The complete marketing package

The roots of the listing agent’s custom run deep in the sour soil of the MLS mentality. Although listing agents routinely fail to fulfill their general duty to properly disclose material facts affecting the buyer’s decision, selling agents are equally guilty of acquiescing to such brazen arrogance on behalf of sellers.

For the listing agent to properly marshal all his observations and collected property data in order to Holmes-proof himself and his seller, he must provide a complete marketing package to the selling agent and his buyer prior to the acceptance of an offer. In turn, selling agents must be properly apprised of property information a listing agent is required to disclose to the buyer and diligently pursue the receipt of this information on his first request for property information – long before an offer is prepared –  if the listing agent is not forthcoming, as is his custom. [For more information on the contents of a complete marketing package, see the July 2010 first tuesday article, The Natural Hazard Disclosure Statement (NHD): included in marketing packages to create transparency and attract buyers; also see the November 2010 first tuesday Form of the Month.]

The property aspects to be disclosed in a complete marketing package include:

  • physical condition (the seller’s transfer disclosure statement (TDS) and a home inspection and pest control-termite report);
  • title condition (property profile information and documents);
  • property operations (monthly ownership expenses, any rents);
  • property location (natural hazards and neighborhood security); and
  • environmental conditions (man-made conditions hostile to human sensitivities).

The prevailing customs, governed by the disastrous nexus of listing agent arrogance and buyer ignorance, all too often result in either a partial delivery or the complete suppression and exclusion of the marketing package by the listing agent, coupled with the customary refrain heard by selling agents and buyers during negotiations: “We’ll discuss this after we have a deal.” Thus the listing agent’s arrogance renders himself and his seller vulnerable to liability once material facts, which adversely affect the buyer, are allowed to first surface after an offer is accepted.

The listing agent’s arrogance renders himself and his seller vulnerable to liability.

The genesis and persistence of this erroneous disclosure custom can be attributed to a number of factors that form the listing agent’s perceptions. Culprit number one is the widely used set of forms distributed by the foremost real estate trade union in California, which is inaccurately relied upon as the gold standard for determining agent conduct. [For more information on the misconceptions regarding trade union purchase agreements, see the October 2010 first tuesday Real Estate Myth, “The seller must provide disclosures to the buyer within seven days after the offer has been accepted, and the buyer must complete his inspections within 17 days after the offer has been accepted.”]

Trade union purchase agreements implicitly promote the conduct of dilatory disclosures by entirely omitting any provisions for checks and balances to confirm that timely disclosures were actually made ASAP — prior to the acceptance of an offer. The most egregious error of the trade union forms is found in a specifically stated time period for disclosures which, without provision for confirmation of timely disclosures, runs counter to the intent of real estate law.

Paragraph 14 of the “standard” trade union purchase agreement specifies the listing agent may deliver all necessary disclosures to the selling agent as late as seven days after an offer has been accepted. The clause further states the buyer has 17 days after acceptance of an offer to exercise his right to cancel should he find the disclosures to be unacceptable.

These time periods, arbitrarily adopted by the trade union and followed as law by real estate agents, have no grounding in either statutory or case law. They are, in fact, a bastardized interpretation of the Attorney General’s (AG) mandate for disclosures to be delivered “as soon as practicable,” which is more accurately interpreted by the AG as, “as soon as possible (ASAP).” [Calif. Civil Code §§2079 et seq.; Calif. Attorney General Opinion 01-406 (August 24, 2001)]

Clearly, the soonest possible moment for a listing agent to disclose all material facts known or readily available to him would be at the moment a prospective buyer or selling agent inquires about the property. However, rather than having a complete marketing package prepared in anticipation of procuring a buyer who is ready, willing and able to make an offer, the listing agent unfailingly defers to the specious speculations (by the buyer) enshrined in his phony code of conduct: the trade union purchase agreement.

Instead of marshalling all his assets together in order to even the battleground for a clean and comprehensive set of negotiations with a prospective buyer, the listing agent relies upon his substantial armory of deceptive tactics, provided for him under the thin veil of legitimacy known as custom.

Holmes-proofing and the short sale contingency

Although the Holmes case applies to all disclosures of material fact, it is particularly poignant since the seller’s and the listing agent’s exposure to liability would have been obviated had the listing agent been prudent enough to publish his listing as what it truly was: a short sale — since his seller’s mortgage financing was upside down.

The seller in Holmes attempted to sell his home at a price short of the total outstanding debt to his lenders. Had the listing agent simply included a short sale contingency in the counteroffer he delivered to the buyer, he would have simultaneously disclosed the existence of the adverse condition of the liens by putting the buyer on notice and he would have provided an escape route – a back door provision – for the seller should the lenders not agree to accept his net sales proceeds for reconveyance of the trust deeds. [For more information on purchase agreements including short sale contingencies, see the October 2010 first tuesday Form of the Month.]

Due to the listing agent’s malfeasance in this case, the buyer was forced to exercise his right to cancel – not due to a further-approval contingency with the right to cancel held by the buyer, but due to the seller’s breach for lack of a short-sale contingency held by the seller allowing the seller to cancel the deal. As for the statutorily-mandated contingency (the notorious paragraph 14) relied upon by most real estate agents to improperly delay disclosures until escrow is opened, the buyer’s right to cancel under these contingencies is often incorrectly treated by agents as the buyer’s exclusive remedy. Again, the erroneous conduct of custom usually wins out in circumstances such as these. The buyer discovers information that adversely affects his decision to perform on the contract and cancels, believing or allowed to incorrectly believe this was his only option when dissatisfied with the property condition.

In many instances, the right to cancel does indeed seem to be the buyer’s only option, especially in cases such as Holmes v. Summer where the buyer cannot force the seller to perform on the contract due to the seller’s insolvency — a scenario that is quickly becoming a daily occurrence given the existing economic climate. However, the Holmes holding puts listing agents on notice that the seller is not the only liable party in the event that an untimely disclosure reveals a property condition that adversely affects the buyer’s decision to perform on the purchase agreement — the listing agent can be held liable to pay as well.

A custom in decline

Following the Millennium Boom, an age of fat living on sales and resales that should never have occurred and for every conceivable reason, where the status quo was reinforced at every turn and profits were to be had by all players, the Great Recession is now working its magic to lay bare the transgressions of yesterday and reveal the hubris inherent in the customs still practiced today.

As boom-time depravity is exposed, and as the courts force brokers and their agents to adhere more closely to real estate law in an ever increasing effort to protect the buying public, the era of seller dominance is steadily drawing to a close and another facet of the new real estate paradigm is taking shape. [For more information on the real estate paradigm shift, see the May 2010 first tuesday article, Looking through the window towards recovery: a real estate paradigm shift.]

The same burgeoning enclave of real estate professionals who are now forced to innovate in order to sustain themselves through the Great Recession, are also taking notice of the flaws woven into the fabric of the customs they were trained on. Because the real estate industry has suffered a violent shock in recent history, brokers and agents operating under the Holmes-proofing real estate paradigm have the chance to avoid being the victims of standard forms, customs and accepted practice.  Rules exist for most all conduct in real estate. To resort to standards, customs and practice as the only justification and last line of defense for one’s conduct is to confess to a breach of the law itself.

By dismantling the deeply entrenched custom of dilatory disclosures and the attendant arrogance of seller dominance, agents and brokers will replace the “standard operating procedure” with a more fluid approach, emphasizing the virtues of full disclosure and fair dealing – in a word, transparency .

While the system remains in flux and the recession continues to work-out the growing pains of the evolutionary real estate paradigm shift, buyer’s selling agents had better insist – and start doing so now – that the listing agent Holmes-proof himself and his seller against the innate risks of deliberately delayed disclosures so their buyers have all the property information in hand to set the price and terms to prepare and submit a “fool-proof” offer.