Point 1: Lease/Options Can Be Dangerous for Listing Agents
Lease/Options have many complex aspects and real estate agents have to be very careful if they get involved. For example, there are three types of payments by the potential buyer before close of escrow: the option payment, the lease security deposit, and the earnest money deposit. Real estate agents need to be aware of the different aspects of each such payment and treat them separately.
The most difficult for real estate agents to understand is the option payment. It is not returned unless the buyer makes a claim of fraud or misrepresentation. But how large should the option payment be and can the agent get paid his/her commission from it rather than wait until the close of escrow? Those questions will become important in the likely situation that the option does not get exercised and both buyer and seller get lawyers to analyze the transaction.
Why would the option not get exercised? Why is the buyer not buying the property now? Is the buyer short on cash or credit? If so will that be remedied in the term of the option? Once in the house will the potential buyers decide they do not like it, and of course, if they substantially increase their cash and credit will they be in a better position to buy a better house? What if the value of the property goes down during the term of the option? In that case, the buyer will not want the property at the price of the option.
In any of these cases, the seller is left with a property to sell in a lower market and the condition of the property may be much worse than when the lease/option began. We have seen tenants with an option to buy, who feel much more entitled than normal tenants, begin renovations (ripping out walls and gutting bathrooms) before they saw the market change.
It is at the point when the option has to be exercised that the trouble for the listing agent begins. seller asks his/her lawyer whether or not the listing agent was really working in the seller’s behalf when the transaction began and got the seller the option money he/she needed and gave the seller all the appropriate warnings about what might happen in a lease/option.
Point 2: Blocking Other Agents from Bringing Buyers to Your Listings Can Be Expensive
Recently, we have seen Associations (Boards) of Realtors take aggressive action against listing agents who appear to be blocking other agents from their listings by keeping the property off the MLS, unreasonably restricting access to the listing, or insinuating the buyers can make better deals by getting the listing agent to make the buyer’s offer. While these actions were always a basis for losing a commission or being fined for an ethics violation, more hearing panels seem to be scrutinizing listing agents’ behavior and interpreting listing agent actions as improper. Listing agents need to be careful to avoid appearances of improper behavior.
Point 3: Providing Notice of an NOD to Prospective Tenants
In 2012, California passed a statute requiring landlords who had received a notice of default (“NOD”) on loans for one-to-four residential units to notify prospective tenants of the NOD before signing a lease. That statute expired on January 1, 2018, and has not been extended. This situation has created difficulties for real estate agents who know of the NOD, because a foreclosure or the landlord’s financial difficulties can cause the tenant problems. Even though it is a public record and landlords can be angry at listing agents who disclose the NOD without permission and tenants may bring an action for breach of fiduciary duty against the tenant’s agent if no disclosure is made. Needless to say, it is best for the listing agents to get the landlord’s permission to disclose the NOD, or get the landlord’s permission to withdraw from the listing.