Current Market Trend: Multiple Offers
As the real estate market continues to thrive, many buyers find themselves in difficult negotiations, sometimes making offers on several properties in hopes of securing a home. While multiple offers may be effective, some buyers are taking the next step and entering multiple contracts.
SITUATION
An owner of a residential rental property entered into a listing agreement with a real estate agent, as his employer was planning to transfer him to another state. With excellent tenants living in the home, the agent and owner believed it would be an attractive investment property and decided to target potential investors. The tenants were then given notice that potential buyers could be entering the home and that ownership could change hands. Soon thereafter, a couple viewed the property on three occasions, fell in love with it, and quickly executed a purchase and sale agreement with the seller. However, instead of acquiring it for investment purposes, they decided to sell their existing home and move in.
PROBLEM
The owner and tenants had recently renewed the lease for a 12-month period. The tenants were not expecting to be displaced for another 10 months after the sale and refused to yield the property until the lease expired. The buyers were unable to move into the property as intended, the tenants were unexpectedly faced with potential houselessness, and the owner was upset that his agent did not find an investor after all.
MISTAKE
In this case, the agent neglected to ask the owner for a copy of the lease agreement prior to having the parties execute the sales contract. By the time the agent realized there were 10 months remaining on the lease, the agreement between owner and buyer had already been made. This lack of communication and documentation resulted in two parties assuming they would have occupancy for the same home.
RESULT
Surprisingly, the buyers decided to voluntarily terminate the purchase and sale agreement and the agent was able to find an investment buyer to honor the tenants’ lease. However, the second contract was lower than the first. The seller demanded that the agent pay the price differential to the tune of $25,000.
PREVENTION
When properties are occupied by a tenant, an agent should obtain a copy of the lease agreement and provide it to the buyer at the time a sales contract is being contemplated. An agent should also recommend that the parties obtain legal counsel to prepare a lease assignment to ensure it is properly assigned to the contract buyer upon close of escrow. An estoppel letter or certificate from the owner and tenant confirming the lease is in good standing is an additional step that can protect all parties in the transaction.
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The purpose of this article is to inform and insulate real estate professionals from potential monetary claims and professional grievances. The fact patterns are from actual claims against real estate agents. While the author is an experienced claims representative, the opinions expressed herein are general in nature, not fact nor state specific; and therefore, should not be taken as a substitute for legal advice from an attorney licensed in your state. This article was produced in conjunction with AXA XL and is not to be taken as legal advice.