June 25, 2021 • By Dennis Beaver
“My 80 year-old father is selling and flipping properties like crazy, working with a real estate broker and his pals I have very bad feelings about. Do you have some suggestions of what I can do to help minimize the chances of dad being taken advantage of? Thanks. Jeff.”
Hottest Real Estate Market Since before the Great Recession
I ran Jeff’s question by Walnut Creek, California-based attorney and author, Cliff Horner, whose practice concentrates on real estate litigation. As an expert in the obligations that real estate brokers have to their clients, he conducts continuing education seminars for them across the country.
“This is the hottest real estate market since just before the Great Recession,” he says, “and sometimes invites poor behavior by real estate brokers who aren’t looking out for the best interests of their clients.”
He listed several ways Jeff’s father can virtually guarantee winding up on the short end of the stick:
1 -Think that the broker has the same goals as you do.
Consequences: You may allow yourself to be forced to sell at a price you feel is below market, or buy at a price higher than you believe the market demands.
There are inherent conflicts of interest in real estate transactions. The broker always has different goals than the seller or buyer, as they are compensated differently.
The seller may think the property is worth more than the broker who wants a quick sale, and will be happier to sell under market and get paid immediately with little work.
A buyer’s broker will downplay problems with the property.
So, sellers need different broker opinions of value; never assume that a broker wants to maximize value for you. They do not; they’d rather make slightly less money for very little work.
2 – Make sure that your real estate agent is representing both sides of the transactions in a dual agency.
Consequences: Now they are being paid double if you sell to their buyer. Their commission doubles. They are going to push you to sell to that buyer. This is legal, however not recommended in general. If you are going to do it make sure you are getting a good price.
3 – Rely solely on the broker to provide you, as the buyer, with all analyses of potential defects with property. Never hire an expert in that field.
Consequences: That crack you saw in the living room that the broker said, “That’s nothing. We can just plaster it over,” would have revealed a cracked foundation that will cost $150,000 to fix if you hired a real expert. But now you own it!
4 – Fail to realize that the real estate sales contract form used in your state was most likely developed by brokers and is biased against both buyers and sellers.
Consequences: When things go south and you believe it is the broker’s fault, the contract protects only the broker. These forms typically advise you to hire every expert possible, but most brokers will say, “You don’t need to. I’ve inspected the home and reviewed the disclosures. It is in great shape.”
A good broker will look at the house, the seller’s written disclosures, and recommend that the buyer actually hire an expert or experts to look at any of the defects that have come up, and not just the pest inspection report!
Don’t ever trust home inspection reports because they miss things all the time. They may note something and say, “This requires further inspection.” But brokers almost never suggest that you obtain that inspection because they want the deal to close and not be bothered by a “little” problem that could cost you an arm and a leg later on.
5 – Just agree to the arbitration clause. You will regret it later.
Consequences: The typical contract does not require the broker to be in the arbitration! So, the buyer says, “The broker never told me that, and the seller says I told him that.” It becomes a “he said she said.” As the broker did not sign that clause–and you can only arbitrate with someone who has signed the arbitration clause portion of that contract– the buyer and seller fight only with each other in arbitration.
Do not sign that arbitration clause unless the broker agrees to also be in an arbitration with you!
8 – Don’t document problems and fail to keep writings!
Consequences: This allows things to be denied later. It is critical to confirm in writing things you are told by your broker and to keep copies. For example, “Thank you for coming out today and telling me the roof is old and leaks, but should last another ten years at least.”
Horner concluded our interview with this observation:
“Real estate salespeople are only viewed slightly below attorneys and used car salesmen in the ways juries hate and distrust them, but buyers and sellers should still have good documentation to back up their claims against the broker.”
Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.