Problems can arise if a home doesn’t meet a buyer’s expectations in real life.

Key Takeaways: 

• More buyers than ever are making offers without setting foot inside a home
• Disappointed purchasers most often bring claims against a real estate broker when they discover a previously unidentified defect or other undesirable feature of the home.
• Disclosure laws and the REALTOR® Code of Ethics still apply in virtual transactions.

Buying a home “sight unseen” was not a phenomenon invented during the COVID-19 pandemic. It’s long been common for investors and military buyers who are relocating, among others, who sometimes must make purchases without visiting a property. With the shift to virtual tours and showings in the past year, however, more buyers are making offers without setting foot inside a home. It’s important for real estate pros to know the risks in “sight unseen” sales that can lead to liability—and take steps to mitigate those risks.

When buyers purchase a property relying only on photos and online tours, problems can arise if the home doesn’t meet their expectations in real life. Disappointed purchasers may bring claims against the listing broker, the buyer’s broker, or both when they discover a previously unidentified defect or other undesirable feature. Such claims typically involve a failure to disclose a material fact or a misrepresentation of the property’s condition or characteristics.

Use these best practices to limit surprises—and potential liability—in a “sight unseen” transaction.

Advise the purchaser of all known material defects. Disclosure laws and the REALTOR® Code of Ethics still apply in virtual transactions. Seller disclosures must be accurately and fully completed and provided as required by state law. A buyer’s broker should follow up with the listing broker for any missing responses and ask the buyers what additional information they need related to any disclosed defect. For example, if a seller discloses prior water damage, the buyers may want to ask for proof of remediation and request additional inspections.

Avoid misrepresentation or exaggeration in listing photos and virtual tours. Resist adding or removing anything of material substance—Standard of Practice 12-10 requires REALTORS® to present a true picture to the public. Enhancing the lawn color during the dull winter months might be okay, but airbrushing out the power lines across the backyard is not.

Watch out for red flags. REALTORS® have a duty under Article 2 of the Code of Ethics to avoid exaggeration, misrepresentation, or concealment of pertinent facts, but do not have a duty to discover hidden defects. Carefully view the property during a virtual showing to identify any observable defects. Point these out to the buyers on camera and put them in writing after the show- ing. Follow up with the listing broker on any issues where the buyers want more information.

Avoid assuming buyers’ duties. Ask buyers to write down issues they’re concerned about (such as noises, smells, or proximity to neighbors). Observe and report objectively, but don’t make the decisions or assume something “isn’t a big deal.”

Protect yourself, and your clients, in writing. Ensure that the purchase agreement includes an appropriate due diligence period and contingencies like inspections and a final walkthrough. Work with an attorney to draft an addendum to clarify your role and emphasize the buyer’s responsibilities. The addendum should specify that the buyers—not the brokers, agents, or seller—are responsible for verification, walkthroughs, and professional inspections to confirm that the property is satisfactory. Many state or local REALTOR® associations have “sight unseen” addendums available to members.

Encourage the use of other professionals. Recommend the use of home inspectors and other relevant professionals in writing. If buyers insist on waiving inspections, document both your advice and their informed waiver in writing.

Acting with care, reason, and diligence may not prevent all surprises when buyers move into their “sight unseen” home. But having these practices in place will help you significantly to defend against liability.

©National Association of REALTORS®
Reprinted with permission

The Code of Ethics’ ban on discriminatory hate speech and conduct reinforces the association’s commitment to fair housing.

At its November 13, 2020, meeting, the National Association of REALTORS® Board of Directors approved recommendations from the Professional Standards Committee that address discriminatory and other harmful speech and conduct.

Most notably, a new Standard of Practice 10-5 under Article 10 of the Code of Ethics prohibits REALTORS® from using harassing speech, hate speech, epithets, or slurs based on race, color, religion, sex, handicap, familial status, national origin, sexual orientation, or gender identity, in any context.

When REALTORS® pledge to abide by the Code of Ethics, they must follow the highest principles and ethics of REALTORS® in all their activities. We can’t abandon those principles in a profession dedicated to protecting the best interests of consumers. Put in the simplest terms, each and every one of us is responsible for maintaining the integrity of the REALTOR® brand.

I’m sure you have some questions as you process these new recommendations, which are available in toto here.

Why was NAR looking at this issue? In 2020, NAR and local and state associations received an unprecedented number of complaints about REALTORS® engaging in discriminatory speech and conduct, especially on social media.

How did the changes come about? From June through October 2020, the Professional Standards Committee met twice and its Interpretations and Procedures Advisory Board met five times to consider how to address the issue. The groups developed the recommendations and worked through enforcement questions. They also discussed unintended consequences and the legal defensibility of these actions. As a result, the committee presented a comprehensive package of recommendations to the Board of Directors at its Nov. 13 meeting.

When do these changes take effect? Standard of Practice 10-5 and the application of the Code to all of a REALTOR®’s activities were effective immediately upon approval by the NAR Board of Directors, thereby sending a clear message that NAR condemns discriminatory speech and conduct.

How do these changes benefit consumers? The REALTOR® brand is built on ethics and integrity. When one REALTOR® posts discriminatory speech online or engages in discriminatory conduct, that person’s actions become reflective of REALTORS® on the whole. Left unchecked, those actions become who we are as an organization and reinforce the barriers to homeownership experienced by so many Americans. These new policies are one very impactful way we can advance equity and fairness in the real estate industry.

Approval of these professional standards recommendations amounts to one of the most significant and historic stands this organization has taken to advance fair housing. Our action calls to mind a quote from the writer Maya Angelou that simply but powerfully captures our resolve: “When you know better, you do better.” I am deeply humbled and honored to have been among the outstanding group of volunteers who considered and debated these monumental changes, grateful for the opportunity to serve as chair of the Professional Standards Committee in 2021, and proud of our organization and all REALTORS® who pledge to know and do better for the consumers and the communities we serve.

©National Association of REALTORS®
Reprinted with permission

Tips for complying with rules on marketing service agreements.

Key Takeaways:

• An MSA is an agreement under which one person or entity agrees to market or promote the services of another in exchange for compensation. An example is a mortgage broker who promotes the services of a real estate broker, or vice versa.
• MSAs should focus on marketing, not referrals. Marketing is not directed to any one specific person; Instead, it’s targeted to a wider audience.
• Payments under an MSA should not be based on the number of referrals made to the other party but should instead reflect the fair market value of the marketing services by using factors such as time, difficulty, or the size of the target audience.

In a welcome move for the real estate industry, the Consumer Financial Protection Bureau has issued guidance for how settlement service providers may properly engage in marketing service agreements, rescinding its previous bulletin warning of the substantial legal and regulatory risks presented by MSAs, which caused many real estate professionals to stop using them.

An MSA is an agreement under which one person or entity agrees to market or promote the services of another in exchange for compensation. One example is a mortgage broker who promotes the services of a real estate broker, or vice versa. Real estate professionals must ensure their MSAs comply with the Real Estate Settlement Procedures Act or face fines up to $10,000 per violation and up to a year in prison. Here are four takeaways from the CFPB’s guidance to help you incorporate MSAs into your business while avoiding RESPA violations.

1. MSAs are not illegal per se under RESPA.

The guidance states that a lawful MSA is an agreement for the performance of marketing services where the payments under the MSA are reasonably related to the value of services performed and are distinguished from unlawful referral arrangements. Determining whether an MSA itself is lawful, or whether payments or conduct under an MSA are, will be analyzed under RESPA Section 8, and as explained in the guidance, will depend on the facts and circumstances.

2. MSAs should focus on marketing, not referrals.

Understanding the difference between referrals and marketing is key to a compliant MSA. Referrals are any oral or written action directed to a person that affirmatively influences the selection of a particular settlement service provider. Marketing is not directed to any one specific person; instead, it’s targeted to a wider audience.

An MSA that pays for the “service” of handing a settlement service provider’s brochure to a client would be impermissible under Section 8(a) because it’s directed at one person and therefore constitutes a “referral.” An MSA that pays for the display of the provider’s brochures in an office lobby or at an open house is permissible as “marketing” because the act is directed to the public.

3. Payments under an MSA must be for actual marketing services.

Section 8(c)(2) of RESPA allows “payment … for services actually performed.” Such services must not be nominal or duplicative and their performance should be clearly delineated, including how often and by whom, and demonstrable.

For example, if a real estate professional agrees to promote a title insurance agency on social media twice per quarter, the parties should keep a copy of the posts on file. If the services called for in the MSA are not performed, but the agency still pays the salesperson, then the MSA would likely be deemed an impermissible referral scheme.

4. Compensation must be reasonably related to the services performed.

Payments under an MSA should not be based on the value or number of referrals made to the other party but should instead reflect the fair market value of the marketing services by using factors such as time, difficulty, or the size of the target audience.

For example, if a real estate broker agrees to display a mortgage company’s ad on the brokerage website, but the fee is multiple times higher than a non-referring business paid for a similar ad, that would not meet the reasonable value standard, and could be construed as a payment for referrals in violation of Section 8(a). By carefully structuring and implementing MSAs, real estate professionals may continue to use them as a valuable tool to expand networks and build business.

For more information about RESPA, visit nar.realtor/RESPA.

©National Association of REALTORS®
Reprinted with permission

Thinking of investing in other properties? The DSCR loan may be an option to easily qualify without all the paperwork hassle.

Reach out to Century 21 All-Elite and lender Ken Jordan, NMLS 183317 of Princeton Mortgage to see if you fit that window! #DSCRloan

Having a hard time saving up for a downpayment on a home? The PHFA K-flex program can help give you the downpayment assistance you need to obtain a home.

Century 21 All-Elite and lender Ken Jordan, NMLS 183317 of Princeton Mortgage can help you along the way with what makes the most sense for you. #PHFAK-Flex

Looking at a loan option with 100% financing? Talk to your agent today to see if a property you love meets the criteria. Ask Century 21 All-Elite and lender Ken Jordan, NMLS 183317 of Princeton Mortgage who have your best interests at heart! #USDA

A federal appeals court recently declared that websites are not public accommodations, but these best practices will help you avoid becoming the target of a shakedown.

Enacted more than 30 years ago, the Americans with Disabilities Act has become synonymous with accessibility. While the act’s accessibility requirements indisputably apply to physical spaces, its application in digital spaces has been debated for well over a decade. That’s because the ADA is silent on how—or even if—its provisions apply to websites.

Despite calls for action, the Justice Department has failed to act to resolve the issue, leaving consumers and businesses to turn to the courts for answers, and law firms to exploit the confusion by sending waves of demand letters to businesses around the country. Just recently, however, businesses celebrated a major victory in an 11th U.S. Circuit Court of Appeals decision in which the court declared that websites are not places of public accommodation.

On April 7, the 11th Circuit issued its long-awaited decision in Gil v. Winn-Dixie Stores, Inc., holding that websites are not places of public accommodation under Title III of the ADA. While this decision comes as a major victory for businesses that have long struggled with whether and how ADA obligations apply to websites, the issue of digital accessibility will remain a target of legal action until either the Justice Department acts or the U.S. Supreme Court settles the issue once and for all.

In the meantime, there are new waves of demand letters exploiting this perceived uncertainty by asserting baseless claims of noncompliance with not only Title III of the ADA but also the Fair Housing Act and similar state laws.

While the ADA claims may be up for debate, the fair housing claims are meritless and frivolous, lacking any regulatory or legal support. There are no provisions in the federal Fair Housing Act that require real estate brokers to code their website to be accessible to individuals with disabilities. And no court has ever concluded that the act requires a real estate broker to maintain an accessible website or that a real estate professional has a more general obligation to ensure effective communication with individuals with disabilities. These unsupported claims are merely self-serving attempts to extract money in the form of attorney’s fees and other costs from real estate professionals.

Follow Best Practices

You can reduce your risk of being the target of one of these website accessibility shakedowns by following these best practices:

1. Assess your website’s current accessibility and take preemptive steps to address and enhance any accessibility issues.
2. Speak to your website provider about what measures they are taking to address your website’s accessibility and be sure to address these issues in your contract with the provider.
3. Consider hiring a website accessibility expert to develop a plan to boost your website’s accessibility.
4. Include an accessibility statement on your website that provides contact information where a user can report difficulties navigating the website or can find help in accessing information or services.

If, despite your best efforts, you find yourself on the receiving end of one of these “ransom” demand letters, start by immediately contacting your insurance carrier and obtaining legal counsel to assess the best next steps. In addition, be sure to check out NAR’s resources for more information about the ADA and website accessibility. Use these tips and resources to help ensure you successfully manage and mitigate your exposure to ADA website accessibility claims now and in the future.

©National Association of REALTORS®
Reprinted with permission