Real Estate Brokerage
Code of ethics
A written system of standards for ethical conduct.
TRUE or FALSE Many trade organizations serve the real estate business. The largest is the National Association of REALTORS® (NAR)?
True Explanation: A Trade Association or Business Association is a group established and financially supported by businesses from a specific industry.
Price-fixing
When real estate professionals conspire to set fixed compensation rates.
Tie-in agreement
AKA tying agreements - Are agreements to sell one product only if the buyer purchases another product as well.
TRUE or FALSE The Institute of Real Estate Management (IREM) is affiliated with the National Association of Real Estate Brokers (NAREB)?
False Explanation: The IREM is an affiliate of the National Association of Realtors.
TRUE or FALSE States' licensing rules and regulations do NOT have the same force and effect as statutory law?
False Explanation: The more restrictive law will prevail.
Managing broker
The real estate professional who is responsible for supervision of the real estate professionals who act on behalf of the brokerage; may also be called a supervising broker.
TRUE or FALSE Price-fixing, which is the practice of setting prices for products or services rather than letting competition in the open market establish those prices, is legal?
False Explanation: Violation of antitrust laws. There are severe penalties for violation.
Employee
For tax purposes, someone who works as a direct employee of an employer and has employee status. The employer is obligated to withhold income taxes and Social Security taxes from the compensation of employees.
The Commercial Real Estate Development Association (NAIOP)
Founded in 1967 and is one of the most pretigious trade organizations in North America.
The Appraissal Institute (AI)
Global association with over 18K memebers in 50 countries that started in 1932. Aims to ensure equal opportunities for those involved with property appraisals.
Minimum level of services
The services that real estate professionals must provide to clients, as prescribed differently by certain states; for example, assisting clients in negotiation and answering questions from clients about offers, counteroffers, and contingencies.
TRUE or FALSE Laws cannot guarantee an ethical or moral marketplace?
True Explanation: Ethics and moral are choices, made by individuals to either to the right thing or (intentionally) do what is not right.
TRUE or FALSE Group boycotting, allocation of customers or markets, and tie-in agreements are all prohibited acts under the Sherman Antitrust Act?
True Explanation: Violation of antitrust laws. There are severe penalties for violation.
Antitrust Law Penalties
Under the federal Sherman Act, the penalty for fixing prices or allocating markets is a maximum $1 million fine and 10 years in prison. For corporations, the penalty may be as high as $100 million. Individuals that have suffered a loss may sue for treble damages (three times the actual damages sustained).
National Association of Realtors (NAR) - REALTOR
Largest trade association in real estate in America. Established in 1908 in Chicago, aim of bringing profit and sustainability to the business. Includes realtors, brokers, institutes, and councils.
Boycott
When individuals or businesses withhold their patronage to a business as a protest or to reduce competition.
Antitrust laws
Laws designed to preserve the free enterprise of the open marketplace by making illegal certain private conspiracies and combinations formed to minimize competition. Most violations of antitrust laws in the real estate business involve either price-fixing (real estate professionals conspiring to set fixed compensation rates) or allocation of customers or markets (real estate professionals agreeing to limit their areas of trade or dealing to certain areas or properties).
Commission
Payment to a real estate professional for services rendered, such as in the sale or purchase of real property; usually a percentage of the selling price of the property.
Ready, willing, and able buyer
Person who is prepared to buy property on the seller's terms and is ready to take positive steps to consummate the transaction.
Independent contractor
Someone who is retained to perform a certain act but who is subject to the control and direction of another only as to the end result and not as to the way in which the act is performed. Unlike an employee, an independent contractor pays for all expenses and Social Security and income taxes and receives no employee benefits. Most real estate sales associates are independent contractors, meeting the Internal Revenue Service definition for a qualified real estate agent.
PRACTICE ACTIVITY LICENSE LAWS and THEIR EFFECT on BROKERAGE Indicate whether each statement is TRUE or FALSE. 1) A real estate broker is licensed to buy, sell, exchange, or lease real property for others and to charge a fee for those services. 2) Real estate license laws are intended to protect the public. 3) Real estate license laws do not include disciplinary systems. 4) ARELLO promotes state licensing standards. 5) If a state licensing authority's regulations conflict with statutory law, the regulations will prevail. 6) A sales associate can carry out all the same activities as a real estate broker. 7) All 50 states regulate the activities of real estate professionals. 8) A sales associate's compensation is determined by the client. 9) A real estate broker's compensation is specified in the contract with the client. 10) A real estate assistant would never be required to have a real estate license.
1) A real estate broker is licensed to buy, sell, exchange, or lease real property for others and to charge a fee for those services. - TRUE 2) Real estate license laws are intended to protect the public. - TRUE 3) Real estate license laws do not include disciplinary systems. - FALSE 4) ARELLO promotes state licensing standards. - TRUE 5) If a state licensing authority's regulations conflict with statutory law, the regulations will prevail. - FALSE 6) A sales associate can carry out all the same activities as a real estate broker. - FALSE 7) All 50 states regulate the activities of real estate professionals. - TRUE 8) A sales associate's compensation is determined by the client. - FALSE 9) A real estate broker's compensation is specified in the contract with the client. - TRUE 10) A real estate assistant would never be required to have a real estate license. - FALSE
PRACTICE ACTIVITY STANDARDS OF PREFESSIONAL ETHICS Match each source to the appropriate definition. 1) A system of moral principles, rules, and conduct 2) Established by the National Association of Real Estate Brokers 3) Practical applications of the articles of the REALTOR Code of Ethics A) Ethics B) Standards of Practice C) Realtist Code of Ethics
1) A system of moral principles, rules, and conduct - A) Ethics 2) Established by the National Association of Real Estate Brokers - C) Realtist Code of Ethics 3) Practical applications of the articles of the REALTOR Code of Ethics - B) Standards of Practice
PRACTICE ACTIVITY PROFESSIONAL REAL ESTATE ORGANIZATIONS Match the organization to the appropriate abbreviation. 1) Member of the National Association of Real Estate Brokers 2) Member of the National Association of REALTORS 3) Has an established Code of Ethics that REALTORS must subscribe to 4) Affiliate designation of NAR specializing in residential property 5) Has completed the requirements of the REALTOR Institute A) CRS B) NAR C) REALTOR D) Realtist E) GRI
1) Member of the National Association of Real Estate Brokers - Realtist 2) Member of the National Association of REALTORS - REALTOR 3) Has an established Code of Ethics that REALTORS must subscribe to - NAR 4) Affiliate designation of NAR specializing in residential property - CRS 5) Has completed the requirements of the REALTOR Institute - GRI
PRACTICE ACTIVITY ILLEGAL BUSINESS ACTIVITES Match the appropriate term to the prohibited activity. 1) Providing product or service to customer only if customer buys another product or service as well. 2) Agreement between real estate professionsal to divide market and not compete with each other's business. 3) Two or more businesses conspiring against another business. 4) Setting commission rate among competitors for services. A) Allocation of customers or markets B) Price-fixing C) Tie-in arrangement D) Group boycott
1) Providing product or service to customer only if customer buys another product or service as well. - C) Tie-in arrangement 2) Agreement between real estate professionsal to divide market and not compete with each other's business. - A) Allocation of customers or markets 3) Two or more businesses conspiring against another business. - D) Group boycott 4) Setting commission rate among competitors for services. -B) Price-fixing
Multiple listing service (MLS)
A marketing organization composed of member real estate professionals who agree to share their listing agreements with one another in the hope of procuring ready, willing, and able buyers for their properties more quickly than they could on their own. Most multiple listing services accept exclusive right-to-sell or exclusive agency listings from their member real estate professionals.
Institute of Real Estate Management (IREM)
An affilitate of the NAR. Set to improve managment quality in real estate.
If the commission received was $4,800 and the rate was 6%. What was the sales price? A) $60,000 B) $80,000 C) $800,000 D) $480,000
B) $80,000 Explanation: Commision (divided by) commission rate = sales price $4,800 / 6% = $80,000
A seller agreed to pay a 6% commission on the home she listed with a broker. The home sold for $80,000. How much was the commission? A) $8,000 B) $6,000 C) $4,800 D) $480
C) $4,800 Explanation: Commission rate X sales price = Commission paid 0.06 X $80,000 = $4,800
If the sale price was $80,000 and the commission was $4,800, what was the rate? A) 10% B) 8% C) 4% D) 6%
D) 6% Explanation: Commission (divided by) sales price = rate $4,800 / $80,000 = 0.6 -> 6%
PRACTICE ACTIVITY REAL ESTATE SCENARIO Ivy is the first person in a very large family to have graduated from college. Her family is very proud of her success, and family memebers often come to her for advice. Gabriel: You are so smart, Ivy. Can you help me look through these listings and decide what house I shoudl buy? Ivy: Sure, Gabriel, let me see those. Gabriel finds and purchases a house, based on Ivy's advice. Gabriel: Thanks, Ivy! Could you help my friend Roland find a house? Ivy: Sure, I know a great neighborhood I can take you to tour. Ivy attends several open houses with Roland, and offers him advice on negotiating a purchase on one. Roland: You are the best, Ivy. Based on your advice, I got that house! Can you help my cousin Kristina find a house? Ivy: Yes, I'd love to. And don't worry, Kristina, I never charge anything for my help. Soon, Ivy is busy every weekend taking people on tours , attending open houses, and offering negotiation and buying advice to frineds and family. Ivy: I'm so busy, but I just love helping people find and purchase homes! QUESTION 1/3: Does it make any difference that Ivy receives no compensation for helping family and friends? A) Yes, because she isn't charging, there is nothing wrong with her actions B) No, not charging does not prevent the real estate Commission from investigating her conduct. QUESTION 2/3: If Ivy later obtains a real estate license, will she still have a problem? A) Yes, her conduct prior to being licensed could still be questioned. B) No, getting licensed grandfathers in her previous behavior. QUESTION 3/3: Is there any problem with Ivy acting so generously on behalf of family and friends? A) No, she is free to help whoever she chooses in any capacity. B) Yes, she should be charging for her services. C) No, who else would her family and friends go to for such advice? D) Yes, she may be charged with engaging in activities that require a real estate license.
QUESTION 1/3: B) No, not charging does not prevent the real estate Commission from investigating her conduct. Explanation: The fact that Ivy volunteers to help others with their real estate purchases does not prevent the real estate Commission from investigating whether her conduct is a violation of the real estate law. QUESTIONS 2/3: A) Yes, her conduct prior to being licensed could still be questioned. Explanation: It is doubtful that Ivy could obtain a real estate license while being investigated by the real estate Commission for a possible violation of the real estate law. But even if she could obtain a real estate license, her conduct before obtaining the license could still be questioned. QUESTION 3/3: D) Yes, she may be charged with engaging in activities that require a real estate license. Explanation: Ivy may face a complaint filed with the state real estate Commission, charging that she is engaging unlawfully in activities that require a real estate license.
Brokerage
The bringing together of parties interested in making a real estate transaction.
Procuring cause
The effort that brings about the desired result. Under an open listing, the real estate professional who is the procuring cause of the sale receives the commission.