There are three types of real estate transactions I've never been happy about:
- Builders being allowed to employ and use as their sales staff, persons who are not licensed real estate agents or brokers.
- Builders not being required to use state promulgated contract forms
- Attorneys and relocation firms being allowed to gut the promulgated earnest money contracts through long, verbose addenda
When I first received a Texas Real Estate Broker's License in 1964, we were allowed to draft our own contracts, without the assistance of legal counsel. Realtors frequently used a contract format that had been drawn and suggested for use by the Board's legal counsel. However, there was nothing that stopped the agent from lining though, and otherwise amending the contract. And believe me, oft times we wrote and wrote and wrote.
But even worse, the public could get a one page earnest money contract form from a title company, complete it, put the deal in escrow, and close the transaction, with wording like, "the title policy premium will be paid as is customary in the county where the transaction will take place." In Galveston County, it was customary for the buyer to pay the premium. In Harris County, 50 miles away, it was customary for the seller to pay the premium.
Finally at the urging of lenders, underwriters, as well as agents and the public, contractual forms that attempt to treat all parties equally, were promulgated. We're required to use them, unamended, unless the contract we use has been drawn by a state licensed attorney.
The craziness of all of this, though, is that builders are exempt. Consequently, they usually demand that their own forms be used, and that the client negotiate through a sales person who has not proved they are qualified by becoming licensed. The transactions more often than not, are horribly one-sided, favoring the builder.
And on top of that, relocation firms are allowed to append our promulgated forms with multi-page addenda which causes our state approved contract to be impotent. Our contract says all plumbing, electrical and mechanical must be in good working order at the time of closing.
An addendum to that contract that I saw today, that was attached at the insistence of the relocation firm, said anything found not functional after the execution of the earnest money contract was the problem of the buyer. Further, it said that in cases of inconsistencies between the contract and the addendum, the addendum would be favored.
It's past time for the state to clear up these quagmires. It's past time for Realtor associations -- local, state and national -- to aggressively lobby for change.
In the meantime, no buyer should accept these homemade documents and amendments without their being reviewed by legal counsel. And no buyer should ever deal with a new home salesperson without having a licensed buyer's agent there to represent him.
BILL CHERRY, REALTORS
DALLAS - HIGHLAND PARK
Our 45th Year
214 503-8563
Bill, I agree. All buyers should use the services of a licensed buyers agent or an attorney in any and every kind of real estate transaction. Home builders and their hired sales consultants should be held to the same standards as licensed agents. Education is key. Home buyers probably just don't understand how having their own representation can benefit them.
Right on. You would think builders would find it easier to use a state promulgated form...and be held to the same standards, too.
Fortunately in Arizona builders must use a licensed real estate agent in the sales offices.
Fortunately in Arizona builders must use a licensed real estate agent in the sales offices.
We see a lot of addendums that gut the California forms with the REOs. These can be confusing and difficult to decide the end result.
I agree, totally. Standards are important to home buyers and sellers. Everyone should follow the same laws and guidelines.
So true Bill. These contracts that are not state approved need to be looked over very carefully by legal counsel. Too risky otherwise. Congrats on being in the biz 45 years! That's amazing!
Bill, many builders' representatives in FL do have a license and some are very skilled at what they do. However, when there is a problem, they are going to look out for the developer over the customer. After all, who pays them? Whom do they have the long term relationship with?
It's not that builders can't demand anything as the Seller in a transaction. If any Seller says, "We want the Buyers to do five somersaults prior to the close of escrow," and the buyer mutually agrees, it's part of the deal. The issue I have with Builders/Sellers is that the BUYERS don't realize they are mutally accepting the BUILDERS/SELLERS demands . . . and those somersaults prior to the close of escrow . . . they're doing 'em!
That's a problem that I don't think we'll be seeing much of for some time to come. What I refuse to do is write a check to the builder...never, never, never. It goes to 3rd party escrow company or nowhere.
Wow! In California it is required that you be licensed. I worked in new homes for 5 years. I can't imagine selling homes without a license, builder or no builder.
Bill - I hear you loud and clear. But what could we possibly do? Some day, I wish I would be able to work with a Real Estate attorney as my client who would want to pursue RESPA rulings all the way!
Now, licensed agent in California - I want that!
But Bill, what difference does it truly make if the salesperson was licensed or not? It doesnt hold people more accountable - I dont think so.
Bill,
Maryland tried the licensed sales person route and than changed their mind. An attorney review of the "new home" sales contract is critical.
Too bad buyers feel pressured when they're in the sales office.
Rich
Interesting post.
I think the bad news is that things will get harder before easier. The FC glut will make it's way to realtors and more regulation will be added. It is just the world we live in
Have a great day
Tony
Well,Bill. The builders that were doing that in our area are now sending out invites to attend Broker open houses and every house they build is in the MLS at a fair percentage cut. As for the lawyers addendum "in cases of inconsistencies between the contract and the addendum, the addendum would be favored." That's right out of the Philadelphia Bar Exam - LOL. Glad Texas lawyers are keeping up with the times - ROFLMAO
With my husband being a builder I have mixed feelings on this. He negotiates every sale and uses state contracts. Hes more qualified to handle a home sale than 50% or more of the agents out there.
Bill, I live in a new construction town. We run into this all the time. The big builders never hire real estate people - just non licensed salespeople. They are pretty good at using fairly simple contacts, but they are their own contracts. And they are very good at paying us if we bring them someone to build a house. Right or wrong, they are operating under the freedom that any homeowner has to sell his or her own property.
One of the facets of my business is representing a builder. The current state contracts do not in anyway cover new home construction and the timeframes associated with construction. They assume an already built home. I can't imagine trying to force a state contract on to a builder. Granted a builders contract is skewed towards the builder but our state contracts can be skewed towards whichever party is in "control" of the transaction as well.
The best advise is if a buyer or a seller are unsure then have legal counsel review the forms. I have no issue with providing a buyer with a new home contract to take and have reviewed. A better informed buyer is a better buyer.
Man have I been waiting for someone to blog about this. Builders with these types of practices especially there own contracts for sale put us in jeopardy. They demand that we sell their product, and then shift the risk to us. I have been refusing to use builder contracts for awhile. The good news is that with financing for builders tight, and inventory large, they are all smiling now when I present a Board ceritfied contract.
With the builders contracts you have a choice, sign their one sided terms or don't get the house.
I don't think buyers understand that they are dealing with unlicensed individuals in many cases and that they represent the builder. They certainly don't know the level to which the contracts they are signing are supervised and how that puts them at risk. As a buyer's agent for new construction, I ask for the contract to review prior to signing and can at least point out areas of concern to educate the buyer, but if the buyer doesn't have a buyer agency agreement and strikes out on their own without obtaining an agent - buyer beware.
AND, the buyer should insist on an inspection, prior to closing. There are too many times that the work crew forgot to hook something up (like A/C duct work) that needs to be take care of before closing. Yes, I know they say they will come back and fix anything within a year, but there might be something that the buyer doesn't notice until after that time.
Sarah in Nashville
The sales rep for the builders are exactly that, a sales representative. I don't care if they're licensed or not as they are only doing sales, not what a licensed agent does which is councel and negotiate on their clients' behalf. In Dallas, the sales reps are not licensed and most builders ask licensed ones to let them go inactive. In Austin, some are licensed, and I'm thinking they should be held to a higher level of accountability on disclosure of material facts within a community and issues going on around the community than an unlicensed sales person...
Buyers have an attorney review period with builders' contracts, it's up to the buyer to choose legal council or not. Buyers can always use a buyer's agent to represent them. If the builder does not offer a commission to the buyer's agent, then the buyer can pay their own agent to represent them.
Linda Metallo, Re/max Impact, Lockport, Il. (Chicago)
I've never liked builder nor REO contracts and addendum. You see, I'm not an attorney nor are most of my clients, so I can only advise them to "read the contract" because they're likely to obligate themselves to something they won't like when there's a problem. And unfortunately, it's when there's a problem that buyers (typically) finally read the contract.
My favorite (and most recent) example was an REO where the bank had created a problem with the title (they ordered the foreclosure in the name of an entity that didn't exist - title cloud looming ahead?) and it took three weeks to resolve the problem and finally settle the property. The buyer was concerned (not that there was a problem) reading the contract because it stated that if the buyer failed to settle on-time the buyer would be obligated to pay a per diem after the agreed to settlement date. This is of course very one-sided and although the bank agreed to waive the per diem - it's wasn't the buyer's fault they couldn't settle after all - when the buyer asked for compensation for the bank's failure to settle, the bank declined, but graciously agreed to waive their required that the buyer pay a per diem covering the 15 days after settlement. Now contractually the bank was not obligated to pay anything to the buyer if the bank failed to settle so the buyer was "out" three weeks of unanticipated housing expenses, delayed moving costs, etc., because of the delay.
Now seriously, if the buyer had insisted at the time of contract negotiations that the "per diem" clause be bilateral, do you really think that the bank would have accepted that? Non-standard contacts often mean someone may find themselves to be at a disadvantage. And even with the advice and counsel of the appropriate professionals (lawyers, cpas, etc.) do you really think that the a buyer can insist on a contract modification?
Yes, they can and should!!! But, it doesn't happen often enough. So, what are the lessons learned?
1. Remind buyers and sellers to read the contract (even the "standard" ones we use all the time and especially those from builders and banks).
2. Remind ourselves to read the contract (even though we're not attorneys - although some of us are) and point out any unusual terms/conditions that might be unfavorable should something happen to our clients.
3. Remind buyers and sellers to seek advice and counsel (i.e., any questions, call their lawyer - don't have one, refer them to one) should have any questions BEFORE signing the contract!!!
I could go on, but I think enough said.
I've seen builders in CA whip out contracts that exceed 100 pages. It's nuts.
Back in the late '70s, I, too, drafted my own purchase contract. In fact, I made it a 3-part NCR form, one page. Everything favored the buyer. Of course, those days are gone.
Today, we are discouraged from drafting wordy addendums. The concern is we could be sued for practicing law. But in some cases, a wordy addendum is necessary. It's like you're damned if you and damned if you don't.
Amen! Brother! This needs to be fixed. Builders have done some bad stuff in my area...Do I forsee your future is to lobby at the next Texas legislator sessions? Get with Dan Patrick, (from the am radio station). He can help craft a bill...
The seller's attorneys draft contracts in our area, so buyers are at the mercy of what is drawn up. REO and builder contracts are particularly slanted. They have leverage, so they can get away with it.
Bill,
Here in AZ, we do not have quite the same problems you outline... Builders still use their own, lop-sided contracts, and far too many buyers are not represented at all, but at least the process has a degree of uniformity to it. The real problem we face in many states right now are the banks, when acting as sellers, completely neutering the protective clauses (for buyers) that we have all fought for over these past few decades. AS-IS has become a four letter word when dealing with some (but not all) of the banks. And, far too many listing agents are just as corrupt when listing these homes. I've even seen a few cases where the bank will pay nothing. They want their side of the HUD-1 to have zero costs. What planet are they on??
I also hate that builders will let you buy a home with them even if you have to sell one. I saved a client from signing one of those contracts a couple years ago. They never did sell their house and were thankful I was there to stop them signing.
If nothing else at least they have seen the need to co-operate with buyer agents to bring in buyers - we'll have to work on making that a permanent thing!
Lorena #22 has a point it does not matter if he uses a licensed agent or not if a person is going to commit fraud they are going to commit fraud.
being Real Estate licensed is over rated our licensing requirements and educational requirements are less than that of a hair dresser. Seriously look up the hours you need in the state of Calif.
A professional is a professional licensed or not
although I do wish our licensing and educational requirements were increased to keep more unsavory people from ever getting the business. we all have stories of agents that we cannot believe are in the business.
Great post! I hope something can be done about this. Buyers are dumbfounded by some of these multi-page contracts that I feel I need a lawyer to help me interpret. Standard forms are needed for a RE transaction.
Nice post.
What troubles me the most with builders are those who don't use the state approved forms. Then those who do amend them to death with addendum's.
Buyers don't understand the contracts and many don't use agents (other than the builders agent).
I suppose by the line in your post: ".........sales person who has not proved they are qualified by becoming licensed" you expect me to believe that a person that is licensed is proved qualified. Thats not true. We might be qualified sales people, we might even be expert negotiators and we might be market (and marketing) experts but we are not qualified to negotiate or even explain the terms in a contract, thats a job for lawyers and that's why we use pre-printed, pre approved, fill in the blanks contract forms.
Anyone can sell their own real estate without a license and even write their own contracts, perhaps even on a napkin in a bar. That includes builders selling their own product. Also anyone can buy real estate (for themselves) without a licence. Now, this might not be the smartest thing to do (as they say a lawyer who represents himself has a fool for a client) but it is perfectly legal.And of course, nothing prohibits an individual from having a lawyer review their real estate contract whether they have a real estate agent or not
#31 comment says A professional is a professional licensed or not. I would say that unprofessional is unprofessional licensed or not. You can not be a professional Realtor in California without a license, but you can be unprofessional with or without one.
A license gives the courts a way of punishing the licensee's errors, whether intentional or not, and a way of permanently enjoining him from ever acting for himself or as an agent for another.
That's the primary purpose to society of license acts, whether it be a barber license, plumbing license or real estate license...even a law license.
To allow those who have not so much as met the required standards for licensing to practice as though they are licensed is a mockery of common law.
And to take the matter one step forward. Most professionals carry some form of errors and omissions insurance. (I believe that it should be a continuing requirement for license.) That insurance is not available to those who are unlicensed. Why do you suppose that is?
Those of you who do hold licenses but don't understand and respect their purpose need to find someone who is qualified to fill in those blanks for you.
As for me, I'll hold my education, knowledge and ability in the practice of real estate against anyone's...and most especially a still wet behind the ears person with a law license among those in the field you seem to most revere.
Bill,
You make some great points here. I guess the builders must have a powerful state lobby.
Richard --
Thanks for your thoughts.
Here's what is making me grumble the most. There are many more Realtors than there are builders and their sales staffs. Heck, in the Dallas-Ft. Worth Metroplex there are in excess of 14,000 of us. On top of that are all of those who hold real estate licenses who are NOT Realtors. And that's a lot when you consider that the majority of the commercial brokers and agents are not Realtors.
My annual Realtor dues are just shy of $400. My license fee, due every three years, is $500. My E&O insurance premium is $740 a year. These unlicensed bozos not only aren't licensed but can do what we do without any of this cost.
So I saw to myself, my board alone represents 14,000 people and takes in more than $5 million a year. What must it be nationwide. Tell me what their excuse is for not mounting efforts to get this changed? And if they aren't representing the membership, exactly what value does the "paid help" have?
While I agree you want to use a standard contract today, I also believe the legal industry in this country has gone overboard and created more complexity than we need. Most of us sign documents we simply can't understand and that is ridiculous. There isn't any reason why 98% of our legal proceedings aren't written in plain English ... except that might reduce the volume of work for lawyers?
Hi, Bill:
I reblogged your post to spread the word. Relocation and REO addenda are the devil's spawn. I'm not a huge fan of builders' contracts, either, but the relo stuff is what really chaps me. My clients can't figure out why they have to sign one contract that protects them and then sign basically another (even longer) contract that hangs them out to dry.
Cheers,
Robin
Bill - I find that relocation addendums and many builder contracts are heavily slanted against the consumer. Your post is very relevant.
Slanted contracts are not going to change unless the other side effictively insists on it. As long as buyers agree those one sided addendums, the sellers will keep doing it. I'd like to see a concerted effort to require that those $100/day penalties for failure to close, for example, be made bilateral.
Agreed - this post is important. It always amazes me that anyone would sign a builder's contract if they read and understood it.
Bill, you have a valid point and that is why the courts are full of cases. It all depends where you practice real estate and the provincial, state regulations can alleviate some of the problems.
Ty
Once again, "buyer beware".
As always, its up to us to educate the uninformed buyer.
Hi Bill, Nice to see you in the 'Rain again ! Amazing how exemptions can gain a life of their own isn't it ? Hope your Holiday Season is the best ever !
Bill: I am sorry... but on the issue of builders and their "sales reps"... I very much disagree with you. Builder's on-site salespeople work FOR the builders. They are selling the builder's homes. They do not make decisions. They have been told by the builder... the owner... what to do, and have been given, and have been trained in putting together all of the different forms that make up the builder's contracts.
I have sold literally hundreds of new homes... and honestly would MUCH prefer to deal with the "typical" builder's rep... than the "typical" real estate agent. Now remember... I am talking "typical." I have met some really knowledgeable builder reps, and some really knowledgeable real estate agents. To simply have a typical "licensed real estate agent" selling homes and representing the builder... would, in my opinion, be inviting disaster.
When selling an existing home... we have a finished product. It is pretty-much "as is" except for what may later be negotiated after a buyer's inspection. Much different from selling most new homes.
And, of course the builder's contract is slanted in favor of the builder. It was drawn up by the builder and the builder's attorneys. And some builders... come up with a new addendum whenever they have just gone through a buyer's lawsuit... or a buyer's attempt at a lawsuit... to address that issue. So... the builder's contract becomes longer.
Builders... typically... will not allow a buyer, or a buyer's agent, to modify their contracts. The builder is the seller, the owner, and it is their product they are selling. If you don't like the contract... buy a different home from a different builder. You can try and negotiate, but usually to little avail.
As an addition here... from reading many of the above comments... it is clear to me that many of the above agents really don't know very much about selling a builder's product.
The banks are doing the same thing. I agree it is a big problem and the really funny part is I do not think most of those forms are as effective as they think they will be.
Well, Karen, I do know about this. You're pointing a finger at the wrong person.
With my partners, we developed several subdivisions in Houston, a couple in Dallas and one at Eagle Mountain Lake in Ft. Worth. Then we built hundreds of homes and about 5,000 apartments.
Is it your position that a licensed agent can't be trained to sell new homes? Is it your position that it is of no benefit to the buyer and the builder for there to be a licensed agent handling the selling? If it is, that makes no sense to me at all.
And just to level the playing field, I NEVER had anyone selling new homes for me OR leasing apartments who was not licensed, and further, all of our homes were listed on the appropriate MLS and we paid the expected commission at closing. It worked just fine. We sold a lot of homes, had only a few minor problems with buyers, and we made a lot of money.
The state either needs to license everyone or license no one. What it does now is totally hypocritical.
P.S. I occasionally write pieces for the conservative blog known as Town Hall, consequently, I have the web site referenced on my AR cover.
I agree.....standards need to be the same for everyone. That's supposed to be the deal...but just look at our Senate, every Senator gets a different perk for their vote. Should be all or nothing, licensing requirements should be no different.
Our local Board of Realtors issues contract templates. We are not required to use them, but if something ever were to go to the Greivance Committee, I'm sure that a non-standard form would need to be scrutinized.
As for what you did back in the 60's, thank goodness you've changed your practices! I can't imagine a non-lawyer writing anything that is contained in a contract or legally binding agreement. That's an unlicensed practice of law!
To Whomever at Weichert Realtors, Synergy:
To be sure we clear the air, brokers and agents drafting contracts having to do with the sale and leasing of real estate in Texas WAS NOT an illegal activity, but was an authorized function of the real estate license.
And further, in most states (if not all) there is nothing whatsoever that prohibits two parties from personally drafting and agreeing to a contract that's between them. In other words, there is nothing that prohibits me as a seller from writing up a contract to sell you, as buyer, a piece of property as long as you agree to the terms, and I don't represent myself as an attorney. By definition, that's not practicing law.
Finally, my memory may be cloudy, but I don't think negotiating real estate deals back then were any more screwed up than they are today. Nevertheless, the promulgated forms are the only way to go.
Bill,
We've certainly come a long way with our contracts. I'm not sure if they are BETTER, but they are certainly LONGER!LOL! When I started in real estate in 1986, our contracts were about 8 to 10 pages long. The contact I last wrote had 45 pages!!! Yes, that's correct... 45 pages! And I'm sure there'll be something new to cover in 2010 that will add more pages!
Standardization would be really nice. Licensed professionals--yes. I have seen too many builder reps make false or inaccurate statements about closings, etc.
I would say that the same should be done for RELO addendum's, REO addendum's too. Builders contracts are so one-sided that I've often wondered why the state's legal counsel hasn't thought of going after them yet? Ours in Illinois, has a clause that says they really don't ever have to even build the house! Where are all those consumer advocates out there?
Bill, it was good for me to read this especially since I deal with builders maybe once every two years, thank goodness. I do believe people should be licensed and should use an attorney. I wouldn't personally want to be an agent in states where attorneys aren't used. Call me soft, but I don't want that much liability.
With respect to RELO addenda. States merely need to pass a law that does not allow amending their promulgated forms. Instead, if a RELO company wants to put a bunch of junk out there, they are required to hire an attorney, licensed in that state, to prepare a full contract.
i agree...nothing aganinst the builder, but i have often wondered whythe builders got to be different...but they are in the RE bisiness and they should be on the same plaing field as us
That's pretty much the same situation around here Bill. The public is at greater risk.
I've always wondered about that with builders and it's always bothered me. Your post is right on the money. I've done a lot of relo and I agree there, too. Great blog.