciplinary action against the licensee who gave such access without the seller or listing agent’s consent.

In addition to the license law, such conduct is also a violation of the MLS lock box rules. While your local MLS may have rules allowing the MLS to enter into key agreements with appraisers and affiliate members such as inspectors, keys and lock box codes cannot be used by anyone other than the key holder and that certainly includes buyers. Doing so can result in sanctions that could include a fine of up to $15,000 or termination of MLS and/or lockbox privileges.

The Code of Ethics of the National Association of REALTORS also addresses such conduct. Both Standard of Practice 1-16 and 3-9 of the NAR Code of Ethics provides that REALTORS shall not grant access to listed property on terms other than those established by the seller or listing agent. Therefore, while a seller may authorize a lock box be placed on the property and that other REALTORS and other key holders be granted access to the property, this does not allow a buyer to enter a property without an agent. Instead this can only be done if authorization is obtained from the listing agent or seller. If such permission is granted, this should be documented in your records for your protection. But as stated above, even with such permission, under the MLS rules access to the property cannot be given to a buyer by providing lock box combinations or keys.

The bottom line is that sellers have the right to know who is in their property and to control the circumstances under which persons are given access. It doesn’t matter if the property is vacant or going to close in two days. The buyer should  never be permitted to enter the premises without a licensed agent unless the owner or listing agent has consented to this. And lock box access can never be given to unauthorized persons. Doing so is a sure way to potentially lose not only your MLS privileges, but also your license.


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

Avoid legal pitfalls when transferring to a new brokerage


avoiding a pitfall

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

Deciding to leave your brokerage and transfer to a new company can be a difficult decision for an agent. Issues surrounding the agent’s active listings as well as pending transactions can pose logistical problems that must be considered to assure that clients continue to receive full representation and that pending contracts are not negatively impacted.

When transferring to a new brokerage, here’s what the agent, their current broker and the new broker need to understand about pending listings and purchase contracts:

 Listings: You can’t always take them with you. The parties to an exclusive right to sell agreement are the seller and the brokerage. The listings don’t “belong” to the agent and the agent has no legal right to “take” their listings with them when they transfer to another brokerage. While some brokers in this situation may agree to release the listing, absent some provision to the contrary, the brokerage has no legal obligation to do so. Moreover, the seller may not necessarily want to follow the agent to the new brokerage.

If a broker does agree to let the agent take their listings to the new broker, here’s what needs to happen:

  1. The seller must agree that they want to be represented by the new brokerage.
  2. The original brokerage needs to release the seller from their agency agreement and remove the property from the MLS and cease all other marketing efforts.
  3. A new listing agreement must be executed between the client and the new brokerage.
  4. The seller must be provided with the new brokerage’s consumer guide to agency relationships.

Pending Contracts: You can’t always take them either. Often agents have transactions in contract that will not close until after they transfer their license to the new brokerage. While agents may want to see their transactions through to closing, once they transfer to a new brokerage they can no longer perform acts that require a license on behalf of their former brokerage. This would include helping the parties with any post contract issues such as inspection or financing or attending the closing. This is because the agent can only perform licensed activity in the name of their new brokerage, which of course was not involved in the transaction. Therefore, the brokerage under which the transaction was written should appoint another licensee in the brokerage to represent the client for the remainder of the transaction.

In some instances the former broker may be agreeable with the transferring agent continuing to represent their client. For this to happen the Division of Real Estate and Professional Licensing has identified the following steps are necessary for the new brokerage to take over the transaction:

  1. The client must agree that he wants the agent and the new brokerage to represent him through the remainder of the transaction.
  2. The new brokerage must be willing to take over the agent’s transaction and represent the client through closing. (Possible exposure to liability for the transaction and E&O coverage is something the new broker should weigh.)
  3. A written termination of the former brokerage’s representation of the client should be executed. It is recommended that this agreement address compensation issues and include language to protect the former broker from liability for any actions, representations, etc. that takes place under the new brokerage.
  4. An agency agreement should be executed with the client specifying the new brokerage’s role in the pending transaction and what tasks will be performed on behalf of the client.
  5. The client must be provided with the new brokerage’s consumer guide to agency relationships. A new agency disclosure statement is necessary as well.
  6. The two brokerages need to work out what, if any, portion of the commission is going to be paid to the new brokerage.
  7. Earnest money may also need to be addressed. If the original brokerage is holding the earnest money, will it be transferred to the new brokerage’s trust account? If so, the former broker must receive written consent from both parties to transfer the earnest money to the new brokerage.

The following articles provide additional information and FAQs on the issues involved when an agent transfers their license, including commission issues:


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

Ohio city’s point of sale ordinance found to be unconstitutional

legal gavel

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

In a decision issued late last week, the federal district court for the southern district of Ohio ruled that the point of sale ordinance of the City of Oakwood is unconstitutional. Moreover, the court certified the case as a class action, paving the way for the refund of fees to hundreds of sellers who sold property in this Dayton suburb over a six-year period.

The suit was brought by property owner Jason Thompson and the 1851 Center for Constitutional Law, a non-profit entity. At issue in the case was whether the City’s ordinance violated the Fourth Amendment, because it subjects homeowners to a warrantless inspection of their property. (A similar challenge is also pending in the federal court for the northern district of Ohio involving the point of sale inspection of the City of Bedford, a Cleveland suburb. That case has also been certified as a class action.)

Under the Oakwood ordinance, it was unlawful for a property owner to transfer title or any equitable ownership of the property or change tenants without having an inspection conducted by the city. Upon completion of the inspection the city issued a “certificate of occupancy.” Without such a certificate the new owner or tenant could not legally occupy or use the property. The fee for the inspection was $60 and any owner who failed to comply with the inspection requirement or who occupied the premises without the certificate of occupancy was guilty of a minor misdemeanor.

In its lawsuit the plaintiffs sought a declaratory judgment that the ordinance was unconstitutional, an injunction against the city from enforcing the ordinance and restitution of the $60 inspection fee. Shortly after the suit was filed, Oakwood agreed to a preliminary injunction that suspended its enforcement of certain provisions of the ordinance. Two months later, Oakwood passed an emergency order repealing the ordinance and replacing it with one that provides for an administrative warrant procedure. The plaintiffs in this lawsuit did not challenge the amended ordinance.

In reaching its decision that the prior ordinance violated the Fourth amendment, the court relied on a 1967 U.S. Supreme Court case as well as a recent federal court case that struck down a Portsmouth, Ohio ordinance as unconstitutional. The Portsmouth ordinance also made it a misdemeanor for a property owner to refuse to allow the city to conduct an inspection of his rental property. Relying on these prior decisions, the court in this case held that a municipality violates the Fourth Amendment when it requires a property owner to consent to a warrantless inspection of their property or face criminal penalty. The court then granted the plaintiff’s claim for unjust enrichment and restitution, finding that it would be unequitable for Oakwood to retain the $60 fee that was collected pursuant to an “unconstitutional and coercive ordinance.”

Finally, the court considered the plaintiff’s motion to have this case certified as a class action. In granting this motion, the court found that there are sufficient members of the class who share common issues of law and that requiring each potential plaintiff to file individual legal action would be cost prohibitive given the dollar amount of each claim.

After reaching the decision to certify this case as a class action, it was also necessary for the court to define the members of the class. Under federal law, class action claims are subject to a two year statute of limitations. However because the court granted summary judgment to the plaintiffs on the unjust enrichment claim the court applied the statute of limitations for that claim, which is six years. Therefore the court certified the class to include all individuals and businesses that have sold houses within the City of Oakwood since May 25, 2010 and who paid the pre-sale inspection fee.

So what does this decision mean for those communities that have pre-sale or point of sale or rental inspection ordinances? Are such ordinances all unconstitutional? The answer to that question is “not necessarily.” Whether an ordinance would be subject to a successful constitutional challenge depends upon the specific provisions of each ordinance. This ordinance, like the Portsmouth ordinance, was struck down for two reasons: (1) there were criminal sanctions for persons who failed to allow the inspections; and (2) the ordinance did not provide for an administrative warrant that assured that there was a judicial determination that probable cause existed to issue the warrant. Like Oakwood, many municipalities have amended their ordinances in recent years to provide for such a warrant process to avoid a constitutional challenge.

At this point it is not known if Oakwood will appeal the court’s ruling. Also, it should be pointed out that this decision is not binding on other jurisdictions outside the Southern District of Ohio (although in my opinion this constitutes a strong precedent that is very likely to be followed by other courts).

We will keep you posted on the future developments in this case, as well as the litigation pending against the City of Bedford.


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

Five ways to lose your license over earnest money

slip on banana peel

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

One of the surest ways to lose your license is to mishandle earnest money. Why? Because the violations are easily proven through contract language and bank account records. And moreover, the Ohio Real Estate Commission considers violations of your fiduciary duty to safeguard the money of others to be one of the most serious infractions. Below are five of the most common mistakes regarding earnest money that violate Ohio’s license law.

  1. Indicating on the purchase contract you have earnest money that you don’t. Many purchase contracts have a section for the agent to indicate the receipt of earnest money. Unless you actually have the earnest money check in your possession don’t sign this section. This may sound obvious, but violations for misrepresentation have been found when trusting agents sign this section based upon the buyer’s promise to get the agent the check the next day and fails to do so. To avoid disciplinary action, a good rule of thumb is that if you don’t have the check in your actual possession, don’t sign anything or otherwise indicate that you do. Instead, indicate it will be collected upon acceptance or at a later date.
  2. Failing to deposit earnest money in the brokerage trust account. It is imperative that earnest money be deposited ASAP. For agents this means that you need to get the check to your broker/manager (or the person at the brokerage responsible for depositing it) in a timely manner, which is usually considered to be within 24-72 hours of acceptance of the offer, unless the contract provides otherwise.
  3. Failing to make a good faith effort to collect earnest money/ failing to notify the listing agent or seller if you don’t receive it. Sometimes under the terms of the purchase contract the buyer will be required to provide a deposit after the contract is accepted or after a certain event occurs (i.e the inspection or home sale contingency is removed). As a buyer’s agent, it is important to document your attempt to collect the earnest money from your client. Unfortunately, a buyer’s promise to bring it to the office the next day can sometimes can turns into several days. When this occurs it may be a signal that the buyer may not perform the terms of the contract. For this reason, the buyer’s agent needs to communicate the failed attempt to collect the earnest money to the listing agent in a timely manner and the listing agent needs to notify the seller immediately.
  4. Failing to notify the listing agent/seller if the buyer’s earnest money check bounces. Like the failure of the buyer to make a required deposit, the fact that the buyer’s check was returned for insufficient funds is usually not a good sign. Therefore this must be communicated to the listing agent in a timely manner and the listing agent needs to let the seller know that this has occurred.
  5. Returning earnest  money when a contract doesn’t close without the signed agreement of both parties or a court order.  If a purchase contract fails to close for any reason, you cannot remit the earnest money to either the buyer or seller without the written consent of both parties or a court order directing disbursal. This is true even if financing was denied, the property failed to pass inspection, the contract expired or any other contingency isn’t met. The license law is clear on this and returning an earnest money deposit without the necessary written consent or a court order is a sure way to be disciplined by the Ohio Real Estate Commission.

Tags: legal

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

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