Unit 2: Part One of the Code: Duties to Clients and Customers

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You and Maria, both REALTORS®, used to work at the same firm. Maria took a job at a different brokerage, but you still get together for lunch. She tells you about a new listing she is excited about: a unique Queen Anne-style home on 10th Street. You had this listing, but it expired six months ago. What can you tell Maria?

"I originally listed that house for her about a year ago. We originally priced it at $450,000, but the listing expired."

You're showing your buyer clients a vacant house. All furniture and kitchen appliances have been removed, but the washer and dryer are still in the laundry room. The listing doesn't mention whether any appliances convey. Your buyers ask if the washer and dryer stay, and you tell them that they must since everything else is already gone. What should you have said instead?

"I'll check with the listing agent to see if the sellers intend to come back for them."

According to NAR's Code of Ethics, which of the following may a REALTOR® do?

Accept commissions from more than one party, if all parties are informed and the client consents.

Which of the following is not a material fact disclosure item or system you should pay close attention to?

Bathroom fixtures

At a showing, Bitsy commented to her buyer clients, "That would be a great place to build a small guest house. With this size lot, your options are wide open." Six months after closing, the buyers filed a complaint against Bitsy: They'd spent $60,000 to build that guest house, then found out it violated zoning and city codes. Based on the NAR Code of Ethics, in this case, ______.

Bitsy should not have suggested that they could build a guest house without knowledge of city and zoning codes. She is likely at fault.

Which of the following is an example of commingling client funds?

Depositing client funds in the firm's operating account.

______ is among your safest risk management tools, so always try to inform all parties of any issues in writing and in a timely manner.

Disclosure

You find out that the house you've listed for your seller client was tested for radon six months ago, and traces of the gas were detected. Disclosure required Disclosure not required

Disclosure required

You're representing a seller, who's just made a joke about how the expensive underground backyard sprinkler system doesn't even work. Disclosure required Disclosure not required

Disclosure required

You're representing the buyer in a transaction. In a conversation with the listing agent, you discover that the fireplace is clogged and causes smoke to come into the house. Disclosure required Disclosure not required

Disclosure required

Your seller client informs you that the wiring in the house isn't up to code but says there haven't been any problems with it yet. The buyer doesn't ask about the wiring. Disclosure required Disclosure not required

Disclosure required

The duties in the code don't apply to electronic transactions. True False

False

You have an obligation to discover latent defects. True False

False

Broker Miguel holds funds belonging to multiple beneficiaries. What's the best way for him to avoid conversion, an illegal act that occurs when one beneficiary's funds are used to benefit another beneficiary?

He keeps those funds separate.

A(n) ______ fact is an issue with a property that would have a negative impact on the property value or pose an unreasonable risk on the people who will reside in it.

Material

A(n) ______ might have a negative impact on the property value if it's not accurately represented and even be a deal breaker for a potential buyer.

Material fact

According to NAR's Code of Ethics, if you're representing a buyer, and the seller happens to be your ______, you have to disclose this relationship to your client.

Mother

Because they create an unavoidable conflict with the client's best interests, what should a listing agent always avoid?

Net listings

The owner brought an ethics complaint against the first listing agent, Judith. Did Judith indeed violate her former client's confidentiality? Yes. The cracked heat exchanger wasn't a latent defect, so the first agent should've kept this information strictly confidential. No. The cracked heat exchanger was obvious, so it was okay for the first agent to talk about it. No. The cracked heat exchanger was a latent material defect, so the first agent was allowed to disclose it.

No. The cracked heat exchanger was a latent material defect, so the first agent was allowed to disclose it.

Brokerage fees, commissions, and service income are all examples of ______.

Non-trust funds

Not surprisingly, most clients and customers expect their agents to tell them the truth. Article 2 of NAR's Code of Ethics acknowledges that REALTORS® must be honest and transparent in their work, and specifically addresses avoiding exaggeration, misrepresentation, and concealment. As much as they may want you to be honest with them, some clients will still want you to hide material facts about the property—such as leaking roofs or flooding basements—from others. You must never comply with these requests. You'd be breaking the law if you did. Check out your 'NAR Tips for Avoiding Disclosure Liability' resource to learn more about avoiding this sticky situation.

Not surprisingly, most clients and customers expect their agents to tell them the truth. Article 2 of NAR's Code of Ethics acknowledges that REALTORS® must be honest and transparent in their work, and specifically addresses avoiding exaggeration, misrepresentation, and concealment. As much as they may want you to be honest with them, some clients will still want you to hide material facts about the property—such as leaking roofs or flooding basements—from others. You must never comply with these requests. You'd be breaking the law if you did. Check out your 'NAR Tips for Avoiding Disclosure Liability' resource to learn more about avoiding this sticky situation.

To avoid conflicts of interest related to her commission, what should real estate licensee Erica do?

Outline her commission rate in an agency agreement.

While showing a property to your buyer client, you notice that carpet was recently installed in the basement, and new faux wood paneling has been tacked to the walls. You know this is often something sellers do when they want to cover up evidence of water damage. What are you ethically obligated to do in this situation?

Point this out to your buyer, and suggest she have an inspector look into this if she's interested in the property.

According to the NAR Code of Ethics, listing agents must ______.

Present all offers to the client as soon as possible

It is a REALTOR®'s duty to ______.

Protect the interests of the client

Carson, a REALTOR®, may be subject to disciplinary action if he fails to ________________.

Provide copies of any document in a real estate transaction to all parties who signed the document

According to the NAR Code of Ethics, REALTORS® may be subject to disciplinary action if they fail to ______.

Provide copies of any document in a real estate transaction to the person(s) who signed the document

Why isn't it appropriate for a buyer's agent to comment on the state of a property's roof and how long it will last?

Real estate agents should leave property condition evaluations to home inspection professionals.

Learn from Judith's Example REALTOR® Judith's seller client accepted an offer with a home inspection contingency. Among other minor problems, the home inspection revealed a cracked heat exchanger on the gas furnace. In the end, the buyer backed out of the contract. The listing agreement eventually expired. Several months later, Judith drove by the property and noticed that it had been relisted with another company. She called the current listing agent, Phil, to inquire if there was a new furnace, remarking that the original one had a cracked heat exchanger. Phil had no knowledge of a new furnace. He asked the owner of the property, and the owner was furious, declaring that Judith had breached her confidentiality since that information had come to light during the first listing period and should be kept confidential.

Several months later, Judith drove by the property and noticed that it had been relisted with another company. She called the current listing agent, Phil, to inquire if there was a new furnace, remarking that the original one had a cracked heat exchanger. Phil had no knowledge of a new furnace. He asked the owner of the property, and the owner was furious, declaring that Judith had breached her confidentiality since that information had come to light during the first listing period and should be kept confidential.

In addition to getting agreements in writing, you're expected to take some further actions. Which two of these actions should you also take?

Talk through terms and phrases to make sure your clients and customers understand what they're looking at. Encourage consumers to speak with a qualified professional if they have legal or financial questions.

The listing agent told you that there were hardwoods under the carpet in a home you're showing. What's the best action for you to take with the buyers?

Tell them that the listing agent says there are hardwood floors under the carpet, but that will need to be verified.

REALTORS® protect and promote the interests of ______.

Their clients

Encourage clients to thoroughly compare the aspects of all offers. Tip Not a tip

Tip

If dual agency is permitted in your state and brokerage, you may only represent both the buyer and the seller if you offer full disclosure and obtain both parties' consent. True False

True

You must be prepared to submit offers and counter-offers objectively and as quickly as possible. True False

True

You should know the disclosure laws in your area. True False

True

You shouldn't cover up or conceal pertinent material facts. True False

True

In 2012, a standard of practice added to Article 1 of the NAR Code of Ethics prohibits REALTORS® from ________.

Allowing others to enter or use a client's property without the client's authorization

If you agree to cooperate with another broker because it's best for your client, what is assumed?

Any commission sharing will be discussed and is not a requirement of cooperation.

Recommend buyers obtain a professional property inspection. Tip Not a tip

Tip

When listing a property, only suggest the listed price to interested buyers, unless otherwise authorized by the seller. Tip Not a tip

Tip

When a listing agent presents his client with two offers with the same sales price, the agent should advise the seller to ______.

Consider all aspects of the offer, not just the price

Sylvia's previous buyer clients filed an ethics complaint against her because she failed to tell them that the heating system in the home they bought wasn't up to code and needed to be redone. Sylvia recommended they hire an inspector before purchasing the property, but they'd declined. Sylvia ______.

Is probably not at fault, since agents aren't expected to have expert knowledge of heating systems

Be familiar with the laws and regulations that may affect a buyer's use of property, and suggest that the buyer seek expert advice if the situation warrants doing so. Tip Not a tip

Tip

Ensure sellers know their disclosure obligations and understand the consequences of withholding material facts. Tip Not a tip

Tip

Inform buyers of pertinent and relevant information that may affect their decision to purchase. Tip Not a tip

Tip

Keep records about the information you provide to clients and others. Tip Not a tip

Tip

Never make statements you believe to be false. Tip Not a tip

Tip

Never provide an opinion as to a property's future value. Tip Not a tip

Tip

According to Article 1 of the NAR Code of Ethics, the obligation to protect and promote the interests of your client is primary, but this doesn't relieve you of your obligation to ______.

Treat all parties honestly

Jill's seller client admitted to Jill that the house had previously flooded, but the seller doesn't want to include this on the property disclosure form because it might lower the property value. Jill's ethical obligation is to _______.

Treat the other parties honestly, which means disclosing the history of flooding

Leslie is representing seller Frank, who admits to Leslie that the house flooded last year, but he doesn't want to include that information on the property disclosure form because it might lower the property value. What is Leslie's ethical obligation? Advise Frank on the legal implications of falsifying records and suggest what paperwork he may need to defend himself in court. Treat the other parties honestly, which means disclosing the history of flooding. Use her best efforts to help the seller, which means helping Frank cover up any history of flooding.

Treat the other parties honestly, which means disclosing the history of flooding.

NAR stresses the importance of disclosure throughout its Code of Ethics. For instance, Article 6 states that you shouldn't accept any commission, rebate, or profit on expenditures made for your client ______.

Without the client's knowledge and consent

To safeguard against potential conflicts of interest, Elizabeth always relies on ______.

Written disclosures

Ed, a REALTOR®, is a member of a real estate investment club and is partial owner of several commercial properties in town. Ed's new buyer client, his friend Marjean, wants to make an offer on a small office building that's part of Ed's investment club's portfolio. Because Ed only owns a small percentage of the office building, he decides not to disclose that he has an ownership interest in the property. Is Ed violating the NAR Code of Ethics?

Yes, Ed must disclose any interest he holds in a property.

You're a real estate licensee and you want to sell your own home. Based on the NAR Code of Ethics, are you allowed to represent yourself in the transaction?

Yes, but you must disclose to all potential buyers that you're a real estate licensee and you have ownership interest in the property.


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