Lack of Communication Causes Breach of Purchase Agreement
A Real Life Claim Situation involving Inadequate Representation
Situation
A homeowner placed a house on the market through an agent affiliated with a local broker. At the time of the listing, the house was occupied by the seller’s grown children. A buyer, represented by an agent with the same broker, made an offer on the house, which the seller accepted. The buyer made an earnest money deposit of $2,500 held by the seller’s agent. The Purchase Agreement stated that the seller was not required to make any repair under $300.
Problem
The transaction began to break down over the home inspection process. The buyer wanted repairs on a number of items he claimed were damaged by the seller’s children. The seller had relied on a repair clause in the Purchase Agreement that relieves him of responsibility for repairs under $300. Nevertheless, the seller offered to complete some of the repairs under $300. This led the buyer to request even more, resulting in the exchange of 17 conversations over the repairs. As a result, the buyer refused to attend the closing.
Mistake
Both agents took a passive approach as the dispute escalated. The listing agent failed to adequately inform the seller of his rights and obligations under the Purchase Agreement. The buyer’s agent made no effort to rein in the expectations and demands of his client until it was too late.
Result
The buyer’s failure to appear at the closing caused the seller to take legal action, suing the buyer for breaching the terms of the Purchase Agreement and refusing to close on the home. The seller also sued his agent for not adequately representing him, failing to enforce the terms of the Purchase Agreement, failing to inform the buyer of his limited liability for repairs under the Agreement, and for allowing negotiations for repairs to continue. The buyer demanded compensatory damages and the earnest money being held by his agent. Ultimately, the earnest money was turned over to the seller and an additional modest sum was paid by the buyer and broker to settle the case.
Prevention
Both agents should have been more involved throughout the transaction and the dispute over repairs. Being aware of discrepancies allows you to stay on top of situations, which could potentially spiral out of control. Yielding responsibility for resolution of disputes leaves an open invitation for problems to arise. Remember your representation responsibilities and keep your clients informed of their rights and obligations throughout the selling/buying process. Temper expectations that don’t conform with agreements or common sense. Your prompt and intelligent response to issues like this could prevent considerable loss.
Pearl Insurance is a Pennsylvania REALTOR® Advantage Partner for Errors and Omissions Insurance. One service is that they periodically publish these types of articles. For more information or to obtain a quote, visit the Member Benefits page of the PAR Web site at www.parealtor.org and select Pearl Insurance from the chart.