BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Received, Read and Approved
Q: I am a buyer agent and recently received a marketing disclosure package from the listing agent prior to my having submitted an offer on the property. The listing agent took the liberty of stamping the documents: “Received, Read and Approved.” I was not sure what that meant, so I asked the listing agent who told me that it was her opinion that if my buyer signed the documents that way, then the buyer could not later cancel the contract based on anything in those documents. If that is so, then that definitely limits my buyer’s investigations into the property condition and other issues that could affect the property. Is the listing agent right?
A: The problem is that there is no clear meaning as to the effect of such language.
The risk for the buyer is that the seller or listing agent may take the position that the buyer knew about, and approved, the condition of the property, or conditions or defects affecting the value or desirability of the property, as set forth in the disclosures and reports which were given to the buyer before the contract was accepted. Presumably, seller may argue, the buyer took those conditions and defects into consideration in the offering price; and if the buyer is going to cancel, it would have to be for reasons OTHER THAN those conditions specified in the disclosures and reports which buyer approved before entering into the contract.
Buyer, on the other hand, might argue that they retain full rights to investigate the property, as is permitted by the contract; and that if buyer’s investigations turn up the same, or nearly the same, conditions, then buyer has a right to cancel nonetheless. Further, the buyer might argue that the purchase agreement calls for an “active” method of contingency removal, and buyer’s right to fully inspect the property is a contingency of the contract which can only be removed in writing by buyer after the contract is ratified.
Of course, if the buyer finds new material conditions or defects, or buyer’s investigation shows that the conditions disclosed are more severe than portrayed in seller’s documents, then buyer clearly would have a right to cancel pursuant to the inspection contingency.
The problem is that, if seller is going to argue that the written approval of the documents limits buyer’s cancellation rights, then buyer is not going to get their deposit back without a court order, or a negotiated settlement. A vast majority of deposit disputes after a cancellation are resolved by informal negotiation; and in many cases, buyer does not get the full deposit back, and may have had to pay an attorney as well.
PRACTICE TIPS:
1. Buyer Agents: If you receive documents from the seller or listing agent prior to ratifying a purchase agreement, it would be best not to have your buyer sign that they have “approved” those documents.
2. Perhaps the listing agent will accept language from your buyer that states: “Receipt Acknowledged _____(date)______.” This is best for the buyer since it merely states that buyer is in receipt of the documents.
3. Other language, such as: “Received and Read,” is still more favorable because buyer is not stating that buyer has approved the document or its language.
4. If it is not possible to have the “approved” verbiage deleted from the documents that your buyer is being asked to sign as having received (perhaps, so as not to jeopardize buyer’s offer in a competitive situation), then counsel your buyer to carefully review all of those documents prior to making a decision on an offering price and terms.
5. If buyer later wants to cancel a contract based on conditions or defects discovered, and seller is alleging that buyer cannot cancel because of language in a document which was “approved” by buyer prior to ratification, then buyer should consult with his/her attorney as to the best course of action.
WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
© Copyright Broker Risk Management 2013 3/08/13