Syllabus/Assignments: fall2012. i Final Exam Skills Training section

Transcription

1 Real Estate Transactions (Fall Semester 2012) MW 9:30-10:20, Room 5 (Skills Training: Th 9:30-10:20, Room 5) Prof. Freyermuth Office: Room 215 Phone: freyermuthr@missouri.edu Course Details Syllabus/Assignments: fall2012 Class Participation/Questions i Final Exam Skills Training section Course Topics The land transfer process Contracting for the transfer of land Deeds and the recording system Title search, title assurance, title insurance Overview of land development process Broker Functions Listing function: listing on MLS, advertising Selling function: facilitating negotiation of sale contract Functions commonly provided by different brokers, who end up splitting commission 1

2 Brokers: Types of Arrangements Open listing (uncommon) Exclusive listing Exclusive right to sell (most commonly used brokerage arrangement) Brokerage Arrangements Open listing (rare): owner can sell land herself or via another broker (commission to listing broker only if he/she facilitates sale) Exclusive listing: owner can sell herself (w/out commission), but can t use another broker w/out having to pay commission to listing broker Exclusive right to sell (most common): listing broker will earn commission on any sale during listing period, even if broker didn t facilitate sale Form Listing Agreement (p. 3) 8. Possession of the Property shall be delivered to Buyer on. 4. The Offering Price for the Property shall be $ on the following terms. Broker won t have started marketing the land, won t yet have found potential buyers. So why are these provisions in the listing agreement? Concern: as broker makes time investment in marketing Seller s land, broker wants to limit Seller s discretion in rejecting buyers E.g., Broker doesn t want to locate a Buyer that offers to pay the Buyer s asking price, only to have Seller refuse to sell at that price E.g., Broker doesn t want to find acceptable Buyer, only to have Seller say, No, I don t want to move out until next year. 2

3 Bailey retains Broker Listing agreement (p. 3) provides 6% commission Myers signs K to buy Bailey s home for $400K, but later does not close Does Bailey owe Broker a $24K commission if: Myers got transferred? Myers didn t qualify for financing? Myers wasn t willing to accept title subject to an objectionable covenant? Problem 2: Commissions Traditional Commission Rule Ready, willing, and able standard If listing K is not expressly conditioned on actual closing, then seller accepts buyer (and risk of buyer s default) at the time seller signs an unconditional contract t w/buyer At that point, buyer is deemed ready, willing, and able to perform (thus, broker earns commission, even if buyer doesn t actually close!) Minority (Dobbs) Rule Unless listing K provides otherwise, broker only earns commission when sale actually closes and buyer performs (adopted in Drake v. Hosley) Real test of whether buyer is ready, willing, and able is buyer actually closing Rationale: this more closely comports with expectations of typical seller (who expects to pay commission from closing proceeds) Many states (e.g., Missouri) still follow common law ready, willing, able test But, brokers rarely seek to collect if sale doesn t close w/out seller s fault (enforcement in that context would have serious negative reputational consequences) Also, some brokers will agree to incorporate Dobbs rule into their listing agreement (i.e., no commission due if Buyer contracts but fails to close) In these cases, broker may be protected by provision for division of Buyer s forfeited earnest money [Form Listing Agreement, 13, p. 5] 3

4 Drake v. Hosley (p. 12) 3/5: Drake lists home for sale with broker Hosley 10% commission o if Hosley finds buyer ready, willing, and able to buy on Drake s terms 3/23: K signed w/buyers; closing to occur w/in 10 days of [Drake proving] clear title 4/3: Clear title report is delivered 4/11: Drake demands that Buyers close early, Hosley tells Drake that Buyers can t close until May 1 4/12: Drake sells land to other buyers Later on 4/12: Buyers tender payment, Drake refuses it Hosley sues Drake to collect 10% commission Questions about Drake v. Hosley Suppose Buyers had directly told Drake (the Seller), on April 5, We won t close until May 1, when we have the money. How might this have changed the analysis of this dispute? General rule: Seller can t put Buyer in breach of K until tendering performance at time for closing Exception: Seller need not wait until time for closing if Buyer commits anticipatory repudiation Statement we won t close until May 1 =repudiation of Buyer s obligation to close no later than April 13 Question: Why didn t court apply anticipatory repudiation in Drake v. Hosley? Court: Hosley was Drake s agent; he had no authority to bind the Buyers unless he was also their agent (which he wasn t) [p. 15] Buyers had until 4/13 to perform; thus, when Drake sold the land to another buyer on 4/12, Drake breached the contract Dobbs does not protect Seller from liability for a commission to broker if failure to close is due to Seller s breach [p. 15] 4

5 Based on court s reasoning: If Buyer says to Drake, We won t close until May 1 anticipatory repudiation Buyer says to Hosley, We won t close until May 1 not anticipatory repudiation Does that make sense? Question Drake is technically ca correct as a matter of agency law, but it is unrealistic Selling agent often works closely with the buyer (even if actually agent/sub-agent of the seller) Buyers often talk to the seller using the selling broker as an intermediary A seller like Drake is likely to take broker s word and may not confirm facts with buyer directly Also: what if the buyers in Drake actually believed that Hosley was acting as their agent? Myers (moving to Columbia) is considering whether to hire a buyer s broker to assist him in locating a house, or to instead simply pyallow a selling agent to show him available homes Why might Myers choose to use (or not to use) a buyer s agent? Problem 6 Might use buyer s agent if buyer is unfamiliar w/characteristics of local real estate market E.g., help in formulating offer/counteroffer price If selling agent is agent of Seller, advising Buyer to offer a lower price would breach duty owed to Seller [note 3, page 18] Doesn t increase costs (split commission) Critical for buyer to have direct agency agreement, specifying scope/nature of buyer s broker duties 5

6 For Sale by Owner (FSBO) Primary attraction: no broker commission means reduced transaction costs, more equity in seller s pocket Primary problem: marketing is difficult Local MLS will not accept FSBO listings (must be broker/member of MLS) More feasible in high-traffic or high-demand areas Discount Brokerage In some places, firms now provide limited brokerage services at lower costs Flat-fee listing only (e.g., My Dog Tess ) (Seller shows house, negotiates/contracts w/buyers) Others have menu-based fee for service model Minimum Service Statutes RSMo (7) broker w/ exclusive residential listing must provide full service (typical selling functions) [note, p. 12], e.g., Must accept/present all offers/counteroffers Must assist client in developing, communicating, and presenting offers/counteroffers Must answer client s questions re: offers, counteroffers, notices, and contingencies Brokerage Services Traditional NAR/MAR argument: key benefit of fullservice brokerage is assistance with sale contracting, which produces informed, better deals for sellers Seller gets to use broker-approved form contract (which reflects the benefit of collected transactional experience) Broker likely to be aware of potential pitfalls and to make sure Seller avoids them 6

7 DOJ/NAR Settlement In 2005, DOJ filed antitrust suit vs. Nat l Ass n of Realtors Settled in May 2008 NAR agreed to repeal policies that allow an NAR- affiliated MLS to withhold listings from non-full service brokers But note: settlement doesn t displace state minimum services laws (like Missouri s)! 7