Fessing up

Of the common mistakes in residential sales, none occurs more frequently than the failure to abide by timelines, specifically those found in the inspection contingencies. If there is a time limit, someone will miss it.

In the Standard Agreement, the burden of observing the timeline is imposed on the buyer. If the seller does not agree to satisfy all terms of buyer’s corrective proposal, or if buyer and seller fail to negotiate a resolution, the buyer’s choice is to accept the property or terminate the agreement. If the buyer fails to make an election timely, subject to the goodwill of the seller, the buyer has lost the benefit of the contingency and is obligated to take the property in its present condition, even if the seller has agreed to satisfy most of the buyer’s demands. Buyer’s failure to meet the timeline means that buyer has purchased the property as is.

When a buyer misses a deadline, focus turns to his or her agent. Did the buyer agent do an adequate job of informing the buyer of the deadlines and the consequences of missing them?  Did the agent keep the buyer informed of the status of the transaction? Had the buyer given his or her directions to the agent who failed to draft or timely submit the appropriate documents?

Fortunately for many buyers and their agents, sellers can be accommodating. They may perform repairs or grant concessions that were on the table at the time the buyer missed the deadline. Most sellers want to sell and are not seeking to take advantage of mistakes. But not always.

I’ve taken calls and represented licensee, who are not so fortunate. Their buyers have lost the benefit of a contingency because of the agent’s mistake. There have been hotline callers in this predicament who called days or weeks after a missed deadline only to tell me that they have not informed their buyers of the full gravity of the situation! Malpractice (yes, missing a deadline may be malpractice) is unlikely to result in the suspension or revocation of a license. Failing to inform a client of one’s mistake is an offense for which a license may be suspended or revoked.

What is the appropriate protocol when dealing with a missed deadline because of an agent’s lack of attention? The initial step is for the agent to confer with the broker. The next step is for the broker and agent (or one of them) to inform the buyer(s). An honest and sympathetic approach is best. A mistake has occurred for which there is malpractice coverage. The client will be made whole though, depending upon the situation, there may be the opportunity to salvage the buyer’s objectives through negotiations with the seller.

It may be appropriate for the agent to explain that neither he nor the buyer took note of the deadline, but transferring blame to the buyer can have a profoundly negative impact.

It’s remarkable how forgiving clients may be when the “dropped ball” is explained fully and honestly. I recently represented an agent who, while on vacation in Europe, reviewed the terms of an offer. He forwarded it to his sellers and explained that the deal looked good. Nowhere did he take note of the substantial seller assist demanded by the buyer. The agent missed incorporating the seller assist in his estimate of the sellers’ closing costs. You can imagine their surprise at settlement!  His answer was simple, truthful and he was apologetic. He explained that he had reviewed the offer on his cell phone and that he simply did not observe the requirement of seller assist. He explained how he takes pride in his practice and seeks to perform to the best of his ability, but that he had not done so in this case in part due to the circumstances. He advised his clients that he would endeavor to make it up and his clients in turn accepted a contribution from him that was within the commission he had earned. His honesty and succinct message precluded litigation and the related expenses. Yes, he could have claimed that the sellers too missed the term when reviewing the agreement that he had forwarded to them, but he took the high road and accepted the blame and the matter worked out in the long run.

There are studies, particularly in the field of medicine, that suggest that a prompt admission and a sincere apology are met with fewer malpractice suits than otherwise. Delay and prevarication, on the other hand, have a compounding affect. Prevarication is likely to be seen as outrageous or a deceptive practice leading to the potential for punitive damages in addition to damages caused by the missed deadline. Prevarication and delay damage a reputation whereas a prompt admission and apology may be seen as laudable, despite the error.

Any deal that you may work out with the buyer needs to be approved by your broker who must consider reporting to the E&O insurer. If the concession is small, say a payment of a portion of your commission to the buyer, it’s still needs to be memorialized in a written settlement agreement. Such agreements virtually always provide that the payment is for the purpose of resolving a doubtful and disputed claim and many agreements provide for the nondisclosure of the issue and the non- disparagement of the broker and salesperson. And always, seek the advice of counsel.