Unit 6 Real Estate Principles

A "safety clause" is found in a

A "safety clause" is a clause found in the listing contract that provides payment of a commission to the listing broker should the seller sell the property after the listing expires.

associate licensee

A broker or salesperson who is employed by or in an independent contractor relationship with a real estate broker.

cooperating broker

A broker who assists another broker in the sale of real property. Usually the cooperating broker is the selling broker who found a buyer for the listing broker. (See listing broker)

Which of the following statements is most nearly correct concerning buyer's agency?

A buyer-broker does not represent the seller or listing broker and therefore is not liable for their statements or actions.

attorney-in-fact

A competent and disinterested person who is authorized by another person to act in his or her place. In real estate conveyance transactions, an attorney-in-fact, who has a fiduciary relationship with his or her principal, is authorized by way of a written, notarized and recordable instrument called a power of attorney. (See power-of-attorney)

bilateral contract

A contract in which each party promises to perform an act in exchange for the other party's promise to perform. The usual real estate contract is an example of a bilateral contract in which the buyer and seller exchange reciprocal promises respectively to buy and sell the property.

ostensible

A form of implied agency relationship created by the actions of the parties involved rather than by written agreement or document. (See implied agency)

A listing agreement is

A listing agreement is an employment agreement between an owner of property and the real estate broker authorizing the broker to find a buyer for the property. They are also bilateral contracts in that the seller promises to pay the broker a commission when the property sells and the broker promises to make reasonable efforts to obtain a purchaser.

Multiple Listing Service (MLS)

A marketing organization composed of member brokerages who agree to share their listing agreements with one another in the hope of procuring buyers for the listed properties more quickly than the Brokerage could procure on its own.

unilateral contract

A one-sided contract wherein one party makes a promise so as to induce a second party to do something. The second party is not legally bound to perform; however, if the second party does comply, the first party is obligated to keep the promise.

listing that is retained and secretly marketed by the listing broker or salesperson, and is not made available to other brokers in the office or to other multiple-listing service members is called a

A pocket listing is one which the listing agent markets privately before entering it in the MLS. Under MLS rules, a member must generally report any new listing except for commercial listings, which may be optional, within a short time.

agency

A relationship created when one person, the principal, delegates to another, the agent, the right to act on his or her behalf in business transactions and to exercise some degree of discretion while so acting. A fiduciary relationship that imposes on the agent, certain duties, obligations, and high standards of good faith and loyalty.

equal dignity rule

A rule of agency law that stipulates that when a contract is required by law to be in writing, the authority of an agent to enter into such a contract on behalf of the principal must also be in writing.

listing agreement

A written employment agreement between a property owner and a real estate broker authorizing the broker to find a buyer or a tenant for certain real property. Listing can take the form of open listings, net listings, exclusive-agency listings, or exclusive-right-to-sell listings. The most common form is the exclusive-right-to-sell listing.

implied agency

An agency agreement created by the actions of the parties, and not a stated (written or verbal) agreement. (See express agency)

duel agency

An agency relationship in which the agent acts concurrently for both principals (the buyer and the seller) in a real estate transaction. (See agency, agent, fiduciary)

subagent

An agent of a person who is already acting as an agent for a principal. The original agent can delegate authority to a subagent where such delegation is either expressly authorized or customary in the trade.

With an exclusive listing, a broker may be subject to disciplinary action for

An exclusive listing must include a definite termination date. The broker must also provide a copy of the listing to the owner.

express agreement

An oral or written contract in which the parties state the contract's terms and express their intentions in words.

When acting as agent for seller Jones, real estate broker Smith

As a fiduciary the broker (and salesperson) have a duty to be faithful to the principal. Other obligations that a fiduciary owes to his or her principal are the duties of loyalty, obedience and full disclosure; to be fair and honest; the duty to use skill, care and diligence; and the duty to account for all monies.

The Real Estate Transfer Disclosure Statement (TDS) provides information regarding the

As required by California Civil Code Sections 1102 - 1102.14, a transferee (buyer) of residential real property is entitled to a statement from the transferor (seller) which provides information regarding the physical condition of the property.

Broker Murphy meets Paula Phillips, who is looking for a house in Murphy's area. Paula describes what she wants, and Murphy realizes that his neighbor's house meets Paula's specifications exactly. Broker Murphy describes the house to Paula, who makes a special trip to town to see it. He did not tell Paula that the house he has described is not for sale. He is unable to persuade his neighbor that she should put her house up for sale, and he cannot reach Paula in time to call off her trip. Does Murphy have any liability to Paula?

At the least, Murphy will be dealing with a disappointed customer, and he may have to pay her expenses in traveling to his area. At the worst, Paula will complain to the Real Estate Commissioner, who may discipline Murphy for his misrepresentation.

power of attorney

Authority to act on behalf of someone else for financial purposes. (See power of attorney

Broker Rice has received an offer on the Marlow house along with a deposit check for $1,000, which his agency agreement authorizes him to receive. It is early evening when Rice receives the check, and he will present the offer to the seller the next morning. What should Rice do with the check in the meantime?

Because the offer is to be presented the next day, Frank should hold on to the check. If the offer is not accepted, he can simply return the check to the buyer. If the offer is accepted, he then can deposit the check in an escrow account. He should take precautions to safeguard the check while it is in his possession, as he could be liable for its loss.

Salesperson Sam signs a broker-salesperson contract with Broker Bob. Sam is to use due diligence in handling the listings of Broker Bob's company. In return, Salesperson Sam will receive a percentage of the commission on every sale he makes. What is Broker Bob's obligation under the contract? What is Broker Bob's obligation if Salesperson Sam fails to sell, lease, or rent any listings?

Broker Bob will pay Salesperson Sam a share of the commission received on a completed transaction. Broker Bob has no obligation to pay Sam unless Sam brings about a sale or other transaction.

Broker Cindy Carroll of ABC Realty would like to list the Meyer estate. She offers to handle the sale at a commission of 5% of the selling price. Meyer, a widow, signs a listing agreement with Carroll. Carroll discusses the Meyer estate with an investor she knows. She agrees to bring the investor's offer to Meyer and, if the offer is accepted, to represent the investor when he resells the property, which will take place immediately after the first sale. The investor offers somewhat less than the asking price, but Carroll persuades Meyer to accept the offer. A few weeks after the sale, Carroll sells the property for the investor, who makes a 20% profit on the transaction. She earns two commissions. Comment on broker Carroll's activities.

Broker Carroll, in agreeing to act in the future for a buyer, has breached her fiduciary duty to Mrs. Meyer. At the very least she owes Mrs. Meyer the duty of full disclosure of her dealings with the buyer. She should have informed Mrs. Meyer of both her relationship with the buyer and the intent of the buyer in making an offer. By actively working against Mrs. Meyer's best interest in persuading her to accept the investor's offer, Carroll may be liable for fraud.

Most of the laws dealing with the formation of an agency relationship are found in the

California Civil Code

Salesperson Sam is a good friend of the Patels, who ask Sam to help them find a small office building for their mail-order business. The Patels tell Sam they will pay him $1,000 as a fee if within 30 days he can find a suitable building available for occupancy. The Patels and Sam sign a written agency agreement to that effect. The next day, Salesperson Sam is approached by Jim Nelson, who wishes to sell an office building that meets the Patels' specifications exactly. Can Sam sign an agency agreement on behalf of his broker with Jim Nelson? In other words, can he list the Nelson property for sale? If Sam lists the Nelson property, can he then show that property to the Patels? Should he?

Certainly, Sam can sign a listing agreement on behalf of his broker for any property that he feels his firm is qualified to handle. If Sam does list the Nelson property, by showing the property to the Patels he would be acting in a dual agency capacity. Sam's broker then would be an agent for both the Patels and Jim Nelson. Sam should undertake such a representation only after fully informing Jim Nelson of the existence of his agreement with the Patels, informing the Patels of his agreement with Jim Nelson, and discussing the matter with his broker.

An agent owes which of the following to a third party?

Duty of disclosure

due diligence

Generally, due diligence refers to the care a reasonable person should take before entering into an agreement or a transaction with another party.

Broker Al Teller knows that his neighbor Woody is trying to sell a small lot in the downtown area that is zoned for commercial use. Because of its size, the lot is worth about $5,000. Al offers to find a buyer if he is given a 10% commission. Woody does not make a commitment but says he will think it over. The next day at a Chamber of Commerce luncheon, Joe Everett mentions to Al that he is looking for a small lot downtown to open a sandwich shop. Al tells Joe about his neighbor's property, and Joe is enthusiastic. Later that day Al brings Joe to see the lot, and Joe states that he is willing to offer $4,500 for it. Al brings Joe's offer to Woody. If Woody accepts Joe's offer, will he have to pay Al a commission?

If Woody accepts the offer he will ratify an agency agreement with Al, on the terms discussed earlier.

principal

In a fiduciary relationship, the person who hires a real estate broker to represent him or her in the sale of property. The phrase, "principals only," often found in real estate ads, is meant to exclude real estate agents from contacting the owners of the property. The principal can be anyone who has the ability to enter into a contract.

Broker Bob is the exclusive agent for the O'Connors, who are selling a four-unit apartment building. The MLS has not been authorized and is not being used, although the property is being advertised for sale. If a cooperating broker brings in a buyer, what is the relationship of that broker to the O'Connors and Broker Bob?

In this case, a cooperating broker would be the subagent of Broker Bob and have no direct relationship with the O'Connors.

ratification

Method of creating an agency relationship in which the principal accepts the conduct of someone who acted without prior authorization as the principal's agent.

estoppel

Method of enforcing an agency relationship in which someone stated incorrectly that another person is his or her agent, and a third person relied on that representation.

An agency relationship may be created by

Most agency relationships are created by written agreement. An agency relationship can also be created by ratification (consenting to acts of the agent) and estoppel (principal stopped from denying an inconsistent position in the representation).

Frank Rice, a licensed real estate broker, lists the Marlow house for sale. If Frank becomes ill and is unable to carry out the terms of his agreement, can he delegate that responsibility to another broker?

No. Although Frank can delegate some of the responsibility of the listing agreement, he cannot turn over complete authority to someone else without the express consent of his principal. Frank's personal efforts and supervision of others in carrying out the terms of the listing agreement are what the seller bargained for, and Frank cannot transfer those responsibilities to someone else.

Broker Rice has been given a deposit check for $2,000 by a buyer. He neglected to tell the buyer to whom to make out the check, and the buyer made the check out to him. The buyer's offer is accepted. Broker Rice deposits the check in his personal account and immediately writes out his own check to the title company that will handle the sale. Has broker Rice acted correctly?

No. Broker Rice has commingled his customer's funds with his own. Rice is subject to sanctions by the Real Estate Commissioner. Depending on when he noticed the error, Rice should have returned the check to the buyer or placed it in his trust account or an escrow depository if one already was stipulated.

Richard and Roberta Simpson have decided to sell their condominium in Long Beach. They talk to Broker Bonita, who does a market analysis for them and recommends a selling price in the $380,000 to $400,000 range. Richard and Roberta tell Broker Bonita they will think it over, but if they decide to sell, they will want to ask for $410,000 so that they will have at least $380,000 left after paying the sales commission and closing costs. Is Broker Bonita the Simpsons' agent?

No. There is no written agreement between the Simpsons and broker Bonita.

Richard and Roberta Simpson have decided to sell their condominium in Long Beach. They talk to Broker Bonita, who does a market analysis for them and recommends a selling price in the $380,000 to $400,000 range. Richard and Roberta tell Broker Bonita they will think it over, but if they decide to sell, they will want to ask for $410,000 so that they will have at least $380,000 left after paying the sales commission and closing costs. The next day Broker Bonita calls the Simpsons and tells them that an out-of-town buyer, anxious to close a deal on a condominium, is in her office and would like to see their home. The Simpsons allow Broker Bonita to bring the prospective buyer through their condominium. Is Broker Bonita the Simpsons' agent?

No. There is no written agreement between the Simpsons and broker Bonita.

special agent

One authorized by a principal to perform a particular act or transaction without contemplation of continuity of service as with a general agent. The real estate broker is ordinarily a special agent appointed by the seller to find a ready, willing and able buyer for a particular property.

Which of the following accurately describes a listing agreement which allows the broker to either find a prospective buyer, or purchase the home himself/herself?

Option listing

Seller A let buyer B assume that Broker C was his agent. This type of agency relationship is an example of:

Ostensible authority is that authority which a third person reasonably believes an agent possesses because of the acts or omissions of the principal. Ratification is the adoption or approval of an act performed on behalf of a person without previous authorization, such as the approval by a principal of an agent, after the acts have been performed. Estoppel is a legal doctrine which prevents a person from alleging something to be true or a fact which is contrary to a previous affirmation or allegation made by that same person.

pocket listing

Property listing that the listing agent markets privately before entering it in the multiple listing service (MLS); usually a violation of MLS rules. (See multiple-listing service)

cooperation split

Sharing of the compensation (usually, a commission) received by the listing broker with the broker who brings the buyer to the transaction.

Under an exclusive agency listing, a broker advertises a home for sale. The owner sells the home prior to the expiration of the listing. The broker is entitled to

Since the listing was an Exclusive Agency Listing, the seller may sell the property himself or herself and not pay a commission.

general agent

Someone authorized to transact every kind of business for the principal. (See agent)

statute of frauds

State law that requires certain contracts to be in writing and signed by the party to be charged (or held) to the agreement in order to be legally enforceable.

Broker Bob is engaged by Ramon and Rosa Garcia to sell their home. Broker Bob is a special agent for that purpose. When Broker Bob sells the Garcia home, his agency relationship with the Garcias will terminate. The Garcias, popular magicians who are planning a move to Las Vegas, employ a business manager and give that person full authority to carry out their financial affairs. What kind of agent is that person?

That person is a general agent, because of the broad authority given to the agent by the Garcias.

Definite termination date

The Business and Professions Code provides for suspension or revocation of a real estate license if the licensee claims, demands, or receives any compensation under any exclusive agreement, if the agreement "does not contain a definite, specified date of final and complete termination."

Which of the following best describes a "dual agency?"

The agent acts concurrently for both the buyer and seller in a transaction with the full knowledge and consent of both parties.

Commingling

The illegal act of mixing deposits or monies belonging to a client (trust funds) with one's personal money. By law brokers are required to maintain a separate trust or escrow account for other parties' funds held temporarily by the broker. (See trust funds)

In a real estate listing agreement, the commission is earned when

The listing broker earns his/her commission when he/she finds a buyer who is ready, willing, and able to purchase the subject property on the seller's original terms. Until the seller's acceptance is communicated to the buyer, there is no contract.

single agency

The practice of representing either the buyer or the seller but never both in the same transaction. The single-agency broker may be compensated indirectly through an authorized commission split or directly by the principal who employed the agent to represent him or her. (See dual agency)

All of the salespeople at ABC Real Estate work strictly on commission. No deductions are made from their commissions, which they share with ABC. They have no office duties and are billed for any use of secretarial staff, phones, conference rooms, and so on. They do receive referrals from ABC, which they can accept or reject. Describe the relationship between ABC Real Estate and its salespeople.

The salespeople of ABC Real Estate are independent contractors.

CPU Home Loans has a staff of 12 salespeople, all of whom are assigned office time and all of whom are paid a salary plus a commission on sales. CPU deducts income taxes and Social Security from the salaries of all salespeople and also makes payments for unemployment insurance and workers' compensation. For purposes of work assignments and compensation, are the salespeople of CPU Home Loans employees or independent contractors?

The salespeople of CPU Home Loans clearly are employees.

In addition to the actual authority specified in the agency agreement, an agent also has inherent authority regarding activities the agent needs to perform that are not mentioned in the contract such as,

There always are activities the agent needs to perform that are not mentioned in the contract, no matter how detailed. In conducting an open house, for instance, a real estate licensee may advertise, distribute fliers in the neighborhood, and post signs at nearby intersections, none of which is likely to be specified in the listing agreement.

Glenda Golden is an unemancipated minor. Her grandparents, who have moved to Retirement City, transferred title to their ranch to a trust established for Glenda, their only heir. Glenda (who is not sentimental) immediately approaches Helen Silver, leading salesperson for XYZ Realty, about selling the ranch. Helen knows the property will sell quickly. Should Helen take the listing?

There is no listing to take. Glenda has no control over the ranch, since title is held in trust for her. Even if Glenda did have title, because she is mentally incompetent she does not have the legal capacity to enter into a contract for the sale of real estate.

Buyer Frank sued broker Sam for a misrepresentation in the sale of a single family residence. He was awarded a judgment in the amount of $60,000. Broker Sam was bankrupt and unable to pay the judgment. Buyer Frank appealed to the Real Estate Recovery Account. Assuming the Recovery account agrees to pay Frank, he will receive a maximum of

This question is asking for the maximum amount that may be recovered for any one salesperson. $50,000 for a single transaction, but $250,000 maximum for any one licensee. If the broker or salesperson is bankrupt, he/she will not be granted reinstatement until the fund is repaid in full, plus interest at the prevailing legal rate.

Real estate broker Luis hires Sally and agrees to pay her a salary as well as a commission on sales she makes. When showing a house, Sally carelessly neglects to lock the back door. Before the owner returns, someone enters the house and steals a video game player. Is broker Luis liable for the owner's loss?

Yes, because Sally was acting within the scope of her employment while showing the house.

XYZ Realty has an open listing agreement with the Carters. XYZ brings to the Carters a buyer who will pay their asking price and is otherwise qualified financially. While the Carters are considering the offer, a good friend offers to buy their property for $3,000 less than the asking price. Because they will come out ahead if they do not have to pay a sales commission, the Carters accept the offer. Do the Carters owe the XYZ broker a commission?

Yes, because the first acceptable offer came through XYZ Realty. If the offer through XYZ was not at the sellers' original terms, they would be free to accept their friend's offer without obligation to pay a sales commission.

XYZ Realty has listed the Rey house for sale. Mabel Perkins, an aunt of the broker who owns XYZ Realty, wants to make an offer on the Rey house. Can XYZ take the offer to the Reys?

Yes, but the relationship of Mabel Perkins to the broker must be disclosed to the sellers first, regardless of the terms of the offer.

Smith tells Jones that Broker Bob is selling the Smith home. Jones brings an offer to Broker Bob, who prepares a written offer to purchase, listing himself as the broker and stipulating a commission rate. Smith can accept the offer by signing it. If he does so, will an agency be created?

Yes, if Smith accepts the offer, which lists Broker Bob as the selling agent entitled to the sales commission. Smith's acceptance by signing the agreement would satisfy the requirement for a writing.

Sara and Sam Schuster decided to move from Laguna Beach to Boise and listed their home for sale with broker Bonita Fish. After an extended vacation in Boise, the Schusters decided to stay in Laguna Beach and notified Fish that they were taking their house off the market. Can they cancel the listing agreement?

Yes, the Schusters can unilaterally cancel the listing agreement. Broker Fish must decide whether she wants to charge the Schusters for any expenses she incurred in marketing their property. If Fish had already found a ready, willing, and able buyer for the Schuster house, she could also insist on payment of her commission on the transaction.

Sally and Tom Benson have listed their house at Lake Shastina for sale with Broker Luis. The asking price is $165,000, and the listing is for three months. Within two months Broker Luis procures an offer from Mary Ivers for $163,750. All other terms are as stipulated by the Bensons, and Broker Luis has determined that Ivers should qualify for the necessary loan. The Bensons accept the offer, and the sale is carried out. Has Broker Luis earned his commission?

Yes. Broker Luis has produced a ready, willing, and able buyer who made an offer that was acceptable to his clients.

Lydia lists her residence for sale. Broker Reina has an MLS clause in her exclusive authorization and right-to-sell listing agreement with Lydia. If broker Bob, a member of the MLS, finds a buyer, does broker Reina deserve a commission?

Yes. Broker Reina is entitled to the listing broker's share of the commission.

Richard and Roberta Simpson have decided to sell their condominium in Long Beach. They talk to Broker Bonita, who does a market analysis for them and recommends a selling price in the $380,000 to $400,000 range. Richard and Roberta tell Broker Bonita they will think it over, but if they decide to sell, they will want to ask for $410,000 so that they will have at least $380,000 left after paying the sales commission and closing costs. The out-of-town buyer makes an offer, through Broker Bonita, of $395,000. The real estate purchase contract, signed by the buyer and Broker Bonita, lists Bonita as selling broker, to receive a 6% commission on the sale. After talking it over, the Simpsons decide the offer is a good one, and they accept it by signing the contract. Is Broker Bonita the Simpsons' agent?

Yes. Now there is a written document, signed by both the Simpsons and broker Bonita, desig-nating Bonita as sales agent. Because a selling price and commission rate had been discussed earlier, unless a different arrangement was specified in the contract, the earlier terms will apply. The Simpsons have ratified Bonita's conduct in bringing a prospective buyer to them.

An agency relationship may be terminated by

agreement, death of the agent, expiration of the term

The Real Estate Law treats a salesperson as

an employee of the broker

For tax purposes, a sales person can work for the broker as

an independent contractor

A nonexclusive listing agreement is also known as

an open listing

An agent is liable to third persons for

any tort (physical injury or property damage) or other act, such as a fraudulent misrepresentation, that the agent performs. The agent also is liable for torts or other acts committed by the principal in which the agent acquiesces, where the agent does so by act or omission.

The MOST commonly used form of listing agreement is the

exclusive right to sell

agency relationships

exists when one party delegates decision-making responsibility to a second party for compensation In every agency relationship, there is always a principal, an agent, and a third person with whom the agent conducts business on behalf of the principal.

In their dealings with clients and with each other, real estate agents generally act as

independent contractors.

When an agent represents both the buyer and seller in the same transaction, this action is

known as dual agency

An attorney-in-fact can best be described as a(n)

legally competent person who has been given the power of attorney by another competent person.

One of the MOST important duties of agent to principal is the duty of

loyalty

Real estate commission rates are

negotiable

An agent is authorized to act in place of the principal by a

power or attorney

A real estate broker works for the

principal

attorney-at-law

someone licensed by the state to practice law.

A person authorized by a principal to perform a particular act or transaction is a

special agent

An agent who tries to sell a property that is currently listed for sale by the original (listing) agent is called a

subagent

When a real estate licensee accepts trust funds from his/her client in connection with the purchase of real property, the licensee must place these funds into the proper place

within three business days following receipt.