Modern Real Estate Transactions Owen Summer 2016
Week 1 basic ideas
Sales agents can’t sue for commissions.
Look for when the broker earns the commission to determine type of listing agreement.
Tail period: when listing agreement ends and broker is still entitled to commission if a sales agreement is signed by someone that the listing agent had contact with during the listing period. Provision in agreement.
If there is no release in listing agreement and sellor signs with another broker in exclusive right to sell, and the property is sold to someone that broker 1 had contact with, sellor might be liable for double commission.
Things to do to protect sellor: Shorten period, defining “contact” to reduce universe of people, have list of contacts agreed to by broker 2 as split commission if they are sold to, give an option to purchase that doesn’t result in an obligation to sell (with buy/sell agreement) and have the purchase occur after the tail period (define what must occur to trigger the commission – could be actual closing).
When broker earns commission
Traditional view
Most states: when broker can prove they produced a ready, willing, able, vendee according to terms in listing agreement (accepting by seller because of the agreement).
Michigan law consistent with this. Broker is procuring cause of purchaser: purchaser learned of the property through the broker, and binding purchase agreement was made.
Client could be obligated to pay before the property is actually sold. (put in listing agreement that commission is earned when sale is consummated) You can contract out of the default rule (must be expressly stated). Unless doing so violates consumer protection statutes.
Change to “commission is earned and payable at the time of closing”
Modern trend
Broker entitled to commission only if the vendee actually completes the purchase.
This is limited to only where the sale isn’t completed due to fault or refusal of vendee to perform.
Quality of subject property
Caveat Emptor “let the buyer beware”
What must the sellor disclose about physical property to buyer (excluding title and interest)
Caveat emptor only applies to patent (obvious) defects
At common law, sellor must disclose known, material, and latent (hidden) defects. Failure, misstatement, concealing, creates liability – affirmative obligation. Sellor held to reasonable person standard of knowing.
Material: affects the value of the property
Latent: things that wouldn’t be known by buyer walking through during inspection.
Michigan statutory disclosures
Only applies to residential
Sellor disclosure form must be filled out
Inspection turns up something that is different than on disclosure, may be terminated based on condition precedent not met.
Advise seller clients to err on side of caution and overdisclose, as it probably won’t deter purchase. This creates a safe harbor as buyer buys with “eyes wide open”
“As is” clauses (As is, where is, with all defects)
Representation that the thing being sold is in the current state with no warranties and with all defects.
“where is” understanding that it is being sold even if the building/improvement in current location may violate some ordinance or may be in something like a flood zone area
Effect of phrase:
Doesn’t remove s
Accompanied by an implied covenant to make a good-faith effort to fulfill the condition
Can be Active or Passive (determines if condition met or waived, and if not met if K is terminated)
Passive (most common) deadline by which condition precedent is to be measured – financing: deadline imposed by sellor to have the financing ready. Provides by implication that condition is met on deadline, so purchaser would need to inform sellor that condition wasn’t met before the deadline. (time is of the essence: if not in K, then deadlines can be adjusted if it is reasonable to do so)
Active: step for sellor to take, and the purchaser responds and says met or unmet. i.e. get government approvals, if not, purchaser may choose to waive or rescind/terminate
Common ones
Financing-default rule is purchase agreement treated as agreement to bring cash to closing.
Write “purchaser’s obligation to pay purchase price is conditioned upon purchaser obtaining available financing”
“available financing” could include usury finance terms.
Option 2 “obtaining financing with terms acceptable to purchaser with purchaser’s sole discretion”
Good b/c gives the purchaser the ability to select which financing terms are best for them
Sellor would push back to set minimum standards for financing. At least replace “sole discretion” with “reasonable”
