Forms Tip of the Week

At the core of contract law, you must have an offer that is accepted in exchange for consideration of some kind. That simple formula for creating a contract can get rather complicated at times. In this tip, we’ll highlight a few points that are worth focusing on to assist your practice. Oregon REALTORS® Forms are designed to help you comply with these contract principles, but these tips are important to remember as you fill in blanks or add additional provisions and addenda to your contracts:

  • Advertisements are not offers, they are requests for others to make an offer to you. Corbin on Contracts, sec. 2.4 at 116 (Joseph M. Perillo ed., 1993 & Supp Spring 2002). This means that your listings and postings on the MLS are not actually “offers” in the classic sense. They are advertisements like a billboard on the side of the road.

  • Parties need to accept the *exact* same terms to have a contract. Accepting only a portion of the terms, or adding a new term that was not in the original agreement is considered a counteroffer. Lang v. Oregon-Idaho Annual Conference, 21 P3d 1116 (Or. App. 2001). If you accept the other party’s offer but just need to add in a well addendum or a septic addendum that was not with the original offer; you’ve created a counteroffer even if by accident.

  • An offer can specify a manner of acceptance, but if none is specified, any act or conduct that manifests intent is sufficient. Larson v. Trachsel, 577 P2d 928 (Or. 1978). This is why most forms will specify that acceptance requires both signature and delivery back to the other party before the deal is truly considered “accepted.” Oral acceptance is literally not sufficient.

  • Nominal consideration does not support a contract. A court can consider the adequacy of consideration and see if there is an indication of fraud, potentially invalidating the contract. Eldridge v. Johnston, 245 P2d 239 (Or. 1952). Hence, you cannot generally enter into a contract solely to trade $50 for $10 because that’s just fraudulently moving money. In the agency context, it is difficult to argue that a contract is formed when there is no exchange of consideration. If an agent agrees to just “show houses” to a client with no other expectations and no compensation, the agent is doing work for the client without any benefit.  Absent other facts [e.g. agent has agreement from client saying client will give up a right by working with agent exclusively], the validity of the agency contract sans consideration is uncertain.

  • Timely performance of any contract provision is not material by default, but must be made intentionally material through terms like “time is of the essence” provisions. Smith v. Piluso, 719 P2d 33 (Or. App. 1986).  If there is no specification of the materiality of the expiration date or no specification of the materiality of something like an inspection period, failure to meet the deadline is not an offense that would support a termination. There’s only so far that you can credibly stretch a “time is of the essence” provision, so if a timeframe or timeline is critically important to your client, specify that the timely performance or timely acceptance is material to the transaction.

Every so often, you’ll hear the terms “Fixed Term lease” or “month-to-month” lease.  In most sales the terms aren’t particularly relevant, but when you have that Buyer’s dream house where there’s a tenant inside and the seller-landlord says “it’s a fixed term lease,” you need to know what that means for your client.

Under ORS 90.100(17), a fixed term lease is “a tenancy that has a fixed term of existence, continuing to a specific ending date and terminating on that date without requiring further notice to effect the termination.”  In other words, if the lease says “Lease term until February 28, 2025” you have a fixed term lease, because the end date is a specified day.

ORS 90.100(32), by contrast, defines a “month-to-month tenancy” as “a tenancy that automatically renews and continues for successive monthly periods on the same terms and conditions originally agreed to, or as revised by the parties until terminated by one or both of the parties.”  You can sometimes see variations on this where the lease is week-to-week or year-to-year, but in all instances the lease is on a rolling, automatic renewal.

The importance of this distinction is found in ORS 90.427.  If the lease is a fixed term lease, landlord can only terminate within the term “for cause” which means things like failure to pay rent, breach of the lease terms, etc.  If the fixed term lease is for less than 1 year, the landlord can give 30-day notice to terminate the lease [this notice cannot be used to terminate the tenancy before the final day of the fixed term].  If the fixed term lease is for more than 1 year, the landlord cannot terminate the tenancy unless the termination is for cause (e.g. failure to pay rent or violation of the lease agreement) or is for one of four specified statutory reasons [such termination requires 90 days notice].  If the tenant signed something absurd like a 10-year fixed term lease, the Buyer needs to know that they’ll potentially have to wear that albatross for several years.  If the fixed term is for more than 1 year and the lease expires without having been validly terminated, the fixed term lease becomes a month-to-month lease that continues into the future.

For month-to-month tenancies that have lasted for less than a year, 30 day termination can be given.  For month-to-month tenancies where the tenant has been living there for more than a year, the landlord can only terminate for cause or with one of the 4 special “landlord qualifying reasons” in ORS 90.427(5).  These are (1) landlord intends to demolish the property; (2) landlord intents to renovate the property and the renovation will render the property or dwelling unsafe or unfit for occupancy during repairs; (3) landlord or a family member of landlord intend to move into the dwelling and no other comparable spaces exist; and (4) landlord has accepted an offer to purchase from a Buyer who plans to live in the property and landlord has given tenant proof of that buyer’s offer within 120 days of accepting Buyer’s offer.  If one of the above 4 reasons exists, landlord-seller can terminate the tenant with 90 day notice.  If one of the above 4 reasons or a “for-cause” reason doesn’t exist, the landlord cannot terminate that tenant.

The scenario to consider: Buyer wants to purchase property that has a multiple year-long fixed term lease expiring in 4 months.  Buyer purchases, thinking to themselves, “only 4 months, I can handle that.”  Buyer forgets to send notice of termination 90 days before the end of the fixed term.  The fixed term lease ends and Buyer learns they now have a month-to-month tenant.  Buyer invokes ORS 90.427(5)(c) and explains that they want to move into the dwelling and no comparable space exists, but has to wait another 90 days before the vacancy.

Nearly all of the rules related to listings and professional real estate agency are found in ORS 696 and OAR 863. There is a tendency amongst real estate licensees to treat the individuals they work with as “their clients,” in the same way that the car you drive is “your car.” When that broker transfers to a new brokerage, they tend to expect the clients to follow them because it was that broker who walked them through the showings, who pointed out the rickety staircase, who talked the client down after a rude email, etc. The simple legal fact, though, is that the client relationship is established between the buyer/seller and the brokerage through the Principal Broker. This can be most readily understood through the text of ORS 696.800(1) that defines an “agent” as:

  1. A principal real estate broker [note: context of the statute requires us to understand this as “a broker who has registered a business with OREA,” and not as “a broker who has principal broker education”] who has entered into (A) a listing agreement with seller; (B) a service contract with a buyer to represent the buyer; or (C) a disclosed limited agency agreement; or

  2. A real estate broker associated with a principal real estate broker to act as the principal real estate broker’s agent in connection with acts requiring a real estate license and to function under the principal real estate broker’s supervision.


There are other areas of the law that strengthen this implication. For example, ORS 696.290(2) and (3) prohibit a broker from receiving compensation from anyone but their associated principal broker, and prohibits a principal broker from paying real estate brokers of another principal broker except through the other principal broker. When the Seller pays the broker for the transaction, the seller is actually paying the brokerage, and the brokerage is the point of diversion from whence the money flows to the brokers. It’s a clunky metaphor and independent contracting makes it somewhat incompatible, but think of it like going to a hardware store. You ask a sales associate to help you look at lumber, and the sales associate shows you the perfect 2×4; elegant pine, no warping, tasteful thickness. “Oh my god, it even has a watermark!”  You don’t pay the sales associate and walk that piece of wood out the door. If you did that, you’d get arrested for shoplifting. You go to the front and pay the hardware store.

Put in a different way, the client contracts with the company, the registered principal broker is the company [as far as OREA is concerned], and the brokers associated with the principal broker are deputized with the authority to act in the principal broker’s stead. Brokers, depending on the language of their independent contractor agreements and employment agreements with the Principal Broker, will have varying degrees of authority to act in the brokerage’s stead.

OAR 863-014-0063 then establishes the rules for disengagement and transfers of licenses. When a broker transfers to another brokerage, OAR 863-014-0063(6) allows that broker to continue to engage in professional real estate activities on those transactions only if there is approval from the client, approval from the sending brokerage, and approval from the receiving brokerage. When the agent moves from one brokerage to another, the clients don’t move with them. The clients stay with the former brokerage. If the former brokerage chooses to do so, it can form an agreement with the client and the new brokerage, defining the recordkeeping requirements [e.g. “I keep the stuff from pre-transfer, you keep the stuff from post-transfer.”], the effective date, the way agency will work, and how compensation will be handled.

Oregon REALTORS® Forms allow 1031 Exchanges whenever one of the parties intends to pursue the transaction as a part of the like-kind exchange. There is a notice of intent requirement, and in-built cooperation requirements, and the exchanging party indemnifies their counterpart from any issues arising from the exchange.

The Internal Revenue Code section 1031 allows a person to postpone taxes on sales of investment properties when the proceeds are used to purchase a similar property. It’s also known as a “like-kind exchange.” There are several ways that a 1031 exchange can happen. The simplest is to simultaneously swap the properties, and the more complicated ones involve deferred exchanges [no more deferral than 180 days, generally it requires a facilitator to follow the income tax rules].  Both properties [the sold one and the purchased one] must be held for investment, if the owner uses the property for personal use, such as a vacation home or primary residence, the like-kind exchange is not available. The properties need to be the same “nature, character or class.”  This sameness is a broad standard, IRS guidance notes that most real estate is like-kind with other real estate; for example, real property with a residential rental house is “like-kind to vacant land.”  The properties being exchanged do all need to qualify as investment property or business property for the exchange to take place, an investment property cannot be exchanged for a vacation home. A notable exception is that property within the United States is not considered like-kind to property outside the United States. Also worth noting that personal property is never like-kind to real property, so a manufactured home, unaffixed to the ground, is not going to be exchangeable for real property.

If a client sells property and plans to do a like-kind exchange, they have to identify the potential replacement property within 45 days. There will need to be a writing that is signed by the buyer and given to the seller of the replacement property or to a “qualified intermediary.” If the client gives notice to an attorney, accountant, or real estate agent, but not to the Seller of the replacement property, the notice is not sufficient. The writing will also need to identify the replacement property by using either a legal description, street address or distinguishable name [e.g. calling it “Black Acre” is fine if it’s the only one named that]. The replacement property purchase has to be completed and client needs to have ownership of the property within 180 days after the sale of the original property [the one that is being “exchanged” for the new property] or within 180 days after the due date of the income tax return of for the tax year in which the relinquished property was sold, whichever was earlier. The exchanger will need to file a Form 8824 with the IRS alongside their tax returns.

At all times, if a client wants to do a 1031 exchange, you should advise they contact a tax professional. Mistakes can be costly, and many promoters of like-kind exchanges may advertise them as “tax-free” when the exchange is actually a tax deferral. If there is money leftover in the sale/exchange, the exchanging party may find themselves paying capital gains taxes on that. If the replacement property has a lower rate mortgage, the exchanger may find themselves being taxed on the difference in value. If the sale falls through, the exchanger may find themselves suddenly subject to taxes. Tax professionals can help guide the client through these risks if they wish to do a 1031. 

The signature is a hallmark of contracting, it is the pop-culture symbol for making a legally binding agreement. However, the reality of the law is a little different.  Signatures are a person’s name, applied with their own hand. Signature is not one of the core pillars of a contract though. Contracts require (1) offer, (2) acceptance, (3) consideration. Lawyers generally break down “acceptance” further to indicate “mutual assent to identical terms” which means “you have to agree to/accept the same contract as the other person.” This mutual assent phase is where the term “meeting of the minds” sometimes gets thrown around. Notably absent from basic contracting: a wet ink signature in blue or black ink.

Signatures are however, a wonderful way of proving that a person is assenting/accepting something. The Restatement (Second) of Contracts explains that “[i]t is not an actor’s subjective intent to be bound, but rather the action he takes to manifest assent that binds him.” By way of example, think of going to a taco truck. You order a taco, the guy says “It’ll be 9.95,” you hand him a $10.00 and receive a taco and a nickel. No signature was done, but a contract was formed to exchange money for corn-shelled meat. The act of mutual assent in that case was your act of handing $10.00. The money leaving your hand was a clear act showing intent to be bound to the exact terms of the deal. If you had handed over a $20.00, you would have accepted the taco contract just the same.

A signature is just a universal way of saying, “I accept,” but it is not the only way to say “I accept” and it is not the only switch that needs to be flipped to form a contract. Counterexample: Someone asks you to sign a petition, you put your name on the petition and they reveal the top of the page away to show that it was actually a lease agreement to your house and you have just signed and given this petitioner the right to live there for 50 years! In no court of law would this be considered a valid signature, it was not given with mutual assent or understanding of the terms, it was not a contract. Despite the presence of a signature in wet ink, the document is invalid.

Any symbol or sign manifesting assent that shows actual, meaningful intent to be bound to the terms of the deal will suffice to form a contract. Back a few centuries and even occasionally today, you will see someone sign “X” on a line rather than writing their name. That “X” is a legally binding signature as long as the party making the letter intends to be bound. If a person signs with their nickname, if they sign with their left-hand, if they sign using red or green ink, it’s still a contract and is still binding, as long as you can show that the person intended to be bound by the term of the contract they were signing.

Oregon REALTOR® Forms require the Buyer to specify in the financial terms section of the sale agreement (Section 4(g) of the Residential Real Estate Purchase and Sale Agreement) whenever the Buyer is using “Contingent Funds or Nonliquid Funds” as part of the purchase. Later in the definitions section, the terms are further defined:

    • Contingent Funds: Money that will belong to Buyer with uncertain occurrence of a future event that is outside Buyer’s control, such as money gifts, proceeds from lawsuits, or a Year-End Bonus.
    • Nonliquid Funds: Money that is not currently available to Buyer without some kind of transfer, such as a 401K account balances, stock, cryptocurrency, or other things of value that Buyer must first sell or liquidate before realizing a cash sum.


In other words: contingent funds are money that the Buyer gets from elsewhere, and nonliquid funds are things that the Buyer has to sell [liquidate] before they have cold, hard cash. The Buyer’s disclosure should generally say what is being used, how much is being used, and what the funds are being used on. More disclosure is generally going to be better for the Buyer’s offer because it demystifies the financing for the Seller. It’s not wrong to provide more information in this context (if a Buyer is going to be using a bank loan, that information will already be described in Sections 4d and 5 of the sale agreement, along with a requirement to provide a pre-approval letter, so it is not required to state it again in Section 4(g) but it is not a bad idea to do so). The Buyer can use Section 4(g) to explain what loan they are using, where the loan money will be utilized; other uncertain funds should also be stated [e.g. conventional loan from Bank A, in the amount of $250,000 towards purchase price; $5,000 from end-of-year bonus will be used for earnest money, typically this bonus is received by December 20.]  To a Seller, the best case scenario, assuming economists are correct about the time-value-of-money, is to have a full cash buyer who shows up with a briefcase full of bills to purchase the property outright. A conventional loan, while consistently a good way to purchase property, is not guaranteed. Sometimes property doesn’t qualify, sometimes the buyer doesn’t have the right income. Telling the Seller up front, “Hey, I’m using the following methods to pay for the property,” will ensure the deal proceeds more smoothly.

When you have more erratic forms of financing, the disclosure is all the more important. If the Buyer is planning to purchase the house by cashing out their supply of NFTs, or by selling a family heirloom Rembrandt painting, the Seller will need a disclosure. Many transactions have been started on the pretext of being “all-cash” when the Buyer is actually cashing out their retirement portfolio or mutual funds. In many of those situations, the Buyer [and by extension their agent] march forward through the transaction blithely unaware of the risk until something goes wrong: the stock market crashes because a boat gets stuck in the Suez Canal; they forget that there’s a fee for early draws from the retirement account; they did the math wrong; Twitter gets purchased by an eccentric billionaire and their Twitter-stock based nest egg cracks, etc. When that happens, the Buyer has to sheepishly explain to Seller that the “cash purchase” was really more like a “cash purchase, assuming the assets sold for the previously predicted number that is no longer accurate.”  The Buyer will lose the earnest money in those transactions in part because they failed to inform the Seller that the Buyer’s statement that they were using “all-cash” in reality had a Barry Bonds-esque asterisk next to the term.

Oregon REALTORS® Forms have a “due diligence contingency” rather than an “inspection contingency.”  The forms were designed to allow the Buyer to look into all matters that impact their desire to purchase the property and to allow the Buyer to terminate if those due diligence investigations turn up something the Buyer disapproves. Sounds great in abstract, but what does this really mean? It means the Buyer can reliably recover their earnest money when they learn that something is amiss with the property, even if the problem is not related to the property’s physical condition or physical infestations. Make no mistake, in Oregon REALTOR® Forms, a Buyer can still do inspections, but they can terminate during the due diligence period for more than just inspections.

For example, imagine a Buyer who wants to purchase an investment property on the beach with bright shiny plans to turn it into a cozy beach house they can rent out to the tourists who flood Lincoln City every summer. The Buyer finds a perfect little house and they tell their agent to put in the offer. A few days into the transaction, the Buyer tells the agent about how lovely the house is and how the view is just going to bring tourists streaming in from everywhere. The agent, a Lincoln County local, sheepishly notes that the county suspended the processing of short term rental licenses in August of 2023. The Buyer’s short term rental dreams are crushed until at least August 2024, assuming the county doesn’t put another moratorium in place. The Buyer no longer has the original intent to purchase, the property no longer meets their needs. Sure, they may want to buy a beach house for personal use, but if they were planning to cover the mortgage with some of the income or weren’t planning on having this purchase leverage them the way it would, the transaction may become non-feasible. Rather than force them to stay in it or get an inspection as a pretext requirement to unlock their right to terminate, the Oregon REALTOR® Forms just let that Buyer terminate during the due diligence period. For any reason. As long as it’s within the diligence period.

There can be dozens of other reasons to terminate that are not connected to the inspections, but are valid and surprisingly commonplace. Some examples include:

    • Buyer learns the neighbors are aggressive or irritating;
    • Buyer learns that region is in decline [e.g. learns that the city is in a budget deficit that will likely result in either loss of services or higher property taxes in the near future]
    • Buyer gets a job elsewhere in the state/nation/world and no longer needs this property;
    • Buyer has other, external loss or gain that removes the need to purchase the property [e.g. death of a spouse or child, need to caretake an aging parent in another location, sudden disability making stairs a non-starter; marriage, pregnancy or adoption now requiring a bigger house than originally intended, etc.]
    • City ordinances or resolutions run counter to Buyer’s intended usages [e.g. City puts in a dry ordinance and Buyer is not dry, not likely to happen, but Monmouth Oregon was the last dry municipality in Oregon until 2002, so we have a historic taste for dryness as a state.]

There are practically endless reasons why a Buyer may no longer wish or need to purchase a property. The Oregon REALTORS® sale agreements allow those Buyers a wider window to terminate, recognizing that, sometimes, the perfect house may not be the perfect house right now.

Divorce will complicate even the most simple real estate transactions. For Buyers the analysis is generally going to be straightforward. If there are two buyers trying to purchase property, and those Buyers get divorced, most of the time the parties will not wish to continue purchasing a property together as joint Buyers. The Buyers will generally agree to terminate the transaction and the agency relationship. If the Buyers haven’t had an offer accepted on property yet, it’s a simple modification or termination of the agency agreement. Occasionally one of the Buyers will wish to stay in the agency relationship or continue to purchase the property by themselves. On the other hand, you may have a situation where the Buyers are under contract to purchase when the divorce happen. The Buyers can either both agree to let the contract die or one Buyer may wish to continue with the purchase alone.  If that is the case, the contract would be revised to reflect the change in Buyer [assuming Seller approves of the change], and the loan may need to be modified.

When Sellers divorce, the transaction gets a little more complicated. The divorce will have a decree or order that establishes the breakdown of the property. In some cases the property will be wholly transferred to one of the parties [e.g. Wife receives Property at 123 Main St., Husband receives $400,000 from liquid assets]. If that is the case, the parties will typically need to modify the Listing Agent-Client representation agreements to reflect the removal of the non-owner party. When a single divorcee owns the property outright, they are the only signatory required to sell the property.

In other cases, the court may not wholly transfer the property and the parties will remain part-owners of the property, and the divorce decree will order the parties to sell the property and split the proceeds. The agent can continue to represent the parties in this instance without modifying the agency relationship documents.  In these cases where the divorce does not transfer property wholly to one party, there is a regular complication where one of the divorcees refuses to sign documents; e.g. ex-Husband refuses to help sell the house now that the divorce is final. The solution in this instance is frequently for the other party to bring the ex-spouse to court and get a contempt ruling. The Court can order the spouse to sign documents and proceed with the sale, or the court can even remove the obstinate party’s signatory authority [e.g. court says “only wife’s signature is required to sell the property”].

Contracts regularly create an obligation that must be done “promptly,” such as: “Seller must promptly notify Buyer in writing when xyz occurs…”  Promptness is a legally flexible term. Some cases have interpreted the word and found that “promptly” means some more definite and shorter timeframe than “within a reasonable amount of time” and using the term “promptly” implies quickness or expeditious action. [See City of Pendleton v. Jeffery & Bufton, 188 P. 176 (Or. 1920).]. Alternately, courts nationwide have interpreted the term to mean “nothing more nor less than reasonable time – the latter term being a relative one, and its meaning dependent upon the circumstances.” [State v. Chesson, 948 So. 2d 566 (Ala. Civ. App 2006) quoting Moynes v. State, 555 So.2d 1086, 1088 (Ala. Civ. App. 1989); see also Doe Fund, Inc. v. Royal Indemnity Co., 825 N.Y.S.2d 450, 451 (N.Y. App. Div. 2006)]. Reasonability of the response is a blurry fog of law. When a Seller is out of town on an Alaskan camping trip and has no internet, is that Seller’s delay of two weeks before responding to Buyer’s email reasonable? No one can say for sure, it really depends on the circumstances. Oregon REALTORS® Forms predefined the term “Promptly” within the forms to eradicate some of the uncertainty caused by the term. 

For the Oregon REALTORS® Forms, “Promptly” means “as soon as is practicable and no more than two business days.” If someone is not able to do something within two business days, it was not done promptly under the Oregon REALTORS® Form terms. For Oregon REALTOR® Forms, the Seller going on the Alaskan camping trip needs to have someone manning their legal obligations while they are out of range.

In most transactions, “Possession” and “Closing” occur at the same time.  In the Oregon REALTORS® sale agreement, “Possession” means, “When the Buyer has the legal right to occupy the Property.”  “Closing” means “when all documents are recorded and the sale proceeds are available or dispatched to Seller.” Typically, these two things occur simultaneously because—absent an agreement otherwise—the legal right to occupy (along with all the other sticks in the property rights bundle) transfers to the buyer at Closing. Even though the buyer may not physically occupy the property for a matter of days, weeks or months, the legal right to do so rests solely with the buyer at Closing, unless the parties have agreed otherwise.

In some instances, the parties may want to separate out the right to occupy from other property rights and transfer the right to occupy from seller to buyer either before or after Closing.  

Using Oregon REALTORS® forms, the Buyer and Seller can effectuate an expedited or delayed transfer of occupancy rights by using Section 7 (“Closing”) of page one of the Oregon Residential Real Estate Purchase and Sale Agreement, along with an addendum (either Form 2.16 or 2.17 as discussed below). Section 7 allows the parties to indicate a Closing Date and, if different, a Possession Date. If the Closing Date and Possession Date are the same, then a Possession date need not be entered in Section 7. As an aside—we often get asked why no time field is included in Section 7. That is because “Closing” will occur not based on a particular predetermined time on the clock but rather “when all documents have been recorded and the sale proceeds are available or dispatched to the Seller,” as defined in the Sale Agreement. The notion that the parties, at the time of entering into the Sale Agreement, could predict and coordinate with the Title/Escrow company the precise clock time that Closing will occur is a bit fanciful. That’s why the Oregon REALTORS® sale agreement says in Section 46 that “Closing shall occur on the date identified on Page one of this Agreement as “Closing Date,” or earlier if agreed upon by the Parties. Unless otherwise agreed in writing, Closing and Possession shall occur by 5:00pm on the Closing Date.” 

If the parties do input a Possession Date that is different than the Closing Date, then Oregon REALTORS Sale agreement instructs the parties to include either Form 2.16 or Form 2.17. Form 2.16 is the “Seller Occupancy Agreement.” Form 2.17 is the “Buyer Pre-Closing Occupancy Agreement.”

Form 2.16 and 2.17 are the legal instruments used to transfer the right of occupancy independently from the other legal rights of ownership. Those agreements address important issues such as the timeframe of occupancy, the condition of the property including the responsibilities of maintenance and repair, and the legal remedies available to the party granting the occupancy right, should the other party fail to vacate or otherwise violate the terms of the agreement. Rights to occupy property before and after closing are not subject to Oregon’s Residential Landlord Tenant Act (ORS Chapter 90) so long as the agreement to occupy does not last longer than 90 days. Thus, while a typical “landlord-tenant” relationship is defined in large part by statute, the terms of an agreement to occupy before or after closing are defined almost exclusively by the contents of the written agreement between the parties, with little interference from the Legislature.

For a section-by-section video walk-through of how to use Form 2.16 Seller Occupancy Addendum, see this week’s Guided Form Spotlight. 

When filling out forms, most people use the mailing address. The classic “123 Main St SE, City, OR zipcode” format will be sufficient for most people when trying to identify the property, but the deed itself [the legal instrument that transfers ownership in the property] will need to have the legal description in order to be valid under ORS 93.600. Occasionally people will try to skip out on the legal description by just using a tax lot number in the deed [e.g. “Seller conveys to Buyer the property known as Tax Lot 123”], but ORS 93.600 expressly states, “Description by tax lot number shall not be adequate.” Nonetheless, the description of the property in the sale agreement itself doesn’t have to be as robust as a legal description unless the property is difficult to ascertain without the legal description (the Oregon REALTORS® sale agreement will bring in the legal description from the title company, see Section 38 of Form 1.1 but this must be reviewed and confirmed by the parties). This happens occasionally, where several parcels are attached to the same mailing address or when a single huge parcel is partitioned or subdivided into several smaller legal lots, at which point the legal description is more accurate in describing the parcel being sold.

Legal descriptions are the shorthand for the geospatial location of property within the state. To start with, Oregon is generally oriented around the “Willamette Meridian” located at Longitude 122o 44’ 24” West and Latitude 45o 31’ 11” North.  The meridian is literally a stone in the ground where the surveying chains originated for the north-south survey lines. Back in the early years of the United States, the Donation Land Claim Act and various other land claim acts increased the requirement for organized division of public lands, breaking public land into square miles [640 acres apiece] that could be given to settlers. The land was divided into townships and ranges, comprised of six mile by six mile grids of 36 square miles, where each square mile was known as a “section.” Monuments were placed every 40 chains [half mile] from the initial point to form quarter sections.  [below image from A History of Rectangular Survey System, indicating Township 1 north of the Willamette Meridian, and Range 1 East of the Willamette meridian; basically the first square mile up and to the left of the Willamette stone]. The sections were numbered 1 through 36.

The Sections could then be broken up further into smaller pieces, creating partial fractional descriptions of geospatial location.  E.g. Below is Township 1 North, Range 1 East, Section 5, as seen broken up into quarters, with the South West corner broken up further into two parcels: one that represents the North East ¼ of the South West ¼ of Section 5, T1N R1E, and one parcel that represents the remaining ¾ of the South West ¼ of Section 5, T1N R1E.

Through these Euclidean divisions of the land, Oregon was split up into squares and grid lines were established. Then, mankind got involved and parcels were split and divided and sold based on other lines, such as rivers, historic usage lines, hill lines, view, etc. The legal descriptions were occasionally broken up by lot, or by partition parcel, further splitting it away from square geometry. The parcels being sold would oftentimes have a “metes and bounds” description that traced the entire outline of the property plot.  Some deeds will just farm the legal description out to other documents and reference various pages of public documents. Modern legal descriptions can be hyper complicated or quite simple, depending on the number of curves in the property line and the type of property:

Semi-Complicated description taken from Polk County public records [no rivers or curved lines here]:

“Beginning at a ½ inch iron rod on the Westerly Boundary Line of that Tract of Land covered in that real property sale contract between Bonded Mortgage Investors, Inc., Seller, and John I. and Celia M. Miller, Buyer, recorded in Book of Records 87, Page 988, Polk County, Oregon; said iron rod being the Northwesterly corner of that parcel of land quitclaimed to Walton E. and Marjorie J. Mildren by that Deed recorded in Book of Records 62, Page 808, Polk County, Oregon; said iron rod bears North 1 deg. 40 min. 19 sec. East 12.60 feet from a 1 ½ inch iron pipe marking the Southwest corner of Lot 1, Dallas Fruit Farm, Townships 7 and 8, Range 5 West of the Willamette Meridian in said county and state; and running thence North 1 Deg. 40 min. 19 sec. East 332.62 feet along the Westerly boundary line of said Miller Tract to a ½ inch iron pipe; thence South 88 deg. 25 min. 21 sec. East 369.48 feet parallel to the Northerly boundary line of said Mildred Parcel to a ½ inch iron pipe; thence North 37 deg. 29 min. 48 sec. East 345.73 feet to a ½ inch iron pipe on the Easterly boundary line of said Miller Tract; thence South 1 deg. 53 min. 02 sec. West, 612.61 feet along said Easterly boundary line to a ½ inch iron rod marking the Northeast corner of said Mildred Parcel; thence North 88 deg. 25 min. 21 sec. West 560.56 feet along the Northerly boundary line of said Mildred Parcel to the Point of Beginning.”

Simple description from Polk County public records:

“Lot numbered four (4), Block numbered four (4), Birchwood Terrace, Polk County, Oregon. There is an entire system for addressing disputes where the legal description is ambiguous.  It’s highly advised that you or your client take those issues to a real property attorney if inaccuracy in the legal description is suspected.”

Tax Lot Identification Numbers, as stated earlier, are not sufficient for recordation, and attorneys advise avoiding usage of tax lot numbers as a description even when the parties do not intend to record the document. The tax lot is an administrative tool for the tax assessors office to use when figuring out property taxes. The tax assessor uses tax lots to maintain a map of parcels, for the purposes of identifying the tax assessment of that parcel; it’s generally going to be similar to the legal lot, but not always. The danger in using tax lots to describe a property comes in the land use standards of the state and counties. Typically, only one primary dwelling can be on each legal parcel; however, a single legal parcel may be described as two or three different tax lots. A buyer hoping to purchase a large plot and put up a couple houses for family or a couple houses to sell may find that the property is actually one large parcel that has to go through a subdivision, rather than the three parcels that the tax lot description implied.

Oregon’s water rights system is based on a system called “prior appropriation,” which is probably better understood by the classic phrase, “First come, first served.” The water rights holder with the oldest claim to the usage of water gets to use the water first, within the limits of their water right. Interesting caselaw exists on the concept establishing the rights of various users, such as the holding in Baley v. United States, where it was found that the Klamath Tribe had instream rights with a priority date of “time immemorial” for enough water to protect the culturally and spiritually important sucker fish and salmon in the Upper Klamath Lake/Upper Klamath Basin. Functionally it means that a certain portion of the water flow cannot be taken until after it gets past the Klamath Basin, because nobody else can possibly have senior rights to the water. Oregon’s system is different from east coast water rights on the riparian doctrine system; over there, each person who lives on the water system has reasonable rights to use the water. If you are selling land with water rights attached to it, it is imperative that you understand the outer limits of Oregon water law, and that you send your client to an expert whenever one is needed.

To make use of a water right in Oregon, the landowner needs to get a permit from the Oregon Water Resources Department; once the permit is obtained, it attaches to the land and transfers to whoever owns the dirt. Water rights are either (1) surface water, such as rivers, lakes, and springs, or (2) ground water, like wells. Ocean water and “navigable waterways” like the Columbia River play by somewhat different rules.  Technically, if the person has surface water rights from before 1909, or ground water rights from before 1955, the rules change a little bit, so be aware that this is a broad primer on water rights, not a comprehensive explanation of the whole process.

The person who has water rights in Oregon gets to keep and use the water right based on the permit itself, which may restrict the usage to purposes like irrigation, domestic, commercial, or even storage, fish culture, and recreation. A water right permit will outline how much usage the person has [e.g. “Maximum storage volume: 9.0 acre feet per year” or “one-eightieth of one cubic foot per second per acre”], and will typically state where the point of diversion where the water is drawn, and will explain the location where the water right is attached [e.g. “1.6 acres SE ¼ NE ¼ as projected within Shellon DLC 52” from State Records of Water Right Certificates, Volume 25, page 33234]. The person with the water rights can use up to the amount stated on the water right certificate, but no more. If the water-right holder fails to use the water right for 5+ years, they lose the water right. So, if a person had access to storage of 9.0 acre feet per year, but for a decade only used 4.0 acre feet per year, they have lost the right to anything greater than 4.0 acre feet per year. The person must now apply for a new water rights permit to get back at the previously permitted 5.0 acre feet; applying for a new permit means the person is now the least senior claim to the water and there will likely be no water left to fill the new permit request. Some rivers and streams may be overdrawn, and the access to water will depend on the season [Oregon officially states that most of the surface water is fully appropriated during summer months, and they don’t make more of this stuff]. 
E.g. a river has a typical flow rate of 20 cubic feet of water per second, three people own water rights to it. Owner 1 has a 1975 right to use 10 cubic feet per second, Owner 2 has a 1985 right to use 8 cubic feet per second, and Owner 3 has a 2010 right to use 5 cubic feet per second. The three collectively are allowed to take 23 cubic feet per second, but the river only has 20 cf/s. In a wet year, the river may be swollen and have 25 cf/s, at which point everyone gets their fill and 2 cf/s goes sliding downstream. In a dry year, if the river only has 18 cf/s, Owner 3 may not have any rights to use the river [b/c Owner 1 gets their 10 cf/s first, then Owner 2 gets the last 8 cf/s]. Understanding the priority of water rights is radically important for owners who plan to do agriculture or ranching; importing water is expensive and the broker who states, “Oh yeah, you get five cubic feet of the stuff, you’re golden to raise that crop” may be extending themselves into a lawsuit. Violations of Oregon water law can literally result in criminal convictions.

There is a presumption of forfeiture if anyone can show that the water was not used for five or more years. There are some exceptions to the presumption of forfeiture that excuse non-use, but they are typically things like voluntary water conservation in the face of drought conditions, not forgetfulness. This “use-it-or-lose-it” standard can result in significant loss of value, and if your client is uncertain about the extent of their beneficial use, they will want to contact a specialist to establish the client’s rights or lack thereof.

A water right is something of value that usually moves with the land, like a fixture. If your client is interested in the property because of the water right, you should advise that client to seek a specialist in water rights [generally an attorney] who can provide more research and diligence. Water rights can be sold or transferred so that they no longer are a part of the property, so there is a diligence process for any water-right property. Just because it looks like it’s on a river or just because past owners farmed with the water does not mean that the present owner has control of the same amount of water. More to the point, if a water right has been lost, the only way to reestablish it in most circumstances is to get a new water rights permit, which puts the landowner at the back of the list. Many rivers, aquafers, and streams in Oregon have been fully appropriated, which means your client may be the 1oth person in line for something that only the first 3 people get. Loss of water rights can be a significant impact to value of the property, so be sure to use the diligence period to look into the water rights. If the Buyer learns that the property lacks the water rights they thought it had, the Buyer can validly terminate during the Oregon REALTORS® Forms “due diligence period” and recover their earnest money.

Euripides once wrote in Alcestis, ”No one can confidently say that he will still be living tomorrow.” When death is a surprise, there are oftentimes contracts and agreements that have not been completed. When a person dies, their assets, their property, their obligations and their benefits are transferred into an abstract legal entity known as the “Estate.”  The Estate is managed by some third-party person known as the “Personal Representative” who acts as the legal signatory for the Estate.  The Personal Representative pays off the debts, pays taxes, distributes property to the heirs, carries out the intent of the will, and generally acts as a steward of the estate’s belongings. When a person dies while selling their property or when purchasing property, there are several ways that the law addresses the scenario:

Death of Joint Seller/Buyer

  • When a married couple owns a home, they typically own it as “tenants by the entirety,” which is a form of ownership with a right of survivorship.  Alternately, Oregon allows multiple people to own property as “not as tenants in common, but with a right of survivorship” [everywhere else in America this is called a “joint tenant”] which will have a similar effect on the property. When one of the tenants by the entirety/not-tenants-in-common, but-with-right-of-survivorship dies, the remainder receive the deceased party’s interest. E.g., when a husband dies, his wife takes the full interest in the property if they were tenants by the entirety. There is no transfer, the deed doesn’t need to be updated, it is simply owned by the remaining surviving spouse [generally the spouse/listing agent would need to record the death certificate or some other proof to show that they are now the undivided owner of the property]. If an Agent has an agreement to list a property for a husband and wife, then wife dies, the Agent does not need to sign a new listing agreement with just the husband; the husband can sign and sell the property as an individual.

  • If you have a situation where the sellers were co-tenants, the Agent would address the deceased party’s transaction based on the breakdown below [i.e. it depends on whether you’re under contract or not], but the remaining surviving client’s representation will be unchanged.

  • If you have a situation where co-buyers hire an Agent, but one Buyer dies; the agent can proceed with the representation of the surviving client, but financing may become a roadblock to future purchases and the Agent will want to discuss modification to the scope of the representation. If the Buyers were already under contract, the Agent would address the transaction based on the breakdown below (Buyer Side – Death of Sole Party when Under Contract), however the surviving Buyer would be able to take over the transaction [basically absorbing the deceased party’s obligations] if the deceased Buyer’s estate refuses to take up the purchase and Seller approves of the surviving Buyer doing contractual in-filling.

 

Death of Sole Party Occurs when Property not under Contract

  • Buyer Side: When the Agent and Principal are not yet under contract to purchase, but do have a Buyer representation agreement in place [in writing or through implication] and the Buyer-Principal dies, the agency relationship is over. There is no further representation. The Buyer’s estate does not inherit the agent, the estate is not locked into a representation until the end of the Buyer’s Representation Agreement’s term. A 2020 case from Massachusetts called Newton Centre Realty, Inc. v. Jaffe, 97 Mass. App. Ct. 726 (2020) produced a first-of-its-kind ruling on agency relationships in death. The court found that “well-settled common-law principles of agency” terminated brokerage agreements upon death of the principal because the agency agreement did not confer an interest in property. The agreements that do confer an interest in property, however, persist beyond the death of the principal [hence, the Buyer-Seller purchase and sale agreement will remain enforceable after death, but the agency relationship guiding the sale agreement will wither away]. The logic of the Massachusetts court’s ruling would very likely hold in Oregon as well.

    Agency relationships without any other moving parts are appurtenant to the individuals; when the Buyer dies, so too does the Buyer’s agency relationship with Agent. The Agent would only persist in searching for property if the Buyer’s estate chooses to enter into a separate representation agreement with the Agent to purchase property for the estate [this would be irregular].

  • Seller Side: When an Agent and Principal are in a listing agreement but no offers to purchase have been accepted, and the Seller-Principal dies, the agency relationship ends, the listing should be removed from the MLS or withdrawn until further discussion can be had with the Estate of the deceased Seller. The Estate may choose to engage the Agent and list the property, or the estate may choose not to engage the Agent and to allow the property to move through probate or inheritance. If the Estate chooses to engage the Agent, a separate listing agreement will need to be signed between the Agent and the Estate of Decedent [the Personal Representative would be the signatory here, but the client is the estate]. If the estate chooses not to engage the Agent but the personal representative sells the house nonetheless, the Agent is not entitled to any compensation, as the property was not sold by [or even owned by] the Agent’s Principal in the transaction [i.e. the deceased Seller]. This “Agent gets no compensation when Personal Representative shepherds sale to completion” outcome is the direct holding from Newton Centre Realty, Inc. v. Jaffe.

 

Death of Sole Party Occurs when Property Under Contract

  • Buyer Side: When the property is under contract and a Buyer dies, the Buyer’s estate receives the obligations under the contract. In essence, the estate is required to adhere to the terms of the contract with the Seller. Most Buyer estates at this stage renege on the deal or otherwise terminate, and depending on the reason for the termination, the estate may lose the earnest money in the process. Many estates will let the transaction fail at this stage because the heirs do not wish to own property where the deceased Buyer was purchasing, but if the heirs approve of the purchase, they can direct the Personal Representative of the Estate to proceed with the purchase, adding the property to the estate to then be disbursed amongst the heirs per the will or intestate laws. The estate will typically only be able to purchase the property if it is using assets of the estate to make the purchase, such as cash from a bank account; if the Buyer was using a conventional loan, the estate’s ability to purchase using that loan will entirely be dependent on the lender and whatever deal the heirs can work out with the lender.

    If this Buyer was represented by an Agent, the agency relationship ends when the Buyer dies. The estate of the Buyer can sign an independent agreement with the real estate broker, but the estate is not required to do so. If an independent agreement is signed establishing an agency relationship between Agent and the Estate of the Buyer, Agent should proceed with the transaction and amend the documents to reflect the changed ownership of the property [e.g. use a general addendum to reflect that the Buyer is now “Estate of ___,” and that the signatory for the estate will be “______, personal representative of the Estate of ____.”

    If the estate proceeds with the transaction and makes the sale without engaging the deceased Buyer’s Agent, the law is unclear whether the Agent would have any claim to compensation as a procuring cause. Presumably, based on the outcome in Jaffe, the courts would rule that the Agent is not entitled to compensation because there was no privity of contract or agency relationship between the agent and the estate of the deceased. The Agent may be able to argue that their services had a cost associated with them and that the Buyer’s Estate is required to pay that cost [e.g. an hourly cost for the Agent’s time in the transaction, applied to the Buyer’s Estate as a debt incurred by the Buyer before their death], but the nature of real estate compensation as a payment upon completion of sale rather than a fee-per-service or hourly-fee structure very likely means the agent has no valid claims to compensation when the client dies mid-transaction and the estate refuses to ratify or re-create a new agency relationship.

  • Seller Side: When a Seller under contract to sell the property dies, the transaction remains valid and the Estate of the deceased Seller remains obligated to sell the property. The Seller’s estate does not have the same ability as a Buyer’s estate to simply let the deal fail for want of the heirs. If the Estate allows the deal to fall through “because the Seller died,” the estate would be terminating the transaction for a reason unstated in the contract.  Real property sale agreements do not allow a Seller to simply not sell when the Seller dies, so a Seller Estate termination would allow the Buyer to claim specific performance and force adherence to the original terms of the contract through judicial order. The Estate is allowed to terminate for valid reasons [e.g. if the Buyer didn’t put in the earnest money, the estate could likely terminate based on Buyer’s failure], but the death of the Seller is not considered a valid reason for termination.  Occasionally the heirs of the estate will disregard the risk and terminate nonetheless, if that is the case, those heirs are well advised to seek an attorney’s counsel before sending any termination documents.

    The Agent of the deceased Seller faces the same problem the Buyer’s Agent faces.  They no longer have an agency relationship connected to the Property that is under contract. If the Estate signs a listing agreement with the agent, Agent can proceed with representing the estate in the sale, but if the Estate refuses to sign a listing agreement, the Agent has no legal connection to the estate and will receive no compensation for the sale of that estate. Similar arguments about Agent’s entitlement to compensation for time exist in this context as well, but the commission payment structure likely means the agent will not be entitled to any compensation for their work if the estate freezes the agent out of the partially-completed transaction.

 

Death of Person with a Power of Attorney

  • The Power of Attorney allows a third-party to perform the legal acts of the original person. If the Buyer has a general Power of Attorney, the Power of Attorney is going to be able to sign and contract as though they were the Buyer. Once the Buyer dies, the Power of Attorney is no longer effective. It is a tool that is used to assist infirm or mentally unfit parties in contracting, it is not a bypass for probate and personal representative appointment. The same answer is true for Sellers with Powers of Attorney. All signatory authority of the Power of Attorney disappears with the death of the Seller.

Oregon REALTOR® Forms define “Business Day” as “any day other than Saturday, Sunday, or a legal state holiday under ORS 187.010.”  ORS 187.010 has a comprehensive list of all the legal holidays in Oregon. Several of the days are set up based upon specific days within a month:

  • MLK Jr. Day on the third Monday of each January;
  • Presidents Day on the third Monday of each February;
  • Memorial Day on the last Monday of May;
  • Labor Day on the first Monday of each September;
  • and Thanksgiving Day on the fourth Thursday of each November.

Other holidays are set based on specific days within the calendar:

  • New Year’s Day on January 1;
  • Juneteenth on June 19;
  • Independence Day on July 4;
  • Veterans Day on November 11;
  • and Christmas Day on December 25.

The calendric holidays create particular difficulty because they fall on a moving day of the week each year. As a result, ORS 187.010(2) explains how these moving target days are celebrated. When the holiday falls on a Sunday, the next Monday is treated as the legal holiday [e.g. if Christmas is on Sunday, Oregon law says Monday, December 26 is the holiday that year]. When a holiday falls on a Saturday, the Friday before that holiday is treated as the legal holiday [e.g if Veterans Day is on Saturday, therefore Friday, November 10 is the legal holiday that year].

You may find that agencies publish other statements about when holidays are observed or when the agency is closed, such as the Oregon Public Utility Commission, stating that the day after Thanksgiving is a holiday. PUC describes the day after Thanksgiving as a holiday based on State HR Policy No. 60.010.01, that outlays the various days state employees are given as paid holidays; the state policy includes the day after Thanksgiving based on ORS 240.551.  ORS 240.551 allows the state Personnel Division to establish holidays for the state government above and beyond ORS 187.010. When the Personnel Division sets up a holiday on a day that is not otherwise noted in ORS 187.010, that is a “holiday” for the government employees, but it is not a holiday for the rest of Oregon and not a holiday for the Oregon REALTOR® Forms.

The Contingent Right to Purchase is a regular confusion point in a contract. As a baseline, if you are going to make a contract contingent on the Buyer selling their personal property before purchasing the Seller’s home, you should absolutely be using a contingent right to purchase form. Simply writing, “The transaction is contingent on the Buyer selling their house” in a general addendum or in the additional provisions is not going to be sufficient. Contracts are literal creatures, saying, “Transaction is contingent” just means, “xyz has to happen by closing or the deal is off.” This means, when you write, “The transaction is contingent on the Buyer selling their house” but nothing more, if the Buyer’s house sale falls through two weeks before closing, there’s nothing the parties can do until closing; termination rights are not granted by the language you wrote in the contract. A lot of lawyers and a lot of practitioners have worked on this problem for a long time and the Contingent Right to Purchase form is your way to create a meaningful, procedural, and methodical approach for these contingent right transactions.

To begin with: the Contingent Right to Purchase is used when a Buyer has to sell their property before closing on the Seller’s property, generally because the Buyer does not have available financing to purchase the Seller’s house without the liquid assets from the Buyer home sale. The “how safe is this Buyer offer financing” scale for Sellers usually goes:

(1) buyer has briefcase full of money with them presently and can buy the house outright,

(2) buyer has known bank offering mortgage to cover purchase price,

(3) buyer has money coming from *somewhere* or *somebody*?

(4) buyer doesn’t have enough money yet, but trust them, it’ll be here soon. 

A contingent right to purchase sockets somewhere between step 3 and 4 of the above scale. Sellers regularly accept Buyer offers with contingent rights, but that acceptance comes with the implicit assumption that the Buyer financing is unstable. The concession that is given to Sellers to encourage these contingent rights is known as “bumpability” or “acceptance subject to contingency” or whatever your MLS defines the similar term as. In other words, the Seller says, “The Buyer is a little uncertain about where they’ll have the money, but I want to accept their offer. However, I still want to be able to do best for myself. Hence, let me keep looking for other buyers while I’m under contract with this current Buyer.” The Seller is allowed to keep advertising and accepting offers on the property despite being under contract with the Buyer. What then does the Buyer get out of the Contingent Right to Purchase? The Buyer gets an offer accepted despite not having liquid finances or secured financing. The Buyer also gets the ability to terminate the sale at any time by indicating that the transaction is not working out.

If the Seller wants to accept an offer from another Buyer, the Seller has to notify the original Buyer.  The notice says, “Buyer, I got another offer that I’m going to accept. You have a small window of time to either drop the contingency and put us under contract or I can terminate our offer.” For lack of a better description, the Seller triggers the “fish or cut bait” provision. When the Buyer learns that the Seller has a better offer, the Buyer gets a day or so to respond, and in their response the Buyer can say one of three things: (1) I have an offer on my house, let’s get rid of the contingency and just be under contract; (2) I don’t need the contingency anyways, I have enough money elsewhere to handle the purchase; or (3) I can’t afford Seller’s property at the moment so I guess I have to terminate.   If the Buyer doesn’t respond, the Seller can just terminate the transaction and go forward with the third-party buyer’s offer.

In practice it would look like this: the Buyer puts in offer for $500,000 with contingent right to purchase; Seller accepts. Seller advertises and after a few weeks gets an offer for $495,000 all-cash. Seller says, “Buyer, I got another offer, it’s all cash so I think it’s more likely to close because I haven’t heard anything about your property selling so I’m going to go with it if I can.” The Buyer responds within a few hours, “I have an offer on my property that has been accepted, I was hoping to wait until they got through inspections, but I want to purchase your house so I’ll drop my contingent right to purchase and hope my sale goes through.”  The contingent right to purchase ends and now the Buyer and the Seller are in a transaction that is no longer contingent on the sale of Buyer’s house. If the Buyer’s house sale fails, Buyer and Seller need to work out the financing or terminate the transaction [consult Form 2.11, section 9 for the language on how they negotiate or terminate when the Buyer’s property sale fails].

Pay attention to your timelines in the Contingent Right to Purchase. In the Oregon REALTORS® Forms, the timelines continue as though you were under a normal contract unless the parties specify otherwise in a written addendum. If the Buyer doesn’t want to start doing inspections or reviewing the title report until after their personal property has an offer on it, or until after their personal property has sold, they need to specify that in writing. Our approach when drafting the Oregon REALTORS® Form Contingent Right to Purchase was: the contingent right to purchase is already a Seller taking on additional risk by accepting an offer from a buyer with uncertain financing; why then would the Seller also automatically take on timeline extensions to the Seller’s house closing based on a transaction that has no connection to the Seller? The default should be “the Seller sells the house as normal,” and timeframe extensions based on the Buyer’s closing or accepting offers should be something the Buyer requests rather than something the buyer expects.

Disclosed Limited Agency causes confusion at times, particularly when viewed through the lens of the default exclusivity of agency relationships. Clarity is required to square the circle of agency law and agency relationships, and to understand why and how a properly administered disclosed limited agency operates. 

Under ORS 696.800(1), an “agent” can be several things:

  • a principal broker in a listing agreement with a Seller;
  • a principal broker in a service contract with a Buyer;
  • a principal broker who is part of a disclosed limited agency agreement; and
  • a “real estate broker associated with a Principal Broker in order to act as the Principal Broker’s agent in connection with acts requiring a real estate license and to function under the principal real estate broker’s supervision.”

 

It is worth noting that the preamble to ORS 696.800 states that the definitions are to be used “unless the context requires otherwise.” In other words, the definitions in ORS 696.800 are useful until they aren’t, at which point context determines further meaning. For the purposes of ORS 696.800, a real estate broker is an “agent,” but only insofar as they are an agent of the principal broker, brought in to act under the principal broker’s supervision. In contrast to the broker, a principal broker can be the client’s agent directly. The real estate brokers associated with the principal broker are legal appendages of that principal broker, deputized by that principal broker and imbued with all of that principal broker’s obligations and responsibilities to the principal broker’s client, allowing the broker to act in the principal broker’s stead throughout the transaction. The ultimate responsibility for the agent’s actions, however, is on the principal broker. Hence the principal broker’s supervisory requirement over actions of associated broker at law and rule.

Agency as a concept has been further sub-defined by the Oregon Real Estate Agency (OREA) in rule with OAR 863-015-0200(1), which explains that the parties may establish only the following types of “agency relationships” [unless the parties expressly agree to something not otherwise prohibited by law]:

  • exclusive seller agency;
  • exclusive buyer agency;
  • disclosed limited agency where licensees are associated with the same Principal Broker and represent both seller and buyer;
  • disclosed limited agency where licensees are associated with the same Principal Broker and are designated to represent, respectively, the buyer exclusively and the seller exclusively; or
  • disclosed limited agency where licensees are associated with the same Principal Broker and represent more than one buyer.

 

The “agency relationship” is established by the written agreement or through course of conduct with a seller or a buyer. The “disclosed limited agency relationship” is established when either the principal broker or licensees associated with a principal broker shares representation of multiple parties in a transaction.[1]  Disclosed limited agency [through ORS 696.800(4)] is understood to be “a real property transaction in which the representation of a buyer and seller or the representation of two or more buyers occurs within the same real estate business.” Disclosed limited agency as a term is a reference to the transaction as a whole, separate from the traditional phrase you may hear “dual agent” or “disclosed limited agent” which is a reference to the broker/principal broker operating as an adverse party with the principal’s [client’s] consent. Per OAR 863-015-0200(2)(c), the agent is only a disclosed limited agent of both buyer and seller when they are in a transaction where the agent represents more than one buyer in the same transaction, or when agent represents both seller and buyer in the same transaction.  OAR 863-015-0200(2)(c) does not establish any “disclosed limited agent” problem for a principal broker’s agents in situations where the principal broker’s agents are designated to respectively represent the buyer and seller exclusively. It is never stated, but the presumption is that the client must be the one being told the agent is designated as an exclusive agent of that client. Furthermore, OAR 863-015-0200(3)(a) establishes the principal broker as the client’s disclosed limited agent whenever an agency relationship is formed. 

Said in a more simplified way: the supervising PB is always a disclosed limited agent when there is a disclosed limited agency relationship. The brokers are only disclosed limited agents when they are in established agency relationships with multiple parties to a transaction. Simply the fact that the PB is a disclosed limited agent does not mean that all brokers associated with that PB are now disclosed limited agents. If the brokers are not disclosed limited agents, they are treated as exclusive agents of their respective party [buyer/seller]. 

Note: Since the PB is always a disclosed limited agent any time a disclosed limited agency transaction exists or any time the PB has two brokers exclusively working on different sides of the same transaction, that supervising PB should always be requesting a Disclosed Limited Agency Agreement from all clients who cross their desk, even if that PB is merely supervising the activities of their legions of brokers.

Under ORS 696.815, a disclosed limited agency relationship requires a disclosed limited agency agreement. If the agent is acting in a disclosed limited agency relationship without a prior written disclosed limited agency agreement signed by both the parties [seller & buyer or buyer1 & buyer2] they are in violation of ORS 696.815.  The principal broker should equally establish a disclosed limited agency agreement with all clients. Section (2)(b) of the Disclosed Limited Agency Agreement expressly states, “[i]n a transaction involving the listed property where the buyer is represented by an agent who works in the same real estate business as the Listing Agent and who is supervised by the Listing Agent’s Principal Broker [“Listing Agent” is an undefined term, we can presume this means “licensee associated with principal broker” based on the subsequent reference to “Listing Agent’s Principal Broker”], the Principal Broker may represent both Seller and Buyer. In such a situation, the Listing Agent will continue to represent only the [client] and the other agent will represent only the [other party] consistent with the applicable duties and responsibilities as set out in the initial agency disclosure pamphlet.” [see OAR 863-015-0210(3) & (4) for language of disclosed limited agency agreements].

Questions arise about conflicts of interest: does the PB need to disclose the conflict of interests if they are a disclosed limited agent? The simple answer is no.  The normal conflict of interest analysis arises from violations of the agent’s various duties to the client, particularly the duty of loyalty. As a general principle, “an agent is subject to a duty to their principal to act solely for the benefit of the principal in all matters connected with their agency.” Restatement (Second) of Agency, §387. This is also spelled out in ORS 696.805 and 696.810 which states that an agent must be “loyal to the [principal] by not taking action that is adverse or detrimental to the [principal’s] interest in a transaction. When an agent favors another person or favors themselves over and above the client, there is a conflict of interests and ORS 696.805 and 696.810 mandate disclosure of those conflicts.  The Disclosed Limited Agency Agreement discloses the conflict and by signing the agreement, a client approves and ratifies the conflict as nonmaterial to the agency relationship. The common law principles of agency permit dual agency;[2] seeing it as an element of the right to contract that Americans receive through the 5th and 14th amendment Due Process Clauses and caselaw.[3] For that reason, the Seller and Buyer can choose to limit their own protections and allow an agent to represent both them and the opposite party.

Some confusion arises in how the Final Agency Acknowledgement (FAA) interplays with the rules of agency.  The FAA is required under ORS 696.845 and OAR 863-015-0200(12), but it is an acknowledgement and consent to the existing state of the agency relationships. It does not create a disclosed limited agency nor does it create a buyer-broker relationship. The FAA merely exists as the Buyer and Seller confirming the brokers in the transaction and confirming existing disclosed limited agency agreements [in the event both sides of the transaction have agents from the same real estate firm]. Within a single FAA, the Buyer’s Agent can mark that they are the Agent of the Buyer exclusively, and the Seller’s Agent can mark that they are the Agent of the Seller exclusively, and the Principal broker who supervises both those agents can simultaneously be declared the disclosed limited agent of both parties. Exclusivity in this context is in reference to the individual brokers acting in their capacity as either Buyer’s Agent or Seller’s Agent and exclusively representing the interests of the respective client.

The above is not to say that there are not inconsistencies and weaknesses in the drafting and language revolving around agency. For example, OAR 863-015-0200(3)(a) states that the Principal Broker is a disclosed limited agent of a client at any time that an agency relationship is formed under OAR 863-015-0200(2).  OAR 863-015-0200(2) then references every variation of agency relationship. If read literally, OAR 863-015-0200(3) states that the principal broker is 100% of the time, always a disclosed limited agent, even if the principal broker only has one agent in the transaction and the agent is merely acting as an exclusive agent of one party. Likely, it was a drafting error that slipped through and the principal broker was only meant to be considered a disclosed limited agent when the agency relationships in OAR 863—015-0200(1)(c), (d) or (e) are involved. The rule, read literally, is absurd and your Association will petition OREA for changes to that rule to clean up the nonsensical reading.

Similar absurd readings can be found in how ORS 696.815(2) declares that the licensee has duties and obligations “(a) to the seller, the duties under ORS 696.805” and “(b) to the buyer, the duties under ORS 696.810.” ORS 696.805 and ORS 696.810 both contain clauses (3)(c) mandating the agent be loyal to the client and not take any action that is adverse or detrimental to the client.  Inherently, disclosed limited agency violates this duty of loyalty requirement. The reasonable reading would normally be “ah yes, but forming a disclosed limited agency with the disclosed limited agency agreement operates as the client waiving a portion of the duty of loyalty,” however section (5) of both ORS 696.805 and ORS 696.810 state that the affirmative duty of loyalty is one of the unwaivable duties. Given the conflict between the statements in ORS 696.815 and the entire remaining litany of laws related to disclosed limited agency, it is reasonable to argue that the courts would interpret the laws in a manner that avoids internal legal conflicts [known as the “avoidance canon of statutory construction”].  Beyond that, dual agency is a keystone element of agency law and is so deeply entrenched in common law that it would be nigh impossible to upend; together with presumptions against implied repeals, the end run of the absurd drafting in ORS 696.815 would be to read it as “you owe a buyer and seller all the duties under ORS 696.805 and 696.810, but you can blur the lines on the duty of loyalty a little bit for this transaction.” If the legislature will have it in the 2025 long session, your Association has plans to clean and correct the language of ORS 696 where needed, ideally to remove these sort of drafting errors and end any pedantic conflicts over semantic meaning.

 


 

[1] see OAR 863-015-0200(2)

[2] “[a]n agent who, to the knowledge of two principals, acts for both of them in a transaction between them, has a duty to act with fairness to each and to disclose to each all facts which he knows or should know would reasonably affect the judgment of each in permitting such dual agency, except as to a principal who has manifested that he knows such facts or does not care to know them.” Restatement (Second) of Agency, §392.

[3] See Lochner v. New York, 198 U.S. 45 (1905).

A Buyer Representation Agreement is functionally similar to the Listing Agreement. Both contracts create an agency relationship between the client and the agent. The contract establishes the purpose of the agency relationship (You are all limited agents. When someone hires you, you don’t become their power of attorney; you can’t sign legal documents for them, you can’t make medical decisions, etc. You only do the limited things the contract says you can do: help them buy/sell a house). This purpose can be as broad as “I want to buy a house I can afford” or as narrow as “I want to buy a 5 bedroom, 3 bath, split-level built after 2000 somewhere in Benton County.” The purpose defines roughly what an agent can do and where they can do it. If an agent is asked to help the client look for residential properties and they keep showing the client non-residential industrial parks against the client’s wishes, that agent is not acting properly and can be disciplined.

Beyond that, the agreement sets up the duties of the agent (to help buy a house, usually, as well as the agent’s fiduciary and ethical duties), and the duties of the client (to cooperate with agent and provide accurate, rapid responses to agent questions). It sets up the timeframe for the representation, and it establishes how the agent will be paid. In the Buyer Representation Agreement, an agent gets paid by the Buyer at successful closing; however if the Seller’s Agent offers a Buyer’s Agent Commission (BAC), the client’s obligation to pay their broker is reduced by that BAC.

Buyer agents with representation agreements additionally have an established timeframe after the agreement is terminated where they are contractually due payment if the Buyer ends up purchasing from someone the Buyer Agent introduced the Buyer to during the agreement. There are regular stories around the nation of agents who work with a client for months, then the day after the representation ends, the former client goes under contract on the first house the agent showed them. In most cases, it’s clear that the client was simply waiting out the agent to avoid paying them. Hence, representation agreements typically create a contractual “procuring cause” timeframe of around 180 days after termination (note this is for the purposes of the contract between buyer and agent and does not determine “procuring cause” in an NAR BAC arbitration dispute between two buyer’s agents).

Speaking of terminations, the Oregon REALTORS® Buyer Representation Agreement establishes an optional “early termination fee” if the contract is terminated early by the buyer. The parties can write in any number (including 0) or leave it blank. Under this agreement the early termination is not a breach of contract and the fee is not a penalty. Rather the early termination fee is an agreed upon amount that the parties believe is reasonable for the buyer to pay in order to 1) have the right to terminate early without breaching the contract and 2) reasonably compensate the broker for their risk, time, materials and efforts expended.

The Oregon REALTORS® Form 2.21 can be used to create a back up offer in either the first back up position or in the second backup position.  A “back up” is an offer by a Buyer that has been accepted by a Seller who is already under contract with somebody else; the back up Buyer is not legally bound to any of the terms of the Purchase and Sale Agreement until the back up Buyer receives proof that all higher priority contracts have terminated or have been revoked.

The back up Buyer’s position in line is known as their “priority.”  A contract can only ever be active with a single purchaser [you can’t sell the same home to two people at the same time], so we line the back up offers after the primary contract and move through the back ups accordingly. If the primary contract fails, the Seller then moves on to back up offer number one.  If back up offer number one fails, the Seller moves on to back up offer number two, and so on.  There should never be two Buyers who are told they occupy the same place in priority (i.e. don’t tell two Buyers that they’re both “back up Buyer number 1”).

When a primary offer fails, the first back up does not go into effect until the Seller provides back up Buyer number one with some sort of affirmative proof that the primary offer failed. This is generally done with a Form 5.3 Buyer’s Notice of Termination, Form 5.5 Buyer’s Response to Termination, or Form 5.7 Statutory Revocation of Offer [described in Form 2.21 as “Required Documents”].  In each of these three instances, the primary offer buyer will have signed a document that says, “The contract is done.”  If the Seller cannot provide one of these documents, the primary contract may still be ongoing or there may be a specific performance lawsuit on the horizon; back up Buyer number one will not be obligated nor will the first back up offer become effective until the Required Documents are delivered.

For the second back up offer to become effective, they need all the same Required documents from the primary contract, plus some sort of proof that the first back up offer is over too. This means the second back up Buyer will need to receive (1) a Form 5.3, Form 5.5, or Form 5.7 for the Primary Offer; and (2) a Form 5.3, Form 5.5, or Form 5.7 for the first back up offer or some other proof that the first back up offer was revoked, expired, or was terminated before it became effective.

Once a back up Buyer has received the required documents, the back up offer has become effective and all of the closing dates, timelines and such should be recalculated and restated [the parties should agree to a closing date that is reasonably achievable]. 

The listing agreement is the backbone of most real estate transactions. It is the agreement undergirds nearly every property for sale on one of the ubiquitous REALTOR® Multiple Listing Services. The Listing Agreement is a two-prong document, (1) it gives the agent the rights to advertise the Seller’s property, and (2) it sets up the relationship between Seller and agent, establishing the rules of engagement and the expectations of both agent and principal. Oftentimes, the listing agreement will also contain a “data input sheet” where the MLS can get all the necessary programmable information needed to create the digital billboard. 

Without a listing agreement, life for brokers gets a lot more risky. The simple thought experiment that shows the value of a listing agreement is as follows: An agent shepherds a client through a sale, holding their hand through the process, talking them off a ledge when the client gets angry and demands to terminate, eventually carrying them to the halcyon fields of the escrow office to sign the closing documents. Right outside the escrow office, the Seller hands the Broker a written document that says, “I’m firing you, you are no longer my agent.”  The Broker nonetheless asks the Seller, “What about our agreement that I’d get 2.5% of the sale price?  I did everything you asked me to do!”  To this, the client shrugs and responds, “What agreement? I fired you before the sale happened.”  With nothing in writing, the Broker has an uphill battle to prove they are entitled to the sweat of their brow commission. The natural solution to the situation is to have the client and agent put the relationship into writing. Better yet, have the parties sign the dang thing and make it look way more like a legally binding contract.  That’s exactly why we have listing agreements.

The Oregon REALTORS® Form 9.3 Listing Agreement is a statewide listing form that can be used to establish the agency relationship. It technically creates an exclusive agency relationship between the Seller and the firm/brokerage, with the firm deputizing the Principal Broker and Broker to also act under the agreement.  This means: if the Broker or Principal Broker quits or dies or moves to another firm, the listing stays with the firm.

The form asks the parties to set an expiration date for the listing agreement, and to set the listing price [the price that the property will be listed for]. If the Seller sells the property, if the agent finds a “ready, willing, and able to purchase Buyer,” if the Seller intentionally torpedoes a transaction, the agent gets their commission. Worth noting: “ready, willing, and able” means the buyer is completely prepared to get to closing without issue. If the Buyer is “willing to buy” but needs a contingent right to purchase because they have some screwball financing, that Buyer is not ready, willing or able.

The form further explains what will happen if a Seller gets to keep the earnest money; does some of it go to the agent, or does it all go right back to Seller?  It sets up the authorities, telling the agent what they are allowed to do, when they can market the property, where they can advertise it, whether they can use lockboxes or internet services like Craigslist, etc. The Seller also promises that they can sell the property and that they won’t lie on the various disclosures they are asked to make. If things go haywire, the Seller indemnifies the Broker for any harms caused by the representation, damages caused by the Seller, or litigation based on misrepresentations and breaches of warranty.  In other words, if the agent gets sued for doing their job and it’s the Seller’s fault, the Seller will pay for it.

ORS 696.845 requires that the Buyer “acknowledge the existing agency relationships, if any,” when signing an offer to purchase. Similarly, the law requires that when a Seller “accepts or rejects an offer to purchase in writing,” the Seller must acknowledge the existing agency relationships, if any. This law is the reason why your Oregon REALTORS® Purchase and Sale Agreements begin with a “Final Agency Acknowledgement,” which can also be found as Form 9.1. The document can be “incorporated into or attached as an addendum to the offer.”  Oregon REALTORS® opted to make the Final Agency Acknowledgement a separate attachment, so as to allow the easy addition of more forms (real estate teams are growing, so it would seem).  If you incorporate the FAA into an agreement and have it preprinted, the document has to be at the top of the first pre-printed page “separate and apart from the Sale Agreement.”

OREA provided the form and format of the Final Agency Acknowledgement in OAR 863-015-0200, so much of the Oregon REALTORS® Final Agency Acknowledgement was predrafted language that had to be there to comply with administrative rules. The function of the form is to provide the name and relationship of the agents in the transaction; to explain when the agent is an exclusive agent and when they are a dual agent, and to ensure that the Buyer and Seller both understand the representation breakdown of the agents. This is particularly important when the Buyer’s Agent and Seller’s Agent come from the same brokerage, as the Principal Broker will be operating as a disclosed limited agent, despite the two individual brokers individually representing the clients.

It is always worth noting: the Seller is supposed to sign the FAA even if they reject the offer. Signature on the FAA does not count as “accepting” the offer.  The Seller’s signature on the Final Agency form is merely a required procedural acknowledgement.

Title Reports are an integral part of the sale transaction. All Oregon REALTORS® sale transactions require the Seller to provide an American Land Title Association [ALTA] “Standard Coverage Owner’s Policy of Title Insurance, showing title vested in the Buyer.” This standard owner’s policy covers the Buyer against possible losses and damages that happen due to issues or defects in the title. Basically, title insurance companies will pay for harm caused to the Buyer if the title turns out to have defects [e.g. nobody recorded it properly, so the owner doesn’t actually own the land], if there are unmarketable title issues, if there are access right issues, municipal zoning or usage issues present at closing, lien or mortgage issues, and a few others. The company insuring the title will pay to cover the costs incurred from the issues, generally in the form of remuneration.

With all of the above coverage, there are some exceptions. Title will always exclude a handful of things from the title insurance policy:

1. Law or regulation that restricts occupancy, use, enjoyment of the land, character/dimensions of the land, subdivision of the land, environmental protection/remediation, government forfeitures, or enforcement of these issues.[Basically, if the law already says you can’t do it, title won’t pay for your fight with city hall.]


2. Any power of eminent domain [if the government takes your land, title won’t pay for that problem].


3. Defects, liens, encumbrances or matters (a) created by the Buyer, (b) not known to title or otherwise in the public records, (c) resulting in no damage to the Buyer, (d) attaching or created after the ALTA policy is given, or (e) resulting in loss or damage that would not have been sustained if the Buyer had paid for the policy on time [if title couldn’t have known about the issue, they aren’t responsible for it].


4. Unenforceable mortgage issue caused by the Buyer’s noncompliance.


5. Claims caused by bankruptcy.


6. Liens caused by real estate taxes from a government agency.


7. Discrepancies in square footage or acreage of land or improvements.

The policy also very specifically excludes issues that are specifically identified in the Title Report Schedule A.  None of those stated items [e.g. unpaid property taxes, easements, and CC&Rs] will trigger title insurance payments.

Functionally, the above list can be distilled down into: “Title won’t cover you for issues that they couldn’t possibly know about; title won’t cover you for issues that we already know about; title won’t cover you for issues with government or taxes; or for issues that the Buyer causes.” What title insurance does do is cover you for the lawsuits that result from mechanics liens, poor surveys, forged documents and inheritance conflicts.  

If someone springs out of the woodwork and claims they have the original deed and therefore own the land; your title insurance should cover that lawsuit.  Having a clean title report that all parties review and approve is as close as most consumers can get to guaranteeing the marketability of the Seller’s title.

If you’ve ever looked at the “Construction” or “New Construction” sections of the Oregon REALTORS® Purchase and Sale Agreement, you’ll notice that the “Form 4.1 New Construction Addendum” is required for any dwelling that was constructed within 90 days of closing or any dwelling that had $50,000 or more in improvements within 90 days before closing. This language all comes from ORS 87.007, the “Homebuyer Protection Act of 2003.” The Homebuyer Protection Act requires a “Notice of Compliance with Homebuyer Protection Act” on or before the date that a sale closes for (1) new single family residences, condos, or residential buildings, (2) existing single-family residences, condos, or residential buildings where price for original construction [e.g. an addition to the property] within the last three months before the sale was $50,000+, (3) existing single family residences, condos, or residential buildings where the contract price for improvements to the structures within the last three months was $50,000+. The $50,000 number hasn’t been updated since the original passage of the Act in 2003.

If the Homebuyer Protection Act applies, the owner of the property at the time of the sale needs to “protect the purchaser from claims of lien that arise before the date on which the sale is completed but that may become perfected under ORS 87.035 after the date on which the sale is completed.” Contractors who do work for the property owner have a right to get paid. If the Seller fails to pay the contractor, the contractor can put a lien on the property for up to 75 days after the work was completed. In practice, this can mean a Seller gets an addition done to the home, opts not to pay the contractor, sells the house, Buyer moves in, and then a few weeks after moving in, a lien is put on the Buyer’s new house for work done for the previous owner.

The Notice of Compliance form required under ORS 87.007 requires the Seller to have title insurance that covers the lien, a sum equal to 25% of the purchase price held in escrow, a bond or letter of credit, written waiver from every person who could claim a lien, or affidavit that the sale was completed more than 75 days after the work. Basically, the Seller has to prove to the Buyer that they can pay off the lien or that the lien won’t be applied. Noncompliance can result in up to 2x the actual losses to the Buyer [e.g. a lien of $10,000 placed on the property, Buyer can sue Seller for $20,000+attorney fees].

As transactions get more and more reliant on the digital world, new methods of crime are springing up. Wire Fraud has become more common than ever before and the scams that hook brokers into the difficulties are constantly changing.  Wire fraud has been around for hundreds of years. In 1872, a law was passed by the 42nd Congress to make it unlawful to use the mail system to defraud another and in 1952, a further law was passed stating “[w]however, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined under this title or imprisoned not more than 20 years, or both.  If the violation affects a financial institution, such person shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.

The scams that had been committed by mail in the 1800s had moved on to the telephone wires and as time passed, onto electronic mail.

Modern wire fraud is subtle and oftentimes abuses the excitement of new buyers.  On closing day, the Buyer may receive an email from agent@bbank.com with the tagline “URGENT: New Instructions for Closing Funds.” The Buyer doesn’t notice that agent@bbank.com is not the same as the usual agent@bank.com and cracks open the email, then follows the instructions to wire the money to the fraudster’s account. It’s very difficult to undo a wire transfer, so oftentimes the scammer succeeds. Depending on how sophisticated the scammer is, they may create fake profile accounts that use your agent’s picture, they may shop the emails to look like they come from the agent, and may even have a copy of the agent’s signature line.

Form 10.5 is the Oregon REALTORS® Form library version of the Wire Fraud Advisory. There is a repeat of the wire fraud information in the Buyer and Seller Advisories [Form 10.1 and Form 10.2]. The advisory cautions the client to stay vigilant for irregular or sudden changes, advises that the client verify communications with the broker, warns against relying solely on electronic communications, and gives strict warnings about sending confidential information on unsecure systems. Brokers should always give a copy of the Buyer or Seller Advisory to their client, and if the broker is particularly concerned or believes the client needs additional emphasis, Form 10.5 should be given to the client.

In the Oregon REALTORS® Purchase and Sale Agreements, the dispute resolution provision has a very distinct process: (1) if there’s a dispute, take it to small claims court. (2) If small claims court can’t deal with the issue, begin a Mediation with Arbitration Services of Portland (ASP). (3) If the mediation is not successful, begin a binding Arbitration with ASP.

The small claims court step is oftentimes a bit of a mystery; this tip will hopefully remove some of the mists. 

Small claims court is a way of resolving disputes in front of a judge. Each County will generally have their own small claims court and some of those courts will have a pre-trial mediation program administered through the court. If the issue is just about money [not about specific performance or about forcing someone to do repairs, etc.], and the issue is worth $10,000 or less, the small claims court judge can hear the issue. This means, if the issue is worth $10,001+ or is about various equitable issues, you must take it straight to ASP Mediation.

The small claims process is relatively simple: the complainant files a notice of small claim form and explains the issue and itemized cost of the repair/issue. The claim gets filed where the defendant [the not-injured person] lives, or where the injury occurred [the county the Property is in], or in the county where a person was supposed to perform an action. The complainant has to notify the defendant, either by doing formal service, or by certified mail. Once that notice is given, complainant has 63 days to file the proof of service [certificate of service or acceptance of service], otherwise the case will be dismissed [the court assumes you didn’t give the required notice]. If the defendant denies the claim in the notice of small claims within 14 days after service, a hearing will be scheduled. If defendant doesn’t respond, the complainant can simply ask the judge for a default judgement within 35 days from the date proof of service was filed; this means there are no arguments, no discussions, the complainant simply wins the case.

Small claims court hearings are oftentimes informal, and parties don’t have attorneys present unless the court approves it. The parties will discuss the case and present testimony and evidence to a judge. At the end of the trial, the judge will make a decision and enter judgment. There is no appeal from this decision.  The winning party can take this judgement and make demand letters that tell the debtor that they have 10-30 days to pay off the amount due, otherwise further lawsuits can be brought to garnish and recover the money.

Assignment is a legal concept that refers to the transfer of rights from one person to another, and in common law [old British wig-wearing lawyer law] an assignment clause will transfer both the rights and the duties of an existing contract. See Corvallis R. Co. v. Portland Ry. Co., 84 O4 524 (1917). Assignment of rights under a contract does not, however, delegate the duties of the assignor [person assigning the contract] unless the assignee [person taking over the contract] agrees to assume the duties. An assumption agreement is basically the reverse of an assignment agreement. While assignment shows that one party desires to legally give their rights to another person, an assumption agreement shows that one party desires to legally take the rights from another person. They work together, creating a seamless transfer of obligations from one person to another.

The basic rule in contract law is that any contractual right and duty can be transferred to another person. Provisions that restrict assignment are legal, but these anti-assignment clauses must be absolutely clear. 

In the Oregon REALTORS® Sale Agreements, there is an assignment clause that reads, “Buyer may not assign this Agreement, or Buyer’s rights hereunder, without Seller’s prior written consent, unless the Parties indicate that assignment is permitted by the addition of “and/or assigns” on the line identifying the Buyer on the first page of this Agreement.”  In other words: no assignment unless, either 1) the Buyer is described as “Buyer, and/or assigns” in sale agreement, or 2) the Seller otherwise provides permission in writing. 

Assignment and assumption also pops up in the tenant related clauses. If a Buyer is planning to purchase tenant-occupied property and become a landlord, the Seller has to give over the landlordship reins to the Buyer. Otherwise, the tenant may still legally recognize the Seller as the landlord, even though the Buyer owns the land. Assignment to the Buyer gives the Buyer the rights to be the landlord, to collect rent, evict tenants, to do repairs when tenants demand it. Assumption by the Buyer takes the rights from the Seller, affirming that the Buyer intends to be the landlord and is taking over all of the rights that Seller owed the tenants.

The Form 2.1 Counteroffer and Form 2.2 General Addendum both contain reference information that links the agreement back to some original document. The incorporating language reads as either “[t]he Parties accept all of the terms and conditions contained in the above Offer or Counteroffer…” in the Counteroffer form or as “All provisions of the Sale Agreement not modified by this Addendum will remain unchanged.”

This language means the document incorporates the previous contract and does not modify anything that is not expressly modified. Where possible, courts read contracts to avoid internal conflict, which can occasionally create issues. If the previous contract said “Seller must order an appraisal within five Business Days after the end of the Due Diligence Period” and a later addendum was added that stated, “Seller must order an appraisal by September 25, 2023,” the contract would then read “Seller must order an appraisal by September 25, 2023 and within five Business Days after the end of the Due Diligence Period.” If the parties wanted the Seller’s appraisal requirement to be on September 23, regardless of the five-day shot clock, they could have written “Seller must order an appraisal by September 25, 2023. The parties agree to remove all reference to Seller ordering an appraisal within 5 days after the end of the Due Diligence Period.

In situations where the parties have multiple moving parts at once, the general addendum should be as specific as possible. Generally, the best advice is to use the pre-printed forms, use a form clause library [a collection of pre-drafted language for copy-pasting into addendums], or to hire an attorney to draft the language.

There is a classic scenario that happens with surprising regularity. The Buyer puts in their offer, it expires after a week. The Seller forgets about the offer and remembers it a few weeks later. The Seller reviews the offer and, lo and behold, it’s a fantastic offer and the market appears to be cooling off, so the Seller quickly signs the now-stale offer and sends it back to the Buyer with a smile; “We’re on for the sale of Property!” The Buyer figured that the deal was dead when nothing cut through the radio silence, so the Buyer moved on. The cooling market means the Buyer’s two-week old offer is now a mediocre one. The Buyer gets the message from the Seller on the stale, expired offer and immediately asks their agent, “Buyer’s Agent, are we actually under contract?”

The simple answer is: No.

When an offer expires, it is no longer valid, the contract is dead. Simply accepting the offer after the printed expiration date is insufficient. Oregon REALTORS® created a specialized form [Form 2.3 Late Acceptance Addendum] that acts as a pre-printed counteroffer, making a new offer that can be validly accepted.

What if the scenario changes slightly, and the Buyer actually wants to accept the offer? The Seller sends the one-week-past-expiration signed offer back to the Buyer and the Buyer turns to their agent and asks, “Can we still accept this contract?” The answer gets a little more complicated at this stage. Technically, no. Once an offer expires, it is dead and cannot be accepted; however, courts in various places [e.g. New York in Harris v. Reagan, 177 A.D.3d 1056 (N.Y. App. Div. 2010)] have found that actions of the parties after a contract expires creates an “implied contract.” This zombie-contract created through implication takes the form of whatever the parties are agreeing to do; even if that somewhat deviates from the original form of the agreement. In other words, we can pretend a contract exists because the parties are acting like one exists. If I reject your offer to sell me an apple for $1.25, then give you $1 and you hand me an apple, no court in the land will accuse me of theft; we have an implied deal. 

Back in the real property world, if the offer expired, but then the Buyer and Seller proceed as though it weren’t expired, the parties may be operating with a dead offer, but there’s an implied contract that rises in place of the dead offer.

While that implied contract may sound great, ORS 41.580 is the statute of frauds and requires that contracts for real estate sales be in writing. If the contract violates the statute of frauds, the law considers that agreement void unless it’s put in writing somehow. So, in that case where the Buyer accepts the expired offer and the Buyer and Seller go skipping off down the road to sell that home; if one party has a change of heart at any point, e.g. Seller realizing they can make more money by putting the home back on the market; either party can shoot down the contract at any moment by pointing out the inherent flaw of the contract and the void nature of the agreement under the statute of frauds. There are arguments that subsequent amendments memorialize the agreement and put it into compliance with the statute of frauds, but those arguments are untested and not sound risk management advice.

If your offer is expired; use Form 2.3 to make it valid again.  It keeps you compliant with the Statute of Frauds and stops potential arguments.

The Oregon REALTORS® purchase and sale agreements all have a “Dispute Resolution” provision that provides next steps when the parties can’t agree on something or when the agreement gets terminated and nobody wants to give up the earnest money. The stance in the OR Forms is that the parties take it to small claims court if possible [issues that are only about less than $10,000 in money], and if the small claims court can’t take the issue, the parties take it to mediation.  If mediation fails or nobody follows the mediation outcome, the parties can take the issue to arbitration for a binding resolution. 

What are arbitration and mediation? Good question. Let’s start with arbitration.  Arbitration is a private gathering of the parties in front of a neutral arbiter.  Simply filing an arbitration can cost $700+, so it isn’t a decision to stumble into.  Once the arbitration begins, the parties will present their arguments to the arbiter, potentially argue back and forth, but in the end the arbiter will provide a final judgement that is enforceable in a court of law. The arbiter can be a single individual like a retired judge, or can be a council of individuals. Arbiters can also simply be professionals in the field who have immense knowledge and respect in the industry. The arbiter’s award can be brought to a court of law and enforced.  For example, the Buyer wins an arbitration and the Seller is required to pay the Buyer for the cost of their inspection. If Seller refuses to pay the Buyer, the Buyer goes to court and the court will “confirm” the award and allow pursuit of remedies just like a person can do when they win a lawsuit. Garnishment and repossession of personal property are both potential options to that Buyer when they ask the court to enforce the arbitration award. 

Mediation by contrast is the little brother of Arbitration. A mediation begins with the parties getting together in front of a neutral third party mediator. The mediator will guide the discussion, ask for people’s opinions and thoughts, direct the discussion away from nonproductive debates, and, if necessary, may divide the parties into two separate rooms and ferry information back and forth between the rooms. The mediator has to be a diplomat, whereas the arbitrator is a judge.  The result of a mediation, at best, is an agreement between the parties. If the mediator does their job properly, the parties will be able to see through the fog of war and come to a solution that both the Buyer and the Seller can agree upon. If the mediation fails, for example, if a Buyer feels like they are still right despite the mediator explaining that the Seller really is the one in the right, there is no way to enforce the mediated solution [with the exception to that being if the parties are already acting upon the mediated solution, e.g. Buyer agrees to pay seller and tells everyone they’ll do that, but then changes their mind and refuses. The Seller can reasonably say, “The Buyer told me they’d pay XYZ and I relied on that claim.”].  The mediation will regularly come to a positive result though, despite the unenforceable outcome. When given a chance to cool down and allow level heads to prevail, many conflicts resolve voluntarily. Mediations are generally much cheaper than arbitrations, running only a few hundred dollars. 

When selling or brokering the sale of a manufactured structure or a recreational vehicle that is more than 8.5’ wide, Oregon law requires that the salesman/company have a current manufactured structure dealer license or temporary/limited manufactured structure dealer license. Under ORS 446.676(14), a real estate broker can validly sell manufactured structures if they are acting in the employ of or on behalf of an individual who is licensed as a Principal Broker and as a licensed manufactured structure dealer. Sales of manufactured structures without a license are Class A misdemeanors.

For brokers, this means you need a license or need to be working with someone who is licensed whenever you are part of the sale of a residential trailer, mobile home, manufactured home, or rather large RV. Unlicensed brokers can always refer the sale out to a broker who is licensed to sell manufactured homes; nothing in Oregon law restricts a broker from accepting a referral fee for assisting in the sale of a manufactured structure.

Purchase and Sale Agreements give Buyers the chance to inspect the property and look for structural issues. Nearly all sale contracts contain a line-in-the-sand provision that prevents Buyers from doing “invasive inspections.” Invasive inspections, sometimes called intrusive inspections, are inspections that do more than a visual evaluation. All of the following are classically considered invasive inspections:

  • The inspector is taking pieces of siding or drywall off to look underneath,
  • The inspector is slicing a piece of floor tile off for asbestos tests,
  • The inspector is probing a pencil into dry rotten segments of the property. 

 

Invasive inspections are typically permissible, but only with the Seller’s approval.  If Seller gives the green light to rip the drywall down and look for that bat nest, the inspector can go nuts. 

Oregon REALTORS® purchase and sale forms have a unique take on invasive inspections. The Oregon REALTORS® Forms expressly and intentionally call out (1) sewer scopes, (2) mold tests, (3) pest inspections, (4) dry rot inspections, (5) radon tests, and (6) oil tank locates as non-invasive inspections. Other form libraries may consider these types of tests to be invasive, and may require seller approval before the Buyer can do these tests, but the Oregon REALTOR® form Buyer does not need to request seller permission to do these six types of inspections. 

Sellers who do not wish to have a radon test occur on the property, or who don’t want buyers to look for pests on the property can simply add a general addendum to the contract that states “Buyer not permitted to do ____ inspection without Seller approval.” Sellers should be cautious, however, about adding this general addendum. When a seller says, “You can’t do dry rot inspections,” it feels a whole lot like the seller is trumpeting to the world, “My house has dry rot.”

Boilerplate, the term for contract provisions that are always in the contract, was originally used in the early 1800s to describe iron that was rolled into plates for steam boilers. Newspapers would use the heavy, thick steel sheets to create engraving copy for continual and regular reprinting [predominantly for ads and syndicated columns]. Newspaper text that would be changed regularly [e.g. the scores in the sports section] would be cast in lead, which was softer and easier to work with. The boilerplate language was the stuff that got used over, and over in the papers. The term has been carried over to legal contracts, and the terms that get reused in nearly all the contracts are commonly called the “boilerplate” provisions in a callback to the old hard-steel, Gilded Age newspapers.

Boilerplate, while repetitive, is there for a reason. They are core provisions that most contracts have because they work. In law, imitation is the sincerest form of flattery, and boilerplate is downright unctuous. Oregon REALTORS® purchase and sale agreements have a handful of standard boilerplate terms, this is what they are and what they mean:

Obligations Survive Death: This provision states that the agreement will survive the death of either or both parties and, “Inures to and is binding upon their successors and estates.” When you sign a contract, your rights in that contract become something you own. When you die, your heirs and estate will sometimes inherit the rights under that contract. For real estate, that is exactly what happens. The death of a Seller does not mean the Buyer simply won’t get the house; it means the Seller’s estate is now in charge of the sale transaction. If the Buyer dies, it doesn’t necessarily mean that the Seller has to find a new buyer; sometimes the Buyer’s heirs will choose to continue the transaction and purchase the property. If the Buyer’s heirs choose to not continue the transaction, it has the same effect as the original buyer terminating the transaction out of the blue: potential loss of the earnest money.

Time is of the Essence: When a contract says “time is of the essence,” it means every single time- and date-related event in the contract is a material term and failure to meet that deadline is a breach of the contract. Without “time is of the essence” provisions in contracts, the dates and deadlines are considered more like suggestions. If time is not of the essence, it would be nice to get the earnest money deposited by June 25, but if we don’t get the money until early July, that’s fine too.

Severability: The law changes around us at all times. Courts may rule a law unconstitutional, legislatures may pass new laws, agencies might pass new administrative rules. When a law changes and a provision becomes unlawful, unconstitutional, impossible to perform, or unenforceable, there is an argument that the whole contract comes crashing down with that unlawful provision.  Severability clauses ensure that the contract continues in lieu of the now broken provision. 

Nonwaiver: When something goes wrong in a contract, the nonbreaching party generally has the ability to invoke remedies. For example, a Buyer fails to deposit the earnest money when they are supposed to do so; Seller then has the ability to claim a default or terminate the contract [“invoke remedies”]. If the Seller says, “Buyer, I know you failed to deposit the earnest money, but it’s fine, I’m not worried yet,” then a few days later says, “Buyer, I’m worried now and am sending a notice of default,” the nonwaiver provision means the Buyer cannot claim that the earlier waiver of the default notice prevented Seller from sending a future default notice. Nonwaiver means a Seller can be a reasonable or generous party without being penalized for the magnanimity.

Entire Agreement: Parties sometimes talk before and during the contracting process, outside the earshot of their brokers. When a Buyer and Seller know each other and had a handful of agreements in the past, those previous or past agreements can create issues with the home sale transaction. The entire agreement provision makes it so that all of the terms of the contract are written into the contract and the addenda. Previous agreements have no bearing on the present agreement. If the Seller had previously said, “I’ll give you my fridge if the Seahawks win the Superbowl,” that oral agreement is not going to be a part of the present transaction unless the parties put it in writing in a general addendum.

Counterparts: Normally, contracts are supposed to be personally signed by all the parties. In the olden days, everyone would sit around one table and pass the contract back and forth for signatures. In this era of digital signatures and cross-country contracting, having a single copy of a document can create problems.  When the postal service misplaces the only existing copy of a contract, it can cause serious delays and sometimes torpedo the transaction. Counterparts provisions allow the parties to each individually sign copies of the same document. When everyone has signed the a copy, you put them all together and pretend the signatures happened on the same single document.

The Right of First Refusal Form [Form 1.7] is an agreement between the Buyer and the Seller. It is not an amendment to a sale agreement, nor is it a back up offer.  Rather, the right of first refusal is a way for the Buyer to pay to ensure they are the accepted offer on a deal. After the Buyer pays the Seller some amount of money and the parties agree to the terms of the right of first refusal, any time the Seller has an offer or counteroffer that they wish to accept (as in, completely accept right that second, not an offer that they would accept after a few more rounds of negotiations), the Seller has to first send a redacted copy of the offer over to the Buyer. The Buyer gets a 5 day period to “accept” the offer and inform the Seller that the Buyer is invoking the right of first refusal. If the Buyer invokes the right; the Buyer and the Seller are under contract on the terms of the redacted offer; the Buyer is treated as agreeing to all the waivers, purchase prices, contingencies, and addendums by reference (the form states “If the Buyer exercises this right of first refusal, the parties agree to sell the property to the Buyer for $100.00 more than the offer. The Buyer may modify the method of payment and loan program provisions and attendant timelines if different from the offer, but otherwise shall agree to identical terms as written in the offer.”).  Buyer can pay in a conventional loan (rather than all cash), or can pay with cash (rather than using a loan), but otherwise the terms are the same.

If a Seller is uncomfortable with the Buyer being able to supplant incoming bona fide offers from third-party buyers; Seller should not accept the Right of First Refusal. 

Oregon law creates a significant number of tax carve outs and special assessments; each with its own set of rules and qualifications. If your seller knows of any special tax assessments related to the property, the transaction should include Form 2.22 Special Tax Assessment Addendum. In this form, the parties can disclose when the property is subject to one of eight specific tax assessments, or they can fill in the “other” section. Once special assessments are selected and the parties mutually accept the agreement, the Seller will have a period of time to provide documents that demonstrate the special assessment exists and that seller is in compliance with all necessary requirements to maintain the assessment [e.g. a letter from the assessors office stating that the property is presently subject to a special tax assessment].

If the Seller fails to give the needed proof, the Buyer can send a notice of default. If the Seller is ever disqualified for the tax assessment during the transaction, the  Seller must inform the Buyer and the Buyer can terminate the transaction at any time until closing.

Some Possible Tax Assessments:

Exclusive Farm Use

Land (or portions of the land) within an exclusive farm use zone and profitably used to grow, breed, train, or prepare various farm and ranch products [see ORS 308A.056]. Land will receive a special assessed taxation rates based on the soil classes of the land; generally taxing the land at a lower value than would otherwise be applied to the property. If the property is disqualified [e.g. the Buyer stops farming the land], up to 10 years of back taxes can suddenly apply to the property. If the property is in the urban growth boundary, only five years of back taxes can be applied.

Farm or Forest Homesite

10+ acre farms or forest spaces with a dwelling used in conjunction with the farm or forest management can qualify for a farm or forest homesite special assessment. The assessment will treat the homesite value as the market value of bare land [plus a small additional amount]. Disqualification from the homesite does not necessarily result in additional back taxes, unless the owner establishes a non-farm dwelling in an exclusive farm use zone.

Riparian Habitat Exemption

If the property has riparian land [land within 100 feet from a waterway] outside the urban growth boundary, it may be eligible for riparian lands tax incentive programs. The land must be zoned agriculture or forest use, wide enough to support stream stability, erosion control, or other conservation functions, must have a specific level of riparian vegetation or vegetation restoration potential, and must have a conservation plan. The usage of the land will be restricted while it is subject to the special assessment. While subject to the special assessment, parts of the property are exempt from ad valorem taxation. If disqualified, back taxes can be applied for the past five years.

Conservation Easement

If the land has a perpetual, recorded conservation easement and shows that it is or can be “exclusively for conservation” under IRS code section 170(h), it can apply for a special assessment. As long as the land is managed in accordance with the conservation easement terms, the land will be assessed at the lower forest-land or farm land special assessed value. If disqualified, conservation easement land within exclusive farm zones may be subject to 10 years of back taxes, and the rest will be subject to five years of back taxes.

Nonexclusive Farm Use

Similar to the exclusive farm use assessment, except the property is not in an exclusive farm use zone, and has been used for farm/ranch profit for at least the last two years.  Disqualification will only apply five years of back-taxes.

The Right of First Offer Form [Form 1.6] is an agreement between a landowner and a prospective buyer. It is not an amendment to a sale agreement, nor is it anything like a back up offer.  Rather, a Right of First Offer is a reservation that the Buyer pays for. By giving the landowner some amount of money, the buyer essentially reserves the right to be the first accepted offer on the property. These rights are reserved before the property is even marketed, when the landowner isn’t even a seller yet. It’s worth reiterating: the Right of First Offer is used on property that is not even being marketed yet.

In the act of reserving the first offer right, the Buyer gives the landowner (1) an amount of money, and (2) a fully-filled out, but unsigned purchase agreement; with all of the terms Buyer wants in the offer. If the landowner accepts the money and the right of first offer, the landowner is agreeing that any time they plan to put the property on the market, they will first sign the buyer’s pre-drafted purchase agreement and send it to Buyer for first consideration [in effect, the Seller will be making an offer to the Buyer]. If the Buyer still wants to go through with the agreement, the Buyer will sign the offer and the parties will be under contract. In essence, it’s a Buyer paying to write the Seller’s offer, with a requirement that the Seller present that offer to the Buyer.

It’s a way for the Buyer to pay to reserve land while it’s off market; if the market takes a turn for the better, Buyer may be getting a good deal on the land, if the market takes a turn for the worse, the Buyer can refuse to sign the first offer agreement and simply be one of the buyers making an offer on the property after Seller lists it.

Section 7 of the Form 2.9 On-site sewage addendum references the DEQ “Be Septic Smart” brochure and includes the language, “Buyer understands that owners of certain sewage systems, including sand filter systems permitted on or after January 2, 2014 and all alternative treatment technology systems are required by law to maintain an annual service contract with a certified maintenance provider.” This tip will help you get to that brochure, and understand what systems need that maintenance contract.

The “Be Septic Smart” brochure comes in two variations, Septic Smart for Homeowners, and Septic Smart for Home Buyers. Both can be found at: https://www.oregon.gov/deq/Residential/Pages/Septic-Smart.aspx. The Oregon Septic Smart initiative is designed around giving Oregonians greater access to information about septic systems and giving Oregonians easier access to septic inspectors. Septic inspectors can be added to the SepticSmart Inspectors list, making it much easier for a home buyer or homeowner to find and contact the inspector.

Under guidance by the Oregon Department of Environmental Quality, owners of sand filter systems, pressurized distribution systems, recirculating gravel filters, and alternative technology systems, that were permitted before January 2, 2014, must have the septic tank and dosing tank inspected at least once a year for sludge and scum accumulation. If the sand filtration/recirculating gravel/pressurized distribution/alternative tech system was permitted on or after January 2, 2014, the owner must have an active service contract with a certified maintenance provider, must submit a copy of that service contract to DEQ before the system is installed, and must submit annual reports and annual evaluation fees to DEQ under OAR 340-071-0130(17) and OAR 340-071-0140(3).

The various septic systems that have additional maintenance requirements are defined as follows:

Sand filter systems: an alternative system that combines a septic tank or other treatment unit, a dosing system with effluent pump and controls or dosing siphon, piping and fittings, a sand filter, and an absorption facility to treat wastewater. The wastewater is pumped to the top of the sand filter and allowed to trickle down at a controlled pace, catching significant quantities of waste before the water gets to the native drainage soil. Sand filters are best used in areas where there is limited location for a drainage field, or where the soil is too porous to effectively treat water while draining [if the sludge goes through the soil too fast, untreated sludge may get to groundwater, which is bad.]

Pressurized distribution systems: a system that uniformly distributes septic tank or other treatment effluent under pressure in an absorption facility or treatment unit. It blasts the effluent evenly through the entire drainfield, ensuring rapid, even draining; whereas normal septic systems rely on gravity and may have areas where drainage is more concentrated.

Recirculating gravel filters: gravel filter wastewater treatment system where portions of the filtered effluent is mixed into the septic tank effluent to recirculate through the filter. These systems snatch some of the effluent through repeatedly running the wastewater through the same filter tank. The heavy stuff gets filtered over and over again until it gets cleaned, while the cleaner wastewaters gets discharged into the soil dispersal systems; reducing odors and contamination in the discharge.

Alternative technology systems: under OAR 340-071-0100(11), these are “an alternate system that incorporates aerobic and other treatment technologies or units not specifically described elsewhere in this division.”  Basically, all the fancy space-age technology that isn’t otherwise described in the rules.

Form 1.8 is the “Letter of Intent,” designed to help a potential Buyer and Seller negotiate a transaction. Letters of Intent are nonbinding, detail-light versions of the purchase and sale agreement that parties can go back and forth over without wasting too many trees on the paperwork. In effect, it is a nonbinding wish-list document that outlays the primary terms; how much does it cost, when will it close, what sort of terms do you plan to use, etc. 

It can be used for any of the Oregon REALTORS® purchase and sale agreements, and will provide for many of the malleable terms up front in three concise pages.  The parties can modify the terms after agreeing to a Letter of Intent, but once the two sides agree to the Letter of Intent, they know that the agreed upon terms are largely acceptable to both sides and will get the deal done.

There are some parts of the LOI that are binding; such as the agreement that parties will negotiate in good faith and make reasonable efforts to arrive at a mutually agreeable contract, the agreement to keep the LOI information confidential and to provide documents back to the other party, and the acknowledgement that the brokers and real estate agents involved in the transaction were a part of the transaction [for the purposes of receiving a commission if a sale successfully occurs]. These “binding provisions” are only binding if the parties both sign the LOI, so it isn’t like a Buyer can just send the LOI and bind the Seller to silence. Binding provisions only bind when the parties agree to them.

ORS 696.805 and ORS 696.810 establish the requirement for Buyer and Seller’s agents “To disclose in a timely manner to the [client] any conflict of interest, existing or contemplated.” The Oregon REALTORS® Form 9.7 is meant to assist in these disclosures.

Unfortunately, ORS 696 never defines a “conflict of interests,” and in these instances of statutory ambiguity, Oregon has a three-part process to determine the meaning of a term. Under PGE v. BOLI, 317 Or 160 (1993), as modified by State v. Gaines, 346 Or 160 (2009), interpretation of a statute requires (1) examination of the text and context, and a simultaneous (2) review of the legislative history [the discussions the legislature had when passing a law]; if the first two steps fail to yield a result, we resort to (3) “maxims of interpretation” [maxims are general rules about how we construct laws, like “If you have two interpretations and one contradicts other laws, but the other doesn’t contradict any laws, go with the one that doesn’t cause problems”].

The addition of the “conflict of interests” requirement in ORS 696 happened with Senate Bill 446 in 2001, the omnibus bill splitting original broker category into “Broker” or “Principal Broker.” There was no discussion about the conflicts language, so we’re left looking to other areas of the law that do provide clearer definitions of conflicts of interest. Specifically, places like ORS 244, where a conflict of interest is understood as a action that brings private pecuniary benefit or detriment of the person or person’s relative or any business with which the person or relative is associated. In other words, a conflict of interests is a situation where, due to the agency representation, non-commission money is being made by the broker, the broker’s family, or a business owned in part by the broker or the broker’s family. Brokers are hired to assist a client and owes that client a duty of loyalty.  The client should never be worried that the broker is more worried about the broker’s own investments or the broker’s sister’s investments. 

The client can always agree to let an agent represent them despite the conflict.  Brokers can use Form 9.7 to disclose the conflict and by signing the document, the client agrees to let the broker keep representing the client, even with the conflict. In effect, the client would be saying “I don’t mind that it’s your mother’s house that I’m putting an offer on; I want the house and I trust you to do a good job as my agent.”

Fixtures are pieces of property that are part of the land by annexation to or use with the land. There is a constant question about whether an item is a fixture or personal property; courts have given answers that can seem baffling at times. Mining pipes that were moved and removed annually: not a fixture [Roseburg Nat’l Bank v. Camp, 173 P 313 (Or 1918)]. Wheeled prune drying equipment used in the prune orchard: fixture [Metro. Life Ins. Co. v. Kimball, 94 P2d 1101 (Or 1939)]. 

The test for fixtures is described in Marsh v. Boring Furs, Inc., 551 P2d 1053 (Or 1976):

  1. Annexation: What is the degree of attachment?
  2. Adaptation: What is the application of the item to the use or purpose of the realty?
  3. Intention: Was the intent to make the item permanent?
     

No single factor is determinative, and this test gives courts wide latitude to fashion an answer based on the particulars of each situation. 

When the property has a specific usage, things can be considered “constructively affixed” based on that usage [for example, prune drying equipment]. For that reason, even though you can unscrew the dish washer in most homes, or can remove the range above the stove with just a pocket knife and some elbow grease, we consider those things to be fixtures. It may sound silly, but these questions have been litigated before. In Dean Vincent, Inc. v. Redisco, Inc., 373 P2d 995 (Or 1962), a seller wanted to remove and keep the carpeting in the apartment and argued that their expert could remove it, therefore it was not a fixture. However, the custom shape and usage with the property made it a fixture.

In all the ambiguity of fixtures, the contract can solve the issue. The contract will oftentimes control over case law, so the parties can rely on the terminology within the four corners of the agreement. The Oregon REALTORS® Purchase and Sale Agreements (Form 1.1 through Form 1.5) define fixtures to include any physical property permanently attached to the property and the related controls [keys, fobs, garage door openers, light bulbs, etc.]. The provision then specifically calls out a significant, but not comprehensive list of items:

  • Doors and windows including storm doors and windows and door and window screens; window shades; window plantation shutters;
  • Awnings;
  • Installed irrigation equipment;
  • Installed landscaping features (including hardscapes and plantings);
  • Installed antennas;
  • Attached floor coverings;
  • Heating, ventilation, air conditioning systems and related components; installed fireplace and fireplace insert components;
  • Attached light fixtures and light bulbs;
  • Plumbing; water heaters;
  • Installed window blinds, and installed curtain or drapery rods (but not curtains or drapes)

 

If you have a property with items that are not on this list, the parties can and should express their intent in the Sale Agreement:  For example “Giant Olmec head statue in the back yard will be considered personal property in this transaction and will remain property of the Seller.”

This can be done in several ways:

  1. Page 1 of each sale agreement has a space for the parties to specifically write in any personal property that will be included with the sale or any fixtures that will be excluded
  2. Each sale agreement has an “Additional Provisions” section that the parties can use
  3. Parties can use a form 2.2 General Addendum

 

Keep in mind though, the Seller will need a plan to get their things off the property before the transaction closes. If Seller wants to keep the giant statue, Seller needs to plan a way to remove it before they sign at closing.

Some properties in Oregon are considered “historic” because they were famous buildings, famous locations, or are the final resting place of a famous object or sculpture. For example, the USS Blueback submarine at OMSI in Portland is on the National Historic Register, as are Fort Clatsop and University of Oregon’s Knight Library. In some cases, properties may be considered historic, but just haven’t had national recognition yet. 

On the Oregon State Parks website, you can find the Oregon Historic Sites database. The Oregon historic sites are at times surprising: drainage ditches on Highway 26; meteorite sites in West Linn; a meadow in Harney County; totem poles in John Day; Fire Hydrants in Granite; the state has a wide array of historic places. 

Oregon allows owners of some historic properties to apply for a special tax assessment. Under ORS 358.480(11), the eligible historic property is either (1) on the National Register of Historic Places, or (2) some place the State Historic Preservation Officer believes could be listed on the National Register. The special tax assessment allows the homeowner to freeze the assessed value of the property for up to 10 years at a time (maximum potential freeze of 20 years) while the homeowner does preservation and repair work to the property [this is in addition to the 20% Rehabilitation Tax Credit offered by the federal government].  Depending on how much renovation and restoration the owner is doing, this assessed value freeze can result in significant tax savings for the owner. 

If a homeowner does apply for the special assessment, they will have a “Preservation Plan” that they must follow. During the first five years of the special assessment, the plan will require the homeowner to put a certain amount of effort and money into rehabilitating the property and preserving the historic condition.  If the homeowner does something that disqualifies the property from its historic classification or special assessment, such as destroying the property or failing to preserve the historic property [e.g. trading out the historic façade with modern composite materials], the special assessment will be lost, and the owner at the time will have to pay back any benefit from the special assessment accrued over the last 10 years, plus 15% more.  This means an unsuspecting Buyer of historic property may find themselves paying several thousand dollars in surprise taxes if the Buyer is not informed about the historic property or preservation plan.

Form 4.3 will provide all necessary disclosures and information to avoid these costly mistakes, and has a provision for how the parties plan to pay for the fees if a special assessment disqualification occurs.

The Form 2.18 Attorney Review Addendum is part of the Oregon REALTORS® Forms Library. It is an add-on to a contract, neither required nor referenced within the purchase and sale agreements. A Buyer or Seller can add this form to the transaction (if you are responding to an offer, the counteroffer would state “Add Form 2.18 Attorney Review Addendum as attached”), which modifies the offer by creating an additional termination timeframe.

The Buyer or Seller [check the box for which one, or both] will be given a period of time to have an attorney review the documents. If the Attorney disapproves of the transaction, the reviewing party can simply terminate the transaction and Buyer gets the earnest money back. 

The form can be used as a way to sweeten the deal (e.g. “The offer expires in 1 day, but if you agree to it, you get 10 days to have your attorney look at it and tell you what a good deal it is.”), or a way to manage risk (e.g. “There are a lot of addendums and some of them are irregular ones that look like they were custom drafted.  I want to accept the offer, but I want to have a chance to have a professional review the unique addendums.”)

If no action is taken by the end of the Attorney Review Period, the termination right is released and the parties proceed as normal.

Parties will occasionally choose to avoid conventional loan programs and have the Seller carry the risk of the loan. In a Seller-carried transaction, the Seller lends the Buyer all the money needed to purchase the Property, and the Buyer promises to pay the Seller back over time, much like a mortgage. These transactions are accomplished in one of two ways: (1) Promissory Note and Deed of Trust [Forms 8.2 and 8.3]; and (2) Land Sale Contract [Form 8.4].

(1) Promissory Note and Deed of Trust
These types of transaction involve a bit of a two-step dance between the parties.  At closing, the Seller “lends” the Buyer all the money needed to buy, the Seller signs a deed transferring the property to the Buyer, the Buyer then simultaneously signs a promissory note promising to pay the Seller back over a certain period of time, and Buyer signs a deed of trust that transfers the property to a trusted, neutral third-party (“Trustee”).  The Buyer retains their general ownership and usage rights in the property and the Trustee is only permitted to act when the deed of trust lets them act, generally this means the Trustee only gets involved when the Buyer fails to pay on the promissory note or finishes paying on the promissory note.

The promissory note is just what it sounds like, a note where the Buyer promises to pay the Seller back at a certain rate of interest [interest cannot be over 9% because of ORS 82.010; the minimum interest rate will be determined by the IRS’s applicable federal rate, usually somewhere between 2-3%].  The promissory note will outline the payment terms and what the parties are to do when Buyer fails to repay the note.  The promissory note is not recorded or attached to the property, it’s a contract between Buyer and Seller.

The parties then collateralize the promissory note using the Deed of Trust.  The Buyer essentially says, “I promise to pay you back on the note, otherwise you can sell the house and get your money out of the sale.”  The deed of trust is recorded, so it does attach to the property.  The Trustee is a neutral third-party, appointed by the Seller, and can usually be replaced at Seller’s discretion. The note gives the Trustee the power of sale for the property and will state the exact times when the Trustee can foreclose the property, though the most common scenario is “Buyer failed to pay on the promissory note.”  If there is a foreclosure, the money from the sale goes (1) to pay off Trustee for their services, (2) to pay off the Seller’s note, (3) to pay off junior liens [if any], and then (4) remaining money goes to the Buyer. Usually this means that Buyer can accrue some level of equity in the property over the course of their ownership. If the Buyer has accrued enough equity, they can oftentimes just purchase the property outright by leveraging the equity into a mortgage (functionally, they “refinance”). The Buyer will have a statutory right of redemption (timeframe where the Buyer can pay off the lien and purchase the property) for up to 180 days after the foreclosure auction.

If the Buyer pays off the entire promissory note or redeems the property, the Trustee will complete a “Deed of Reconveyance” that gives all of the Trustee’s interest in the property back to the Buyer.  At that point, the Buyer fully owns the property.

(2) Land Sale Contract
A land sale contract is more like a “rent-to-buy” arrangement. The Buyer technically borrows money from Seller and says, “I’ll pay it back to you over time.”  During the term of the Land Sale Contract, Buyer has an “equitable interest” in the property, and can live there and utilize the property as their own, with some limitations. The parties record a memorandum of the land sale (or the entire land sale contract itself) to let the world know that the contract exists [Oregon Realtors® has a Memorandum of Land Sale in our Forms Library: Form 8.5].  The Buyer then starts paying on the land sale contract.  In a land sale contract, Buyer accrues no equity in the property; they continue to pay until the entire sum is paid off.  Once the sum is paid off, Seller is contractually obligated to execute a deed transfer and Buyer becomes the full owner of the property.
If Buyer misses a payment, Seller can auction the property off without giving Buyer the 180 day right of redemption period.  Alternately, the Seller can pursue what is known as “strict foreclosure” where the Seller just terminates the Buyer’s interest [almost like terminating a lease], and Buyer simply has to move out.  Lastly, Seller can pursue forfeiture, a process where Seller sends a notice to the Buyer explaining the debt owed and the forfeiture date. If Buyer doesn’t pay off all debt they owe by the forfeiture date, Buyer’s entire interest in the property is eliminated.

Form 9.8 is the “Notice of Real Estate Compensation.”  The form is largely drawn from ORS 696.582, where the legislature has created the template for a written notice of compensation for brokers to give escrow. If the Notice of Compensation is given to escrow more than 10 days before closing, the Broker who provided the Notice of Real Estate Compensation must also delivery a copy to the principal in the notice [the client]. If the Notice of Compensation was given to escrow within 10 days of the closing, escrow will give the client a copy of the notice at closing.

Under ORS 696.582, escrow is supposed to hold a certain amount of money back from a transaction if (1) a written notice of compensation is given [signed by the broker] and (2) the written closing instructions from the principals [clients] do not honor the terms of the notice of compensation. In effect, money is kept back until the parties figure out the conflict or confusion. Sometimes the error is a simple one, like forgetting to add a zero [$1,000 becomes $10,000], other times the commission payment error can be a little more nefarious. This can be particularly important if the parties decide to simply not pay the agent; the sale closes, both Buyer and Seller refuse to pay a commission to the agent, and the client instructions to escrow didn’t show any payment to a broker. 

Without a Notice of Real Estate Compensation, the Seller receives the money from escrow and Broker’s recourse is to bring a dispute or lawsuit against the client for the payment; this gets particularly difficult when the Seller has already packed up and moved out of state or out of country. 

When a Notice of Real Estate Compensation is used, escrow will note the discrepancies and either get the issue solved before closing. Otherwise, the commission sum in the Notice of Real Estate Compensation will be set aside and held locally until the commission dispute is solved.

Form 7.2 in the Oregon REALTORS® Library is the Tenant Estoppel Certificate. Estoppel under Oregon law is something that stops an individual from claiming contrary or different information. An Estoppel Certificate is a binding statement by a party stating the current status or conditions of a lease. When a tenant signs an estoppel certificate, they are creating a legally binding statement about the terms of the lease that the tenant cannot dispute. If the tenant brings a lawsuit claiming the lease terms are inaccurate, the new landlord merely needs to pull out the estoppel certificate and say, “Didn’t you say the terms were ____?” and the dispute is effectively over.

This allows a landlord to commit an oral lease to paper and it allows a tenant to lock in the terms and oral arrangements from the occupancy.  For Buyers who are inheriting tenants and oral leases, tenant estoppel certificates are necessary.  The Buyer wants to have some sort of document in place that outlines the terms of the lease before a dispute with the tenant arises.

Tenant Estoppel Certificates can be used as a Buyer’s tool by guaranteeing terms and allowing Buyer to defend the estoppel terms (e.g. “You stated on your estoppel certificate that the lease was $800/month, but now you’re claiming it’s $500/month?”); Buyer can use the certificate as support when questioning the Seller/Landlord (e.g. “Tenant said you would pay for curtains, but you’re saying you won’t? We need to figure this out before I buy.”); Buyer can use the estoppel certificate to learn about pending expenses and credits that Buyer would inherit.
Tenants can use the certificate to guarantee terms of the lease as the tenant understood them (e.g. “Back in June we agreed it was $500/month and that’s what the certificate said, but now you’re claiming the Landlord said $800/month?); Tenant can use the estoppel certificate to ensure the Buyer/new Landlord knows about unique conditions or entitlements (e.g. service animals, reasonable accommodations, rent credits for yard work, etc.); and Tenant can use the certificate to ensure new landlord knows about and receives the full security deposit and prepayments (e.g. old Landlord ran off with $500 in prepaid rent, new landlord never knew about it and refuses to honor the prepayment).

Section 47 of the Residential Purchase and Sale Agreement states “Except as otherwise agreed by the Parties in writing, Seller shall convey marketable title to the Property by Statutory Warranty Deed, or, if applicable, by personal representative’s deed, or trustee’s deed or similar legal fiduciary’s deed that meets the requirements for conveying interests in real property contained in ORS Chapter 93.”

There are several types of deeds that can be used in real property transactions. The normal set are (1) Statutory Warranty Deed, (2) Special Warranty Deed, (3) Bargain and Sale Deed, (4) Quitclaim Deed, and (5) Fiduciary Deeds. The decision on what deed to use is going to be something for the Buyer and Seller to determine, and they are advised to have an attorney assist in the decision.

1) Statutory Warranty Deed [ORS 93.850]

The Statutory Warranty Deed is the standard absolute conveyance of the property, with five assurances to the Buyer of the land. It passes all of the Seller’s interest in the land unless the deed specifies otherwise (e.g. one half of Seller’s interest in Blackacre). Statutory Warranty Deeds are the default deed for Brokers in Oregon real property transactions. The Buyer can rely on the below five covenants [promises by the Seller to the Buyer]:
(a) Seller is selling their entire interest in the property on conveyance date;
(b) Seller, Seller’s heirs and assigns will not be able to bring lawsuits asserting ownership of or entitlement to the land, and the deed passes any “after-acquired title” [if Seller doesn’t own the property now (it belongs to Seller’s ailing mother), sells it, then later gains ownership through inheritance, the sale is still valid and the Seller’s ‘after-acquired ownership’ automatically transfers to Buyer];
(c) The land is free and clear of encumbrances unless Buyer accepts it with encumbrances as written into the deed [covenant of freedom from encumbrances];
(d) Seller is the rightful owner of the property [covenant of seisin], and Seller has the right to convey the property to Buyer [covenant of marketable title];
(e) Seller will defend Buyer in any title lawsuits regarding the Property, [covenant of warranty] (e.g. someone comes along and claims that they adversely possessed the eastern 20’ of the property during Seller’s ownership, Seller will appear in the lawsuit, pay for Buyer’s lawyer, and assist in combatting these claims).

Covenants (c), (d), and (e) will always be considered a part of the deed, as though they had been written into the deed. Covenants (a) and (b) do not survive the closing and are extinguished [merger doctrine].

2) Special Warranty Deed [ORS 93.855]

Special Warranty Deeds do all of the same things as the Statutory Warranty Deed, except for covenant (c) freedom from encumbrances and covenant (e) are slightly limited. In a Special Warranty Deed, the Seller only guarantees that the land is free from encumbrances “created or suffered by” the Seller. Seller will only defend Buyer in title lawsuits where the complainant claims ownership by, through, or under the acts of the Seller. In other words, the Seller will only guarantee the encumbrances and will only defend the lawsuits that happened while Seller was there.

3) Bargain and Sale Deed [ORS 93.860]

Bargain and Sale Deeds only guarantee covenants (a) and (b).  A bargain and sale deed essentially just says “I am selling the whole property, as described on the deed” and “I can’t claim I own it anymore after I sell the land to you”

4) Quitclaim Deed [ORS 93.865]

Quitclaim Deeds guarantee nothing, and only transfer “whatever title or interest, legal or equitable” that Seller had at the time of conveyance. “[if Seller doesn’t own the property now (it belongs to Seller’s ailing mother), sells it, then later gains ownership through inheritance, Buyer does not own the property, they bought Seller’s nonexistent interest in the land and no after-acquired title rights]  Quitclaim deeds can be written for things Seller doesn’t own. It would be valid to have a Quitclaim Deed reading “I, Seller, convey to you, Buyer, all of my ownership interest in the northern half of the Moon.” Buyer would be buying all of Seller’s rights [which means: no rights at all] in the property.

5) Fiduciary Deeds [ORS 93.870, permitting other forms of deeds]

Fiduciary Deeds are typically just Bargain and Sale Deeds or Quitclaim Deeds for personal representatives, trustees, and conservators who hold and administer property for another person. Oftentimes, the fiduciary will use a special form of deed to give notice that they are a fiduciary, not the actual owner, that they have no knowledge whatsoever about the condition of the deed or title and that they were not transferring the property fraudulently. 
In the case of Personal Representatives, ORS 116.223 explains that a Personal Representative’s Bargain and Sale Deed does not put the Personal Representative in the chain of title unless they are also an heir or successor [e.g. John Doe dies, home put into estate; John Doe’s child is the Personal Representative who would inherit the house; John Doe’s child sells the house; chain of title will show “John Doe -> John Doe’s Child -> Buyer,” rather than “John Doe -> Buyer”]
Note: a “Trustee’s Deed” is separate from a “Deed of Trust/Trust Deed”. A Trustee’s Deed is a deed from a Trustee of a Trust, transferring property to a third-party. A Deed of Trust is a deed from a Buyer to a third-party in a seller-carried transaction, setting the third party up as a “trustee” who will hold the Buyer’s Property and foreclose it if the Buyer fails to pay off their promissory note with Seller.

If the property has a wood stove, the sale agreement should include the Form 2.13 Wood Stove Addendum. The Clean Air Act requires the Environmental Protection Agency to create “New Source Performance Standards” for all stationary sources of air pollution, and these standards get updated periodically. The EPA has been certifying residential wood heaters since 1988; and in 1991 Oregon passed laws designed around reducing and preventing air pollution caused by “solid fuel burning devices,” partly by ensuring all of Oregon’s solid fuel burning devices meet the EPA emission standards (or any more stringent standards put into place by the EPA or the Oregon Department of Environmental Quality).

ORS 468A.465 describes “solid fuel burning devices” as devices that burn coal, wood, or other non-gas or nonliquid fuels for aesthetic, heating, or water heating purposes in a private Residential Structure or commercial establishment.” This however, expressly does not include cookstoves, antique stoves (woodstoves built before 1940 with ornate construction and higher than normal value), pellet stoves, masonry heaters or fireplaces, and central wood-fired furnaces. Fireplace inserts can be considered “solid fuel burning devices.”

Under ORS 468A.505, in connection with a residential property sale, the wood stove must be removed and destroyed unless the stove was certified by the EPA under 40 C.F.R. part 60, subpart AAA or by DEQ. Typically, the certification will be a small metal tag attached to the stove; however if your stove has no tag, it may still be certified. EPA and DEQ certifications are done for the designs of the stove, not for individual stoves, so if someone clipped the tag off a certified stove, it is still certified. You can consult the manufacturer about certifications or look for the design on www.epa.gov/burnwise.

If there is no tag or if the manufacturer refuses to respond and you can’t find anything on the EPA’s website; Seller must remove the stove and destroy it before closing. Alternatively, the seller and buyer can agree in writing that it is the buyer’s responsibility, in which case the buyer must remove and destroy it within 30 days after closing DEQ guidance requires that the destruction of the stove has to be so complete that “it cannot be restored or reused as a heating device,” so just unhooking it and throwing the stove into the garage is not sufficient. If you have a professional disposal or scrap dealer work the stove over, you need a disposal receipt to give to DEQ proving that you decommissioned the stove. Noncompliance won’t end the sale transaction, but could invalidate homeowners insurance, delay loans, or result in up to $750 in fines.

One of the standard Seller representations is that Seller has no “actual knowledge of any liens or assessments to be levied against the Property, of any boundary disputes or encroachments related to the Property, of any violation of law related to the Property, or of any material defects related to the Property not otherwise described in this Agreement or in any addenda thereto or in a Seller’s Property Disclosure Statement (if provided to Buyer).” (lines 270-273 of Form 1.1).

Questions arise on occasion as to what a “material defect related to the property” may be. Any condition related to the property that would affect a reasonable buyer’s conduct in reference to the transaction, including a reasonable buyer’s willingness to purchase the property and/or the price and terms under which they would be willing to purchase the property, should be presumed to be a “material defect.” See Millikin v. Green, 283 Or. 283, 583 P.2d 548 (Or. 1978). Things like presence of Radon or electromagnetic fields or closeness to toxic facilities (the classic example is a cement factory upwind from the house) can be considered material issues and if the Seller knows about these issues, the Seller must disclose them.

ORS 93.275 establishes a few facts about property that are “not material” by law. Specifically, the following are legally defined as non-material facts and would not require disclosure under the Sale Agreements:

  • The fact or suspicion that the real property or a neighboring property was the site of a death by violent crime, by suicide, or by any other manner;
  • Note – This is just the property being the site of a death. For example, if there are rumors that the property’s previous owner died there, that fact is immaterial and does not need disclosure.
  • By contrast, if there is a body buried on the property, that’s material. A Buyer finding a femur while planting tulips in their new garden will create very real issues for that Buyer. These issues can occasionally result in a lawsuit against the Seller if the Seller chose not to disclose that they had privately buried a family member in the back yard.
  • Death is immaterial, but the physical location of the burial is quite material.
  • The fact or suspicion that the real property or neighboring property was the site of a crime, political activity, or religious activity or any other act or occurrence that does not adversely affect the physical condition of or title to real property;
  • Note – Things like doors being bashed in during a robbery are immaterial as long as the door has been replaced or repaired. If, on the other hand, a crime was committed that leaves lasting impacts [e.g. Meth was cooked on the property and the chemicals are present in dangerous quantities in the walls], the fact of that crime should be disclosed and is material.
  • The fact or suspicion that an owner or occupant of the real property has or had a blood-born infection;
  • Note – ORS 93.275(2) states that the legislature found no risk of transmission of HIV or AIDS by casual contact, so a previous inhabitant having HIV or AIDS would not be a material fact.
  • The fact or suspicion that a sex offender resides in the area; and
  • The fact that a notice has been received that a neighboring property has been determined to be not fit for use under ORS 453.876 [generally referring to illegal drug manufacturing sites].

 

The Seller is under no obligation to disclose the above facts, but may disclose them if the Seller chooses to do so. As a broker, you should not disclose the above facts unless you have discussed the disclosure with your client and received their permission first.

Counteroffers are a bundled concept at law. According to the Restatement Second of Contracts § 39, “A counteroffer is an offer made by an offeree to his or her offeror relating to the same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer. An offeree’s power of acceptance is terminated by his or her making of a counteroffer, unless the offeror has manifested a contrary intention or unless the counteroffer manifests a contrary intention of the offeree.”

What this means is: when Seller makes a normal counteroffer, Seller has done two things: (1) Seller rejected the previous Buyer offer/counteroffer, and (2) Seller made a fresh new offer for the Buyer to accept or reject. It’s easiest to illustrate with an example.

  • Step 1. Buyer makes an offer to Seller.
  • Step 2. Seller sends a counteroffer to Buyer [simultaneously making an offer and rejecting the Buyer’s offer].
  • Step 3. Buyer rejects Seller’s counteroffer.
  • Step 4. Seller cannot now go back and accept the Buyer’s Step 1 offer.

Oregon REALTORS® contracts state, “The Parties accept all of the terms and conditions contained in the [previous] Offer or Counteroffer with the following changes:” This means that a counteroffer “incorporates” all of the language from the previous offer or counteroffer. If there is any overlap between previous offer or counteroffer terms, the most recent counteroffer’s language will be the official terms of the agreement.

If an offer said, “$100,000 and no inspection,” a counteroffer will use those same terms unless stated otherwise. If the counteroffer said, “Purchase price to be $150,000 and yes to inspections,” the terms would be “$150,000 and yes to inspections.” 

By contrast, if the offer said “$100,000 and no inspection” and the counteroffer only said “also no appraisal!” the terms would be “$100,000, no inspection and no appraisal!” 

A trust or a business entity (LLC, Corporation, Partnership, etc.) can own and hold property. These entities are able to buy and sell property, but the entity does not sign on the sale agreements. The Revocable Living Trust, LLC, and Corporation are all abstract entities; they only exist on paper and do not exist in the real world. Nonetheless, these abstract legal entities frequently interact with the real world and generally authorize a real, live human-being to handle the physical elements of the entity’s existence.

When a Trust is selling property, the Trust does not sign the documents; rather, the Trust oftentimes has a “Trustee” who is the person charged with administering the acts of the trust. The Trustee is the “legal owner” of the trust’s assets [they “hold the assets in trust”], and the Trustee will only act as directed in the Trust documents. If the Trustee determines that selling real property held in the Trust, and determines that the trust documents permit the sale, it is the Trustee who actually sells the property and signs the paperwork, not the Trust.

When signing on the “Seller Signature Line” the Trustee should write “John Doe, Trustee of the Doe Family Revocable Living Trust.” They should not sign the document as simply “Doe Family Living Trust.” If the Trustee is signing as a Trustee, they need to make it clear that they are not signing as themselves individually [e.g. signing as “John Doe” without any reference to his title], but rather are signing the sale documents in their capacity as Trustee. 

The same is true for businesses. The signature should not be “ABC, LLC” it should be “John Doe, Manager of ABC, LLC,” thereby indicating that it is the person signing is a manager with signatory authority (being a “signatory authority” means you are authorized to sign documents for the business). If the LLC is member-managed, the person would sign as “John Doe, Member of ABC, LLC,” or in a similar way identifying the person’s signatory authority within the business.

The Buyer and Seller Advisory are Forms 10.1 and 10.2 in the Oregon REALTORS® Forms Library. These advisories cover a wide array of topics and provide your client with information to shield themselves from unscrupulous parties. By reading the advisories, clients can learn how to protect themselves from pitfalls such as wire fraud and Visual Artist Rights Act lawsuits. They also protect principal brokers and brokers should a dispute arise between client and agent.

For example, a Buyer wants to purchase a property, among other reasons, because the listing says “2,400 square feet.” The client does not look into the square footage and merely assumes that the listing was accurate. After closing, the Buyer measures the property and finds that it is, in fact, 2,200 square feet. In a fit of buyer’s remorse, the Buyer sues everyone they can sue, including their agent. The Buyer’s argument against their agent is, “You should have told me that the square footage in listings are just estimates; I really wanted that extra 200 feet and it’s your fault I don’t have it.” In the dispute, the broker can point to page 4 of the advisory, showing that the client was, in fact, told that square footage on listings are just estimates and are not to be relied upon.

To help manage risk for both clients and agents, Oregon REALTORS® has implemented two approaches to ensure that clients do in fact read the advisories. First, our residential purchase and sale agreement on lines 5-6 states in bold type “Buyer and Seller acknowledge that they have read and understand the Oregon REALTORS® Buyer and Seller Advisories, respectively.” Second, Forms 10.1 and 10.2 have a space for initials on every page of the document.

 

If you don’t want your client to go through the risk-management process of initialing every page of the advisory, Oregon REALTORS® has version of the advisory available with smaller font and no space for client initials. These smaller versions are available here. These shortened versions still require the client to sign on the last page, and the client will still be required in the purchase and sale agreement to acknowledge that they have read and understand the advisory, but the documents have no place for the client indicate on each page that they have reviewed that particular page. Your brokerage should decide which variant of the advisory you wish to use for your clients after weighing the pros and cons of each. Regardless of which variant of the advisories you use, we recommend building the advisories into your initial client consultation process.

Agency documents, certain advisory documents and the Seller Property Disclosure Statement are exceptions.  

Forms libraries are designed to be internally consistent but not consistent with other forms libraries. An addendum from one library refers to provisions in the base sale agreement and the other addenda from that particular library. Stitching a contact together with multiple forms libraries creates a “Frankencontract” and it may be difficult to ascertain the meaning of the contract or the intent of the parties. Any single transaction should be conducted using a single forms library. The following are exceptions to this rule:   

A) Agency Documents: Listing agreements, buyer representation agreements, disclosed limited agency agreements, and other agreements between client and agent (rather than buyer and seller) should not prevent the buyer-seller transaction from taking place using a different forms library. 

B) Seller Property Disclosure Statement: The Oregon REALTORS® Forms Library is compatible with any Seller Property Disclosure statement (including those from other forms providers) that complies with the Seller Property Disclosure Statute, ORS 105.464. Per OREF Guidance, the same is true for the OREF library. 

C) Certain Advisory Documents:  Advisory documents that advise clients generally about issues that could arise in a real estate transaction (i.e. wire fraud) but that do not reference specific forms or provisions of specific forms can be used regardless of which forms library is used to conduct the transaction.

In addition to the guidance above, always be sure to follow any policies that your brokerage has in place.

Even if a Seller is not required to provide the Seller Property Disclosure Statement (SPDS) or is exempt from providing the SPDS (e.g. Seller is a court appointed Conservator), the Seller will still have disclosure requirements both under law and in the purchase and sale agreement.

Seller Representations [Section 41 of Form 1.1] require the Seller to disclose if they know of any liens, assessments, encroachments, or material defects related to the property otherwise not described in the SPDS. ORS 92.465 prohibits express misrepresentations, and Oregon courts have upheld actions for “reckless misrepresentation.” If the Seller knows that there is a lien/encroachment/defect in the property, or believes that one exists, they are bound by contract and by law to disclose the truth of the matter. 

E.g. Seller knows that the house floods every May due to bad drainage. Seller is a court-appointed Conservator and is exempt from providing an SPDS, the Seller representation section will still require Seller to inform the Buyer that the material defect exists.

Seller should disclose these defects in writing, whether that’s on the SPDS or in a separate email or letter. Even when exempt, the Seller may want to use the SPDS as a checklist to ensure they have met all their disclosure requirements.

The Seller Property Disclosure Statement (SPDS) must be delivered to the Buyer under Oregon law. If a Buyer indicates that they are not using the property as a residence for Buyer or Buyer’s family, Seller does not need to provide a SPDS.  Otherwise, ORS 105.465 requires the SPDS for a few types of properties. Even if the property is the right kind, Sellers can still be exempt. Check ORS 105.470 to see if it applies to your Seller. One exclusion states the Seller doesn’t need to give the SPDS if “Seller is a court appointed: Receiver, Personal Representative, Trustee, Conservator, or Guardian” 

Courts will appoint trustees on occasion if a professional trustee is required, but most trustees are not court appointed. If a Seller is a trustee and was appointed by the grantor of the trust (not by the court), that trustee will still need to fill out the SPDS, even if their answer on most questions will be “unknown.”

The Bill of Sale can be used to transfer personal property alongside your real estate sale. It is meant to be a stand alone contract selling furniture, appliances, and tangible things; not just an extension of the “included personal property” section of the Purchase and Sale Agreement. Items marked as “included personal property” are treated as a part of the real estate sale and are mixed into the sale; if the sale falls apart, the included personal property has not been sold. The Bill of Sale is used to transfer things that are not covered by the lender, and if the sale falls apart, the items in the Bill of Sale do not necessarily return to the Seller.

Use the Form 2.4 Bill of Sale to transfer items the lender refuses to pay for, for example, furniture or furnishings. Make sure there is some amount of money exchanging hands to make it a valid contract with valid consideration.

“Business Day” is defined in Section 36 of the Agreement as “[a]ny day other than Saturday, Sunday, or a legal state holiday under ORS 187.010.” Oregon REALTORS® uses the statutory list of legal Oregon holidays to avoid potential confusion about differences between official legal holidays and other holidays that are merely recognized by the legislature or Congress. When you want to know if a day is a holiday (and therefore not a Business Day), you can always look up the statute directly here. And know that if the legislature ever establishes a new legal holiday, we’ll be the first to tell you!