LAURA'S LEGAL CORNER
Printer
Friendly Version
Dear Readers:
The sale of newly constructed homes, whether as part of a whole subdivision or high-end custom homes, presents unique challenges for real estate agents. This article does not intend to suggest that you should stop listing new homes, or discourage your clients from selecting a builder rather than an existing home. But you should be well aware, particularly in the current housing market, of the very different challenges such sales present.
Since many states regulate the licensing of builders or home construction companies, you must never assume the requirements of your state are the same as another. For example, in Texas a relatively new agency called the Texas Residential Construction Commission requires builders to not only register the company that constructs the residence, but also to register the residence constructed. Failing to register is a violation of state law that carries significant fines. “Somewhat interesting,” you say, “but why on Earth should I care?” If you list a home whose builder has not yet complied with state law, and someone reveals your mistake (perhaps that competitor who is jealous of your natural talent and good looks, and desperately wants to make you look stupid because they wanted to list the builder's homes), then your builder is going to think that you don't know what you're doing, even though it was the builder who had the duty to register! The moral of the story: do not list properties that are new home construction, or under construction, when the entity that owns the property has not registered both the builder and the newly constructed home. (For more information, please CLICK HERE).
There is a further challenge that can cause an agent to stumble badly. Never enter into a contract to list a new home for sale until you know exactly who owns it; beware the shell corporation that takes your client's money and then proceeds into bankruptcy! This sort of misconduct is nothing short of stealing, and is more common than you may realize. Unfortunately, due to the way these laws work, when payment to the builder for construction of the home gets ahead of the actual progress of construction (particularly in cases with third party financing), it can be difficult and costly to get that money returned if the builder fails to complete the project. And unlike public works and private commercial projects, where typically payment and performance bonds and a whole host of other insuring agreements protect both the third party financing agent and the buyer or ultimate building owner, there is little that protects the end consumer in residential construction. So what can you do about that?
Simply stated, in these turbulent times due diligence requires a lot more than just knowing a builder has done a good job in the past. The speed with which some builders have tumbled into financial distress has surprised even seasoned experts in the field. Due diligence searches of builders largely consist of:
1) discerning the identity of the legal entity that has promised to do the work;
2) determining whether that legal entity is the same as the builder who is purporting to perform the construction (please CLICK HERE for more information);
3) ensuring that the legal entity is authorized to transact business in the state and county where the project is located; and
4) confirming that the builder is paid current on his business taxes (please CLICK HERE for more information).
A misstep in even one of these areas can create a host of other problems. For example, with regards to the payment of state taxes (which are typically paid current four or more months in advance), a builder in arrears is sending out a distress call not unlike a wounded animal; he is likely at that point many months behind in all of his payments. And when you are dealing with a contractor in that depth of financial distress, you may rest assured that he has cut corners on construction in dozens of ways that cannot be easily detected, perhaps in the use of unskilled labor and substandard projects, or in the improper disposal of waste.
In summation, never consider dealing with builders with these sorts of problems unless you can do so in a careful manner that fully discloses to the buyer possible problems. That same builder whose prices seem too good to be true may well have problems with his own third party financing agents, problems with title, or a legion of subcontractors and suppliers filing all manner of claims on the very property you are listing/showing even while the construction is ongoing! It can be surprising, dear readers, to learn just how often builders have failed to fulfill all of their obligations and thus operated in criminal violation of state law... but hopefully after reading this article, the surprise will belong to your competitors, and not to you.
We leave you with one final tidbit of advice. Always enter the builder's name into internet search engines such as Google or Yahoo, and type in the name of the subdivision as well. Even if you think you know everything, in the age of blogs and internet news and chat rooms you owe it to your client and to yourself to at least appear as knowledgeable as anyone could become if he or she spent fifteen minutes on the Web. It is also helpful and easy to go to the records of the tax appraisal district (which are almost entirely electronic and organized by address) and see who actually owns the property in which you are interested. The following sites may be particularly helpful: Travis County,Williamson County, and Hays County. If it is a financial institution, you may need to do some more due diligence before you list or show. But it's good practice to have anyway, and takes a few minutes at most.
Remember: not even celebrities are immune from the shenanigans of seemingly reputable builders!
If you are uncertain what to do, get help at once from your Team Leaders. In your every professional adventure, we wish you the very best.
Laura Fowler and THE FOWLER LAW FIRM P.C . are very proud to begin their fifth year representing the Southwest and Northwest Keller Williams Market Centers , many of its wonderful agents and in turn their wonderful clients, family and friends. We are so grateful to so many of you who have helped to make our firm a success. The Fowler Law Firm P.C. is a full service law firm whose attorneys have many years of experience in the handling of real estate, family law, probate and estate, business formation and taxation. We never charge a client a fee or incur any expense until the client understands and agrees. In addition, we often counsel with your clients and friends and give them the information they need at no charge when we cannot truly be of service. For more information or to refer a matter to us please contact us at (512) 441-1411 or visit our website at www.thefowlerlawfirm.com .
If you would like to read the Printer Friendly version of this article, please CLICK HERE.
This information is
provided by Laura S. Fowler, Attorney at Law with
The Fowler Law Firm PC. It is not intended as a
substitute for careful review by legal counsel of
your choosing. We would be most honored to assist
you in your every real legal need.
Contact Laura
Fowler at lfowler@thefowlerlawfirm.com
or
call (512) 441-1411.
As with any legal
issues, please consult your attorney with
questions.
