Real Estate Practices - Chapter 3: Agency and other Mandatory Disclosures

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

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.

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.

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.

QUIZ-Chapter 3 4 of 10 Which disclosure is required by the Real Estate Settlement Procedures Act? A) Good faith estimate B) Rights regarding discrimination C) Transfer of the loan collection D) All of the above

A) Good faith estimate

QUIZ-Chapter 3 10 of 10 Which disclosure form gives detailed information about the property's condition? A) Real Estate Transfer Disclosure Statement B) Agency Disclosure C) Natural Hazard Disclosure Statement D) Mello-Roos Report

A) Real Estate Transfer Disclosure Statement

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.

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.

QUIZ-Chapter 3 6 of 10 When must a listing agent present the Disclosure Regarding Real Estate Agency Relationships to the seller? A) Prior to bringing an offer to purchase. B) Prior to accepting the listing. C) As soon as possible. D) Prior to conducting any showings.

B) Prior to accepting the listing.

QUIZ-Chapter 3 1 of 10 Agent Paul is bound to inform his client of all facts that might affect the client's interests -- both what Paul knows and what he "should have known." Which of these situations would not be something Paul "should know"? A) There is a crack in the basement wall. B) The owner of the property is HIV positive. C) The air conditioner does not work. D) The casement windows have broken seals.

B) The owner of the property is HIV positive.

An 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 and

Both parties must consent and agree to form the relationship. The relationship is fiduciary- the agent owes certain duties to the principal.

QUIZ-Chapter 3 9 of 10 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? A) 6 months B) 12 months C) 24 months D) 36 months

C) 24 months

QUIZ-Chapter 3 7 of 10 Timeshare buyers have the right to rescind a transaction within what timeframe after signing the purchase contract? A) 1 day B) 3 days C) 7 days D) Never

C) 7 days

QUIZ-Chapter 3 8 of 10 The principles of an agency relationship include all of these factors except which one? A) Mutual consent B) Authorization C) Compensation D) Fiduciary duties

C) Compensation

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.

The subdivider or agent must give the buyer the public report and also the

Common Interest Development General Information.

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.

QUIZ-Chapter 3 2 of 10 Which of the following is not a fiduciary duty an agent owes to his or her principal? A) Loyalty B) Confidentiality C) Accountability D) Blind obedience

D) Blind obedience

QUIZ-Chapter 3 5 of 10 Which booklet is not part of the Combined Hazards Book? A) The Residential Environmental Hazards Guide B) Protect Your Family From Lead In Your Home C) The Homeowner's Guide to Earthquake Safety D) Consumer Guide to Disclosure for Buyers

D) Consumer Guide to Disclosure for Buyers

QUIZ-Chapter 3 3 of 10 Which of the following types of agency is not allowed in California? A) Dual agency B) Buyer's agency C) Single agency D) Designated agency

D) Designated agency

Disclosures Not Required;

Death Sellers or their agents are not required to disclose any death that happened on a property more than three years before the offer to purchase was made. It would be wise to disclose any unnatural deaths that happened within the past three years or to answer truthfully any direct question about a death posed by the prospective buyer regardless of how long ago it occurred. AIDS Sellers or their agents are prohibited from disclosing that a former owner or occupant ever had AIDS or died from it under the Federal Fair Housing Act.

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.

One business day before the settlement of the loan escrow, the borrower has the right to inspect the proposed

HUD-1 Settlement Statement.

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.

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.

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.

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.

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

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 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.

What does RESPA stand for?

The Real Estate Settlement Procedures Act

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.

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.

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.

What is Agency?

The word agency defines the basic relationship between a broker and the person represented in a transaction.

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.

What is a 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.

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.

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.

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.

Any person who is selling a one-to-four-unit property must provide the buyer with a written Real Estate Transfer Disclosure Statement, which describes the

condition of the property in detail. The seller must complete it, sign it and provide it to the buyer

Sex Offender Database:

every sales contract must contain a notice with information about sex offenders registered under Megan's Law.

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.

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.

California law allows dual agency if the buyer and seller are

informed of the situation and give their written consent.

In California an agent is defined as a person

licensed as a real estate broker. Licensees who work under the supervision of the broker are designated as associate licensees.

An agent is bound to inform the client of ALL

material facts that might affect the client's interests in the transaction.

An agency relationship is based on authorization and mutual consent, not

on compensation.

Regulation Z requires that creditors make certain disclosures for

real property secured loans.

Dual agency:

representing both parties in the same transaction - the seller and the buyer.

The licensee must explain to the client the three types of agent relationships they are;

seller's agent, buyer's agent or dual agent.

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)

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.

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.

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.

Common Interest Subdivision:

the owners own/lease an individual unit and have an undivided interest in the common areas of the development.

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.

If the disclosure is delivered after the execution of the offer to purchase, the buyer has the right

to cancel the offer within three days.

Agency Disclosure

use California's Disclosure Regarding Real Estate Agency Relationships form with their clients.

The lender must provide what type of written disclosure

written Servicing Disclosure Statement.