400-plus witness "Battle of Barristers" at annual fundraiser
Multiple offers, low appraisals and referral fees were among the "hot" legal issues on the docket for the annual "Battle of the Barristers" program presented by Seattle King County REALTORS®.
Billed as "the most informative and entertaining real estate legal event of the year," the program drew a record-setting 400-plus Realtors and other industry professionals.
The fast-paced clock-hour event also served as a fundraiser for the Seattle First Citizen Scholarship Foundation. Following the event, SKCR staff said the event generated more than $14,000 for scholarships.
Five real estate attorneys, including moderator Mike Spence, dispensed advice and raised caution flags around seven topics during the lively three-hour course. The attorneys, who are all licensed instructors, donated their time to support the Foundation. The barristers included:
- Annie Fitzsimmons Washington REALTOR® Hotline lawyer;
- Lars Neste, shareholder and real estate law specialist at Demco Law Firm, P.S. in Seattle;
- Chris Osborn, from Foster Pepper, PLLC in Seattle, who also serves as general counsel for Northwest Multiple Listing Service; and
- Doug Tingvall, whose law practice is in Newcastle.
To open the program, moderator Spence, a partner at Helsell Fetterman LLP in Seattle, invited the attorneys to discuss multiple offer situations, including what to do and what not to do when presenting or receiving multiple offers on behalf of their clients.
Fitzsimmons recounted a hotline question from a broker whose client's dollar offer was the highest, but the seller declined to accept it. "Nothing matters except the offer a seller accepts, so long as it's not in violation of the Fair Housing Act," stated Fitzsimmons. In this case, the listing had specific instructions on structuring the offer, and indeed, the most competently written offer "won the day."
Neste also emphasized "it's not always just about the dollars," noting the preponderance of "love letters" that are accompanying many offers during bidding competitions. Brokers should prepare sellers to expect such pleas and advise them on the importance of considering them objectively. "There is an uptick of fair housing complaints in a hot market," he cautioned.
Osborn also said brokers need to help sellers make decisions. "The role of the listing broker has become more complicated," he commented.
Tingvall agreed, adding, "The broker's job is to outline the alternatives and options to help a seller make an informed decision, so long as the choice is not illegal or unethical."
The attorneys also discussed situations when brokers witness a prohibited thought process. One audience member suggested putting all offers on a spreadsheet, without displaying any personal or demographic information on the potential purchasers.
Osborn reminded audience members to have a written agreement if any information, such as the actual "love letters," will be withheld from a client. Tingvall emphasized brokers have a non-waivable duty to present all offers. "Create a record," he stated. Neste also said withholding information from a client is "generally not a good idea. Your responsibility is to make sure your client doesn't violate the law."
Neste also said brokers who have concerns have a duty to warn and inform clients of laws to minimize or eliminate any risk of harming a protected class. Fitzsimmons added a broker who feels compelled to terminate a relationship because of a seller's acts of discrimination may be able to file a claim for damages.
Attorneys then turned their attention to inspections, Forms 35 and 35R, and current practices of having buyers waive an inspection or use a pre-inspection (such as products like Homevibe), including ones arranged by sellers. "This is being done as a favor to save the buyers money as well as to protect the house from having multiple inspections in a matter of a few days," Spence explained.
Tingvall said buyers shouldn't rely on inspections by a person they didn't hire. Osborn called such pre-inspections "stupid." Neste said anything to restrict information is a problem. "A seller-provided inspection is not a substitute for buyers conducting their own."
Even though inspectors are now regulated, their experience, skills, insurance coverage, and level of service can vary. "If you have a good inspector, treat him or her well," said Spence.
Fitzsimmons outlined various risks of waiving inspections. "What history has told us about the danger of buyer fervor is you put yourself in danger." She recommended keeping a record of any concessions (including oral understandings) in the transaction file.
Tingvall cited a case he defended involving a broker who failed to emphasize the importance of getting a professional inspection done, and was found liable for fraudulent concealment. "It's rare that a buyer sues just a seller - they usually include the brokers as well," he remarked.
The third topic of discussion involved financing problems and appraisals that are significantly less than the sales price - situations many brokers in attendance reported experiencing.
Tingvall said procedures should be pre-agreed if a financing or appraisal addendum will be used. One important consideration is whether or not the buyer has the ability to pay the excess amount.
Fitzsimmons urged listing brokers who learn of a buyer's low appraisal to generate Form 22A (Financing Addendum). Brokers should empower clients to make decisions regarding rights to terminate.
If a sales price exceeds the value established by an appraisal, it is not solely the responsibility of sellers to absorb the cost, the attorneys said. Listing brokers need to send notices too, "Brokers can control the timing so it doesn't tilt in favor of one party," they suggested.
Bringing differences to the closing table or changing provisions on pre-printed forms, such as crossing out provision 7 (Appraisal Less than Sales Price) is risky. Altering a form, even in the spirit of "keeping the dream alive," could be considered the unauthorized practice of law. Options must be discussed; not doing so is negligent, Neste suggested.
Tingvall also cautioned against modifying an existing contract and the importance of consideration whenever a concession is sought.
Topic No. 4 focused on the Jackowski v. Borchelt case, which clarifies a broker's affirmative duty to advise their clients to "seek expert advice on matters relating to the transaction that are beyond their expertise."
"Brokers have a responsibility to figure out when you're supposed to refer to an expert," Neste proclaimed.
Osborn said it can be challenging in this fast-paced market to hire qualified experts, adding the duty must be put into context. "Some responsibility has shifted to buyers," he commented, using inspections as an example. "Buyers need to be more careful in inspections to determine the full scope of risks." Osborn also noted not all lawyers are well-versed in residential real estate.
In response to a question about the need for a particular provision on a statewide form, both Tingvall and Osborn noted differences between Seattle and Spokane. "East of the mountains, that provision is used and relevant," Osborn explained.
Another legal case, Cultum v. Heritage House, a 31-year old decision, was described as "the latest significant case on when a real estate broker engages in the unauthorized practice of law." That case held that the filling out of forms is "incidental" to the practice of real estate and allows real estate licensees to fill out pre-printed forms that have been approved by attorneys.
Commenting on that case, Tingvall reminded the audience that intentional acts, if found liable, won't have E&O coverage.
The final two topics addressed (1) seller disclosure and the buyer's duty to investigate, and (2) referral fees/affiliated business arrangement disclosures.
As a result of a recent case in Island County and the adoption of RCW 64.06.080 ("Seller and landlord disclosure requirement-Electronic notice by city or county"), efforts have been made to uncover and compile disclosure forms being used around the state, mostly pertaining to disclosures required by local county ordinances.
On March 29, Northwest MLS published several new local disclosure forms and revisions to two existing local forms. In a notice on its website, the MLS said it became aware of the local disclosure requirements after the adoption of RCW 64.06.080, requiring municipalities to post disclosure requirements on the MRSC (Municipal Research and Services Center) website.
With regard to referral fees and affiliated business arrangements, provisions are contained in both the Revised Code of Washington and the Washington Administrative Code. Those Codes also define what an "affiliated business arrangement is" and have guidelines for disclosures.
Brokers may advertise payment of a referral fee or compensation to a party in the transaction (considered a reduction of fees) so long as an announcement doesn't state the payment is contingent on closing or other successful outcome.
Tingvall noted state law prohibits kickbacks and rebates without disclosure. Title companies are more closely watched than some other service providers. Defraying expenses and sharing expenses for joint promotions are not prohibited, but must conform with regulations.
Spence said "thanking someone financially after the fact" is acceptable - but not in advance.
Neste reminded the audience the Consumer Financial Protection Bureau is "now on the scene" and very aggressive in levying big fines. "There's a new sheriff in town," he quipped.
Answering a question about payment of referral fees to an international intermediary, the barristers said doing so depends on whether there is a licensing requirement in that party's home jurisdiction. "You should research and show due diligence before paying a referral fee," advised Osborn.