When you must use the contingency addendum

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A toy house and $1 bills on top of a blank contract

03/20/2015 | Author: Editorial Staff

My client wants to purchase a property and make that contract contingent on the sale of his current home. Do I have to use the Addendum for Sale of Other Property, or can I just write this language in the Special Provisions Paragraph of the One to Four Family Residential Contract (Resale)?

You must provide the addendum. TREC rules require a licensee to provide the Addendum for Sale of Other Property to a buyer who wants to make a contract contingent on the sale of another property. Licensees are not allowed to write language into the Special Provisions Paragraph for situations that are covered by a TREC promulgated form, such as the contingency addendum.

If your client doesn’t want to use the addendum, you should advise him to consult his attorney to draft language that will reflect his intention.

Read more legal FAQs on texasrealestate.com.

Categories: Forms, Legal
Tags: forms, legal, addendum, legal faq


Comments

Itell on 06/15/2015

Seems the debate over semantics has gone long on this subject.  One can sit on both sides of the debate but, I think the point has moved to somewhere between our ability to know what is right and wrong and if we as a Realtor use the Addendums and disclose.  First, remember we are obligated, ney, Mandated by the laws that allow us a license in the State of Texas to use Promegated forms.  Being in the business since 1981 I also remember the phrase in the COE of being fair and honest, and still practice this simple procedure.  I also have the choice to represent a buyer or seller.  Now before another debate starts about who I really represent, please let me clarify.  If I EVER feel the person I am to represent is not playing fair or just down and out committing what even could ever be considered fraud or misrepresention, or asking and thinking they could tell me to participate in any part of what I personally would consider wrong, I would simply and gracefully remove myself from the transaction and suggest the party find someone else to represent them.  Now, I am personally the Broker of record and these are choices I have made.  I’m guessing and hoping most other Broker’s would probably want their agents to act in a similar manner, but of course you should verify what your sponsoring Broker would have you do.  Word of advise, if you don’t feel good about a situation, run don’t walk.  If your Broker doesn’t agree, the fee to change sponsorship is much less than an attorney to represent you.  Personally I think that if you look in your heart you will know what to do.  If you treat others as you would want to be treated, you will do what most people would appreciate.  If you are in the business to help others most likely you will make the right decision.  If you will stay educated it will help you stay out of court.  If you are in the business only for the commission, you won’t last long in this business anyway.

Rick DeVoss on 04/23/2015

@Billie—-
It depends on what your contract says.  I suggest you consult a Real Estate attorney.

Most contracts do not give the seller an ‘out.’  All of the loop holes in a contract are for the buyer.  So unless you wrote such a contingency into Paragraph 11,  you are bound by the terms of your contract.

Good luck!

Billie McCulley on 04/23/2015

Can this work the other way?  If we have a contract to sell a property based on executing a contract on a property we want to buy, under an option period, and during the option period we decide we do not want to buy that property do we still have to sell our property?

Guy E. Gimenez on 04/07/2015

Andrew,
the proceeds from the sale of buyer’s other property will only be received upon closing and funding of that sale, so the contract date for the other property is moot and has no bearing on this addendum.

Andrew Pendrak on 04/07/2015

For purposes of the contingency addendum…........when is a house considered “sold”?  Is it when it has gone under contract, or when it has closed?

Andy

Rick DeVoss on 03/27/2015

*If it weren’t for some blatant statements that have been made, I would let this blog sequence die a natural death.  But I feel compelled to comment on some of the opinions and attitudes displayed herein.  I would invite and request that other Realtors reply so that these opinions represent more than just a “he-said/he-said” exchange.  This forum is for the benefit and education of all Realtors.  Please speak up if you think anything that has been said herein is off base.

Anyone is free to express an opinion or relate a situation on these topics at any time.  But when you throw down a challenge and assert that another Realtor is wrong, you’d better have good grounds to back it up.

I appreciate the correct wording of Article #1 of the Code of Ethics.  Some of us older folks remember when it said we had to treat all parties fairly, and some of us still do.  It currently says that a Realtor has to treat all parties to the transaction honestly.  So ~ would it be treating the seller honestly if you presented an offer (with no contingency) knowing full well that the buyer could not qualify for his financing unless his other house was sold first….? 

That is Not what honesty, fair play, and ethics are all about!  The buyer’s agent should present a letter from the buyer’s lender stating that he is financially capable of buying said house, and that of course, would include not having to sell one first.

I cannot see that the buyer’s agent would not be in violation of Article #2 of the Code of Ethics in this scenario.  It mandates that all Realtors shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to ... the transaction.  To know that the buyer is blatantly Not Qualified, and still submit an offer which would cause the seller to “take his house off the market” by showing it as “Pending”, is an obvious concealment of pertinent facts.

Let’s not confuse the various terms and provisions of the contract.  The buyer has the right to cancel during the Option Period for any reason.  That is NOT what we are talking about.    The buyer’s lender may terminate his loan application prior to the date in the financing addendum, based on reasons that hopefully don’t include the sale of a house.  But if You and the Loan Officer know full well that the buyer has to sell a property first before he can qualify to buy another one, then many of us out here will consider it ‘fraud’ ... even if you can get some attorney to say it is not!

(Here’s the point where other agents step in and agree or disagree.)

I am very sorry if some of my previous remarks were misunderstood.  I know full well what it means to ‘represent’ my client, and I have been doing it for more years than the TREC has recognized it.  (I also know there are other ways of doing business, such as the way Brokers in other states do.)  But it is still my firm belief that a Realtor has the obligation to treat All members of the public honestly and fairly.  ~And that has nothing to do with representing a buyer in a transaction.

I hope no one has confused our status as a “buyer’s rep” with the status of an attorney who is representing a person charged with a crime.    They have “attorney-client privilege”;  we do not.    If you ever get called to testify in a hearing, you may find out what I am talking about rather quickly.  (I do not hold myself out to be an attorney, so if there is any lawyer out there who can dispute my statement, please feel free to do so.)

There is a reason that the TREC promulgated the ‘Sale of Other Property Addendum.’  And when confronted with that scenario, it is mandatory that you use it.  Should you and your buyer fail to do so intentionally, I would be willing to bet that the seller could sue for specific performance, or at least claim the earnest money.  (I will consult with two attorneys on this topic Monday morning.)  Paragraph #15 does not define “fraud”, but it does define when a buyer has defaulted on the terms of the contract. 

I do not think it is my place to speak personally to another Realtor in a forum such as this one.  I will therefore limit my remarks to the topic at hand.  I try to make my meaning clear when writing such a blog, but obviously, some people may not understand what was said.  I just don’t appreciate it when someone twists your words, or mis-states what was said by leaving a word or two out of the sentence.  If you are going to quote someone, you have an obligation to quote their words exactly.  Otherwise, it is best to simply state your own opinions, and not try to state someone else’s opinions.

There are many different ways to conduct your business.  I just hope and pray I never get a buyer’s agent coming to me with an offer that is intentionally manipulative of the seller’s position, and fraudulent in intent.

Guy E. Gimenez on 03/27/2015

Mr. Gimenez—I don’t think these blogs should get personal…”
MR. DEVOSS, MY APOLOGIES IF YOU FELT THAT BY DEBATING FACTUAL INCONSISTENCIES IS GETTING PERSONAL. I THINK I UNDERSTAND MORE ABOUT YOU NOW, BUT REGARDLESS, IT WAS NOT MY INTENTION TO DO ANYTHING OTHER THAN BRING RATIONAL CONVERSATION AND DEBATE INTO THE MIX, EVEN WHEN IT’S UNCOMFORTABLE FOR SOME.

“First of all, you don’t just represent one party in a transaction…”
THE STATEMENT THAT YOU DON’T REPRESENT ONE PARTY IS NOTHING SHORT OF REMARKABLE FOR SOMEONE WHO PRETENDS TO KNOW OUR STATE REGS. AND THE C.O.E.
 
“You seem to be so technical…”
I ACCEPT YOUR CRITICISM OF MY TYPING SKILLS AND THANK YOU FOR BRINGING THEM TO MY ATTENTION.  I WILL CERTAINLY TRY TO MAKE FEWER GRAMMATICAL ERRORS, BUT DO FEEL FREE TO MOVE THIS CONVERSATION AWAY FROM THE ARENA OF FACTS.  IF THE BUYER MAKES AN OFFER TO PURCHASE BUT HE/SHE NEEDS OR WOULD PREFER TO SELL HIS/HER EXISTING HOUSE FIRST, BUT INSTRUCTS YOU NOT TO INCLUDE A CONTINGENCY FOR THE SALE OF OTHER PROPERTY BECAUSE IT IMPACTS HIS/HER CHANCES AT GETTING AN ACCEPTED OFFER. YOU’RE SAYING YOU WILL TELL THE SELLER ANYWAY BECAUSE YOU HAVE AN OBLIGATION TO DO SO?  GOOD LUCK WHEN THAT GOES TO YOUR LOCAL ETHICS BOARD. YOUR ONLY DUTY IS TO INFORM THE BUYER OF POTENTIAL CONSEQUENCES OF SUCH AN ACTION.  EVEN THOUGH YOU MAY FEEL HE’S COMMITTING FRAUD, IT SIMPLY DOESN’T FIT THE LEGAL DEFINITION OF FRAUD.  HE’S SIMPLY DRAFTING THE CONTRACT IN THE MOST ADVANTAGEOUS WAY FOR HIM, WHICH CERTAINLY DOESN’T MAKE HIM A CRIMINAL, AS YOU DESCRIBE BELOW. 

“It does not matter if the seller can prove fraud…”)
MY FRIEND, I DON’T WANT TO BUST YOUR BUBBLE, BUT ANYONE CAN SUE ANYONE OVER ANYTHING. THE ONLY QUESTION THAT REMAINS IS WILL THE PLAINTIFF PREVAIL.  REMEMBER, WE LIVE IN A WORLD WHERE YOU CAN ORDER A HOT CUP OF COFFEE, RECEIVE A HOT CUP OF COFFEE WHICH YOU PROMPTLY SPILL IN YOUR LAP, THEN SUE THE RESTAURANT BECAUSE THEY SERVED YOU HOT COFFEE.

“.....That pretty much sounds like fraud to me.  (But perhaps you have a law degree that would define it otherwise; I don’t.”
THANKS RICK FOR DEFINING WHAT A REALTOR IS…I WILL NOTIFY TREC SO THEY CAN GET YOUR INPUT AT THE NEXT MEETING.  SEE RICK, WHEN YOU REALLY UNDERSTAND CONTRACTS, YOU REALIZE THAT EVEN THE TREC FORM HAS MULTIPLE TERMINATION POINTS FOR A BUYER…SO THE “SALE OF OTHER PROPERTY” ADDENDUM IS MEANINGLESS BECAUSE THE BUYER CAN TERMINATE ANYWAY. YES, THE SELLER WILL FEEL SHORTED WHICH IS WHY THE SELLER GETS TO KEEP THE OPTION FEE REGARDLESS OF THE AMOUNT THAT WAS AGREED UPON. AND IF THE BUYER EXERCISES ANY OF HIS/HER OTHER TERMINATION POINTS, THE SELLER IS IN NO DIFFERENT POSITION THAN IF THE SELLER TERMINATED UNDER THE “SALE OF OTHER PROPERTY” CONTINGENCY.  BTW, I DON’T HAVE A LAW DEGREE, BUT IT MATTERS…IT DOESN’T ALLOW ME O DEFINE THE LAW…THAT’S THE DUTY OF THE LEGISLATURE AND JUDGES. 

“Regardless of your fiduciary duties, the Code of Ethics requires that you treat all parties fairly…If you are going to act like that, then you are not a Realtor.”
I WOULD ASK YOU TO TELL ME WHERE THE C.O.E. STATES THIS, BUT I’M SURE YOU’LL JUST MOVE BACK TO MY TYPING SKILLS.  TREATING ALL PARTIES FAIRLY WAS REMOVED FROM THE C.O.E. SOME YEARS AGO. IT NOW ONLY STATES YOU TREAT ALL PARTIES HONESTLY. 

“I suggest that you might want to take a course in the Code of Ethics, and ask the instructor these questions…”
I’VE TAKEN MANY COURSES IN THE C.O.E., WHICH IS WHY I FIND IT SCARY FOR A SEASONED AGENT TO STATE, “WE DON’T REPRESENT ONLY ONE PARTY” IN OPEN FORUM LIKE THIS. 

“...And please be more careful what you are posting on a public blog site.  Most of us would not want the public to get the idea that we will act like criminals just because we are representing criminals.  (And don’t come back and tell me that I don’t know the definition of a “crime”, because we all know what you were talking about.)”
SORRY THAT MY RESPONSES INADVERTENTLY OFFENDED YOU. PERSONALLY, I FIND OPEN DEBATE IS HEALTHY AND CAN BE USED AS A LEARNING TOOL,...OF COURSE ONLY WHEN ONE IS OPEN TO LEARNING. THE MAIN POINT OF MY ORIGINAL POST (THE ONE YOU CLEARLY MISUNDERSTOOD) IS THAT TOO MANY AGENTS BELIEVE WHAT THEY’RE TOLD INSTEAD OF RESEARCHING FOR THEMSELVES.  OTHERS BELIEVE PROOF IS NOT NECESSARY SIMPLY BECAUSE OF TIME IN INDUSTRY.  MY PHILOSOPHY IS TO TRUST, BUT VERIFY.  AND WHEN ONE BALKS AT PROVIDING PROOF, WELL, THERE IS USUALLY A REASON.

Rick DeVoss on 03/27/2015

Mr. Gimenez—I don’t think these blogs should get personal, but you have thrown down a challenge that indicates you do not understand the Realtor Code of
Ethics and the moral obligations that we as Realtors have to the public.

First of all, you don’t just represent one party in a transaction; you have moral and ethical obligations that go far beyond that.  We shall keep our discussion confined to Texas Law, but in other states, the agent does not represent either party!  (I know this because I am licensed in another state.)

You seem to be so technically oriented, and then your own wording is incorrect.  Please refer to your Paragraph #3: the word “seller” should say ‘buyer’, and the word “an” should say ‘and.’

It does not matter if the seller can prove fraud in the technical sense; he can still sue you in court, and that costs you money for defense.  And even if he does neither,  it still leaves a bad taste in the public’s mouth when they learn of such stuff, and then they generalize and think that all real estate agents act like this.  (Some of us don’t like being compared to a used car salesman.)

Your steak dinner offer is worthless; even if “non-factual”, if a person feels like they have been defrauded or cheated, it spreads ill-will, and that is NOT what being a Realtor is all about!  If the buyer enters into a contract to purchase a house, and then cannot perform due to having not sold another house, the seller (and his agent) have been cheated out of their time, efforts, and the opportunity to sell the house to another buyer who was serious.  ~That pretty much sounds like fraud to me.  (But perhaps you have a law degree that would define it otherwise; I don’t.)

Regardless of your fiduciary duties, the Code of Ethics requires that you treat all parties fairly.  (I am not going to waste the time to look up the paragraph numbers for you, but I suggest you read it yourself.)  We are not like attorneys who represent criminals.  If you are going to act like that, then you are not a Realtor.

I suggest that you might want to take a course in the Code of Ethics, and ask the instructor these questions.  You might also want to consult with an attorney who is knowledgeable of the Realtor’s Code of Ethics, and ask what they think of your opinions.

...And please be more careful what you are posting on a public blog site.  Most of us would not want the public to get the idea that we will act like criminals just because we are representing criminals.  (And don’t come back and tell me that I don’t know the definition of a “crime”, because we all know what you were talking about.)

 

Guy E. Gimenez on 03/27/2015

Rick, several points here.

1.  The legal system is technical…period.  The word “and” and “or” can dramatically change the meaning of a single sentence.  So never discount the technical side of this business.

2.  Making completely non-factual statements regarding the commission of fraud (as was done earlier) with no supporting evidence, should be challenged.  My steak dinner offer stands to any who will take me up on it.

3.  If your buyer client says you, as his fiduciary, will not relay the fact that he wants or needs to sell his home prior to buying the new home, and the buyer has ample contractual termination points to fall back on, please provide evidence (actual Article and Standard of Practice) that would prove your assertion that you, as fiduciary, must violate that legal relationship with your seller an tell the seller or seller’s agent. 

4.  Regarding what a seller “thinks” a buyer did and what the law says a buyer did are two very different animals.  A seller can get up and look in the mirror each day and swears he is a spitting image of Tom Cruise, but it doesn’t make it so just because he believes it is.

Rick DeVoss on 03/27/2015

Several people seem to be worried about whether or not we could prove that a buyer committed ‘fraud’ in the technical sense.  I’m sure that the seller would say that the buyer did.

But more importantly, what about the Buyer’s Agent…?

If you are representing the buyer, and you Know that he has to sell a house before he can qualify to buy another house, then it is Your responsibility to speak up.  ~And you would be in violation of the Code of Ethics if you did not!

I always ask the buyer in the first 15 minutes of conversation on the phone what his situation is.  (?)  Does he have a house to sell?  Or does he have a lease to honor?

I would not want to waste my time showing houses to a person who was not actually Ready to buy, and if they still have a house to sell, then let’s talk about Listing it!

If an Agent knowingly submits an offer to purchase when their buyer has a house that must be sold first, it would appear that we have a lot more serious to worry about than the technical definition of ‘fraud’...

 

Guy E. Gimenez on 03/27/2015

Anyone who can provide legal references that support the statement that a buyer is committing fraud for refusing to include the contingency will get a steak dinner on my nickel?

Jean Pasvar on 03/26/2015

I would like to comment on what Alice Caron said about it being Fraudulent to submit an offer and not disclose that it is contingent upon the sell of another property.  Here is my thought. 

If representing a Buyer and the offer is contingent upon the Buyer getting financing
within an agreed upon time period (first paragraph of the Third Party Financing Addendum) and the sale and close of his current house is a Lender requirement it would seem that if the close of his current home does not take place during that agreed upon time period then the Buyer would need to cancel the Contract under the Financing Contingency.

But, if the Buyer could get financing without his current home being sold and he just
wanted the purchase of the new home to be contingent upon the sale of his current home he would then need the Sale of other property Addendum.

But, fraud not to include the Sale of Other Property Addendum?  Is that true.  I would love to hear from the Real Estate Attorneys on this question.

Cheryl Drane Skipworth on 03/26/2015

If you have a suggestion for a promulgated form, call the board of Realtors or T.A.R Same holds true with data fields within our mls. Great comments. FYI, remember, the Principals make the decisions, we guide, recommend, suggest. Also, EM and option check are not a requirement for a buyer to submit an offer, however, as the listing agent, we are required to present the offer.  FYI, I have worked with extremely qualified buyers who do not travel with checks.  Option fees, the buyer is not required to deliver the option fee; it’s their choice if they want the option to be a part of the contract.

Leesa B on 03/26/2015

I have a cash buyer for a Fannie Mae property.  I’m advising to get the appraisal done while in the inspection period in the event it doesn’t appraise for what they paid.
Anyone disagree for any reason?

Also, Fannie Mae is requiring utilities be turned on in my name & form says I’m responsible for any damages/costs during any inspections.  Does anyone have experience with this?

Lisa Di Carlo on 03/26/2015

Real Estate is always changing! It’s part of your fiduciary responsibility to your client to keep up with it all.  And yes, even though you have a cash buyer, get it appraised if your not sure! Why should a cash buyer be a guinea pig…if they overpay its their money, their choice!

Alice Caron on 03/26/2015

Great information to get out to all the agents that don’t know this basic premise.  It is fraudulent to make an offer and not disclose that it is contingent on another sale just to get it in a multiple offer situation.  There’s a form for that.  Use it.

The agents should not practice law.  Sometimes , however, the client wants certain verbiage in a contract.  Rather than practicing law, have the clients hand write it neatly on another sheet of paper and sign it placing a blank for the other side to sign as well and in special provisions write see ” Buyer (or Seller) Special Provisions Request Attachment A”.  Be sure to read it to see if it is short enough and specific enough for their concern.  This is for issues that the client has—not the agent.

Rick DeVoss on 03/26/2015

There are some other issues here, too.  What about the buyer who offers to buy your listing withOUT telling you he needs to sell his house first?  You might be prone to take your listing “pending”, ie., “Off the Market”, only to find out later that the buyer can’t perform as anticipated.  I am getting offers with NO letter from a lender to support the buyer’s ability to purchase.  I am getting offers without any copy of an Earnest Money check, or Option Fee check.

I had one come to me recently where the buyer had enough cash in the bank to buy the house, but still wanted to make the deal contingent upon closing the sale of his house.  ~Yes, this is legal, but is it what the seller wants?

Too many agents are going to an attorney to get the wording blessed, and then putting it in Special Provisions.  If that wording did not come from the buyer, or the buyer’s paid attorney, then it has no business being put in Paragraph 11.

In this Hot Seller’s Market, why do we not have a form for Multiple Offer notification to the buyer’s agents? 
Recently, an agent wrote a 24-hour deadline for response to the offer into Paragraph 11.  It wasn’t even worded correctly, and I doubt that a buyer would have thought something like that up! 
With a cash offer, can the buyer require an appraisal?
We have several issues that TREC has not dealt with, and no forms are provided for our use.

Be careful out there!

 

Sarah Lee Rose on 03/26/2015

I am so glad you are publishing this and hope that many agents are reading this. I do not see agents so much writing this is special provisions but with the shortage of inventory too many agents are not using the form when it should be used.  Then the house has to close before the buyer can actually pay.  So to avoid this, I first check to see if the buyer’s residence is offered for sale in MLS, then ask for proof of funds if the down is high and last call the buyer’s lender to confirm if the sell of their home is going to be a condition of the sale.  Do all of this before the seller signs the offer!  Avoid many issues later on.


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