BRIDGES—FALL 15—REAL ESTATE TRANSACTION
CH. 1
Market Risk
· Temporal risks relate to time…think of fluctuation of interest rates: variable interest rates and higher fixed interest rate shifts the temporal risk on buyer (if economy is bad and interest goes up, B pays more; vice versa
· Informational risks relates to incorrect or misleading information; e.g. credit score not a guarantee that the B will pay up as promised
· Future risk relates to the risks that could happen in the future to the economy, market, buyer, etc.
· Transactional risk relates to various liability that may arise in a transaction
CH. 2
Real Estate Brokers:
· Brokers are information specialist providing market information;
· Brokers are regulated in all 50 states for professional standard
· Brokers w/ full license are qualified to hang out his own shingle while a salesperson is permitted to act as a broker only under the supervision of a fully licensed broker.
· Brokers make money by collecting commissions (usu. 5-7%);
· In sales, broker is usually working for the seller who engages with the broker through a K called listing
Listings:
· Open listing (nonexclusive listing) – broker earns his commission when he procures a ready, willing, and able buyer; S can engage other brokers or sell by himself; “first one to procure a B gets $”
· Exclusive agency – S promises not to engage other broker during the agmt.
· Exclusive right to sell agmt (exclusive listing) – most protective of the broker; S is obliged to pay the broker if he sells the P regardless who procured the buyer
· Net listing – parties set $, and any excess amt becomes the broker's commission
Broker's Duty:
· Governed by law of K and agency; broker is a fiduciary
· 3 primary duties:
o Duty of loyalty – to protect and advance the client's interest
o Duty of disclosure – must keep the client informed of situations
o Duty of confidentiality – must keep confidential of client's private info. (why he's selling, $ situation…)
· Dual agency (representing both B&S) may be permitted if informed and consented by both S&B
o When broker performs a collateral task for one party, he is the party's agent for that task (e.g. broker obtaining finance for buyer); preparing closing doc = to both
· When both a listing broker (who lists the property) and a selling broker (who finds home for B) are involved, the selling broker is usually the subagent of the listing broker who shares the commission
· New alternative: transaction/non-agency brokerage is when broker is being a facilitator, intermediary, or a middleman w/o forming agency relationship; broker is not to advocate for one party over the other
· Breach of duty.
o In Wolk, to prove breach of duty P must show: (1) the existence of a duty, (2) a failure to observe the duty, and (3) an injury resulting from the breach; P signed an inspection waiver w/ knowledge of what the consequences are…broker's knowledge of P's special sensitive condition to mold does not oblige her to override P's waiver.
o CA is more buyer-protective; in Holmes, CT ruled broker breached when he did not notify B of the title defect at the escrow when he knew B was unaware of this 'material' defect.
Broker's Right to Commission:
· Majority (traditional) rule – broker has earned his commission when he produces a ready, willing, and able buyer under the terms acceptable to the owner REGARDLESS of actual sale happening.
o Exception. When the sales falls apart b/c of unsatisfied express condition in the K that voids K
· Minority (emerging) rule – broker must find a ready, willing, and able buyer PLUS the sale must close; if B defaults, no commission earned
· IF B puts deposit down and later defaults, most brokers make it explicit in K that he would take all or part of the commission out of the down payment.
· Broker going after defaulting B for his commission.
o Traditionally, brokers barred from going after B b/c lack of privity
o Modern trend is that brokers contract around so that he can still get his commission from the seller in case of B's breach…
o Minority states allow broker to go after the B under tort theories (b/c of breach, B tortiously interfered and deprived broker from earning his commission) and contract theories (that since broker had performed some services for B, B implied promised he will complete the transaction)
Brokers and Lawyers:
· Brokers cannot practice law. BUT most states now allow brokers to prepare standard-form K of sales which must have been pre-approved by licensed lawyer.
· 3 tests for whether broker crossed the line:
o Contracts v. conveyance test – brokers MAY NOT prepare closing instruments that convey interests in land.
o Simple-complex test – broker allowed to select instrument and help filling in the blanks if T is simple and straightforward; BUT he cannot furnish documents
ntire domain of K law applies to real estate sales. Including but not limited to:
o Adequate consideration; offer; acceptance; unconscionability, anticipatory repudiation; breach; warranty; and damages
Equitable conversion and allocation of risk:
· Doctrine of equitable conversion splits title b/w S and B at the moment the K is signed; the S is still the owner and has legal title, B has equitable title.
o So what happens if fire destroy the house while in executory period (allocation risk factor in the doctrine)?
o The general rule is that at the moment of equitable conversion, B takes on the risks associated w/ anything that happens during the executory period. But with exceptions…
o Exception. Equitable conversion operates ONLY IF the K is specifically enforceable at the time of the loss…
o What if S had insurance and got paid? Some states ignore insurance b/c they regard the insurance is personal b/w S and insurance. Most states though, will allow B to receive insurance credit minus premiums paid by S.
o Equitable conversion doctrine can be contracted around by contractual provisions…thus shifting the risk back to S
Major Contract Conditions:
· Warranties and representations.
o e.g. instead of “the house is free of radon gas problems and located within X School District”, B can demand that “S hereby represents and warrants that house is free of radon gas problems and further warrants that it is located in X School District eligible for all benefits thereof…”; this allows B to have direct cause of action and easier to argue material breach in case above turns out false.
· Contingencies can establish timing for the performances of specific tasks. Economically sensible b/c it can prevent economic loss unless prerequisite performance happens.
o e.g. B must qualify for mortgage loan and provide proof in order to close…S promises to obtain (costly) title certificate upon the B's approval of mortgage.
o Conditions can also specify and attach certain rights and obligations
