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Legal IssuesBest of the hotline: Marketing an equitable interest
A buyer and seller have entered into an agreement of sale. Before settlement, the buyer seeks to “sell” his equitable interest in the property to any qualified buyer. This buyer-turned-seller approaches you and asks that you list the property for sale. He wants you to place the property’s availability in the multi-list, advertise and do all of the things you would ordinarily do as listing agent.Â
Q: May you?
A:  Yes. There is nothing inherently wrong with marketing an equitable interest in real property. However, there are several potential impediments. The Rules and Regulations of the Real Estate Commission require that you obtain an owner’s permission to advertise the property. Your client has an equitable interest by virtue of the signed agreement of sale but is not currently the title owner. Will the commission apply its regulation to require you to have permission from both the equitable and the title owner? There are arguments to be made on each side of this question. The better practice is to obtain permission from both the seller and the buyer-turned-seller.Â
Other concerns involve the possibility that the original transaction may fail for one reason or another. Is the original agreement contingent on financing and does the buyer-turned-seller have an obligation to submit a commitment on or before a certain date? Failures in this regard bring obvious consequences.
Clearly it is advisable to obtain the advice of counsel and certainly the permission of your broker before taking such a listing. Keep in mind that liability dramatically increases when you take on a practice that is well outside the normal everyday practices you are familiar with. Be advised!
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Jim Goldsmith, Esq. is an attorney with Caldwell & Kearns and serves as general counsel to PAR. A substantial portion of his practice is dedicated to providing advice and counsel to real estate licensees and representing and defending real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. He routinely counsels employers on employee relations issues as one of the voices of the PAR Legal Hotline. |
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I am currently working with an investor who wants to write contracts that are assignable. He will then search for a new buyer to sell for the property for more money then sell the contract to the new buyer. He wants to try to make at least $2,500 per transaction and he never owns the property or pays a transfer tax. I talked with an attorney and he advised that I document with an addendum what the buyer’s intensions are. At this time the buyer has an agreement on one of my listings. The seller has been trying to sell the property for almost a year. She is very well aware that he is going to sell to someone else, without my assistance, for more money. She doesn’t like it but she wants it sold. Any comments would be appreciated.
Depends.
If “you” in the question is a new agent for the buyer and had nothing to do with the property previously, no problem.
If, however, the agent is agent for the seller, knows that the buyer intends to flip the property and knows, or has a very good idea, that he can get the buyer a better deal than what he obtained for the seller, then the agent has a large ethical issue.
But if agent for the seller has obtained for the seller the best deal he could, and sometime after the deal is signed the buyer then decides to put his equitable interest on the market or another buyer approaches the agent, there should be no problem. After all, the seller’s agent had not been able to obtain a higher price for the seller after marketing it for some time, the seller was satisfied with the deal, and now just because the buyer thinks he can resell for more, why shouldn’t he be able to give it a try? Of course, the seller may not believe that the agent and the buyer didn’t have this set up ahead of time–(the temptation of a double commission for the agent)– and in this case probaby won’t give his permission.
We “know” it happens often where the buyer and agent know of a better buyer for the equitable interest even before the original sales agreement is signed. This is unethical, if not illegal(but how can intentions be proven?).
Today, however, if the transfer tax applies to a flip situation, the better procedure would be for the buyer to close, then try to resell. Two transfer taxes are going to have to be paid anyway and this would preclude the possibility of any lawsuits.
Even if you decide it’s legal, I think you might run into some ethical issues with your original seller – you are obligated to bring him/her the highest and best price for the property. If the equitable owner thinks they can sell for a higher price, why can’t you get a higher price for the current owner on title?