PRACTICE OF REAL ESTATE

refferals and other finder fees

A finder's fee is a commission paid to an intermediary or the facilitator of a transaction. The finder's fee is rewarded because the intermediary discovered the deal and brought it forth to interested parties. Depending on the circumstance, the finder's fee can be paid by either the transaction's buyer or seller.

avoiding unauthorized practice of law

A licensee provides legal advice or performs other services that should only be performed by attorneys

liabiality/ responsibility for acts of associated licensees (employees or independent contractors) and unlicensed employees

All licensed salespersons and associate brokers are required by law to work under the supervision of a sponsoring broker in their real estate activities. In doing so, the salesperson may either be hired as an employee or associated with a broker as an independent contractor. The distinction between an employee and an independent contractor is an important one, with significant tax consequences as well as important effects on the ability of a broker to control the activities of his or her salespeople. Regardless of what status one falls under according to the tax laws, part 175.21 of the Real Property Law requires that the sponsoring broker supervise his or her staff at all times. ... Employee Status The employer-employee relationship allows a broker to exercise certain controls over salespeople. The broker can require that an employee adhere to regulations affecting working hours, mandatory sales meetings, office routine, and dress standards. As an employer, a broker is required by the federal government to withhold Social Security tax and income tax from the compensation paid to employees. The tax laws require every taxpayer to pay annually 15.3 percent Social Security tax. Under this relationship 7.65 percent withholding tax is withheld from the employee's paycheck. The employer is then required to match that amount on behalf of the employee. An employee is covered by unemployment insurance and workers' compensation. A broker may provide employees with fringe benefits such as health insurance, pension plans, sick leave, and paid vacations. Such benefits are variously estimated to add 25 percent to 50 percent to the cost of an employee's base salary. A broker who chooses to regard salespersons as employees must take such costs into consideration when working out commission schedules and salaries. Because the broker provides all office services and benefits, employees are only entitled to certain tax deductions, none of which are related to their employment. They are not eligible for the self-employment deductions that are available to independent contractors.

incorrect factual statements versus puffing

An incorrect factual statement about the property could subject the agent to liability for misrepresentation. For ex, if the agent incorrectly informs the buyer of a boundary line and the buyer relies on that "factual" information, the buyer could later claim that the agent misrepresented the boundary location. This is true even though the agent is not considered an expert on boundaries (such as a surveyor) because the agent stated the boundary location as a fact. If an agent is clearly rendering an opinion rather than expressing a fact, the agent is not likely to be accused of misrepresentation. When rendering an opinion, the agent must avoid crossing the line between exaggerating a selling feature of the property (puffing) and misrepresentation. Puffing is a harmless exaggeration that is not likely to mislead a reasonable person. Statement that may be classified as puffing include: "this is the most beautiful house in the city" "You will never find a buy like this again" Puffing is not misrepresentation or fraud because it is a statement of personal opinion. However, the difference between puffing, misrepresentation, and fraud can be difficult to distinguish If an age says "This well water is the purest water in the county", and the well water turns out to be unfit for drinking, the agent's statement may appear to the buyer (and to a court) as a misrepresentation rather than an opinion, or puffing.

responsibilty to train and supervise associated licensees ( employees or independent contractors) and unlicensed employees

Broker Responsibilities ... of licensed and unlicensed employees and independent contractors, shall be considered when determining whether or not the ... A broker or associate broker shall supervise the work of a licensee.

ANTITRUST LAWS AND PURPOSE

But real-estate brokers should understand that any agreement, express or implied, with a competing brokerage to charge a certain commission, or offer the same commission splits, is a per se violation of the antitrust laws, with both criminal and civil consequences The Sherman Antitrust Act 1890 attempting to become a monopolist is illegal and trying to restrain trade is illegal forbade contracts in restraint of trade among the states or with foreign nations, and prohibited individuals from monopolizing or attempting to monopolize. Provided for confiscation of property connected with the illegal behavior, fines and imprisonment, and treble (damages times three) damages

procuring cause/ protection clauses

Commission disputes boil down to what is referred to in the industry as "procuring cause." The agent who ultimately caused the buyer to purchase the home and earned the commission is generally the procuring cause agent. ... But it's often not the agent who simply first showed the home. The commission protection period, frequently called the "tail," is often misunderstood. That clause says that for a period after the listing agreement expires, the real estate broker will still be entitled to a fee if you sell your home to someone who originally saw it during the term of the listing agreement

responsibility for earnest money and other trust monies, including commingling/ conversion

Except for the broker making an initial deposit to open the account (which is usually about $200.00), the broker's personal money may NOT be kept in the account. Remember that commingling, the practice of mixing a client's money with the agent's personal funds, is ILLEGAL. In the same way, if the broker places the buyer's cash OR check in the broker's PERSONAL account, this is also a form of commingling. Conversion, another illegal accounting practice, is the unlawful misappropriation and use of a client's funds by a licensee. For example, if a broker SPENDS the principal's deposit (without the principal's authorization), he has not, technically, COMMINGLED the funds, but he instead has CONVERTED those funds (into his own). While both commingling and conversion are illegal, as we said, conversion is a MUCH MORE serious violation than commingling, and has HEAVY CRIMINAL penalties.

protected classes covered transactions

Fair housing laws protect all individuals seeking housing, including renters, homebuyers, persons obtaining a mortgage or homeowners insurance, and others. The federal Fair Housing Act prohibits discrimination in housing because of the following "protected classes": Race. Color.

antitrust violations in real estate

Price-fixing is a per se antitrust violation. ... But real-estate brokers should understand that any agreement, express or implied, with a competing brokerage to charge a certain commission, or offer the same commission splits, is a per se violation of the antitrust laws, with both criminal and civil consequences

exceptions fha

Private individual owners of single-family housing are exempt from the non-racial protections of the Fair Housing Act, provided they: do not own more than three single-family houses at any one time, do not sell more than one single family house in any two year period, do not employ a real estate agent, and do not use discriminatory advertising

truth in adverising

State licensing laws and licensee codes of ethics require that licensees use advertising that is truthful, not misleading. This applies to both the advertising of property and the promotion of real estate services. The TILA and Regulation Z requires certain financing disclosures when specified trigger terms are used in financial service (mortgage) advertisements. Before passage of the Act, an advertiser might have used only the most attractive credit or lease terms, thus distorting the true cost of the credit or lease. TILA applies to advertisements that promote "consumer credit" or a "consumer lease" as defined in the Act. Thus, advertisers, not just creditors and lessors, must comply, including associations, manufacturers, real estate brokers, builders, and government agencies. However, there is no liability under the Act for the media in which advertisements appear

fair housing issues in advertising and marketing

The Fair Housing Act strictly prohibits the printing, making, or publishing of ads that state a preference, discrimination, or limitation based on color, race, sex, religion, handicap, national origin, or familial status. In everyday terms, ads can focus on the location, attributes, and amenities of a property (using the right terms!) but not on the nature of desirable tenants.

protected classes specific laws and their effects

The Fair Housing Act, which is the federal law governing housing discrimination, includes the following seven protected classes: race, color, religion, national origin, sex, disability, and familial status.

PURPOSE AND DEFINITION OF TRUST ACCOUNTS, INCLUDING MONIES HELD IN TRUST ACCOUNTS

They are money or other things of value that are received by a broker or salesperson on behalf of an individual (usually the buyer) that is held for the benefit of others in the performance of any acts for which a real estate license is required.

uniformed misrepresentation versus delibrate misrepresentation fraud)

deceptive act done intentionally by one party in order to influence another party to enter into a contract is known as fraud. The representation of a misstatement, made innocently, which persuades the other party to enter into a contract, is known as misrepresentation. Generally speaking, fraud contains an element of intent. You must prove that there was an intentional act to cause harm in order to show fraud. The "intentional act" may be an affirmative statement by the real estate agent, or it could be the purposeful withholding of a material fact about which the real estate agent has knowledge. Let's use an oversimplified example. You tell your client a house is 3,000 square feet, when you know full well it is only 1,500 square feet. That is fraud. Or the client asks you about the size of the property, and you intentionally say nothing. The client starts asking you about the property and your phone starts "mysteriously" cutting out suddenly, as if you are going through a tunnel. You get the idea. Now the contract is voidable at the option of the buyer, i.e., he or she has the option to follow through with or terminate the contract. If a civil suit is filed because of fraud, damages may include not only the plaintiff's actual damages but also punitive damages. Punitive damages are intended to deter a person from repeating a violation. As a matter of public policy, damages awarded for acts of fraud are not insurable. Therefore, insurance carriers will not pay a judgment based on fraud. Because the defendant will be personally responsible for those amounts, fraud claims can be very dangerous. Misrepresentation is a representation of a material fact made by a party who believed it to be true, the other party relied on the statement and entered into a contract based upon the statement, and it later turned out to be incorrect. Let's keep going with that square footage example. So now I told my client the house was 3,000 square feet because I really thought it was. Clearly if I did that I would be a terrible agent, but it makes the point. The representation is made unintentionally and unknowingly, not to deceive the other party, but it became a reason of loss to the other party. Now, the contract is voidable at the option of the injured party. However, if the truth of the material fact could be discovered by the aggrieved party in the normal course, then the contract is not voidable. For example, if I am at a property with my client saying that it is 3,000 square feet although the property is 1,500 square feet, it would not be hard to either find that information or simply notice it when you are there.

compliance types of violations and enforcement

enalties for Federal fair housing violations range from compensatory damages to victims for actual damages suffered as a result of the violation (including pain and suffering), to injunctive relief (order to correct violations), to attorney fees and costs. If a pattern of discrimination is found in an administrative hearing, the discriminating party is subject o civil penalties up to 16K for first time violations and up to 70K for third violations within 7 years. In federal court, if the Attorney General finds that the discriminating party is engaged in a pattern of discrimination, the discriminating party is subject to civil penalties of up to 75K for the first offense or up to 150K for subsequent violations

practicing within area of competence

realtors shall not undertake to provide specialized professional services concerning a type of property or service that is outside their field of competence unless they engage the assistance of one who is competent on such type of properties or services unless the facts are fully disclosed to the client. any person engaged to provide such assistance shall be so identified to the client and their contribution to the assignment set forth.