Real Estate Practice Unit 14: Real Estate Brokerage

Junk Fax Prevention Act of 2005

A federal law under which unsolicited fax advertisements and solicitations may only be sent to persons with whom the sender has an established business relationship.

Penalties for Antitrust Violations

Individuals -A fine of up to $1 million -And/or up to 10 years imprisonment Corporations -A fine of up to $100 million per offense

The CAN-SPAM Act requires the following:

* False or misleading header information is banned. An email's "From," "To," and routing information—including the original domain name and email address—must be accurate and identify the person who initiated the email. * Deceptive subject lines are prohibited. The subject line cannot mislead the recipient about the contents or subject matter of the message. * Email recipients must have an opt-out method. You must provide a return email address or another internet-based response mechanism that allows a recipient to ask you not to send future email messages to that email address, and requests must be honored. * Commercial email must be identified as an advertisement and include the sender's valid physical postal address. -Each violation is subject to fines

How broker treats Independent Contractor

-A broker is permitted to control what the independent contractor does, but not how it is done -Independent contractors are responsible for paying their own taxes and cannot receive anything from the broker that could be constituted as an employee benefit

PA Law for broker fees

-A broker may share fees with a salesperson licensed with the broker, another licensed broker, or a consumer represented by the broker -A broker may not pay fees, commission, or other compensation to unlicensed persons for services for which real estate licensure is required -Compensation is construed to include personal property (a new television or other premiums, such as vacations and the like) as well as money

When the sales or listing agreement specifics no time for the payment of the broker's commission, the commission is usually earned when:

-A completed sales contract has been executed by a ready, willing, and able buyer -The contract has been accepted and executed by the seller -Copies of the contract are in possession of all parties

Real Estate Assistant

-A licensed or unlicensed individual (depending on state law) who assists a licensee in the real estate business. -The extent to which the assistant can help the real estate broker or salesperson with transactions is often determined by licensing laws -An assistant may perform duties that include clerical tasks, office management, telemarketing, market strategy development, and limited direct contact with consumers -A licensed assistant can set up and host open houses and assist in all aspects of a real estate transaction

To be entitled to a sales commission, an individual must be

-A licensed real estate broker -The procuring cause of the sale -Employed by the buyer or the seller under a valid contract

National Do Not Call Registry

-A national registry, managed by the Federal Trade Commission, that lists the phone numbers of consumers who prefer to limit the telemarketing calls they receive. -The registry applies to any plan, program or campaign to sell goods or services through interstate phone calls -The registry does not limit calls by political organizations, charities, collection agencies or telephone surveyors

How broker treats Employee

-A real estate broker can exercise certain controls over salespersons who are employees -They may require employees to follow rules such as those governing working hours, office routine, attendance at sales meetings, assignment of sales quotas, and adherence to dress codes -As an employer, a broker is required by the federal government to withhold Social Security taxes and income taxes from wages paid to one or more employees -The broker is required to pay unemployment compensation taxes on wages paid to one or more employees, as defined by state and federal laws -In addition, employees might receive benefits such as health insurance, profit-sharing plans, and workers' compensation

Sharing Commission Example

-A salesperson working for the broker, took a listing on a $189,000 house at a 6% commission rate -A second salesperson, while working for a different broker, found the buyer for the property. If the property sold for the listed price, the listing broker and the buyer's broker shared the commission equally $189,000 * 6% = $11,340 Listing Broker: $11,340 * 50% = $5,670.....to split between broker and salesperson Buyer's broker: $11,340 * 50% = $5,670......to split between broker and salesperson Agreement between broker and salesperson is that the broker gets 45% of the commission, and the salesperson gets 55% Salesperson: $5,670 * 55% = $3,118.50 Broker: $5,670 * 45% = $2,551.50

Key Point Review Part 2

-Affiliated licensees may be treated as employees. Employees may receive salary in lieu of, or in addition to commission and may receive benefits (broker must withhold Social Security, income taxes, and other applicable federal and state taxes). -The broker maty set hours, duties, and other specifics of day-to-day work. The broker has liability for related work activities of the licensee -The employing broker is liable for the actions of the salesperson within the scope of the employment agreement -Federal and State antitrust laws prohibit brokers from conspiring to fix prices, engaging in boycotts, allocating customers or markets, or establishing tie-in agreements -Individual violators face up to a $1 million fine and/or up to 10 years in prison -Corporations can face up to $100 million fines per offense -In a civil suit, the successful plaintiff may record TRIPLE the damage amount plus attorney's fees and costs -The National Do Not Call Registry is regulated by the FTC. It lists telephone numbers of consumers who have asked to be registered and prohibits interstate calls to those numbers to sell goods or services. -In some situations, real estate licensees can continue to call consumers who are listed on the Do Not Call Registry; however, they must refrain from making calls if requested by the consumer

Tie-in Agreements

-Agreements to sell one product only if the buyer purchases another product as well. -Example: A seller refuses to sell a property to the buyer unless the buyer purchases another product or service from the seller -Another Example: A builder who owns a lot and a real estate license, and who agrees to sell the lot only if the buyer uses the builder to build their home

Real Estate Salesperson's Compensation

-Amount of compensation received is set by mutual agreement between the broker and the salesperson -A broker may agree to pay a fixed salary, or a share of the commissions from transactions originated by a salesperson -No matter how the salesperson's compensation is structured, only the employing broker can pay it -In cooperating transactions, the commission must first be received by the employing broker and is then paid to the salesperson, unless otherwise permitted by licensing laws -In PA, agents may not take any compensation at all from a consumer or a broker who is NOT their employing broker

Independent Contractors vs Employees

-Essentially, the Real Estate salesperson may either be an employee or an independent contractor -State license laws generally treat the real estate salesperson as the employees of the broker, regardless of whether the salesperson is considered an employee or an independent contractor for income tax purposes -Whether a salesperson is treated as either entities affects the structure of the real estate salesperson's responsibilities and the real estate broker's legal obligation to pay and withhold taxes from the salesperson's earnings

CAN-SPAM Act of 2003

-Establishes requirements for commercial email, spells out penalties for email senders, and gives consumers the right to have emailers stop sending emails to them. -The act targets email used to promote or advertise products and services offered for commercial purposes, it does not apply to "transactional or relationship content" -It's enforced by the FTC, as well as by federal and state agencies that have jurisdiction over the company or companies in question -Companies that violate the Act can be sued by internet service providers -Criminal sanctions can be brought against violators by the US Department of Justice

How IRS deals with Employee vs Independent Contractor

-IRS often investigates the independent contractor-employee situation in real estate offices. Under the qualified real estate agent category in the Internal Revenue Code, the following requirements are needed to establish an independent contractor status: -The individual must have a current real estate license -The licensee must have a written contract with the broker that specifies that the licensee will not be treated as an employee for federal tax purposes -At least 90% of the individual's income as a licensee must be based on sales production and not on the number of hours worked

Technology in Real Estate: Email

-In communicating with clients or consumers via email, the following are suggested: -Use the subject line in a useful and helpful manner -Avoid spelling errors -Respond promptly to all email messages -Be specific, to the point, and brief -Pay attention to the size of any attachments you send -Do not send unsolicited emails -Make sure that all your contact information is up to date in your signature line, and use automated signatures -Savy Agents use at least an auto responder and may work with virtual assistants to meet the speedy demand of consumers for quick responses

Real Estate Brokerage MLS system

-In the 1960's, brokers started to share information on properties they listed, resulting in two brokers cooperating to sell a property, and the broker formalized this exchange by creating a multiple listing service (MLS) -The MLS expedited sales by increasing a single property's exposure to more potential buyers

Allocation of Customers or Markets

-Involves an agreement between real estate brokers to divide their markets and refrain from competing for each other's business -Allocations may be made on a geographic basis, with brokers agreeing to specific territories within which they will operate exclusively -The division may also occur by price range or category of housing -These agreements result in reduced competition

Technology in Real Estate: Internet Websites

-Most real estate agencies have websites that provide databases for property and other searches -The NAR policy allows all Multiple Listing Service (MLS) members to have equal rights to display MLS data, and it respects the rights of property owners and their listing real estate brokers to market a property as they wish -A blanket opt-out provision provides that those MLS participants interested in keeping their listings off of competitors' websites cannot then display other real estate brokers' listings -Many real estate websites have disclaimers to indicate that the material on the site is solely for informational purposes and that no warranties or representations have been made

When commissions are paid

-Most sales commissions are paid when the sale is consummated by delivery of the seller's deed -This provision is generally included in the listing agreement

Broker-Salesperson Relationship

-Much of the business's success hinges on the broker-salesperson relationship -A real estate salesperson is any person licensed to perform real estate activities on behalf of a licensed real estate broker -Broker is fully responsible for the actions performed in the course of the real estate business by all persons licensed under the broker -In turn, all of a salesperson's activities must be performed in the name of that broker -The salesperson can carry out only those responsibilities assigned by the employing broker, and can receive compensation from only the broker -As a general agent of the broker, the salesperson has no authority to make contracts with or receive compensation from any other party -The broker is liable for the acts of the salesperson within the scope of the employment agreement

Group Boycotting

-Occurs when two or more businesses conspire against other businesses or agree to withhold their patronage to reduce competition. -In real estate, Group boycotting can be when real estate agents band together to refuse to work with other agents or to exclude certain properties from the market. -This can result in limited property choices for buyers, reduced competition for sellers, and ultimately, higher prices for everyone involved.

If the transaction is not consummated, the broker may be still entitled to compensation if:

-Once a seller accepts an offer from a ready, willing, and able buyer, the real estate brokerage is entitled to a commission -Courts may prevent brokers from recieving a commission if the real estate brokers knew the buyer was unable to perform -The broker may still be entitled if the seller: -Had a change of mind and refurses to sell -Had a spouse who refused to sign the deed -Had a title with uncorrected defects -Committed fraud with respect to the transaction -Was unable to deliver possession within a reasonable time -Insisted on terms not in the listing (Ex: the right to restrict the use of the property) -Had a mutual agreement with the buyer to cancel the transaction

Internet Advertising in Real Estate

-PA law states that real estate licensees may not make a "substantial misrepresentation" or a "false promise", and may not engage in misleading or untruthful advertising" -All advertising is covered, whether in print, yard signs, websites, emails, paid ads on search engines or posts/texts on social networking sites -The broker website MUST include the broker's registered name, phone number, and the state(s) in which the brokerage is licensed to sell real estate -All electronic communication by a real estate licensee must include the licensee's name, office address, and broker affiliation -Real estate professionals must disclose their status as a real estate broker or real estate salesperson on each page of a website that contains an advertisement -The listing of only a salesperson's name WITHOUT the sponsoring broker's name in an advertisement is PROHIBITED

Key Point Review Part 1

-Real Estate Brokerage is the act of bringing people together who wish to buy, sell, exchange, or lease real estate and charging a fee or commission for the service. -A broker may hire a salesperson and/or associate brokers to assist in this work. The affiliated licensees work on the broker's behalf as either employees or independent contractors. Their compensation is determined by agreement with the employing broker -An independent contractor usually receives a commission with no withholding for Social Security, income tax, and other purposes; has the freedom to set hours and accomplish goals; does not relieve the broker of liability for related work activities of the salesperson; and must comply with IRS requirements for a qualified real estate agent. -In PA, brokers are responsible for the real estate activities of their affiliated licensees, even if they are treated as independent contractors, for income tax purposes only

National Do Not Call Registry in Real Estate

-Real Estate licensees may call consumers with whom they have an established business relationship for up to 18 months after the consumer's last purchase, delivery, or payment, even if the consumer is listed on the registry -Also, a real estate licensee may call a consumer for up to three months after the consumer makes an inquiry or submits an application -Note that if a consumer asks a company not to call, despite the presence of an established business relationship, then the company must abide by the consumer's request, which stays in effect for 5 years -Most states also have their own Do Not Call rules or regulations

Technology in Real Estate: Social Networking Sites

-Sites such as Facebook, LinkedIn, YouTube, Twitter, Pinterest, blogs, etc., are becoming increasingly useful in the real estate industry -Brokers of record should set clear guidelines in policy manuals and brokerage agreements to permit and guide the use of these technologies by licensees -Brokers must also learn about the potential risks and liabilities of these sites-----for instance, recognizing that communication through these sites establishes a permanent record of sorts----and should incorporate this understanding into policies and guidelines they establish for licensees on the use of social networking in their business -They must also work to ensure that clients understand the helpful role these sites can play in real estate transactions and consent to their use

Broker's Compensation

-The broker's compensation is specified in the contract with the client since the real estate license law (or statute of frauds) usually will require that there be a written agreement to establish the compensation to be paid. -Compensation may be a commission or a broker's fee (computed as a percentage of the total sale price), a flat fee, a fee for service, or an hourly rate -The amount of a broker's compensation is negotiable in every case -Even the most subtle attempts to impose uniform commission rates are a violation of state and federal antitrust laws -A broker may set the minimum rate acceptable for that firm -Important point is that for the broker and client to agree on a rate before the agency relationship is established

Price-Fixing

-The practice of competitors setting prices for products or services rather than letting competition in the open market establish those prices (Ex: Big pharmaceutical companies colluding to set the prices of vitamins and drugs) -In real estate, price-fixing occurs when competing brokers agree to set uniform sales commissions, fees, or management rates -Brokers must independently determine commission rates or fees for their own firms only -These decisions must be based on a broker's business judgement and revenue requirements without input from other brokers -The broker of record has the authority to require the salesperson affiliated with the brokerage to charge a certain commission rate, the salespeople are obligated to follow that charge as a condition of employment -The challenges for brokers and salespersons is to avoid even the impression of price-fixing, which can occur from hinting to a prospective client that there is a "going rate" of commission or "normal" fee implies that rates are standardized -The broker must make it clear that the rate stated is only what the broker's firm charges

Antitrust Laws in Real Estate

-The real estate industry is subject to federal and state antitrust laws -Three federal laws form the basis of state antitrust laws; -Sherman Antitrust Law (prohibits contracts or conspiracies that create monopolies) -Clayton Act (prohibits exclusive tie-in sales, price discriminations and mergers and acquisitions that unfairly restrain trade) -Federal Trade Commission Act (fills in loopholes of other laws and allows monetary relief, and permits investigations of such activities) -The most common antitrust violations are price-fixing, group boycotting, allocation of customers or markets, and tie-in agreements -Federal laws are enforced by the Antitrust Division of the US Department of Justice or Federal Trade Commission -In PA, the Antitrust Section in the Attorney General's office enforces the Pennsylvania Unfair Trade Practices and Consumer Protection Law acting as a watchdog to maintain a free and open marketplace -When anticompetitive practices are detected, it takes legal action

Procuring Cause of Sale

-To be considered this, the broker must have started or caused a chain of events that resulted in the sale -For example, activities such as conducting open houses, placing advertisements in the newspaper, and showing the house to the buyer are considered procuring cause -A broker who causes or completes such an action without a contract or without having been promised payment is a volunteer and may not legally claim compensation

Clayton Act for injured parties in antitrust cases, and the FTC

-Under the Clayton Act, injured parties may be awarded up to THREE TIMES the amount of damages sustained, PLUS attorney's fees and other litigation costs -The Federal Trade Commission can issue cease and desist orders to stop violators from antitrust practices