(The following is taken and reproduced from the VAR website.)
 Regarding Earnest $ Deposits
Question: When does an EMD have to be deposited?
Answer: The deposit must occur within five business banking days
following ratification unless otherwise agreed to in writing by the parties
(this will come up in a later question).
18 VAC 135-20-180. Maintenance and management of escrow accounts.
“Purchase transactions. Upon the ratification of a contract, earnest money
deposits and down payments received by the principal broker or supervising
broker or his associates must be placed in an escrow account by the end of
the fifth business banking day following ratification, unless otherwise agreed
to in writing by the parties to the transaction, and shall remain in that
account until the transaction has been consummated or terminated.”
Question: I had to deposit some of my own funds into my escrow account to
meet the account minimum to open it. Is that legal?
Answer: You may keep enough of your own funds in an escrow account to
avoid bank charges, keep it active, meet minimums – etc., so long as you
keep separate account of those funds (and make periodic withdrawals of any
excess every 6 months).
Question: We are dealing with a short sale and the seller and buyer want to
delay depositing the EMD until the lender approves the deal. Is that ok?
Answer: Yes, remember parties can agree to a deposit date other than the
standard five business banking days following ratification. VAR’s Short Sale
Addendum to Residential Contract of Purchase contains language below to
meet this preference:
The parties agree that the earnest money deposit will be deposited in
Escrow Agent’s escrow account (check one):
___ within five (5) business banking days after the date this Contract is fully
ratified by Purchaser and Seller; OR
___ within ___ days after delivery by Seller to Purchaser of notice of lienholder approval of this Contract.
Question: Is an EMD necessary for contract formation?
Answer: No. The failure of buyer to deliver an EMD does not mean there is
no contract. It means that buyer is in default, and seller will have all rights
against the defaulting buyer.
The mutual promises in the contract are ample consideration to form a
binding agreement.
Please note that the scenario above refers to the VAR contract. Other
contracts in use in Virginia may require the EMD for ratification.
Question: Many agents like to put in the contract that the earnest money will
be paid "upon ratification." If the buyer delays getting the check to us and we
can not deposit the check within 5 days of ratification, are we in violation of
VREB regs? Also, are postdated checks okay if disclosed to the seller?
Answer: If the buyer delays beyond the 5 days, the only issue is: What did
the contract say was the status of the EMD? If it says the buyer has made a
deposit that is being held by the escrow agent, then there is a material
misrepresentation in the contract, and REB will come down hard on the
agent. If the contract is ratified without the agent having the EMD, or with a
post-dated check, or with a check in the mail, or whatever the case may be,
the contract needs to reflect exactly that status. Don’t say you have a
deposit if you don’t and if it’s post-dated or on the way, say that in the
contract.
Question: I am the principal broker escrow agent; what if my agent forgets
to give me the EMD within five business banking days. In other words, the
funds are not deposited until the 6th day?
Answer: You must report this violation to the Real Estate Board within three
business days. In fact, any escrow violation must be reported. Please note
that the Real Estate Board needs the broker to report the violation in writing
either by regular mail or e-mail. The Board also needs to know the name of
the licensee and license number, when the deposit was due and when it
was received.
Question: Am I correct with my understanding that we only have to pay
interest on earnest money deposits if the client requests it?
Answer: Whether you place the EMD in an interest-bearing account is your
decision, but if you do, the contract has to state who gets the interest. If the
client wants it, and you agree, you may do so.
Question: Does a real estate licensee have to hold the EMD in a real estate
transaction?
Answer: No, but if the licensee holds it he is subject to the REB regulations.
Question: What is the Thirty-Day Letter?
Answer: A provision of the REB regulations permits a licensee escrow agent
who can pay the EMD “in accordance with the clear and explicit terms of the
contract” to do so provided he has notified the person not receiving the
money in writing of his intent to give the deposit to the other party and
hears no objection within 30 days after the notice.
The letter must be sent in a specific manner and process. Please see 18 VAC
135-20-180. Maintenance and management of escrow accounts./B.
Disbursement of funds from escrow accounts for the specific process.

Regarding Pricing Issues
Question: The listing agent has reduced the price in the computer, but gets
an offer afterwards at the old, higher price. Must she disclose the price
reduction to the buyer or buyer agent?
Answer: No, nor should she. Let’s remember for whom we work.

Contracts/Contingencies
Question: A contract has a fairly typical provision whereby buyers represent
to sellers that if the contract is not contingent on the sale of another
property, buyers’ ability to obtain financing or close is not dependent on the
sale of another property. In fact, buyers almost certainly will have to sell their
home to close. If the buyer agent is aware of this, must she disclose this to
the sellers?
Answer: I don’t think so. I see it as just another way a client goes naked,
and it’s not our business to blow the whistle on it. Many of you may think
that because buyers have made a representation that’s not true, it’s
somehow dishonest for the buyer agent not to tell the sellers. While I
understand this pang of conscience, I suggest we consider the
consequences of obligating the agent in this way. How, for example, would
you differentiate the following situations? Buyers make an all-cash offer, not
contingent on financing, but buyer agent knows they don’t have the money,
and will need financing. Seller promises to give good title, but listing agent is
told seller has a title blemish he probably can’t resolve before settlement (an
unreleased lien, for example, or an encroachment, or defect in the chain of
title). Seller lives in the same neighborhood with a registered sex offender,
and is not anxious for the listing agent to inform buyers. Seller is in
foreclosure, and despite listing agent’s efforts to obtain a forbearance
agreement, seller may not be able to stave off the lender in time for a deal to
close. Buyers have very bad credit, and buyer agent is having trouble getting
them qualified for a loan. I expect most of us would agree these agents may
not disclose their clients business, and I see no reason the original situation
should be treated differently. Note also that in all these cases, the other
parties can take the appropriate steps to protect themselves. So, counsel the
client, help deal with the problem, but keep confidences. If you find
somehow your conscience will not let you do so, discuss it with your client,
and, if necessary, withdraw from the representation.
Question:
A listing agent cannot find a copy of a disclosure she knows she
had the buyer sign. The buyer is now threatening suit against the agent and
the seller as a result of defects discovered in a house that closed 18 months
ago. What is the potential exposure of the listing agent? The seller?
Answer: The statute of limitations for suits for damages resulting from the
failure to deliver a disclosure is one year from the date of settlement, so the
statute has run on that action. Since the buyer is also claiming the seller
intentionally misled the buyer on the condition of the property, that claim is
not yet time-barred. If the seller is in fact guilty of fraud, the seller probably
has no valid claim against the agent for not delivering the statement, as it
was not the cause of the seller's loss. The agent should contact her E & O
carrier and should remember always to give all parties with whom she deals
the Summary of Buyer's and Seller's Obligations under the Virginia
Residential Property Disclosure Act, available from VAR and many local
associations.
Question:
A licensee wrote an offer for herself, but forgot to state in the
contract that she was a licensee. The offer was delivered to the listing agent,
but never delivered to the seller. Was there a violation of the Real Estate
Board’s regulations?
Answer: I think probably so. On the one hand, delivery to the listing agent
equals delivery to the seller, and for the Board’s purposes, the purposes of
the regulations are probably satisfied. But on the other hand, the public was
never jeopardized because the offer never made it to the real party the Board
wants to protect, the seller. On the other hand, the Board uses regulatory
violations didactically, and teaches lessons with them. On the other hand,
maybe they’ll issue a warning, saying no harm, no foul. On the other hand,
don’t count on it.
Question:
Buyer agent makes an offer and receives a verbal acceptance. A
written offer is made and comes back with language making the contract
subject to a prior right of first refusal. (The right was contained in a prior
recorded deed.) That right holder accepts the offer. Both the buyer and the
buyer agent are upset, and claim the listing agent owed them a disclosure of
the existence of the first refusal. Did she? Did the buyer agent fail his client
by not checking the record to find out about the right?
Answer: No to both questions. Nothing in the regulations, the statutes, or
the Code of Ethics requires a listing agent to disclose something not related
to the physical condition of the property that would arguably chill buyers'
interest in the property. Besides, as far as the listing agent knows, it's
irrelevant, as the right holder may not exercise. And the Real Estate Board
has ruled on at least two occasions during the last couple of years that an
agent does not fail in his obligations to his client in failing to search the title
to property either to find out things like this or to ascertain who the real
owners are.

Property Issues
Question: The owner had a licensed plumber do a new bathroom, but no
permits were ever pulled or inspections done by the county. The work seems
perfectly and professionally done. Must the listing agent disclose this to
prospective buyers?
Answer: I think so. After all, the fact that improvements were done without
the appropriate permits and inspections is a material adverse fact about this
property. But I would start by encouraging seller to get the county out to
inspect. If everything’s fine, the locality is unlikely to be very severe. Or you
could just let the buyers decide, after informing them of the issue.
Question: A contract's feasibility study period had ended, the buyer had
waived all rights to object to property condition issues, and the parties were
on the way to settlement on this old office building. A neighboring property
owner and competitor (and a man who has expressed an interest in buying
the building) has now told the listing agent that the HVAC system is faulty
and that the toilets in the basement back up and the sewer line could have
to be jack hammered. The owner is a triple-net lease landlord who knows
very little about the property, which has been maintained by the tenant for
years. Does the listing agent have to disclose these things to the buyer?
Answer: I don't think so. First, what does the listing broker actually know?
This information is pure hearsay from a very unreliable source with a motive
to tank the deal and try to pick the property up cheap. Buyer is buying as is,
has conducted a thorough inspection of the property (which would reveal
plumbing and HVAC problems), and is apparently satisfied with the
condition of the property. This question illustrates an interesting point about
when we know something, and is a good illustration of why hearsay is not
admissible in court. Just because you hear something doesn't mean you
actually know it to be true.
Question:
A gas fireplace has no gas line hookup and no propane tank
connection. The fireplace and insert are brand new, and would work
perfectly with an energy source. Is it a misrepresentation to say that the
fireplace is in “working order”?
Answer: I’ll be hanged! So, it works, but there’s no fuel source available. It
seems to me that if you said this about a gas stove, you would be seriously
misleading the buyer. For my money, it has to be usable by the buyer in the
ordinary sense to be in “working order.”
Question:
Listing agent has a listing and has been told a convicted rapist
lives across the street. Another agent in the firm wants to show the property
to a buyer client. How should the firm handle this? What disclosures should
be made to whom?
Answer: This is messy. Let's start with the disclosures. First, the listing
agent must inform his seller about the fact of the offender's presence in the
neighborhood, since his presence is certainly a material fact known by the
agent that could be important to the seller. But just what does the agent
know? I think the listing agent should do some due diligence on the offender
to get good facts, as best he can, rather than merely report the rumor he
heard. Only then can the seller make informed decisions about how to
proceed.
As for how you treat buyers, I would not show this home to any buyer client
of the firm, whether you are acting under a dual or designated agency
relationship, without first obtaining your seller's consent to inform the buyer
of the facts as you know them. For the firm to represent a buyer and not
disclose this information (assuming it turns out to be material) would
present a serious risk for the firm. Note that this scenario does not have to
be unmanageable, but it will require deft handling. You may find out, for
example, that the crime was statutory rape (consensual but underage), or
sexual battery (a drunk grope, for example), or something else leading to a
conclusion that the offender may not be as menacing as it first appears.
Facts are important here, so act on the basis of the best information you can
get. But the bottom line here is that if the facts are as they seem to be, the
firm should not show this property to any buyer client without first obtaining
the seller's consent to disclose what is known.
Question: My seller client is on the Megan’s Law website. After we sell his
current home we will begin the search for a replacement home. Am I as the
buyer agent required to inform anyone of the fact that my buyer is on the
list?
Answer: No law requires such disclosure. In fact, you should not disclose
this to anyone without his consent, as to do so may jeopardize his ability to
purchase a home, which is, after all, why he hired you. I’ll leave to you
resolution of the moral dilemmas here. Suffice it to say that if you decide to
take a job, you should do it professionally and competently, preserving your
client’s confidences. If for any reason you cannot do this, you should decline
the representation.
Question: A property has an underground storage tank (UST) with heating
oil still in it, although the house is now heated by gas. The seller has signed
a disclosure and has asked the listing agent not to disclose the existence of
the tank to prospective buyers. Must the listing agent disclose the existence
of the tank? Does it matter if the listing agent is also a dual agent? Isn’t this
a good example of why sellers who know of problems should be encouraged
not to inform the listing agent?
Answer: The statewide building code (BOCA) requires owners to empty and
close USTs that are out of service. The listing agent should encourage the
owner to comply with the law, but if the owner does not agree to do so, the
listing agent must disclose the fact to buyers because this is, in my opinion,
a material adverse fact about the physical condition of the property. If the
seller will not permit such disclosure, the agent should drop the listing. It
should not matter that the agent is a dual agent, as the disclosure is
required by law. The second part of the question bears consideration. I think
it would be a mistake for us to discourage sellers from disclosing to us the
problems that exist with their homes. In the first place, we know that by far
the best way for sellers to deal with problems is to fix them, because to do
so enhances the value and marketability of the property and greatly reduces
the likelihood that a dispute over the results of the home inspection will
deep-six the transaction. If the seller will not fix the problems, then
disclosure is still preferred as it allows the seller and his agent to manage the
buyer’s expectations in a reasonable way. Disclosure of a problem with an
offer of credit for the repair, or even with a firm statement that the house is
"as is," is preferable to the disappointment and animosity that results when
the buyer finds the problem without having been told of it, especially if that
discovery happens after closing. That, of course, is when the suits usually
begin. I do not think we serve our clients well by encouraging them to
believe that sellers are free from any potential liability if they conceal known
defects.
Active concealment is actionable, of course, but the question above reveals
the danger in assuming that sellers may safely misrepresent, by their
silence, the condition of their homes. In fact, the Virginia Residential Property
Disclosure Act provides a peek at the potential liability that may await such
sellers: "Nothing contained herein shall prevent a purchaser from pursuing
any remedies at law or equity otherwise available against an owner in the
event of an owner’s intentional or willful misrepresentation of the condition
of the subject property." (Section 55-524(C) of the Code). In Virginia, as in
most states, silence may constitute misrepresentation in certain
circumstances. Sellers should be encouraged to take the prudent path of (i)
repair or (ii) disclosure with the proper management of buyer expectations.
They should not be told to keep defects to themselves.
Question:
A prospective buyer of a residence received a disclosure
statement at the time the offer was being drafted. The offer was made and
accepted that same day. Later that night, the buyer contacted the toll-free
number on the disclosure statement and checked the sex-offender website
and found that a sex offender lives in the neighborhood. Buyer now wants
out of the contract. Is there a three-day rescission right here?
Answer: No. The buyer would have a rescission right if the disclosure had
not been delivered until after contract ratification, but because they were
given in a timely way, there is no rescission right.
Question: Is a buyer’s agent obligated to disclose to the buyer for whom she
is working information regarding a stigmatized property? The agent knew
the property was the location of a murder/suicide but did not disclose this to
the buyers. Is that permissible?
Answer: I call your attention to Section 55-524 of the Code of Virginia (the
Virginia Residential Property Disclosure Act): "Notwithstanding any other
provision of this chapter or any other statute or regulation, no cause of
action shall arise against an owner or a real estate licensee for failure to
disclose that an occupant of the subject real property, whether or not such
real property is subject to this chapter, was afflicted with human
immunodeficiency virus (HIV) or that the real property was the site of: 1. An
act or occurrence which had no effect on the physical structure of the real
property, its physical environment, or the improvements located thereon; or
2. A homicide, felony, or suicide." In short, the Virginia legislature has
decreed that real estate licensees in Virginia are not obligated to disclose
these so-called "stigmatizing" events. This brings Virginia into line with quite
a few other states who view this as not relevant information to disclose. It
leaves Virginia different from some other states, however, where licensees or
owners may be required to disclose these and other such matters (such as
whether the property is haunted).
Question:
The local town manager has been convicted of child molestation
and is selling his house before leaving for jail. Is the listing agent required to
disclose to prospective purchasers the circumstances of the sale?
Answer: No. A listing agent is required to disclose material adverse facts
about the physical condition of the property, not the fact that a crime was
committed on the premises. The Residential Property Disclosure Act makes
clear that neither the seller nor the seller’s agents are obligated to disclose
that the property was the site of a felony, suicide, etc., or that a previous
occupant had AIDS or was HIV positive. These "stigmatizing" events are not
subject to mandatory disclosure.
Question: Listing agent is asked by owner to list a new home
on which the owner (not a licensed contractor) acted as the
general – hiring all subs, obtaining all permits, and going
through all inspections to obtain a certificate of occupancy, all totally legit. He has
never intended to live in the house. May listing agent safely take the listing, and if
so, what if anything must he disclose to prospective buyers? (10 grand)
Answer: Section 54.1-1101A7 exempts from the requirements of
(contractor) licensure “(a)ny person who performs or supervises the
construction, removal, repair or improvement of no more than one primary
residence owned by him and for his own use during any 24-month period.”
The owner does not fall under this exemption, because he did not build it for
his own use. Selling the house will subject him to potential penalty for the
misdemeanor of practicing contracting without a license, but does it mean a
REALTOR® shouldn’t take the listing? That’s a more complicated question.
Although the owner’s intent when he built the house was to sell it, he
probably has not violated any statute until he does sell it. If that is true, the
agent should probably not participate in an event that yields the client a
criminal. We should also consider that if by selling the house the owner
loses his exemption from the requirements of licensure, he is open to
enormous civil liability if there is any problem with the house, whether he
and the agent disclose what they know or not. It strikes me that we would
want to be as far from this as possible. My sixth sense says to steer clear of
this. The owner’s clean as long as doesn’t sell the house before he lives in it.
Selling now creates all the problems, and he’s asking you to be involved in
that. If you wander into a situation like this and the roof falls in, and you find
yourself charged with aiding and abetting and being an accessory after the
fact, even crack defense mouthpiece Sammy the Groin won’t be able to help.

Relationship Issues
Question: Seller and out-of-state buyer enter into a contract. Buyer’s out-ofstate lender calls the listing firm in Virginia for a recommendation of a local
appraiser. The listing firm recommends an appraisal firm that is an affiliate of
the listing firm, as far as we know without disclosing the relationship. Buyer
is aware of these facts, but does not bring them to the attention of his
lender, preferring to wait because he wishes to gain some advantage over
the listing firm in dealings over property condition issues with what the
buyer considers is an unreasonable seller. Do you have any sage advice for
the buyer agent?
Answer: Other than to take up abnormal psychology in your copious spare
time, all alternatives are bad. But I think the least bad is to convince the
buyer to make a clean breast of things to the lender. Even if the lender
doesn’t care about the rather clear conflict of interest, the buyer might, and
should not prejudice his situation by sitting on this information. Besides, it
strikes me as unsavory to try to gain leverage over the other party by
“having something” on that party’s agent, and using it to encourage the
agent to pressure his client in a way he might not if he weren’t in a
compromising posture. The buyer certainly wouldn’t like it if the shoe were
on the other foot. Finally, I’d get aggressive about the property condition
issue. This festering matter is causing all sorts of problems, and should be
confronted now.
Question: A listing agent for property in an estate runs an ad, shows the
property to a buyer who responds to the ad. The listing agent decides she
will act as a dual agent. An offer is prepared, submitted, and accepted.
Listing agent now discovers that the buyer is a convicted sex offender, and
that one or more of the family members of the beneficiaries of the estate will
continue to live in the neighborhood where the property is located. May the
listing agent/buyer agent/dual agent disclose this to the representatives of
the estate?
Answer: I don’t think so, since to do so would prejudice the buyer, and the
buyer agent is bound to preserve the confidences of the client gained during
the representation unless required by law to make the disclosure. The only
disclosure required in this regard in on the disclosure form. This is another
good reason not to engage in the reflexive creation of dual agency with
customers who call us on a listing. (By the way, did the buyer seek agency
representation, and was full disclosure made of what this really meant to
both parties? Maybe I’m just jaded, but I doubt it.) At any rate, the dual
agent is now stuck with the obligations that come with agency. I just hope
the sellers are full of human understanding when they find out their listing
agent knew this important fact, and why she couldn’t tell them.
Property Management Issues
Question: Listing agent represents the owner of a quadplex.
Buyer
has not asked for tenant rent rolls, estoppels or representations about the
leases. In fact, two of the leases are
in default. Must the listing agent
disclose this to the buyer?
Answer: I don't think so. This is the buyer's responsibility, and the listing
agent has no duty to do the buyer's due diligence. However, if the buyer inquires
about the income of the property,
or the financials for the project, all relevant
information, including the defaults, should be given.
