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Legal Hotline Attorney Vern Jarboe answers frequently asked questions from Kansas REALTORS® about their transactions.
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Contract - Lease Option Agreement
Question: You have a client who wants to enter into a lease option agreement. They have asked you to prepare the documentation for that.
Answer: There is no problem with you preparing the sale contract that might come from the exercise of the option. However, drafting the lease which includes an option to purchase is something that your standard forms do not fit and for which you would probably be practicing law. I think it is inadvisable to do so because these transactions can be more problematic than they appear. It is easy to give the buyer more rights than intended which may make it more difficult to get rid of them especially in the context of them not making payments. This ultimately may require a foreclosure rather than eviction. On that basis, it is unwise for a real estate licensee to be involved in such a transaction.
License Law - Phone Marketing Solicitors
Question: You have a proposal from a call center offering to do phone solicitations for you.
Answer: It seems to me that this activity would be included within the definition of brokerage activity defined in the license law. On that basis, it would be a violation of the license law to have someone pursuing this activity who does not have a real estate license.
License Law - Possible Mortgage Fraud
Question: You asked about a transaction involving low down to payment financing.
Answer: FHA and VA financing terms usually prohibit inclusion of personal property within the sale because the personal property would have to be separately valued and it is therefore common to simply have the seller gift that property to the consumer. In my opinion, any kind of a personal property gift which includes something of value but for which you declare it to have no value is arguable mortgage fraud. I would refer you to K.S.A. 58-3062(a)(15). This section prohibits a licensee from preparing documents which are then in turn presented to lenders or guaranteeing agencies and are not reflective of the true transaction. In your particular example, you have something which apparently is worth $4,000.00 because the seller doesn't want to pay a real estate commission on the item while on the other hand wants to declare the thing of no value as a part of the real estate transaction.
License Law - Exclusion of a Particular Licensee
Question: You have a situation where you have multiple properties listed for one person. They apparently have a complaint against a particular licensee in your MLS. They have posted signs on the front door of each of their properties indicating that that licensee is not welcome to show or sell these properties.
Answer: While the conduct of your seller is not something you can control, and which is arguably in bad taste, it does not violate any license law for you to list the property. The license law specifically contemplates that a consumer can decide which real estate licensees they want to work with and to exclude some. In fact, the Code of Ethics recognizes the possibility of not cooperating with all brokers in your community. A better way to handle it would be for the licensee to give you a written instruction not to cooperate with the licensee they don't want in the property and then for you to make that a part of the listing and to in turn notify the licensee involved that they are not welcome in the property. The licensee that is in this situation should be willing to recognize the right of the seller to take this action and remain out of the property.
Contract - Ownership by Adverse Possession
Question: You have a situation where a driveway onto a property has existed for a long period of time. The buyer has a lender who will not allow the existence of the driveway on the property and make the loan. The neighboring property owner who has been using this driveway may or may not have a right to use the driveway by adverse possession.
Answer: The only way to figure that out would be to file the necessary action in court to bring it to a resolution or to get something signed by the neighboring owner agreeing that he does not have a right to use the property but has been doing so merely by permission. Alternatively, you may want to simply delete from the sale contract the piece of land which has the potential problem and sell it by separate contract so that the buyer can resolve this after the fact.
License Law and Broker Protection Clause
Question: You have a question about the need to extend a listing out through closing.
Answer: There is nothing in the license law that would prevent a licensee from simply changing from being a seller's agent when the listing expires to being a transaction broker because the listing has expired but the transaction not yet closed. However, the Real Estate Commission takes the position that you should extend the listing through closing. Obviously, you have no mechanism for forcing the seller to do so but it is good practice just to avoid the fact that you would otherwise be forced to begin "change hats". The broker protection clause language in your listing agreement indicates that a commission is still due you if you produce the ready, willing, and able buyer during the term of the listing. However, please note that this language requires you to provide the seller with a list of buyers for whom you want the commission protected. Even though the property is under contract, it would be wise to provide such a list to the buyer.
Contract - Reconciliation of Repair Request
Question: You have a situation where the parties entered into a contract and the buyer acquired inspections. One of the inspections indicated the need for replacement of a sewer line which the seller was unwilling to fix. Negotiations ensued wherein ultimately the seller was still unwilling to pay the cost. The buyer's agent then offered cancellation which the seller's agent indicated would be okay. That status continued for a period of several days. After the buyer went off and bought another home and the seller put the house back on the market, the seller has now reversed field and indicates willingness to pay the cost to replace the sewer line.
Answer: Under your particular form, there is no deadline by which agreement on repairs must be reached. However, it does require good faith negotiations. Based on the facts as you describe them, it appears the buyer probably did engage in good faith negotiations. The last offer from the buyer was rejected by the seller. The seller later put those same terms on the table as acceptable to the seller but that would have to be viewed as a counteroffer by the seller which the buyer is now free to reject. The question of whether or not the buyer's negotiations were in good faith would be one of facts and the buyer probably needs referred for independent legal advice to avoid putting you in a position of doing risk analysis.
Contract - Handling Backup Contracts
Question: You have a situation where a property went under contract. Subsequently, a backup offer was received which refers to cancellation of the original agreement. The buyer and seller in the original agreement now wish to extend closing on the original agreement and the buyer agent in the backup position is complaining.
Answer: It seems to me that the language in your backup offer which refers to cancellation of the original agreement causing the backup offer to come into first place does not apply. The first agreement is not being canceled, it is being extended. If the author of the backup contract had intended to include the first contract being renegotiated, extended or otherwise modified, then they should have said so.
License Law - Payment of Commission
Question: You asked whether or not payment of a commission can be in a real estate sale contract.
Answer: Historically, there has been some debate about whether or not it was appropriate to put commissions in a sale contract. It does not make the brokers a party to the agreement to allocate payment of a transaction cost into the contract. This should be viewed no differently than inserting into a contract who will pay for surveys or title insurance. In situations where you are working on a for sale by owner transaction or simply facilitating a transaction where there is no listing or buyer agency agreement, putting the sales commission in a contract would be an appropriate way of memorializing the obligation owed.
