Chapter 12 Real Estate

8 real estate services that require licensing for compensation

"A BAR SALE" 1. Auctioning 2. Buying 3. Appraising 4. Renting/provide rental lists 5. Selling 6. Advertising 7. Leasing 8. Exchanging -book also says managing

An agent must "_______" of the principal.

"stand in the shoes"

Target Net Price =

(Gross Price) x (1 - Commission Rate)

Gross Price =

(Target Net Price) / (1 - Commission Rate)

two important functions of a commercial real estate broker

1. provide the prospective buyer with information about the property - "sales package" 2. negotiate compromises

a listing contract terminates when...

1. the specified period expires 2. the property is sold 3. one of the parties abrogates the terms of the contract (difficult to prove)

Jones v. Mayer

1968 U.S. Supreme Court case that prohibited discrimination by race in any form or level

What percent of residential transactions are co-brokerage?

70-75%

What percent of buyers believe that the selling agent represented them rather than the seller?

74.2%

buyer agency agreement

A contract for real estate brokerage services between a buyer and a real estate agent. The broker receives compensation for successfully locating a property for the buyer to purchase.

special agent

A person to whom a principal has granted authority to handle a specific business transaction or to perform a specific function. Real estate brokers and salespersons are special agents. (3 types: listing, buying, and dual agent)

National Association of Realtors (NAR)

A principal trade or professional organization of real estate brokers. Members agree to abide by a code of ethics.

dual agency

A situation in which a person or firm has an agency and fiduciary relationship to both parties—seller and buyer—of a transaction. -illegal for residential in FL -can happen in commercial by "designation" where both parties have net assets of $1M or more and agree to it in writing -broker "designates" two agents and pretty much plays referee

errors and omission insurance

A type of insurance that indemnifies professionals if they make an error in their profession or if they omit something important from their analyses.

A fiduciary relationship requires all of the following except A) friendliness. B) obedience. C) loyalty. D) skill.

A) friendliness.

A real estate brokerage firm's practice of market segmentation will help to identify the ______________ in which the firm can concentrate and specialize. A) submarkets B) prime markets C) ideal markets D) focus markets

A) submarkets

open listing

Agreement between the seller of property and a broker that provides for the broker to receive a commission if he or she sells the property. No exclusive protection is provided to the broker.

exclusive right of sale listing

An agreement between a seller of property and a broker in which the broker is assured of receiving a commission if the broker or anyone else, including the owner, finds a buyer during the period of the agreement.

exclusive agency listing

An agreement between a seller of property and a broker in which the seller agrees to pay a commission to the broker if anyone other than the owner finds a buyer, during the period of the agreement.

listing contract

An agreement between an owner of real estate and a real estate broker that obligates the broker to attempt to sell the property under specified conditions and terms. It obligates the property owner to pay a commission to the broker if the broker is successful in obtaining a ready, willing, and able buyer for the property on terms specified or on terms acceptable to the seller. -creates a special agency relationship -a contract for services, not real estate -essentially an employment contract

real estate commission

Appointed commission responsible for overseeing the implementation and administration of a state's real estate license law. It usually is empowered to grant, revoke, or suspend licenses, and otherwise discipline real estate brokers operating in the state.

salesperson license

Authority granted by a state to engage in the real estate brokerage business as an employee or agent of a real estate broker.

Which of the following acts do real estate license laws NOT seek to prevent? A) Accepting non-cash payments in trust B) A person without brokerage experience applying for a salesperson license C) Failure to submit all offers to a client D) Failure to provide copies of contracts to all relevant parties

B) A person without brokerage experience applying for a salesperson license

Refusing to sell, rent or deal with any person based on race, color, religion, national origin, sex, familial status, or handicap is illegal under the A) Truth in Lending Act. B) Fair Housing Act. C) Equal Credit Opportunity Act. D) Fair Isaac Act.

B) Fair Housing Act.

How are commission rates that real estate brokers charge determined? By agreement among local Realtors. By rule of the local Board of Realtors. By state real estate commissions. By agreement between broker and principal. By state law.

By agreement between broker and principal.

A home owner wants to net $275,000 from the sale of her home. If the brokerage fee is 7%, what must the gross listing price be? A) $255,750 B) $294,250 C) $295,699 D) $299,677

C) $295,699 Gross Price = (Target Net Price) / (1 - Commission Rate) ($275,000) / (1 - 0.07) = $295,699

To use the term "Realtor", a real estate broker must A) simply hold a current, valid, state-issued real estate broker's license. B) achieve the CCIM designation. C) become associated with the NAR. D) specialize in residential real estate.

C) become associated with the NAR.

fiduciary responsibilities of the agent

COALDS: Confidentiality, Obedience, Accounting, Loyalty, Disclosure, Skill and care

Real estate salespersons can lose their licenses for: Using aggressive sales techniques. Not showing buyers all available properties in an area. Commingling escrow (trust) money with personal funds. Not using modern sales methods. All of the above.

Commingling escrow (trust) money with personal funds.

A broker with a listing on the seller's home brought a written offer from a ready, willing, and able buyer at the price and terms specified in the listing contract. The seller changed his mind about selling and refused to sign the purchase contract. What is correct? A) The seller does not have to sign the contract and is not subject to liability for his refusal. B) The seller is subject to legal action by the broker for payment of the commission. C) The seller may be subject to legal action by the buyer for refusing the offer. D) Both b and c are correct

D) Both b and c are correct

What was the Supreme Court case from 1968 that upheld the 1866 Civil Rights Act barring all racial discrimination, private as well as public, in the sale or rental of property? A) Johnson v. Davis B) Susette Kelo v. the City of New London, CT C) Lucas v. South Carolina Coastal Council D) Jones v. Mayer

D) Jones v. Mayer

The most advantageous type of listing from the broker's perspective is the ___________ listing. A) multiple B) open C) exclusive agency D) exclusive right of sale

D) exclusive right of sale

The standard brokerage fee for residential properties is A) 2.5% B) 3.5% C) 6.5% D) negotiated between the seller and broker

D) negotiated between the seller and broker

The state real estate commission is responsible for: Setting fees for brokerage services. Marketing data on real estate transactions. Establishing education requirements for licensees. Overseeing the activities of mortgage lenders. Setting up multiple listing systems.

Establishing education requirements for licensees.

discrimination in housing

Federal and state laws prohibit discrimination in housing on the basis of race, color, religion, national origin, sex, familial status, and handicap. (Fair Housing Act - Title VIII)

Law of agency

Governs relationship between a principal (client) and someone charged to act on principal's behalf.

market segmentation

Identification and delineation of submarkets.

principal

In brokerage, the person giving authority to an agent; in finance, the amount borrowed and owed on a loan.

designated agent

In case a brokerage firm is agent for both a seller and a buyer, the firm sometimes designates one salesperson to serve the buyer and one to serve the seller. The two salespersons are presumed to maintain the privacy, and serve the interest of the party they represent.

All of the following are duties that a broker would have to the seller in a single agency listing contract EXCEPT: Skill and care. Obedience Loyalty. Knowledge. Disclosure

Knowledge.

the organizational structure for administering real estate licensing laws (from top - down)

Legislative Branch of State Government = laws Real Estate Commission = rules and regulations Real Estate Commission Staff = day-to-day operations Licensees CAO of Real Estate Commission = developing educational materials, record keeping, collecting license fees, researching complaints against licensees

One of the most effective ways that salespersons or brokers can distinguish themselves as a preferred agent in a particular specialization of real estate brokerage is to: Obtain a license to practice. Take related courses. Read related books. Engage in personal advertising. Obtain a related industry designation.

Obtain a related industry designation.

universal agent

One to whom a principal delegates the power to act in all matters that can be delegated in place of the principal.

transaction broker

One who facilitates a real estate transaction but who is not an agent of either buyer or seller. A transaction broker is required to deal honestly and fairly with both parties and to exercise skill, care, and diligence in carrying out his or her duties. (aka facilitating or intermediary broker) -LIMITED confidentiality -Disclosure: disclose all known facts affecting the value that are not readily observable to buyer

general agent

One who is empowered to represent a principal, often a business firm, in its business relationships. A general agent can contract and bind the principal within the confines of the business or employment relationship.

commission

Payment a real estate salesperson receives for services rendered, usually expressed as a percentage of the property sale price and not usually paid until the transaction is closed.

Special knowledge

Prices and terms in current market; Marketing approaches that work; Legal obligations of buyers and sellers; Properties in market; potential customers and their needs; Procedures and requirements of transactions

Real estate brokers are paid commissions primarily for: Having an inventory of properties. Having many contacts. Providing a service. Knowing how to close a transaction. Having specialized education.

Providing a service.

recovery fund

Reserve of funds collected from real estate license fees to pay for losses to clients legally judged to have been caused by a licensed salesperson or broker. The existence of such funds varies from state to state.

submarket

Segment or portion of a market in which all of the properties are considered to be close substitutes by a relatively homogeneous group of potential buyers; properties that provide similar utility or satisfaction.

Multiple Listing Service (MLS)

Sharing of property sales listings by a number of real estate brokers with an agreement as to how costs and commissions are to be shared. (exclusive right of sale listings only)

Traditionally a real estate broker is what type of agent for his or her principal? General agent. Special agent. Limited agent. Designated agent. All of the above.

Special agent.

licensing laws

State laws that authorize persons who meet specified qualifications to engage in a business or profession.

subagency

The agency role of a broker is extended to one or more additional brokers, who also become a fiduciary of the principal and are empowered to act on his or her behalf. The subagent shares any commission with the original broker. This agency chain can extend through multiple agents in the case of multiple-list services.

broker license

The authority granted by a state for one to own and operate a real estate brokerage business; the most complete type of real estate license.

According to most listing contracts, a broker has earned a commission when: A contract for sale is signed by the buyer. The transaction closes. The broker finds a buyer who is ready, willing, and able to buy on the terms specified in the listing contract. The seller signs a listing contract. The broker sends a bill for services rendered to the principal (usually the seller).

The broker finds a buyer who is ready, willing, and able to buy on the terms specified in the listing contract.

law of agency

The legal rights, duties, and liabilities of principal, agent, and third parties as a result of the agency relationship between them.

fiduciary relationship

The special duties and obligations to a principal required of an agent, including complete loyalty, confidentiality, obedience, disclosure, accounting, care, skill, and due diligence. (COALDS)

net listing

Type of contract in which sellers specify the amount they will accept from the sale, with brokers keeping all proceeds in excess of that amount.

The subagency relationship that traditionally has characterized multiple listing services (MLS) has tended to result in the widespread danger of: Monopoly. Deliberate dual agency. Unintended dual agency. Discrimination. Price wars.

Unintended dual agency.

Internet marketing

Use of the Internet to advertise real estate services, to market properties, and to provide information about specific properties. While few properties are sold exclusively through the Internet, it has become a central tool to real estate marketing today. (Commercial: CCIM, CCIMREDEX, Co-Star, LoopNet) (Residential: realtor.com, homestore.com)

Which is an example of a commercial property in the typical "catch-all" commercial category of real property? a church one- to four-unit residential properties a warehouse b and c only a, b and c

a warehouse

difference between agents and power of attorney

agents can't sign contracts for their principal

catch-all commercial property category

all income-producing properties EXCEPT one-to-four-family residential properties, public properties, and churches

Disclosure

being open and honest; two way street between agent and principal

Brokers

bring buyers and sellers together in real estate needs; physically; and emotionally

influences of a customer's choice of brokerage firm

broker's reputation in the community recommendations of friends familiarity with the broker

listing agreement

brokerage contract

unintended dual agency has increased due to an increase in...

buyer brokerage

special knowledge of a real estate broker...

current prices and terms successful marketing procedures legal obligations of all parties of the transaction knowledge of properties in the market needs of prospective buyers procedures for a transaction

customer vs. principal

customer : transaction brokerage and anything else w/ no fiduciary relationship principal: single agency and dual agency

net commission

difference between required price and actual price (FL frowns on this)

Net commission

difference between required price and actual price -highly frowned on because of potential for broker to take advantage of the owner.

Obedience

following instructions of the principal fully*** you are not required to break the law to meet their directive- withdraw if they don't change it

Accounting

keeping principal informed about financial aspects of assignment

Transaction agent

limited fudiciary duties

listing broker/salesperson vs. selling broker/salesperson

listing broker/salesperson = brings the seller selling broker/salesperson = brings the buyer

general requirements for a sales associate license and broker license

minimum age, high school diploma or equivalent, good reputation, pre-licensing education of 70 hours on average of prescribed material, pass state licensing exam Sales associate license: FRET course 1 -> 70% passing score on FRET exam -> 75% passing score on state exam (100 questions including 10 calculation questions) Broker license: sales associate license for 2 years (don't have to sell anything) -> FRET course 2 -> 70% passing score on FRET exam -> 75% passing score on state exam

Confidentiality

never betraying confidential information- expects beyond life of agency relationship

loyalty

never subordinating the best interest of principal

typical commission

no standard rate! it is negotiated between broker and seller or buyer. BUT usually 3-6% of sale price, 50% to each broker, 50% of that to each salesperson

principal

only type of agency relationship - single agency relationship

Duties of Principal

open, honest, fair

fiduciary responsibilities of the principal

open, honest, fair/cooperation

Single Agent

owes all fudiciary duties

blockbusting

persuading someone to sell housing by telling them that minority groups are moving into the neighborhood

universal agent

power to act for principal in all matters

special agent

power to act in a specific event or transaction- where you find real estate brokerage

general agent

power to act within limits of a business or employment relationship; property managers

what's the "price of success" in brokerage?

preparation, dedication to the welfare of customers, and hard work

Fair Housing Act (FHA) / Title VIII of the Civil Rights Act

prohibits discrimination, blockbusting, etc. Exceptions are owners of one-to-four family residential buildings in which the owner is one of the four AND "familial status" ex. elderly homes for 62+

Principal

provides authority to the agent

Buyer

ready, willing, and able

skill and care

representing principal as agents would represent themselves

buyer agent by law

salesperson showing a house becomes buyer agent unless declaring otherwise -a solution to unintended dual agency

types of dual agency brokerage

through subagency and through a single broker

the costs of selling a property on your own...

time, inconvenience, risks of handling the sale, time off from work and making more money

types of single agency brokerage

traditional brokerage and buyer brokerage

3 types of agency relationships

universal agent (everything) general agent (anything business) special agent (specific transaction) ex. broker is a special agent of the principal salesperson is a general agent of the broker attorney is a universal agent of their client