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The Listing Agreement: Exclusive right to sell versus exclusive agency

Author By Christopher P. FinneyPosted on

This is the first in a series on the Realtor listing agreements, both commercial and residential.

The relationship between a Realtor and his principal is typically defined by a written agreement.  In Kentucky, the courts require that the agreement be in writing to satisfy the statute of frauds.  Not so in Ohio.  And that writing then determines the rights and responsibilities of the parties to that agreement.

There are, of course, agreements that define the relationship between a buyer and his Realtor.  These “Buyer Broker Agreements” are addressed in another blog entry.

And as to agreements between a seller and his Realtor, what is referred to as a “Listing Agreement,” there are two basic types: (i) Exclusive Right to Sell and (ii) Exclusive Agency.  These sound similar, so what is in fact the difference?

Very simply the distinction is whether a commission is due and owing when the seller finds his own buyer, independent of the efforts of the Realtor.  Under an “Exclusive right to sell” agreement, a commission still is due in such instance.  In an “Exclusive agency agreement” a commission wouldn’t be due.

The exact language and obligations between the parties is not, of course, just in the title to the document, but in the body of the text, so a simple distinction between “Exclusive Right to Sell” and “Exclusive agency” agreements may not lie in the caption of the document.  As with all contracts, one must read the entire document to know what it says.

Now, because almost all listing agreements are signed on a Realtor-drated form, as you might imagine, they are almost all Exclusive Right to Sell Agreements.  The Realtor wants to get paid if he is going to spend time and money on generating buyers for your home, even if the luck of the draw would ultimately yield that buyer from the seller’s own efforts.

For this reason, most Realtors would refuse to enter into a listing agreement on broad “Exclusive agency” terms, but they might be willing to except out from the agreement certain buyers who have expressed an interest or that the seller wants to approach before committing to his Realtor.

Understanding the basic framework of listing agreements is important before signing.

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San Diego Realtor Dan Melson has a nice blog entry of his own exploring types of listing agreements in more detail than this article, here. 

 

Ohio law changes on right to appeal after failure to appear at Board of Revision hearing

Author By Christopher P. FinneyPosted on

The scenario is as follows: A party files a formal appeal of his property’s tax valuation before one of Ohio’s 88 Boards of Revision and then fails to appear to prosecute his case.  It would seem automatic that the case is dismissed, and the complainant would have no right of appeal.

But Ohio is unique in that new evidence can be presented before the Board of tax Appeals following a win or loss at the Board of Revision.  It’s not exactly a trial de novo, but it’s close.

Thus, the question recently before the Ohio Supreme Court was whether a complainant in that circumstance has the right to appear before the Board of Tax Appeals to challenge the Board of Revision dismissal, and still seek a reduction in valuation.

Prior precedent of the Ohio Supreme Court said definitively “no.”  LCL Income Properties v. Rhodes, 1995.  However, as Court News Ohio reports here, the Ohio Supreme Court’s decision on July 2 in Ginter v. Auglaise County Board of Revision changes all that, and now the complainant will have a second bite at the apple at the Board of Tax Appeals.

Seventh Circuit rules that construction lender has no claim under title insurance policy for construction liens it induced

Author By Christopher P. FinneyPosted on

The Wisconsin Appellate Law report has this entry about a recent Seventh Circuit decision that shows the precarious position lenders are in in recovering their losses arising from their loans.  As that article recites, in BB Syndication Services, INc. v. First American Title Insurance the Federal Seventh Circuit Court of Appeals ruled that a construction lender does not have a claim against the title insurer for liens that arose as a result of their cutting off funds to the project.

The Seventh Circuit relied upon a provision in the title insurance policy excluding coverage for liens “created, suffered, assumed or agreed to” by the insured lender.

The Court found that because the liens arose as a result of the  lender cutting off funds to the project (thus causing the borrower to default in his obligations to subcontractors and material men, and then liens to be filed against the project), coverage did not lie.

 

Finney Law Firm notches third win in 18 months at SCOTUS

Author By Christopher P. FinneyPosted on

More than 99% of all petitions to the United States Supreme Court are rejected, meaning that the petitioner’s claims are never heard by the High Court.

In 2014, we were fortunate to have two cases — of about 100 in total addressed by the Court —  accepted.  And then we then won each by 9-0 decisions authored by Justice Clarence Thomas.   Inasmuch as this was the inaugural year of our new firm, this was an exceptional honor.

As we wrote here, we asked the U.S. Supreme Court to consider a third case this year — Wagner v. City of Garfield Heights.  In that case we filed what we refer to as a “me too” petition before the U.S. Supreme Court, one addressing issues otherwise before the Court, in this case Reed v. Town of Gilbert, AZ, which was heard by the Justices in oral argument by the Court back in January.

We could not say after the Court’s initial conference that the case had been accepted or rejected — rather they just held it in abeyance.

Last week, they ruled in favor of Reed in the Arizona litigation, vindicating the First Amendment rights of the petitioner in a case involving content discrimination by the Town of Gilbert as to yard signs.  Today, they issued their ruling in the Wagner case and ruled in favor of our client, Frank Wagner.  Wagner had been cited criminally by the City of Garfield Heights for placing a 4′ x 4′ sign in his yard critical of his city council member.

The case has now been sent back to the 6th Circuit for further consideration in light of the Reed decision.  You may read the SCOTUS order here.

Cincinnati Area Board of Realtors form Contract provides buyer “outs.”

Author By Christopher P. FinneyPosted on

As is explored here, the standard Cincinnati Area Board of Realtors contract launched late last year contains very substantial changes from prior forms published by the Board.  This is important, because this new form of Contract is in use by most Realtors in the greater Cincinnati area, so buyers and sellers are more likely to encounter it than not.

Issues not explored in the prior blog entry, however, are the significant “outs” in the new form Contract for buyers.  Historically, form residential contracts in use in greater Cincinnati would provide a standard inspection contingency and financing contingency, but otherwise, the buyer’s hands were tied in contract performance.

But under the new Board contract, the buyer has additional “outs” — the right to terminate the Contract — due to the failure of an appraisal contingency (paragraph 4) and for the non-approval of a variety of documents provided by the buyer relating to homeowners association covenants against the property (paragraph 8).

These provisions — especially the HOA covenant review — give the buyer broad rights to terminate the contract, leaving the seller to need to place the house back on the market, and find another buyer.

Read more: New Cincinnati Area Board of Realtors contract contains substantial changes >>

Hold your breath: U.S. Supreme Court has scheduled Wagner case for consideration in conference this Thursday

Author By Christopher P. FinneyPosted on

OK, we keep talking about it, but in reality “nothing” has happened yet with the Frank Wagner v. Garfield Heights case at the U.S. Supreme Court.

We filed the case and said it had issues that tracked the U.S. Supreme Court case of Reed v. Town of Gilbert, AZ.  And the Supreme Court agreed with that proposition, refusing to dismiss the case a the first conference, where 99% of all petitions die.  But neither did they accept the case.  It just was put on a pile “to be considered later.”

On Monday, the Town of Gilbert, AZ case was decided in favor of the Plaintiffs, and free speech, the same side as the Wagner case, advancing the issues on which we had won at the trial Court in that case.  Thus, if the U.S. Supreme Court follows its precedent set this week, we should “win” a third time in 18 months at the U.S. Supreme Court. Nothing is guaranteed, but the signs all look good.

Well, that “later” for Wagner is this Thursday.  And we are hopeful the result of that conference will be a big “Reverse and Remand” to the 6th Circuit.

We’ll keep you advised.

 

Read our series on new construction, commercial and residential

Author By Christopher P. FinneyPosted on

We have a fantastic (if we do say so ourselves) 8-part series on legal issues on new construction for residential and commercial projects. The series, as a general proposition, provides helpful information for both contractors (builders) and buyers.

New construction: The problem of “what” is to be built >>

New construction: The “When” >>

New construction: Change orders, allowances and selections can significantly impact price >>

New construction: On whose land are you building? >>

New construction: Cost-plus versus fixed-price >>

New construction: What form of contract? >>

New construction: Ohio residential buyers absolutely protected from liens in limited circumstances >>

New construction: Properly documenting change orders >>

If we can help you “Make a Difference” with documentation of a new construction project, contact Isaac T. Heintz at (513) 943-6654.  For a dispute relating to a new construction project, contact Brad M. Gibson at (513) 943-6661.

Navigating turbulent waters: Insurers and indemnitors (Part 2)

Author By Christopher P. FinneyPosted on

We explore the issues of insurers and indemnitors in these two previous articles:

Navigating turbulent waters: Insurers and indemnitors (Part 1) >>

Indemnities and Warranty Deeds: Open-ended access to your checkbook >>

These blog entries primarily provide an understanding of indemnities from two different perspectives: That of the indemnitee (the person who is protected under an indemnity), and that of the indemnitor (the person providing the protection).

In this article, we explore multiple facets of the indemnity, and its enforcement.

As a starting point, in contractual indemnities, various terminology is used for risk-shifting provisions:

  • Indemnify
  • Defend
  • Hold harmless

These three terms, to us, have different meaning, but in application courts have interpreted them interchangeably, or at least to overlap.

  • “Indemnify” is an open-ended commitment to both cover the expenses of a third party claim and potentially to defend against that action, i.e., pay the the indemnity attorneys fees.
  • “Defend” more specifically covers that obligation to protect the first party from suits.  It probably does not include a broad indemnity for the underlying liability.
  • And “hold harmless” generally means simply that the second party will himself not raise a claim against the first party for certain claims, almost like a prospective release.  “Party B will hold Party A harmless from claims relating to the underground storage tanks on the property.”

But, because courts fail to make these fine-line distinctions, when drafting contract provisions perhaps more precision as to what is intended is in order.  In some instances, a party will provide all three protections: “Tenant will indemnify, defend and hold harmless Landlord from all claims relating to his occupancy of the property.”  Other times, it would be appropriate to tighten the scope of the risk-shifting provision: “Landlord has disclosed to Tenant the leaking roof on the property, and Tenant agrees to hold harmless Landlord against claims relating to the same.”

Because contractual risk-shifting provisions essentially provide open-ended access to a checkbook of the indemnitor, great care should be exercised in agreeing to such provisions.  For, even if a claim ultimately is unfounded, the cost to defend can bankrupt even well-capitalized parties.  Consideration also should be given to indemnities that must be personally signed, thus voluntarily piercing the corporate veil carefully constructed to protect the individual owners.

Today, for example, it is common for lenders to ask that individual investors in a real estate transaction personally indemnify and defend a lender against environmental risks associated with real property being financed.  Caution should be exercised in undertaking such an open-ended risk.  For, the very reason we advise clients to take title to property in the form of an LLC or corporation is to shield the individual form such open-ended liability.  An indemnity blows past that carefully-planned protection.

Finally, how is an indemnity or insurance provision enforced when the indemnitor or insurer chooses to ignore his contractual obligation?  This can be accomplished in one of two ways:

  1. At the time the claim is pending, the indemnitee can bring a “declaratory judgment” action asking the Court to declare that the indemnitor provide the promised protection.
  2. After the fact, as long as proper demand has been made previously for such a defense, a monetary damages claim can be brought to compensate indemnitee for the damages caused by indemnitor’s breach of his contractual obligation.

In many ways indemnities are “super” contract provisions because instead of defining specific contractual obligations (e.g., to make payments, to pay taxes, or to repair a roof) they protect against open-ended and sometimes unknown obligations, and indeed obligations from third parties who are foreign to the transaction being undertaken.

Whenever I review a contract, a lease, a mortgage or loan agreement, or other contractual agreement for a client, my antenna is raised when I read that my client is agreeing to “indemnify,” “defend,” “hold harmless,” “protect” or words of similar impact some other party. Those “super” contract provisions should be undertaken with due consideration to the impact on the indemnitor.

 

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