Who are the Players and what is Ratification?
Update: Much of this article is pointed to issues with Shortsales, but it seems that many REO agents are failing to update the MLS as well. This applies to all.
Many times in the past week or so, I’ve been asked the question: “Can we leave it as active in MLS, if the transaction is contingent on Third Party Approval?”
In order to answer this question, we have to know who the entities are that dictate the answer. In this case we have the MRIS policy, the REALTOR® Code of Ethics, the Virginia Real Estate Legislation and your contractual agreement. The Contractual Agreement has little to do with leaving the listing “Active” it simple dictates which policy is triggered.
The question is really based on if you have a ratified contract. The Virginia Statute of Frauds requires that residential sales contracts be reduced to writing, in order to be enforceable. Just as a reminder; the elements of a ratified contract are Offer & Acceptance, Consideration, Legally Competent Parties, Consent and Legal Purpose. An offer is not considered ratified until the other party has been notified. A Meeting of the Minds must occur for a contract to be ratified and then execution; which is to say that all Principals should sign and deliver copies.
The MRIS Regional Contract defines “ratification” as “Date of Ratification means the date of final acceptance in writing of all terms of the Contract (not the date of expiration or removal of contingencies).” <source: NVARK1321 Paragraph 29.C> and you can also reference paragraph 1 and 2 of the Virginia Jurisdictional Addendum. The contract makes it clear, that with signatures and delivery conveying a “meeting of the minds” you have a ratified contract.
With the exception of a very, very few agreements; acceptance by the Lender in a Shortsale is a Contingency and not a determinate of a ratified contract. Remember that some companies are using “subject to” clauses which keep the parties from ratifying and still agree to send the offer to purchase, to the lender. Since these contracts are not truly ratified; the buyer may keep looking for better deals at better prices and the Seller may still keep looking for better buyers. Both Buyers and Sellers should be very clear, when deciding not to ratify, that either party may bump them from the “deal”.
So… Can we advertise the property as “Active”!?!?!
Nope. Once ratified, the listing status needs to change in MRIS’ MLS system, to reflect actual status. Some agents are using the CNTG/KO. That’s fine, so long as you’ve actually used the kick-out clause addendum and are very clear that the property does have a kickout, what that means to all parties, and how it’s enforced. You cannot have the listing as “Active” in MRIS, if you have a contract that is ratified.
Here is what MRIS has to say:
"Short sales" have become the subject of great discussion and debate among practitioners, regulators, and policymakers alike. With input and guidance from the MRIS Board of Directors, the MRIS Compliance Committee, the REALTOR® Shareholder Associations and the MRIS subscribers, and taking into consideration the new policy changes approved by NAR at this year’s mid-year conference, MRIS is updating its policies related to Short Sales. The goal is to provide a balanced approach that addresses issues on both the seller and buyer sides of transaction.
There are several points that MRIS subscribers will need to consider:
Definition of Short Sale. MRIS is adopting the definition of "short sale" established by NAR: "As used in MLS rules, short sales are defined as a transaction where title transfers; where the sale price is insufficient to pay the total of all liens and costs of sale; and where the seller does not bring sufficient liquid assets to the closing to cure all deficiencies."
Definition of Potential Short Sale. A potential short sale describes a property that may reasonably be expected to become subject to a short sale. Going forward, MRIS’s new policy is that all Potential Short Sale listings must be disclosed unless local laws require otherwise. The potential for a short sale is considered a material fact.
Lender Approval. Seeking lender approval is part and parcel of the typical short sale transaction.
The bottom line: If lender approval is to be sought in a transaction, then this fact must be disclosed to the potential buyer and buyer’s agent unless local laws require otherwise. It is your responsibility to properly determine what your legal obligations are, and to act in accordance with these obligations.
Compensation Data Field. Since only listings with unconditional offers of compensation may be entered in MRIS, the compensation entered in the compensation field is the compensation that any cooperating broker should expect to be paid as result of the sale.
MRIS will continue to treat commission related issues and disputes as the purview of the arbitration panel of the appropriate local Realtor® Association. MRIS is not a party to any short sale transaction or compensation agreement, and will not adjudicate compensation related disputes among subscribers.
Appropriate status. The status for any listing where a ratified contract is subject to a lender approval must be changed to CNTG/KO or CNTG/NO KO, indicating a third-party approval contingency. MRIS’s perspective is that a listing broker, in such an instance, may continue to market the property and continue to accept back-up offers. The MRIS Rules and Regulations require that the listing’s status be changed within 48 hours excluding weekends and holidays.
Please refer to the Short Sale FAQ at http://www.mris.com/compliance/faq.cfm for more information.
note: Virginia considers the pursuance of a shortsale as a confidential financial fact and thus cannot be disclosed in MLS or anywhere else without the written permission of the Sellers.
The Virginia Administrative Code also addresses this issue
3. All online listings advertised must be kept current and consistent as follows:
a. Online listing information must be consistent with the property description and actual status of the listing. The licensee shall update in a timely manner material changes to the listing status authorized by the seller or property description when the licensee controls the online site.
b. The licensee shall make timely written requests for updates reflecting material changes to the listing status or property descriptions when a third party online listing service controls the website displaying the listing information.
c. All listing information shall indicate in a readily visible manner the date that the listing information shown was last updated.
The REALTOR® Code of Ethics has this to say:
Article 12
REALTORS® shall be honest and truthful in their real estate communications and shall present a true picture in their advertising, marketing, and other representations. REALTORS® shall ensure that their status as real estate professionals is readily apparent in their advertising, marketing, and other representations, and that the recipients of all real estate communications are, or have been, notified that those communications are from a real estate professional. (Amended 1/08)
What if the Parties Agree?
After laying all this out to most REALTORS®, I inevitably get the follow up question, “But what if the buyer and seller agree”. The answer is typically that their agreement about keeping it “Active” in MLS is irrelevant. It’s not just about the buyer and seller, but about the other potential buyers. No agents, nor buyers want to go look at a house that isn’t truly available (well, almost none) and even if they did, they should still know that the seller has previously accepted an offer. Remember that REALTORS® carry a responsibility for Honesty and Disclosure of Material facts (like a ratified contract and conveyance of equitable title) to all clients and customers – not just their own.
Often times these listings are kept as “Active” to help generate more leads for the Listing Agent from IDX surfers. Occasionally it’s simply accidental and more frequently the Lister doesn’t really understand what ratification is. Regardless, the reason this has become an all too common complaint amongst agents.
Recommendations
If the Principals to the transaction agree that the Seller may solicit other offers (I have no idea why a buyer would approve of this with full disclosure) use the CNTG/KO status and express all the terms of the Kick-Out in the Contract. If a buyer and Selling Agent really want to look for homes, and don’t care about pending contracts, they can search both “Active” and “CNTG/NO KO and KO”.
Sources: Real Estate Law, Fourth Edition Dearborn Publishers; Modern Real Estate Practice 17th Edition; Fairfaxlaw.blogspot.com, NAR 2009 Code of Ethics, MRIS.com, LEG1.state.va.us, en.wikipedia.org
Your IP Address is:
38.107.191.114
{ 1 trackback }
{ 7 comments… read them below or add one }
I noticed you used just one word! “NOPE”! What more needs to be said, great article.
Everyone should read this. We need to inform agents and companys that think they are The Lone Ranger and making up their own rules because the client do not want them the change the status from Active to Under Contrat.
Thank you FAAR.
I read it. I heard you recite it. I still don’t like it. It is either ratified, or it is not. If it is ratified, it should be changed in the MRIS.
Maybe I am splitting hairs here, but the Code of Ethics states that Realtors must disclose to an inquiry if there is an accepted offer.
If I can actually find my token and log into MRIS, I am basically inquiring about a property. If it shows active but there is actually an offer, at that point I am feeling like the agent is keeping from me the fact that there is an accepted offer.
Matt,
Thank you so much for writing this post! I have a few people that I’m going to direct here, for sure.
Very good post Matt! I answer this same question for agents at least once a week.
Dan,
I’m sure you have. A lot of brokers have had some very frustrated agents. It seems the inventory is getting a bit smaller for the time being and this issue is becoming more predominate.
Thanks Matthew for spelling this out so… simply that even my kids can understand it. I am going to make a copy of it and pass it along to all those agents who just don’t get it.