OREA FORM 127 ~ Acknowledgement

OREA FORM 127 is for “informed consent

By Brian Madigan LL.B.

There is a recent new Form which has been published by OREA, (the Ontario Real Estate Association). It is Form 127, described as an:

 “Acknowledgement Re: Condition(s) in Offer”

In large measure, it is an attempt to document the process of decision-making on the part of the buyer.

Perhaps, all too often, when something goes wrong with a transaction, and the buyer is disappointed, the buyer will become somewhat forgetful, and point fingers in the direction of someone close at hand; that could be the spouse, business partner, friend, real estate agent or lawyer. However, more often than not, it will be someone with insurance, who is under a professional obligation to explain the alternatives. That leaves us with the lawyer and the real estate agent.

Let me give you a quick summary of what can go wrong. Martha and Bob wish to buy a house in the City. They secure the services of Bill at ABC Brokerage. They look at dozens of houses, the market heats up, and they participate in several Offers.

Bill advises them right at the outset that they should put a “home inspection” clause in the Offer. He says that the buildings they are looking at in the City are all 50 years to 90 years in age, and who knows what condition they are in. Outbidding everyone, gets them the property, but forces them to accept the building in an “as-is” condition.

They accept Bill’s advice and the home inspection condition goes in their Offers. They lose the first bid, they lose the second bid and they lose the third bid.

Now, they are quite upset. They don’t think Bill’s advice is very good. Other people are buying houses and they are not.

So, when a charming house comes on the market, they tell Bill, this time “no home inspection clause”. Fair enough! Their Offer is accepted, they close the deal and move in.

Then, of course, we have a problem. A few months after they move in, the basement floods. Actually, it regularly floods, but they just didn’t know about it.

The signs were all there. A home inspection would have picked up the telltale clues. But, on that fourth deal, there was no such clause for their protection.

So, now they sue Bill and ABC Brokerage for handling the Offer negligently and providing poor advice without explaining the risks.

Here’s the peculiar part. Bill looks at his file. He has the fourth Offer, but he doesn’t have a copy of the first three Offers. ABC Brokerage only got a copy of the fourth Offer. That was the one that went through, and naturally it was documented with a Trade Record Sheet. However, there’s nothing in the Act which requires Bill to have a copy of the first three Offers that were submitted on behalf of Bob and Martha. Clearly, it would have made good sense to retain them, but that’s not always common practice in the real estate industry. If there are just hard copies, and the deal doesn’t materialize, then many agents just throw them out.

The difficulty arises when the agent cannot prove that they ever existed. On the first three Offers, if they are not accepted, the seller’s agent doesn’t have a copy.

If they were sent by fax or e-mail, to either the clients or the seller’s agent, then there would always be an electronic copy.

At the very least an electronic copy should be maintained on Bill’s computer for posterity, which really means “for the possibility that he might be sued”.

Even though it would be relatively easy to maintain an electronic version, frequently, this is not done.

What Bill needs to do is prove:

1)     that he recommended an home inspection condition, and

2)     the clients instructed him to remove it.

However, he actually needs to go one step further. He needs to prove that Bob and Martha were fully informed and made their own decision to proceed with full knowledge of the consequences.

You will appreciate that could have taken place through a series of e-mails, but it didn’t. So, it’s just his word against theirs.

In this case, if you were Bill, wouldn’t it be nice to have those first three Offers available?

OREA FORM 127

So, here is the new Form:

Acknowledgement re:

Condition(s) In Offer

Form 127

for use in the Province of Ontario

This Acknowledgement Made By:

BUYER:…………………………………………………………………………………………………….

TO:

BROKERAGE:…………………………………………………………………………………………..

FOR THE PURCHASE OF:

ADDRESS:………………………………………………………………………………………………..

SELLER:……………………………………………………………………………………………………

The Buyer hereby acknowledges, with respect to conditions, that the Buyer:

(Initials of Buyer(s))               will not be including a condition in the Buyer’s offer for the above described property

(Initials of Buyer(s))               will be waiving the condition in the Buyer’s offer for the above described property

Pertaining To:

(Initials of Buyer(s))               the financing of the above described property

(Initials of Buyer(s))               the sale of the Buyer’s property known as……………………………………………………………………….

(Initials of Buyer(s))               the arranging of insurance on the building

(Initials of Buyer(s))               the obtaining of a home inspection report

(Initials of Buyer(s))               Other   ……………………………………………………..

I acknowledge that, prior to signing the offer/waiver, I understand the factors to consider and the risks involved in not including the condition(s)/waiving the condition(s) in my offer. I take full responsibility for making the decision not to include the condition(s)/to waive the condition(s) in my offer. I understand that I am committed to take whatever steps are necessary to complete the transaction, and I may be liable if the Agreement of Purchase and Sale is not completed.

Additional Information:……………………………………………………………………………………………..

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………

I acknowledge it has been recommended that I obtain independent legal advice prior to signing the offer/waiver.

I further acknowledge that upon acceptance of the offer or delivery of the waiver of condition(s), I have entered into a binding Agreement of Purchase and Sale with the Seller.

I acknowledge having received a true copy of this Acknowledgement re: Condition(s) In Offer.

DATED at ……………………….. this ……………………day of ………….., 20……………

……………………………………………..

(Signature of Buyer)

……………………………………………..

(Signature of Buyer)

COMMENT

You will notice that the form would certainly be of some benefit to Bill.

In this case, Bob and Martha would have initialled twice:

1)     saying they are not including in the Offer,

2)     a home inspection condition.

At least, that proves that they must have talked about it. This document is helpful to prove that basic fact.

However, in every case, the fact that it was “in” or was “out” should have been clearly documented. Nevertheless, this document would come to Bill’s rescue since he has a very sloppy business practice.

And, there’s more. The clients are to acknowledge:

1)     they understand the factors,

2)     they understand the risks,

3)     they take full responsibility for the decision,

4)     they are committed to complete the transaction,

5)     they may face liability, if it does not close,

6)     legal advice should be sought,

7)     the agreement is binding,

8)     they have a copy.

These are all important issues that go to “due diligence” and “informed consent”.

So, in that regard, this document is a positive step in the right direction. It’s not mandatory, but if it is used, it forces the discussion to take place.

This is a helpful Form for agents to have in their “toolbox”.

Brian Madigan LL.B., Broker 
www.OntarioRealEstateSource.com

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