12% CHAPTER 5: Real Estate Brokerage Activities: Guides for Sales Associates

Group Boycotts

Licensees employed by different companies should not agree to boycott a company because of the company's business practices. For example, a group of brokers boycott a discount broker because the discount broker has lower rates. This is illegal.

Escrow Disbursement Order (EDO)

Once an EDO is requested, the broker must follow the instructions issued by the FREC. If the EDO is overturned on appeal, a broker may be liable for civil damages in a civil suit. However, if the broker has followed the EDO, damages to the broker can be reimbursed from the Real Estate Recovery Fund without jeopardy to the broker's license, and the broker would not be required to repay the Fund. The FREC may refuse to issue an Escrow Disbursement Order, which, in this case, other procedures will prevail.

If the home office is used in connection with a trade or business and there is no other business location, deductions may be allowed.

1. A pro rata share of expenses may be deducted on a federal tax return if the home is used exclusively and regularly. Examples of deductible expenses are: Maintenance, utilities, insurance and depreciation. 2. Correspondence and business documents must be kept at the location, in the area used for business. 3. Sales associates that perform outside sales would probably NOT qualify for the home office deduction because the income is earned from outside sales and not from activity located within the home.

Once the dispute is settled, the broker must notify the FREC within ____ days that the dispute is over.

10

Occasionally, however, there is a dispute over the return or the disbursement of earnest money. It is the responsibility of the broker to then notify the FREC within ___ business days from the last party's demand.

15

The broker must reconcile the accounts no more than _____ days from the date of the last reconciliation was performed or should have been performed. This requirement cannot be delegated to any other person.

30

teams may not advertising using the following as part of their name:

Agency, Associates, Brokerage, Brokers, Company, Corporation, Corp., Inc., LLC, LP, LLP or Partnership, Properties, Property, Real Estate, Realty, or similar words suggesting the team or group is a separate real estate brokerage or company from the brokerage that they belong to.

Such an ad is called a "Blind Ad" and is illegal under Florida Law

Any real estate advertisement placed by a licensee shall NOT show a post office box number or telephone number only, or other vague information so that the public has an opportunity to know that the advertiser is appropriately licensed.

Mediation

Both parties who have agreed in writing to abide by mediation conducted by a mediator. If the issue is not solved within 90 days using mediation, the licensee must use other types of dispute procedures.

Division of markets by location or price

Dividing up a town either geographically or by price range is a violation of law. Giving ABC all of the north side while XYZ takes the south side is a violation of law as is ABC taking all the listings of below $200,000 and XYZ all the listings above.

Arbitration

If the buyer and seller cannot come to a mutual agreement, the issue is submitted to arbitration and a third-party (the arbitrator) makes a decision based upon the facts of the dispute. If arbitration fails, the disputing parties go to Litigation.

A broker is NOT required to have an escrow account. TRUE OR FALSE

TRUE

Sales associates CANNOT advertise or conduct business in their name only. TRUE OR FALSE

TRUE

Sales associates are not allowed to be paid directly by a closing agent. TRUE OR FALSE

TRUE

sign requirements

The sign must contain the NAME of the BROKER who is registered as the broker of record for that office. If the office has a trade name, the Trade name must be located on the sign, followed by the broker of record's name. A partnership or corporation shall contain the name of the firm, the corporation or trade name along with at least one of the brokers. At a minimum the words "Licensed Real Estate Broker" (or "Lic. Real Estate Broker") must appear immediately below the broker's names.

A broker may choose to conduct business as a business entity instead of using his name. Should this be the case,

a broker should consult his attorney and/or accountant to discuss several entity options available. Business entities must be registered with the DBPR.

Corporation

a business entity, which is unique when compared to a business operating as a single person. A corporation may operate under a trade name. A corporation is officially created by properly filing the "Articles of Incorporation" with the Secretary of State. The "Articles of Incorporation" is the document that details the duties and powers of the corporation. In addition, the corporation must register with the FREC. The Stockholders rightfully own the business however, the board of directors, acting with their officer's authority, manages it. The Corporation may be either for-profit or non-profit. Directors and officers can either hold active real estate licenses, inactive licenses or be unlicensed, but at least one officer of the corporation must hold a current active broker license issued by the FREC. Sales associates and/or broker associates cannot hold the position of an officer or a director. Only active brokers have the authority to conduct meetings, direct sales staff, or communicate in any way with the public. If the firm only has one active broker, and that broker dies, the company has 14 calendar days to notify the FREC. If this requirement is not met, the state cancels the corporation's registration. Any licensee working beneath the supervision of this broker will be cancelled moving their status to involuntarily inactive. However, if there is more than one active broker, the firm's associates are not affected by the change of leadership.

General Partnership

a business owned by more than one broker. Each partner in a general partnership is equally liable for any debt; each partner helps to make the decisions and receives a share of the profits. At least one of the brokers must be specified as the active broker. Any partner that works with the public must have an active license. A sales associate or a broker associate is not permitted to be partners in a general partnership. Any change in the makeup of the partnership must be reported to FREC. The partnership is registered with FREC but does not have to be filed with the Secretary of State. If the primary broker dies, another active broker must fill the now vacant broker position within 14 days. If this does not occur, the partnership registration is cancelled and all the licensees associated with the partnership then revert to a license status of involuntarily inactive.

Sole Proprietorship

a business owned by one person. It may use a trade name rather than the name of the owner. The advantages for this method include that it is easy to manage - and the owner makes all decisions. The disadvantage is that when the owner dies, the company ceases to exist. Liabilities and risks are completely held by the sole owner. Every action of each associate working for a sole proprietor broker is the broker's responsibility. A sole proprietor does not need to register with the Secretary of State unless a trade name is used.

If a broker or a salesperson causes a material loss to any party as the result of their misrepresentation,

a charge of FRAUD could follow.

If the accounts do not balance with the broker's books,

a description or explanation of the variance as well as the corrective action must be noted in the report.

The penalty for advertising obsolete or otherwise inaccurate rental lists is

a fine up to $1,000 and/or up to one year in prison. This is a first degree misdemeanor.

When established by one of the acceptable types of written agreements (i.e. a listing agreement, or property management agreement, etc.) the commission between the parties remains

a negotiable concept

The commission "split"

a pre-determined amount between the broker and his sales associates/broker associates. They are an important part of the employment agreement between the broker and the sales or broker associate. These splits are determined by the broker and sales associates during their initial employment agreement and are shown in the sales associate's Independent Contractor Agreement or employment contract.

An escrow or trust account

a separate account in a bank or trust company, title company having trust powers, credit union or a savings and loan association within the State of Florida. This must be an account separate from the broker's own operating funds.

In other situations, a broker seeking a kickback from a title company, or mortgage provider for referring and closing a property with their particular company is

a violation of the federal Real Estate Settlement Procedures Act (RESPA).

The fact that either party (i.e. the seller or the buyer) pays a commission does NOT automatically create an agency relationship. An agency relationship is created by

a) The act of disclosure and b) Written agreement between the parties.

the sales associate may never

accept direct payment from a principal or a customer; the sales associate receives their earned commission from the employing broker only.

When advertising on the Internet, the brokerage firm's name shall be placed

adjacent to or immediately above the POINT of CONTACT's information

If the item collected is something other than legal tender (i.e. money), the seller must

agree in writing that the item in question is acceptable to hold in escrow

'For Sale' or 'For Lease' signs, when used, must

also have the brokerage name's identified

It is noted that the punishment for misleading or false information placed by a broker is punishable by

an administrative fine of up to $5,000 per count and a one-year suspension.

Blind Ad

an advertisement that fails to make it clear that a broker or real estate company is advertising the property for sale, rent or lease. The name of the brokerage must always appear in an advertisement, no matter what type of advertisement is placed.

The escrow account shall be in

an insured account in a financial institution that is located and operational in Florida

Fraud

an intentional misrepresentation of material existing fact made by one person to another with knowledge of its falsity and for the purpose of inducing the other person to act, and upon which the other person relies with resulting injury or damage. Fraud may also be made by an omission or purposeful failure to state material facts, which nondisclosure makes other statements misleading.

Litigation

another way of referring to a lawsuit, asking the courts through a process called Interpleader to determine the rightful owner of the disputed escrow. The court issues a declaratory judgment that is a binding determination of the rights and status of the parties.

Limited Partnership

business entity owned by at least one-general partner and at least one-limited partner. The general partner is responsible for the management. Limited partners contribute investment cash however; their responsibilities are limited to the amount of their partnership percentage. Limited partners (sometimes called silent partners) do not have a voice in the managing of the company. The limited partnership as an entity is registered with the FREC, and at least one of the general partners must be an active broker. Filing the completed forms with the Secretary of State creates the partnership entity. General partners, who work with the public, must hold active brokers licensed issued by FREC. Remaining general partners must also register with the DRE. Limited partners do not have to be licensed or registered. Sales associates and broker associates cannot be general partners, but they may be limited partners. If the primary broker dies, that broker must be replaced by another active broker within 14 days. If this does not occur, the partnership registration is cancelled and all the licensees associated with the partnership become involuntarily inactive.

When earnest money or deposit funds are entrusted to a title company or attorney, the licensee who prepares the contract must indicate on that purchase agreement the

contact information for the depository where the funds will be held. Included must be: 1. Escrow Agent Name 2. Address 3. Phone, email, and FAX Other requirements: - Within ten (10) business days after each deposit is due under the sales contract, the Licensee's broker shall make written request to the title company or attorney to provide written verification of receipt of the deposit, unless the deposit is held by a title company or by an attorney nominated in writing by a seller or seller's agent. - Within ten (10) business days of the date the Licensee's broker made the written request for verification of the deposit, the Licensee's broker shall provide Seller's broker with either a copy of the written verification. - If no verification is received by Licensee's broker, written notice that Licensee's broker did not receive verification of the deposit must be provided to the seller's broker or buyer's broker - depending upon whose side chose the title company. - If Seller is not represented by a broker, then Licensee's broker shall notify the Seller directly in the same manner indicated herein.

A broker must keep copies of all records pertaining to the escrow account including but not limited to

deposit slips, books, and statements of each account. These records must be available for inspection by the DBPR or its authorized representatives during regular business hours.

A Policy Manual provided by the broker, should have a section therein that

discusses how commissions are calculated, and how they are paid, in addition to a host of other critical instructions to the operation of the brokerage.

The relationship between a broker and a sales associate

does not end when terminating employment. Choosing to copy records (from the previous brokerage) constitutes theft; bringing listings to the new broker would be considered a breach of trust. The intellectual and physical property of any business related activity belongs to the broker who managed the transaction.

Whenever a broker wishes to conduct business in more than one location...

each designated office must register with the DBPR (Department of Business and Professional Regulations) and the appropriate fee/s must be paid. All advertising (i.e. phone numbers, letterhead, etc.) of the broker must be displayed to indicate to the public that the broker operates such an office at that location.

A separate account is required for a broker to deposit

escrow funds that is set apart from his own personal or the brokerage's operating funds.

When changing employers, a sales associate does not

give up his duty of confidentiality owed to a Principal. All information that is confidential to the Principal shall remain confidential, regardless of where a broker or sales associate is employed.

if a broker wishes to re-open a branch office at its previous location before the license expires

he may do so without an additional fee.

When a broker receives money to be deposited in an escrow account,

he must deposit it immediately within three business days. (For this purpose, Holidays and weekends are excluded)

When a sales associate obtains money to be deposited in the escrow account for a pending transaction,

it must be given to the broker immediately. This means no later than the end of the next business day.

Names and logos used by the team cannot be

larger than their brokerage logo or name and all team advertising must be made in a manner that reasonable persons would know that they are dealing with a team and not a brokerage.

When the licensee's personal name appears in an advertisement, at a very minimum, the licensee's

last name must be used in the manner in which it is registered with the Commission. Any sales associate, even if they purchase their own advertising, cannot advertise (or conduct business) in his or her name.

Often, though, a salesperson or broker exaggerates the benefits or representation of a property's value. This is considered

misrepresentation and could result in a loss of the buyer's perceived value.

Commingling

mixing personal and escrow funds and is defined as illegal by Florida law. There is one exception: A broker is permitted to place up to $1000 in the escrow (or trust) account to keep the account open.

A broker is the only type of licensee with the authority to

negotiate a contract with principals or customers. A sales associate works under the direction and guidance of a broker and cannot negotiate directly with the principal or customer.

Any time a sales associate changes employers (brokers) they must

notify the FREC - within 10 days - on the most current form prescribed by the DBPR.

A situation that is considered good faith doubt is when

one party to the dispute does not respond to the broker's correspondence about the escrow money when a transaction fails to close on time or if the buyer (or his spouse) refuses to close at all.

It is unlawful for a licensee to pay any fee to an unlicensed individual for

performing the services of real estate.

Violations of the Sherman Anti-Trust Act potentially include

prison terms and fines of up to $10 million for corporations, and up to $1 million or ten years imprisonment (or both) for individuals. All business must be allowed to flow freely in an open market.

"puffing"

refers to "extravagant claims made by sellers (or their agents) in order to attract buyers. Ex: "Isn't this the most beautiful yard you have ever seen?"

"Point of Contact"

refers to any means by which to contact the brokerage firm or individual licensee including mailing address, physical street address, e-mail address, telephone number or FAX number.

The broker must be a ______ on all escrow accounts

signatory

The Sherman Anti-Trust Act

signed into law in 1890, forbids: - Price-fixing: a form of collusion between brokers and sales associates whom, together with competing companies, illegally set commission rates in the local marketplace. Boasting to potential clients that "Everyone charges the same so you might as well list with me" is clearly illegal and a violation of the Act, because brokers cannot, under any circumstances, come together for the purpose of setting commission rates. - Making a statement that a broker charges more commission than another, or that a broker offers a discount commission could also violate this Act as brokers charge the commission that they establish to meet their business objectives. The reality is there are NO standard commission fees in real estate!

Unauthorized displays of names and/or insignias of real estate organizations or associations are

strictly prohibited by FREC rules. For example, it would be a violation to use the copyrighted term REALTOR® or any designation or other group insignia, unless you are a current member or are qualified in that skill or business. Ex: Kerry is a new sales associate in the business. She notices that one of the most successful sales associates in her market uses the designation, Accredited Luxury Home Specialist (ALHS) in all of their advertisements. Kerry decides to use this designation in her ads since "nobody is going to know whether or not I have this designation!" Is this a problem? 61J2-10.25 states: "No real estate advertisement placed or caused to be placed by a licensee shall be fraudulent, false, deceptive or misleading."

Brokers who fail to reconcile their escrow accounts monthly (or more frequently) are

subject to a citation. Failure to properly maintain an escrow account is the one of the most common problems found during a DBPR Audit.

because the sales associate is an employee (or agent) of the broker, he or she has no opportunity to

sue a principal or customer for a commission dispute. This means that the payment must be pursued by the person being paid (who in real estate is the broker).

Conversion

taking money that should be held in escrow for the parties and using the money for the broker's own needs is also illegal.

To disburse the principal and interest to the designated party,

the broker must transfer the principal and interest to a non-interest bearing escrow account before disbursement

if the broker has a good-faith doubt (meaning the broker honestly doubts the claim of any party),

the broker reports the situation to the FREC.

Escrow is held in an account until it needs to be turned over to the closing source. If a contract does not close, or a portion of the escrow has been claimed by the brokerage,

the broker's portion will be apportioned into the broker's operating account for disbursement as required.

Once a month, the broker shall have a written statement prepared comparing

the broker's total liability with the reconciled bank balances of all trust accounts. This includes the sum total of all deposits received, pending and being held by the broker at any point in time.

All advertisements set forth in the name of the brokerage are the sole responsibility of

the broker, despite who composed the advertisement.

All advertising must contain the name of

the brokerage firm that is registered with the Department. Said name must be conspicuously placed within the advertisement.

Brokers can, under certain circumstances, receive kickbacks from providers outside the transaction as long as

the buyer and seller are informed of the kickback. A referral fee from a carpet company would be an example of a legal kickback.

If the deposit is in securities, intended by the depositor to be converted into cash,

the conversion shall be made at the earliest practical time, and the proceeds shall be immediately deposited in the account.

Brokerage offices must have an entrance sign located on

the door of, or adjacent to the front entry.

Other compensation, like a gift to a sales associate must be given through

the employing broker if - the gift is related to a real estate transaction.

If a broker chooses, he may place escrow money in an interest-bearing escrow account. He may only do so if

the following is stated in writing with all parties to the transaction: 1. The name of the party who is to receive the interest, and 2. The date the earned interest must be disbursed.

If a sales associate or broker associate's name appears in the ad

the name of the firm must be identified

Sales associates may place the word "Pending" or "Sold" signs upon these signs only with

the permission of the owner

If a phone number is included in the ad and is NOT the number to the brokerage firm

the phone number must be identified as a "cell phone" or "home phone."

If the broker is to receive the interest,

the principal is transferred to the non-interest bearing account and the interest is transferred to the broker's operating fund account

If a broker closes a branch office and opens a different branch

the registration of the first branch may not be transferred

The broker may establish an individual interest-bearing escrow account for

the specific transaction or sum of money. On the date agreed upon, the broker must close the account with checks disbursed to the appropriate person(s) or business entity for the original balance and interest earned.

If there is more than one broker,

then a broker licensee must be designated as the signatory

Florida licensees are in violation of law if

they discourage the use of an attorney in assisting the buyer or selling in the process of the sale.

Most teams are formed with a letter of understanding through the broker and agree on commission splits which are normally divided between all team members. This is beneficial to any new licensees who

want to learn the business with professionals where the licensee may start with calling or farming and work their way up to buyers and sellers. Any disagreement between team members must be handled by the brokerage and broker. The broker is not relieved of their duties to any and all sales associates within the team.

The residence of a broker may also be the brokerage business location as long as

zoning allows for it

Kickbacks are considered legal under very limited conditions:

- All parties to the transaction must be fully informed of the kickback. - Another law must not prohibit the kickback (i.e. the Real Estate Settlement Procedures Act). - The commission may be shared with an unlicensed seller or buyer of the property sold with verified lender approval.

The broker has 30 days from the last party's demand to implement one of the procedures set up for escrow disputes. These Include:

- An Escrow Disbursement Order - Mediation - Arbitration - Litigation

There are three exceptions to dispute procedures over the return or the disbursement of earnest money:

- If it is a property utilizing HUD (The Department of Housing and Urban Development hud.com) - If the buyer of a condominium unit delivers the written Notice To Cancel as provided under the Condominium Act http://www.ccfj.net/condo718statutes.html - If the buyer is unable to satisfy a financing contingency within the time frame as provided by the contract In these cases, a broker may disburse the funds according to the guidelines relegated to each situation.

The minimum information that is to be included in the monthly report is as follows:

- The date used to reconcile the balances, - The name of the bank(s), - The name(s) on the account(s), - The account number(s), - The account balance(s), - Deposits in transit, - Outstanding checks identified by date and check number, - An itemized list of the broker's trust liability, - Other items necessary to reconcile the bank account with the balance per the broker's checkbook(s), other trust account books and records disclosing the date of receipt and source of funds. The broker must review, sign and date the monthly statement-reconciliation.

Who may broker real estate

- individual - sole proprietor - for-profit corporation - general partnership - limited partnership - joint venture

It is the responsibility of the broker to

- keep careful records of all items received and to deliver the funds when disbursement is required - deposit money received entrusted to his care in the proper escrow account immediately

Who may not broker real estate

- non-profit corporation - business trust - co-operative association

In order to collect a commission, a broker:

- Must be a licensed real estate broker or sales associate working under the supervision of an employing broker. A broker can only pay a sales associate that is licensed by the state and under his direct supervision. Sales-associates must receive their compensation from their employing broker ONLY. - Must have been the principal's agent under a valid contract (such as a listing agreement, buyer's agency agreement etc.). - Must have been the procuring cause of the sale. A procuring cause is a series of events leading to the sale/purchase or renting of real property. - Must have a ready, willing and able buyer, seller or tenant - depending upon the contract's terms. (Contracts are discussed in more detail further along in the course.)

A commission can be paid as a:

- Percentage of the sale price - Flat Fee, or salary - Or a combination of both, as set forth by the relevant executed agreement

When a broker provides a list of rental properties for a fee and acts as an information broker to a tenant, FREC requires that the broker give the tenant a contract that specifies that the tenant has the right to:

- Request a refund of 75% of the fee (if requested within 30 days) if the tenant does not find a rental; and - Request a refund of 100% of the full fee (if requested within 30 days) if the information is inaccurate.

These specific types of business entities have the option to register as:

- Sole Proprietorship - General Partnership - Limited Partnership - Corporation - A Limited Liability Partnership (LLP) - A Limited Liability Company (LLC)

Corporations are considered defunct when:

- Stockholders act to dissolve the company - A court order dissolved the company - The company's life span has expired - The corporation fails to file an annual report with the state of Florida - The annual fee required by the state of Florida is unpaid

A broker may maintain more than one escrow account and maintain up to

$1000 of his own money in each sales escrow account or up to $5,000 in a property management account.

A broker "may by written authorization request that a closing agent disburse commissions directly to a sales associate or broker associate only on a case by case basis. To allow this, the broker must:

(a) identify the transaction; (b) state the name of the sales associate/broker associate entitled to the commission; (c) specify the amount the sales associate/broker associate should be paid; and (d) sign the authorization. This authority cannot be provided as a blanket transaction allowance (it must be provided for each transaction that is allowed).

A general partnership is dissolved by

- Agreement of the partners - Death of one of the partners - Court action - Bankruptcy of one of the partners - Bankruptcy of the partnership