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Legal Hotline Attorney Vern Jarboe answers frequently asked questions from Kansas REALTORS® about their transactions.
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Agency - Crossing Another Broker's Listing
Question: You have a situation where your buyer is personally irritated with the listing company. The buyer has been going directly to the listing company around them and you. The listing company and you are in conversations about the issue. The buyer does want to write an offer on the property.
Answer: So long as the listing company is satisfied with the procedure, writing a contract contingent on the listing company canceling its listing agreement with the seller independently paying the listing company's commission should be acceptable.
Contract - Seller Financing Over the Top of the Mortgage
Question: You have a situation where the buyer and seller have agreed for a sale in a contract for deed format. Most mortgages contain due on sale language which in effect requires the seller to pay off the mortgage if they sell all or any interest in the property. This would then require payoff in your situation. Apparently the lender of the seller will approve the transaction.
Answer: Both parties need independent legal advice so you probably do not have a form that will let you handle the transaction so you should get the assistance of an attorney for the form as well.
Inadequate Seller Disclosure
Question: You have a situation where a portion of the house seems to have water problems. The seller was asked and indicated that the property had been fixed. Various inspectors examined the situation.
Answer: This situation may be very difficult for the buyer. Because they were aware of the rather odd conditions surrounding the property and had this element inspected, there will be a strong argument by the seller that the property was sold in its as is condition. As is sales do not overcome a seller's responsibility to tell the truth with respect to conditions of the property. The seller would then be in a position to prove fraud and make its claim on that basis.
Interference with Relationship
Question: You have a situation where the listing broker would seemingly not be responsive. Ultimately, that broker then made direct contact with your buyer.
Answer: There may be a procuring cause debate available, but we do not get into procuring cause answers on the hotline. This is because each side has the option to contact the hotline and we might give conflicting answers with different facts. The proper forum for resolving such disputes is with arbitration through your local association.
Contract - Death of the Buyer
Question: You have a situation where after entering into a contract and before closing the buyer dies.
Answer: The buyer's estate is still obligated for the terms of the contract. However, in your circumstance it does not appear likely the estate will have assets necessary to close the transaction. On that basis, getting the parties out of contract as easily as possible will be your best avenue. I suggest going to the title company and presenting the problem to them to see how they would like to have the matter resolved. Alternatively, attorneys for the buyer and seller should be handling this matter.
License Law - Disclosure of Closing Costs
Question: You had a question regarding disclosure of closing costs.
Answer: The license law requires in K.S.A. 58-3062(a)(17) that you must disclose to buyer and sellers as to any closing costs. The timing this obligation requires that the buyer be told these costs prior to writing an offer and the seller at the time an offer is presented. This disclosure requires both that there are various costs and the approximate amount of such costs. Nothing in the license law specifically requires that disclosure be in writing, but it is generally believed that it is best to put it in writing so that you can prove it was accomplished.
Agency - Role of an Auctioneer
Question: The Real Estate Commission believes that auctioneers should be seller agents. Your company has a listing and is cooperating with an auctioneer who will be conducting the auction.
Answer: If you have a seller agency listing or designated seller agency listing then you can create a sub agency relationship with the auctioneer through written agreement that would be approved by the seller. Sub agency has become relatively rare in modern times but it is not illegal.
Disclosure - Potential Problem with Title Company
Question: You have a situation where tax liens have been filed against a title company. You have asked whether it is a mistake on your part to continue to allow agents in your company to utilize this company.
Answer: A tax lien on the title company could certainly impact closings in that if the title company's assets were seized, it might take a while to have the IRS figure out that some of the money held by the title company is actually third party escrow money. It is likely that the third party escrow money would not be lost but it certainly might slow down the process. On that basis, you need to figure out whether or not there is risk to client's of your company by utilizing this particular title company.
Contract - Oral First Right of Refusal
Question: You have a situation where the seller indicates they have given another party a first right of refusal. The first right of refusal was granted orally. Because the terms and conditions of a first right of refusal are not set by law, but rather by agreement of the parties, this places you at a risk in producing offers on this property.
Answer: Obviously, the first step would be to ask the seller what agreement they thought they had and the second might be to ask the person holding the first right of refusal what agreement they thought they had. You could then give that buyer whatever notice the seller and the first buyer believes appropriate before selling the property. An oral first right of refusal is probably not enforceable but the assistance of an attorney to determine that could be important. Written proof you told them to consult an attorney would be very wise.
Contract - Sale by Raffle
Question: You have a question about selling a property by raffle.
Answer: In difficult economic times it is not uncommon to see "innovative" ways of selling property. Selling real estate by raffle is one of the items that appears in situations like this. Kansas law does not permit the sale of a house by pure raffle. It is possible to orchestrate something that is similar to a raffle but independent legal advice is an absolute requirement. The seller needs to hire an attorney to structure the arrangement and you need to be sure that you are setting up the proposed raffle in a way that is consistent with what that attorney has suggested. Otherwise you may violate the gambling laws of the state.
Contract - Sale of Improved Land
Question: You have a situation where the improvements on the land do not add and probably detract from value of the property. The buyer wants a contract written which does not describe the improvements and a land only type form being used.
Answer: There is nothing particularly illegal with what is desired. If the true value of the property is based upon the land and has nothing to do with the real estate then describing the land would seem to be compliant with a full disclosure.
Contract - Completion of Work by Seller
Question: You have a situation where property went under contract. The contract required the seller to do certain work and allowed the buyer a pre-closing walkthrough. The buyer is not present so the buyer's agent did the walkthrough and is complaining about conditions at the property.
Answer: I always highly recommend that agents not do inspections themselves. When you do the inspection yourself, you acquire substantial liability for conditions found or not found in the inspection. However, it is not illegal for an agent to do an inspection.
Disclosure - Disclosure of Report from Failed Transaction
Question: You have a situation where a property went under contract and an inspection was performed. The inspection report is exceedingly critical of the property to the point of arguably being biased.
Answer: The license law requires you to disclose what you actually know. The basic Kansas Real Estate law also makes the seller responsible for hiding any known defects. On that basis, it is unwise for either you or the seller to fail to disclose the contents of this report. If you think the report is biased then acquiring a second report and giving any potential buyer's copies of both reports might be a good option. Failing to disclose a report is not a good option.
Contract - Argument Over Personal Property
Question: You have a situation where a property went under contract. The buyer and seller are now in conflict over whether or not certain personal property was included in the sale given a substantially reduced price. The buyer wants to walk from the transaction.
Answer: Both parties need referred to independent legal advice before they walk from the transaction. Each party would place itself at risk of litigation if they walk without acquiring the necessary legal advice.
License Law - Agents Who Go Around the Listing Company
Question: You have a situation where you have a listing. Other Realtors® have gone around your listing and have made direct contact with the seller.
Answer: This is a violation of both the license law and code of ethics. Obviously, there are facts which would be determined through a hearing process that you and I do not know. The facts as you know them seems to indicate a clear violation of the law and ethics. However, there are other facts which you don't know and I cannot therefore determine that might alter the result.
Agency - Conflict of Agency by Family Relationship
Question: You have an agent who owns a property and has listed it for sale. The agent's son is also an agent and shows up as a co-listing agent on the MLS. The son's assistant has people who want to write an offer and the assistant wants to present them. You asked whether or not this is possible.
Answer: It is possible, however, there are obvious conflicts of interest all over the transaction. I would make sure there is a good written disclosure of the relationships. I am assuming that the assistant is licensed. The Kansas Real Estate Commission does not like team members being on different sides of the same deal but there is no law or rule on the subject. The best practice would be to have all of the agents be designated seller agents and the buyer unrepresented or represented by some other agent in the firm as a designated buyer agent.
