California: Real Estate Practice
Fair Housing Laws
- Brokers must evaluate whether they need to make physical changes to their office space to comply with the law. - Licensees should inform their commercial and investor clients of the need to have their leases professionally evaluated and their offices inspected for compliance
Safe Harbor Test
- Establishes that a person is indeed an independent contractor. The three conditions of the safe harbor test are: -The person must be properly licensed. -Gross income must be based on production and not on hours worked. -A written agreement must exist which clearly states the independent contractor status.
Broker independent contractor
- hired to perform certain acts, but the broker cannot control how the salesperson performs those acts. - A salesperson operating as an independent contractor must pay his or her own income tax, Social Security tax and Medicare tax. In addition, the salesperson cannot receive anything from the broker that would make it look like he or she is an employee, such as health insurance or a pension plan. - Most licensees are independent contractors.
Broker Employee
- works under the supervision and control of the broker. - the broker must withhold income tax, Social Security tax and Medicare tax from the salesperson's wages.
What should a licensee's written employment agreement contain?
-Each person's responsibilities to the other -The broker's supervision -The licensee's duties -The licensee's compensation program
Fair Housing Enforcement
1. Any person who believes he or she has been discriminated against may file a complaint with HUD within one year of the alleged act OR file a suit in a state or federal court within two (2) years of the alleged violation. 2. Conciliation: during the investigation period, HUD can attempt to resolve the complaint.
Fiduciary Duties
1. Care The law expects an agent to do his or her job with care, skill, and diligence: If the agent represents the seller: Helping the seller set a realistic asking price and evaluate purchase offers. Discovering and disclosing facts that affect the seller. Marketing the property and presenting contracts properly. If the agent represents the buyer: Helping the buyer locate appropriate housing. Evaluating property values and property conditions. Determining financing alternatives. Presenting offers and counteroffers with the buyer's interests in mind. An agent is liable to the principal for any loss that results from carelessness or negligence. 2. Obedience Requires that the agent act in good faith and obey the principal's directions as outlined in the contract, as long as they are legal. 3. Accounting An agent must be able to account for all monies, documents and other property he or she receives from the principal; keeping copies of the trust account records for three years. 4. Loyalty Requires the agent to place the client's interests above those of all others. Confidentiality remains even after a relationship has been terminated. The agent must disclose material facts about the property. 5. Disclosure An agent is bound to inform the client of ALL material facts that might affect the client's interests in the transaction.
Duties to clients outlined in the Code:
1. Protecting and promoting the interests of the client. 2. Avoiding the concealment of pertinent facts. 3. Informing sellers or purchasers of the licensee's interest in a property. 4. Providing equal, non-discriminatory services to all persons. 5. Being truthful and clear in advertising. 6. Refraining from false or misleading statements about competitors.
Fair Housing Law prohibits:
1. Refusing to sell, rent or negotiate with any person. 2. Stating or advertising that the property is restricted or using discriminatory advertising 3. Denying membership in any multiple listing service (MLS) or any broker's organization. 4. Blockbusting/Panic Selling (making a profit by inducing owners to sell by telling them that persons of a protected class are moving into a neighborhood). 5. Steering (channeling home buyers toward or away from homes in certain neighborhoods). 6. Redlining (restricting the number of loans in certain areas of a community).
Rules for handling trust funds:
1. Trust funds must be deposited within three (3) business days of the broker or the broker's salesperson receiving the funds. 2. The trust account must be a demand (non-interest-bearing) account. 3. A broker may deposit money into the trust account to cover reasonable service charges, but this cannot exceed $200. 4. Any broker-owned funds must be disbursed from the account within 25 days after deposit. 5. All trust account records must be kept for three (3) years.
California Fair Housing
1. Unruh Civil Rights Act - Provides protection from discrimination by all business establishments. - Housing designated to meet the physical and social needs of senior citizens is exempt from this act. - Complaints must be filed within one year of the alleged discrimination. 2. Fair Employment and Housing Act prohibits: - Discrimination in the negotiation or financing of housing. - Eviction of a person in retaliation for seeking to uphold the rights under this act. - Refusal to reasonably accommodate a handicapped or disabled person. 3. Housing Financial Discrimination Act (Holden Act) prohibits financial institutions from discriminating in loan activities on various basis.
If an agent does not comply with the requirement of conducting a visual inspection of a property, how long after possession does the buyer have to file a suit?
24 months Agents are required to inspect areas that are reasonably accessible and must report the results of the inspection on agent's inspection disclosure form. If the agent does not comply with this requirement, the buyer has 2 years from the date of possession to file suit.
Financing Disclosures
Seller Financing Disclosure. The seller financing arrangements on all one-to-four-unit residences must be disclosed to both the seller and the buyer using the Seller Financing Addendum and Disclosure form. Mortgage Loan Disclosure Statement. Real estate brokers negotiating loans which will be secured by liens on real property must deliver a written MLDS to the borrower within three business days of receipt of the borrower's written loan application. Adjustable Rate Loan Disclosure. A lender offering adjustable-rate residential mortgage loans must provide prospective borrowers with a copy of the Consumer Handbook on Adjustable-Rate Mortgages. The Real Estate Settlement Procedures Act (RESPA):For federally-related loans, the lender must furnish a good faith estimate of closing costs within three days of the loan application and provide a HUD booklet. The lender must provide a written Servicing Disclosure Statement. One business day before the settlement of the loan escrow, the borrower has the right to inspect the proposed HUD-1 Settlement Statement. The Truth in Lending Act requires a creditor to furnish certain disclosures to the consumer before making a contract for a loan. Allows the consumer the right to rescind. Regulation Z requires that creditors make certain disclosures for real property secured loans. Notice of Transfer of Loan Servicing. If a loan is secured by a one-to-four-unit property, the lender must notify the borrower when the loan collection is transferred to another entity. Notice of Adverse Action (Equal Credit Opportunity Act): A lender or creditor who denies an application for credit must provide the applicant with a statement of reasons within 30 days after receiving the completed loan application. Housing Financial Discrimination Act (Holden Act). At the time of the loan application, lenders must notify all prospective borrowers of their rights under the Holden Act and its prohibitions against discriminatory practices by lenders.
Agent Jim needs to do a visual inspection of his listing. What kinds of things should he be looking for?
Structural defects, deterioration, water damage and insect damage.
What economic factors affect the real estate market as well as other goods and services?
Supply and demand Pricing Costs incurred in bringing the properties to market Value aspects of desire, usefulness, scarcity and ability to pay
What does the TRID require of lenders?
That they provide a copy of the booklet, "Your home loan toolkit" to every person at the time of application for a loan, a Loan Estimate of closing costs within three days of the loan application; that they let the borrower know in writing if they expect someone else to service the loan; that they give the Closing Disclosure to the buyer at least three business days before settlement.
Broker-Salesperson Relationships
The California Code requires that brokers supervise all their salespeople, regardless of their income tax classification. Even though a salesperson may be classified as an independent contractor, the broker is still responsible for the licensee's professional actions. - Because of this, Brokers require licensees carry: Automobile liability insurance in high amounts, naming the broker as an insured on the policy. Errors and omissions insurance, covering the broker and salespersons for negligent acts (but not intentional acts). If a licensee working for a broker is a property manager having access to the money of others, the broker may get a fidelity bond to protect himself or herself from any embezzlement by such a licensee. It also seems that brokers are not protected from any injury claims that may be made by any of their independent contractors; so it would be wise for brokers to carry workers' compensation coverage for everyone who works for them. California law requires brokers to carry workers' compensation insurance for their agents.
If a person feels like he or she has been discriminated against, how long does that person have to file a complaint?
With HUD - within one year of the alleged act. In state or federal court - within two years of the alleged act.
List four sections of an Internet website that might be of particular appeal to prospective buyers.
Your current listings List of services you offer specifically for buyers, such as help in finding a lender Information on current interest rates Mortgage loan calculator
What is the Real Estate Transfer Disclosure Statement and who is responsible for providing it?
It is a statement that describes the condition of the property in detail. The seller must complete it, sign it and provide it to the buyer, but there is a section on page three of the form that the seller's agent (if there is one) must complete and sign.
Sex Offender Database
every sales contract must contain a notice with information about sex offenders registered under Megan's Law.
Military Ordinance:
if residential property is located within one mile of a former military training site, the seller must inform the potential buyer in writing that the ordinance site may contain ammunition or explosives.
Agency Relationship
is created when a person (principal) delegates to another person (agent) the right to act on his or her behalf in business transactions with third parties. 1. Both parties must consent and agree to form the relationship. 2. The relationship is fiduciary- the agent owes certain duties to the principal.
From whom may a salesperson receive compensation for performed activities?
ONLY from the employing broker.
Define panic selling.
Panic selling is soliciting a listing or inducing someone to sell by telling him or her that persons of a certain protected class are moving into the neighborhood.
What is meant by the term "sphere of influence"?
People that you know or have known that could be potential clients - family, friends, former co-workers, church associates, etc.
Written Employment Agreements
Regardless of a licensee's status as employee or independent contractor, the broker must enter into a written agreement with each salesperson and broker-salesperson.
What is a competitive market analysis?
A comparison of properties that are similar to the seller's property in location, size, style, age and amenities
Environment Hazards
Residential Earthquake Hazards Report is filled by the seller and signed by the buyer as acknowledgement of receipt. The buyer must receive a copy of The Homeowners Guide to Earthquake Safety/Residential Environmental Hazards Guide. Then, the seller is not required to furnish any additional information, unless there is actual knowledge of hazards affecting the property. Natural Hazard Disclosure Statement. The seller must disclose if the property is located in a hazard area
Salesperson Sally tells her senior citizen buyers that the home they want to view is located in a neighborhood with several small children and loud teenagers. She tells them they would not be comfortable in this home and she shows them a list of homes in other neighborhoods she thinks would be more appropriate. What would you say about Sally's behavior?
Sally is guilty of steering, which is prohibited by Fair Housing laws.
Broker Sam receives a deposit check from a client, along with the purchase contract. How long does he have to deposit it into his trust account?
Sam has three business days to deposit the check, unless the buyer authorizes him to hold the uncashed check until the offer is accepted.
All of the following are good newspaper sections to read for prospecting except which?
Sections of the newspaper that contain for sale by owner ads, rental ads, special announcements, and legal notices (such as obituaries) are all good for prospecting. The business section will not be helpful unless it contains information about a business expanding and needing additional property.
Other than residential list three kinds of property in the real estate market.
Any three of these six: industrial, commercial, agricultural, special purpose, recreational, investment
Give an example of a specific short-term goal.
Anything specific and measurable such as: I will schedule 2 practice listing presentations with an experienced co-worker next week. I will attend the 2-hour seminar about using e-mail that the local board is sponsoring on Friday morning.
When looking at homes currently for sale, what is important for a prospective seller to know about asking price?
Asking price is not always a good indicator of the actual selling price of a property.
What are members of NAR required to do?
Attend mandatory ethics training every four years.
Using the Internet
Be sure to have your site professionally designed. Sections that would interest potential sellers include: Lists of successfully sold properties and services you offer specifically for sellers. Getting the highest price. Inspection tips. Improvements that pay off. Sections that would interest buyers include: Information on current interest rates. Mortgage loan calculator and information on available loan programs. Financing terms defined.
Which California fair housing law(s) apply to financial institutions?
Both the Unruh Civil Rights Act and the Holden Act.
Why is it important for licensees to understand the Americans with Disabilities Act?
Brokers must evaluate whether they need to make physical changes to their office space to comply with the law. Licensees should inform their commercial and investor clients of the need to have their leases professionally evaluated and their offices inspected for compliance.
How can a builder help you generate leads?
Builders can refer to you their customers who need to sell their current homes.
California Association of REALTORS® (CAR)
CAR is the state division of NAR. This organization describes its purpose as being "to serve its membership in developing and promoting programs and services that will enhance the members' freedom and ability to conduct their individual businesses successfully with integrity and competency, and through collective action, to promote the preservation of real property rights."
Agent's Inspection Disclosure
California agents are required to conduct a visual inspection (does not include areas that would be deemed as reasonably or normally inaccessible) of a one-to-four-unit property and disclose the material facts to a prospective buyer. If an agent does not comply, a buyer has two years from the date of possession to file suit. Important things to look for include structural defects,deterioration, water or insect damage.
What required disclosure is a result of Megan's Law?
California requires that every sales contract or lease contain a notice which states that information about sex offenders registered under Megan's Law is available to the public on an Internet web site maintained by the Department of Justice.
Developing a Prospecting Plan
Can help you to identify the needs in the marketplace and provide you with a steady stream of potential clients. List all the activities you plan to do to develop and maintain leads. Keep track of your results so that you can become more effective at attracting both sellers and buyers.
What do you need to remember about making phone calls to potential clients?
Check into and follow the National Do Not Call guidelines.
Farming
Choosing to prospect in an area that is of particular interest to you. A geographical farm can be a neighborhood, a subdivision or an area where the homes share some common characteristics.
The principles of an agency relationship include all of these factors except which one?
Compensation An agency relationship is not dependent upon compensation and may exist without compensation. It must, however, include mutual consent, authorization, and fiduciary duties.
An agent's fiduciary responsibilities to a client usually end when the transaction closes. This is not true of which duty?
Confidentiality. This duty extends beyond the termination of the relationship. No personal information gained during the term of the agreement can ever be disclosed to another party except the broker.
Information not required to be disclosed:
Death - are not required to disclose any death that happened on a property more than three years before the offer to purchase was made. AIDS - sellers are prohibited from disclosing that a former occupant ever had AIDS.
Agency
Defines the basic relationship between a broker and the person represented in a transaction. If the principal in the relationship is the seller, then the broker is the seller's agent. If the principal is the buyer, the broker is the buyer's agent. An agency relationship is based on authorization and mutual consent, not on compensation.
If a broker receives a deposit check with a purchase contract, which of these is he not allowed to do?
Deposit into the brokerage business account.
What are the major areas of newspaper leads?
FSBO ads Rental ads Special announcements Legal notices
protected classes
Federal Fair Housing Act are race; religion; color; national origin; sex; handicap and familial status.
What is a good approach to use when contacting the owner of an expired listing?
Find out why the listing did not sell and approach the owners with a plan that will address that issue and correct it for a successful sale.
Using the Newspaper to Prospect
For Sale by Owner Ads Rental Ads Special Announcements (Weddings; Births; Promotions and Job Transfers) Legal Notices (foreclosures; divorces; bankruptcies; death notices; etc.)
Jim has decided that he will learn all he can about the new subdivisions at the west end of town. Jim has decided to specialize in what area of real estate?
Geography
Ethics in Real Estate
Good ethical practices have to do with trustworthiness, honesty, and competence.
Which disclosure is required by the Real Estate Settlement Procedures Act?
Good faith estimate RESPA requires that borrowers receive a good faith estimate of closing costs within 3 days of loan application for federally-related loans. This disclosure is provided by the lender or mortgage broker.
What kinds of insurance do brokers normally require of their employees?
High limits of automobile insurance with the broker named as an insured.
Which Fair Housing Law added sex to the list of protected classes?
Housing and Community Development Act
How are properties affected by the local economy?
If the economy picks up, sales increase. If it slows, sales decrease.
A person licensed as a real estate broker
In California an agent is defined as ____. Licensees who work under the supervision of the broker are designated as associate licensees.
What is a public report and when must it be provided?
A public report is a statement from the Department of Real Estate that discloses to prospective buyers pertinent facts about a subdivision. Purchasers must sign a receipt indicating that they have received and accepted the report before they enter into the purchase transaction.
Trade Associations
A real estate licensee is not required to become a member of any of these organizations - local, state or national. Any licensee who is not an association member will be referred to simply as a broker or salesperson.
Which of these statements is true?
A salesperson is licensed to perform all activities on behalf of and in the name of the broker and has no authority to make contracts with or accept compensation from anyone other than his or her own broker. The salesperson's broker is ultimately responsible for the actions of the salesperson.
Asian Real Estate Association of America (AREAA)
AREAA is committed to improving success and business opportunities for real estate licensees who serve the Asian American community.
Name one advantage and one disadvantage of telephone contacts.
Advantage - Can make several calls in a relatively short period of time. Disadvantage - Many homeowners are turned off by phone solicitations and may hang up quickly.
Alex Jones owns a duplex and lives in one unit. He refuses to rent the other unit to families with children. What would you say about Alex's actions?
Alex is within the guidelines of the Fair Housing Act since he is the owner of a dwelling that has fewer than four units, one of which is owner-occupied.
Trust Funds
All funds deposited into a trust account must be maintained in that account until the broker disburses those funds according to the instructions of the person who is entitled to receive the funds. Commingling: if a broker deposits the funds of others in a business or personal account or holds the funds without authorization.
What kind of newspaper ad could you place to solicit a listing?
An ad that is looking for a specific kind of home for one of your buyer clients.
When is an agency relationship created?
An agency relationship is created when a person (the principal) delegates to another person (an agent) the right to act on his or her behalf in business transactions with third parties.
What exception exists to the duty of obedience when working with a client?
An agent is not bound by the duty of if the principal's directions are not legal.
National Association of Hispanic Real Estate Professionals (NAHREP)
NAHREP is primarily made up of Hispanic members who meet and work toward real estate goals that are beneficial to the Hispanic population.
National Association of REALTORS® (NAR)
NAR is the largest and most prestigious real estate organization in the world. NAR works for legislation that is favorable to members of the public, and to the industry and it enforces professional standards of conduct through its Code of Ethics. Only members of NAR and its state divisions may use the trademark of REALTOR® when presenting themselves to the public. -members must take ethic courses every 4-years, if not it could lead to suspension until completed.
National Association of Real Estate Brokers (NAREB)
NAREB is the oldest and largest minority trade association in the United States. It was formed in 1947 and is made up primarily of African-American real estate brokers. Members have the designation of "realtist." Many "realtists" are also "REALTORS®."
Which disclosures are NOT required to be made when selling residential property?
Natural deaths, unnatural deaths occurring more than three years prior to the sale and information about residents having AIDS or dying from AIDS.
Listing agent
This is the licensee who lists the seller's property. Selling agent - This is the licensee who brings the buyer to complete the transaction.
Amanda calls broker Tim to schedule a showing of one of his listings. Amanda loves the home and wants to make an offer. What should Tim do next?
Tim must disclose to Amanda his agency relationship with the seller and get her written permission for a dual agency arrangement. He must also inform the seller of his agency relationship with Amanda and get the seller's written permission for the dual agency arrangement. If both parties agree to dual agency, they can proceed. If not, Amanda will have to find other representation.
What do you need to check if you want to conduct a door-to-door canvass in a neighborhood?
To see if door-to-door solicitation is allowed and if it requires a permit.
How much of his own money can broker Jake keep in a trust account and not be considered guilty of commingling?
Up to $200 to use for service fees on the account.
Which of the following is not a legal notice that can provide a listing lead?
Vacancy - Legal notices that could potentially provide leads include foreclosures, divorces, bankruptcies, death notices, probates, building permits, code violations, and tax delinquencies.
Broker Alice has hired several independent contractors in her firm. Which of the these activities does she have control over?
What percent of commission the licensees can charge.
Planning and Setting Goals
- Make your goals definite and measurable. - Put your goals in writing. - Realize that goals are not rigid. You should devote some of each day to these and other similar activities: Returning phone calls. Developing new leads. Answering mail and e-mail. Reviewing new listings. Checking on sold properties. Calling potential clients.* Preparing for listing presentations. Showing property, if applicable. * Please consult and comply with the "National Do Not Call Registry" guidelines before making any solicitation calls. You can get information at donotcall.gov.
California Disclosures
- Mello-Roos Bond Disclosure authorized the formation of community facilities districts, the issuance of bonds, and the levying of special taxes to finance certain public facilities and services. If the seller fails to provide the notice prior to signing a sales contract or lease, the buyer or tenant has the right to cancel the contract within three days after the receipt of the notice. - Subdivision Disclosures: any person intending to offer subdivided lands for sale or lease must apply for and obtain a public report from the Department of Real Estate. - Common Interest Subdivision: the owners own/lease an individual unit and have an undivided interest in the common areas of the development.
Other Sources for Finding Buyers and Sellers:
Local Chamber of Commerce, Builders, Open Houses, Friends, Neighbors, Current Sellers and Former Buyers.
The Fair Housing laws exemptions:
1. If the owner does not own more than three homes at one time, does not use discriminatory advertising and does not use a real estate agent. 2. Rental of units in an owner-occupied, one-to-four- family dwelling is exempt, if the owner does not use an agent to secure tenants. 3. Some specific religious organizations/private clubs/senior citizen housing
Why is it important to have a written prospecting plan?
It will keep you on track and provide a guideline for deciding what parts of the plan need to be changed or expanded.
Prospecting Methods
Knocking on Doors Plan your outings at times when most people are home. See if door-to-door solicitation is allowed and if it requires a permit. Telephone Calls You can make several calls in a short period of time, but people may turn off their phones quickly. You can peak the person's interest, but is not as personal as face contact. Direct Mail Offer something valuable to the reader. When you contact owners of expired listings, ask first if they have relisted the property. If they have not, then you can explain how you believe you can successfully sell the property.
Agency Disclosure
Licensees use California's Disclosure Regarding Real Estate Agency Relationships form with their clients. The licensee must explain to the client the three types of agent relationships - seller's agent, buyer's agent or dual agent. If the client elects the dual agent option, the agent must have the buyer sign one copy of the form and the seller sign another copy of the form. When to disclose: - The listing agent must provide the disclosure to the seller prior to securing the listing agreement. - The selling agent must provide the disclosure to the seller"as soon as practicable" prior to presenting a purchase offer. - The selling agent must provide the disclosure to the buyer "as soon as practicable" prior to the execution of the buyer's offer to purchase.
How might probate information help in prospecting?
Provides the names of individuals who may want to sell inherited property.
Right to Rescind
Purchasers in two types of subdivisions have an unqualified right of rescission: Timeshare buyers have a right to rescind the purchase within seven calendar days after receiving the public report or after signing the purchase contract, whichever is later. Undivided interest buyers have a right to rescind the purchase by midnight of the third calendar day following the day the purchaser executed the offer to purchase.
Which of the following is not a source of information for professional ethics codes?
Real estate schools
What is the major difference between an employee and an independent contractor?
The issue of control - A broker can control the what and the how of an employee. A broker can control the what, but not the how of an independent contractor.
When must a licensee provide an agency disclosure to a prospective client?
The listing agent must provide the disclosure to the seller prior to securing the listing agreement. The selling agent must provide the disclosure to the seller "as soon as practicable" prior to presenting a purchase offer. The selling agent must provide the disclosure to the buyer" as soon as practicable" prior to the execution of the buyer's offer to purchase.
Why should agent Grace give her client a Combined Hazards Book?
This book contains three booklets which meet the seller's and agent's requirements for disclosure of earthquake hazards, lead-based paint and other environmental hazards.
Americans with Disabilities Act (ADA)
mandates that persons with disabilities have equal access to jobs, public accommodations, government services, public transportation and telecommunications.
Dual agency
representing both parties in the same transaction - the seller and the buyer. California law allows dual agency if the buyer and seller are informed of the situation and give their written consent.
Brokers are encouraged to display
the Equal Housing Opportunity poster in their offices.
Single Agency
the agent can represent only one party in a single transaction, exclusively. Seller/Buyer Agreement: the agent is accountable only to the seller/buyer (never both at the same time)
Community involvement:
the group gets a helping hand for their activities and you get the satisfaction of helping AND the potential for future clients (Churches, Boy/Girl Scouts, The school PTA, Neighborhood associations, Alumni groups).