Battle of the Barristers “exceeds expectations”

Exploding water heater. The Realtor® next door. The unread pre-inspection. Termination versus rescission. The joy of gardening. The secretive HOA. Those were the topics for this year’s sold-out Battle of the Barristers which “exceeded all expectations,” according to Marie Hansch, director of business practices at Seattle King County Realtors® (SKCR).

Five top real estate attorneys exchanged opinions on wide-ranging legal topics plus a “lighting round” on Form 41, the Buyer Brokerage Services Agreement. Plenty of good-natured barbs were also exchanged during their “battles.”

As one of SKCR’s signature events, the October 17 program attracted 660 registrants and raised more than $41,000 for the association’s First Citizen Scholarship Foundation. Nearly two dozen exhibitors also participated, led by OriginPoint and ShowingTime+.

Mike Spence, the moderator, said the six legal scenarios were “loosely based” on actual cases. Spence is general counsel for SKCR, a partner at Helsell Fetterman LLP, and a licensed real estate law instructor. Joining him were panelists:

• Annie Fitzsimmons, legal hotline lawyer for Washington Realtors® and a licensed real estate law instructor.
• Andrew Mathews, outside counsel for NWMLS & CBA, of counsel attorney at Stoel Rives LLP, and a residential and commercial real estate law attorney.
• Lars Neste, shareholder at Demco Law Firm, P.S., a real estate law specialist and a licensed real estate instructor.
• Erin Varriano, general counsel for John L. Scott Real Estate.

Scenario 1 Recap

The opening case involved a burst water heater after the buyers and sellers entered into a Purchase and Sale Agreement with an inspection contingency. Significant damage occurred. Upon conferring with her designated broker, the buyers’ broker prepared a Form 35R with custom language calling for a hold-back of $100,000.

Meanwhile, the sellers learned water heater failures are not covered by their insurance and warranty companies so they arranged for repairs—which would take around six months and require a $50,000 upfront deposit. They then checked the “seller rejects” box on the 35R form. They also rejected the buyers’ request for an extension, deciding their renovated house “will be nice enough to keep.”

Given the facts as presented, the attorneys debated several issues, including whether the brokers engaged in the practice of law, the sellers’ obligation to maintain their property’s condition, the failure to document the offer to extend closing, updating Form 17, whether Form 34 (Addendum/Amendment to PSA) should have been used, and what should happen with the earnest money.

“Brokers should not engage in the practice of law. They are not licensed or insured to resolve non-compliance issues. You must know when you need to refer to legal counsel,” advised Fitzsimmons.

Scenario 2 Recap

In Scenario #2, the sellers listed their second home with a next-door Realtor whose office mate tours it with potential buyers. At a “mandatory office meeting,” the listing agent provides the broker and her clients with a Form 17 that contained several red flags. Moreover, the buyers’ offer had a Form 35W waiving all rights to inspect the property.

Among issues, the listing broker incorrectly listed the SOC on line 17(a) of Form 21 and left Line 17(b) blank. Attorneys also pointed out most brokers are independent contractors and therefore cannot be required to attend “mandatory” meetings. Also, said one attorney, “If a buyer broker advises waiving inspections, what liability do they take on? They should advise buyers in writing to seek legal advice.”

Brokers also have a responsibility to guide clients when they see blanks or items that are likely troublesome. One panelist noted agency law says brokers are not required to take on any additional duties (such as whether permits for remodeling were obtained by a property’s previous owner, as noted in this case, or if there are restrictions when a property is marketed as a potential vacation rental).

“If you take on the burden of a lawyer, you are held to their standard of competency,” cautioned one of the barristers. “Stay in your lane,” advised another.

Scenario 3 Recap

“The Unread Pre-Inspection,” was the topic of Scenario #3 and purchasers who were looking for off-market properties. Their broker found a possibility, but a pre-inspection identified “many problems.” The broker was present at the inspection but did not receive a copy of the report.

Another complication was the seller had dementia and was terminally ill, but a Power of Attorney was in place. A few weeks later the Attorney in Fact representing the seller asked the buyer broker to list the property. The Attorney in Fact stated she had never been on the property and would be answering “I don’t know” on Form 17.

Among issues this scenario raised were the broker’s “absolute obligation to disclose” material facts about a property’s condition, and that Form 17 should have been updated. A couple of the attorneys suggested the broker withdraw from the listing. “You shouldn’t continue representation if a seller refuses to disclose details for Form 17,” advised one of the attorneys.

Scenario 4 Recap

Scenario #4, “Termination vs Rescission.” A buyer has found a desirable condominium and instructs her agent to make an offer “right away.” The broker advised her client to submit an offer without a financing contingency to be competitive and to include NWMLS Form 22EF (Evidence of Funds Addendum) with the “Disclosure of Contingent Funds” box checked, and further disclose proceeds of a 1031 exchange would be the source of funds. Eleven days before evidence of funds was due, the client (prospective buyer) proposes rescinding the transaction using Form 51 and asks for a refund of the earnest money.

The attorneys identified several issues around the forms and whether the correct ones were used in this situation. They cautioned members of the audience to advise buyers who are using a 1031 that you are not a 1031 expert, and they should review the documents with their own experts. “If you issue a Form 51 recission improperly, you are compromising the seller’s right to get out of the contract,” said a panelist.

“Signing a recission agreement is a big deal. You are not just terminating, you are unwinding. You need to advise your buyer to consult legal counsel,” stated Fitzsimmons

Scenario 5 Recap

The fifth scenario under the theme “The Joy of Gardening,” involved an elderly woman who had moved out of state, the seller’s rep on a 5-acre view property with a “fabulous garden,” and two offers. On the listing agreement, the broker had a SOC of X%.

One offer was for all cash at 95% of the asking price and had an inspection waiver with Line 17(b) left blank. The second offer was full price but contingent on the sale of a nearby property. Instead of using Form 22B (Buyer’s Sale of Property Contingency) the offer contained custom language on Form 34, a love letter, a “pre-approval” letter, and an additional 1% SOC from the seller. These buyers want to move in before closing.

“Love letters” can invoke Fair Housing complaints, the attorneys cautioned. They also wondered if the “elderly seller” understood the challenges of the second offer, which the seller favored because she and the wife in the second offer with both Master Gardeners and the men were both pilots.

“You have duties and responsibilities,” said one attorney to the audience. “Talk to your designated broker. When there are red flags, make sure you are acting in the best interest of your seller.”

Mathews raised questions on whether the broker did “a good job of educating the client about the ramifications” of contingencies. “Do they understand they won’t get their earnest money (in this case, $50,000) back?”

Offering what she called a “practice tip,” Fitzsimmons said, “When you think a seller lacks capacity, it’s not a fun conversation.” She suggested the broker use a title officer (letting that person be the “bad guy”) to list requirements for proceeding, such as involving a family member or a doctor to evaluate competency. “Take preemptive steps” so transactions aren’t disrupted at the closing table.

In answer to a question about whether a listing broker is required to share a love letter, Fitzsimmons said yes, it is an obligation, and the broker should document it was presented.

“Decisions should be made on four corners of the contract,” stated Neste.

Another suggestion was to deliver documents via Dropbox and maintain a spreadsheet to document delivery times and other details.

Scenario 6 Recap

The final scenario (#6) focused on “The Secret HOA.” It involved a recent divorcee who purchased a condo with proceeds from the sale of the house she had shared with her ex. Three months later she received a letter from the HOA advising of a $50,000 special assessment that was approved two weeks after she closed.

The buyer demanded documents pertaining to the special assessment and upon reviewing the trove, she found an 85-page report dated a month before she made her offer. She also found a resale certificate wherein the question asking if there were any large, anticipated expenses for repairs or replacement costs” was answered “no.”

Attorney Varriano wondered if the broker provided all pertinent documents and whether the date of when the condo was built was determined since if could affect which Resale Certificate is used.

It was also suggested that agents for buyers confirm in writing whether the listing broker has provided all pertinent documents. “Don’t rely on a Resale Certificate alone.”

Brokers should tell buyers that purchasing a condo can be complicated and even recommend having a third-party expert review documents. “Don’t rely on the buyer to ascertain what’s in it.” Also, “You must be able to demonstrate you’ve done your job.”

Lightning Round Recap

During the Lighting Round, panelists sparred over incomplete documents (e.g., Line 17 with only one box filled in), limited dual agency, co-brokers, representation of unmarried couples when only one of the parties will be on the title and mortgage, and several other aspects of Buyer Brokerage Services Agreements.

History of Battle of the Barristers

The Battle of the Barristers was launched as a fundraising effort by the First Citizen Scholarship Foundation in the early 2000s. Initially, it was a networking event of 60–90 minutes. In 2014, at the suggestion of SKCR’s Board, the format evolved to a 3-hour course approved for clock-hours. It is currently viewed as both an education event and a Foundation fundraising event.

The scholarship program is named in honor of the outstanding community leaders who have received the prestigious First Citizen Award. Since inception, $662,000 has been awarded to 360 recipients.