BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Selling Off-Market Properties
Q: I have a buyer who has been looking for a home and there is little inventory, so I started canvassing the neighborhood in which they are interested in living. I met a lovely, elderly man who said he was thinking of selling to move to a senior residence facility but dreaded going through the long selling process. I said I had a buyer looking for a home such as his and he told me that he would entertain an offer for the right price, and to just “Bring me an offer.” The seller’s expected purchase price is in the range that my buyer is willing to pay. I told him that I would expect to be paid a commission, and seller agreed to pay a commission that was acceptable to me. But, he said that he didn’t want to sign a listing agreement. Is there a form I can use? Or am I better off having my buyer just pay me a commission? Also, is there anything I should be careful of in this situation?
A: If you wanted to have your buyer pay your commission, your buyer should sign a buyer representation agreement, either the Buyer Representation Exclusive or Buyer Representation Non-Exclusive (zipForms forms BRE and BRNE, respectively).
For more information on Buyer Representation Agreements, see Weekly
Practice Tip entitled “Buyer Broker Agreements.”
But California Agency law is clear that the party who pays the broker’s compensation does not automatically determine agency representation. For example, a broker could represent one party while the other party actually pays the broker’s commission.
But, if the seller is willing to pay your commission, the best form for this is the CAR “Single Party Compensation Agreement” (zipForms form SP).
Remember: The seller must sign an Agency Disclosure form prior to signing the SP form.
This SP form can also be used when you are working with a buyer on a For Sale by Owner, or FSBO. However, the SP form should NOT be used in other situations, such as where you do not have a buyer who is interested in offering on a property. For those situations use a listing agreement.
To keep the buyer’s name confidential until the SP Agreement is signed (to prevent a seller from not signing the SP Agreement and calling the buyer directly), in the first paragraph insert the commission amount, and in the line for the buyer’s name, simply insert: “Buyer to be identified in a written offer no later than _________, 201_”.
Here are some things to think about and consider when working with an off-market seller:
1. DECIDE WHOM YOU ARE GOING TO REPRESENT. Presumably, since you have a prospective buyer, you won’t represent seller only. You must decide whether you are going to be representing the buyer only (with whom you presumably have been working and have already given an Agency Disclosure form), or become a dual agent representing both parties. That designated agency relationship is then specified in paragraph 2.B of form SP. Here are some considerations:
A. Buyer-Only Agent: You can, of course, represent your buyer only. This is true whether buyer or seller pays the commission. Also, to make clear that you are not representing seller, have the seller sign a Seller Non-Agency Agreement (zipForms form SNA) which makes it clear that you are not representing seller.
Throughout an escrow representing only the buyer can have its challenges, particularly if the seller is unsophisticated and needs forms and/or guidance. If you provide either, you risk crossing into the area of undisclosed dual agency. If you find that you must give a form to seller (a Counter-Offer or TDS, for example), do so with a cover letter/email reminding seller that you are representing buyer only, such as:
“You have told me that you do not have a _______________ form. I am enclosing that form for your use. I am providing this form to you for the benefit of my buyer so that the transaction to proceed. Please remember that I do not represent you and cannot give you advice on completing these forms or any other matters related to the transaction. If you have questions, you should contact your own resources such as an attorney or accountant.”
B. Dual Agent: If the seller is paying a commission, some sellers will want you to also represent them, which would make you a dual agent. Be sure to confirm this in writing with both your buyer and seller since, as a dual agent, you will have loyalties to both, and will have to remain neutral in any conflict situation.
During escrow as a disclosed dual agent, you can provide forms for both sides and counsel them equally. However, do not forget that you owe the same duties to seller, whom you may have just met, as you do to your buyer – whom you may have known for a long time.
See Weekly Practice Tip: “Dual Agency Issues”
2. PREPARE AND KEEP A DETAILED COMPARABLE SALES REPORT. Whenever you are selling a property that has not been fully exposed to the market, it is not uncommon for sellers later to claim (after talking to other agents or family members) that they sold the property too cheap and/or that you were not properly looking out for their interests since your loyalty was to the buyer. So, be prepared with a comparable sales report to demonstrate when asked that the sale price was within the range of comparable sales in the area.
3. BE CAUTIOUS WHEN DEALING WITH CERTAIN SELLERS:
A. Elderly Sellers and/or Mental Capacity Issues: If the seller in question is elderly or is demonstrating possible mental incapacity, that seller, or likely a family member, will possibly allege that you fast-talked the seller into selling and took advantage of him/her selling at too low a price. Try to engage family members in the sale if possible. Discuss the situation with your manager or broker.
For a discussion of these issues, see Weekly Practice Tip: “Elder Abuse”
B. Language Issues: If you are dealing with a seller who speaks a language different from your language(s) and there are communication issues, see if there is an adult family member who can assist the seller in understanding the documents and processes. Again consult with your manage before proceeding to assure there is no claim later by seller or their family that they did not understand what was happening.
C. Financially Distressed Sellers: If you encounter a seller with financial problems and perhaps has a foreclosure pending, you must proceed also with caution. Sellers in this situation are often desperate, vulnerable and susceptible to scams by those who would take advantage of them. There are specific laws which must be followed:
1) Home Equity Sales Act (“HESA”): A Home Equity Sales Act (“HESA”) transaction is one where:
1. The property is a 1-4 unit residence,
2. The property is the principal residence of the seller,
3. The property has a Notice of Default recorded against it, and
4. The buyer is an investor (also known as an “equity buyer”).
If all four of the above answers are “Yes,” then this is a HESA transaction and there are specific forms which must be used, and specific disclosures given from the buyer to the seller.
For more information, see Weekly Practice Tip “HESA Transactions”
2) Foreclosure Consultants: California has very strict laws for foreclosure consultants who offer to perform certain foreclosure-related services. The penalties for violating these laws can be severe.
For more information, see CAR Legal Memo “Foreclosure Scams and the Foreclosure Consultant Law” at:
http://www.car.org/legal/foreclosure-short-sale-folder/foreclosure-scams/
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.