Expert: Todd C. Menard - 3/26/2008

Question
Hi, We had an accepted offer on a foreclosed home this past August.  We had inspection after inspection done as well as got many quotes for the number of issues the house had.  We were set to close in October.  When October came around they seller informed us they were taking the house off the market.  The house had a shared septic tank and they had to allow the neighbor to get their own tank before disconnecting them.  They informed us that we were in good standing and that they would contact us when the house came back on the market.  We proceeded with selling the home we were living in.  We got a contract on our home and got more than we expected.  We contacted our agent to put in a request to pay for the neighbor's septic tank and then close on the property we were supposed to close on in October.  Turns out the property had been on the market for a couple of weeks!  We fired our agent thinking he dropped the ball big time.  Turns out what happened was that the Seller's agent contacted him and told him that the house was on the market but that the Seller would not negotiate any contracts until all work on water and septic tank were complete so not to bother.  The Seller's agent turned around however and submitted a contract on the house for her own client!  We sold our previous home and resigned ourselves to wait and see if the current contracted buyers followed through to closing.  Two weeks before closing we tried to submit a backup contract in which we went up $15000 on our price.  They said they would let us know if something fell through.  One week before closing the buyer dropped out due to insufficient funds!  Another requirement as listed on the MLS system was that pre approval was required before any contracts would be accepted!
So my question is this.  We just closed on the home.  We went up on our price by $15000 because we thought there was a viable opponent in this race and the Seller's agent told our agent not to put in a contract in the first place.  Do we have legal ground to stand on to get her comission back and anything else for that matter?  I could give you many other examples of stuff she also did but we're honing in on this one.

Answer
Hello Cristy - Pre-approval is another word for pre-qualify. The ability for a borrower to perform depends on the depth of the pre-qualification, as all are not considered equal, and what the borrower did with funds they may have had at the time of pre-qualification. Even if a borrower is 'approved' at one point in the transaction process it does not mean the will be able to close escrow. Many borrowers/buyers use funds for emergency uses, sometimes frivolous uses, during escrow and therefore are unable to close due to insufficient funds to close. In contract negotiations the price offered on a second offer/back-up offer does not have to be better than the original. Usually it is below the original since one would imagine the seller to be in a time predicament, and maybe a financial predicament as well, as a result of a last minute breach by the buyer in first position. Remember, price is important, but there are other areas of the contract/offer that are equally important including the buyers ability to qualify, finance terms, etc.. A buyers agent should never listen to the listing agent when a comment is made "not to do something' that would be in their clients best interest. In this case your agent should have written an offer and submitted it anyway. Since this did not happen then the buyer, you, are not in a favorable negotiation position,in fact, you may have damaged your position to have your contract approved prior to, or before,the listing agents contract. Again, in your situation, there may have been a violation of Article 1 of the National Association of REALTORS Code of Ethics (failure to maintain your clients best interest) on the part of your agent failing to recommend submission of an offer and on the part of the seller's agent failing to recommend that your agent submit your offer. Neither looked out for their clients best interest based on your description of events. Finally, if you did not use your own agent and rather worked directly with the seller's agent then this individual was not representing you and would not have any obligation to you other than "dealing honestly with all parties" ethically speaking. If you used an agent to represent you, and if your agent received compensation as the procuring cause of the transaction then there are two issues with regard to the type of representation. If you signed an Exclusive Buyer Broker Agreement with your agent then you would need to look into the terms of that agreement to establish at what point of the representation process the agent 'earned' their compensation. Not when the duties ended but specifically at what point did you become obligated to compensate them for their performance under the service agreement. If you did not sign an Exclusive Representation Agreement then even though this did not change the agents required performance as obligated under the NAR Code of Ethics it quite possibly did modify the time point at which the agent 'earned' their compensation and under what services they were required to perform to earn compensation. Every member of the National Association of REALTORS has pledged and IS obligated to perform their duties to Clients and Customers, the Public, and to Other REALTORS according to the tenets set forth in the Code. Failure to do so may be grounds for disciplinary action. Ethics violations do not constitute a violation under which the complainant has a right to damages(money). I would recommend speaking to a real estate attorney that after closer investigation and discussion of your situation may be able to determine litigious avenues for you to pursue. Each state has laws and administrative codes that may also govern a real estate agents performance that an attorney specializing in 'real estate' would be proficient in. Please remember I am not an attorney and my advice provided herein is to be considered as information to provide you with a wider context of understanding of the real estate ethical and professional standards of practice that govern a real estate agents performance and duties. I hope this has provided you with another perspective.