To better serve the brokerages, brokers, and salespersons we represent, we often look for interesting cases from across the nation that provide valuable lessons to our clients in the Carolinas.  We found one such case recently in Michigan, a case that teaches Realtors® to be extremely careful when venturing beyond the friendly confines of standard real estate forms.  

The case, Faysal v. Century 21 Town & Country Commercial Group, Inc., arose when the owner of a jewelry store sought to sell his building.  The owner entered into a standard listing agreement with a real estate brokerage.  As the listing agent, the brokerage owed certain duties to the store owner, including a fiduciary duty to represent the owner’s interests and a duty to use reasonable care in representing the owner.   

The owner then entered into a contract to convey the store to two related individuals for $139,000.  According to the owner, the buyers were to pay a $39,000 deposit and would obtain financing for the remaining $100,000.  The owner was also prepared to finance the remaining $100,000 in the event the buyers did not obtain financing.  

The listing agent drew up the contract, writing the deposit amount and then “Bank Finance $100,000.”  At the end of the purchase price section, the listing agent wrote “subject to financing.”  The buyers, however, understood that the entire amount was to be financed, and when they were unable to obtain financing of the initial $39,000, the contract fell through.  

The owner sued the buyers, alleging their failure to provide the initial deposit constituted a breach of contract.  However, the trial court determined that the “subject to financing” language at the end of the purchase price provision applied to the entire purchase price, not just the remaining $100,000.  Thus, as the buyers did not obtain financing, they did not breach the contract.  

The owner then filed suit against his brokerage and agent, alleging that they breached their “fiduciary duty by negligently drafting the purchase agreement and including an ambiguous term that did not comport with the parties’ agreement.”  Since this ambiguity was ultimately construed in favor of the buyers at the first trial, the owner was left without a remedy when the sale did not close.  Under normal circumstances, the owner would have been able to force the buyers to close or sue for damages.  Because of the ambiguous language inserted by the listing agent, the owner had no such options.  In the lawsuit, the owner then sought to recover such damages from the listing agent.  

The brokerage and agent claimed there was no connection between their acts and the buyer’s inability to close and that the case should therefore not proceed.  However, the Michigan Court of Appeals ruled in September that the case can continue.  While in general there is nothing wrong with subjecting a sale to financing, the court noted that the agent might have been negligent if he inserted a financing provision that was contrary to what the parties originally intended.  

So, what can you take from this?  The answer is simple.  The standard real estate forms provided for North and South Carolina agents are the result of years of research and real-world experience, and they cover the great majority of contingencies that may arise in a real estate transaction.  Agents should try very hard to stay within the terms of such forms.  Indeed, agents are taught to merely “fill in” the forms; venturing too far from them may constitute the unauthorized practice of law, potentially leading to civil and criminal liability.  If additional terms are added, or included in attached addenda, read and re-read the terms to ensure they are clear.  Also, have someone else in your office review them to make sure they, as a stranger to the transaction, understand what you are seeking to accomplish.  You should also keep emails and other writings you may have that provide the context of the additional terms.  These may prove useful if a court must later determine the meaning of any ambiguous terms.  But, of course, the simplest, and safest, strategy is to avoid any issues altogether, which you can do by simply filling in the standard forms.