Let The Seller Beware? Tips For Home Sellers

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Question: Is there a Latin phrase for “seller beware?” We focus on the Buyer because it is assumed that the typical buyer needs protection. But the same may be true for the Seller. I recently was involved in a property transaction as a Seller, and found many objectionable clauses in the sales contract that was presented to me.

Answer: I suspect that somewhere in the Latin language there is such a concept, but in my many years as an attorney, I have only heard of “caveat emptor” — let the Buyer beware.

However, some of the clauses you have highlighted are, in my opinion, questionable. You should have had your attorney review the entire sales contract before it was signed.

Let’s look at some of these clauses:

The real estate commission shall be earned and due and payable, in full, to Buyer’s agent upon the execution of the Contract.

This means that once there is a real estate contract between Buyer and Seller, you — as Seller — are obligated to pay a commission to the Broker, even though that Broker is acting as a Buyer’s agent.

If you sign the contract which contains this language, you will be obligated to pay the commission, regardless of whether the Buyer actually goes to settlement. For example, if there is a financing contingency in the sales contract, and the Buyer cannot get the necessary financing (and thus cannot go to closing) you still owe the commission. If, for any reason, the Buyer does not go to settlement — whether there is good cause or not — a commission is earned.

My suggestion: Every Seller should include language in the listing agreement (and in the sales contract itself) that the commission will not be earned until and unless the Buyer actually goes to settlement.

The parties agree to mediate any disputes arising out of the Sales Contract before they can file a lawsuit.

This is becoming a standard clause in many areas, and I have mixed reactions about this concept. Keep in mind that mediation is different from arbitration. With arbitration, it is generally binding on the parties. Whatever decision the arbitrator makes must be accepted and honored. Our courts strongly encourage people to try to settle their disputes out of court. It is called “Alternative Dispute Resolution” (ADR). In fact, the laws in most states do not permit a judge to overrule the decision of an arbitrator, unless the losing party can show that the arbitrator was capricious or way out of line. This is very difficult to prove.

Mediation, on the other hand, is nonbinding. It provides an opportunity for parties in a dispute to raise their concerns with a neutral observer, and have the benefit of that observer’s views on the issue. Obviously, much depends on the ability, experience and demeanor of the mediator. My experience is that mediation has been successful in a large number of disputes, and — so long as it is nonbinding (and does not preclude anyone from going to a Court of Law) I do not have any real objections to this concept.

However, the parties to a dispute should be able to decide who the mediator will be. I do object to clauses which specifically mandate who the mediator will be — or where it will take place.

Buyer and Seller agree to indemnify and hold real estate broker harmless from all costs, damages, expenses, and attorneys fees incurred by the Broker if the Broker is brought into any litigation unless the litigation results in a judgment against Broker.

This is one-sided. If a Buyer or Seller files a lawsuit against the real estate broker, and loses, the Plaintiff has to pay all of the broker’s out of pocket costs. On the other hand, should the Plaintiff be successful, the Broker has no obligation to the Plaintiff — other than any court judgment which the Plaintiff may obtain against that Broker.

Here in the United States, we follow what is known as the “American Rule on Legal Fees.” Basically, each side pays his/her own attorney (and court costs), regardless of who wins the case. If, on the other hand, there is language in a contract (or in a statute) that provides reasonable attorney fees to the prevailing party (such as in many consumer protection laws), then the losing party will have to pay the winning party’s attorneys fees.

It is interesting to note that in the contract you asked me to review, if there is a lawsuit between Buyer and Seller, the prevailing party can recover attorneys fees. However, if a real estate Broker is involved, that is not the case.

It should be noted that you were not presented the standard form contract which is in general use here in the Washington metropolitan area. That contract is called “the Regional Sales Contract.” It can be used in all surrounding jurisdictions. However, because the laws in different jurisdictions vary, there is also a “jurisdictional addendum” which is added to the contract, so as to comply with local laws.

My strong suggestion: Whether you are a Seller or a Buyer, you should make sure that the form contract you are asked to sign is one which is used — and approved — by the real estate industry. Additionally, keep in mind that any form contract is only the beginning; you have the right to amend that document, and cross off any objectionable items.

You should also have your attorney review all contracts before they are signed.

 

Written by Benny L. Kass

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Author: Alicia Holman

Experience and passion are just two words that best describe Alicia Holman. As Designated Broker, Alicia is passionate about helping people begin to create wealth through making smart real estate choices. With an extensive background in customer service, her number one priority is the relationships she builds with each and every client. Alicia views helping people buy and sell Arizona real estate as more than a career. It's also her opportunity to make a positive impact in people's lives. Alicia understands the need for distinctive real estate representation. Today, Alicia couldn't ask for a better job. "It’s a great feeling to live and work in an area with so many real estate opportunities. I’ve lived in Arizona for more than 40 years and every day I gain a greater appreciation for all that this area has to offer." As a fulltime broker, Alicia’s approach to real estate is focused around getting to know her clients as real people and taking care of them from beginning to end. Her professional, straightforward approach to real estate has empowered her to listen carefully with interest and understanding to each specific need of her client, in order to assure that he or she is satisfied whether buying or selling.

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