As you may be aware, once somebody has a purchase and sales agreement signed, they have an equitable interest in a property, UNLIKE a straight option agreement.  A straight option contract is not an executory contract (meaning a contract where both parties have an obligation to perform in the future).   Rather, a straight option does convert to being an equitable interest, the moment the option is EXERCISED, and a sales agreement is signed.  There, now that all that garbage is out in the air.  What in the world does this have to do with you ????

Read the article from the Pennsylvania Association of Realtors:  Full link to this article from PAR is at the bottom of this post.

***************************************************************************************

Best of the hotline: Marketing

an equitable interest

Monday, October 12, 2009

By Jim Goldsmith, Esq.

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. 

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. 

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!                     End of Article

*************************************************************************************

 

So, What in the World do I have to Think about this ?

First, it’s awesome that PAR has recently brought this up, because I’ve been thinking about this exact thing when buying Bank REO’s. 

You know, sometimes I’m a little opinionated….OK…Yeah, I might get on your nerves because sometimes I just tend to tell you exactly how I’m feeling.  When they say about getting the owner’s permission to advertise a property.  I really think the rules were being setup for real estate agents themselves to make sure they have the permission of owners to advertise a property first.  Not just taking it upon their own beliefs and listing properties for sale.  You know..make sure all your papers are signed off, i’s are dotted, t’s are crossed.  I really doubt if they even had this in mind. 

Here’s my gig.  Would I mind if the seller’s knew I was relisting their house I have under contract ?  No.  Would I want to be required to have their permission?  NO.  It is really none of their business.

Next point.  Could the original sale fall through for one reason or another ?  Sure.  Title flaws happen every day.  As long as the sales contract on the back end is clearly alerting the new buyer to the fact that their receipt of clear title is contingent upon this intermediate buyer receiving clear title….besides.  It would also show up on the seller’s disclosure statement in a couple places:

1) Owner’s Name

2) Other things that may prevent title from transferring section.

yes, agreed that for a “standard” buyer, regarding loan commit dates, etc those are important things.  However, for a buyer showing up at the door with cash/proof of funds letter….different story.

Overall, Jim.  Thanks for the article!  I enjoyed the read this afternoon and am looking forward to learning more ways to be a capitalist in an “ever-increasingly socialistic” society.

Brandon

http://www.parjustlisted.com/archives/2029

Filed under: Flipping Houses

Like this post? Subscribe to my RSS feed and get loads more!