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OFFICIAL MAGAZINE OF THE NATIONAL ASSOCIATION OF REALTORS®








 Risk management
Minimizing Liability From Contracts



  

Three Lines of Defense Against Risk

Keeping Risks Under Control

Controlling Transaction Risks

Agency Disclosure

Avoiding Antitrust Risks

Minimizing Liability from Contracts

Fair Housing Risks

Controlling Personnel Risks

Communications Policies to Minimize Risks

Insuring Against Risks

More Resources: Controlling Business Risks

Code of Ethics: Controlling Business Risks 		  2 Contract Caveats

In most cases, brokerage companies use pre-approved contract forms for real estate transactions. But even then, there can be some potential pitfalls, says David Schloss in “The Law & You,” REALTOR®Magazine, March 2000.

1. Standardized contract forms. In most parts of the country, state REALTOR® associations have developed standardized contracts for use in various parts of the transaction. Brokers still need to exercise caution in filling in the blanks on preprinted forms. Adding clauses to the contract at the request of buyers or sellers could be consider practicing law. Even if drafting a clause for a contract is permissible, it is critical to ensure that the parties’ intentions are made clear.

Case in point: Adding a phrase such as "This contract is contingent upon the buyer selling his current property" is woefully inadequate. The wording doesn't specify a time frame for the sale or a specific property to be sold. Even the word “sale” could refer to either a contract for purchase or a closed transaction.

2. Electronically printed contracts. Contract templates make it easy to make changes to a contract and print out a clean, seemingly unaltered form. But this can lead to problems. Without the strikeouts and handwritten insertions, it’s not clear where the standard form ends and the work of the real estate associate begins. And in many states, changing a contract constitutes the unauthorized practice of law.

For more contract caveats, see Preparing the Sales Contract in the Negotiating section.

TIP: Have your attorney draft model language for “riders” or provisions that are frequently added or changed in listing agreements or sales contracts.

4 Common Changes to Contracts

Poll your associates to see which contract forms are changed most often. Among likely candidates are:

1. Handling back-up offers

2. Seller financing

3. Inspection or attorney-review contingencies

4. Excluded parties in a listing—that is, those parties (such as family members) to whom the property may be sold without the seller being obligated to pay a commission.

Adapted from Reduce Your Risks to Professional Liability Claims in Real Estate, Leland M. Kraft, Jr., Apollo Publications, 1991

How to Breach a Listing Agreement Without Even Trying >