Best of the Hotline II

VOICE MAIL UNINTENTIONALLY OVERHEARD

Question: Buyers entered an agreement to purchase the home of their dreams. The agreement was signed shortly before the start of the school year and the buyers did not want their children to have to switch schools two months later. They therefore enrolled the children in the school district where their new property was located. The school district had no problem enrolling the children without charging tuition, provided the children took up residency in the school district within ninety days of the start of the school year. Shortly after entering the agreement to purchase, and shortly after enrolling their children in the school district, the buyers learned of a serious defect in the property that caused them to exercise their right, under the agreement, to back out of the purchase. Unfortunately for the buyers, they had sold their existing home. In addition to the prospect of being homeless, the buyers faced a substantial tuition bill in the event they did not soon reside in the school district where their children were now attending school. Normally, this would be a buyer agent's delight: buyers who had their existing home under agreement and were desperate to purchase another property as soon as possible! Unfortunately, there was little available in the school district that the buyers would have any interest in or could afford.

While touring the one available property that satisfied the buyers' criteria, the telephone rang. This was the telephone in the sellers' home, ringing at a time when the sellers or their agent were not present to answer. The buyers and their agent had gained access via a lockbox. After several rings, the answering machine picked up. The answering machine had a speaker so that incoming calls could be monitored. And who was calling? None other than the selling agent calling to announce that finally, at long last, an offer was forthcoming. Another licensee had promised to deliver a "good" offer the following day at 10:00 a.m. The sellers' agent went on to say that the other licensee promised that the offer was a "good one, nearly full list price." Keep in mind that this pronouncement was broadcast over an answering machine and was clearly audible to our friends, the buyers and their agent!

Here is the question. May the buyers take advantage of what they inadvertently learned from the listing broker? What would you do if you were the buyers' agent and you overhead the listing agent's voice message, but your buyers did not because they were elsewhere in the house?

Answer: Let me first tell you what happened. The buyers' agent and the buyers, who inadvertently overhead the message, went to work post haste. They drafted an Agreement of Sale at full list price, subject to only a mortgage contingency, and with the requirement that seller's written approval be on or before 10:00 a.m. on the following day! The sellers, knowing only that they had a forthcoming offer that was "close to list price" decided to take the offer from our friends, the buyers, before it was taken from the table at 10:00 a.m., the following morning.

Did the buyers and their agent take unfair advantage of an inadvertent phone call? If the buyers' agent alone had overhead the message, could she tell her clients of what she had learned? Rather than express my opinion, let me tell you about a weird but similar situation that occurred in the setting of a lawsuit recently resolved by the Pennsylvania Commonwealth Court. In Joyner vs. Southeastern Pennsylvania Transportation Authority (SEPTA), the plaintiff sued SEPTA claiming that he was injured when a SEPTA utility pole fell on his car. Before trial, the plaintiff, intending to call his own attorney, mistakenly dialed the number of SEPTA's attorney and left a voice mail. In the message, the plaintiff said that while he was physically able to appear and perform with his singing group, he would not do so if his attorney thought that it would be detrimental to the case! As you can imagine, the defense attorney was overjoyed to have a recording of the plaintiff stating that he would refrain from activities solely for making his injury claim look more severe than it was. In fact, the defense attorney planned to play that tape for the jury so that the jury would know exactly what the plaintiff was, a manipulating cheat.

Plaintiff's attorney fought to keep the taped message away from the jury by claiming that the message was a privileged communication between a client and attorney, even though it was inadvertently put in the hands of the wrong attorney!

The court held that there was no confidential communication under the circumstances presented. The court did not accept the argument that confidential communications are privileged simply because the client intends them to be privileged, or because the client intends them only to be directed to his attorney. The court made it clear that the parties themselves had the burden of making sure their communications are actually received by the party intended. As for our case involving the buyers and the inadvertent voice mail, there is no such thing as the licensee/client privilege - you be the judge.

Post Script--here is food for thought: Would it be legal for a listing broker, knowing that the buyers and their agent will be in the home on a given day at a give time, to place a telephone call to the seller's answering machine for the purpose of broadcasting that an offer is forthcoming! What if there really is no offer forthcoming? Hmmm, very interesting.

Listing Contracts/Code of Ethics

Question: I was approached by a homeowner who has a six (6) month listing with another broker. The listing has two (2) months to go. The homeowner is dissatisfied because there has been no activity and wants to cancel and list with me. What should I tell him?

Answer: When faced with this question, the first reaction is to duck because the law is complex and uncertain. Because the answer to this question is fact sensitive, providing an answer that is guaranteed to be accurate is impossible. However, here is one suggested response: "The answer is simple - tell the homeowner to see a lawyer." Although that is not the answer the caller wants to hear, it is the best answer. There are no reported Pennsylvania cases on point, so what follows is a statement of general principles of law and conclusions, unsupported by Pennsylvania case law. I want to emphasize that right or wrong, a licensee who gives this advice to an owner is giving legal advice, and thereby not only violates Article 13 of the NAR Code of Ethics, but also runs the risk of liability should the advice be wrong.

A Listing Agreement is known as an "Agency Without an Interest." In an Agency Without an Interest, the principal has the "power" but not the "right" to cancel. What does this mean?

Since the principal has the "power" to cancel, it means that if the owner tells the broker the listing is canceled, it is canceled and the licensee can no longer act as the agent for the principal! It is as though the listing expired, but the broker may have a remedy for breach of contract. The broker should remove the sign from the property, return the keys and remove the listing from the multi-list. He is no longer the listing agent.

As noted above, the owner did not have the "right" to cancel. This would be better stated as "the legal right" to cancel. This means that if the broker can prove that he suffered damages, i.e., the amount of the commission or the fair cost of his labor and expenses as a result of the cancellation, he can collect them from the owner. One measure of damages arises when the broker can show that there was an offer about to be made for the list price at the time of the cancellation. Under these facts, the broker could probably recover his commission. More troublesome is the situation where the property is re-listed and sold during the term of the canceled listing. What a court would do in this instance is anybody's guess, but the case can be made that damages should be awarded.

Finally, this Article is not intended to apply to the situation where the owner cancels and sells the property himself. That is a subject that can await another day, but suffice it to say that in such instance the listing broker could collect his commission.

Mortgage Fraud

Question: I am involved a real estate transaction where, despite the lack of finances by the buyer, the mortgage broker assured me that "we can make this work." I am not very comfortable with the suggestion by the mortgage broker. Should I be concerned?

Answer: Most calls have come into the PAR Hotline recently concerning "Creative Mortgage Financing." Mortgage originators are finding new and creative ways to qualify borrowers for residential loans. REALTORS® and Buyers should be warned that some of these creative financing techniques may be fraudulent and violating federal law. An example is found in the following scenario involving the intentional inflating of the purchase price:

A buyer is shown a $100,000 property by his REALTOR®. The buyer makes an offer subject to a mortgage contingency, which Seller accepts. After Buyer applies for financing, Mortgage Originator advises that Buyer does not qualify for a mortgage at $100,000, absent 20% down. The buyer advises that he can put very little money down. Mortgage Originator then says "we can still make this work, if the seller cooperates." Seller, who is eager to sell the property, is "all ears." Mortgage Originator suggests that the Seller re-list the property for $125,000 and the Buyer make a full price offer. The buyer is then instructed to apply for a $100,000 loan from Mortgage Company and give Seller a second mortgage on the property for $25,000. What the loan originators has done is suggest to the seller that he inflate the purchase price in order to give a more favorable loan to value ratio. With the more favorable loan to value ratio, the loan is processed under more favorable mortgage lender rules, such as no requirement for mortgage insurance or escrow monies to be withheld. The difference between the actual purchase price and the inflated purchase price is shown on the settlement sheet as a second mortgage in favor of the seller. This second mortgage is immediately satisfied after settlement for zero dollars. The buyer has his house, the seller has his money, and Mortgage Originator perhaps sells the mortgage in the secondary mortgage market.

The above scenario demonstrates nothing short of mortgage fraud. The lending institution is fraudulently being led to believe that it is lending only a percentage of the purchase price. REALTORS® should be aware that such practices are mortgage fraud, which constitutes a federal crime. Section 1014 of the United States Criminal Code provides that:

Whoever knowingly makes any false statement or report, or, willfully over values any land, property or security, for the purpose of influencing in any way the action of . . . a federal land bank, a federal land bank association, a federal reserve bank, a small business investment company, a federal credit union, an insured state chartered credit union, any institution the accounts of which are insured by the federal deposit insurance corporation, the office of thrift supervision, any federal home loan bank, the federal housing finance board, the federal deposit insurance corporation, . . . or any organization operating under Section 25 of the Federal Reserve Act, upon any application, advance, discount, purchase, purchase agreement, repurchase agreement, commitment, or loan, or any change or extension of any of the same, . . . shall be fined not more than $1,000.00 or imprisoned not more than thirty (30) years, or both.

Participating in mortgage fraud may also violate the Real Estate Settlement Procedures Act (RESPA) and various federal lending regulations. Under the Real Estate Licensing Act, the Commission may suspend or revoke a license, and levy fines up to $1,000.00 where a licensee is: 1) found guilty of making a substantial misrepresentation; 2) engages in any conduct in the real estate transaction that demonstrates bad faith or dishonesty; or 3) is convicted in state or federal court of conspiracy to defraud, or any similar offense.

The REALTORS® who knowingly participates in mortgage fraud risks federal criminal exposure, as well as his or her license to practice real estate. Perhaps a greater risk is the increased exposure to civil suit. Lenders have already filed civil suits in Pennsylvania against title agents, sellers, and real estate licensees who have participated in such transactions. The basis of the suits is conspiracy, fraud, and other claims. Where fraud is pleaded, errors and omissions insurers may not provide coverage meaning that the licensee and broker may be personally exposed to large monetary awards. Every broker should assure that affiliated licensees do not participate in these transactions.

Branch Offices

Question: What constitutes a "branch office" for purposes of the Rules and Regulations and the Licensing Act?

Answer: A broker in a rural area of the state wants to save customers from surrounding communities the inconvenience of traveling to his main office by renting office space in a nearby town. There would be no one working out of the office on a daily basis, no secretary or receptionist, and the office would only be open by appointment. The sole purpose of the office would be for the broker or his salespersons to meet a client by appointment. Under these circumstances, do the Rules and Regulations require a branch office license?

Section 35.243 of the Rules and Regulations provide:

(a) a broker . . . may not open a branch office in this Commonwealth without first obtaining a branch office license for that location from the Commission. A broker . . . who wants to obtain a Pennsylvania branch office license shall submit a completed license application to the Commission with the license fee prescribed in § 35.203.

(b) a branch office license will be issued in the name under which the broker . . . who is licensed to conduct business at the main office.

(c) a branch office terminates automatically with the suspension, revocation or discontinuance, for whatever reason, of the license of the broker . . . to whom the branch office license was issued.

The Rules and Regulations also provide that a branch office must be under the direction and supervision of a broker or associate broker. The current license of a broker must be displayed in a conspicuous place at the branch office. A branch office license is required for each additional office maintained by a broker.

The Licensing Act and the Rules and Regulations do not define a "branch office," but it is likely that even a "meeting place" would be considered a branch office. Obviously this does not mean that the local coffee shop where clients and licensees meet needs a branch office license. However, where the primary purpose or regular use of the office is to discuss real estate matters and conduct licensed activity, the office must comply with the requirements of § 35.241-35.246 of the Rules and Regulations. Even an office that is not generally open to the public and does not maintain employees, must comply with the Rules and Regulations and obtain a branch office license from the Commission. The licensing fee for a branch office is $50.00, far less than the likely fine for violating the Rules.

The Real Estate Commission has issued Guidelines for home offices. These Guidelines may be found at the Real Estate Commission's website (an easy way to get to the Real Estate Commission's website is to get there from a hyperlink found on PAR's website at http://www.parealtor.org. The Guidelines suggest that licensees will perform phone work, document preparation, computer work, research and scheduling of appointments in the home. The Guidelines further provide that licensees may not have signs that the home office, that advertisements have to be in conformity with Regulation 35l.305(b) (having to do with the name and telephone number of the Broker being given greater prominence than the name and telephone number of the licensee), that licensees may not advertise a separate address as a home office and that correspondence has to be addressed to the licensee at the Broker's main or branch office address. The Rules and Regulations do not indicate whether a licensee may meet a consumer at the licensee's home. Counsel to PAR suggests that meetings at the home do not take place and that Broker's establish strong office policies with respect to what activity may be conducted out of the home.

Advertisements on Internet

Question: Does § 35.305, governing a business name on advertisements, of the Rules and Regulations of the Real Estate Commission apply to advertising on websites?

Answer: Many REALTORS® have taken advantage of the marketing capabilities of the Internet via REALTOR.Com and other broker Web pages. The hotline has received many similar calls regarding advertising on the Internet. Section 35.305 of the Rules and Regulations relating to a business name on advertisements, provides:

(a) a broker shall advertise or otherwise hold himself out to the public under the business name designated on the license.

(b) an advertisement by an associate broker or sales person shall contain the business name and telephone number of the employing broker. The name and telephone number of the employing broker shall be given greater prominence in the advertisement than the name and telephone number of the employee.

Clearly a website meets the criteria of an advertisement under § 35.305(b). The Real Estate Commission has taken the position that an advertisement includes any information that is intended to be communicated to the public or to an individual. An advertisement may include listings in newspapers and home magazines, office signs, for sale signs, letterhead, business cards, and website locations. Advertising on the Internet must comply with § 35.305 of the Regulations. The Commission issued a policy statement that each page of the website must comply with § 35.305. The Commission also recommends that the address, city, and state of the office be included on each page of the website. So, before you find yourself in "www.hotwater.com," take the time to review the Rules and Regulations regarding advertising, and make sure your websites are in "www.compliance.com!"

Listing Agreements

Question: Seller entered into an exclusive Listing Agreement with Broker-1 to sell her residence. The Listing Agreement provides for a term of six months with an option to terminate at any time by either party. Broker-1 puts a "for sale" sign in Seller's yard, lists the property in the MLS, and advertises in local real estate magazines. After several months of inactivity, Seller receives a mailing from Broker-2. After reviewing the mailing, Seller decides that she wants Broker-2 to list her property immediately. Seller contacts Broker-1 and terminates the Listing Agreement, then re-lists the property with Broker-2. A month later, an offer is made on the property and the house is sold. Broker-1 files an Ethics Complaint against Broker-2 citing Article 16 of the NAR Code of Ethics. Did Broker-2 violate Article 16?

Answer: Article 16 of the NAR Code of Ethics provides:

REALTORS® shall not engage in any practice or take any action inconsistent with the agency or other exclusive relationship recognized by law that other REALTORS® have with clients.

Standard of Practice 16-4 prohibits a REALTOR® from soliciting an exclusive listing of another REALTOR®. Broker-1 claims that Broker-2 violated Article 16 by soliciting a listing that was currently listed exclusively with another broker. However, Standard of Practice 16-2 provides that REALTORS® are not precluded from making general announcements to prospective clients in which they describe their services and the terms of their availability, though some recipients may have entered agency agreements with another REALTOR®.

Whether or not Broker 2 violated Article 16 depends on the language in the "mailing" sent to Seller. General telephone canvasses, general mailings or distributions addressed to all prospective clients in a given geographical area or other classified group are permissible even though some recipients may be under an exclusive agency agreement with another broker. If the mailing received by Seller was a general mailing, not specifically targeting Seller, then Article 16 was not violated.

On the other hand, if Broker-2 mailed advertisements specifically to Seller because her property was on the market, then Broker-2 violated Article 16. Article 16 is designed to prevent target telephone and personal solicitations of prospective clients whose properties are exclusively listed with another REALTOR®. The key is whether the solicitation is part of a general mailing or directed specifically to property owners identified as having their property on the market.

Article 16 does not preclude REALTORS® from contacting the client of another broker for the purpose of offering to provide a different type of real estate service unrelated to the type of service currently being provided, i.e., property management as opposed to brokerage services. Further, if the listing broker, when asked by another broker, refuses to disclose the expiration date and nature of an exclusive listing, the other broker may contact the owner to secure such information. The broker may then discuss the terms upon which the REALTOR® may take a future listing, or a listing to become effective upon expiration of any existing exclusive listing.

Adding a twist to the above facts, what if the buyer is someone whom they showed the property during the term of Broker-1's exclusive listing contract? Paragraph 8(b) of the PAR Standard Listing Contract provides that a broker will earn his fee after the ending date of the contract if the buyer were shown, or negotiated to buy, the property during the term of this contract. However, the seller will not owe a commission if the property is listed under an exclusive right to sell contract with another broker at the time of the sale. Under this scenario, even though buyer was originally shown the property while it was under contract with Broker-1, Broker-1 is not entitled to a commission because Seller entered a subsequent exclusive right to sell contract with Broker-2.

Broker-1 obviously put himself at a severe disadvantage by providing for a "free way out" of the listing agreement for the Seller. The PAR Standard Listing Contract does not provide for such termination options. In fact, it can be argued that unless supported by consideration, the termination option provided to the Seller made the entire listing contract unenforceable. While some clients may wish to have such a clause so they do not feel tied down, REALTORS® should carefully consider including such a clause.

Comparative Market Analysis

Question: Does incorporating a review of "comparables" into a comparative market analysis transforms a CMA into an appraisal for which a license is required?

Answer: The Licensing Act defines "comparative market analysis" as follows: "A written analysis, opinion or conclusion by a contracted buyer's agent, transactional licensee or an actual or potential seller's agent relating to the probable sale price of a specified piece of real estate in an identified real estate market at a specified time, offered either for the purpose of determining the asking/offering price for the property by a specific actual or potential consumer or for the purpose of securing a listing agreement with a seller."

Nothing in this definition says what specifically may or may not be included in the "written analysis." If a review of adjustments is an essential part of the analysis, then why not include them? Absent an express prohibition under the Act, a REALTOR® can incorporate what he or she wishes into the CMA. Keep in mind that the following statement that must be printed conspicuously on the front page must accompany every CMA, and may not be altered:

THIS ANALYSIS HAS NOT BEEN PERFORMED IN ACCORDANCE WITH THE UNIFORM STANDARDS OF PROFESSIONAL APPRAISAL PRACTICE WHICH REQUIRE VALUERS TO ACT AS UNBIASED, DISINTERESTED THIRD PARTIES WITH IMPARTIALITY, OBJECTIVITY IN INDEPENDENCE AND WITHOUT A COMBINATION OF PERSONAL INTEREST. IT IS NOT TO BE CONSTRUED AS AN APPRAISAL AND MAY NOT BE USED AS SUCH FOR ANY PURPOSE.

Another Question on Comparative Market Analysis

Question: May a licensee charge a fee for a CMA?

Answer: There is not prohibition against charging a fee for preparation of a CMA. Keep in mind, however, that a CMA may only be performed when determining the probable sale price for determining the asking or offering price for a seller or buyer. It is unlikely that you would charge a buyer client a fee for helping that buyer determine an appropriate amount to offer the seller for the purchase of the property, but doing so is permissible. Likewise, it is not often that you charge a seller a fee for determining the appropriate list price of a property. We have heard of licensees who provide a CMA at a listing interview with the seller having agreed to pay for the CMA in the event that the seller does not list with the licensee who provided the CMA. Charging a fee does not, in and of itself, deem the furnishing of a CMA an illegal act.

BPO's

Question: Can a licensee prepare a Broker Price Opinion, and if so may a fee be charged.

Answer: A Broker Price Opinion is not a legally defined term as are appraisals and comparative market analysis. Under the law, when a fee is charged for a BPO, it will either be deemed to be an appraisal or a comparative market analysis. To be considered a comparative market analysis, the BPO would have to meet the definition of comparative market analysis that is found in one of the proceeding questions. It would have to be provided in connection with determining the value of the property for listing the property for sale or for making an offer on behalf of a buyer. Lenders will frequently ask for BPO's when there is only an outside possibility of the property being listed for sale with the licensee. Because the BPO is not being performed specifically for obtaining the listing, it unlikely that any court would consider that BPO to qualify as a comparative market analysis that may be performed by a real estate licensee.

If the BPO does not qualify as a CMA, which most likely it will not, then the BPO must satisfy the requirements attached to the appraisal process. An appraisal is defined as "a written analysis, opinion, or conclusion relating to the nature, quality, value or utility of specific interests in, or aspects of, identified real property, for or in expectation of compensation." If the BPO expresses an opinion of value and there is a fee for the same, it will be deemed to be an appraisal unless it could be found to be a CMA. If it is an appraisal, the author must be certified and must adhere to the Appraisal Act and Rules and Regulations of the Appraisal Board and the Uniform Standard of Professional Appraisal Practice.

PAR legal counsel thinks that the term BPO should not be used as any written expression of value for a fee. Must either an appraisal or a comparative market analysis.

Letters of Intent

Question: The buyer and seller signed a one-page document that was written on a real estate broker's stationery. The document was dated, and provided as follows:

"Price and Terms for [property] between, [owner] and [buyers] are as follows:

Price $310,000.00

Down Payment $ 80,000.00

Mortgage and Note

to be finance by seller: $ 230,000.00 at 6% Principle and

Interest for 15 yr. Term, 7 year balloon.

Terms to be accepted by buyer and seller."

The fact that the owner and buyers all signed the document is not in dispute. The sale, nevertheless, did not occur to the dismay of the buyers. What recourse do the buyers have? Can they enforce the agreement and require the sellers to sell the property under the terms of the signed document?

Answer: Hotline attorneys frequently take calls involving "letters of intent." While there is no specific form, letters of intent generally take on the appearance of an "agreement to agree." Many times their enforceability is not considered or questioned. When a letter of intent has been submitted and the parties fail to reach the settlement table, the result can be a lawsuit that includes the real estate licensees. In January 1999, the Pennsylvania Superior Court decided a similar issue in Rose v. Delese. The legal issue is whether or not the requirement that real estate sales contracts be in writing, is satisfied by a letter of intent. As the Court noted: "[I]f this alleged contract does not meet the specific requirements of the statute of frauds, we will not have the authority to order specific performance." The Court went on to hold that any document that shows that the parties are "still in the process of negotiation or which looked towards some future contract" is not satisfactory. Letters of intent that are not complete contracts because they call for additional terms or clarification, are insufficient as a matter of law.

PAR members are well advised to steer clear of letters of intent. They should advise buyers and sellers who want to initiate a transaction with such a document that the document may not be enforceable, and that they should consult an attorney.

Brokers

Question: "The Case of the Stolen Tombstone." A Best of the Hotline spine-tingling chiller/thriller from the netherworld? It would not be the first horror story we've recounted. There's the case of the missing escrow (eeeeeeek); that one about the failure to disclose (the house with the gurgling septic tank); and who can forget the case of the mysterious neighbor (the licensee sued for selling to a "madame"), just to mention a few. But the only Halloween call we ever received goes like this:

A broker thought that decorating the office building for Halloween would be fun. After the haunting effects were in place, one entering via the front door was required to amble through a cemetery marked with tombstones bearing "R.I.P." The stones themselves were not nameless, each bore the name of a competing office! All went well in the cemetery, until one day . . .

One day . . . no, one damp, chilly night there emerged from the shadows, a figure whose features were barely made out when the pale moonlight breached the high wispy clouds. This was no apparition, no walking dead, not even a vampire. No, not a trick-or-treater. Rather, it was an indignant broker whose company name just happened to match the name on one of the tombstones! This broker was observed in the wan light of the office vestibule as she plucked the heavy appearing stone "marking her grave," and fled into the night.

Theft or unlawful disparagement? Did the broker who took the tombstone, with a claimed retail value of $25.00, commit an act of theft? Did the broker who "buried" his competition commit an act of unlawful disparagement?

Answer: Under the Pennsylvania Crimes Code, a person is guilty of theft by unlawful taking or disposition "if he unlawfully takes or exercises an unlawful control over, moveable property of another with intent to deprive him thereof." Because the value of the tombstone was less than $50.00 the crime would be a summary offense. Of course, dear readers, the question of guilt or innocence has little to do with what I say, but rather with what the district justice pronounces.

As for the broker who buried the competition, whether you view his prank as friendly competition, good natured ribbing, or an act of ghoulish cruelty, he has violated no law. Whether he has violated rules of common decency, we leave to your judgement.

Next Halloween I will tell you my story about the cremation urn that could not be found in the box of "packing material." Of course that has nothing to do with real estate, but it is far more intriguing.

Common Hotline Questions Regarding Act 112

Question: The Buyer has signed a Consumer Notice. Must the Buyer now sign a Business Relationship Agreement?

Answer: By law, real estate licensees are to have most buyers and tenants sign either an agreement (contract) or disclosures before licensed services are provided. The Business Relationship Agreement was designed by PAR's Standard Forms Committee to assure that licensees would have no difficulty satisfying this legal obligation. The law can also be satisfied by using non-PAR forms that are Act 112 compliant. Licensees should take their direction from the company policy or from their broker, directly. Brokers who choose not to use standard forms are advised to have their forms reviewed by legal counsel who can advise whether or not they are a suitable substitute under the circumstances in which they are to be used.

Question: What in the Act requires the buyer to sign a Business Relationship Agreement?

Answer: Several provisions are responsible. First, about buyer agency, section 608.1 requires that "an agreement between a broker and a principal . . . shall be signed by the consumer . . . " This language requires that every buyer who is represented by a buyer agent have a contract that is signed. Simply stated: if there is an agreement, it must be in writing and signed by the buyer. It is a truth that Buyer agency, and the derivative relationships of dual agency and designated buyer agency, cannot exist without some agreement. Serving it as an agent for a principal without the principal's understanding and consent is not possible. That understanding and consent, whether detailed and negotiated or based on the slimmest of tacit understandings, is an agreement; ergo, it must be written.

Second, section 606.1(b)(1) of the Licensing Act provides that: "[a] licensee may not perform a service for a consumer of real estate services for a fee, commission or other valuable consideration paid by or on behalf of the consumer unless the nature of the service and the fee to be charged are set forth in a written agreement between the broker and the consumer that is signed by the consumer." Most buyer clients are obligated to pay a fee if the listing broker does not pay their buyer agent. This potential obligation imposes the necessity of memorializing the buyer agency agreement in writing.

Third, section 606.1(b)(4) states: "[a] subagent or transaction licensee who is cooperating with the listing broker for a fee paid by the listing broker or seller shall provide the buyer, prior to performing any services, with a written disclosure statement signed by the buyer, describing the nature of the services to be performed . . . " Subagents and transaction licensees who do not charge the buyer a fee, do not have to have agreements with "their" buyers. Rather, they have to provide written disclosures. PAR thought that having the subagency and transaction licensee disclosures on one paper with the buyer agency contract would be easier. Thus, any licensee working with a buyer has on one form just about everything needed for signing by the buyer before going to work.

Question: When must the buyer sign the Business Relationship Agreement?

Answer: The licensee's relationship with the buyer has to be established before any real estate services are provided by the licensee. "Real estate service" is defined as an act requiring a real estate license. The Real Estate Commission has occasionally issued "policy statements" identifying certain acts as falling within the category of "licensed services." They include hosting an open house and making cold call solicitations. Lawsuits will occasionally further define the concept, though for the most part there is very little case law available to interpret the Licensing Act, and determine what acts may only be performed by a person who is licensed. What is clear is that if a licensee is going to do something for a buyer, and only a licensee can perform that act, then the buyer better sign a Business Relationship Agreement before the act is performed.

Question: How do I deal with a buyer who will not sign the Business Relationship Agreement?

Answer: Some buyers do not want to sign a Business Relationship Agreement. Most buyers do not hesitate to sign the Consumer Notice, however they "just aren't ready to commit" to anything else. Some buyers are unsure about entering into a buyer agency contract and prefer to develop some rapport with the licensee before committing to a relationship that must endure for a specific term. Perhaps the Buyer does not want to take the time to understand subagency or transaction licensee; they just want to see the house. So, what do you do? The best answers to this question come from licensees.

Explain that, whether it is discussed or not, the licensee will fill some role in showing the property. Naturally, or by law for that matter, the licensee will function as either a buyer agent, seller agent, or, if your office permits it, as a transaction licensee. The Buyer must be aware of the nature of the relationship with the licensee in order to assure that the buyer is treated as the law requires.

Understandably, there will be difficult buyers. If the Buyer is concerned about "commitment," then reduce the term of the contract. Offer to limit the buyer agency contract to a weekend, a day, or only hours; perhaps make it terminable at any time by the buyer. Licensees know that a piece of paper is not what keeps the buyer committed to working with them. Share that with the buyer. If the buyer is concerned about owing a fee, explain how commissions are split between cooperating brokers. Tell the buyer about the number of times you have actually charged the buyer fee. Develop a method of dealing with reluctant buyers.

Question: Since the passage of Act 112 I have run into buyers who have signed multiple buyer agency contracts. Is this permitted.

Answer: Just as sellers can sign multiple listing agreements, buyers have the ability to enter into more than one buyer agency contract. Of course, obligating oneself to pay multiple fees for the same service makes no sense? The problem has arisen because of the need to establish a business relationship with a consumer before providing the consumer with licensed services. Consumers need a licensee for the first time and seek minimal licensed services. These might include discussing the attributes of a specific property and nothing more. Though the agent is providing little in terms of service, some business relationship needs to be selected and identified in writing.

It does make a great deal of sense to have the relationship between a buyer and a licensee to be an agency relationship. This would require the use of a buyer agency contract. The problem may be that the buyer is not yet ready to commit to the particular licensee, even though that buyer is ready to take a few licensed services from the licensee. What to do?

Having the buyer enter a buyer agency contract would be appropriate in these situations. The contract may be limited in duration to a day, week, etc. What must be understood and explained to the buyer, however, is that the very first line of the PAR buyer agency contract makes the buyer agency contract an exclusive contract; "This Contract applies to any property that buyer chooses to buy during the term of this contract." It should be explained that as long as the contract is in effect, any purchase the buyer will result in the obligation to pay a fee (should the buyer agent not receive the fee from the cooperating listing broker). The buyer agent's broker protection clause should also be explained. If the buyer, during the term of the buyer agency contract, see a property that buyer ultimately purchases, that buyer agent is entitled to a fee. PAR is considering changing this broker protection clause to make it similar to the broker protection clause found in the listing contract. In other words, the broker protection clause might, in the future, read that the buyer's broker fee will be paid if, following the expiration of the buyer agency contract, the buyer purchases a property that was seen during the term of the buyer agency contract unless the buyer has re-listed with another buyer agent.

It is best to advise buyers that the buyer is not likely to pay a fee provided that the buyer works through the buyer agent. As long as the buyer agent is permitted to be the procuring cause of the sale, the buyer agent is likely to be paid by a listing broker (virtually 99% of all Pennsylvania licensees offer to compensate buyer agent). You can advise the buyer that when the buyer agency contract expires, the buyer is free to enter a buyer agency contract with any other licensee. Hopefully, that will not occur, but, in the event that it does, the buyer should keep in mind that any property seen during the term of the buyer agency contract, may result in that buyer agent earning a fee even after the expiration of the contract. For this reason when buyers enter a second buyer agency contract, they should consider whether they are seriously interested in one of the properties seen during the term of the previous contract. If so, they should negotiate an exclusion before entering their next buyer agency contract.

Question: The buyer says he probably will hire me as a buyer's agent, but he just isn't ready to sign anything. He just wants me to take him to look at a property. Can I show him this one property without a Business Relationship Agreement?

Answer: If the consumer is "paying a fee, commission or other valuable consideration," or may be obligated to do so, you must have a signed, written agreement. If you are serving as a buyer agent and have waived any possibility of the buyer paying a fee, you must have a signed agreement. If you are going to that house as a subagent or transaction licensee, you are required to provide the buyer with a disclosure identifying your role. PAR's Business Relationship Agreement will handle all of these possibilities. PAR urges licensees and consumers to agree upon the services that will be provided, and have the appropriate form signed, as soon after the Consumer Notice is signed, as is possible; certainly before any licensed service is provided.

Question: My office does not provide buyer agency. Must we use the Business Relationship Agreement?

Answer: Yes, or a substitute form that also satisfies Act 112. PAR has developed its Business Relationship Agreement form to accommodate any licensee working with a buyer in any situation. If you never practice buyer agency, you may find it odd using a form, a substantial portion of which is devoted to buyer agency. Of course many licensees who do not practice buyer agency are using the form without difficulty by simply checking the seller agency or transaction licensee box at the top of the form and skipping altogether the buyer agency contract in the middle of the page. This is how they designed the form to work.

It is possible that PAR will develop a shorter version of its Business Relationship Agreement form that omits the buyer agency provisions. Since only disclosures would remain, they would likely remove the word "Agreement" from the title. This might be useful to those who only represent sellers who want a way of confirming disclosure of this relationship to the buyer.

Question: If I am working with the buyer as a seller agent/subagent or transaction licensee, and I am charging a conveyance or transaction fee, do I need any other form?

Answer: From the questions and answers already given, you know that when working with the buyer as a subagent or transaction licensee, you do need to have a disclosure statement signed by the buyer. This is found at the top of the Business Relationship Agreement. You also know that anytime a fee is charged to any consumer, an agreement must be signed. The Business Relationship Agreement has no place to obligate a buyer working with a subagent or transaction licensee to pay a fee. PAR has created a Consumer Services Fee Addendum to the Business Relationship Agreement/Listing Agreement for these circumstances. This form is not available for purchase, but may be obtained through Fax-on-Demand. You will need to alter the form by indicating what service you are providing to the buyer in exchange for imposing the fee. Charging a non-client buyer a fee without a signed document that complies with Act 112 is a violation of Act 112.