Legal Issues Involved in
Conducting Real Estate Transactions
Electronically,
Including Using an Electronic
Transaction Platform
April 2001
© 2001 National Association of REALTORS All Rights Reserved
Legal Issues Involved in Conducting
Real Estate Transactions Electronically,
Including
Using an Electronic Transaction Platform
April 2001
Purpose
This report identifies potential legal impediments and risks to real estate practitioners from
conducting aspects of real estate transactions electronically, including using an electronic
transaction platform (“e-platform”). It also identifies benefits to be derived from conducting
transactions electronically as well as, where possible, some recommendations to eliminate
impediments and lessen the legal risk.
Process
NAR’s legal staff held a meeting of a group consisting primarily of state REALTOR
Association legal counsel to assist us in identifying and reviewing the legal
issues/impediments/risks and benefits to conducting real estate business electronically. The
meeting included a demonstration of the prototype e-platform being developed by Homestore for
NAR by Errol Samuelson of Homestore.com, Inc. Attorney Philip Schulman advised the group
on RESPA issues.
Legal Issues
For many of the issues addressed in this Report, the laws of individual states may raise statespecific issues that would be of concern to a real estate licensee operating in an electronic
environment, including an e-platform.
1.
License Law
Every jurisdiction has a real estate license law statute as well as rules and regulations
promulgated by its regulatory body that govern real estate licensees. How these laws apply in an
electronic environment may be unclear. While some state laws address some issues from the
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perspective of an electronic environment, most state legislation does not specifically address how
to manage various issues electronically. Given the nature of the legislative process in many
jurisdictions, which is sometimes very protracted, it may be quite a while before state laws
address some of these issues. Two of these issues that are of particular potential concern for
licensees operating electronically are the requirements regarding record retention and escrow
handling.
Record Retention
Most state laws on record-keeping requirements are very specific regarding which documents
real estate licensees need to retain, including for what length of time, and some specify where
they must be retained. The electronic retention of records raises a variety of new issues. At
present, few state laws specifically address electronic record retention requirements, yet under
the Uniform Electronic Transactions Act (UETA) and the new federal Electronic Signatures in
Global and National Commerce Act (E-Sign) and (both described in detail in issue number 3,
below), there is an immediate opportunity for brokerages to retain records electronically.
Retaining records electronically has the potential to be very beneficial for brokers. It could
reduce the need to retain so many paper files, thereby significantly reducing the physical space
needed for record retention. In addition, electronic retention could aid in the retrieval of records
by eliminating some of the human errors inherent in paper filing systems. Of course, electronic
filing is not immune from filing mistakes, but an electronic system can have a search function to
assist in locating documents that have been placed in the wrong electronic file.
One state that has addressed electronic record keeping is Arizona, and its substantive policy
statement1 is contained in Exhibit A to this Report. Arizona allows licensees to retain specific
real estate transaction records and certain employment records electronically, provided certain
conditions are met. These conditions are: 1) the records must be maintained so that they can be
reconstructed in the event of destruction of the electronic data, 2) the records can be produced in
legible, hard copy form, upon request of the real estate commission (at the broker’s expense),
3) the electronic records are an exact duplicate of the original, and 4) the electronically stored
records are legible.
Another potential benefit to brokers is the ability to have the electronic retention handled by a
third party vendor, as opposed to the broker having to handle it himself. UETA specifically
permits use of a third party for electronic record retention (Section12(c)). While E-Sign does not
have a similar provision, it does not prohibit using third parties. While there may not be many
vendors currently offering this service, companies probably will quickly emerge offering
electronic record retention services. Use of a third party vendor could be beneficial to a broker
in a number of ways. It could free the broker from having to invest in the technology required
(and ongoing upgrades) for a system to meet all of the needs of an electronic record retention
Arizona “substantive policy statements” are advisory only, and are general guidance pieces to inform the general
public of an agency’s current approach to, or opinion of, the requirements of the federal or state constitution, a
federal or state statute, administrative rule or regulation, or final judgment of a court, including, where appropriate,
the agency’s current practice, procedure or method of action based upon that approach or opinion.
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system, as well the staff time required to implement and maintain such a system. This also could
assure availability of the records to consumers, particularly as may be required under E-Sign.
Contracting with a third party vendor for electronic record retention services raises some specific
issues. One important issue is the security of the vendor’s system. Many of the documents
licensees must retain contain personal information about the consumers, and the third party
vendor should adequately address the brokerage’s security needs. Other basic issues that would
need to be addressed with a third party vendor include the availability of records (are they
available all of the time, or only at certain times? Will they continue to be available using the
software and hardware disclosed to the consumer?), how records will be produced, and
reconstruction of records in the event electronic data is lost.
The actual physical location of electronically retained records also will be an issue in some
states. Some states require that records be retained in a specific place. For example, Louisiana
requires that real estate brokerage records must be retained on-site in the brokerage office. So, as
the law currently stands, Louisiana brokers would not be able to avail themselves of a vendor to
handle their record retention needs at a remote location.
Another very important issue, but one that may be more difficult to ascertain, is the long-term
viability of the vendor. Is the company financially sound? What would happen if the vendor
goes into bankruptcy or out of business completely and the brokerage, its consumers and
regulators no longer have access to the vendor’s server where the brokerage’s electronic records
are kept?
Escrow Handling
To fully conduct business electronically, brokerages and perhaps e-platforms will need to be
equipped to receive funds from consumers for such things as earnest money deposits (see more
on this in issue number 7, below), either in the form of credit card payments or funds wired
directly by the consumer’s financial institution. As with all other escrow funds, licensees will
need to be sure that these funds are handled in accordance with all state law requirements. The
mishandling of escrow funds already is one of the most prevalent reasons for discipline of real
estate licensees today.
2.
The Unauthorized Practice of Law
The use of an electronic system or e-platform to conduct aspects of real estate transactions also
raises concerns about the potential for real estate practitioners to unwittingly engage in the
unauthorized practice of law. State laws differ to some degree as to what constitutes the
unauthorized practice of law. However, generally, real estate licensees may fill in blanks on
form contracts that have been pre-approved by an attorney, but they must be very careful not to
engage in the unauthorized practice of law by going beyond filling in the blanks and drafting
contract language or providing legal advice. To guard against the unauthorized practice of law,
all forms used in an electronic environment need to be held to the same standard as paper forms.
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Therefore, all forms required to be drafted and/or approved in advance by an attorney in their
paper form need the same attorney drafting/approval when they are used in electronic form.
The possible ease with which electronic forms can be manipulated is another concern.
Technology may be available to help minimize the potential for the unauthorized practice of law
by licensees when electronic forms are utilized. Forms can be safeguarded by making them
unalterable by the licensee. The only areas where the licensee should be able to insert language
are the blanks in the forms.
Electronic contract forms also need to be able to accommodate revisions that arise during the
negotiation phase, such as those made for a consumer by his attorney during an attorney review
period. The attorney may draft language for insertion into the contract, may remove language
and substitute new language, and may add appendices (see more on this in the section on
contract modification in issue number 7, below).
These are technology issues that each brokerage using electronic forms and e-platforms would
need to address individually, based upon state law.
3.
UETA and E-Sign
UETA
The Uniform Electronic Transactions Act (“UETA”) was published by the National Conference
of Commissioners on Uniform State Laws (“NCCUSL”) in 1999. NCCUSL is an organization
comprised of lawyers, judges and law professors. It develops uniform laws on a variety of
subjects where it is felt uniformity is desirable. In those areas where model laws have been
written, individual states considering the adoption of legislation on a particular issue normally
will evaluate the NCCUSL uniform law. In some cases, states adopt a statute that is virtually
identical to a uniform law published by NCCUSL. Other states make modifications to the
uniform law, and still others adopt a statute that is very different from the uniform law. As of
this date, 24 states have enacted UETA and 22 more states are introducing a version of UETA in
2001. Information on the legislative status in individual states is available on the Internet at
http://www.nccusl.org/uniformact_factsheets/uniformacts-fs-ueta.htm
The basic purpose of UETA is to remove barriers to electronic commerce by establishing
electronic records and signatures as legally equivalent to paper writings and manual signatures.
The objective is to ensure that electronic transactions are as enforceable as paper/manually
signed transactions. UETA is a procedural law that allows the use of electronic records and
signatures, but without changing any of the existing substantive laws that already apply. It
facilitates the use of electronic signatures/records, but it does not require them. It is important to
understand that UETA is not a digital signature law; it is technology-neutral and does not require
the use of any particular technology. UETA defines an electronic signature as “an electronic
sound, symbol, or process attached to or logically associated with an electronic record and
executed or adopted by a person with the intent to sign the electronic record.”
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A crucial aspect of UETA is the requirement that the parties must both have agreed to conduct
the transaction electronically. If the parties have so agreed, then electronic records/signatures
may be used in that transaction. In addition, UETA allows a party who has agreed to an
electronic transaction to withhold his consent in connection with other transactions. This would
apply specifically to a provision in an agreement that required a party to consent to using
electronic signatures in future transactions.
E-Sign
In addition to state law, there is a federal statute, the Electronic Signatures in Global and
National Commerce Act (“E-Sign”), which the U.S. Congress enacted in 2000. E-Sign overlaps
with UETA in several ways, and even incorporates some sections of UETA, but it is not identical
to UETA. Like UETA, E-Sign specifies the legal effect and enforceability of electronic
contracts and electronic signatures, but it does not address how the authenticity or validity of
those signatures can be established. Under E-Sign, if a state has adopted UETA in the form
recommended by NCCUSL, the state’s law will preempt E-Sign and will govern electronic
transactions.
These laws impact electronic real estate transactions and brokerages in several ways, including:
Consumer Consent – both UETA and E-Sign require the consumer’s consent to conduct the
transaction electronically, and E-Sign requires that this consent itself be communicated
electronically. The consumer also must be able to decline to use electronic means to transact.
This seems to indicate that entities employing electronic transactions may have to maintain two
systems, electronic and traditional paper. So, a brokerage will need to maintain a traditional
paper system as well. Maintaining dual systems also is important because E-Sign specifically
allows a consumer to withdraw his consent to the use of electronic records at any point in the
transaction. If a consumer who initially gives consent to the use of electronic records withdraws
that consent, then the brokerage will need to be in position to carry out the rest of the transaction
in traditional paper and ink format.
Brokerages will need to obtain the consent of both the buyer and the seller to conduct the
transaction electronically. If only one consents, for example the seller, then the brokerage may
continue to have an electronic relationship with the seller, however the relationship with the
buyer would need to be handled in paper format. It is unclear whether a brokerage would be able
to provide incentives for consumers to use the electronic system
In sum, brokerages conducting transactions electronically will need to address:

Obtaining the necessary consumer consents to the electronic transaction at the outset – both
consent to the receipt of electronic records and consent to the use of electronic signatures.

Disclosing to consumers that they have the right to withdraw their consent at any point in the
transaction and providing adequate means for consumers to withdraw consent, with notice of
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any ramifications (such as additional costs or a delay in the transaction because of switching
to a paper system).

Developing disclosure documentation concerning the use of and access to electronic records.
E-signatures/Authentication – UETA and E-Sign do not require the use of a particular form of
electronic signature. Both adopt very broad definitions of an electronic signature and provide
that the parties may agree on the particular form and technology they will use. Both laws also
leave the issue of the effect of the electronic signature to be determined by the context of the
individual transaction. For example, UETA states. “The effect of an electronic record or
electronic signature attributed to a person…is determined from the context and surrounding
circumstances at the time of its creation, execution or adoption, including the parties’
agreement…”
Although the issue of authentication exists for all types of signatures, electronic as well as pen
and ink, the problem may be more critical with electronic signatures. This is because of the
broad definition of a signature under the new laws and the lack of experience among consumers
as to the meaning of an “electronic signature.” The issue of whether a consumer intended to be
bound by what might be considered an electronic signature has the potential to put any
transaction into court. As a result, some elements of the real estate transaction may require the
use of specific technologies in order to accept an electronic signature in connection with a
transaction.
There are various technologies available for electronic signatures, including both symetric and
asymetric encryption methods. One of the more common ones involves a public key/private key
and a digital certificate authority to allow all parties to confirm the identity of the party sending
the message and that the message has not been altered since the time it was signed. Although
this remains one of the more widely recognized technologies, neither UETA nor E-Sign adopted
it as the standard. In fact, E Sign went so far as to preempt any law that gave preference to a
particular technology such as the public/private key digital signature.
Anyone using an electronic system for contracting, whether for the purchase or sale of real
property, financing it, or making required disclosures associated with those activities, will want
to have confidence in the particular e-signature choice. They will want it to provide assurance
that the actual person is the one using it, and that it is valid and enforceable. Although both
UETA and E-Sign anticipate that the parties will agree on both the form and methodology for the
electronic signature, in practice, some type of standardization will be needed to allow third
parties (for example, those involved securitization of mortgage loans), to rely upon the electronic
documents. For that reason, rather than this being a point of negotiation between the parties,
either the marketplace or the platform itself will push all parties toward a single standardized
format which will provide the necessary assurances regarding the validity of the signature.
Notarization – The acknowledgment of documents by a notary public is an important issue to
consider in an electronic environment. Every real estate closing requires the notarization of
several important documents, including the deed. The essential aspect of most notarization laws
is the requirement that the individual whose signature is being acknowledged appears in person
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before the notary public. The personal appearance requirement permits the notary not only to
identify the signer, but also to observe the person’s willingness to enter into the agreement. How
can notarization requirements be satisfied in an electronic environment?
Most state notary law requirements do not specifically address electronic signatures. An
exception is Arizona, which already has adopted administrative rules addressing electronic
notarization, a copy of which is attached to this Report as Exhibit B. Note, however, that even in
these rules, while the notary may execute a notarization electronically, he still may require that
the individual personally appear before him or provide a secure electronic acknowledgment.
Recording – Another important issue to consider in an electronic environment is satisfying the
local recording requirements. In many areas, document recording takes place at local
government offices, many of which are understaffed and always seem to be low on funds. Each
locality may have its own requirements for documents to be recorded (some require a certain
amount of space in certain spots on a deed, for example, because that’s where they stamp the
recording information). At present, very few locales are equipped to handle electronic recording.
In addition, in many areas, since recording fees are an important source of funds, they may be
reticent to considering changes in the current paper recording system for fear that their fees
and/or the number of employees required may be reduced. Over time, changes probably will
occur to permit electronic recording, but this is likely to be one of the last aspects of real estate
transactions that will be able to be handled electronically.
4.
RESPA
The Real Estate Settlement Procedures Act (“RESPA”) was enacted by Congress in 1974. The
goal was to provide consumers with various protections in the home buying process, and
ultimately, to reduce the cost of homeownership.
Whether RESPA will have any impact upon the future of e-platforms initially will be governed
by how the cost of these e-platforms is financed. If consumers pay a fee for using an e-platform,
other than requiring that the fee be disclosed, RESPA will have little impact. However, if the
other settlement service providers pay for use of the e-platform by their clients or if the eplatform pays other settlement service providers for putting their clients on the e-platform, then
RESPA may apply.
RESPA focuses on services provided in connection with the settlement of a federally insured
loan. It regulates “abusive” practices by outlawing unearned fees and kickbacks, and requires
that consumers be provided with information about the settlement process and full disclosure of
associated fees. In addition to the federal law, several states have adopted their own versions of
legislation addressing these issues, which often are more stringent than RESPA.
Penalties for violations of RESPA can be quite severe. Violators can be subject to criminal
penalties (up to $10,000 and/or imprisonment up to a year) and treble damages. Enforcement
actions may be brought by HUD and by consumers, and class action lawsuits are popular these
days. The use of electronic transactions and e-platforms raise a variety of RESPA issues,
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including: referral fees, whether goods and services are actually provided, mortgage brokerage
issues, and the sale of customer lists.
Section 8(a) of RESPA is most easily understood as a blanket prohibition on payments of any
kind for the referral of business to a settlement service provider, subject to certain exemptions.
Section 8(a) states that it is “illegal for any person to give or receive a thing of value pursuant to
an agreement or understanding to refer settlement services in connection with a federally related
mortgage loan.” This blanket prohibition is then subject to certain exemptions and exceptions
found in both RESPA itself and its implementing regulations.
The business model of many web site operators may be on a collision course with RESPA with
respect to encouraging the use of particular settlement service providers. Many web operators
are accustomed to being paid based upon the number of transactions conducted on their site. At
present, there is no specific guidance from HUD on whether and how RESPA applies to the
various ways in which the operators of an e-platform might be compensated.
Therefore the operators of e-platforms, to the extent they are regulated under RESPA, will need
to fall under one of the exceptions to the statutory prohibition on referral fees. RESPA contains
several exceptions and exemptions to the anti-kickback provisions of Section 8. One of the most
important of these as far as real estate practitioners are concerned, in addition to the one for
payments between real estate brokers, is the exception for a payment for services actually
performed or goods actually provided. To analyze the application of RESPA to electronic
transactions, the initial inquiry should be whether the person is providing real services or real
goods that are distinct from what they already are being paid to do. If the answer is yes, then one
may pay that person the fair market value of their services or goods and the payment would not
be in violation of RESPA.
Application of analysis to specific situations:
Mortgage loan applications - An example of a situation involving a service is where a real estate
licensee takes a consumer’s mortgage loan application for a lender. That is an additional service,
but it is duplicative of the real estate brokerage service already provided and paid for by the
consumer because the information also would have been collected in connection with providing
the real estate brokerage services. Therefore, the lender may not pay the licensee anything
unless the licensee also provides additional services beyond just filling out the application. Then
lender may pay the licensee the fair market value of those services. But what’s the fair market
value of those services? The fair market value is the value of the services without any value
associated with the referral of the business. If the amount paid is greater than what someone not
receiving a referral would pay, then the difference is presumed to be a payment for the referral of
business.
Payments for banner ads – May a lender pay an e-platform or a broker for a banner ad to appear
on the e-platform or broker’s web site? Yes, as long as it only is an advertisement that is not
interactive. Such a banner ad is no different from a print ad in a newspaper, and it should not be
considered a referral. If the lender has an exclusive arrangement with the e-platform (meaning it
is the only banner advertiser and the e-platform promotes that lender), the answer depends upon
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how the payment is structured. If it is structured as a flat fee commensurate with the value of the
services, then it is permissible, but if the lender pays for the banner ad based on the business
generated, such payment would violate RESPA.
An advertiser may be charged by a web site operator based on the number of visitors/impressions
on the site. Again, that is no different than a nationwide newspaper charging more for ads than a
local paper does, because so many more people see it. Likewise, an advertiser may be charged
more for placement of the banner ad in a better spot on the site, because a better placement is
more valuable.
It is permissible to charge an advertiser based on the number of click-throughs from the site
(where the consumer clicks on the banner ad, and is taken directly to the advertiser’s site).
Although there is no guidance from HUD or case law on this, such payments should be lawful as
long as the payment is strictly for the click-throughs, because it may be considered to be
equivalent to purchasing a customer list.
Charges for use of e-platform system/software - An e-platform may sell the right to use its
software and its e-platform system. Because an e-platform simply provides the means of
communication, similar to a telephone company, it is able to charge for the use of its software
and the use of its system.
E-platform as settlement service provider – Technically, under RESPA, an e-platform probably
would be considered a settlement services provider. However, the mortgage loan probably
would not be considered to be closed on the platform, because the e-platform is just providing a
means for this to occur. An e-platform is analogous to a telephone company; it provides the
means of communication.
Bundling services – The concept of bundling services currently is a hot topic, and is something
an e-platform might be able to facilitate. Bundling refers to the sale of a series of settlement
services, for example, items like the credit report, appraisal, flood certificate and closing services
for a flat fee. Currently under RESPA the bundling of services offered by a single provider is
allowed, but if services of different providers are bundled together, no payments between those
different service providers would be allowed. In the past several years, proposals have been
developed by both government agencies and private industry groups to amend RESPA to allow
different parties to bundle together their services. In these proposals, none of which have
progressed beyond the discussion stage, bundling is seen as being pro-consumer if the consumer
is guaranteed the bundle of services for a certain fee. Under some of the proposals there would
be no reason why an e-platform could not bundle services. Offering these services to consumers
at a discounted price should not constitute a required use or an affiliated business arrangement
and should not violate those provisions of RESPA as long as the services also are available
individually.
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5.
Privacy
Currently, there are dozens of legislative proposals at both the federal and state government
levels concerning consumer privacy. Although only a few of these actually have been approved,
it is likely that others will emerge. An e-platform is virtually certain to be impacted in some
fashion because it would include numerous items of personal, confidential information that
would be gathered as a result of the loan and other processes involved in the transaction.
Although no conclusions can be drawn on this issue at this time, it is definitely something that
would need to be monitored at the state and federal legislative and regulatory level to assure new
impediments to the operation of an e-platform are not created.
Consumer Privacy Concerns
Privacy is a critical issue that will need to be carefully addressed to enable consumers to feel
comfortable, and therefore willing to use electronic means to conduct personal business of an
important nature, such as real estate transactions. Many consumers are very wary of using
electronic means to conduct business. Often, this is due to privacy issues.
There are a variety of concerns. Fears include worries that personal information will be shared
with others who might be able to use it to their detriment and that they will be bombarded with
unwanted e-mail, mail and telephone solicitations. Consumers also worry about the security of
their personal information. There have been many stories of identify theft, where a person’s
social security number and other personal information are used fraudulently to establish credit
card accounts and make other financial arrangements. All of this activity is unknown to the
consumer until he decides to take some action that requires a credit report, such as applying for a
mortgage or car loan, only to learn what has taken place. The horror stories about people trying
to get the resulting mess resolved are endless. People do not want to chance that this might
happen to them. If consumers do not have confidence in how their personal information will be
handled, both as far as its use and its protection, many simply are not going to even try using
electronic means to conduct personal business.
Privacy Policy
A brokerage establishing a consumer web site or conducting business on an e-platform needs to
develop a well-thought-out privacy policy and then carefully adhere to it. A privacy policy
should address what type of information is gathered, how it will be used, whether it will be
shared with others, and if so, with whom it will be shared, and for what purposes. It also should
cover what security measures are used, how the consumer may opt-out of receiving electronic
communications, and how a consumer initially electing to receive electronic communication may
modify his communications preferences in the future. If third-party advertisers can be accessed
through banner ads or other links displayed on the web site or e-platform, the privacy policy also
should address third party advertisers, especially the fact that their actions, and therefore their
use of consumer information, are not controlled by the brokerage.
The privacy policy needs to be prominently displayed so that consumers may read it and decide
whether or not it satisfies their needs, and therefore whether they will feel comfortable using the
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electronic system. As an example, NAR’s privacy policy for One Realtor Place® is attached as
Exhibit C to this Report.
Due to the greater depth of consumer information being collected and placed on an e-platform by
the parties involved in its use, a privacy policy statement by the e-platform operator will be even
more critical to its successful operation.
6.
Code of Ethics
At present, NAR’s Code of Ethics does not address electronic communications. Various articles
of the Code and Standards of Practice use the terminology “writing.” For example, Article 9
states:
“REALTORS, for the protection of all parties, shall assure whenever possible that agreements
shall be in writing, and shall be in clear and understandable language expressing the specific
terms, conditions, obligations and commitments of the parties. A copy of each agreement shall
be furnished to each party upon their signing or initialing.”
To enable members to use electronic documents, the Code should address the use of electronic
records. A possible way to accomplish this would be to add a definition of a “writing” in the
Code to state that the word “writing,” when used in the Code and the Standards of Practice
include electronic documents. NAR’s Professional Standards Committee should evaluate how
best to accomplish this.
As an example, the newly revised Uniform Arbitration Act, recently completed by NCCUSL,
uses a definition of a “record” to include electronic records as follows: “‘Record’”means
information that is inscribed on a tangible medium or that is stored in an electronic or other
medium and is retrievable in perceivable form.”
7.
Contracts
Formation
The ease of forming contracts electronically will be of value to real estate practitioners.
However, the formation of contracts electronically raises important issues that a real estate firm
should address before forming contracts electronically. To avoid confusion and any possibility
of the formation of a contract unintentionally, the electronic platform will need to specify at the
start the procedures to be followed to form a contract using the platform. If this is not done,
there will be a risk that binding contracts may be formed, unbeknownst to one or both parties.
The firm will need to establish a company policy detailing how contracts will be formed
electronically, addressing such things as, what constitutes acceptance, such as whether
acceptance can be communicated by an e-mail message to the broker. Once the policy has been
created, then the brokerage will need to educate its sales associates as to the procedure that will
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be followed, before they attempt to form contracts electronically. The brokerage also will need
to educate consumers on these issues as this will be a part of obtaining the consumer’s consent to
the use of electronic signatures and records. This could be done at the start of the electronic
relationship – if the consumer wants to use electronic communications/e-platform, these are the
policies that will be followed. This could be addressed at the same point in time that the
consumer consents are requested.
The clarification by real estate firms of the procedure to follow for contract formation will have
benefits beyond the ability to form contracts electronically. In addition, it should help a firm
standardize its contracting procedures, which will benefit sales associates and consumers alike,
since everyone will be aware of the correct procedures. If the e-platform can create a uniform
policy that can be used by brokerages and all other users of the e-platform (such as lenders, title
companies, inspectors), this will facilitate the adoption of the electronic process in real estate
transactions.
Another issue to consider related to the formation of contracts electronically, is the general
requirement of consideration. To enable consumers to submit their earnest money deposit along
with their offer, in most states, the system will need to be equipped to handle fund transfers.
This would include both wire transfers from lenders and credit card payments. (See more in
issue number 1, above, regarding state requirement s regarding the handling of escrow accounts.)
Modification and Attorney Review
The firm’s policy also should address contract modifications, both during the negotiation of the
contract and during the attorney review period (if there is one), and the procedures to be
followed. As mentioned in issue number 2 above, a system using electronic contracts and other
forms, will need to be able to accommodate modifications made to the contract, such as those
made during the negotiation phase of a purchase and sale contract, and any modifications
suggested by a consumer’s attorney during an attorney review period. While in a number of
states there is not customarily a period for attorney review of the contract after signing, in a
significant number of states, an attorney review period is the usual practice in most residential
transactions.
The ability to capture and display suggested contract modifications on an electronic system
would be a benefit to the real estate practitioner, to the consumer and to the consumer’s attorney.
The display of a “red-lined” version of the document online, indicating all of the suggested
modifications would enable all parties to see exactly what modifications are suggested and
ultimately the ones that are agreed upon. This has the potential to be a much better system for all
users than the current paper system. In the current paper environment, during contract
negotiations between the buyer and the seller, which usually are conducted through the real
estate practitioners, there can be multiple proposed changes to many contract terms, involving
crossing out the previously inserted language and attempts to insert the new term so it is
readable. In addition, often these negotiations are handled by faxing the changed document back
and forth. This can result in a very messy final document, which can be difficult to interpret
later, when the terms agreed to are not as fresh in the parties’ minds, and this can lead to
unnecessary confusion. The clarity of electronic documents should be a significant improvement
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over the use of paper documents to communicate proposed changes and display the final
agreement.
Conclusion
This Report addresses the top legal issues we have identified at present for brokers wishing to
transact electronically with consumers, including using e-platforms. We are certain that
additional important issues are certain to arise as technology and new ways to transact real estate
business continue to evolve.
Meeting Participants
State REALTOR® Association Legal Counsel
June Babiracki Barlow
California Association of REALTORS®
James E. Braman
Law Offices of Michael T. Wallender (NY)
Steven J. Bochenek
Sorling, Northrop, Hanna (IL)
Richard K. Clark
Rothgerber Appel Powers & Johnson (CO)
Matt Farmer
Oregon Association of REALTORS®
Karen France
Kansas Association of REALTORS® Inc.
Linda B. Gifford
Linda Gifford Law Office (ME)
James Goldsmith
Caldwell & Kearns
Christopher Kyler
Utah Association of REALTORS®
K. Michelle Lind
Arizona Association of REALTORS®
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Lawrence E. Marshall, II
Le Clair Ryan (VA)
Will Martin
North Carolina Association of REALTORS®
Rubin Pea
2001 NAR Committee Liaison, Law and Policy Group
Patrick A. Randolph, Jr.
Professor, School of Law University of Missouri – Kansas City
Margaret (Peg) Ritenour
Ohio Association of REALTORS®
Phillip L. Schulman, Esq.
Kirkpatrick & Lockhart LLP
Randy Schwartz
Florida Association of REALTORS®
Richard J. Staff
Wisconsin REALTORS® Association
Ronald Walker
Texas Association of REALTORS®
NAR Staff Participants:
Laurie Janik, General Counsel
Michael Thiel, Associate Counsel
Diane Djordjevic, Associate Counsel
Jeanne Delgado, Policy Representative
Edward Miller, Policy Representative
Sandra Collins, Trademark Administrator
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