DISCLAIMER: Copyright: 2011

Transcription

1 DISCLAIMER: This publication is intended for EDUCATIONAL purposes only. The information contained herein is subject to change with no notice, and while a great deal of care has been taken to provide accurate and current information, UBC, their affiliates, authors, editors and staff (collectively, the "UBC Group") makes no claims, representations, or warranties as to accuracy, completeness, usefulness or adequacy of any of the information contained herein. Under no circumstances shall the UBC Group be liable for any losses or damages whatsoever, whether in contract, tort or otherwise, from the use of, or reliance on, the information contained herein. Further, the general principles and conclusions presented in this text are subject to local, provincial, and federal laws and regulations, court cases, and any revisions of the same. This publication is sold for educational purposes only and is not intended to provide, and does not constitute, legal, accounting, or other professional advice. Professional advice should be consulted regarding every specific circumstance before acting on the information presented in these materials. Copyright: 2011 by the UBC Real Estate Division, Sauder School of Business, The University of British Columbia. Printed in Canada. ALL RIGHTS RESERVED. No part of this work covered by the copyright hereon may be reproduced, transcribed, modified, distributed, republished, or used in any form or by any means graphic, electronic, or mechanical, including photocopying, recording, taping, web distribution, or used in any information storage and retrieval system without the prior written permission of the publisher.

2 WHAT IF...? Problem Solving for Real Estate Salespeople by M.M. (Mike) Mangan Trevor Bennett Gary Brady This publication was made possible in part by a grant from the Real Estate Foundation of British Columbia. R1WHAT11

3 DISCLAIMER: This publication is intended for EDUCATIONAL purposes only. The information contained herein is subject to change with no notice, and while a great deal of care has been taken to provide accurate and current information, UBC, their affiliates, authors, editors and staff (collectively, the "UBC Group") makes no claims, representations, or warranties as to accuracy, completeness, usefulness or adequacy of any of the information contained herein. Under no circumstances shall the UBC Group be liable for any losses or damages whatsoever, whether in contract, tort or otherwise, from the use of, or reliance on, the information contained herein. Further, the general principles and conclusions presented in this text are subject to local, provincial, and federal laws and regulations, court cases, and any revisions of the same. This publication is sold for educational purposes only and is not intended to provide, and does not constitute, legal, accounting, or other professional advice. Professional advice should be consulted regarding every specific circumstance before acting on the information presented in these materials. Copyright 2011 by the UBC Real Estate Division, Sauder School of Business, The University of British Columbia. Printed in Canada. ALL RIGHTS RESERVED. No part of this work covered by the copyright hereon may be reproduced, transcribed, modified, distributed, republished, or used in any form or by any means graphic, electronic, or mechanical, including photocopying, recording, taping, web distribution, or used in any information storage and retrieval system without the prior written permission of the publisher. For permission to use material from this text or product, contact UBC Real Estate Division at info@sauder.realestate.ubc.ca or Printed in Canada.

4 About the Authors M.M. (Mike) Mangan is an experienced Vancouver trial lawyer, teacher and seminar leader. His law practice includes real estate law affecting Boards/Associations, brokers and salespeople. Mike has designed and coordinated programs to help Realtors, lawyers, and notaries avoid claims. He also teaches real estate law at the UBC Real Estate Division, Sauder School of Business. Mike is the principal author and presenter of the British Columbia Real Estate Association s annual Legal Update. Trevor Bennett has been licensed in real estate for over 29 years, including 21 years of management and owning his own company. He has a diploma in Urban Land Economics from UBC, holds the professional accreditations FRI, RIBC, and has served as a Director of the Real Estate Board of Greater Vancouver. Trevor is an experienced writer and instructor of real estate seminars, with an emphasis on real estate contract law and professional conduct. He has been a major contributor of BCREA s Clauses and Phrases and professional guidelines to the Real Estate Council s Licensee Practice Manual. Gary Brady has been a licensed Realtor for over 23 years, including 17 in management. An active participant in organized real estate, he was elected in 1988 as President of the Real Estate Board of Greater Vancouver and first chairperson of the Real Estate Errors and Omissions Insurance Corporation. He is also a past President of the British Columbia Real Estate Association. Gary has conducted seminars on real estate agency and disclosure to over 3,000 Realtors in British Columbia and was re-appointed governor of The Real Estate Foundation in 1996 for a three-year term.

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6 TABLE OF CONTENTS INTRODUCTION...Introduction.1 CHAPTER 1 - LISTING Co-Listings What If... The Seller Wants to Co-List the Property? Corporate Client What If... The Seller or Buyer is a Company? Deceased Owner What If... The Owner is Deceased and the Estate Has Not Passed Probate or Similar Court Approval for Distribution? What If... The Owner is Deceased and the Estate Has Already Passed Probate or Similar Court Approval for Distribution? What If... Someone Asks Me for an Evaluation Letter? For Sale by Owner (FSBO) What If... The Seller Says He or She's Not Going to List, but Will Pay a Commission? What If... You Plan to Represent a Buyer Who May Be Interested in the Property? Why You Should Follow These Suggestions What If... The Seller Says He or She Will Only List or Sign a Commission Agreement After You Bring the Seller an Offer for the Property? What If... The Seller Says, "I'm Going to List with Another Broker, but I'll Wait 24 Hours So You Can Show the Property"? Non-Resident Client What If... The Seller or Buyer Does Not Reside in Your Area, and that Person's Local Representative Says He or She Has the Authority to Sign an Agreement for the Seller or Buyer? Other Broker Sells Your Buyer What If... You Show the Property Without a Listing or Commission Agreement, and then the Seller Lists with Another Broker Who Sells it to the Buyer You Introduced to the Property? Referrals What If... I Want to Arrange a Referral? Seller Wants to Talk Directly to Buyer What If... The Seller Says He or She Will Only List or Sign a Commission Agreement After You Allow the Seller to Speak with the Prospective Buyer? What If... The Seller Says He or She Will Only List or Sign a Commission Agreement after You Tell the Seller the Prospective Buyer's Name? i

7 Tenants in Listings What If... There is a Tenant in the Property? What If... The Seller is on Bad Terms with the Tenant? What If... You Suspect the Tenant Might Leave the Premises in Damaged Condition? What If... The Tenant's Suite is not Legally Authorized Accommodation? What If... The Seller Asks You Not to Tell the Tenant that the Property Is for Sale? CHAPTER 2 - CONTRACTS OF PURCHASE AND SALES Back-Up Offers What If... The Seller Gets a Back-Up Offer for a Greater Amount and Refuses to Complete the Original Deal? Back-to-Back Sales Tied Together What If... I Have to Write a Contract Tied Back-to-Back With Other Sales, Especially Where Some of the Sales are Subject To Sale of the Buyer s Home? Businesses What If... It s the Sale of a Business? Buying from Clients What If... I Want to Buy My Client s Property? Changes to the Standard Form Contract What If... Either the Seller or the Buyer Wants to Strike Out Some of the Pre-Printed Wording in the Standard Contract of Purchase and Sale? What If... The Other Salesperson Wants to Change the Wording of a Recommended Clause or Phrase? What If... Someone Prepares an Offer on His or Her Own Stationery? Early Possession What If... The Buyer Wants Early Possession? Flips What If... The Buyer Wants to Re-Sell Before Completion (A Flip)? Foreign-Speaking Client What If... A Foreign-Speaking Client Asks You to Translate a Document Connected with the Sale? Misleading or Incorrect Contracts What If... The Buyer or Seller Wants Me to Write a Contract that Does Not Reflect the True Agreement? What If... I Discover a Mistake in the Contract After Everybody s Signed It? Other Broker Introduced Your Buyer What If... The Buyer Asks Me to Write an Offer, but Another Salesperson First Introduced the Buyer to the Property? Problems with the Property What If... I Discover a Latent Defect in the Property? What If... The Property Is Stigmatized? What If... Something Happens to the Property Before Completion? What If... The Buyer Discovers Items Missing from the Property on the Possession Date? What If... The Seller Leaves a lot of Rubbish on the Property on the Possession Date? ii

8 Re-Negotiating or Changing the Contract What If... The Buyer Wants to Change the Date for Subject Removal, Completion, Adjustments or Possession? What If... The Seller Wants Money in return for Changing a Date? What If... The Buyer Wants to Re-Negotiate the Purchase Price? What If... The Seller and Buyer Have Made Verbal Side Agreements? Seller Rent Back What If... The Seller Wants to Rent Back from the Buyer after the Sale? Subject to Sale & Time Clauses What If... The Buyer Should Make the Sale Subject to Sale of the Buyer s Home, but the Buyer Won t Put that Subject Clause in the Contract? What If... The Offer Contains a Subject To Sale Clause, but the Buyer Won t Include \ a Time Clause? What If... The Seller Wants to Give Notice to the Buyer under a Time Clause? Is It Okay to Notify the Selling Broker? What If... The Seller Wants to Give Verbal Notice to the Buyer under a Time Clause? Does the Buyer Have to Accept It? What If... The Seller Wants to Give Notice to the Buyer under a Time Clause, but You Cannot Locate the Buyer? What If... The Contract Is Subject To Sale of the Buyer s Home with a Time Clause, and the Buyer Plans to Remove the Subject even if He or She Hasn t Sold Their Home? What If... The Buyer s Subject Removal Date Is Very Close to the Completion Date and the Seller s Worried about Having Enough Time to Buy a New Home When the Buyer Removes the Subject? Tenants What If... There Is a Tenant in the Property Who Will Stay After the Purchase? What If... There Is a Tenant in the Property but the Buyer Wants Vacant Possession? What If... The Buyer Needs Early Possession and Cannot Wait for Notice to the Tenant? What If... There Is a Tenant in the Property but the Buyer Wants to Renovate or Demolish the Premises? Trading Homes What If... The Parties Want to Trade Homes (Exchange Equities)? What If... Both Homes in the Trade Are Listed? What If... One of the Homes Is Listed, but the Other Is Not? What If... Neither Home Is Listed? CHAPTER 3 - OFFERS Above the Asking Price What If... One Or More Of The Offers Is Above The Asking Price? "Back Pocket" Offers What If... The Buyer Wants Me To Write Two Offers And Present The Lower One First? Competing Offer From My Buyer What If... It's My Listing And One Of The Offers Is From My Buyer? Presenting More Than One Offer What If... It's My Listing And Several Salespeople Wish To Present Offers? iii

9 Receiving an Offer Without a "Subject To Sale" Clause From a Buyer Who Currently Owns a Property What If... The Seller's Agent Receives A "Not Subject To Sale" Offer? The Buyer Wants to Put a Different Name on Title at the Completion Date What If... The Buyer Wants To Use "And/or Nominee" Beside His Or Her Name On The Offer? CHAPTER 4 - DEPOSITS Collapsed Sales What If... The Sale Collapses and the Seller Won't Agree to Release the Deposit? What If... The Sale Collapses and You Want to Transfer the Buyer's Deposit to Another Deal? Deposit Not Canadian Currency What If... The Buyer Wants to Pay the Deposit in a Foreign Currency? Deposit Not Money What If... The Buyer Wants to Pay the Deposit with Something Other Than Money? Earning Interest What If...The Buyer Wants to Earn Interest on the Deposit? What If...The Buyer Wants to Earn Interest on a Deposit Held by a Non-Realtor? Excess Deposits What If... The Buyer's Lawyer Wants Me to Pay the Deposit Monies in Excess of the Commission What If... The Seller Refuses to Allow Me to Pay the Excess Deposit to the Buyer's Lawyer? Future Deposits What If... The Buyer Pays the Deposit with a Post-Dated Cheque? What If... The Buyer Won't Pay a Deposit Until All the Subjects Are Removed? Holding the Deposit What If... One of the Parties Wants Someone Other Than a Real Estate Broker to Hold the Deposit? What If... The Contract Does Not Say Who Should Hold the Deposit? What If... I Cannot Put the Deposit in the Bank on the Day I Receive It? What If... I Cannot Get to the Office to Turn in the Deposit? No Deposit What If... The Buyer Won't Agree to Pay a Deposit? What If... It's a Quick Sale, Do I Need a Deposit? Not Paid in Time What If... The Deposit Is Not Received in Time? Non-Sufficient Funds (NSF) What If... The Buyer's Deposit Cheque Is NSF? iv

10 Small Deposit What If... The Buyer Will Only Pay a Small, Token Deposit? Large Cash Deposit What If... The Buyer Wants to Pay a Large Cash Deposit? INDEX... Index.1 v

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12 NTRODUCTION WhatIf...?helps representatives and managers in British Columbia's residential real estate market to solve many of the most common problems in their work. Some manuals help representatives with theory; this book is practical. In 1995, the British Columbia Real Estate Association created a new system of agency disclosure to help representatives better carry out their duties to clients. In this book, we use the term "client" to refer to your principal, the person whom you represent in a real estate transaction. This is the first text to help residential representatives apply these agency requirements in their everyday work. The information in this book is not legal advice. We deal with situations in a broad context and you should always check with your lawyer for legal advice about your specific situation. Whenever we suggest you consult a lawyer, we mean you should speak with a lawyer who is familiar with real estate law. Though the Canadian legal profession does not recognize specialties, the fact is that most lawyers tend to restrict their work to particular legal areas. We recommend that you seek advice from a lawyer who regularly represents real estate representatives in real estate matters. Similarly, our references to lawyers are not meant to exclude the notaries, who carry out with excellence a great many real estate transactions in this province. We refer only to lawyers because we are usually speaking in the context of obtaining legal advice. For ease of reference, we also use the term "bank" when speaking of financial institutions. We use the term "bank" in its most general sense to include chartered banks, trust companies and credit unions. WhatIf...?also covers many of the most commonly asked questions about residential tenancies. Commercial tenancies are too complex to cover in a book of this type. All of our references to tenancies concern residential situations. WhatIf...?reflects our experience in answering the many thoughtful questions of hardworking representatives around B.C. Without them, this book would never have been written. This book is intended to give you practical information of a general nature. Nothing in this book should be considered advice about your individual circumstances or those of your clients. The authors do not assume any legal responsibility for the information in this book, including suggested clauses and phrases. Readers must assess each situation on its own merits, bearing in mind that general information of the type in this book may not suit a particular situation. For advice about a specific problem, please consult your managing or associate broker, or in legal matters, consult your lawyer. Introduction.1

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14 LISTING 1 Co-Listings What If... The Seller Wants to Co-List the Property? Many real estate associations/boards allow member brokers to register co-broker listings. In other words, two or more brokers share a listing at the same time. Most multiple listing services insist that only one broker at a time can appear on a multiple listing agreement for a property, even if it's a co-listing. Some of these services allow you to state the name and phone number of the co-listing broker's representative in the remarks section of the listing. This typically means that one of the brokers files the listing with the multiple listing service and enters a side agreement (usually by a separate form or letter) with the other broker to share commission. Problems with Co-Listings Generally speaking, but with some exceptions, it's better to avoid co-listings. Some sellers think co-listing gives the property more exposure, but they're usually wrong. Co-listings may create all sorts of problems for representatives that spill over into the marketing effort. How will the brokers actually coordinate a marketing plan? How will the brokers share advertising expenses and make sure there is no duplicated effort? What will you do when the seller insists on more exposure, but you have already spent your budget for advertising, and the other broker refuses to pay a fair share of the advertising expenses? When it's the other broker's turn to hold the open house, what will you do if the broker regularly says, "Sorry, we're too busy. You'll have to cover it." If you do more work than the other broker, how will you get a larger share of the listing commission? When these common disputes arise, the marketing effort always seems to suffer. Ask the seller why he or she wants a co-listing. Here are some of the most common reasons that sellers give for wishing to co-list: C C They think the property will get more exposure under a co-listing. Explain to them the practical problems that get in the way when two separate offices try to represent the seller at the same time. A related situation occurs when a seller who lives in one geographic area (say, a major city) wants to sell property in another, distant location (for instance, in a small town or rural area). Some sellers want to co-list with brokers from each area, hoping to expose the property to buyers in both localities. In general, it's best for the seller to list with the broker located in the same area as the property. That broker will likely have extensive local knowledge and contacts. If the property is co-listed and does not sell promptly, the on-site broker typically asks, "Why am I doing all the work for half the commission?" It's easy to see how the broker in the best position to market the property can lose enthusiasm for the co-listing. If your seller still prefers to have both brokers involved in the listing, suggest that the seller list with the primary broker located near the property and let that broker arrange a satisfactory co-marketing agreement with the other broker. 1.1

15 C The seller has some kind of previous relationship with the other broker, and the seller does not want to offend him or her by cutting that broker out of the listing. Try to sell the seller on listing with you. Point out any expertise you may have with properties of this type. The other broker can still be involved in selling the property, even without co-listing status. Assure the seller that the other broker can still earn a good commission by finding a buyer for the property. If all else fails, consider offering to pay some agreed upon referral fee to the other broker if the seller lists with you. This is often the best solution. An Agency Issue There is also an agency issue to consider. If you co-list a property, you increase your exposure to a limited dual agency situation. If any of the other representatives in either co-listing company represent a buyer for the property, that company will have to seek the seller's permission to convert to limited dual agency. If the seller refuses, the representative will have to send the buyer to another office. The other co-listing company does not have to sign the limited dual agency agreement because it does not have an agency relationship with that buyer. That company continues to represent only the seller. Corporate Client What If... The Seller or Buyer is a Company? An incorporated company has individual legal status, just like a person. Legally speaking, and subject to terms of incorporation, a company can do whatever a person can. For example, a company may own, buy or sell real estate. While the company itself is the legal entity, real people carry out the actual work of the company. These people are the corporation's representatives. It's critical to distinguish between the company, as a legal individual, and its representatives. Let's say you have incorporated a company that owns the building where you work. You are the only director, officer and shareholder of the company. Whose building is it? It's the company's building; it's NOT yours. The company's property belongs to the corporation, not its representatives. There are several important things to check before you enter a written agreement with a company. This is the case whether it's a listing agreement, a commission agreement, or an exclusive buyer agency agreement. Check the Exact Corporate Name First, make sure you have the company's exact legal name. For example, Smith Holdings Ltd. is NOT the same as Smith Holdings Limited. Most land title registration systems are very fussy about correct legal names. The best way to ensure that you have the correct name for a corporate seller is to do a title search before you write up the listing or commission agreement. Alternatively, do a company search in the appropriate corporate registry, if convenient. If you have to take legal action under the agreement to collect your commission, you need to be sure that your contract is with the corporation that actually owns the property. Otherwise, your claim may not be enforceable against the owner. 1.2

16 Confirm the Signing Authority of the Company's Representative Second, ensure that the company representative with whom you are dealing has appropriate authority to sign an agreement with you on behalf of the company. Generally, directors and officers (e.g., a president or vice-president) have the necessary authority, so it's important to know the person's title. If you suspect that the person signing the agreement is not a director or officer, contrary to what he or she has told you, get a corporate search showing the names of those persons officially recorded as the company's principals. You can order a search from the corporate registry in several ways. C C C C You can use the BC Online service, if your agency subscribes to it, for land title branch searches. Go to any Government Agent's office in the province. Ask a title search service to search the corporate registry for you. You can find these services in your telephone book yellow pages under "Title Service." Your agency's lawyer can order the corporate search. If you have any doubts about the authority of someone who is not a director or officer, ask for written confirmation from the company's president. The Proper Way for the Representative to Sign an Agreement Third, you have to be careful about the way the company's representative signs the agreement. There are several ways a company can properly sign a contract. The usual way is for the authorized person to impress the company's seal on the document accompanied by that person's signature as the individual in whose presence the seal was "affixed" to the document. It's important to have both the seal and the signature of the authorized corporate witness to the "affixing" of the seal. In some jurisdictions, a corporate seal may be required to make any written contract with the company binding. Find out whether this is the case where you practice. In recent years, it has become equally common for an individual to sign on behalf of the company as a "duly authorized" representative. For example, an officer might sign the contract, "Smith Holdings Ltd. per John R. Smith, President." In this case, it's critical the agreement be signed in the company name "per" or "by" an individual whose title is shown beside his or her name. If the agreement in this example is signed simply, "John R. Smith," the company may not be bound by the contract. Deceased Owner What If... The Owner is Deceased and the Estate Has Not Passed Probate or Similar Court Approval for Distribution? Sometimes, the heirs or other representatives of a deceased person want to sell property that is part of the deceased's estate. Generally speaking, the law forbids the deceased's representatives from selling any of the estate pending court approval. If the deceased died with a valid will, the court approval is usually called "probate." If there is no valid will, court approval usually comes in the form of some sort of order for "administration" of the estate. You can accept a listing for estate property so long as the deceased person's legal representative signs the listing agreement. If there is a valid will, the executor (or, in the case of a woman, the executrix) should sign the agreement. 1.3

17 If there is no will, there should be a court-appointed administrator to sign your listing agreement. In either case, you should ask the deceased's representative for proof of his or her authority to list the property before proceeding with the listing. Typically, this is done by requesting a copy of the will submitted for probate, or the court order appointing the estate's administrator. Ask for a letter from the lawyer acting for the estate confirming that the person wishing to sign the listing agreement has appropriate authority. The letter should also confirm that, as far as the lawyer is aware, probate will follow in the ordinary course. Prior to probate being granted, all sales should be written as "subject to probate," usually by a specified date. If there is not an executor or court-appointed administrator, consult your manager, or your firm's lawyer, for advice about how to obtain a legally effective listing agreement in your particular circumstances. Some multiple listing services won't accept listings for estate property which has not passed probate or similar court approval. In these cases, you can list the property on an exclusive basis, rather than a multiple listing. Remember, if there is no executor, any subsequent sale will likely be subject to court approval. Verify whether court approval is necessary. In general, there is no such thing as a "fast" court approval. To allow extra time for any approval process, ask for a lengthy listing period. Where the court must approve any sale, make any contract of purchase and sale subject to the court's approval and allow lots of time to remove that subject clause. What If... The Owner is Deceased and the Estate Has Already Passed Probate or Similar Court Approval for Distribution? To confirm the authority of the person wishing to sign the listing agreement, ask for a copy of the "letters probate" or other court order permitting distribution of the estate. Since the court has already approved distribution, you very likely won't need court approval for any sale. It's a good idea to confirm with your client that this is the case, preferably in writing. What If... Someone Asks Me for an Evaluation Letter? To avoid the cost of a fully-documented appraisal, people will ask licensees for evaluation letters. This frequently happens in disputes involving estates, foreclosures, taxes and matrimonial matters. The evaluation letter is a statement of your opinion about the fair market value of a property. Though the evaluation letter is not a fully documented appraisal, it may carry many of the same liabilities. If you do not "qualify" your letter, someone may suffer a loss by relying on it and sue you. To qualify your letter, follow these steps. When someone asks you for an evaluation letter, find out why they want one. State in your letter that you have prepared your evaluation for that reason. The letter should also state at whose request you have prepared it and stipulate that it may not be used by anyone else without your permission. In addition, the letter should say that this is merely your opinion and must not be used as an appraisal report. The letter should also state what activities you've carried out, including viewing the property and the date of your inspection, and any research to support your opinion. Since your agency may be liable for any errors in the letter, show it to your manager before giving it to the person who requested the letter. 1.4

18 For Sale by Owner (FSBO) What If... The Seller Says He or She's Not Going to List, but Will Pay a Commission? Sometimes representatives find an attractive property that is not yet listed, but which the owner may want to sell. You approach the prospective seller to request a listing. The seller refuses, but says he or she will pay a commission if you find a buyer to purchase the property. It's sad but true that in many cases these verbal agreements aren't worth "the paper they're not written on." You have to get a written agreement to protect yourself. There are several ways to attack this problem. Your approach depends on whether you already have a buyer who may be interested in the property. You Do Not Already Have an Interested Buyer If you do not already know of a buyer who is interested in the property, here are two options: 1. A Commission Agreement Suggest a written commission agreement. The agreement should state that: C C C there is no agency relationship between you and the seller (if applicable); if the property is sold through your efforts to a buyer introduced to the property within the term of the agreement (e.g., 60 to 90 days), the seller will pay your commission, and the amount of commission should be stipulated. Naturally, the longer the term of the agreement, the better; and if you are the effective cause of a sale to a buyer introduced to the property during the term of the agreement, regardless of the date when the sale occurs, you will receive a commission. When explaining the commission agreement to the seller, it is important to point out to him or her that: C C the commission agreement in itself does NOT appoint you as the seller's agent; and the commission agreement does NOT obligate him or her to sell his or her property. It just provides that if the owner does sell through your efforts, he or she will pay you a commission. 2. A Short Term Listing Agreement Alternatively, suggest a standard written exclusive listing agreement for a period that is shorter than usual; e.g., a 72-hour listing. A short-term listing: C C C appoints you as the owner's agent and provides for your commission; does not bind the seller to the inconvenience of a lengthy sales effort, and gives you a chance to safely show the property to an interested buyer; and does not mean that the property must sell within the list period to earn a commission. Though the period is shorter, such agreements should typically provide that the seller must pay you a commission if you are the effective cause of a sale within a set term. 1.5

19 Some realtors think they don't need to make all the usual inquiries about a property that is listed on such a limited basis. They're wrong. Apart from liability to the seller under contract, the listing realtor takes on very high fiduciary duties as the seller's agent. Those duties include the requirement to work with skill and diligence. The listing realtor must properly evaluate the property and advise the seller about setting a list price. He or she must also protect the seller's interests throughout any negotiations, including advising on the terms of any contract of purchase and sale. If the seller won't sign a commission agreement or enter a short-term listing, but appears interested in selling, consider representing any potential buyer as a buyer's agent in circumstances where the buyer contracts to pay your commission. If the seller seems completely averse to selling the property on any reasonable terms, it's probably better to walk away from the situation. Representing the Buyer What If... You Plan to Represent a Buyer Who May Be Interested in the Property? Exclusive Buyer's Agency Agreement and a Separate Commission Agreement with the Seller If you are already working with a buyer who has expressed an interest in the unlisted property, it is in your best interests NOT to list it. Before approaching the owner, have the buyer sign a written exclusive buyer agency agreement with your office. When explaining this type of agreement to the buyer, it is important to point out that, as the buyer's agent: C C you can use your expertise to thoroughly investigate properties and negotiate the very best price for the buyer; and you will also keep his or her negotiating strategy confidential. If the buyer wishes, you can also keep his or her identity or plans for the property confidential. This type of contract typically states that: C C C you are the buyer's exclusive agent; the buyer will pay you a commission, or alternatively a fee, if he or she purchases a property shown to him or her during the term of the agreement; and usually, the contract provides that the buyer's debt to you for your services will be reduced to the extent you can get any commission from the seller. For this reason, tell your buyer that you will approach the seller with a request to sign a written commission agreement. Though you will still represent the buyer, his or her debt to you will be reduced to the degree you can get the seller to pay a commission. Beware! Some licensees mistakenly think that they can create contracts with buyers by giving them the British Columbia Real Estate Association's (BCREA) pamphlet called "Working With A Realtor." This is wrong. It's only an informative brochure and does not create any kind of legally binding contract with the buyer. To ensure that you can collect a commission or fee from the buyer, you must have a written agreement that specifically provides for payment. 1.6

20 Remember, when you represent the buyer, you have to make many of the same types of inquiries for your client (the buyer) that you might otherwise make if you had listed the property. This includes carefully inspecting the property, measuring it if necessary, interviewing the seller or the listing representative about the property's history, and checking the title. After your client, the buyer, signs the exclusive buyer agency agreement, approach the seller. Tell him or her that you represent a buyer who may be interested in purchasing the property, and ask the seller to sign a written commission agreement. This type of agreement is described in a previous section of this chapter. Explain to the seller that this does not make you the seller's agent. Tell the seller that the commission agreement does not obligate him or her to sell the property. It only provides that, if the seller does sell through your efforts, he or she will pay you a commission. Why You Should Follow These Suggestions What if you don't follow these suggestions? If you've introduced a prospective buyer to a property without the protection of a listing agreement, an exclusive buyer agency agreement and/or a commission agreement, good luck! If you don't have an appropriate agreement and the seller sells to the buyer, the seller or buyer can dictate what commission you'll get, if any. Though you can sue to collect compensation, the legal expense and delays involved usually cost more than any commission you might recover. You're in a very vulnerable position where you may be forced, for economic reasons, to settle for a tiny portion of the compensation to which you're entitled. In court, it's up to the judge to decide how much you deserve. Even if you win, you may not get your whole commission. What If... The Seller Says He or She Will Only List or Sign a Commission Agreement After You Bring the Seller an Offer for the Property? You MUST have an appropriate written agreement before you present any offers. You need an agreement for the listing, or one establishing an exclusive buyer agency and/or a commission agreement with the seller. All of these types of agreement are explained in the foregoing section called "What If The Owner Says He or She's Not Going To List, but will Pay a Commission?" What If... The Seller Says, "I'm Going to List with Another Broker, but I'll Wait 24 Hours So You Can Show the Property"? Before you show the property, ensure that you'll be paid if you are the effective cause of a sale. If you don't arrange a proper written agreement before showing the property, you won't have any legally effective way to enforce payment. Though you can sue to collect compensation, the legal expense and delays involved usually exceed anything you might recover. Your legal position is weak and you may have to settle for considerably less than the amount of your usual compensation. Even if you win at trial, there is no guarantee that the judge will order the seller to pay your full commission. The judge may only award a portion of what you normally earn. Representing the Seller What kind of agreement do you need? If you are going to represent the seller, you need a commission agreement or, alternatively, a short-term listing agreement. These agreements are explained in the foregoing section called "What If The Owner Says He or She's Not Going to List, but Will Pay a Commission?" 1.7

21 Warn the seller that if he or she later signs a listing agreement with a different broker, the seller must tell the other broker about your arrangement. The seller must ensure that the later listing agreement excludes any obligation to pay commission if the property is sold to the buyer you have introduced to the seller. Otherwise, the seller might have to pay two commissions: one to you and one to the other broker. Representing the Buyer If you prefer to represent the buyer, you need the prospective buyer to sign an exclusive buyer agency agreement. With this approach, it's also a good idea to get the seller to sign a commission agreement. The effect is that, although you represent the buyer, the seller will pay a commission. To the extent the seller pays any commission, it will reduce the amount the buyer owes you under the exclusive buyer agency agreement. These agreements are also explained in the foregoing section called "What If the Owner Says He or She's Not Going to List, but Will Pay a Commission?" Non-Resident Client What If... The Seller or Buyer Does Not Reside in Your Area, and that Person's Local Representative Says He or She Has the Authority to Sign an Agreement for the Seller or Buyer? Sometimes the seller or buyer resides in another province or country. The seller or buyer may be an individual or a company. His or her local representative may be a relative, a friend, an employee or a professional advisor such as a lawyer or an accountant. The representative tells you that he or she has the seller's or buyer's authority to sign an agreement with you to list the property, pay commission, or to confirm an exclusive buyer agency arrangement. The Client is an Individual Tell the representative of the seller or buyer, as the case may be, that you'll need written confirmation of his or her authority. Ask the party, or his or her representative, to give you a copy of an appropriate Power of Attorney signed by the client and giving the representative the power to do everything necessary to sell or buy the property. You'll almost certainly need such a Power of Attorney later when the seller transfers title to a buyer. Most land title registration systems require Powers of Attorney in every case where someone else is signing documents on the client's behalf to transfer title. Ask for the Power of Attorney now, since you'll need it later, anyway. Beware! Beware that "fill in the blank" Powers of Attorney available at stationery stores are usually not legally sufficient to satisfy the requirements of most land title systems. Typically, these over-the-counter documents are general Powers of Attorney that don't say anything about transferring title to land. Most land title systems require Powers of Attorney that specifically give the representative the power to do everything necessary to transfer title, including the power to sign documents on the client's behalf. 1.8

22 If a Power of Attorney is not immediately available to confirm the representative's authority to sign the agreement, a letter from the party will do in the meantime. The client can send you the letter by fax, if he or she wishes. To ensure that neither you nor the party are victims of fraud, it's best to telephone the client as soon as you receive the letter to confirm its contents. Remember to tell the client about the need for an appropriate Power of Attorney to complete any sale of the property. The Client is a Company If the client is a company, you will likely not need a Power of Attorney for the representative to sign an agreement with you. If the local representative is a director or officer of the corporation, he or she probably has the authority to sign agreements on behalf of the company. You should confirm the director's or officer's authority as suggested in the foregoing section called "What If The Seller or Buyer Is a Company?" Similarly, he or she will likely also have authority to sign documents needed to later transfer title to a buyer. If so, you won't need a Power of Attorney to transfer title in the land title office. On the other hand, if the local corporate representative is not a director or officer, you will need a Power of Attorney from the company to ensure that the person with whom you are dealing has authority to list the corporation's property. In this case, the same general considerations apply to Powers of Attorney as described immediately above. Other Broker Sells Your Buyer What If... You Show the Property Without a Listing or Commission Agreement, and then the Seller Lists with Another Broker Who Sells it to the Buyer You Introduced to the Property? Can you claim against the seller for compensation? Without a written listing or commission agreement, your legal position is extremely weak. What about claiming against the listing broker for all or part of the selling end of the commission? The rules of most real estate associations/boards insist on arbitration against fellow brokers; these rules usually prohibit lawsuits. An arbitration panel would consider many factors. Merely giving out an address to a buyer will not protect you. Generally speaking, the representative who properly documents his or her agency relationship, and also writes the offer, will be the one who gets the commission. Can you sue the buyer for compensation? You can, if you have an appropriate exclusive buyer agency agreement. This is why you must have a written exclusive buyer agency agreement with the buyer before showing an unlisted property, if you don't already have a listing or commission agreement with the seller. For legal advice, consult a lawyer familiar with real estate litigation. For advice about arbitration proceedings, consult someone familiar with arbitration precedents in your real estate association/board. Legal remedies and arbitration awards vary in different jurisdictions. 1.9

23 Referrals What If... I Want to Arrange a Referral? There is no standard formula for setting referral fees. In general, representatives pay other brokers 20 to 25% of the appropriate portion of the licensee's commission. Beware that brokers who are relocation specialists usually expect a referral of 30 to 35% of the relevant commission. Particularly in the United States, there is a large corporate relocation industry in which firms specialize in a broad range of high overhead relocation services such as family counselling. These firms expect higher referral fees when they send you business. Whenever you arrange a referral fee, always confirm, in writing, the agreement to pay the fee and how it's to be calculated. Referral fees may be calculated differently for residential and commercial property. Residential Referrals In the residential case, the referral fee is usually a percentage of the commission involved in what's called "the referred function." For example, you have a house listing and Broker X' refers a buyer to you. You agree to pay the other broker a 25% referral fee in the event of a sale. The buyer buys the house and you earn both ends of the commission. We typically calculate the referral fee as 25% of the selling end of the commission, NOT 25% of the whole commission earned. This is because the purchase of the property is the "referred function." Commercial Referrals By contrast, referral fees in commercial real estate are often based on the whole amount of commission earned. They are not limited to the "referred function." Let's take the last example and suppose it involves your listing for a commercial building, rather than a house. In this case, you would usually calculate the referral fee as 25% of the whole amount of commission earned from both the listing and selling ends of the commission. Disclosure Should you disclose to your client in a transaction that you are paying a referral fee to someone? You are in a fiduciary position to your client, and the courts expect from you the very highest standards of disclosure. Disclose this information to your client. Should you disclose to your client that you are receiving a referral fee in a transaction? Always! As a fiduciary, you can only take a benefit from the transaction with your client's knowledge and consent. To avoid problems later, make sure you confirm this information in writing. 1.10

24 Seller Wants to Talk Directly to Buyer What If... The Seller Says He or She Will Only List or Sign a Commission Agreement After You Allow the Seller to Speak with the Prospective Buyer? Most sales managers will tell you NOT to introduce the parties before obtaining an appropriate written agreement. You need an agreement for the listing or, alternatively, a commission agreement with the seller and/or an exclusive buyer agency agreement. All of these types of agreements are explained in the foregoing section called "What If The Seller Says He or She's Not Going to List, but Will Pay a Commission?" Once you have a written agreement, tell the seller that he or she can certainly speak with a prospective buyer if the owner wishes. Warn the seller that it's not always wise for the parties to speak directly until a sale completes. From your point of view, it's safest for everyone involved if one person, the real estate professional, handles the communications. Given the large legal liabilities for misrepresentation, it's better if the parties communicate through you. That way you always know what information's been given to whom. This also helps avoid situations where you have said one thing to a party, but your client, for example, tells that party something completely different. As well, sellers or buyers can say "the wrong thing," innocently exposing a weakness in their position. Sometimes the parties find they don't like each other. Personality conflicts can block a sale that would otherwise go smoothly if the parties hadn't met. What If... The Seller Says He or She Will Only List or Sign a Commission Agreement after You Tell the Seller the Prospective Buyer's Name? Ask any sales manager and he or she will likely say you should NOT reveal the prospective buyer's name without first having a proper written agreement for the listing or, alternatively, a commission agreement with the seller and/or an exclusive buyer agency agreement. All of these types of agreements are explained in the foregoing section called "What If The Seller Says He or She's Not Going to List, but Will Pay a Commission?" It is useful if you can truthfully tell the seller that company policy requires you to have a written agreement before you reveal the prospective buyer's identity. If the buyer is your client, you must also obtain the buyer's permission before revealing his or her name to the seller. Tenants in Listings What If... There is a Tenant in the Property? If a tenant resides in the property, the law considers it the tenant's home. The Residential Tenancy Act 1 protects tenants in various ways, including ensuring their privacy. The fact that the seller lists the property does not automatically entitle his or her real estate agents to enter and show the tenant's suite. Strictly speaking, the Act requires at least 24 hours' notice before you can enter the suite. Unless the tenant otherwise agrees, entry can only occur between 8 a.m. and 9 p.m. On the other hand, the Act does not require the tenant to clean up the suite before you show it! 1 Residential Tenancy Act, RSBC 1996, c