How to insure that a buyer doesn't pull out on a whim? (RE market, disclosure)

[RE Skeptic]

Originally Posted by Captain Bill

The clause is necessary in order to protect the agent if it needs to be enforced. That does not mean it has to be enforced.

Everything in a contract is there to protect one party or another. The notion that these zingers in RE contracts will not be enforced is absurd.

Sellers may back out of a transaction for many reasons. It could be that a personal situation has occurred that causes them to back out for awhile. It could be that the market has changed rapidly and they feel they can get a lot more money in a few months, so they make a business decision of taking risk of the buyer suing for specific performance.

In either of these hypothetical cases, the agent would be a fool to press for the commission because he would lose the seller as a client forever and have lot of bad press. The seller would bad mouth the agent to all his friends and family and anyone else who would listen. The seller is still going to sell the home and the agent will remain his agent. It will cost the agent a little more work, but that doesn't hurt. S/he will gain much more in good PR by helping the seller achieve his goals.

Translation: Seller backs out, listing agent would be a fool to go after commission.

If, on the other hand, after all material contingencies are fulfilled, a seller were to say that he has changed his mind about selling, and states that he has decided to stay in the house forever, then the agent should, and probably would, go after his commission, because it has been earned.

Translation: Seller backs out, listing agent would be a fool to NOT go after commission.

You seem conflicted on this.

One other point: The listing contract (in AZ) states how much the buyers agent is going to be paid. Since the buyers agent will not be paid if there is no Close of Escrow, then in this event the seller will not owe the buyer a commission. Therefore, the listing agent would only be owed the listing agents portion of the fee.

You’re kidding right?
As you know and have espoused repeatedly, the AZ listing contract specifies an amount that the seller owes the listing agent. If a seller breaches they owe this amount, regardless of whether there is a buyer agent or not. Do you dispute this?

You, and other agents, have ranted and raved on numerous threads about the contract b/t a seller and listing agent being independent of a buyer agent. If buyer comes in without a BA the seller still owes the listing agent the full commission (approx 6%). Most sellers and buyers dont realize this (another dirty little secret of the listing agreement). There are numerous threads related to unrepresented buyers who feel that they deserve a discount because the seller will not have to pay a buyers agent. Almost universally, the agents on CD will argue that they have a right to this extra 3% which would have otherwise gone to a BA.

So after all this debate, I can’t believe that you would argue that a seller would only owe the “listing” side (3%) of the commission if they defaulted.

[yousah]

Qualifying the buyer goes a long way towards preventing this. If you are a seller then have your agent get information about the motivation of the buyer. Most agents seldom get enough detail in this area. There's a big difference between a transferee coming in to town for a new job and who has sold their last house and needs housing as compared to someone local who has some other options if they decide to back out.

The earnest money is the biggest factor here and should be high enough to compensate the seller for any losses. The seller can sue the buyer for it and that will prevent the buyer from qualifying for a mortgage with that litgation pending. So if the buyer really needs a new house then they'll be forced to work out the earnest money situation. That all comes back to finding out about the buyer's motivation and perhaps making sure that if there is a real estate on the other side that they're competent and less likely to work with losers for buyers.

[Captain Bill]

Originally Posted by Captain Bill.....One other point:[/B

The listing contract (in AZ) states how much the buyers agent is going to be paid. Since the buyers agent will not be paid if there is no Close of Escrow, then in this event the seller will not owe the buyer a commission. Therefore, the listing agent would only be owed the listing agents portion of the fee.

quote=RE Skeptic....You’re kidding right?
As you know and have espoused repeatedly, the AZ listing contract specifies an amount that the seller owes the listing agent. If a seller breaches they owe this amount, regardless of whether there is a buyer agent or not. Do you dispute this?

I wouldn't kid you.

The standard AZ listing contract specifies how much commission is being paid to the listing agent, and how much commission is being paid to the buyers agent.

In the AZ contract, if there is no sale (close of escrow) the buyers agent does not get paid. Since there is a specified amount in the listing agreement for the buyer, the listing agent would not get that portion.

I do not speak to other states or other agents contracts because they are all different.

Dual Agency:
In addition I have always stated a commission in the event that the buyer, seller, and myself agree to a dual agency situation.

Unrepresented Buyer:
I have also begun to put in my listing agreement a fee in the event of an unrepresented buyer, and have the discussion of what tactics some unrepresented buyers may attempt to use. Then my seller is prepared in case one of the tactics are attempted.

AZ Listing Contract Commission Sections:

COMMISSIONS. If Broker produces a ready, willing and able purchaser or tenant in accordance with this Listing Contract, or if a sale, rental, option or exchange of the Premises is made by Owner or through any other broker, or otherwise, during the exclusive term of this Listing Contract, Owner agrees to pay Broker a commission of X %.

COOPERATION WITH AND COMPENSATION TO OTHER BROKERS. With regard to this Listing Contract, Broker intends to cooperate with all other brokers except when not in Owner’s best interest
and, in the case of a purchase, to offer compensation in the amount of x% of the gross purchase price

In the above sections, the amount that is being paid to the listing agent is specified, and the amount being paid to the buyers broker is specified. As an example it could be 2% and 2% or 3% and 3% or 4% and 3% or 4% and 1%, or any other combination of negotiated commissions, but it is spelled out as to what amount each broker, listing and buyer will receive.

And here are Additional Clauses that I have in my contracts:

• Owner may cancel the agreement in writing if the listing agent is not performing his duties as promised.
• Owner authorizes listing agent to "shop" offers by disclosing to other buyers the amount and terms of another buyers offer, at the listing agents discretion, provided the agent determines that shopping the offer is in the best interest of the Owner.
• If listing agent acts as a Dual Agent, the listing agent fee is x%
• If there is an unrepresented buyer, the listing agent fee is x%

REskeptic....So after all this debate, I can’t believe that you would argue that a seller would only owe the “listing” side (3%) of the commission if they defaulted..

Believe what you wish. Facts are Facts; and Contracts are Contracts. Our AZ contract spells out what the listing agent gets paid; and what the buyers agent gets paid.

[Captain Bill]

Originally Posted by yousah

Qualifying the buyer goes a long way towards preventing this. If you are a seller then have your agent get information about the motivation of the buyer. Most agents seldom get enough detail in this area. There's a big difference between a transferee coming in to town for a new job and who has sold their last house and needs housing as compared to someone local who has some other options if they decide to back out.

The earnest money is the biggest factor here and should be high enough to compensate the seller for any losses. The seller can sue the buyer for it and that will prevent the buyer from qualifying for a mortgage with that litgation pending. So if the buyer really needs a new house then they'll be forced to work out the earnest money situation. That all comes back to finding out about the buyer's motivation and perhaps making sure that if there is a real estate on the other side that they're competent and less likely to work with losers for buyers.

A listing agent can only get a certain amount of information from the buyers agent. I try to get as much information as I can, in order to finalize my negotiation strategy; and the smart buyers agent is not going to give out any more information that necessary, in order to protect her buyer.

We must remember that there are two sides to every transaction, and each agent is looking for their own client.

In AZ we require that all buyers have a pre-qualification form signed by the lender and the buyer. And we can ask certain questions of the lender, but the lender cannot disclose confidential financial information.

The typical earnest money in this area is 1-2%. It is difficult to asses a sellers loss and that is why the earnest money is usually used as an amount to compensate the seller.

[louise50]

Luv4horses... You are surely right if you live in NC. I cannot understand why the Brokers in NC didn't get together and fight to keep this law from going into effect. The new offer to purchase contracts are sooooooo biased toward the buyer. Ridiculous! As a former RE salesperson( BEFORE everyone in RE were called "brokers", I never dreamed we would see contracts such as these. What happened to "caveat emptor"? I recently read an Offer to Purchase and was astounded that what used to be 1- 2 pages was now 20-21 pages. Everything was protecting the Buyer and nothing protecting the seller. In my town we have been told of Buyers walking at the last minute for no reason. Does anyone take in to consideration that the Seller has allot more to lose than the buyer? Think of the grief of changing addresses and services alone and then having to change them back. I think the BUYER should have allot more to lose if they walk. Buyers have been programmed to "take all you can get" since the downturn in the market and from what I hear, they are doing just that. One would think that the Brokers would be working harder to "close" instead of encouraging such behavior on the buyer's part. One wonders what the motive was for adding such clauses in the Offer to Purchase? Could it possibly mean more lawsuits, thus more attorney fees? Am I correct in understanding that it was the RE Commission and the attorneys that came up with this new contract with the due diligence clause?

[MikeJaquish]

Originally Posted by louise50

Luv4horses... You are surely right if you live in NC. I cannot understand why the Brokers in NC didn't get together and fight to keep this law from going into effect. The new offer to purchase contracts are sooooooo biased toward the buyer. Ridiculous! As a former RE salesperson( BEFORE everyone in RE were called "brokers", I never dreamed we would see contracts such as these. What happened to "caveat emptor"? I recently read an Offer to Purchase and was astounded that what used to be 1- 2 pages was now 20-21 pages. Everything was protecting the Buyer and nothing protecting the seller. In my town we have been told of Buyers walking at the last minute for no reason. Does anyone take in to consideration that the Seller has allot more to lose than the buyer? Think of the grief of changing addresses and services alone and then having to change them back. I think the BUYER should have allot more to lose if they walk. Buyers have been programmed to "take all you can get" since the downturn in the market and from what I hear, they are doing just that. One would think that the Brokers would be working harder to "close" instead of encouraging such behavior on the buyer's part. One wonders what the motive was for adding such clauses in the Offer to Purchase? Could it possibly mean more lawsuits, thus more attorney fees? Am I correct in understanding that it was the RE Commission and the attorneys that came up with this new contract with the due diligence clause?

NCAR Forms committee tried for years to get a Due Diligence function in the contract. Finally hammered out a form that simplifies the process and got the Bar Association and NCREC to go along.
Sellers have been slow to respond, but some are catching on.

The Offer to Purchase and Contract is 10 Pages. It was 4 pages in 2002 and 5 pages in 2004. As it was simplified last year, additional instructions to consumers were added, making it longer. Those instructions were added because too many agents do not read and understand the forms, and the Bar Association and the NC REC wanted to help consumers with instructions.

Buyers agents pushing buyers to close when they don't want to? Agents who do that look like they are only looking for Pay day.

[RE Skeptic]

Originally Posted by Captain Bill

I wouldn't kid you.

The standard AZ listing contract specifies how much commission is being paid to the listing agent, and how much commission is being paid to the buyers agent.

COMMISSIONS. If Broker produces a ready, willing and able purchaser or tenant in accordance with this Listing Contract, or if a sale, rental, option or exchange of the Premises is made by Owner or through any other broker, or otherwise, during the exclusive term of this Listing Contract, Owner agrees to pay Broker a commission of X %.

COOPERATION WITH AND COMPENSATION TO OTHER BROKERS. With regard to this Listing Contract, Broker intends to cooperate with all other brokers except when not in Owner’s best interest
and, in the case of a purchase, to offer compensation in the amount of x% of the gross purchase price

I disagree with your legal interpretation of the AZ contract.

Like most boilerplate listing agreements, the AZ listing agreement (#6b) specifies the amount (commission) the seller owes the listing agent.

Section 6c "COOPERATION WITH AND COMPENSATION TO OTHER BROKERS" specifies how much the BROKER (not the seller) will pay the "other brokers" (buyer's broker) IN THE CASE OF A PURCHASE.

If there is no purchase (seller walks), or a buyer comes in unrepresented, the listing agent keeps the entire commission (let say 6% for simplicity).

2 questions:

1) Where in the AZ contract (line #) does it state that the seller only owes a prorated amount to the listing agent in the event there is no obligation to pay a buyers agent (broker)?

2) If such a clause exists in the standard AZ contract, what happens with an unrepresented buyer? Does the listing agent only get 1/2 of the commission (assuming that #6c specified that 1/2 the commission goes to buyer agent)?

[luv4horses]

louise50, I wholeheartedly agree with you even though I have not personally read the documentation.

A seller does have the most to lose unless a contract is terminated very early on in a due diligence period. I can see having a one week period for no-reason-given withdrawal by the buyer, while the seller meanwhile can solicit additional offers and maybe even cancel the first contract himself if he gets a 'better' offer during the same time period. But after that? Only contingencies should pertain, and those would need to be satisified or withdrawn within a certain number of days before closing. Even if it were a sellers' market both parties would be better protected.

[rjrcm]

Originally Posted by luv4horses

...But after that? Only contingencies should pertain, and those would need to be satisified or withdrawn within a certain number of days before closing. Even if it were a sellers' market both parties would be better protected.

Isn't that what most current contracts already require? Our contract requires the last contingency to be satisfied within 3 days of closing (loan financing). The problem is, some buyers will pull out even if all contingencies have been satisfied and will sacrifice the EMD.

[Captain Bill]

Originally Posted by RE Skeptic

I disagree with your legal interpretation of the AZ contract.

Like most boilerplate listing agreements, the AZ listing agreement (#6b) specifies the amount (commission) the seller owes the listing agent.

Section 6c "COOPERATION WITH AND COMPENSATION TO OTHER BROKERS" specifies how much the BROKER (not the seller) will pay the "other brokers" (buyer's broker) IN THE CASE OF A PURCHASE.

If there is no purchase (seller walks), or a buyer comes in unrepresented, the listing agent keeps the entire commission (let say 6% for simplicity).

2 questions:

1) Where in the AZ contract (line #) does it state that the seller only owes a prorated amount to the listing agent in the event there is no obligation to pay a buyers agent (broker)?

2) If such a clause exists in the standard AZ contract, what happens with an unrepresented buyer? Does the listing agent only get 1/2 of the commission (assuming that #6c specified that 1/2 the commission goes to buyer agent)?

1.) You're free to make any interpretation you wish.

2.) A listing agent and the seller can agree on a different (called a variable) rate in the event that there is a different fee paid the listing agent for acting as dual agent; and a different rate to be paid to the listing agent in the event of an unrepresented buyer. Those are negotiated and added in the "Additional Terms" section, which I explained in my post.

All of the agreement between the listing agent and seller will be confidential. The only thing the listing agent has to disclose to the buyer agent is if there is a "variable" rate, and that is disclosed on the mls sheet in ARMLS.

I seem to recall that you have expressed disagreement with all Realtor Association standard form contracts. That's ok, because you are free to have your own drafted, and see if the listing agent, buyers agent, buyer, or seller will be willing to accept it.