The time from acceptance to closing can be a difficult time in a real estate transaction. It is during this time that problems with the deal or the property usually arise. It is during this time that both buyers and sellers can have doubts about the wisdom of their undertaking. It is during this time that real estate agents, in a very real sense, earn or lose their commission.
The role an agent plays in contract performance depends on a number of variables. First among these are the wants and expectations of the parties. Some people want to be in charge and do it all themselves. Others expect the whole thing to be handled for them by the agents without any personal inconvenience. Most clients and deals fall somewhere between these extremes.
Where, between these extremes, the actual services delivered by a real estate agent falls, is mostly a matter of business practices. An agent is, however, at a minimum required to make reasonable efforts to provide the client with information that is within the scope of the agency relationship. To determine what information that might be, you have to know something about how real estate licensees are trained and what, as a group, they normally do. These two things, more than anything else, will determine the role an agent plays in aiding contract performance.
Real estate licensees are not lawyers, but they do have training in real estate contracts and real property law. Oregon courts have used this fact to hold that ” the ordinary layman dealing with a real estate or insurance agent may be justified in relying upon the latter to know enough in regard to real estate and insurance law to give reliable opinion on the simpler problems arising therein? Helping the client with the “simpler problems” regarding real estate law is within the scope of agency for real estate licensees.
The “simpler problems” in real estate law are those that come up all the time and do not require a law degree to understand. For instance, explaining the operation of the standard clauses in a pre-printed sale form provided by the agent is going to be within the scope of the agency created. An agent wouldn’t be expected to explain the legal ramifications of failure to fully satisfy the terms of a condition precedent, but would be expected to let the buyer know how many days they have to satisfy the condition and what the contract says with regard to satisfaction. Similarly, an agent doesn’t have to know the legal ramifications of a title exception, but could be expected to bring the existence of an unusual exception to their client’s attention.
One way to think about what is within the scope of agency when aiding in contract performance is to think in terms of real estate business, not law. Certainly, law underlies the business of buying and selling real property, but ordinary people make and perform real estate contracts everyday without being lawyers. They do that by reading what is said in the contract and bringing common sense experience to bear if there is a problem.
Agency is really just about the agent using their training and experience to augment the principal’s common sense and experience. In that regard, it is helpful as an agent to ask: what would I do given what I know about real estate if I were buying or selling this home for myself and my family to live in for the rest of our lives? Do that and you are likely to stay within the scope of your agency. You are also a lot more likely to provide quality professional services to your clients and customers.
Giving your client the benefit of what you know about real estate contracts and their performance based on your training and experience as a real estate licensee is but one part of aiding in contract performance. Another part is helping the client with the investigations necessary to fulfill the terms of the contract and satisfy themselves as to the wisdom of the purchase. In Oregon, by statute, real estate licensees have no “duty to investigate matters that are outside the scope of the real estate licensee’s expertise, including but not limited to investigation of the condition of property, the legal status of the title or the owner’s past conformance with law, unless the licensee or the licensee’s agent agrees in writing to investigate a matter.”
This statutory provision is essentially a limit on the scope of a real estate licensee’s agency. It defines what is and isn’t expected of a licensee when it comes to investigation of the condition of the property, the legal status of the title and the seller’s past (not present) conformance with law. That doesn’t mean that property inspection, title and conformance with law are not important or that an agent has no duty with regard to these subjects. Instead, it means that the agent doesn’t themselves have to investigate to find out if there are problems with the condition of the property, the title or the seller’s past conformance with law.
An agent cannot ignore problems in these areas that would be obvious to other agents in the same circumstances. That is, they cannot turn a blind eye to what a reasonable agent in the same circumstances would see or know. The law doesn’t require the agent to go looking for problems where none are apparent.
Take, for instance, the famous California case where a listing agent was held potentially liable for not disclosing to the buyer the risk that a landslide might destroy the house. Although widely believed in the industry to create some “duty to investigate,” the ruling actually turned on whether in the circumstances a reasonable real estate licensee in process of listing, marketing and showing the property would have become aware of the slide potential because there were a number of “red flags” that would be obvious to the ordinary, prudent agent without the need to investigate. It was the agent’s failure to respond to the red flags that created the potential liability, not a separate duty to “investigate.”
Identifying “red flags” during contract performance has always been within the scope of agency for a real estate licensee. That duty, like the duty to provide relevant information to the client, is limited to those things entrusted to the agent. What Oregon state law says is that investigation itself is not entrusted to the agent. That doesn’t mean the agent can ignore obvious problems and it doesn’t mean recommending that the client investigate is not within the scope of the agency. It obviously is. If it weren’t, commonly used sale agreement forms would not contain the warning that “Buyer’s election to waive the right of inspection is solely Buyer’s decision and at Buyer’s own risk.”
Other than not ignoring “red flags,” the key to handling investigation of property condition, title status and the seller’s conformance with law is advising the use of third-party experts. Advising agents to recommend to their clients consultation with third-party experts is common, and, in some regards, glib risk management advice. Such advice isn’t usually seen as helpful by agents because everyone knows that buyers and sellers do not want to spend money on third-party experts. Keep in mind, however, that while giving information and advice is often within the scope of agency for real estate licensees, making the client accept or follow that advice is not.
Take, for example, an addition or remodel done without a building permit. Such things can be real deal killers if discovered during contract performance. If not discovered until after closing, they are likely to lead to ugly lawsuits. We know that Oregon law says an agent doesn’t have to investigate whether the seller got the proper permits (past conformance with law). But, that doesn’t mean the listing agent can ignore an obvious addition or remodel or turn a blind eye to a discrepancy between what they see and the assessor’s data. It certainly doesn’t mean a buyer’s agent can ignore these things or fail to explain to their client the potential for problems if it turns out there were no permits.
An agent’s duty, according to Oregon courts, is to “give his principal information which is relevant to affairs entrusted to him and which, as the agent has notice, the principal would desire to have.” Give the advice you give based on training and experience as a real estate agent, not as a home inspector or surveyor or lawyer. Then, and this is critical if the client rejects the advice, follow up with a letter or email stating the advice given, the reason it was given, and the client’s decision with regard to the object of the advice. In other words: give the advice your training and experience tells you is relevant to the client’s performance of the contract and then document that advice.
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