Seller-Buyer Protocols In Oregon Residential Sale Transactions

Introduction. Most Oregon residential transactions are documented by one of two Sale Agreement forms, the OREF form, created circa 1997, or the Oregon Realtor (“OR”) form which was created circa 2020-23. Both forms are continuously updated. (Readers are encouraged to compare both forms before deciding which one to use. In either case, these documents are proprietary and should not be used in violation of their copyright.)¹

As explained below, the term “protocols” refers to the steps sellers and buyers follow throughout the transactional process. Over the past 25+ years, with the proliferation of state and federal real estate laws and regulations, most Oregon residential transactions have followed a “lock-step” approach, commencing with seller’s acceptance of buyer’s offer (or buyer’s acceptance of seller’s counteroffer) and ending with closing, when seller’s deed to buyer is recorded and possession changes hands.

Seller Property Disclosure Form. The genesis of this form goes back to 1993, in which the Oregon Legislature gave residential sellers a choice of offering buyers a “Disclosure” form or a “Disclaimer” form. The Disclosure form required sellers to answer a series of questions about the property, and the Disclaimer form “disclaimed” all representations about the property. The immediate result was that most attorneys advised their seller-clients to disclaim everything, rather than disclose anything. This approach did nothing to enhance transparency, so the disclaimer alternative was abandoned. In Oregon we’ve used the Disclosure form ever since. Buyers had (and still have) an absolute 5-business day right of revocation following delivery of that form.

Generally, the 1993 Disclosure form has remained substantially the same over the years, only with slightly improved text and a few new questions for sellers to answer. It is still not a model of draftsmanship (which is what occurs when representatives from the various stakeholders – e.g., title companies, consumer groups, Realtor groups, lenders, insurers, contractors, etc. – must all agree on the final product. (For an abbreviated article explaining “group think,” see “Abilene Paradox” story.)

Nevertheless, the Disclosure form is an important first step in giving buyers a starting point for conducting their due diligence. However, sellers’ representations in the form are not warranties; they are based only upon the seller’s “actual knowledge” i.e., what he or she believes at the time of completing the form, without necessarily having performed any investigation in advance. The form warns that sellers’ representations are not intended for buyers to rely upon in lieu of conducting their own inspections and other due diligence. At best, the Disclosure form is a starting point for buyers. If negative information is revealed by the seller, e.g., prior flooding in the crawl space, it is required to be explained in an accompanying addendum, and the responsibility then shifts to the buyer to further investigate and evaluate the issue.

Real Estate Sale Agreement. Normally the buyer and/or their Realtor complete the Sale Agreement form for submission to the seller. Before acceptance, usually the only substantive information a prospective buyer has about the property consists of data obtained from available public records, e.g., property taxes, and the multiple listing service (“MLS”) information where the seller’s broker has listed the property.

Buyer Due Diligence. Once the offer is accepted, the Sale Agreement permits buyer to complete their due diligence by the exercise of several inspection contingencies including, among other things, the status of title and the physical condition of the property and its operating systems, e.g, sewer/septic, water, cooling, heating, plumbing, electrical, etc. Another major buyer contingency makes the transaction subject to a satisfactory appraisal and financing. If the buyer is dissatisfied (in his/her sole discretion) with any one of these contingencies, he/she (or their broker) may give timely written notice to the seller (or their broker) to terminate the transaction and obtain a full refund of the earnest money deposit.
Buyer Warnings. In addition to making the offer contingent upon buyer’s satisfaction with all of their contingencies, the Sale Agreement carries with it several warnings to buyers:

- Section 10 (Property Inspections) advises buyers to have a complete inspection of the Property by qualified licensed professionals (e.g., for structural condition, soil condition/compaction/stability, survey, etc.). It also provides that if the buyer proceeds to close the transaction, he/she waives all contingencies and accepts the condition of the Property.
  - Note, the inspection contingency expires at an identified time, and unless buyer gives timely written notice of termination, he/she will be deemed to have accepted the condition of the property. In other words, “silence is consent.”
- Section 14 (Seller Representations) of the Sale Agreement warns that the seller representations are not warranties regarding the condition of the Property and are not a substitute for buyer’s responsibility to conduct their own independent investigation, including the use of professionals, where appropriate.
- As if these warnings were not enough, the Sale Agreement contains at Section 16 an As-Is provision: “Except for Seller’s express written agreements and written representations contained herein, and Seller’s Property Disclosure, if any, Buyer is purchasing the Property “AS-IS,” in its present condition and with all defects apparent or not apparent.”
- Section 41 (Offer to Purchase) acknowledges that Buyer has fully read and understands the terms of the Sale Agreement and “has not relied on any oral or written statement made by Seller, Seller’s Agent, or Buyer’s Agent that is not expressly contained in this Agreement.”
  - This warning is important because the listing agreement and broker’s promotional literature may contain descriptions amenities that do not become a part of the Sale Agreement unless expressly incorporated into it.
  - Accordingly, the safest practice for buyers and their brokers is to specifically include in the offer any important representations or promises about the property that are not already found in the Sale Agreement. In short, unless expressly included, ancillary promotional information (e.g., “property abuts Green Space that cannot be developed”) does not become a part of the Sale Agreement.

Conclusion. In summary, residential real estate transactions in Oregon divide buyer and seller responsibilities as follows:

Sellers’ duties are to complete the Property Disclosure form and Sale Agreement upon their “actual knowledge.” The Sale Agreement provides the representations are made to the “best of Seller’s knowledge.” Sellers should carefully review these representations before signing the Sale Agreement. Query: Is this it, or does seller have any further duties of disclosure beyond these two forms? The answer is Yes. Oregon’s common law, i.e., the law developed in written opinions from the appellate courts over the years, still applies. This will be covered in a subsequent post.
Upon mutual execution of the Sale Agreement, the buyer’s duty is to exercise their due diligence responsibilities during the prescribed contingency periods. During this time they must review and evaluate all important information, such as the preliminary title report, professional inspections, sewer/septic reports, and all other agreed-upon inspections or tests. If financing is a contingency, it makes the sale subject to the buyer obtaining purchase money financing (unless it is a cash offer) and an appraisal that is not less than the agreed-upon purchase price of the home. As noted above, although buyers have a right to rely upon seller’s representations, those statements are not warranties or guaranties; they should not be relied upon to the exclusion of their own due diligence. If a buyer learns of a discrepancy between the seller’s written disclosures and their own due diligence, buyer should immediately stop and clarify the reason for the discrepancy. Closing without doing so can arguably result in a waiver by buyer. (Note: The preceding assumes there is no fraud or concealment by seller.)

If these protocols are followed, buyers will be able to make an informed decision whether to: (a) Allow their contingencies to lapse and close the transaction or (b) Timely withdraw from the transaction and obtain a return of the earnest money deposit. ~ Phil

______________________________________

In the interest of full disclosure, as legal counsel for OREF during its first approximately 20 years I was very involved in the development of the OREF Sale Agreement and all of its other real estate forms.

Generally. The concept of title to land, i.e. its “ownership”, is fairly obvious, just like ownership of a vehicle, personal property, or other tangible and intangible assets. Similarly, evidence of title, e.g. the deed, is generally understood. What can become complicated, however, is “how” title should be held. And what is the significance of selecting one form of ownership over another?

Continue reading “Holding Title To Oregon Real Estate”

Some good news from the latest RMLS™ Market Action letter. New listings for May 2017 reached 4,388, which was 5.9% higher than May 2016, at 4,144. This number doesn’t top the 5,182 new listings for May 2008, but then again, maybe that’s a good thing. For those who remember the Bad Old Days, 2008 was the beginning of the end for the real estate market; it was not until September 2012 that housing prices finally began to increase, after a hiatus of exactly five years, i.e. September 2007 was the apogee for housing prices, before they fell over the Abyss. Continue reading “Analysis Of The Portland Metro Residential Market – May, 2017”

Why Boundary Disputes Arise. Over the past several years, it seems that boundary disputes have been on the uptick. One reason for this is that as we have come out of the depths of the Great Recession, many builders, rather than constructing large subdivisions, are doing what is called “in-fill”, i.e. cherry picking smaller parcels of land located in pre-existing neighborhoods.

The result has been that undeveloped parcels between previously improved properties, are being partitioned or subdivided into one or more lots, for residential construction. Frequently, this unused land has not been surveyed for many years, and meanwhile, the abutting neighbors have established, with fences, shrubbery, and construction, their own “lines of occupation” which may or may not conform to the legally descriptions in their deeds. Continue reading “Understanding Adverse Possession In Oregon”

Background. On October 7, 2015, the City of Portland amended its Code to address what it believes is a shortage of available housing units for rent. What is unique about this move is that it is directed not only at Federal or State subsidized rentals, but all rentals, whether they fall into the category of “affordable housing” or not. Continue reading “Is Portland’s New Renter Protection Ordinance Unlawful “Rent Control”?”

Oregon Administrative Rules 863-015-0250 (Professional Real Estate Activity Records) and 863-015-0260 (Records Retention) are the primary regulations governing a broker’s record keeping and retention responsibilities.

Under these rules, when buyers use promissory notes as earnest money, the Oregon Real Estate Agency historically expected that when redeemed, the physical note would be appropriately marked “paid in full” or “redeemed”, or similar words to that effect, and returned to the buyer. A copy of the redeemed note was then retained in the broker’s file. Continue reading “Oregon Realtors® – Tips for Redeeming Promissory Notes in Paperless Transactions”

The RMLS™ Market Action Report just came out. Link is here. The Portland-Metro stats for November 2014 continued to show steady growth in almost all sectors, with the exception of new listings, which were down 2.7% from the same period last year. Inventory remained stubbornly low (see chart below). Continue reading “Portland-Metro RMLS™ Stats For November 2014”

In The Beginning. When OREF came into existence, circa 1997, the goal was to develop uniform state-wide real estate forms for use by Realtors® throughout Oregon. After all, with only a few geographic differences [e.g. where areas were on wells vs. public water, or where areas had onsite septic systems rather than public sewers], the nuts and bolts of residential real estate transactions were virtually identical. Issues such as earnest money, down payment, closing, etc., were pretty much the same across the state. Continue reading “Professional Inspection Protocols For Oregon Realtors®”

Lest folks believe we’re experiencing a gradual decline in the number of foreclosures Portlanders are experiencing, the answer is a resounding “No!” According to a May 15, 2014 Portland Business Journal article, foreclosure activity has “skyrocketed.” However, reviewing other online reports, some folks believe that the foreclosure numbers are improving. They can’t all be right – and they aren’t. I have developed some graphics showing the actual statistics as provided by First American Title Company. Attached are the following: Chart for 4Q_2013; Chart for 1Q_2014; and Chart for 2Q_2014. The evidence is unmistakable: Foreclosure activity for the first half of 2014 is continuing to rise dramatically. Here are the numbers:

Continue reading “2014 Q1 and Q2 Portland Metro Foreclosures – Dramatic Increases”

When I was young – yo that many years ago – marijuana was the forbidden fruit. It was illegal under state and federal law. Getting busted could mean a criminal charge. Slowly the legal landscape changed, first in the nature of the sanction, i.e. a ticket for small amounts, and eventually today, permissible as a recreational drug in some states, and with a “medical” marijuana card (wink, wink) in others. But even with society’s gradual acceptance, the weed is not without controversy and confusion. Part One of this article explains some of the issues, and Part Two (ab0ve) addresses some FAQs. Check out the following link here, and and find out why marijuana is the toke of the town. [Note: If Adobe says you need “permission to run,” right click on your mouse to select “run this plug-in.”]