Realtors

Local Real Estate Agents Recount The Year of the Pandemic, and Offer Some Hope (and Caution) for 2021

The year 2020 started out like most strong real estate years in recent Massachusetts history — very high buyer demand combined with low seller inventory, along with historically low interest rates, equated to a bustling busy real estate market. January and February were solid months even for winter. As we entered late February, however, we stared to hear about a concerning new virus originating from Wuhan, China, spreading quickly to Europe. They called it “Coronavirus” or “Covid-19,” names that would later be part of our permanent lexicon. Flashback to March, and the virus had quickly reached the United States. The country soon shut down. Offices and schools closed. Governors across the country issued “stay at home” and “social distancing” orders. Eviction and foreclosure moratoriums were enacted, including the strictest one here in the Bay State. Real estate attorneys here in Massachusetts sprung into action to help pass the Remote Notarization Act, which helped keep closings moving forward. And despite the pandemic, the real estate industry reacted and adapted quickly, with realtors and attorneys relying on virtual tours, Covid compliant open houses, lots of Zoom calls, and “drive-through” closings.

The year is now almost over. From speaking to all my real estate friends, agents, lawyers and lenders, the general consensus is that the Massachusetts real industry averted major disaster. Indeed, some agents reported a record year despite all the challenges. But I wanted to hear directly from those on the front lines. So naturally, I went to Facebook! I asked all my real estate friends several questions about how 2020 went. I told them to give me three words to describe 2020. (I didn’t censor!). How was your local market during Covid? How did you handle all the changes brought on by Covid? What are your predictions for the real estate market in 2021? Do you see any Covid related changes to business remaining permanent going forward?

Here is what they said:

Craig Lake (Compass Boston)

Shockingly 2020 was my best year yet. I didn’t experience the mass exodus to the burbs, but did see some upsizing within Boston. The Spring was still HOT, HOT, HOT! While the Fall was definitely more mellow. Rental market definitely went majorly downhill – with major bargains to be had around the city and a ton of inventory sitting empty. I think the condo market in Boston will bounce back this Spring with vaccines on the way. The rental market will likely be a little slower to recover, but hopefully by the Fall. There have been some covid deals in the City but I don’t think that will last long as work will resume after the vaccines are widespread. Most of all – I cannot wait to not have to wear masks on showings anymore and have normal Open Houses again.

Katherine Waters-Clark (Compass Arlington).

Transformational, Tribe-forming, Tragic, True Grit. My market was on fire, Covid did not slow it down and I was out there the entire time. I was scared but had to lead my clients. Honestly had to put my Mom hat on and say “listen you guys, my job is to keep you safe.” I had to turn on a dime daily, learning new ways of marketing, listing, open houses, staging remotely, safely working with buyers. Talking through a mask, what is that? It was an exhausting, rocky road shit show but ultimately I have many overjoyed (really) clients who bought and/or sold or both! My company, Compass, got me through it with daily innovations, mindset, weekly office meetings, so much sharing amoung agents, so much generosity, we really really were all in this collectively together. It was a very special time, in that way. Predictions for 2021: My roster for 2021 is fuller than it’s ever been in 15 years. It’s going to be fire. Buckle up. Moving forward, there WILL be more virtual meetings, 3d tours will be here to stay, paperless transactions here to stay, mobile offices here to stay. It will be a while until we can all gather at a ball game, an event, a concert. But once we can, we will all be having hugfests and going crazy, it will be so great to be together again!

Charlene Frary (Realty Executives Boston West)

My three words, wearing my real estate hat, to describe local 2020 real estate are “surprisingly not awful.” In March and April I really thought the pandemic might be the thing that finally slowed the “feeding frenzy” and in fact the market gained momentum with 10% value appreciation and less inventory. And because of this, and the fact that values have been rising solidly for years, I’m predicting a similar volume 2021 with 5% minimum appreciation. I think most homeowners in financial trouble will be able to sell and pay off debt thanks to recent years of value increases – not a pretty picture, and very sad and unfair… but less ugly than foreclosure for those homeowners and less impactful than a foreclosure wave. That’s here -may be totally different in other parts of the country.

Debbie Booras (Keller Williams Northwest)

Whoa…wow…wonderful. 2021 late spring early summer will shift to a buyers market as the inventory withheld will saturate the market quickly. Sellers will still expect a premium and the shift will begin.

Nick Aalerud (Multi-family development and investment)

Learned: How to lead in crisis. Making tough decisions, slashing expenses. Created a “bloodline” reporting system so we knew exactly how much cash we could operate with rolling 13 weeks out. Modified our buybox. Focused more on TEAM and PURPOSE than on making up for lost deals. Liquidated nearly 100% of rental portfolio to prepare for what is coming 2021: Expect a commercial capital collapse at the regional and perhaps state level, as 10 yr loans come due and there’s no occupancy or cash flow to support refis. Commercial (office, hospitality, retail, restaurant) will begin to feel the pain (even beyond what they are feeling now) in Q3, mostly Q4. Residential: After forbearances are over, based on current unemployment and economic data, people won’t be able to afford their mortgages, despite the fact of “COVID MODS” being offered. They’ll be forced to sell. No real change in 2021 on house values except that as these waves hit the market, the demand will finally start to be absorbed. 2022 is another story… As the third, 4th and 5th wave start to hit, I’m gambling that we are back in short sale territory. And we have amped up our short sale business to make sure we are ready, for the commercial defaults, and then the overwhelming residential ones we see coming…

Baris Berk (United Brokers)

Currently, there is lack of inventory and even after they lift the moratorium it will take some time and process for foreclosures to hit and it might not even hit by the end of next year or beginning of 2022 so due to some pent up demand for sellers as well, 2021 I do not see any market crash and in contrary we might even see 5% increase in the values.I think 2022 will be more murky waters

Heidi Zizza (mdm Realty Framingham)

Oh my not sure 3 words will cut it! Stressful, Relaxing, Crazy! It went in phases. I think 2021 will be just as busy but I do think some of the changes especially to brick and mortar will stay! I miss getting together but zoom has made it so you can be together anywhere.

Jonathan White (Managing Broker Vylla)

I think the biggest change that we’ll see is when the eviction/foreclosure moratorium is finally lifted. That will very likely result in the highest level of foreclosures that we’ve seen in at least five years. We’ll have to see if that is the catalyst to finally shift this crazy market.

Thank you to all the agents who participated in this article! May all of you have a very happy, healthy and prosperous 2021!

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Potential Impacts: Registry of Deeds Closings, Financing Delays, New Covid-19 PSA Clause, Housing Market Slow Down?

The Coronavirus (COVID-19) is a highly infectious respiratory virus, which originated in Wuhan, China, and has spread across the globe, wreaking havoc on financial markets, public health systems, schools, universities, and daily lives. As of March 9, there are 729 reported cases in the US, with 27 deaths. Here in Massachusetts, as of March 9, there are 41 cases with no reported deaths. Infectious disease experts predict that the virus will continue spreading across the United States, affecting just about every aspect of our lives.

Update (3/17/20): Registry and Court Closings

Update (3/27/20): Impact on Rental Housing

Update (3/26/20): Remote Notarization Legislation

Here in Massachusetts, we are beginning to see significant impacts. Harvard University just cancelled all classes in favor of online instructions. Mayor Walsh has cancelled the St. Patrick’s Day parade. Some schools are closing temporarily and cancelling events. Companies are cancelling conferences and restricting travel. And of course, the stock market has dropped precipitously.

Likewise, in the real estate industry we are starting to see impacts as well. Despite the COVID fear factor, most agents are still reporting robust attendance at open houses and market activity, as confirmed by Curbed Boston. However, that may soon change as the virus gets increasingly widespread and the impacts to the financial markets begin to set in. I’m going to outline some potential impacts going forward, and I’ll update this post as developments emerge.

Registry of Deeds and Court Closings

Update (3/13/20): Suffolk and Salem Registry have shut down public closings. Only title examiners and attorneys are allowed access. They are still recording documents.

We are starting to see court and government building closings in other states. Federal courts in New York’s Southern District, including Manhattan, are restricting entry. No one will be allowed in who traveled within the past 14 days to China, South Korea, Japan, Italy or Iran, or who had close contact with someone who has. Trials have been postponed in Seattle and Tacoma courts.

No closings have been announced here in Massachusetts, but it’s a possibility. Virus impacts may result in Registries of Deeds and the Land Court being forced to closed or operate with a skeleton staff.

Fortunately, we have electronic recording capabilities here in Massachusetts. If the registries are closed, hopefully they will still allow for e-recording which should enable closings to keep on track. However, registry staff must still examine each electronically recorded document so there still could be impacts. We don’t know the fully extent of the impacts, if any.

Lender/Financing Delays

I have not yet heard of any major disruptions to lenders’ ability to provide financing. However, it’s not out of the realm of reason if companies are requiring their employees to work from home, etc. Further, if there are government employee impacts such as at the IRS for processing tax transcripts, there could be delays with underwriting. The same is true if appraisers cannot get out into the field and do their reports. I’ve already heard of at least one lender asking an attorney for a COVID-19 delay provision in a purchase and sale agreement, which brings me to the next topic…

COVID-19 Delay Clause In Purchase and Sales Agreement

Due to the various impacts and possibilities for delays as outlined above, we are already seeing requests for language dealing with the Coronavirus in purchase and sales agreements. As just mentioned, there may be lender delays affecting a buyer’s ability to obtain timely financing due to virus impacts. Buyers and sellers may be subject to quarantines, or if they are traveling, they may be stuck in a public health purgatory like the Princess Cruise ship. If Registries are closed and no e-recording is allowed, then closings will need to be cancelled or rescheduled. My colleagues and I are working on a new COVID-19 clause that will balance all of these concerns.

Our draft provision (subject to change) is as follows:

COVID-19 Impacts. The Time for Performance may be extended by either Party by written notice for an Excused Delay which materially affects the Party’s ability to close or obtain financing. As used herein an Excused Delay shall mean a delay caused by an Act of God, declared state of emergency or public health emergency, pandemic (specifically including Covid-19), government mandated quarantine, war, acts of terrorism, and/or order of government or civil or military authorities. Notwithstanding anything to the contrary contained in this Agreement, if the Time for Performance is extended, and if BUYER’S mortgage commitment or rate lock would expire prior to the expiration of said extension, then such extension shall continue, at BUYER’S option, only until the date of expiration of BUYER’S mortgage commitment or rate lock.  BUYER may elect, at its sole option, to obtain an extension of its mortgage commitment or rate lock. Notwithstanding the foregoing, said Extension shall not exceed [insert number of days].

Impact On The Real Estate Market

If you’re in the market for a house, all this uncertainty might have you worried about the housing market. Will it suffer a swoon similar to Wall Street? There are a few ways the virus could affect the housing market that you should be aware of. However, I think we can breath a sigh of relief, because a housing catastrophe on the scale of the 2008 financial crisis is almost certainly not going to happen.

The good news is that mortgage interest rates are still at historic lows. However, I’m also hearing that a lot of lenders are at full capacity with demand for both refinances and purchases so rates may be heading up in the very near future.

I think as we are heading towards a global recession and the continuing daily life impacts of the virus, we are going to see a slowing down of the real estate market in general. Uncertainty is the hobgoblin of the home buyer. Indeed, this is exactly what Lawrence Yun, Chief Economist at the National Assoc. of Realtors is saying:

I hope I’m wrong. Comment below or shoot me a line ([email protected]) and tell me what you’re seeing out there. I’ll keep you posted with any developments.

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347New Smoke Detector Rules Go Into Effect On December 1, 2016

Catching many people by surprise, including me, a new change in Massachusetts smoke detector regulations will take effect Dec. 1. The new rules provide that when homes built before 1975 are sold, the house must be equipped with smoke detectors with a 10-year life span. These detectors are sold as 10 year sealed lithium battery power smoke alarms. They can be found at your local Home Depot or hardware store.

Also remember that current rules require photoelectric detectors covering the area within 20 feet of a kitchen or bathroom containing a bathtub or shower. The 10 year sealed detectors are sold with both photoelectric and the older ionization technologies. I found this Kidde 10 Year Kitchen Model at Home Depot selling for $49.97.

As part of this year’s Fire Prevention Week in October, State Fire Marshal Peter J. Ostroskey told the Boston Globe that “what we’ve seen in the past eight to 10 months across the state is that our fatal fires involve homes that have smoke alarms in them, but they are inoperative.” Ostroskey said that as investigators search charred wreckage of fatal fires, they have discovered that batteries have been removed or that the smoke alarms themselves have not been replaced even though they are no longer functioning properly because they are 10 years old or older.

Ostroskey said the 1975 cutoff date was chosen because homes built after that year were already required by the state building code to have hard-wired power supplies for smoke detectors. But even those hard-wired detectors need to have backup batteries replaced and the detectors should be replaced every 10 years, too, he noted.

A Fact Sheet from the State Fire Marshal is available here.

Thank you to Realtor Rona Fischman at 4 Buyers Real Estate for advising me of the new rules.

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Text Messages Enforceable As Written Contract, Court Rules

With the proliferation of email and texts as the primary method of communications in real estate negotiations, it was just a matter of time before Massachusetts courts were faced with the question of whether and to what extent e-mails and texts can constitute a binding and enforceable agreement to purchase and sell real estate. In a ground-breaking case, Land Court Justice Robert Foster ruled in a case of first impression that text messages may form a binding contract in real estate negotiations–even where a formal offer has not been signed by the seller. This is huge wake up call for the remaining industry people who still believe that electronic communications are not legally binding.

St. John’s Holdings LLC v. Two Electronics, LLC

The case (embedded below) involves a commercial real estate deal between two businesses both represented by commercial real estate brokers for the purchase and sale of an industrial park property in Danvers. Two Electronics, as seller, and St. John’s Holdings, as buyer, negotiated for several weeks exchanging two “Binding Letters of Intent” spelling out all material terms of the proposed purchase of $3.2 Million. Towards the culmination of the negotiations, the real estate brokers exchanged several emails and texts, with the seller’s agent sending an email that his client was “ready to do this,” then a text that —

“[the seller] wants you to sign first, with a check, and then he will sign. Normally, the seller signs last or second. Not trying to be stupid or to the contrary, but that’s the way it normally works. Can Rick sign today and get it to me today? Tim”

The buyer signed four copies of the final Letter of Intent and tendered the deposit check with the buyer broker, after which the buyer’s broker sent the seller’s agent another text — “Tim I have the signed LOI and check. It’s 424 [PM]. Where can I meet you?” Shortly thereafter, the two agents met, and the buyer’s broker tendered the buyer signed Letter of Intent along with the deposit check.

Unbeknownst to the buyer, that same day, the seller had received another offer on the property, and proceeded to sign that offer. The seller then refused to sign the Letter of Intent with St. John’s. St. John’s sued, claiming that the series of letters of intent, emails and text messages constituted a binding and enforceable contract.

Intersection of 17th Century Statute of Frauds with 21st Century Text Messages

In Massachusetts, the Statute of Frauds requires that contracts for the sale of real state must be in writing signed by the party (or agent) to be charged. In the old days of pen and paper, application of the Statute was quite simple. If there wasn’t a written agreement signed in wet, ink signatures, there was no binding contract. With the proliferation of e-mail and text communication, application of the Statute of Frauds has become much more nuanced.

In the case discussed here, Judge Robert Foster noted several recent judicial decisions holding that emails may be binding as well as the Uniform Electronic Transactions Act, under which parties may impliedly consent through their actions to make email and text transmissions binding and enforceable. Emphasizing the fact that the seller’s agent signed his name “Tim” at the end of the critical text message, the judge found that the text message was sufficiently “signed” under the Statute of Frauds to constitute a binding agreement at the culmination of the previous communications and unsigned letters of intent. The judge also found persuasive that the seller’s agent told the buyer’s agent to have the buyer sign the letter of intent first, and that’s exactly what the buyer did. Finding in favor of the buyer, the judge denied the seller’s motion to dismiss and issued a restraining order against the seller’s conveyance of the subject property.

Take Away: IMO, Watch What You Say!

This area of the law is really becoming a dangerous minefield. After the e-mail ruling came out a few years ago, I advised my clients to use the following disclaimer: “Emails sent or received shall neither constitute acceptance of conducting transactions via electronic means nor shall create a binding contract in the absence of a fully signed written agreement.”

The problem, however, with text messages is that they are so short and informal. It’s not practical to use a legal disclaimer on texts, and there’s no technology that I’m aware of that would insert one into every text. You could always start off a negotiation with the caveat that electronic communications will not create a binding contract until a formal offer is executed. Also, it’s always a good idea to end every email/text with “subject to seller/buyer review and approval” when negotiating an offer. But, such boilerplate language can always be waived by subsequent conduct or actions.

This case reminds me of Lomasney’s First Rule of Politics:  “Never write if you can speak; never speak if you can nod; never nod if you can wink.” — and by winking that does not mean an emoji. ?

And always take screenshots of important texts…just in case.

This post is sponsored by Brian Cavanaugh, Senior Mortgage Banker, Mortgage Network

Cav Zillow

St. John’s Holdings LLC v. Two Electronics, LLC by Richard Vetstein

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As with this year’s blockbuster Star Wars — The Force Awakens, my prediction for an active and entertaining 2015 in Massachusetts real estate law has come to fruition. Without further ado and with a Star Wars theme, I present you with the top 5 “episodes” for the last year in Massachusetts real estate law.

I. TRID (Truth in Lending RESPA Integrated Disclosure) Rules

Heralded as the most comprehensive change to real estate closings in the last 20 years, the new TRID rules (Truth in Lending/RESPA Integrated Disclosure) have certainly lived up to their billing. If TRID were a Star Wars character, it would be Kylo Ren of the First Order, smashing and destroying the old way of doing closings with his scarlet cross-guard lightsaber. The new rules went into effect on October 3, and the real estate industry has been, by and large, scrambling to get up to compliance speed with the new regulations. The new “Closing Disclosure” is quite convoluted with far too much information, and also necessitates a separate “seller” closing disclosure. So, the old three page HUD-1 form has turned into two forms with seven pages. That’s the government for you… There is also a 3 day waiting period for closings to be scheduled after the issuance of the new Closing Disclosure. Some lenders have been great getting the “CD” out on time. Some others, not so much. In my estimate, I would say that at least 50% of my transactions have been delayed due to TRID related issues. For 2016, I predict continued delays and compliance issues for the first two quarters of the new year, with things hopefully smoothing out for the spring market. Oh, did I already tell you that I miss the old HUD-1 Settlement Statement already!

II. SJC Rules Real Estate Agents Can Remain Independent Contractors 

The summer saw the SJC come down with its long awaited ruling on independent contractor classification in Monell, et al. v. Boston Pads, LLC. After much lobbying from the industry, the Court ruled that Massachusetts real estate and rental agents can remain classified as independent contractors under the state’s real estate licensing and independent contractor law. The ruling keeps the traditional commission-only independent contractor brokerage office model in place, with brokers allowed to classify agents as 1099 independent contractors, without facing liability for not paying them salary, overtime or providing employee benefits. However, like the plot holes in The Force Awakens, the Court left open a few important questions such as whether agents could build a case on other legal theories. In 2016, look for the Legislature to address the murkiness which remains with the law.

poe-dameron_70f5aee2III. Gov. Baker Signs Foreclosure Title Clearance Law

If Gov. Charlie Baker were a character out of the Force Awakens, he would be the hotshot Resistance pilot Poe Dameron, swooping down in his X-Wing fighter and saving the day for thousands of Massachusetts homeowners who have been unable to sell or refinance their homes due to foreclosure title defects. After a five year legislative struggle (in which I testified before the Legislature), Gov. Baker signed into law the Act Clearing Title To Foreclosed Properties. The bill will resolve potentially thousands of titles which were rendered defective and un-transferable after the SJC’s landmark ruling in U.S. Bank v. Ibanez. There is a one year waiting period, but after that we should start seeing previously unsellable homes start to come back on the market.

IV. SJC Continues To Scrutinize Foreclosure Compliance

In a major foreclosure decision, the Supreme Judicial Court ruled in Pinti v. Emigrant Mortgage Co. Inc. that a lender’s defective notice of default is grounds to void and nullify a foreclosure sale. This is so even after the property was purchased at auction by a third party without knowledge of the defect. This ruling has resulted in two leading title insurance companies, First American and Fidelity/Chicago, deciding to restrict underwriting title to foreclosed properties

V. Just Cause Eviction Proposal

The upcoming year will see a looming “Resistance” battle between liberal tenant activists and small property owners over a Just Cause Eviction proposal submitted to the Boston City Council. As I’ve written here, the proposal is just a clever re-branding of rent control which was outlawed a decade ago and has been proven not to work by leading economists and city planners. The Just Cause Eviction petition would prohibit a landlord from evicting any tenant except for certain serious “just cause” grounds, making it very difficult and expensive to evict tenants at will or those whose leases have expired. Small property owners claim — and I agree — that the procedural impediments to the Just Cause Eviction proposal are shockingly socialist in nature. Everyone agrees that Boston has a problem creating affordable housing, however, rent control disguised as a just cause eviction proposal is not the answer. It’s not fair to make small property owners to bear the burden of creating affordable housing across the city. That’s the job of the government. Rent control has never been a successful solution to the housing problem. To be continued in Episode VIII…

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I hope everyone has a very happy, healthy and prosperous New Year! –Rich

Photo credit: Lucasfilm, Inc.

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TRID-1

Major Change To Current Practices | Expect Delays and Bumpy Road Starting Oct. 3

I just finished yet another closing where a national lender issued the closing documents the morning of the closing, and worse, issued a revised TIL (Truth in Lending) disclosure during the middle of the closing! Under the new TILA-RESPA Integrated Disclosure Rules (TRID) set to start on October 3, this too-common practice would have resulted in a closing delay of up to 7 days, to the dismay of everyone in the transaction.

The new TRID rules are game-changing regulations which threaten to disrupt and delay closings across the country. The new rules, already pushed back once due to industry outcry, go into effect in about 60 days on Oct. 3. I am very worried that lenders, Realtors and closing attorneys are not at all prepared for one of the most significant changes in how we do business. Experts are predicting that closings will be delayed, 60 day loan approvals will be the new normal, and new forms will bewilder buyers. “Expect a one- to two-week delay in closings,” said Ken Trepeta, director of real estate services of the government affairs branch for the National Association of Realtors, when describing the impact of TRID.

Check out my latest article: Best Practices In A New TRID World

Currently, we are finishing one of the strongest spring markets in a decade, but I’m quite concerned that come Fall, the new TRID rules will put the fall market into an ice bath. The best thing that every real estate professional can do is get educated and get prepared now for these changes. August is typically a slow month, so use it to get ready. My team will be doing a roadshow Powerpoint seminar to any local real estate office to explain the new changes. Contact me at [email protected] for more info.

New Closing Disclosure Replacing the HUD-1 Settlement Statement: 3 Day Rule

Under TRID, there will be a new settlement statement called a Closing Disclosure, which must be issued to the borrower at least 3 days prior to closing. If that does not occur, the closing will be delayed for up to 7 days. We are hearing that lenders will require that the information contained in the Closing Disclosure (all fees, closing costs, taxes, insurance, escrows, credits, etc.) be finalized as early as 20 days prior to closing, to give them enough time to generate the new Closing Disclosure in a timely fashion and to account for delays.

What does that mean for us professionals? It means that everything will need to be pushed up and done faster than before. That goes for titles, CPL’s, broker commission statements, invoices for repairs, insurance binders, condo fees, recording fees, title insurance, everything. And it means we can all expect delays as everyone adjusts to the new timetables and rules.

Practice Pointer: Click here to get my new TRID addendum/rider. 

What Forms Will Be Signed At Closing?

Lenders will require the new Closing Disclosure (embedded below) be signed by the borrower at closing. However, although the Closing Disclosure was intended to replace the current HUD-1 Settlement Statement, the geniuses at CPFB neglected to put a signature line for the sellers on the new Closing Disclosure. I’m not making this up. And we are no longer supposed to use the “old” HUD-1 Settlement Statement. Thus, our title insurance companies are telling us that there may be three settlement statements signed at closing: a Closing Disclosure for the buyer, a Closing Disclosure for the seller, and a combined Closing Disclosure. ALTA has created a new Combined Settlement Statement which can be found here.

Bank of America was asked whether it would require the use of the ALTA model forms, and it stated in a June 9 memo that it prefers the ALTA model if a closing attorney chooses to use a settlement statement to supplement the Closing Disclosure (CD), but specified that the settlement statement figures must reconcile to the CD and a copy of the settlement statement must be provided to the bank. The bank also stated that all revisions to fees and costs will require bank approval and an amended CD. In other words, closing attorneys will not be allowed to revise fees and costs by simply supplementing the CD with a settlement statement.

60 Day Approvals/Closings The New Normal?

With any historic change to how lenders disclose fees and approve loans, there’s going to be a steep learning curve — and delays. You can count on that. Industry insiders say the days of 30 and even 45 day loan approvals may be over, at least temporarily. Sixty (60) day approvals may be the new normal, and agents should build the longer timeframe into their offers and purchase and sale agreements and educate their buyers and sellers accordingly.

Repairs and Walk-Throughs

Since lenders will require all fees and credits finalized 7-10 days prior to closing, this will significantly impact how we handle repairs and credits. Agreed upon repairs also affect how the appraisal is conducted which will further impact the timelines. Experts are suggesting that Realtors consider doing walk-throughs at least 14-21 days prior to closing instead of the typical day before or day of walkthrough, because all repair issues and credits should be set in stone at least 7-10 days prior to closing and changes in fees and credits on the day of closing will not be permitted by the lender. Some experts are even saying that agents should do two walkthroughs, one within the TRID timelines and one immediately prior to closing. Also, under TRID paid outside closing (POC) items will be discouraged by lenders.

Take-away:  Realtors should be warned that repairs contained in the purchase and sale agreement will have the potential to delay closings under the TRID rules. Ensure that any repairs are completed 14-21 days prior to closing. Better yet, don’t have the seller make repairs at all; use closing cost credits instead. 

No More Back to Back Closings?

Due to the high potential for delays caused by TRID, back-to-back or piggyback closings may be a thing of the past, at least for now. A delay with a closing obviously has a domino effect on a back to back closing. The best practice, at least for the first few months of the new TRID era, is to schedule closings at least 3 days apart. Seller/buyers will have to prepare for this reality with bridge loans, use and occupancy agreements, or temporarily staying with your nearest relatives.

1416821334979Partner with Trusted and Verified Providers

Now more than ever, Realtors are going to want to partner with lenders and closing attorneys who have been vetted and verified as fully compliant with the TRID rules, so there will be minimal disruption and delay on their transactions. Realtors and loan officers should ask their closing attorneys whether they are compliant with the ALTA (American Land Title Association) Best Practices, which is quickly becoming the standard for TRID compliance. Under the ALTA Best Practices, the attorney will have passed an intensive initial due-diligence screening, a third-party internal audit, background and credit check, extensive review of applicant’s experience, business model and policy loss history, and licensing verification. The closing attorney should also have secure document encryption capabilities and privacy/technology policies in place. My office has been vetted and verified by Stewart Title which has a comprehensive website on the TRID rules. If your buyer wants to use his personal attorney who does not specialize in real estate, explain to him or her why that is a mistake which could ultimately delay the closing. 

Bumpy Road Ahead?

In my opinion, the TRID rules are the biggest change to the industry in 20 years, and will be much more difficult to implement than the new GFE and 3 page HUD of several years ago. As discussed above, my team will be doing a roadshow Powerpoint seminar to any local real estate office to explain the new changes. Contact me at [email protected] to schedule your complementary seminar.

More information:

Mass. Ass’n of Realtors Webinar on TRID with Ruth Dilingham, Special Counsel
National Ass’n of Realtors Webinar with Phil Schulman
Old Republic Title FAQ on TRID
CFPB Monitor TRID FAQ
CFPB Webinar Rebroadcast May 2015

CFPB Closing Disclosure by Richard Vetstein

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Tax-Information-about-Employees-and-Contractors-3SJC Issues Long Awaited Ruling That Agents Can Be Classified as Both Independent Contractors and Employees, But Leaves Questions

The Supreme Judicial Court has just released its long awaited opinion in Monell, et al. v. Boston Pads, LLC, (link here), ruling that Massachusetts real estate and rental agents can remain classified as independent contractors under the state’s real estate licensing and independent contractor law. The ruling keeps the traditional commission-only independent contractor brokerage office model in place, with brokers allowed to classify agents as 1099 independent contractors, without facing liability for not paying them salary, overtime or providing employee benefits. A collective deep breath should be heard throughout the entire Mass. real estate industry this morning.

Although the ruling determined that real estate agents are exempted from Massachusetts’s independent contractor law, the Court left open whether future plaintiff employees could build a case on other legal theories, and the Court deferred to the Legislature to enact a bill to address any murkiness which remains with the law.

Despite the question left behind by the justices, Gregory Vasil, CEO of the Greater Boston Real Estate Board told Banker and Tradesman said that, “We’re pleased with the outcome.” “It preserves the right of choice for our members. It doesn’t change the industry, it doesn’t change the status quo. It’s pretty clear you can have both independent contractors and employees.”

Corrine Fitzgerald, 2015 president of the Massachusetts Association of Realtors and broker-owner of Fitzgerald Real Estate in Greenfield, agreed, calling it a “good decision.”

Rental Agents Sue Jacob Realty For Overtime Wages

This lawsuit was brought by a group of disgruntled rental agents at Jacob Realty seeking to recoup lost overtime and minimum wages. As is customary in the industry, Jacob Realty classified the agents as independent contractors, paying them on a commission-only basis and making them responsible for payment of their own taxes and monthly desk fees. At the start of their employment, however, the agents signed non-disclosure, non-solicitation and non-compete agreements. They had to own day planners, obtain a cellphone with a “617” area code, adhere to a dress code, submit to mandatory office hours and to various disciplinary actions if they did not meet their productivity goals — requirements typically reserved for employees, not independent contractors.

Court Holds That Agents Can Be Classified Either as Independent Contractors or Employees

The SJC was tasked with balancing the independent contractor laws and the real estate licensing law — which in many critical aspects the Legislature left directly in conflict with each other. Justice Hines, writing for the Court, noted the difficulty in construing the two laws, stating that “the real estate licensing statute makes it impossible for a real estate salesperson to satisfy the three factors required to achieve independent contractor status, all of which must be satisfied to defeat the presumption of employee status.”

The Court ultimately concluded that a real estate agent could be classified as either an independent contractor or an employee, but that the agents at Jacob Realty were unable to demonstrate they were employees in this particular case. The Court, however left open for another case the ultimate questions as to whether all real estate agents should be classified as independent contractors. The justices said that “in light of the potential impact of that issue on the real estate industry as a whole and its significant ramifications for real estate salespersons’ access to the rights and benefits of employment, we think it prudent to leave that issue’s resolution to another day, when it has been fully briefed and argued. Should the Legislature be so inclined, it may wish to clarify how a real estate salesperson may gain employee status under the real estate licensing statute.”

This ruling is somewhat frustrating. The SJC punted on the major question that everyone in the industry has been waiting on for a year now. I love when that happens (insert sarcasm here). Whether the Legislature takes up this issue remains to be seen. In the meantime, brokers and office managers can sleep a little better tonight knowing that the chances they will be sued over employee classification has gone down considerably, but they still may be awoken someday with a nightmare in the hands of a creative plaintiff’s wage and hour attorney.

 

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10981956_10153123954712492_3979037511274380989_nReal estate professionals, you are cordially invited to a fabulous night of pampering at Metrowest’s hottest style salon, Beauty Parlr! Attendees will enjoy complimentary blow-outs by professional hair stylists, including Moroccan oil treatment, head massage and your choice of style.

Date: April 30, 2015
Time: 4pm-7pm
Venue: Beauty Parlr, 1 Watson Place, Building 3 Floor 3, Framingham, MA 01701

Wine, cosmos, cheese and nibbles will be provided, along with the latest in jewelry fashions for spring and summer. This event has limited space, so please RSVP to rvetstein@vetsteinlawgroup.com.

Due to limited space, you must reserve a blow-out appointment in advance: Please call Beauty PaRLR at 508-202-9538 or email [email protected]. Limited space available, first come first serve basis.

A professional photographer will also be available for head shots (additional fee).

Sponsored by Attorney Richard Vetstein of the Vetstein Law Group, P.C.Bryan Brown of Guaranteed Rate, and Matt Naimoli and Zack Gould of G&N Insurance.

We hope to see you there!

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Dam You Winter, Bring On the Spring Market!

by Rich Vetstein on February 26, 2015

in Real Estate Market, Realtors

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Predictions On the Spring Real Estate Market from a Panel of Local Experts

“There’s no curb appeal if there’s no curb!” — Rona Fischman, 4 Buyers Real Estate

We are less than a week away from March, which usually signals the beginning of the frenzied spring real estate market in Massachusetts. However, unless you’ve been hibernating with the bears up in Maine, there’s a slight problem. We have snow. Lots. Of. Darn. Snow. The winter has wrecked havoc with everything, and that includes the real estate market.

Boston Magazine is bullish on the spring market, but what do the real experts think? I put the questions to my network of experienced local Realtors and mortgage professionals. I asked them if the snow will push back the traditional start of the spring market? What are inventory levels in your area? Do you have sellers waiting for better weather before they list? Are buyers waiting or are they trudging thru the snow to view listings? Do your see the spring as a buyer or seller market? Loan officers, where do you see rates and products this spring?

Here’s what they said, and don’t forget to clink their websites for more info.

ali-corton“I’m seeing a very sluggish start to 2015. Snow, cold temps, ice dams and the general malaise that’s set in on our region are all factors. I hear buyers are getting preapprovals and a few select properties have received multiple offers. But, overall it’s been slow and until sellers get houses prepped for market the buyers will wait on the sidelines.” — Ali Corton, Realty Executives Boston West, Framingham

Inman_Sep14_600x-144054“Inventory is definitely down here in Cambridge & Somerville — today we have just 31 active singles/condos/multis in Cambridge, compared with 46 last year on 2/26. In Somerville, we have 27 active listings today, compared with 40 last year. Granted, even those 2014 figures are really pathetic, as we’ve been dealing with extremely low inventory for the past several years, but this year is an extreme case. Funny thing is, those agents who are putting their sellers’ homes on the market are seeing plenty of traffic at open houses and showings, receiving multiple offers, and getting record-high prices, so I don’t know why anyone is hesitating to list.” — Lara Gordon, Coldwell Banker, Cambridge/Somerville

danielsteamsidebar2“The market in Sudbury is certainly slower than a typical winter market, but there are plenty of buyers hoping to take advantage of low rates and opportunities with motivated sellers. Like with any market, homes in popular price points that are prepared and priced right, are selling quickly and in some cases, resulting in multiple offers. Buyers aren’t as hesitant to go through the process now as Sellers are. Sellers are hesitant for many reasons, lack of curb appeal – which in many cases, great curb appeal adds value to the house, the thought of buyers trudging through their houses with snow on shoes (even though it’s always requested to remove shoes), ice dam damage, the thought of moving when the desire to hibernate is much more appealing and last but certainly not least, the liability involved in having a house on the market when snow/ice/icicles can potentially cause harm can be scary for homeowners. The Spring market should be strong, with plenty of pent up demand and after the winter of ’15, more city buyers looking for a beautiful garage with a nice house attached!” — Gabrielle and Carole Daniels, Coldwell Banker Sudbury

heidi-zizza amyuliss2“Definitely slower right now than usual. The market reports are quiet. I think everyone is tired of the snow and I have properties with ice dams affecting closing dates etc… I think Spring is going to POP everyone is going to be excited about warm wetaher but expect some wet basements….The market is just stagnant. Sellers want to sell but feel as if their home is not ready to be shown. Buyers jump on MLS everyday looking for new listings but slim pickings. If we could only get them all on the same page.” Heidi Zizza and Amy Uliss, mdm Realty, Framingham

Rona.red-shirt“Inventory in the Somerville-Cambridge metro area has been low for two years. This February, it was very low. I am anticipating another seller’s market, but less drastically uneven in 2015, compared to 2014 and 2013. This winter is likely to push people to move. I anticipate that people who planned a move in the next 2-4 years may jump sooner. City dwellers who struggled to park and find places to pile snow are anxious for off-street parking and some land. Over-housed suburban residents will sell to right-size into managed condos (where someone else hounds the plow guy to get there.) Retirees may head for warmer climes sooner. We all complain; home owners can do something about it. I suspect that inventory levels will become more even by late spring. Sellers will delay putting their houses on the market until after the snow is melted and their roof and ceiling damage is repaired. I have heard of two transactions that fell through because of ceiling leaks. There could be more stories about this, since so many houses have sprung leaks.” — Rona Fischman, 4 Buyers Real Estate Cambridge

bcav.png“Will there ever be a better time to buy a home? Mortgage rates are very close to 2 year lows today, and I expect them to stay down in this range thru 2015.  I think we see the 30 year fixed traded in the 3.75% to 4.25% for most of 2015.  This is still at a historical low at 4.25%. Continued economic weakness overseas, Banks/Lenders closing loans quicker and lowering their fees contribute to low mortgage rates all year folks!” — Brian Cavanaugh, RMS Mortgage Boston

284083_1902949570525_2002933_n“I have a few buyers and we have been walking thru knee deep and higher snow just to see some of these homes, agent’s don’t shovel thier listings nor do their sellers. I had one agent tell me the door would be open only to get there and walk through waste deep snow to find the door was locked and we could’nt see the house. I have buyers looking but the lack of good homes currently on the market is frustrating.” Sherry Stone-Graham, Touchstone Partners, Chelmsford

1631571.jpg“Even though we’ve had a “delayed winter” by having bulk snowstorms pretty much all at once instead of spread out throughout the last few months, it has slowed the market down in Southborough and Westborough although it hasn’t halted it entirely. There are 25 houses in varying price bands in my hometown of Southborough to choose from, with about 20% of them being in the over $900,000 range and just about 16% being in the $350-400,000 band. Despite the snow and the varying inconveniences that come along with it, over the last 45 days there were still 11 houses that are pending sale, which in my opinion still a positive sign. Interestingly enough, in neighboring Westborough, although the population exceeds that of Southborough and the snowfall hasn’t been much different, there are currently only 13 houses actively for sale, although the same 45 day period there were 15 pending sales. The majority of the active Westborough listings are in the $1M+ range, with the second highest in the $700-800k range. Ten of those pending sales ranged from the $200,000-400,000 price point, which may show that there is a definite need for inventory in those price bands to balance out the market.” — Jennifer Juliano, Keller Williams, Southborough-Westborough

1003349_10152067454786102_1832678940_n“With Janet Yellin’s recent speech, we may see rates start to step up by June, 2015. Just recently the international and domestic markets played theme park as they see-sawed back and forth causing rates to jump between about 3/8 over the last 3 months. However, in comparison to 1 year ago today, rates are still about 1% lower. So, bring on the inventory consumers.” — Jeff Chalmers, contact_katherine-newGuaranteed Rate, Norfolk

“My sellers in Winchester, Arlington, Woburn, Stoneham, and Melrose are waiting until the snow is more manageable. Homeowners are extremely preoccupied (and rightly so) with protecting their current homes. The more immediate demand is for ice dam removal!” — Katherine Waters-Clark, Arlington

779_photo“There were a few days where it was impossible to show in Boston. Otherwise things haven’t really slowed too much! In addition The Spring market seems to be beginning early as I am seeing more and more listings hitting the market. All in all the Boston real estate market remains extremely strong!” — Craig Anne Lake, Luxury Residential Group LLC, Boston

1688078.jpg“Bristol, Plymouth and Norfolk counties, lots of buyer calls and showing through the snow. Open houses averaging 3-4 families, inventory extremely low, prices going up, new construction permitted but held back from snow, sellers asking me to call back in March/April to list. My prediction is a sellers market first half of year then based on inventory to demand we will see if it equals out. Right now we are doing print materials, polishing off the listing and buyer presentations and balancing with rest and entertainment because April 1 st the flood gates are going to open and you better be rested and in shape to work extremely hard building your inventory and business to bring you through next winter with no worries. REST, AIM. FIRE!” — Dan Gouveia, Keller-Williams, SouthCoast

10014301_10152691646478077_8626708505441128924_o“I am in the Franklin area and the snow has definitely pushed back potential sellers, but the buyers are out there! They are looking, going to Open Houses and acting now while rates are low and PMI just went down as well. My advice would be to clean off that snow and get your house on the market now while inventory is low.” — Amber Cadorette, Keller-Williams Franklin

1765406.jpg“I agree, buyers are definately out going to open houses even with the record breaking temps and snowfall! I think the prediction that interest rates will be increasing next year has a lot to do with it. Personally, I don’t feel sellers are waiting for spring to list their homes. I listed two properties today (Northbridge) and will be listing another (Needham) next week.” — Anita Bertone, Keller-Williams Wrentham

“Buyers are swarming anything new to the market priced well – I have had multiple offers on my recent listings. The snow is NOT stopping the buyers so sellers should not wait till Spring when inventory will be better whicimages.aspxh usually lessens the value of their home. Supply and Demand…Little Supply + High Demand = More $$$ in Seller’s pockets!” — Anne Silverman, Realty Executives Boston West

Thank you to all the contributors to this post, especially Gabrielle Daniels who came up with the creative title! I’m sure this will be a much-read and much-shared article in the coming months. Let’s hope that this Ice Age ends soon and we can start buying and selling homes!

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I will be speaking at the upcoming Metrowest Resourceful Realtor Meeting on March 2, 2015 at John Harvard’s Brewhouse at Shoppers World, Framingham. Networking starts at 5:45PM with dinner and speakers starting at 6:30PM. Any licensed estate agent welcome.

I’ll be talking about the latest court rulings and legislation affecting Massachusetts real estate law, intermixed with a few colorful war stories from the front lines. Topics will include the status of the independent contractor office model, the new CFPB closing disclosures and settlement statements, and a rental housing update.

Also speaking is Sandy Krenz, a 30-year interior designer and consultant with Debsan Paint in Natick. She will talk about color and decorating trends.

RSVP to [email protected] with your choice of dinner (see invite).

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massachusetts condominium super lienWe had another interesting year in Massachusetts real estate law. From that controversial $60,000 discrimination penalty for asking a prospective renter “where are you from?”, to the influx of Airbnb rentals, to the tragic murder of Realtor Beverly Carter during a showing, and finally Gov. Patrick’s disappointing scuttling of the title clearance bill.

With pro-business Charlie Baker in the Governor’s Office, the fate of the independent brokerage model with the Supreme Judicial Court, and significant regulatory changes to title and closing services, we should expect another eventful year in 2015. Without further ado, I give you my outlook for 2015:

The Charlie Baker Effect

Gov. Deval Patrick was no friend to the real estate industry, often kowtowing to ultra-liberal activists. Case in point was when he killed the title clearance bill which had broad support within the Legislature and would have helped hundreds of homeowners get out of toxic titles. A new era is here with Republican and former CEO, Charlie Baker. Hopefully the Governor Elect will be more supportive of homeowners, developers, real estate agents, lenders and others in the industry. On the legislative table this year will be comprehensive “smart” zoning reform (including 40B affordable housing development reform), another effort at the title clearance bill and maybe even landlord-tenant legal reform.

Will Realtors Be Treated As Employees or Remain Independent Contractors?

The SJC should decide the closely watched case of Monell v. Boston Padsa class action brought by a group of disgruntled real estate agents at Jacob Realty claiming they should be treated as employees instead of independent contractors. Hanging in the balance is the fate of the historically independent, commission based real estate brokerage office model. An unfavorable result at the SJC would essentially turn this model upside-down, requiring brokerages to pay their agents minimum and overtime wages and provide all the statutory benefits afforded to employees. The real estate office as we know it today would likely cease to exist.

CFPB Compliance: New HUD-1 Statement, GFE, TIL, Back Office Procedures

The new Consumer Financial Protection Bureau rules, which go into effect this summer, have the potential to drastically change how loans are disclosed and transactions closed, affecting loan officers, Realtors and closing attorneys alike. Gone are the Good Faith Estimate, Truth in Lending Statement (TIL) and HUD-1 Settlement Statement, replaced with a longer Loan Estimate and Closing Disclosure. The disclosure timetables will be much, much stricter — the final Closing Statement must be given to the borrower no later than three business days before closing. Lenders and closing attorneys will have to work more efficiently and quicker to meet these new deadlines. Closing attorneys who are ALTA Best Practices Certified will have a competitive advantage over those who aren’t. Smaller firms could fall by the wayside.

Housing Court Expansion

This year will likely see the expansion of Housing Court jursidiction state-wide including in Middlesex, Norfolk and Barnstable counties. The Housing Court will be available in high density rental towns including Cambridge, Framingham, Brookline, Waltham, Dedham, Malden and Somerville.

I hope you all have a happy, healthy and prosperous New Year!

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Tax-Information-about-Employees-and-Contractors

Update 6/3/15: SJC Rules In Favor Of Brokerage Office, Agents Can Remain Independent Contractors 

SJC To Hear Important Employment Classification Case

The critical question of whether real estate agents are governed by the state’s strict independent contractor law is now headed to the Supreme Judicial Court, the highest appellate court in Massachusetts. The SJC will hear arguments in December, and a decision is expected in the Spring of 2015.

Hanging in the balance is the fate of the historically independent, commission based real estate brokerage office model. An unfavorable result at the SJC would essentially turn this model upside-down, requiring brokerages to pay their agents minimum and overtime wages and provide all the statutory benefits afforded to employees. The real estate office as we know it today would likely cease to exist.

The case is Monell v. Boston Pads, LLC, a class action brought by a group of disgruntled real estate agents at Jacob Realty, one of the largest real estate offices in Boston. As I wrote about in this post, Judge Robert Cosgrove ruled last year that the agents should be considered independent contractors and not employees. Given the importance of the case, the SJC granted direct appellate review.

The Massachusetts Association of Realtors has filed a friend of the court brief, in support of classifying agents as independent contractors. I agree with the MAR that real estate agents should be classified as independent contractors given its unique and historically independent business model.

However, this is a very difficult case to handicap. The problem arises when brokerages, such as Jacob Realty, ask its agents to do many of the things traditional employees must adhere to, such as required office hours, dress code, and performance benchmarks. This is especially so where courts have, in the last few years, strictly interpreted the independent contractor and wage laws in other industries. The more requirements imposed on agent, the more likely they should be treated as employees and not independent contractors, the argument goes.

Also likely to play a large role is that in 2008 the Legislature tried — and failed — to amend the law to make real estate agents exempt from the independent contractor law. Governor Patrick vetoed the legislation. This legislative history hurts the brokers.

There is a decent chance this case could go against the industry. In that event, I hope the MAR has legislation ready to preserve the existing office model so there will be no adverse effect on Realtors. And by then, Gov. Patrick — who’s been no friend of the real estate and title business — will be long gone from office.

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Realtor Murdered During Home Showing: Time For A Change?

by Rich Vetstein on September 30, 2014

in Realtors, Safety

Beverly-Carter-jpgShould The Real Estate Industry Change The Way Agents Do Showings and Open Houses?

What other industry requires unaccompanied female (and male) agents to meet perfect strangers in empty houses? None. One would think this is a recipe for disaster. It is.

Last night, authorities found the body of Arkansas real estate agent Beverly Carter, days after she vanished while showing a house to a prospective customer. Aaron Lewis, 33, has been apprehended and admitted to the kidnapping after being questioned by police, ABC News said.

This is not the first time an agent has been murdered, raped or assaulted while on the job. According to the latest Bureau of Labor study, the real estate industry experiences about a 40% higher rate of on-the-job crime than the average profession. Indeed, one my close Mass. Realtor friends was accosted several months ago and was very shook up about it.

My mother was a long time Realtor. My father recalls how nervous he was that some stalker would do something terrible at an open house or showing. Thankfully that never happened.

There must be a better way. I think the time has come for a change. What can be done?

Should open houses be outlawed? Should open houses be allowed only if there are two agents present? Most Realtors say they are a waste of time anyways. Should Realtors have a special exemption under the law to carry mace, a taser or even a handgun? What about a new lockbox system so prospective home buyers can peek into a home themselves without an agent present? What about some type of panic button device or other technology? Here is a great article on Using Technology for Realtor Safety.

What is your office doing to protect your personal safety? What is the National Association of Realtors and local chapters doing about this issue?

Regrettably, the NAR issued a rather weak statement on the Beverly Carter tragedy:

“As both a REALTOR® and an Arkansan, I am saddened by this morning’s news of Beverly Carter’s untimely death. My heart goes out to her family, her friends, her co-workers, and everyone whose life Beverly touched in her 49 years with us.

Working in real estate involves risk and, unfortunately, that risk takes many forms. As an industry, we collectively work very hard to promote safety awareness among our members. We are fully committed to educating REALTORS® about potential threats and providing them with resources to protect themselves.

I urge all REALTORS® to honor Beverly Carter by keeping safe and looking out for each other.”

“Keeping safe and looking out for each other” frankly isn’t going to cut the mustard in my humble opinion. The NAR should be at the forefront of this issue, and doing a lot more than telling agents to “keep safe.” That doesn’t help anyone. 

How about paying for some of the personal safety devices for agents as part of the membership dues? How about lobbying Congress and state legislatures for exemptions for personal defense weapons like mace, tasers and firearms? How about lobby for increased criminal penalties for crimes against Realtors? Anything but telling agents to “keep safe”….

For its part, the Massachusetts Association of Realtors has issued its own Realtor Safety Tips.

There has to be a better way.

As always, I’m here to support real estate agents anyway I can.

____________________________________________

100316_photo_vetstein-2.pngRichard D. Vetstein, Esq. is a Massachusetts real estate attorney who works with Realtors every day. He can be reached at [email protected].

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Where-are-you-from-512x273Innocent Small Talk Apparently Illegal, According to Boston Fair Housing Commission

The seemingly innocent question posed by a Boston rental agent to Gladys Linder when they were searching for an apartment was “Where are you from?”

“Venezuela,” she answered.

Gladys and her husband went on to find an apartment a month later without further incident. But she found the question about her national origin insulting and upsetting.

This is Massachusetts, and you know what came next.

Stokel filed a complaint with the Boston Fair Housing Commission, claiming that rental agent’s question was discriminatory and caused her to suffer fear, anxiety and sleeplessness over a three-year period.

Seriously?

Massachusetts General Laws Chapter 151B and the Boston Fair Housing Commission Regulations make it illegal for any licensed real estate broker “to cause to be made any written or oral inquiry or record concerning . . . national origin.”

Although this was the agent’s first discrimination complaint and there was no discriminatory impact on the tenants at all, the Commission found that the question itself was unlawful and issued one of the largest penalties I have seen in recent years — $10,000 in emotional distress damages, plus $44,000 in attorney’s fees and costs and a $7,500 civil penalty against the broker — a whopping $61,500 in total liability for this single question, not to mention the tens of thousands the agent had to pay for defense legal fees.

The ruling can be found here:  Linder v. Boston Fair Housing Commission, Mass. Appeals Court (Dec. 17, 2013).

Appeals Court Uses Some Much Needed Common Sense

The case went up on appeal, and fortunately the Massachusetts Appeals Court exercised some common sense and slashed the award, likely by more than half pending further proceedings. But the court let stand the commission’s ruling that the one innocuous question did indeed violate the discrimination laws. So the broker will remain on the hook for a sizable liability.

Honestly, I’m having a lot of trouble with this ruling. It appears that the broker was simply engaging in some harmless small talk by asking the applicant where she was from. There was no evidence that the broker refused to rent to her or took any other discriminatory action against them. What if the applicant had a Southern accent and said she was from Alabama? That’s not illegal discrimination, but since she is from another county, it makes the question unlawful discrimination? Unbelievable! This is one of those cases where the anti-discrimination laws result in a totally absurd result.

So thank you to the Boston Fair Housing Commission for making small talk illegal. Unfortunately, the lesson to be learned from this case for rental agents and Realtors: Don’t ask a client where they are from. I kid you not. Only in Massachusetts…

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100316_photo_vetstein-2.pngRichard D. Vetstein, Esq. is an experienced Massachusetts real estate attorney who often consults with Realtors and rental agents on their legal and ethical duties. He can be reached at [email protected].

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We had a great turnout today for our Massachusetts Real Estate Market Report, again presented and moderated by veteran real estate reporter Scott Van Voorhis of Banker & Tradesman and Boston.com. Scott writes for the well-known Boston.com Real Estate Now Blog which is an invaluable resource.

For this installment, we added a little twist, holding a panel discussion and interactive Q&A with Ali Corton of Real Estate Executives Boston West, Chuck Silverston of Prudential Unlimited in Brookline and Dee Reddington of Bank of Canton. Ali was representing the ‘burbs. Chuck was representing the urban, Boston-Brookline market, and Dee was giving the lender perspective. We were live tweeting the event at Twitter #marealestate where you can check out the live stream.

Some take-aways from the presentation and discussion were as follows:

  • As reported just about everywhere, the Massachusetts real estate market remains very strong
  • Year over year, 16% increase in both sales volume and sales prices
  • The government shutdown has had no demonstrative effect on the market, nor on the lending environment
  • Lack of buildable land, desirability of the Greater Boston market (as always) has resulted in high demand, low inventory environment.
  • Inventory is down 30% over 2012 (which was down over 2011), putting upward pressure on prices and demand. Bidding wars common for well-priced, good quality homes in desirable communities. This is creating a frenzied dis-equilibirum in certain markets which isn’t necessarily healthy.
  • The low inventory is the “new normal.” Get used to it.
  • Interest rates are forecast to dip down a bit heading into spring market 2014, with eventual rise through the remainder of 2014 and 2015.  Overall, the interest rate environment remains very favorable to buyers and the market as a whole.
  • First time home buyers must be open to fixer-uppers and not updated homes. Otherwise, they will be in very tough competition for move-in condition homes in the good towns.
  • Lenders are doing loans for low credit (FICO 620 range) borrowers. ARMs making comeback.
  • Chuck pointed out the “Patriot Effect” for open houses on Sundays. People are staying home to watch the game. Advises trying open houses on Saturdays.
  • Ali Corton says that Metrowest sellers are routinely getting asking price or very close to that right now, and will continue to do so while inventory remains low

We are interested in hearing your thoughts on today’s market. Feel free to post your comments below!

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Real-Estate-AgentsReviewing this blog, it occurred to me that I’ve never written about real estate agency and designations, which is one of the more confusing aspects of real estate broker agency law. Personally, I think that all the recent disclosure forms and regulations imposed by the Mass. Board of Real Estate, while well-intended, have made this area unnecessarily complicated. I’ll try to explain broker agency in plain English.

Massachusetts Mandatory Licensee Consumer Relationship Disclosure

The Massachusetts real estate brokerage industry is highly regulated by both state law and regulations, as well as local and national codes of ethics. Under state regulation, once you sit down with a Massachusetts real estate agent to discuss a specific property, the agent should give you a form called the Massachusetts Mandatory Licensee Consumer Relationship Disclosure. The disclosure form describes the five types of agency relationships between and among buyer, seller, and agent:

Seller’s Agent – This is typically known as a listing agent. The real estate agent represents only the seller, not the buyer. The listing agent owes the seller undivided loyalty, reasonable care, disclosure, obedience to lawful instruction, confidentiality and accountability. However, a listing agent must disclose all known material defects in the real estate to buyers.

Open Houses:  Open houses are often the cause of disputes as to agency and commissions. Under Mass. regulations, at any open house the listing agent must conspicuously post and/or provide written materials explaining to attendees the relationship they may have with the agent conducting the open house. If a buyer is working with an agent (but the agent is not present at the open house) it’s a good idea to write the name of the agent’s name and leave the agent’s card at the sign-in, otherwise the listing agent could be considered the procuring cause of the buyer which could cause a dispute down the road.

Buyer’s Agent – A buyer’s agent works for the buyer only. The agent owes the buyer undivided loyalty, reasonable care, disclosure, obedience to lawful instruction, confidentiality and accountability. Like a listing agent, a buyer’s agent must disclose any known material defects in the real estate. Some agents are exclusive buyer agent’s and do not take on listings. An advantage of using a buyer’s agent is that you can be assured the agent will work only for you, the buyer, and will have no relationship with the listing agent’s office, as is common with designated and dual agencies described below.

Designated Seller’s and Buyer’s Agent – This type of agency occurs when a listing agent refers an agent working in the same office to represent the buyer. So, two agents in the same office are representing both sides of the transaction. The happens a lot when an unrepresented buyer is introduced to the property at an open house, and the listing agent will refer the buyers to a fellow agent in her office. This is usually the smart and prudent choice to avoid the conflicts inherent in being a dual agent representing both buyer and seller, discussed below. Both buyer or seller must agree to a designated agent agency in writing. The designated agent owes her client the same duties and obligations discussed above.

Dual Agent – A dual agent represents both sides of the transaction — buyer and seller –but can be a risky proposition. The upside for the agent is that he or she keeps the entire commission, but the agency can be fraught with potential conflicts of interest. Dual agency is allowed only with the express and informed consent of both the seller and the buyer. Written consent to dual agency must be obtained by the real estate agent prior to the execution of an offer to purchase a specific property. A dual agent shall be neutral with regard to any conflicting interest of the seller and buyer.

Non-Agent Facilitator – This is the rarest of all agencies. When a real estate agent works as a facilitator that agent assists the seller and buyer in reaching an agreement but does not represent either the seller or buyer in the transaction.

What is a “broker” vs. a “salesperson”?  Under the Massachusetts regulations governing real estate agents, a real estate broker runs the real estate office and is the broker of record, overseeing the transactions of all salespersons (agents). A broker must complete 40 additional hours of education and must work for a broker for at least three (3) years before they can move on to licensure as brokers. A broker is responsible for accepting and escrowing all funds, such as a deposit placed on the purchase of a home, and for finalizing transactions. A real estate broker must supervise any transactions conducted by a salesperson. Every local real estate office, even the large ones like RE/MAX, Century 21 and Coldwell-Banker, will have a broker/office manager in charge of the office. The small, independent real estate offices are typically operated by a single broker, with perhaps a handful of salespeople.

real estate salesperson is what most folks consider real estate agents. When a person first passes their real estate exam, they become a “salesperson.” A salesperson must be affiliated with, and work under, a broker, either as an employee or as an independent contractor, under the supervision of the broker. A salesperson can not operate his own real estate business. A salesperson also has no authority or control over escrow funds.

What Is A Realtor®? A Realtor is a real estate broker or salesperson who is a member of the National Association of Realtors and has agreed to conduct herself under the comprehensive NAR Code of Ethics. Not all real estate agents are Realtors. Membership in the NAR gives a Realtor full access to the entire Multiple Listing Service providing a national database of all sold and listed properties. Realtors can also file complaints against each other and the organization accepts complaints from consumers. Complaints can affect membership status and fines can be levied against agents who are found guilty of wrongdoing by a multi-member panel of their peers. The NAR does not have the ability to suspend a real estate licenses–that action can only be accomplished by the Mass. Board of Real Estate.

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RDV-profile-picture.jpgRichard D. Vetstein, Esq. is a Massachusetts real estate attorney with over 15 years of experience. If you have any questions regarding real estate agency, please contact him at [email protected] or 508-620-5352.

Massachusetts Mandatory Licensee Consumer Relationship Disclosure

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MA real estate agent independent contractor law

Fate of Long-Standing Massachusetts Brokerage Model Hangs In Balance

As first reported by David Frank in Massachusetts Lawyers Weekly, the critical question of whether real estate agents are governed by the state’s strict independent contractor law, which would entitle agents to minimum wage, overtime and benefits, is headed to the Appeals Court. According to Hillary Schwab, the attorney to a group of real estate agents who filed suit against Jacob Realty in Boston, “this is the first case in Massachusetts where the concept of employment misclassification and the real estate industry have ever been dealt with in the same opinion.” An unfavorable result at the Appeals Court would essentially turn the Massachusetts real estate brokerage model upside-down, as it has historically operated with agents considered independent contractors and paid on a commission-only basis. If brokerages were required to pay their agents minimum and overtime wages and provide all the statutory benefits afforded to employees, the real estate office as we know it would likely cease to exist.

Jacob Realty Agents Required To Adhere to Dress Code, Mandatory Office Hours

The Appeals Court will consider the case of Monell, et al. v. Boston Pads, LLC, (embedded below) brought by a group of disgruntled real estate agents at Jacob Realty. According to Curbed Boston, Jacob Realty is part of a larger network of Boston rental companies (Jacob Realty, NextGen Realty and Boardwalk Properties) with 150 rental agents, making them one of the largest rental offices in Boston.

As is customary in the industry, Jacob Realty classified the agents as independent contractors, paying them on a commission-only basis and making them responsible for payment of their own taxes and monthly desk fees. At the start of their employment, the agents signed non-disclosure, non-solicitation and non-compete agreements. They had to own day planners, obtain a cellphone with a “617” area code, adhere to a dress code, submit to mandatory office hours and to various disciplinary actions if they did not meet their productivity goals.

Lower Court Rules In Favor of Broker

Superior Court Judge Robert Cosgrove issued a ruling on July 15, 2013 that the agents should be considered independent contractors and not employees under the Massachusetts Real Estate Brokerage Act. But Cosgrove said it was difficult to read the brokerage law and independent contractor law consistently. The real estate statute explicitly provides that an agent may either be an employee or an independent contractor, he noted. In the same sentence, the law reiterates that agents must remain under the auspices of a broker. In contrast, the judge wrote, the independent contractor statute requires salespeople to be free from the control and direction of employers in order to be correctly classified as an independent contractor.

The problem arises when brokerages, such as Jacob Realty, ask its agents to do many of the things traditional employees must adhere to, such as required office hours, dress code, and performance benchmarks. This is especially so where courts have, in the last few years, strictly interpreted the independent contractor and wage laws in other industries. The more requirements imposed on agent, the more likely they should be treated as employees and not independent contractors, the argument goes.

What’s Next?

The case now heads up to the Massachusetts Appeals Court, and perhaps even the SJC — where the stakes will be much higher. This case is very hard to handicap because, as I said before, the courts as well as state and federal labor agencies have really been cracking down with the independent contractor law in favor of employees. Rest assured, I’ll be monitoring this case. I expect the MAR and GBREB will file friend of the court briefs and take a further appeal if there’s an unfavorable result. There will surely be lobbying efforts at the Legislature to preserve the historical independent contractor brokerage model.

Monell v. Boston Pads

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images-10Overview of  “Standard” Changes to the GBREB Form Purchase and Sale Agreement

Missing mortgage discharges, problematic  probates, “Ibanez” foreclosure issues and other title defects are always an unwelcome surprise to a seller, their Realtor and attorney. But they are unfortunately a common part of life in the real estate conveyancing world. The “standard” purchase and sale agreement form commonly used by Realtors and attorneys (Greater Boston Real Estate Board) provides for what happens in a transaction if a title defect is discovered and cannot be cleared quickly.

The GBREB form, paragraph 10, which is still in widespread use, provides as follows:

If the SELLER shall be unable to give title or to make conveyance, or to deliver possession of the premises, all as herein stipulated, or if at the time of the deed the premises do not conform with the provisions hereof, then any payments made under this agreement shall forthwith be refunded and all other obligations of the parties hereto shall cease, and this agreement shall be void without recourse to the parties hereto, unless the SELLER elects to use reasonable efforts to remove any defects in title, or to deliver possession as provided herein, or to make the said premises conform to the provisions hereof, as the case may be, in which event the Seller shall given written notice thereof to the Buyer at or before the time for performance hereunder, and thereupon the time for performance hereof shall be extended for a period of thirty days.

The standard provision is, unfortunately, outdated and problematic. Accordingly, experienced Realtors and attorneys are taught to modify this provision from the outset as follows:

If the SELLER shall be unable to give title or to make conveyance, or to deliver possession of the premises, all as herein stipulated, or if at the time of the deed the premises do not conform with the provisions hereof, then any payments made under this agreement shall forthwith be refunded and all other obligations of the parties hereto shall cease, and this agreement shall be void without recourse to the parties hereto, unless then the SELLER shall elect to use reasonable efforts to remove any defects in title, or to deliver possession as provided herein, or to make the said premises conform to the provisions hereof, as the case may be, in which event the Seller shall given written notice thereof to the Buyer at or before the time for performance hereunder, and thereupon the time for performance hereof shall be extended for a period of thirty days.

These standard modifications ensure that the Seller is initially responsible for clearing any title defects and gives them 30 days in which to do so. If the Seller cannot clear the title defect within 30 days, then both parties have the option of terminating the deal and all deposits must be returned.

Limiting Seller’s Financial Exposure

To limit the seller’s out of pocket expenses to clear title defects, real estate attorneys representing the seller will often insert language such as this at the end of paragraph 10:

Reasonable efforts shall be defined as the Seller’s expenditure of no more than $________, exclusive of all voluntary encumbrances which secure the payment of money which Seller shall be obligated to remove.

The dollar amount is typically anywhere between $1,000 – $4000 depending on the purchase price.

Protecting The Buyer

On the buyer side, what happens if during the 30 day extension cure period, the buyer’s rate lock expires and interest rates are floating up (like now)? Experienced buyer attorneys will often insert the following language in their  riders:

Notwithstanding anything to the contrary contained in this Agreement, if SELLER extends this Agreement to perfect title or make the Premises conform as provided in Paragraph 10, and if BUYER’S mortgage commitment or rate lock would expire prior to the expiration of said extension, then such extension shall continue, at BUYER’S option, only until the date of expiration of BUYER’S mortgage commitment or rate lock.  BUYER may elect, at its sole option, to obtain an extension of its mortgage commitment or rate lock or the Seller may elect to pay for same.

This language will ensure that the buyer doesn’t wind up floating up the interest rate river with an untimely rate lock expiration. This situation has come up rather frequently over the last several months as interest rates have increased dramatically.

This is just one, albeit a very important, part of how an experienced real estate attorney works up the purchase and sale agreement. I will do some more posts on other aspects of the P&S Agreement. Stay tuned!

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Richard D. Vetstein, Esq. is a Massachusetts real estate closing attorney with offices in Framingham and Needham, MA. He can be reached at [email protected] or 508.620.5352.

 

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Massachusetts real estate closing attorneyExpands Realtors’ Disclosure Liability and Invalidates Exculpatory Clause In Standard Form Purchase and Sale Agreement

Unfortunately I have some bad news for Massachusetts real estate agents, as the Supreme Judicial Court recently ruled against a Realtor for failing to properly verify a representation made on MLS concerning a listing’s zoning classification. The closely watched case is DeWolfe v. Hingham Centre Ltd. (SJC-11168) (embedded below).

Zoned For Business or Residential?

The lawsuit was brought by a buyer of a hair salon business who relied upon what turned out to be erroneous information supplied by the listing agent (through information provided by the seller). The broker represented on the Multiple Listing Service (MLS) and newspaper advertising that the property was zoning “Business B,” which allowed a hair salon. Further, the broker placed at the property copies of pages from the town’s zoning by-law that listed hair salons as “Permitted Business Uses” in the Business B District. The property was not, in fact, zoned for business use; it was zoned residential, thereby prohibiting the hair salon the buyer wanted to open at the property. The buyer sued for misrepresentation and violations of the Consumer Protection Act, Chapter 93A.

Ruling: Realtors Have Duty to Exercise “Reasonable Care” In Making Zoning Representations

In an unanimous opinion by Justice Barbara Lenk, the SJC stated that while a real estate broker may ordinarily rely upon information provided by his client, where such reliance is unreasonable in the circumstances, an agent has a duty to independently investigate the information before conveying it to a prospective buyer.

The court ultimately held that all Massachusetts real estate agents have a duty to exercise reasonable care in making representations as to a property’s zoning designation.

Here, the owner testified that he told the real estate broker that the property was zoned “Residential Business B.”  The experienced broker apparently knew that there was no such zoning district in Norwell, and instead advertised the property as zoned “Business B.”  In addition, the broker was aware of no prior business use of the property, and had observed houses – not businesses – adjoining the property on either side.  Based on these facts, the SJC concluded that a jury could find that the broker was on notice that the information provided by the owner was unreliable, and acted unreasonably in representing the property as zoned “Business B” without conducting any further investigation.

Exculpatory Clause in Standard Form P&S Not Applicable

The SJC also rejected the broker’s argument that the exculpatory clause in the standard form purchase and sale agreement barred the buyer’s claims. The familiar contract language provides:

The BUYER acknowledges that the BUYER has not been influenced to enter into this transaction nor has he relied upon any warranties or representations not set forth or incorporated in this agreement or previously made in writing, except for the following additional warranties and representations, if any, made by either the SELLER or the Broker(s): NONE.

The justices held that, under the confusing, double-negative language quoted above, a buyer can rely on prior written representations that are not set forth or incorporated in the agreement. Therefore, the agreement did not protect the broker from liability arising from the written misrepresentations in the newspaper ad, the MLS listing, and the inapplicable zoning by-law placed at the property.

The SJC has sent the case back to the trial court for a possible jury trial or, most likely, towards settlement. And hopefully the Greater Boston Real Estate Board is re-drafting its poorly worded exculpatory clause.

Advice For Realtors Going Forward

  • Do NOT say or write anything on MLS or anywhere else concerning a property’s zoning status. Make the buyer conduct his/her own independent research.
  • If your MLS requires input of zoning status, put the zoning with the following disclaimer:  *subject to buyer verification
  • Never trust your client when it comes to information concerning the property. I hate to say this, but when it comes to disclosures, it’s true.
  • Always independently verify information about the property from available public sources. Here, the agent could have simply gone down to the town planning office to verify whether the property was zoned commercial or residential.

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RDV-profile-picture-larger-150x150.jpgRichard D. Vetstein, Esq. is a Massachusetts attorney with substantial experience in real estate disclosure litigation brought by buyers against Realtors. Please contact him at [email protected] or 508-620-5352.

 

Dewolfe v. Hingham Center

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redfin-logo-tag-webControversial New Internet Practice Raises Confidentiality Concerns & Realtor® Scorn

The internet based real estate brokerage company, Redfin, is now arming buyers and sellers with insight into the negotiations that take place when the firm’s clients submit winning — and losing — offers to buy a home. On its heavily trafficked website, the Seattle-based brokerage is now displaying “Offer Insights” detailing intimate details of negotiations surrounding offers that Redfin agents submit on listings. Redfin claims that buyers can opt out of the program, and no addresses are revealed before closing. (But, addresses are shown for sold properties).

Here is an example for two properties in Quincy, one where an offer was accepted and one where it was rejected:

redfin offer insights copy

Confidentiality & Ethical Concerns?

From a strategic and marketing perspective, this new idea is certainly creative, as it gives Redfin agents and their potential clients a competitive advantage over other agents and aids in providing transparency in the marketplace. However, posting details about private contractual negotiations raises some thorny legal and ethical concerns, and many non-Redfin listing agents are crying foul.

Some Realtors assert that the details of offer negotiations are private and confidential, and therefore, cannot be disclosed without the consent of all parties to the transaction, especially the seller. I don’t necessarily buy into that. I’m not aware of any legal confidentiality protection given to private contract negotiations — indeed they are 100% discoverable in litigation, at least in Massachusetts. A buyer and seller are in an adversarial position, so there is no special legal relationship between them warranting a duty to keep negotiations private.

I can see why a seller would be very upset to find out that the juicy details of negotiations are posted on the internet for the world to see. A seller may certainly want to know this before entertaining a Redfin offer. Moreover, a seller (and a creative attorney) could manufacture a tortious interference claim if a Redfin Offer Insight proves to interfere with a potential deal with another party. That’s a lawsuit for another day…

MLS Rules and NAR Code of Ethics

Some Realtors say that the Redfin practice violates Multiple Listing Service rules and the NAR Code of Ethics. Multiple listing services have rules for commenting on sites which contain MLS information. A seller may instruct her listing agent to disallow public comments on listings. A Redfin buyer’s agent could be in violation of MLS rules if he leaves remarks about the house or negotiation, according to some non-Redfin agents. It will be up to the particular MLS to enforce its own rules against agents; they have no legal effect per se.

The National Association of Realtors Code of Ethics prohibits Realtors from using confidential information of clients for the Realtor’s advantage or the advantage of third parties unless the clients consent after full disclosure. The catch is that “confidential information” is defined as whatever state law says is confidential.  As I said earlier, private contract negotiations are not legally confidential in Mass., so I’m doubtful this would apply.

In sum, the Redfin Offer Insight feature may well be legal, but tight-walks through the ethical rules governing MLS’s and Realtors. As long as they don’t disclose names or property addresses until the deal closes, I think it’s ok legally (in Massachusetts), and I do appreciate giving buyers as much market information as possible. On the flip side, it may put non-Redfin listing agents at a competitive disadvantage. Maybe that’s why they are crying foul?

Agents, what are your thoughts? Post your comments below.

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RDV-profile-picture-larger-150x150.jpgRichard D. Vetstein, Esq. is a nationally recognized real estate attorney who writes frequently about legal issues facing the real estate industry. He can be reached at [email protected].

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