CONDUCTING BUSINESS

Can brokerages operate in a business-as-usual manner based on the governor’s plan to reopen Texas?

No. While real estate services continue to be considered essential services in Texas, brokerages are not yet able to operate in the same manner that they did before the pandemic. Particularly, Gov. Abbott’s latest executive order (GA-26) states that businesses and people providing essential services should still implement social distancing and telework where feasible, especially for people over the age of 65. Additionally, brokerages should now follow the minimum standard health protocols recommended by the Texas Department of State Health Services (DSHS)—for example, training staff and agents on appropriate cleaning and disinfection, hand hygiene, and respiratory etiquette. Texas REALTORS® continues to recommend that members consider the advisability of holding open houses at this time, but if an in-person showing must take place, health and safety protocols should be in place.

If I am unable to show the property because of COVID-19, can I ask the sellers to let the buyers in and give them a credit or gift card for handling that part of the selling process?

Yes, you could ask the seller to show the property to the buyer. If the buyer’s agent cannot show the property, the buyer’s agent will need to obtain the permission of the buyers and sellers. The buyer’s agent should not communicate directly with the seller if there is an exclusive representation agreement in place; instead the buyer’s agent should communicate with the listing agent to avoid violating the Code of Ethics. The agent making the request to the sellers to show the property can give the sellers a non-cash gift worth up to $50, or the agent can rebate a portion of her commission to the sellers. The agent giving the rebate is required to get the consent of her broker, and if the client receiving the rebate is on the other side of the transaction, the agent is also required to disclose the rebate and get written consent from her client.

We’re supposed to close next week but the buyer has tested positive for COVID-19 and wants to terminate the contract. Can either party terminate the contract based on a COVID-19-related diagnosis, exposure, or quarantine?

The residential resale contracts do not have termination provisions that could be triggered under something like a pandemic. The default paragraph allows a party to terminate the contract if the other party does not meet its obligations under the contract. The closing date is not designated with “time is of the essence” or a strict deadline. Therefore, a reasonable extension of the closing due to illness or quarantine from COVID-19 may be negotiated by the parties. Ultimately, it is up to the parties of the contract how they maneuver a delay in performing their contractual obligations because of COVID-19.

Texas REALTORS® has created the COVID-19 Addendum (TXR 2520) that may be used as an addendum to a new contract or to amend a currently executed contract. The addendum may be used in conjunction with the residential sales contracts. The COVID-19 Addendum provides for a 30-day extension of the closing date in a residential sales contract if the closing cannot occur due to a voluntary or mandatory COVID-19 quarantine or closure. If the closing cannot occur after the 30-day extension, either party may terminate the sales contract with the earnest money being returned to the buyer. The COVID-19 Addendum also permits either party to terminate the sales contract, with the buyer receiving the earnest money, if the buyer is unable to fund their loan beyond the terms of the Third Party Financing Addendum due to loss of income from a COVID-19-related issue.

The 30-day extension under the addendum is available if the delay in closing is due to a quarantine or closure that affects the buyer, seller, or other service provider, including, but not limited to, a title company, lender, inspector, or appraiser.

Note: The residential incomplete construction contracts do have provisions addressing the effects of COVID-19, like construction delays caused by nonavailability of materials. In such a scenario, the seller may substitute materials, equipment, and appliances of comparable quality for those specified in the construction documents. If there are no substitute materials of comparable quality and price available, the delay will be added to the time allowed for substantial completion of the construction. However, in no event may the time for substantial completion extend beyond the closing date. If, at closing, the seller fails to satisfy his obligations, the buyer should look at the default paragraph for remedies, including extending the time for performance or terminating the contract and receiving the earnest money.

My seller has a positive diagnosis for the coronavirus. What are my obligations to release that information to the buyer, inspectors, and members of the public who have been to the property?

If clients inform you that they have been diagnosed with COVID-19, you should disclose the information to anyone who may have come into contact with your client as a result of your brokerage activities. There may be involvement from the city or state in tracking those that may have been exposed to your client. Do not reveal the seller’s identity or the property in any communication unless written consent is obtained from the seller. If seller does not provide consent, you should contact anyone that was on the property for brokerage activities within the past 14 days to inform them that they were on a property where an individual with a confirmed case of COVID-19 resides, but you should not disclose the specific property or individual involved. You should also contact your doctor or city authorities regarding your exposure and self-quarantine for a minimum of two weeks in order to minimize the spread of the virus.

Does my seller have to disclose to potential buyers if he or someone in his household has tested positive for COVID-19?

Yes, if the seller knows that someone in his household has tested positive for COVID-19, he should disclose this through the Seller’s Disclosure Notice (TXR 1406). Section 8 of the Seller’s Disclosure Notice asks if the seller is aware of “any condition on the property which materially affects the health or safety of an individual.” COVID-19 is a condition on the property that could materially affect the health of an individual, and, according to experts, it can survive on certain surfaces for days. The seller does not need to disclose which individual in the household tested positive, just that there is a positive COVID-19 test. If the seller becomes aware of such information later in the transaction, he can use the Update to Seller’s Disclosure Notice (TXR 1418).

Can the buyer ask the seller to have the property deep cleaned after the seller moves out?

If a buyer is concerned about COVID-19 surviving on surfaces of the property after the seller moves out, the buyer can request a cleaning treatment at the seller’s expense in Paragraph 7D(2) of the contract. If the seller will not agree to pay for a cleaning treatment, the buyer can delay moving into the property to allow time for the risk of exposure to diminish. The World Health Organization advises that COVID-19 may persist on surfaces or up to several days. The parties should continue to monitor information from the Center for Disease Control and the World Health Organization for updates and tips on avoiding the spread of COVID-19.

May I ask clients or others I interact with in my real estate business if they have traveled recently or have any signs of respiratory illness?

Yes, you may ask clients or others about their recent travel, particularly to areas identified as having an increased risk of the coronavirus. To avoid potential fair housing issues, be sure to ask all clients the same screening questions based on current, factual information from public health authorities.

I typically drive my clients to showings. May I refuse to drive potential clients to see homes?

Yes. However, be sure that any change to your business practices is applied equally to all clients. You may refuse to drive clients who show signs of illness or reveal recent travel to areas of increased risk of the coronavirus, or you may instead decide to stop driving clients in your car altogether, and simply arrange to meet clients at a property. If you do continue to drive clients in your car, it is a good idea to frequently clean and disinfect surfaces like door handles and seat belt latches, and to ask clients to use hand sanitizer when getting in and out of the car.

Should I still conduct open houses on my listed properties?

Texas REALTORS® strongly recommends members consider the advisability of holding open houses at this time. Although Gov. Abbott’s executive order defines “essential services” to include residential and commercial real estate activities, the order still requires individuals to avoid being in a group larger than 10 individuals (including those within the individual’s household) and to minimize in-person contact. More important, as leaders in your local communities, you should do your part to protect the health and safety of clients, customers, and the larger community in reducing the risk of exposure to and spread of COVID-19. There are various alternative marketing opportunities that will allow you to continue to serve your client and market their home. Three-dimensional interactive property scans (via Matterport, Cupix, EyeSpy360), virtual tours or live tours using Skype or Facebook, and virtual staging to showcase a property are among the great alternative marketing opportunities you can offer your client. Be sure to secure proper copyright permissions before uploading any media to the MLS.

For more information regarding open houses, see NAR’s Open House Guidance During COVID-19.

What precautions should I, as a broker, consider taking in my office?

Brokers should follow the minimum standard health protocols recommended by the Texas Department of State Health Services (DSHS) and use their best judgment when formulating a plan. In addition to performing regular environmental cleaning with special attention paid to frequently touched surfaces, brokers should implement a mandatory stay-home policy for any staff member or agent exhibiting any sign of illness. Brokers may want to consider imposing a mandatory or maximum flexibility remote-work policy for employees and instructing agents to stay out of the office. In addition, with CDC guidance that recommends limiting or canceling gatherings and events, brokers should take measures to hold virtual meetings when possible and potentially postpone or cancel in-person meetings or events to take to limit close contact between individuals.

Be sure to monitor updates from the CDC, the DSHS, and other local health authorities for additional information and guidance on holding meetings or events. For travel considerations, review NAR’s “Coronavirus: A Guide for REALTOR® Associations.” Finally, do not panic, stay informed, and use your best judgment. The situation is rapidly changing, so focus on putting policies and procedures in place to keep your employees and agents informed, safe, and to avoid business disruption in the event the situation worsens. The CDC’s Interim Guidance for Businesses and Employers is a helpful resource.

Can my buyer terminate his purchase and sale contract due to COVID-19 and receive his earnest money back?

No, not solely due to COVID-19. If the buyer has a right to terminate under his respective purchase and sale contract (for example, through use of the termination option, feasibility period, third-party financing, etc.), then the buyer may exercise such right, but the buyer may not terminate solely due to COVID-19. NOTE: If the buyer and seller have agreed to use the Texas REALTORS® COVID-19 Addendum, either party may terminate in accordance with the terms of the addendum, and the earnest money will be refunded to the buyer.

Can one party compel another to extend closing due to COVID-19?

No. The terms of the contract still apply. The Texas REALTORS® COVID-19 Addendum is similar to an amendment of contract form in that both parties must agree to use the form and be subject to its terms to extend.

Now that the Texas REALTORS® COVID-19 Addendum has come out, can my buyer who terminated her purchase and sale contract reinstate that contract?

No. A new contract would have to be entered into by the parties, and both the buyer and the seller would have to agree to use the COVID-19 Addendum.

An appraisal has been ordered on my seller’s property, but the seller and the appraiser are both concerned about potential COVID-19 exposure if the appraiser comes inside the property. Is anything being done to address this?

Yes. On March 23, the Federal Housing Finance Agency directed Fannie Mae and Freddie Mac to allow the use of appraisal alternatives to reduce the need for appraisers to conduct interior property inspections for eligible mortgages through June 30, 2020. This move is intended to reduce transaction delays due to appraisers being unable or unwilling to enter properties to conduct interior inspections. The specific alternatives have not been announced.

My client is a cash buyer who lost her job due to COVID-19 related issues and wants to terminate the sales contract. Can my client use Paragraph B of the COVID-19 Addendum (TXR 2520) to terminate?

No. Paragraph B allows the buyer or seller to terminate if the buyer is not able to fund her loan and close due to buyer’s loss of income from COVID-19 related issues. Paragraph B does not create a right to terminate for a cash buyer.

Is an executed deed effective even if it has not been recorded in the real property records due to delays under COVID-19?

Yes, the deed is effective upon execution even without being recorded. The buyer is the owner of the property as soon as closing and funding occurs regardless of whether or not the deed is recorded. Section 13.001 of the Texas Property Code provides that the unrecorded instrument is binding on a party to the instrument, the party’s heirs, and on a subsequent purchaser who does not pay a valuable consideration or who has notice of the instrument. Given that the seller has evidenced the conveyance of the property to the buyer with the execution of the deed, the buyer is the owner of the property as soon as that deed is signed at closing and funding.

The delay in recording is more of a concern to subsequent purchasers for valuable consideration who do not know of the existence of the deed, because they would not be bound by its terms. For this reason, it is of the utmost importance that the deed be recorded as soon as possible to provide notice to all persons. Though some Texas counties are experiencing delays in recording, REALTORS® or their clients should continue to check with the title company or county recording office to ensure that the deed is recorded as soon as the county recording office is able to do so.

Does the automatic delay provision in Paragraph A of the COVID-19 Addendum (TXR 2520) also extend to other deadlines such as the option period, buyer approval in Paragraph 2(A) of the Third Party Financing Addendum (TXR 1901), or the contingency date of the Addendum for Sale of Other Property by Buyer (TXR 1908)?

No. Paragraph A of the COVID-19 Addendum provides for an automatic extension of the closing date if the parties are not able to close due to a mandatory or voluntary COVID-19 quarantine. If the parties want to extend the option period or any other contingency date, those changes must be specifically addressed in a separate amendment.

The parties have agreed to use the COVID-19 Addendum (TXR 2520), and the buyer just recently lost her job due to COVID-19-related issues. Can the buyer terminate even though she is past the buyer approval period in Paragraph 2A of the Third Party Financing Addendum (TXR 1901)?

Yes. Paragraph B of the COVID-19 Addendum lets either the buyer or the seller terminate the contract if the buyer cannot fund the loan and close due to a loss of income from COVID-19 related issues. The parties may terminate under this paragraph regardless of whether the financing contingency period has passed. If either party elects to terminate under Paragraph B, the earnest money will go back to the buyer.