Note – I buy real estate in Virginia, and the references here refer to Virginia code. The laws may be similar in other states, but refer to your state’s licensing department for your local requirements.
I can’t tell you how many times I’ve heard investors say they have not become licensed agents because of the “conflict of interest.” As an investor who is a licensed agent, I have never one time felt as if my license jeopardized a FSBO purchase, or that I was crossing any ethical lines. Sellers who don’t want to “deal with Agents”, are avoiding the process, not the person. Those of us who are licensed have to disclose that fact to our sellers. I explain that as a licensed agent in the state of VA, I am held to a higher standard than a non-licensed purchaser. This means that if I do anything illegal or unscrupulous, there is a regulatory board the seller can go to for restitution in addition to the regular court of law. I think it is this “higher standard” that scares most investors from getting licensed. The reality is that, licensed or not, most of the Disclosures and laws agents follow, are required to be followed to anyone selling a home, regardless of whether or not they are licensed. Below are some of the common mistakes I’ve seen non-licensed investors make. Be careful that you become educated about your legal requirements as a real estate seller, regardless of whether or not you ever become a licensed agent.
Using the REIN Contract – All the REIN forms are copyrighted and only REIN members are authorized to use these forms. Personally, I only use the REIN contract when I’m purchasing through MLS and the listing agent requires it. My own contract is easier for a buyer and seller to understand and is customized to provide me maximum protection. If you don’t have your own contract, any local real estate attorney can provide you with one. Our own TRIG President, Steve Gunther, has a great forms CD available that contains every form you’ll ever need to be a real estate investor.
Not Providing the Required Disclosures – The Applicability paragraph of Chapter 27 of the Virginia Residential Property Disclosure Act says the Code applies “whether or not the transaction is with the assistance of a licensed real estate broker or salesperson.” While there are some exemptions, most all of the real estate transactions investors are involved in, are subject to this Code of Law. There are some commonly overlooked Disclosures you need to be aware of if you are entering into contracts for the sale, exchange or lease with option to buy of residential property.
1) Residential Property Disclosure Statement – This form can be obtained from the Real Estate Board and contains seven different paragraphs of required disclosures. These Disclosures protect the seller, as they point out many different guidelines that may affect the buyer’s use and enjoyment of the property. The Statement points out that it is the responsibility of the Buyer to investigate all the items disclosed before purchasing, as the seller offers no warranty regarding them. If you have never read this form, you’d be surprised at some of the items you are required to warn your buyers about. Each paragraph begins with “The owner makes no representations with respect to…” and then points out things such as warranties as to the condition of the real property, the restrictions of historical districts, the Chesapeake Bay Preservation Act, and dam break inundation zones. Start using the Residential Property Disclosure Statement today to offer you one more layer of protection in each transaction.
2) Required Disclosures Pertaining to a Military Air Installation – Most people know that sellers are required to provide the noise and crash zone information about a property. Did you know though, that if you accidently classify the noise zone of the property you are selling in a lower zone, and the property is in a noise zone higher than 65, the buyer has one year to seek recourse? And case history shows the courts are likely to rule in favor of the buyer!
3) Septic System Waivers – It used to be that if a property had a waiver for the current septic system, the waiver would transfer to a new owner. This is no longer the case. If you sell a property that has a septic waiver, the property becomes uninhabitable at closing, unless the reason for the waiver was addressed by the seller before closing. Sometimes the property has a waiver because an addition surpasses the capacity of the current septic system. Sometimes the waiver requires a new owner to get connected to the city sewer. Surprisingly, we even have addresses in populated cities such as Virginia Beach that fall in this scenario. If your property is not connected to the city sewer system, investigate whether or not a waiver is in place.
As you can see, licensed agent or not, all residential real estate sellers are bound to the Real Estate Code of Virginia, and it actually protects you as a seller to follow the guidelines. You can review Chapter 27 of the Virginia Code, the Virginia Residential Property Disclosure Act at this web link.