Excerpts from the Tennessee REALTORS® Digest

Legal & Ethics Hotline Need Help with Legal and/or Ethical Questions? Use the TAR Legal & Ethics Hot Line to Help You with the LAW & the CODE!

The Tennessee Association of REALTORS® is very pleased to provide this service to its members! The TAR Legal & Ethics Hot Line service is designed to answer members’ real estate related legal questions, as well as questions concerning the REALTOR® Code of Ethics. It is designed for members to have direct toll-free access to a qualified attorney and intended to provide legal preventative maintenance to all TAR members. There are 3 WAYS to access: 1. Phone 2. Email 3. Online Help Desk • Hours of Operation: M-F, 9:00am – 5:00pm CST • Local to Nashville: 244-3344 • Not Local: 800-899-5297 • Email: [email protected] • Members HELP DESK - ( You must be Logged In to use this “Member Only” service)

EMAIL INSTRUCTIONS: To email a legal or ethics question to TAR’s Hot Line, you must include your full name, firm name, broker’s name, and local association name and then send your question to: [email protected]

ATTENTION: Put “Hot Line Question” in the Subject line of your email! And do NOT email attachments with any Hot Line questions. Any attachments may cause your email to be deleted without being read.

ADVANTAGES OF HELP DESK TAR encourages members to use “HELP DESK” for communicating with both the Legal & Ethics Hot Line Staff and TAR Staff. The Help Desk’s largest advantages are:

1. Online Communication via email may result in faster responses 2. All of your help requests received through the Help Desk are archived for your “personal review” at any time 3. Documentation of Frequently Asked Questions and Knowledge base of articles and many more resources are all now easily searchable. You may find the answer to your questions quicker as a result.

Caveat: Please note that your Managing Broker will always be copied on the response to any help request forwarded to the TAR Legal & Ethics Hotline. In addition, any inquiry handled by the TAR Legal & Ethics Hot Line does not result in attorney-client relationship. The Hot Line is simply a source of legal and ethical information for members, and no attorney-client relationship is intended or implied when a Hot Line attorney responds to an inquiry. Questions submitted to the hotline are NOT IMMEDIATELY answered but can take anywhere from 24-48 hour response time.

Excerpts from The Digest …… 5.20.19 Source: Tennessee REALTORS® Legal Counsel Can You Change Wording of TN Forms?

Question: I have a client who wishes to make changes to CF701. Is this allowed?

Answer: The client may alter Commercial Form 701 (CF701) to fit their needs. However, they should consult an attorney on making any wording changes. You will need to change the font of the document to sans serif so it will be distinguishable from a Tennessee REALTORS® form. You will also need to remove the Tennessee REALTORS® logo and copyright information at the bottom of the document. Note that by altering a Tennessee REALTORS® form, Tennessee REALTORS® will no longer accept legal responsibility from any claim arising out of the use of the form.

5.6.19 Source: Tennessee REALTORS® Legal Counsel Make Agent's Compensation Part of Offer?

Question: Is it permissible for a buyer to make compensation for the buyer’s agent part of their offer to the seller? Example: In the special stipulations section of the Purchase & Sale Agreement, “Seller will pay buyer’s agent broker 3% of the purchase price at closing” OR “Seller will pay buyer’s agent broker 50% of the real estate commissions paid at closing.”

Answer: It is not advisable for commissions to be stated in the contract itself, since the agents are not parties to the contract. It would be better to have this outlined in an agreement between the parties which are paying and receiving the commission. The closing company will look at the listing agreement to see what the seller has agreed to pay the listing broker, and then will ask for a compensation agreement to determine the split. You would be wise to have the broker enter into a compensation agreement, since neither of you are parties to the contract and cannot be bound by the contract.

4.29.19 Source: Tennessee REALTORS® Legal Counsel Commercial Property & Real Estate Taxes

Question: I have a client who is not able to close on a commercial property due to the legal description of that property. He has been told that Tennessee has a state law that makes payment of real estate taxes a presumption of ownership. Is this the case? If so, how does he get his deed corrected?

Answer: There is a statute related to this issue, provided below, but we do not believe it would apply to the exact facts described in your question. If the buyer has questions concerning his legal rights and obligations, he should speak to his own attorney.

The related state law is 28-2-109. Presumption of ownership from payment of taxes.

Any person holding any real estate or land of any kind, or any legal or equitable interest therein, who has paid, or who and those through whom such person claims have paid, the state and county taxes on the same for more then twenty (20) years continuously prior to the date when any question arises in any of the courts of this state concerning the same, and who has had or who and those through whom such person claims have had, such person's deed, conveyance, grant or other assurance of title recorded in the register's office of the county in which the land lies, for such period of more than twenty (20) years, shall be presumed prima facie to be the legal owner of such land.

4.22.19 Source: Tennessee REALTORS® Legal Counsel Are Confirmation & Disclosure Forms Required?

Question: It is my understanding that confirmation form 302 and disclosure form 304 are no longer required to be presented with an offer or shared with the opposing brokerage. As I represent the buyer, I am constantly asked by the listing brokerage to supply these forms, because they require them for the file. Must I comply and supply the forms?

Answer: The Confirmation of Agency Status form (302) is required. The requirements for the agency Disclosure Notice (304) differ under the Broker’s Act and the REALTOR® Code of Ethics. Disclosures are not required in writing under the Broker’s Act unless one of the parties is unrepresented; confirmation of agency is required to be done verbally, and then in writing if the other side is not represented by an agent:

a) If a licensee personally assists a prospective buyer or seller in the purchase or sale of a property, and such buyer or seller is not represented by this or any other licensee, the licensee shall verbally disclose to such buyer or seller the licensee’s facilitator, agent, subagent or designated agent status in the transaction before any real estate services are provided. Known adverse facts about a property must also be disclosed under the Tennessee Residential Property Disclosure Act, title 66, chapter 5, part 2, but licensees shall not be obligated to discover or disclose latent defects in a property or to advise on matters outside the scope of their real estate license.

(b) The disclosure of agency status pursuant to subsection (a) must be confirmed in writing with an unrepresented buyer to the preparation of an offer to purchase. The disclosure of agency status must be confirmed in writing with an unrepresented seller prior to execution of a listing agreement or presentation of an offer to purchase, whichever comes first. Following delivery of the written disclosure, the licensee shall obtain a signed receipt for such disclosures from the party to whom it was provided. The signed receipt shall contain a statement acknowledging what the buyer or seller, as applicable, was informed that any complaints alleging a violation or violations of § 62-13-312 must be filed within the applicable statute of limitations for the violation set out in § 62-13-313(e). The acknowledgment shall also include the address and telephone number of the commission. Tenn. Code Ann. § 62-13-405(a, b).

You will notice that a signed receipt is required from the party to whom it was provided if that party is unrepresented. Part (d) requires that agency disclosure be made verbally if the other side is represented by an agent.

However, if the agent is a REALTOR®, he must still make these disclosures in writing even if the other side is represented, as detailed in the Code of Ethics, Standard of Practice 16-10: REALTORS®, acting as buyer or tenant representatives or brokers, shall disclose that relationship to the seller/landlord’s representative or broker at first contact and shall provide written confirmation of that disclosure to the seller/landlord’s representative or broker not later than execution of a purchase agreement or lease.

The disclaimer notice, however, is not required to be presented to the other side of a transaction. This is why the signature blocks were cut down last year; you only need your client to sign your disclaimer, and the other agent is responsible for having their client sign their disclaimer. This is to protect you with your client, and vice versa.

4.15.19 Source: Tennessee REALTORS® Legal Counsel Business Cards & Franchises: What is Permitted?

Q: TREC rules say business cards are not advertising, but also say franchises are required to include specific details on business cards. Can you help me understand the difference?

A: This question relates to two parts of Rule 1260-02-.12 from the Tennessee Real Estate Commission (TREC).

TREC Rule 1260-02-.12(1) states that business cards are considered promotional items and do NOT fall under the Advertising Rule (which requires firm name and phone number on advertisements).

A bit later, TREC Rule 1260-02-.12(4)(b) says: "Any licensee using a franchise trade name on business cards, contracts, or other documents relating to real estate transactions shall clearly and unmistakably indicate his name, firm name, and firm telephone number (all as registered with the Commission)."

In light of these two rules: Business cards are considered promotional materials, not advertisements. The principal broker is free to make their own rules concerning business cards in that office. The only time business cards are regulated by TREC is if you are with a franchise. If so, any licensee using a franchise trade name on business cards shall clearly and unmistakably indicate their name, firm name, and firm telephone number

4.8.19 Source: Tennessee REALTORS® Legal Counsel Rebate on Commission Toward Closing Costs, Etc.?

Q: I thought Tennessee was a non-rebate state. Is it legal for a REALTOR® to offer a rebate of his/her commission to go toward a buyer’s closing costs, or in other ways?

A: A licensee is permitted to give someone a gift in order to induce them to do business with the agent. However, it must be an incentive for that person to do business with you, not their friend or family member. You will have to follow the gifts and prizes rule, under TREC Rule 1260-2-.33:

(1) A licensee may offer a gift, prize, or other valuable consideration as an inducement to the purchase, listing, or lease of real estate only if the offer is made: (a) Under the sponsorship and with the approval of the firm with whom the licensee is affiliated; and (b) In writing, signed by the licensee, with disclosure of all pertinent details, including but not limited to: 1.accurate specifications of the gift, prize, or other valuable consideration offered; 2.fair market value; 3.the time and place of delivery; and 4.any requirements which must be satisfied by the prospective purchaser or lessor.

However, under state law, these gifts may not take the form of cash or be converted into cash in any way: "A real estate licensee shall not give or pay cash rebates, cash gifts or cash prizes in conjunction with any real estate transaction. As part of the Tennessee Real Estate Commission's general rulemaking authority, the commission may regulate the practices of real estate licensees in regard to gifts, prizes or rebates that are not otherwise prohibited by law." Tenn. Code Ann. § 62-13-302(b).

4.1.19 Source: Tennessee REALTORS® Legal Counsel Who Signs the Contract(s) on a Co-Listed Property?

Q: When two agents are co-listing a property, do both the primary agent and the co-list agent have to sign contracts?

A: Both firms/companies would likely need to sign the same listing agreement. There would need to be an explanation within the contract concerning the commission split between the two companies. Both companies would have to sign the listing agreement, and both agents would have to sign the Confirmation of Agency Status form. It is not necessary to both sign the contract, as that section is for informational purposes only and lets lenders and other involved parties know whom to contact with any questions.

3.25.19 Source: Tennessee REALTORS® Legal Counsel TREC Disciplinary Actions Reports

Q: Where can I locate reports of discipline taken against real estate licensees, such as ethics, rules and law violations? Are they publicly available?

A: Yes, such reports are available to the public. The Tennessee Department of Commerce & Insurance posts them on the Regulatory Board Disciplinary Actions section of its website at THIS LINK. The reports are organized by year and month. Once you select a specific month, scroll down the table to the "Real Estate

Commission" heading on the far left (if that heading appears in the given month), and you can view TREC disciplinary actions by Name / Location / Issue / Penalty / Date.

3.4.19 Source: Tennessee REALTORS® Legal Counsel What Can an Unlicensed Employee Do?

The Tennessee Real Estate Commission (TREC) has issued the following guidelines as part of its official manual. (Next week: what CAN'T an unlicensed employee do?)

Q: What may an unlicensed employee, assistant or secretary do?

A: 1. Answer the phone, forward calls and give information contained only on the listing agreement as limited by the broker; 2. Fill out and submit listings and changes to any multiple listing service; 3. Follow up on loan commitments after a contract has been negotiated and generally secure status reports on the loan progress; 4. Assemble documents for closing; 5. Secure public information from courthouses, utility districts, etc; 6. Have keys made for listings; 7. Place ads which have been approved by the Principal Broker; 8. Receive, record and deposit earnest money, security deposits and advance rents under the direct supervision of the Principal Broker; 9. Type contract forms for approval by licensee and Principal Broker; 10. Monitor licenses and personnel files; 11. Calculate, print or distribute commission checks; 12. Place signs on property; 13. Order repairs as directed by the licensee; 14. Prepare for distribution fliers and promotional information which have been approval by the Principal Broker; 15. Deliver documents and pick up keys; 16. Place routine telephone calls on late rent payments; 17. Gather information for a comparative market analysis (CMA); 18. Unlock property under the direction of a licensee 19. Disclose the current sales status of a listed property

3.11.19 Source: Tennessee REALTORS® Legal Counsel What CAN'T an Unlicensed Employee Do?

The Tennessee Real Estate Commission (TREC) has issued the following guidelines as part of its official manual. Last week we focused on what CAN be done; this week we address what CAN'T be done...

Q: What is an unlicensed employee, assistant or secretary NOT permitted to do?

A: 1. Make cold calls by telephone or in person to potential clients; 2. Show properties for sale and/or lease to prospective purchasers; 3. Host open houses, home show booths or fairs; 4. Discuss or explain listings, offers, contracts, or other similar matters with persons outside the firm; 5. Negotiate any terms of a real estate transaction; 6. Negotiate or agree to any commission split or referral fee on behalf of a licensee; or 7. Be paid any compensation which is dependent upon, or directly related to, a real estate transaction.

3.18.19 Source: Tennessee REALTORS® Legal Counsel Unlicensed Employees — Part 3

Q: Does a sitter/hostess for model homes need to be a licensed REALTOR®?

A: An unlicensed person may sit in a model home, but only provide information contained in the listing agreement. They cannot show the home, solicit the property, or negotiate in any way. There is no exception for model homes, as noted in TREC Rule 1260-2-.03 OFFICES: b) Model Homes and Modular Units. A model home may be utilized in a subdivision or on a commercial lot and a modular unit may be utilized in subdivisions which are under construction for purposes of soliciting business and will not be required to be licensed as a branch office as long as the model home or modular unit meets the following requirements:

1. The model home or modular unit location and/or telephone number is only advertised in conjunction with advertising the main firm office and such advertising complies with the statutes, rules and regulations of the Commission;

2. The model home or modular unit does not have a mail drop;

3. The model home or modular unit is not the sole sales office for the firm;

4. The model home or modular unit is not utilized to allow unlicensed activity by individuals in performing any of the acts requiring licensure under T. C. A. § 62-13-101, et seq.; and

5. The principal broker of the main firm office shall adequately supervise licensees operating from model homes or modular units as required by T. C. A. § 62-13- 312 and any rules

Q: A new trend is hiring Virtual ISAs (Inside Sales Agents) to set up listing appointments. Does the ISA have to be licensed?

A: The TREC guidelines above do not state an unlicensed person may not set up a listing appointment. It is likely that this would be acceptable under the Broker’s Act, as long as they did not solicit or show properties

Q: Can an agent compensate a licensed assistant for work that does not require a license, or does that money need to come through the principal broker?

A: If the agent is doing any activities which require a real estate license, they must be paid through the firm. Payment for activities which do not require a real estate license may continue to be paid by the agent overseeing the assistant outside of the company. Be sure to create a proper paper trail and indicate which activities are being compensated for outside of the company.

2.25.19 Source: Tennessee REALTORS® Legal Counsel RESPA / Prequalification + Paying Closing Costs

Q: Can a seller require that a pre-qualification letter be from a specific lender?

A: A seller may require that a buyer obtain a pre-approval letter from a particular lender prior to entering into a contract with them, even if they have been pre-approved by someone else. However, they may not require that buyer to use that particular lender for the mortgage under the Real Estate Settlement Procedures Act (RESPA).

This must be a request/requirement of the seller, not the agent. If the agent is working on behalf of the local lenders, this could present issues. It would have to be disclosed, and even then, it could be a violation of RESPA.

Q: Can a seller offer to pay a portion of the buyer’s closing costs if the buyer uses a specific lender?

A: Sellers are permitted to offer incentives (such as contributing toward closing costs) to buyers to use their preferred lenders. However, they ARE NOT allowed to require buyers to use those lenders.

2.18.19 Source: Tennessee REALTORS® Legal Counsel *Clarification* on 45-Day Residency

A Q&A in last week's hotline section (2/4/19) needs clarifying. Tennessee no longer enforces the 45-day residency requirement before licensure, in light of a 2010 decision in which the Attorney General opined that the requirement violated the Privileges and Immunities clause of the Constitution.

Can Seller Require Pre-qual. Letter from Buyer?

Q: Can a seller require a buyer to submit a pre-qualification letter before the Seller will review the offer?

A: A licensee has a duty to follow all lawful instructions of the seller. Requiring pre-qualification letters or other proof of funds is a lawful instruction.

It is recommended that a listing agent include this in their listing remarks – not really as a legal matter, but so buyers can know what is expected on the front end and have their ducks in a row to make the process better for the seller.

2.11.19 Source: Tennessee REALTORS® Legal Counsel Required to Live in TN 45 Days Before License?

Q: Does an applicant have to live here for 45 days in order to get your Real Estate License?

A: Yes, they do need to live in Tennessee that long. Specifically:

§ 62-13-303. Licenses; requirements (e) An application for an affiliate broker's license shall be accompanied by: (1) The fee specified in § 62-13-308; (2) Satisfactory proof that the applicant: (A) Is at least eighteen (18) years of age; and (B) Has been a resident of this state for at least forty-five (45) days; and (f) An application for a broker's license shall be accompanied by: (1) The fee specified in § 62-13-308; and (2) Satisfactory proof that the applicant: (A) Is at least eighteen (18) years of age; and (B) Has been a resident of this state for at least forty-five (45) days.

Provide Actual Desk Phone for Agents?

Q: We are updating the systems at our office. Is it required that the office provide an actual phone on the desk for each agent, or can a “Softphone” be used, which is an app that sends calls to the agent?

A: Tenn. Code Ann. § 62-13-309 states in part:

You are required to provide “adequate facilities” for the agents. You are not required to provide them with specifically with a landline phone, as long as they have another phone on which they may conduct business.

Must Live Within 50 Miles of Office?

Q: With regard to the residency of an agent, do they still have to live within fifty (50) miles of their office or has that changed?

A: No, the 50-mile rule was revoked by the Tennessee Real Estate Commission (TREC), and that revocation became effective April 24, 2017.

2.4.19 Source: Tennessee REALTORS® Legal Counsel To File, or Not to File? This week's hotline Q&As address the sometimes monstrous subject of Records Retention: what to keep, what not to keep, and how long to maintain filed documents. 9

File Earnest-Money Checks?

Q: In reviewing our file requirements, we are trying to determine if a copy of an earnest-money check should be retained in our company and/or agent files.

A: According to the Tennessee Real Estate Commission (TREC), maintained records must contain, at a minimum, the following: listings; offers (even those that do not become contracts); contracts; closing statements; agreements; agency-disclosure documents; property-disclosure forms; correspondence; notes; and any other relevant information.

This would include deals in which no other licensee are involved and no commission was paid, as well as any deal where the licensee sold or purchased the property, if such transaction was done through the brokerage.

This does not state that it is necessary to keep copies of checks, and there could be privacy concerns with keeping copies of checks in your files, as they contain sensitive account information.

OK to File Records Electronically vs. Paper?

Q: Can we store our records electronically?

A: Yes, TREC rule 1260-02-.40 states, “…. Real estate licensees must preserve records relating to any real estate transaction for three years following the consummation of said real estate transaction. Real estate licensees may utilize electronic recordkeeping methods to comply with this requirement…..”

How Long to Retain Records on File?

Q: How long are we required to keep our files on transactions?

A: Per Tennessee law (TCA 62-13-312), a licensee can be disciplined for failing to preserve for three years following its consummation records relating to any real estate transaction. It may be wise to keep records for at least six years, since that is the statute of limitations for a breach of contract action, in case you needed to defend yourself at any time

1.28.19 Source: Tennessee REALTORS® Legal Counsel One-Click Rule on Social Media

Q: If I post on social media the opportunity to receive a complimentary travel voucher in exchange for requesting a home-value report, is that acceptable as long as I put the requirements of the recipient and the travel information in a document one click away

A: The one-click rule, cited below, only applies to the requisite firm information, not all required information.

TREC rule 1260-2-.12: (6) Social Media Advertising (a) For the purpose of this rule, "social media" means internet-based applications or platforms that allow the public to create and share content and information. Examples include, but are not limited to: Facebook, Twitter, lnstagram and Linkedln. (b) With regards to social media advertising by licensees, the firm name and firm telephone number listed on file with the Commission must be no more than one click away from the viewable page. (c) Listing information must be kept current and accurate. This requirement shall apply to "First Generation" advertising as it is placed by the licensee and does not refer to such advertising that may be syndicated or aggregated advertising of the original by third parties outside of the licensee's control and ability to monitor.

For gifts and prizes, the following rules apply.

TREC Rule 1260-2-.33: (1) A licensee may offer a gift, prize, or other valuable consideration as an inducement to the purchase, listing, or lease of real estate only if the offer is made: (a) Under the sponsorship and with the approval of the firm with whom the licensee is affiliated; and (b) In writing, signed by the licensee, with disclosure of all pertinent details, including but not limited to:

1. accurate specifications of the gift, prize, or other valuable consideration offered; 2. fair market value; 3. the time and place of delivery; and 4. any requirements which must be satisfied by the prospective purchaser or lessor.

Also, please be aware that under state law, these gifts may not take the form of cash or be converted into cash in any way (in other words, they cannot trade it in for cash or get cash back). The statute states:

“A real estate licensee shall not give or pay cash rebates, cash gifts or cash prizes in conjunction with any real estate transaction. As part of the Tennessee Real Estate Commission’s general rulemaking authority the commission may regulate the practices of real estate licensees in regard to gifts, prizes or rebates that are not otherwise prohibited by law.” Tenn. Code Ann. § 62-13-302(b).

In addition, you should be aware of new rules regarding advertising, which includes advertising offers or gifts.

TREC Rule 1260-2-.12(6): (5) Guarantees, Claims, and Offers (a) Unsubstantiated selling claims and misleading statements or inferences are strictly prohibited. (b) Any offer, guaranty, warranty or the like, made to induce an individual to enter into an agency relationship or contract, must be made in writing and must disclose all pertinent details on the face of such offer or advertisement.

1.21.19 Source: Tennessee REALTORS® Legal Counsel Office-Sign Law

Q: Our firm is looking to move offices into a co-op building where there are several businesses. There is no outside sign or advertising on this building, only in the lobby. Is it okay for a real estate firm to be located in an office like this?

A: We have included the pertinent Tennessee laws and rules below. Based on your circumstances, you may need to contact the Tennessee Real Estate Commission (TREC) at 615-741-2273 and explain to them the set up. The law says that signage requirements may be waived in cases of certain unusual geographical circumstances.

As set forth in Tenn. Code Ann. § 62-13-309:

(a) (1) (A) Each office shall have a real estate firm license, a principal broker, and a fixed location with adequate facilities for affiliated licensees, located to conform with zoning laws and ordinances. (B) Each branch location shall comply with the requirements of subdivision (a)(1)(A). (2) The license of a broker and of each affiliate broker under contract to such broker shall be prominently displayed in the broker's principal place of business. (3) Within ten (10) days after any change of location of such office, all licensees registered at that office shall notify the commission in writing of their new business address, and shall pay the fee established in § 62-13- 308.

(b) (1) Each licensed broker shall maintain a sign on the outside of the broker's office of such size and content as local ordinances and the commission shall prescribe, which shall clearly state that the broker is engaged in the real estate business. (2) In making application for a license or for a change of location, the licensee shall verify, in writing, that the licensee's office conforms with zoning laws and ordinances. (3) The maintenance of the broker's office in the broker's home shall not relieve the broker from the requirement of having a sign outside of such house as required herein. (4) Affiliate brokers are not required to display signs at the office of their brokers.

(c) The requirements of subsections (a) and (b) may be waived in cases of certain unusual geographical circumstances. (d) (1) If the applicant for a broker's license maintains more than one (1) place of business within the state, the applicant shall apply for and obtain an additional firm license for each such branch office; 12

(2) Every such application shall state the location of such branch office and the name of the person in charge of it; and (3) Each branch office shall be under the direction and supervision of a broker licensed at that address. (e) No more than one (1) license shall be issued to any broker or affiliate broker to be in effect at one (1) time. (f) Upon original application for a firm license and each renewal thereof, the firm shall provide proof of the establishment of the firm's escrow account satisfactory to the commission.

In addition, TREC Rule 1260-2-.03 OFFICES states:

(1) Signs. Each licensed real estate firm shall conspicuously display on the outside of the firm’s place of business a sign which contains the name of the real estate firm as registered with the Commission

1.14.19 Source: Tennessee REALTORS® Legal Counsel More Forms Changes for 2019 This week we tackle more questions received by the hotline re: forms changes voted on by our Residential Forms Committee. A list of all changes is available on the Forms on the Fly page of our website (member login required), as well as the Broker’s Forum video which explains all of the changes.

Acknowledgement of Receipt?

Q: Is a contract “bound” if the binding agreement date has not been filled in?

A: A contract is created when both parties have executed the contract and the offeror receives notification of the offeree’s acceptance. The binding agreement date in the contract does not necessarily determine when the contract is formed. It merely acts as a date from which deadlines are calculated. A contract still exists between two parties even if the binding agreement date has not been entered by a licensee. Licensees cannot bind a contract; they are only authorized to insert the time and date of receipt of the notice of acceptance of the final offer, “the binding agreement date.” The Residential Forms Committee voted to change the title of the section on the Purchase and Sale Agreement where the binding agreement date is entered to help clarify this. The section title is now “Acknowledgement of Receipt.”

Lot/Land Disclosure?

Q: I am doing a listing agreement for vacant land and noticed RF206 (property condition) has been deleted. Which form replaces it?

A: RF206 was removed because disclosure reports are not required by law for vacant land. There is no replacement form; however, the forms committee did add all items listed on the disclosure under section 8, “Buyer’s additional due diligence options” in form RF404.

Property-Condition Disclosure Changes?

Q: Why were some items, such as the question asking whether heating or air conditioning was supplied to all rooms, deleted from the Property Condition Disclosure?

A: Certain items were removed from the 2019 Property Condition Disclosure Form because they are not required by the Tennessee Residential Property Condition Disclosure Statute. Currently, the only item on the Property Condition Disclosure Form not required by statute is item 13, “is the property serviced by a fire department? If yes, in what fire department’s service area is the property located? Is the property owner subject to charges or fees for fire protection, such as subscriptions, association dues or utility fees?”

12.10.18 Source: Tennessee REALTORS® Legal Counsel New MLS Policy: Proof of Offer Presentation

The NAR Board amended its MLS policy in November 2018 to allow local associations to impose disciplinary action against members who fail to present either written confirmation that an offer was presented, or evidence that the seller didn’t want to see the offer. It is not a new requirement to demonstrate to a buyer’s rep that you presented an offer; the rule has long been laid out in the Code of Ethics. But now that it carries potential for disciplinary action, it has more bite. The policy reinforces cooperation and brings MLS policy in line with the COE. Under the rule, listing brokers will be required to provide written affirmation or notification to cooperating brokers on the disposition of their offer. The requirement gives associations the ability to impose disciplinary action against a listing broker who fails to present either written confirmation that the offer was presented or evidence that the seller waived the obligation to have the offer presented.

MLS Policy Statement 7.73 says: "When acting as listing brokers, REALTORS® shall continue to submit to the seller/landlord all offers and counter-offers until closing or execution of a lease unless the seller/landlord has waived his obligation in writing. Upon the written request of a cooperating broker who submits an offer to the listing broker, the listing broker shall provide a written affirmation to the cooperating broker stating that the offer has been submitted to the seller/landlord, or a written notification that the seller/landlord has waived the obligation to have the offer presented. REALTORS® shall not be obligated to continue to market the property after an offer has been accepted by the seller/ landlord. REALTORS® shall recommend that sellers/landlords obtain the advice of legal counsel prior to acceptance of a subsequent offer except where the acceptance is contingent on the termination of the pre-existing purchase contract or lease."

What Does the MLS Policy Mean for TN Law? Pursuant to Tennessee Real Estate Commission (TREC) Rule 1260-2-.08:

"A broker or affiliate broker promptly shall tender every written offer to purchase or sell obtained on a property until a contract is signed by all parties. Upon obtaining a proper acceptance of an offer to purchase, or any counter-offer, a broker or affiliate broker promptly shall deliver true executed copies of same, signed by the seller, to both the purchaser and the seller. Brokers and affiliate brokers shall make certain that all of the terms and conditions of the real estate transaction are included in the contract to purchase. In the event an offer is rejected, the broker or affiliate broker shall request the seller to note the rejection on the offer and return the same to the offeror or the offeror’s agent." [emphasis added]

Obviously, an agent can't force a client/customer to note a rejection, but they need to ask that this be done. If an agent has a client/customer who will not do this, it is advisable to document that they requested the rejection but the client refused. This documentation can then be relayed to the other side in accordance with the MLS policy.

12.3.18 Source: Tennessee REALTORS® Legal Counsel Facilitator Law & Rules

This week’s Q&As tackle the facilitator relationship. The Broker's Act defines facilitator as a licensee:

(A) Who assists one (1) or more parties to a transaction who has not entered into a specific written agency agreement representing one (1) or more of the parties; or(B) Whose specific written agency agreement provides that if the licensee or someone associated with the licensee also represents another party to the same transaction, such licensee shall be deemed to be a facilitator and not a dual agent; provided, that notice of assumption of facilitator status is provided to the buyer and seller immediately upon such assumption of facilitator status, to be confirmed in writing prior to the execution of the contract. A facilitator may advise either or both of the parties to a transaction but cannot be considered a representative or advocate of either party. — Tenn. Code Ann. §62-13-102(9)

Facilitator Duties?

Q: What duties does a facilitator have in a real estate transaction?

A: Tenn. Code Ann. § 62-13-403 lists the duties that are owed to all parties in a transaction:

A licensee who provides real estate services in a real estate transaction shall owe all parties to such transaction the following duties, except as provided otherwise by § 62-13-405, in addition to other duties specifically set forth in this chapter or the rules of the commission:

(1) Diligently exercise reasonable skill and care in providing services to all parties to the transaction;

(2) Disclose to each party to the transaction any adverse facts of which licensee has actual notice or knowledge;

(3) Maintain for each party to a transaction the confidentiality of any information obtained by a licensee prior to disclosure to all parties of a written agency or sub-agency agreement entered into by the licensee to represent either or both of the parties in a transaction. This duty of confidentiality extends to any information which the party would reasonable expect to be held in confidence, except for information which the party has authorized for disclosure, information required to be disclosed pursuant to this chapter. This duty survives both the subsequent establishment of an agency relationship and the closing of the transaction;

(4) Provide services to each party to the transaction with honesty and good faith;

(5) Disclose to each party to the transaction timely and accurate information regarding market conditions that might affect such transaction only when such information is available through public records and when such information is requested by a party.

(6) Timely account for trust fund deposits and all other property received from any party to the transaction; and

7)(A) Not engage in self-dealing nor act on behalf of licensee’s immediate family, or on behalf of any other individual, organization or business entity in which the licensee has a personal interest without prior disclosure of such interest and the timely written consent of all parties to the transaction; and(B) Not recommend to any party to the transaction the use of services of another individual, organization or business entity in which the licensee has an interest or from whom the licensee may receive a referral fee or other compensation for the referral, other than referrals to other licensees to provide real estate services under the Tennessee Real Estate Broker License Act of 1973, without timely disclosing to the party who receives the referral, the licensee’s interest in such referral or the fact that a referral fee may be received.

Defaulting to a Facilitator?

Q: If I am a designated agent for a seller and an unrepresented buyer makes an offer, can I change to the facilitator of the transaction? If so, how would I need to do this?

A: You can change to facilitator or you can continue to represent the seller. If you continue to represent the seller, have the unrepresented buyer complete form RF301, Working With a Real Estate Professional. If you are defaulting to a facilitator, then you would simply complete a Notification of Change in Agency Status (RF303) to be signed by both parties.

Facilitator Forms Needed?

Q: If the Confirmation of Agency shows that an agent is Facilitator/Transaction Broker, do both parties involved need to sign Working with a Real Estate Professional (RF301)?

A: If you are the facilitator/transaction broker, then working with a real estate professional does not have to be completed—but it may be a good idea so the parties have familiarity with the terms involved. As a facilitator/transaction broker, you just need Confirmation of Agency forms.

11.26.18 Source: Tennessee REALTORS® Legal Counsel Sell, Sell, Sell: Advertising Rules This week we look at examples of advertising that falls under the Tennessee Real Estate Commission's (TREC) Advertising Rule, and how to apply the rule correctly in your business. While the hotline cannot view and comment on any specific advertisements, we are able to provide guidance on whether the rule applies and how it applies in general.

Alternate (Dummy) Phone Numbers?

Q: Our website developer wants to track where our customers are finding us. One of the ways they do this is through phone tracking, typically in internet advertising, using a number that connects to the main line of the firm. If this number is dialed, they can track back to its internet source. The “dummy” phone number is not the one registered with TREC, although it does connect to the line of the firm’s main phone number, which is registered with the Commission. Is this allowed?

A: No. As detailed in the rule below, the phone number featured on any advertisement has to be the firm number on file with the Commission. It is highly unlikely that TREC would consider a different number listed as in compliance, even if it connects to the firm number.

TREC Rule 1260-2-.12

(3) General Principles

(b) All advertising shall be under the direct supervision of the principal broker and shall list the firm name and the firm telephone number as listed on file with the Commission. The firm name must appear in letters the same size or larger than those spelling out the name of a licensee or the name of any team, group or similar entity. [emphasis added]

Radio Ads?

Q: If I run a radio ad, do I have to include my office phone number or can I just use my cell number?

A: The firm number registered with TREC must be included in the radio advertisement, per this part of the Advertising Rule:

Rule 1260-02-.12 Advertising

(1) All advertising, regardless of its nature and the medium in which it appears, which promotes either a licensee or the sale or lease of real property, shall conform to the requirements of this rule. The term "advertising," for purposes of this rule, in addition to traditional print, radio, and television advertising, also includes, but is not limited to, sources of communication available to the public such as signs, flyers, letterheads, e-mail signatures, websites, social media communications, and video or audio recordings transmitted through internet or broadcast streaming. Advertising does not include promotional materials that advertise a licensee such as hats, pens, notepads, t-shirts, name tags, business cards, and the sponsorship of charitable and community events.

(3) General Principles

Ads on Car Wraps?

Q: Does a car wrap have to adhere to the provisions of the Advertising Rule?

A: In the past, TREC has considered car wraps to be mobile billboards. In light of that, car wraps are subject to all advertising rules applicable to signs.