Wanting to test the waters in this red-hot housing market? Be careful of this hidden clause

·5 min read

Home sellers have made a killing over the past year, as buyers outbid one another on practically every property that comes to market. In fact, sellers have made so much money — in some cases, hundreds of thousands over their original asking prices — that some homeowners might be tempted to test the waters and put their places up for sale.

They don’t really have any intention to sell, unless the offers they receive are outrageous. They just want to see what their homes might be worth. In June, new listings increased almost 11% from May and 5.5% year-over-year. Undoubtedly, some were serious sellers. But others likely wanted to see what the market would bear, just for the fun of it.

If that’s your modus operandi, you might want to think twice. You may not be forced to sell if you really don’t want to, but you could be on the hook for a 5% or 6% sales commission — whether you sell or not. At play here is an often-unnoticed clause in most listing agreements, which essentially says that if the agent brings a legitimate buyer to the table who offers to match your selling requirements, said agent is due his or her commission.

All real estate is local, so the rules differ from state to state. But here’s what a listing contract says in Louisiana: “Seller agrees to pay broker professional brokerage fee ... if the broker locates a prospect ready, willing and able to purchase or exchange for the property and the Seller refuses to complete the transaction after all terms and conditions have been met by the prospect.”

According to realty professionals I’ve spoken with, the clause is rarely, if ever, enforced. The Louisiana agent who provided the above says that in her three decades in the business, she’s never seen anyone sue a consumer over this clause. A Maryland agent agreed: “Technically, they earned their commission, but most agents just move on.”

Maybe so, but the question remains: If nobody pays attention to the “ready, willing and able” clause, why is it still part of the listing agreement? Perhaps it’s because if agents want to play hardball, they can — especially if they believed you were a serious seller when you signed up, not just a tire-kicker.

“These provisions are binding and enforceable in a civil court,” said Kinski Moss of the Texas Realtors. But she, too, is unaware of any instances where it has been invoked. Still, savvy sellers — or just curious owners — should make sure the clause also includes a sentence or two stating that the commission is payable only if the property actually sells or a change in the title occurs.

“Without that (protection),” said another agent, “you might have to pay.”

Adrese Roundtree of the California Regional Multiple Listing Service says the MLS has received only two or three reports of the clause being violated in the last six years. But even if the agent moves on without suing, he or she is obligated to report the clause violation to the listing service.

Consequently, you may end up with a black eye, as far as agents in your area are concerned. Hundreds of agents who participate in the MLS will be notified that you reneged and refused to accept a written offer satisfying the terms and conditions stated in the listing. That would put all other realty professionals on notice that you don’t follow through on your promises. And presumably few, if any, other agents would be willing to list your place when you really do want to sell.

Another possibility: You might run into an unscrupulous listing agent, such as the one reader Keith Falkner did some years ago in Sarasota. The agent suggested that if Falkner offered exactly what the seller was asking, he would be forced to sell. But even if the seller declined, which the agent knew he would, he would be required to pay the agent’s commission. Falkner demurred, and warns other sellers not to fall into this kind of trap.

While we’re discussing legal issues, let’s talk about buying a house sight-unseen. Doing so is certainly not a new phenomenon, but the practice took off during the pandemic. However, agents could be in legal trouble if a buyer determines the place didn’t meet his or her expectations after all and decides to sue.

“Disappointed purchasers may bring claims” against the listing agent, their own agent, or both if they discover a “previously unidentified defect or other undesirable feature,” Deanne Rymarowicz, associate general counsel of the National Association of Realtors, warned NAR members recently. She advised agents to reveal to would-be buyers all known material defects and avoid any misrepresentations or exaggerations.

In a listing, it’s OK to enhance the color of the lawn, she said, but not to airbrush out power lines that run across the backyard. And while it’s not an agent’s job to look for hidden defects, they must report those of which they are aware. That’s why some listing agents don’t want to see any inspection reports made for the seller or for would-be buyers who, who after reviewing the inspector’s findings, decided not to proceed. If the agent or the seller-client doesn’t know what the report contained, their reasoning goes, they have no obligation to report what’s in it. In other words, they get to play ignorant. Which is just one more reason for every buyer to hire their own independent home inspector.

Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at lsichelman@aol.com.

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