Select Page

Real Estate Transactions
Rutgers University, Camden School of Law
Washburn, Robert M.

Real Estate Transactions
Prof. Washburn
Spring 2010
I. Brokerage Law
a. Brokers –
i. Compensated by commission
ii. 6-7% commission for a single family home
iii. Non residential property – commissions negotiated 10-12%
b. Broker v salesperson –
i. Real estate broker – needs more education – can take money etc.
ii. Sales person receives compensation from the broker
c. Types of brokers
i) listing broker – puts up sign, lists the house, can deal with public, collects all %,
ii) sales agent – drives people around to see houses only act under B’s supervision, splits % with listing B;
iii) problem: sales agent technically has a fiduciary duty to the seller even though he is driving around the buyer and buyer had no one to get advice from under this approach – this system created a conflict of interest as to confidential information.
iv) multiple listing service (mls)
(1) increases market exposure for property.
(2) when an owner of property hires broker to sell, they sign an agreement by which the owner hires the broker, called a “listing agreement”
(3) placing offer on mls may create implied oral agency agreement b/w listing broker and subagent.
d. B’s role
i) B’s authority is limited to show, advertise & market property.
(1) Cannot force sale; but seller may still be liable for commission.
(2) cannot practice law (but can fill the blanks of K
ii) B’s interest: represents both S&P, cares about commission, unlike L, who protects
e. Agency, dual agency & agency disclosure
i) agency generally
(1) parties
(a) broker usually a special agent with limited powers for P or S, brings agreement about
(b) finder: limited role. no agency. brings parties together, but has no part in agreement
(c) escrow agent: limited agent for both parties. no imputation of knowledge.
(2) creation: no writing required. agency relation may be created or implied even if there is no written contract.
(a) agency is as agency does: actions that look like agency may imply one.
(b) payment of compensation not necessarily determinative A rel.
(3) for liability purposes an A’s acts and knowledge are imputed to his P.

ii) agent’s fiduciary duties
(1) fiduciary duty of utmost care, integrity, honesty and loyalty .
(2) required
(a) must get best price and terms for seller
(b) full and complete disclosure of all material facts that would affect the principal’s decision to enter into a transaction.
(3) forbidden
(a) can’t obtain an adverse interest in property
(b) can’t compete w/ seller
(c) can’t act for buyer and seller at the same time w/o disclosure and consent
(d) cannot misrepresent, but can give opinion about prop.
(e) misrepresentations:
(i) express, implied (silence), or nondisclosure
(ii) of a fact material to the transaction.
(iii) such fact is relied on justifiably
1. e.g., no secret profits attained by false, willful, or fraudulent misrepr.
a. e.g,. by entering into K of sale prior or during rel.
b. when B is hired to sell property that S has underpriced and B instead of persuading O to ask for more, buys on his own account or encourages O to enter a “net” price-to-seller contract – one under which O receives a fixed sum and B keeps everything over
c. how to do it:
i. if one is authorized not just to sell but also to resell
ii. B buys for oneself or through straw-man to later resell, nondisclosure OK if one doesn’t break one’s duty.
2. fact v. opinion:
3. knowledge:
a. if B misrepresents, S will not be liable unless S knew; if S gives B false info and B tells P knowing of it, cts. are split.
b. most states B has no duty to inspect to gain knowledge.
iii) conflicts to pay attention to:
(1) adverse interest – B wants a quick sale and might accept the first good offer
f. Brokers Duty to buyer
i) Hale v. Wolfsen (p. 2)
(1) Hale represents the seller – makes misrepresentations to the buyers about the property
(2) evidence – she was talking with buyers broker as well. Don’t need to meet the people to become their agent
(3) Middleman – finder in the transaction: duties are limited by his K to introducing the parties to each other and leaving them to negotiate their own transactions
(4) whenever the acts or omissions of a party cause injury in a real estate transaction there is compelling reason not to find him a middleman
(5) cannot find rescission for buyer unless there was a violation of fiduciary duty owed –
(a) need to find her a subagent (then she has a fiduciary duty)
(6) fraudulent misrepresentation by Hale – knew the history of the property and told then the property had increased in value and misrepresented the rental picture
ii) Keyerleber v. Euclid Congregation of Jehovahs Witnesses (p. 8)
(1) broker misled the nature of the purchaser to the seller – individual man but he was going to sell it to the church and it was going to be shared land with the seller
(2) seller may not be able to keep silent in certain instances; thus broker must disclose material facts as well
(3) broker didn’t want to disclose because would have violated duty to buyer
(4) UNDISCLOSED PRINCIPAL – principals allowed to hire agents to represent them to remain anonymous
(5) broker cannot reveal identity of principal yet cannot lie or misrepresent – say that my client wishes to remain anonymous and seller may choose not to deal with an undisclosed principal
(6) seller not allowed to rescind here –
(a) material misrepresentation – if seller acted immediately they could have rescinded but guilty of laches (sitting on your rights)
(b) seller estopped because offered extra land for parking lot thinking that municipality would never rezone property
(c) church detrimentally relied on seller because of his actions and original delay
iii) Broker’s authority –
(1) cannot sign the K for the seller UNLESS
(a) 1) seller can give specific authorization to sign
(b) 2) brokers sign even though not supposed to, no preauthorization but doctrine of SUBSEQUENT RATIFICATION and therefore ratify the brokers conduct upon full disclosure to seller so that seller can meaningfully ratify
g. listing/brokerage K – determines commission: lists terms, duration, in writing, L drafts
i) reqs:
(1) B must bring parties to an agreement on P’s terms
(2) 3 types of Ks determine when commission earned:
(a) exclusive right to sell
(i) for specified period, even if B is not cause of sale, B is entitled to %.
(ii) most cts require express lang in agr giving exclusive right to sell
(iii) implied that B must use best efforts.
(b) exclusive agency to sell (most common)
(i) O or specific B, but no other agent or B are entitled to %
(ii) if B does not cause sale, not entitled to commission.
(iii) specified period.
(c) open listing
(i) offer to pay % when B procures ready, willing and able P on O’s terms.
(ii) O can employ any # of Bs, each has equal chance to earn %, first B who is procuring cause earns %, but if S reneges with B1, must pay B1 & B2.
(iii) sale by first B or by O terminates agency of others.
(iv) no requirement that B use best efforts.
(d) net listing – B must make deal that will net x dollars.
(e) option listing – B has a right as principal to buy property as a last resort.
ii) problems with listing K (avoiding paying commission) – p. 19
(1) P’s breach: if breach occurs, B must be paid %.
(2) S’s breach:
(a) if S rejects P procured by B and then sells after listing expires on same and similar terms, B is usually owed %.
(b) if B finds P and S agrees with B to waits for listing period to expire, then sells, B is usually owed %.
(c) factors:
(i) whether S knew that P learned of the property through P’s efforts.
(ii) length of time after the listing expiration before the sales agr is entered
(iii) how much parties haggled to change terms on which prop was 1st offered
1. easy cases for B to win where listing or first offer price exceed the final sales price by the amount of the commission
2. where subsequent negotiations result in a higher price than that which P first offered, this is a factor mitigating against B’s recovery
(3) protections: insert clause in K to give B % where P with whom B negotiated buys within an extension period
(4) remedies: If a written K existed, broker has claim of tortuous interference w/ K, if not writing may sue under the theory of unlawful interference w/ a bus

ent – the buyer is not ready to sign the K.
viii. affirmative warranties – statements of supposedly existing facts, on the truth of which the insurers duties depend
ix. promissory warranties – agreements that the insurers duties shall be conditional on the future existence or happening of certain facts
x. here – promissory warranty and seller did not interfere with whether it would be met.
xi. No commission under NJ or Mass – K subject to condition – no K until condition met.
II. Real Estate Sale Contracts
a) Terms of real estate contracts:
i) essentials terms of K (in writing) minimum requirements are the k must:
(1) identify property
(2) identify parties – clearly, state full names, marital status, state legal status, everyone who has an interest in the property be identified in the k as a seller and sign as a seller
(3) state purchase price
(4) signed by party to be charged
ii) other typical clauses that you see in real estate k:
(1) legal description – generally w/ single family house the street address is sufficient; for any other type of property do not use street address, use a tax lot number or full legal description including distances, measurements; generally does not have to be as detailed as the legal description in a deed
(2) sales price – including how it is to be paid, when and how much
(3) S’s title obligation: what kind of title is going to be give, are there any limitations, what is the b willing to accept
(a) administrative provision about how you will deal w/ title
(b) general rule: P is entitled to a title that is free and clear of any restrictions or encumbrances other than one the b is willing to accept
(4) pro rate different items: R.E. taxes are usually paid to the date of closing, insurance premiums, sewer/utilities adjusted, transfer tax – K should say who pays what
(5) if there is an existing M:
(a) K should require S to pay off M and satisfy it at closing
(b) if P buys subject to S’s mortgage, P buys w/ S’s mortgage still on it, P gets credit
(6) survey: whether there will be a new survey, who pays; make sure it matches old
(7) deed: specify what kind of deed it is and if special warranties are granted in the deed
(8) specify risks: put clauses in as to who pays if prop damaged or destroyed
(a) who has obligation to repair
(b) when it will be repaired by
(9) fixtures v. chattels: what is included in sale and what is not
(a) law is clear: when you buy property the fixtures are included, chattel is not
(b) clients not always clear on it
(10)date of closing: must be specified
(a) “time is of the essence clause”:
(i) the closing shall occur on x date and time is of the essence (meaning neither party is entitled to an adjournment of the closing, w/o it, courts will assume either party has reasonable time to extend closing)
(ii) escrow will not be extended if this clause is included
(11)possession: indicate who has possession; rule:
(a) rule: S keeps possession, P not entitled until s gives deed/title
(b) exception: where installment K is involved, possession probably to P.
(12)remedy provision: which party can declare default, what will happen to down payment, what kind of liquidated damages are appropriated
(13)brokerage provision: acknowledge who B was and who will pay %
(14)signature of parties:
(a) everyone must sign who has an interest