Conflicts occur in every profession. How to solve conflicts in real estate transactions answered here helps you secure a successful closing.
Every experienced real estate agent knows that sometimes deals get tricky. Never panic or get upset. Learn how to solve conflicts.
Transaction problems often occur like:
- Sellers refuse access to the property for inspection; or
- A seller refuses access to an appraiser until all furniture removed; or
- The seller failed to disclose a code violation.
This list only shows a few problems that impact deals.
Sometimes, buyers create conflicts by not disclosing past bankruptcies or unpaid debts or other problems jeopardizing mortgage approval.
Other agents sometimes create conflicts too.
So, let’s explore ways to solve these problems.
How to Solve Conflicts in Real Estate Transactions
Typically, when conflicts occur during a deal, everyone passes the blame. Remember that a written contract exists that should specify how to resolve typical problems in a transaction.
No matter if the seller, buyer, or another agent creates a conflict follow these steps:
Get in touch with your Broker right away. Every deal occurs in your broker’s name. Therefore, contact your broker immediately. Brokers training includes handling tough situations. Serious conflicts require brokers to contact their legal counsel for help.
Contact Risk Management with your Errors & Omissions Insurance Company. Most E&O companies offer free risk management services. After all, your insurance company would rather resolve the conflict than defend a lawsuit.
Contact the California Association of Realtors Legal Hotline. If a member of the Realtor’s Association, contact their free legal hotline for help.
Contact your MLS. Every Multiple Listing Service maintains a process and procedure to handle member grievances. They often use arbitrators and mediators to assist you.
Never Write Unfiltered Text Messages or E-Mails. It’s easy to type a text or email when angry and click send. But, remember that all relevant written messages become evidence during a dispute.
Angry messages work against you. Instead, contact the parties by phone to resolve problems when they arise. Keep notes about the phone conversations to remember what you said and their responses.
Top Conflicts in Real Estate Transactions
Since real estate transactions involve lots of money, expect conflicts to occur. For most buyers, a deal to buy a new home may be the most expensive transaction in a lifetime.
When conflicts occur neither the seller, buyer, nor the agents gain by failing to resolve disputes to keep a deal alive. Even if a seller finds another buyer offering more money, a lawsuit will cost more in the end. Buyers backing out face lawsuits too. And neither agent gets a commission for a failed deal.
Here’s the top conflicts found in real estate transactions:
Failing to Disclose
Despite laws and required forms about sellers’ disclosures, sometimes sellers fail to disclose defects.
Material facts which affect a buyer’s decision to purchase a property or the price to pay become a deal killer when the seller fails to disclose.
Many times the buyer blames the agents along with the seller.
Purchase Agreement Issues
Using standard contracts to purchase real property protects the agents and the parties when common issues arise.
But, sometimes the form requires the agent to fill information. Mistakes occur resulting in inaccurate information.
Not Acting in a Client’s Best Interests
Sometimes, a buyer’s agent fails to meet the buyer’s expectations. Or, a listing agent sets a sales price too low.
Or, a dual agency situation where one or both parties felt the agent failed them.
A common problem with commission-based professions. The potential for a conflict of interests where the client claims the agent only looked after his or her commission.
Legal Issues
Despite a written binding contract, legal issues pop up.
For instance, an easement requirement arises when the buyer told the agents and the seller of his or her purpose for the property. Like erecting a wall which blocks a neighbor’s access.
Or, a restrictive covenant exists impacting the buyer’s usage. In other cases, a boundary line gets disputed.
Other times, the buyer or seller requests specific provisions to the contract not normally found in purchase agreements.
Disputes Over Deposits
The buyer’s Earnest Money deposit may become a dispute if the transaction fails to close. Then, the parties disagree over who retains the deposit.
Such a legal issue gets resolved by state laws. Also, the purchase agreement specifies how the earnest money either gets returned to the buyer or retained by the seller. Yet, disputes arise over the interpretation of what the agreement says.
Disputes between Owners
Often, disputes arise between multiple sellers like marital divorce or conflicts between partnership members. Such disputes hold up the closing.
Sometimes, disputes occur between multiple purchasers. Parties may buy real estate as an LLC, or a partnership, or as tenants in common using a trust. Usually, these types of disputes occur because one or more parties don’t understand their rights to the property. The parties disagree about who possesses or rents the property before the purchase closes.
Solving Conflicts in Real Estate Transactions
After seeing the top conflicts in real estate transactions, here’s how to solve them.
Understanding Fiduciary Duties
Real estate agents must know their fiduciary duties towards their clients. They must always act in the best interests of their clients.
You learned this during your real estate licensing classes and while studying for the real estate licensing exam. But, over time some agents forget those lessons.
That’s why continuing education courses exist for real estate agents. Also, members of the Realtors Associations attend seminars and courses to keep up with new laws and changes in ethical standards.
Disclose all Defects
Some sellers need to learn what types of defects and material facts affect buyers’ decisions to buy to disclose.
Even if a small defect technically not required for disclosure, it’s a good policy to disclose it anyway to avoid potential problems during the transaction.
Improving Communications
Better communications between the agents and their clients; and between the buyer and seller avoids potential conflicts.
Read our past blog post about building client rapport. Here Or, about better communications tips. Here
Asking questions to understand what the clients want and need helps to avoid problems.
Most of the time, sellers and buyers only communicate with each other through their agents.
The parties often negotiate things like moving the closing date due to a delay with financing. Or, if the seller will hire a professional cleaning company before closing. Also, what items the seller leaves behind other than fixtures.
Using NAR’s Buyer-Seller Dispute Resolution System
Realtors use the National Association of Realtors (NAR) “Dispute Resolution System” (DRS) to help resolve disputes between sellers, buyers, and Realtors. To avoid expensive and time-consuming lawsuits, DRS attempts to resolve disputes in other ways like:
Negotiations – Involves direct bargaining between the parties without using a third party. Brokers often get involved to find a solution the parties agree to.
Mediations – A neutral third party helps the disputing parties to negotiate a solution. Mediators do no decide disputes. Instead, they help the parties to clarify issues, use persuasion, and use other conflict resolution techniques. NAR surveys show that 80% of mediations resolve themselves.
Arbitrations – The best DRS method involves a neutral arbitrator (or panel of arbitrators) to hear the parties and decide how to resolve the dispute. NAR offers binding arbitration where the arbitrator(s) decision become final. Or, non-binding where the parties either accept the decision or go through a lawsuit.
Conclusion
How to solve conflicts in real estate transactions avoids lawsuits. Such solutions also keep the transaction moving towards the closing.
Conflicts avoided by:
- Better communications;
- Full disclosures;
- Understanding fiduciary duties; and
- Using NAR’s DRS system to resolve disputes.
Hiring a Transaction Coordinator Helps Reduce Conflicts
After all, Transaction Coordinators (TC) help reduce conflicts by making sure all legal documents get signed and delivered promptly. Also, coordinating appraisals and inspections well before the closing. TCs help avoid lawsuits too, read about it. Here
Your TC also improves communications between all transaction players.
Transaction Monster provides TC services in California to ensure conflicts get resolved and closings occur on time.
Contact Us to learn about our TC services and how they help you with getting successful closings.
Steven Rich, MBA – Guest Blogger
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Transaction Monster – Real Estate Transaction Coordinating Company