This article looks at the rule that all offers received by a seller’s agent must be promptly submitted to the seller for their acceptance, rejection or counter, and dispels the myth that California real estate brokers and their agents are only allowed to use real estate forms published by trade unions.
Arrogance in defiance of fiduciary duties
A buyer and his agent locate a property satisfying the buyer’s requirements. The buyer’s agent prepares an offer for the buyer to sign and deliver to the seller’s agent. The offer is written on a form with provisions in compliance with California law, but is not published by the seller’s agent’s trade union, the California Association of Realtors (CAR).
The seller’s agent, generally unfamiliar with the form the offer is written on and unwilling to read and review it, does not submit the offer to his seller. The seller’s agent advises the buyer’s agent that if he wants the offer submitted it must be written up on the trade union’s “standard” form.
In the interim, the seller’s agent receives an offer from another equally qualified buyer. The offer, written on a form published by the trade union and prepared by a fellow union member, contains terms of purchase which are different than the terms of the first offer he did not submit to the seller. The offer written on the trade union form is submitted to the seller, who accepts.
Later, the seller discovers the existence of the prior offer that was deliberately withheld from him by his agent. The seller had no idea a competing offer existed.
Here, the seller’s agent breached his fiduciary duties owed to his client since he failed to advise his client, the seller, of the existence of an offer. The offer was never submitted to the seller for acceptance or rejection, fundamental to the very basic function of real estate practice and integral to the seller’s agent’s representation of the seller. Furthermore, the conduct of the seller’s agent is an offense reportable to the Department of Real Estate (DRE) who may take disciplinary action against the seller’s agent – and the seller’s agent’s broker, if warranted.
A broker or agent may not exercise personal discretion in determining whether to submit an offer, oral or written (or be concerned about the form it is written on), to the seller they have undertaken to represent. Failure to present all offers, when received, is comparable to an affirmative representation to the seller that the offer to purchase does not exist. The failure denies the seller the opportunity to consider and weigh all offers the agent has received, and better understand buyer demand in the market. [Simone v. McKee (1956) 142 CA2d 307]
As stated succinctly in the oft-cited real estate digest, Miller and Starr, “The [seller’s] broker must disclose to his principal-seller all offers that have been made by any person, whether the offer is only oral or in writing, and even though the seller has accepted another offer.” [Miller and Starr §3:27]
Freedom of choice
Many brokers erroneously believe they are legally compelled to use forms published by their trade union. However, the DRE clearly states and enforces the policy that seller’s agents, under their fiduciary duty owed to the sellers they represent, must present all offers received regardless of the form on which the offer is written. [See “Being an agent means never having to say you’re sorry,” DRE Real Estate Bulletin, Fall 2001, Page 12]
The California real estate industry has an extensive variety of boilerplate contracts for practically any contractually negotiated real estate situation. A broker may use any contract he chooses. Other brokers, trade union associations, insurers and the multiple listing services (MLSes) may not and do not require a broker to use a particular form. Though CAR forms are ubiquitous, offers and other real estate transaction forms may be written on any number of other legal formats, such as those published by RPI (Realty Publications, Inc.) [See Chapter 20 of the DRE’s Reference Book – A Real Estate Guide]
No one approves forms sold by publishers; not the State Bar (although prior to 1980 it did), the DRE or trade unions. Each publisher is responsible for the content of the forms it publishes, unless the forms are either:
- mandated for use by dictate of the state legislature, such as the Agency Law Disclosure – Disclosure Regarding Real Estate Agency Relationships [See RPI Form 305], Condition of Property Disclosure – Transfer Disclosure Statement (TDS) [See RPI Form 304] and the Natural Hazard Disclosure Statement [See RPI Form 314]; or
- generic forms, such as net sheets, costs sheets, etc.
Each form mandated for use by the state must have the same content – no matter who publishes it, and many do.
Your professional use of real estate forms
The use of printed commercially-published forms in lieu of independently-drafted forms to document real estate related transactions and services is justified for two reasons.
First, a commercially-published form satisfies the writing requirements mandated by the Statute of Frauds for most real estate transactions. [Calif. Civil Code §1624]
Second, a commercially-published form generally provides clarity of meaning and more uniformity in agreements and disclosures than typically results from independently-drafted forms.
However, not all published forms feature the same level of quality, clarity and utility. Nor are they all biased favoring the same side in a transaction.
Commercially-published forms provide a checklist of possible variables in a transaction for everyone to consider, thus decreasing the potential for error. Published forms limit the task of brokers and their agents to reviewing the provisions and filling in blanks and checking boxes to indicate the provisions included in the agreement or disclosure.
The concept that “all forms are not created equal” becomes quickly apparent on the review of a form since the wording in each publisher’s real estate purchase agreement manifests their form’s inherent prejudice when put to use.
So how are RPI forms distinguishable from the forms offered by other publishers?
RPI forms are drafted to provide maximum loss mitigation protection for brokers and their agents. To this end, RPI forms do not contain clauses which tend to increase the risk of litigation or generally work against the best long-term interests of the buyer, seller, agent and broker. Deliberately avoided provisions include:
- an attorney fee provision, which tends to promote litigation and inhibit resolution, not settlement or inaction;
- a time-essence clause, for the reason future performance (closing) dates are, at best, estimates and opinions by the broker and his agents of the time needed to close. These target dates are too often improperly used by sellers in rising markets to cancel the transaction before the buyer or broker can reasonably comply with the terms of the agreement;
- a liquidated damages provision, since it creates unenforceable expectations of windfall profits for sellers which are nearly always uncollectible forfeitures in a flat or rising market; and
- an arbitration provision, since arbitration decisions deprive disputants of fundamental legal rights and are final and unappealable, without any judicial oversight to assure the arbitrator’s award will be fair or correct.
Risk reduction calls into play provisions for resolution of disputes by mandatory mediation as they mitigate the risk of a long and costly legal battle. Mediation of any dispute must be undertaken as a precursor to filing an action, be it arbitration or litigation, to bring about a mutually agreeable solution. Mediation is a quick process, and is the most cost effective and personally satisfying method of dispute resolution: restorative justice, by another descriptive title.
The wording of forms presented to members of the public is best if the words used are ordinary and of plain meaning; engineered simple, a difficult task in any discipline. By eliminating the clutter of lengthy and unfamiliar language and publisher self-promotion,forms become concise, complete and easily understood. As an example, even title insurance policies are now written in plain-talk for regular people to read and understand.
The bias regarding who is to benefit most from the wording of provisions in purchase or lease agreements is stunning. The trade union agreements are patently in favor of sellers and owners, a product of rising prices which created and sustained the seller’s market from 1978 and 2006. RPI agreements are drafted to contain provisions a prudent buyer or tenant would consider best for them since it is they who are making the offer, not the owner. The buyer’s market of this and the coming decade will test these biases.
Get it in writing
But what is a buyer’s agent to do when faced with the stubborn reticence of a seller’s agent who is a trade union devotee?
When faced with an uninformed seller’s agent who refuses to review and submit an offer prepared on non-trade union forms, the buyer’s agent needs to insist that a counteroffer or formal rejection of the offer is signed by the seller and returned – if the seller is not going to accept the offer handed to the seller’s agent.
A rejection occurs by:
- a signed, written rejection stating no counteroffer will be forthcoming [See RPI Form 150; Rejection of Offer]; or
- submitting their own offer on different (and usually incorporated) terms, a document referred to as a counteroffer (or preparing and submitting a different purchase agreement form in response as the counteroffer). [See RPI Form 180; see RPI Form 150]
This article was previously posted in 2011, and has been updated.