Unit 5

The termination of the contract

-A contract should provide a way for the parties to terminate the agreement and should specify under what circumstances the contract can be terminated. -Under certain circumstances, an agreement can be canceled if the seller arbitrarily refuses to sell or cooperate.

Buyer Agency Agreements

-Like a listing agreement, a buyer agency agreement is an employment contract. -In this case, however, the broker is employed as the buyer's agent. -The buyer, rather than the seller, is the principal. -The purpose of the agreement is to find a suitable property that meets the buyer's specifications. -An agency agreement gives the buyer a degree of representation possible only in a fiduciary relationship. -A buyer's broker must protect the buyer's interests at all points in the transaction. -Buyer (Tenant) Agency Contract illustrates a typical buyer agency agreement.

The Listing Contract Form

- A variety of listing contract forms is available. -Some brokers have attorneys draft contract forms for their firms, while some use forms prepared by their MLSs or by their professional associations. -Other brokers also use a separate information sheet (also known as a profile or data sheet) for recording property features. That sheet is attached to the form that contains the contractual obligations between the seller and the broker: listing price, duration of the agreement, signatures of the parties, and so forth. - A sample listing agreement appears in Listing Contract (Seller Agency Contract) Exclusive Right-To-Sell Real Estate.

The evidence of ownership

- A warranty deed, title insurance policy, or abstract of title with an attorney's opinion can be used for proof of title.

In an exclusive agency listing,

One broker is authorized to act as the exclusive agent of the principal. -However, the seller retains the right to sell the property herself without obligation to the broker. -An exclusive agency listing must contain the same provisions as an exclusive right-to-sell listing except for the bold-faced type about the seller's obligation regarding payment of compensation.

Buyer Representation Issues

-A buyer and a broker must discuss a number of issues before they sign a buyer agency agreement. -For instance, the licensee should make the same disclosures to the buyer that the licensee would make to a seller in a listing agreement. - Before any substantive issues can be discussed, the licensee must provide the prospective buyer with the Consumer Notice. -This is the licensee's opportunity to explain the forms of agency available and the parties' rights and responsibilities under each type. -The specific services provided to a buyer-client should be clearly explained. -The licensee should discuss the broker's policy regarding relationships with other parties who might be involved in the transaction; for instance, if the broker also represents seller-clients and if the company's policy includes the appointment of designated agents. -Compensation issues need to be addressed as well. -Buyer agents are most commonly compensated by the listing agent sharing the commission paid by the seller. -However, buyers' agents may be compensated in the form of a flat fee for services, an hourly rate, or a percentage of the purchase price. -The agent may require a retainer fee at the time the agreement is signed to cover initial expenses. -The retainer may be applied as a credit toward any fees due at the closing. -Pennsylvania licensing law requires a written agreement between a broker and a consumer when the consumer is or may be obligated to compensate the broker for services. -As a practical matter, a written document provides proof of what the parties are expected to do, which is particularly important if either party takes legal action against the other. -As in any agency agreement, the source of compensation does not determine the relationship. -In other words, buyer's agent may be compensated by either the buyer or the seller. -Issues of compensation are always negotiable.

Listing Agreements

-A listing agreement is an employment contract between a broker and a seller. -It is a contract for the real estate professional services of the broker, not for the transfer of real estate. -All states, either by their statutes of frauds or by specific rule from their real estate licensing authorities, require that the listing agreement be in writing to be enforceable in court. -As an agent, the broker is authorized to represent the principal (and the principal's real estate) to consumers. -That authorization includes obtaining and submitting offers for the property. -The real estate salesperson's authority to provide brokerage services originates with the broker. -Even though the real estate salesperson may perform most, if not all, of the listing services, the listing remains with the broker. -Under both the law of agency and most state license laws, only a broker can act as agent to list, sell, rent, or purchase another person's real estate and provide other services to a principal. -A salesperson who performs these acts does so only in the name and under the supervision of the broker (i.e., a salesperson is a general agent of the broker).

Termination

-A listing agreement's success depends on the broker's professional efforts. -Because the broker's services are unique, the listing cannot be assigned to another broker without the principal's written consent. -The property owner cannot force the broker to perform, but the broker's failure to work diligently toward fulfilling the contract's terms constitutes abandonment of the listing. -In the event the broker cancels the listing, the owner is entitled to sue for damages. -On the other hand, the property owner could be liable for damages to the broker by refusing to cooperate with the broker's reasonable requests, such as not allowing the broker to show the property to prospective buyers, or who refuses to proceed with a complete sales contract. -A listing agreement may be terminated for the following reasons: 1. When the agreement's purpose is fulfilled, such as when a ready, willing, and able buyer has been found 2. When the agreement's term expires 3. If title to the property is transferred by operation of law, as in the case of the owner's bankruptcy or foreclosure 4. If the broker and the seller mutually agree to cancel the listing 5. If either the broker or the seller dies or becomes incapacitated; if the salesperson dies or becomes incapacitated, the listing is still valid 6. If the property is destroyed or its use is changed by some force outside the owner's control, such as a change in zoning or condemnation by eminent domain

Multiple listing

-A multiple listing service clause may be included in an exclusive listing. -It is used by brokers who are members of a Multiple Listing Service (MLS). -As previously discussed, the MLS is a marketing organization whose broker members make their own exclusive listings available through other brokers and gain access to other brokers' listed properties as well. -The MLS offers advantages to brokers, sellers, and buyers. -Brokers develop a sizable inventory of properties to be sold and are ensured a portion of the commission if they list property or participate in the sale of another broker's listing. -Sellers gain because the property is exposed to a larger market. -Buyers gain because of the variety of properties on the market. -The contractual obligations among the member brokers of an MLS vary widely. -Most MLSs require that a broker turn over new listings to the service within a specific, fairly short period of time after the broker obtains the listing. -The length of time during which the listing broker can offer a property exclusively without notifying the other member brokers varies. -Some MLSs, however, permit a broker up to five days before the listing must be submitted to the service. -Under the provisions of most MLSs, a participating broker makes a unilateral offer of cooperation and compensation to other member brokers. -The broker must have the written consent of the seller to include the property in an MLS. -If a broker chooses to be an agent for the buyer of a property in the MLS, that broker must notify the listing broker before any communication with the seller takes place. All brokers must determine the appropriate way to proceed to protect their clients. In Practice -Technology has enhanced the benefits of MLS membership. -In addition to providing instant access to information about the status of listed properties, MLSs often offer a broad range of other useful information about mortgage loans, real estate taxes and assessments, and municipalities and school districts. -They are equally helpful to the licensee who needs to make a competitive market analysis to determine the value of a particular property before suggesting an appropriate range of listing prices. -Computer-assisted searches also help buyers select properties that best meet their needs.

Multiple listing (cont.) Net listing

-A net listing provision specifies that the seller will receive a net amount of money from a sale, with the excess going to the listing broker as commission. - The broker is free to offer the property at any price greater than that net amount. -While a net listing may appear to be advantageous for a seller, it can create a conflict of interest between the broker's fiduciary responsibility to the seller and the broker's profit motive. -For this reason, net listings are illegal in many states and discouraged in others.

Expiration of Listing Period

-All listings must specify a definite period of time during which the broker is to be employed. - In most states, failing to specify a definite termination date in a listing is grounds for the suspension or revocation of a real estate license. -In Pennsylvania Section 35.332(c) of the Pennsylvania Real Estate Commission states that the listing period cannot exceed 12 months. -An automatic renewal provision and the requirement to serve a cancellation notice to terminate an exclusive agreement at the end of the listing period are prohibited. -An example of an automatic renewal is a listing that provides for a base period of 90 days and "continues thereafter until terminated by either party hereto by 30 days' notice in writing." -Some listing contracts contain a broker protection clause. -This clause provides that the property owner will pay the listing broker if, within a specified number of days after the listing expires, the owner transfers the property to someone with whom the broker negotiated during the original term of the listing. -This clause protects a broker who was the procuring cause from losing a commission because the transaction was completed after the listing contract expired.

The signatures of the parties

-All parties identified in the contract must sign the contract, including all individuals who have a legal interest in the property.

Written Agreements

-Although an agency relationship may be created orally or by the parties' actions, creating agency relationships with written agreements serves both a legal and practical purpose. -The Pennsylvania licensing law requires a written agreement between a broker and a consumer when the consumer is or may be obligated to compensate the broker for services. -As a practical matter, a written document provides proof of what the parties are expected to do, which is particularly important if either party takes legal action against the other. -The licensing law (RELRA Section 608.1) requires written agreements to contain 1. a statement that the broker's fee and the duration of the contract have been determined as a result of negotiations between the broker and the consumer; 2. a statement describing the nature and extent of the broker's services to be provided and the fees that will be charged; 3. a statement identifying any possibility that the broker or any licensee employed by the broker may provide services to more than one consumer in a single transaction, along with an explanation of the duties owed to each party; 4. statements about the broker's policies regarding cooperation and compensation arrangements with subagents, buyer agents, and listing agents (depending on whether the agreement is with a buyer or a seller), and potential for dual agency; 5. a statement describing the purpose of the Real Estate Recovery Fund and the telephone number where a consumer may receive further information; and a statement regarding any possible conflicts of interest and ongoing duty to disclose conflicts in a timely manner. -The Rules and Regulations of the State Real Estate Commission address requirements for written agreements further in Section 35.331. In Practice -A written agreement between the broker and the consumer details exactly what professional services the broker will provide to the consumer (buyer or seller). As soon as possible, licensees should provide the Consumer Notice that detail the types of business relationships that are permitted and the duties owed to a consumer who receives real estate services in Pennsylvania. -The written agreement forms the actual business relationship that the broker and the consumer will have with each other and commits to writing the duties and services associated with that relationship. -The core function of brokers and their affiliated licensees is to provide professional real estate services, that vary from company to company. - Each broker has the right to determine the scope and nature of services offered by that firm.

The closing

-An attorney, title company, or escrow company should be considered and retained as soon as possible. -A designated party will be needed to complete the settlement statements, disburse the funds, and file the proper forms, such as documents to be recorded and documents to be sent to the IRS.

Encumbrances

-Any encumbrance that can affect the use or transfer of the property should be identified. -All liens will be paid in full by the seller or be assumed by the buyer at the closing.

The names of all parties to the contract

-Anyone who has an ownership interest in the property must be identified and should sign the listing to validate it. -If the property is owned under some form of co-ownership, that fact should be clearly established. - If one or more of the owners is married, the spouse's consent and signature on the contract to release any marital rights is required in most states. -If the property is in the possession of a tenant, that should be disclosed (along with the terms of the tenancy), and instructions should be included on how the property is to be shown to prospective buyers.

Pricing the Property

-Because the average seller usually does not have the resources needed to make an informed decision about a reasonable listing price, real estate licensees can offer their knowledge, information, and expertise. -Ultimately, however, the seller determines the listing price for the property. -Not all estimates of value are made by professional appraisers. -Unlike an appraisal, which compares only recently sold properties, a comparative market analysis (CMA)(A written analysis, opinion, or conclusion by a contracted buyer's agent, transaction licensee, or an actual or potential seller's agent relating to the probable price of a specified piece of real estate. -A CMA is a comparison of the prices of recently sold homes that are similar to a listing seller's home in terms of location, style, and amenities. -Also called a competitive market analysis, it is not an appraisal(sometimes known as a competitive market analysis) compares location, size, age, style, and amenities of properties that are comparable to the seller's property, as follows: 1. Recently sold properties—what buyers were willing to pay for a similar property and what lenders considered to be a value on which they make the lending decision. 2. Properties currently on the market—the competition to the seller's property 3. Properties that were listed but did not sell—generally, what buyers have been unwilling to pay for a similar property. -Real estate licensees help sellers arrive at a competitive asking price and/or buyers to make a fair offer. If no adequate comparisons can be made or if the property is unique in some way, the seller may prefer to have a professional appraiser prepare a formal appraisal. -In Pennsylvania Because a CMA is not an appraisal, Pennsylvania licensing law requires that the following statement be printed conspicuously and without change on the first page of the CMA: This analysis has not been performed in accordance with the Uniform Standards of Professional Appraisal Practice which require valuers to act as unbiased, disinterested third parties with impartiality, objectivity, and independence and without accommodation of personal interest. It is not to be construed as an appraisal and may not be used as such for any purpose. -Although the seller makes the final decision about the asking price, the licensee should help the seller understand the consequences about setting a price that is substantially exaggerated or severely out of line with the CMA or appraisal. -These tools are the best indicators of what a buyer will likely pay for the property and the basis on which lenders make loan decisions. -When the licensee accepts an unrealistically priced listing, the licensee does both the seller and the broker a disservice. -An overpriced listing gives the seller false hopes. The broker will have difficulty marketing the property within the agreed-upon listing period, costing the broker time and money. -Failure to move an overpriced listing can cost the broker future business opportunities as well. The best advice is to reject such a listing.

The broker protection clause

-Brokers often seek to protect their interests against possible fraud or a reluctant buyer's change of heart. -It is important to know the circumstances under which a broker will be entitled to a commission after the agreement terminates.

Pricing the Property

-Buyers want to ensure that they are not overpaying for their property. -Like a seller's agent, the buyer's agent should plan on preparing a comparative market analysis (CMA) to assist their buyers in making an appropriate offer. -The buyer's CMA should include recent sale prices of similar properties in the same general area. -The recently sold properties show what buyers have been willing to pay for a similar property and what lenders consider to be a value on which they make the lending decision. -It may also include properties that were listed and which did not sell, generally what buyers have been unwilling to pay for similar properties.

Listing Agreement Issues

-Description of the real property and personal property -Any personal property that will be sold must be explicitly identified. - Items of real property that the seller expects to remove at the time of the sale must be specified as well. -Some items that may later become points of negotiation might include: major appliances, swimming pool and spa equipment, fireplace accessories, storage sheds, window treatments, stacked firewood, and stored heating oil.

Marketing the Property MLS

-Earlier in this unit we discussed the multiple listing service (MLS), which is a marketing organization in which broker members make their own exclusive listings available through other brokers and gain access to other brokers' listed properties as well. -Once the listing broker enters a property into the MLS system, the property information may feed out to various other online platforms such as Zillow, Homes.com, Realtor.com, and others (called syndication). -Each MLS has its own rules about syndication choices, and the broker may select to syndicate the firm's listings or keep them strictly on the MLS system. -Because listings are ultimately owned by the broker, the broker controls whether or not to syndicate listing inventory, and which websites the properties will feed out to. -In Pennsylvania In paragraph 24 of the listing contract, the seller indicates whether they want the property listed on the internet, and whether or not the broker will use a MLS to advertise the property. -If for any reason the seller does not want the property entered into the MLS, the broker's MLS system may require the seller to sign an additional waiver of MLS marketing. -This paragraph also addresses the use of For Sale signs, lock boxes, open houses, and other forms of advertising. -In Pennsylvania All advertisements by licensed real estate licensees must include the broker's business name and telephone number. -The name of licensee and brokerage information must be of equal size (the licensee's information may not be more prominent than the brokerage information). -Also, a licensee who sells or leases his own real estate must disclose his license status in advertisements for the property.

Lead Based Paint Disclosure, if applicable

-If the residential property was built before 1978, then the seller is required to give the buyer the U.S. Environmental Protection Agency (EPA) pamphlet Protect Your Family from Lead in Your Home. -The seller must also tell the buyer and the broker what, if any, lead-based paint is on the property. No one has to test and no one has to mitigate; the disclosure just must be made.

Open Listing

-In an open listing (also known in some areas as a nonexclusive listing), the seller retains the right to contract with any number of brokers as agents. -The brokers can act simultaneously, and the seller is obligated to compensate only the broker who successfully produces a ready, willing, and able buyer. -A seller who personally sells the property without the aid of any of the brokers is not obligated to pay a commission. -The terms of an open listing must still be negotiated, however. -These negotiated terms should be in writing to protect the broker's ability to collect an agreed-on fee from the seller. -The Regulations require any broker taking an oral open listing to give the seller a written memorandum stating all the terms of the listing agreement.

Home warranty program

-It may be advisable for a buyer or a seller to purchase a home warranty with the property. -A home warranty program covers such things as plumbing, electrical and heating systems, water heaters, duct work, and major appliances. -A home warranty can be an attractive selling point. -In most states, a home warranty program can be an option in the listing contract or an offer to purchase. -Coverages, deductibles, limitations, and exclusions in the contract should be clearly specified.

Leased equipment

-It must be determined whether leased equipment—security systems, cable television boxes, water softeners, special antennas—will be left with the property. -If so, the seller is responsible for notifying the equipment's lessor of the change of property ownership.

Marketing the Property. Technology and Social Media

-Licensees sometimes forget that any marketing they post on the internet and social media platforms must comply with federal, state, and local rules and regulations. -REALTORS® must also follow the National Association of REALTORS®Code of Ethics and Practice, which include sections that cover advertising and behavior on social media. -For example, sharing or advertising another agent's listing on your own timeline, page, or website may be considered unlawful advertising of the agent's listing. -Always get permission from the employing broker and/or agent before promoting a listing that is not your own. -In Pennsylvania A licensee who promotes a new listing on any form of social media or webpage—including Facebook or Instagram—without including employing brokerage information may be in violation of state law.

Listing Agreements and Buyer Representation Contracts

-Most business relationships in real estate are created by written agreement. -An agency contract may be used to hire the broker to represent the buyer, the seller, the landlord, or the tenant (the broker's policies determine which type[s] of agency the company offers). -Agency agreements are employment contracts for the personal professional services of the broker and are not contracts for the transfer of real estate or a real estate interest. -Listing agreements and buyer agency agreements are the fundamental documents of the real estate profession. -A listing agreement creates a special agency between the property owner and the broker and provides different levels of rights and responsibilities for the listing broker. -More importantly, listings address how the broker will market the property and how the owner will compensate the broker. -A buyer representation agreement is an employment contract that establishes the rights and responsibilities of the broker as agent for the buyer-principal. -In short, listing and buyer representation agreements are the fundamental, bedrock documents of the real estate profession. To understand who you are as a real estate professional, you must understand how these documents work, what they say, and what they mean to you. Learning Objectives When you have completed this unit, you will be able to accomplish the following. Explain statutory and regulatory issues related to listing and buyer agency agreements. Identify how different types of listing agreements are created and terminated. Summarize the information necessary to list, price, determine seller's return, and seller disclosures. Indicate the issues and necessary information in the listing agreement. Discuss matters important for buyer agency agreements.

The Listing process - Marketing the Property

-No licensee may market a property for sale without the seller's permission. -The listing contract gives the broker permission to market the property and describes precisely how the property may be marketed to the public. -All advertising must be honest and truthful, and present a true picture of the property.

Information Needed for Listing Agreements

-Obtaining as many facts as possible about the property ensures that most contingencies can be anticipated. -This is particularly important when the listing will be shared with other brokers through the MLS (multiple listing service) and when the other licensees must rely on the information taken by the listing agent. * The information needed for a listing agreement generally includes: 1. the names and relationship, if any, of the owners; 2. street address and legal description of the property; 3. size, type, age, and construction of improvements; 4. number of rooms and their sizes; 5. dimensions of the lot; 6. existing loans, including such information as the name and address of each lender, the type of loan, the loan number, the loan balance, the interest rate, the monthly payment which includes principal, interest, taxes, and insurance (PITI), whether the loan may be assumed by the buyer and under what circumstances, and whether the loan may be prepaid without penalty; 7. possibility of seller financing; 8. amount of any outstanding special assessments and whether they will be paid by the seller or assumed by the buyer; 8. zoning classification of the property; 9. current (or most recent year's) property taxes; 10. neighborhood amenities (e.g., schools, parks and recreational areas, churches, and public transportation); 11. real property, if any, to be removed from the premises by the seller and any personal property to be included in the sale for the buyer (both the listing contract and the subsequent purchase contract should be explicit on these points); 12. any additional information that would make the property more appealing and marketable; and 13. required disclosures regarding property conditions.

Gathering Information

-Once the real estate licensee and the buyer have agreed to pursue a buyer-agent relationship, the parties need to discuss specific factual information to enable the licensee to represent the buyer's interests. That information includes: names of all buyers being represented, type of property desired, geographic areas covered by the agreement, price range of property desired, length of time the contract will run, scope of work to be performed by the agent, exclusive or nonexclusive contract terms, terms and source of compensation to the buyer's agent, possibility of dual agency, financial terms of a purchase, and purchase agreement inclusions and contingencies.

Listing Agreement Issues

-Regardless of which form of listing agreement is used, the same considerations arise in most real estate transactions. -This means that all listing contracts require similar information. -Nonetheless, licensees should review the specific forms used in their areas and refer to state laws for any specific requirements. -Most real estate brokers use an exclusive right to sell listing agreement.

Types of Listing Agreements

-Several types of listing agreements exist. -The type of contract determines the specific rights and obligations of the parties (see Three Types of Listing Agreements). *OPEN LISTING : -JLK REALTY -ABC REALTY -XYZ REALTY. FOR SALE BY OWNER *EXCLUISVE AGENCY: FOR SALE BY OWNER, XYZ REALTY * EXCLUSIVE RIGHT TO SELL: XYZ REALTY. -In the exclusive right-to-sell listing, one broker is appointed as the sole (exclusive) agent of the seller. -The broker is given the exclusive right, or authorization, to market the seller's property. -If the property is sold while the listing is in effect, the seller must compensate the broker regardless of who sells the property. -In other words, whether the seller finds a buyer with or without the broker's assistance, the seller still must pay the broker a fee. -Sellers benefit from this form of agreement because the broker feels freer to spend time and money to actively market the property, making a timely and profitable sale more likely. -From the broker's perspective, an exclusive right-to-sell listing offers the greatest opportunity to receive compensation. -An example of this form of listing agreement ..(see Listing Contract (Seller Agency Contract) Exclusive Right-To-Sell Real Estate).

Virtual Staging

-Staging a home for sale is not a new concept. Virtual staging places Photoshop furnishings in a vacant home in the hopes that home buyers will be better able to picture their own furniture (and themselves) in the house. -When does doctoring listing photos become fraudulent advertising? -Virtual staging is legal, if it is disclosed to the buyer in the marketing materials. -It crosses the line when the agent removes problematic flaws in the property that may have prevented the buyer from viewing the property in the first place. -For example, adding a large comfy couch and big screen television to an empty room (and calling it a media room) shows the buyers what the room could be, if they outfitted it in a similar way. -Manipulating photos to remove power lines from an exterior shot of the house because buyers may not want to see a house with power lines running through the yard may be considered deceptive advertising. -Those two examples may seem clear, but what about natural elements? -Some vendors enhance listing photos for a small fee and will add a bright blue sky to your exterior shots to make your property more appealing online. -What about grass? They can take a burned out, dry brown front yard into a field of green lawn with a few clicks. -Is that deceptive? When the buyer pulls up to the house they will not see green, but brown. -Virtual staging may help you get more buyers to make appointments, but it won't necessarily lead to selling the house if ultimately the buyers are disappointed at the final product when they walk in the door. -Licensees should make every effort to make their listings appealing to buyers, without lying about the property and its condition.

The Listing Process

-The broker and the seller must discuss a variety of issues, including the selling price of the property and the net proceeds. -In Pennsylvania, the broker must present the Consumer Notice (see Consumer Notice). -This is the broker's opportunity to explain the various types of listing agreements, the ramifications of different agency relationships, and the marketing services the broker provides. -The seller should provide comprehensive information about the property and voice any personal concerns. -Based on this information, the broker can accept the listing with confidence that the seller's goals can be met in a profitable manner for both parties.

The brokerage firm

-The brokerage company name, the employing broker, and if appropriate, the salesperson taking the listing must all be identified. -Listing Contract (Seller Agency Contract) Exclusive Right-To-Sell Real Estate -Listing Contract (Seller Agency Contract) Exclusive Right-To-Sell Real Estate Source: Reprinted with permission of the Pennsylvania Association of REALTORS®

Broker compensation

-The circumstances under which a commission will be paid must be specifically stated in the contract. -The fee can be either a percentage or a flat rate and is usually paid at closing directly by the seller or the party handling the closing.

Antitrust wording

-The contract should indicate that all commissions have been negotiated between the seller and the broker. -It is illegal for commissions to be set by any regulatory agency, trade association, or other industry organization.

The broker's authority and responsibilities

-The contract should specify whether the broker may place a sign on the property and advertise; -it should address when the property can be shown, allowing reasonable notice to the seller. -It should also address whether the broker may accept earnest money on behalf of the seller, and the responsibilities for holding the funds. -The broker does not have the authority to sign any legal documents or contracts without first obtaining a power of attorney from the seller or the seller's representative.

Warranties by the owner.

-The owner is responsible for certain assurances and disclosures. -Is the property suitable for its intended purpose? -Does it comply with the appropriate zoning and building codes? -Will it be transferred to the buyer in essentially the same condition as it was originally presented, considering repairs or alterations to be made as provided for in a purchase contract? -Are there any known defects?

Indemnification (hold harmless) wording

-The seller and the broker may agree to hold each other harmless (i.e., not to sue one another) for any incorrect information supplied by one to the other. -Indemnification may be offered, regardless of whether the inaccuracies are intentional or unintentional.

Real Estate Seller Disclosure Act

-The seller must also disclose property conditions as required by law in most states. -These disclosures cover a wide range of structural, mechanical, and other conditions that a prospective purchaser should know about in order to make an informed decision. -Frequently, the laws require that the seller complete a standardized form. -Licensees should caution sellers to make truthful disclosures to avoid litigation arising from fraudulent or careless misrepresentations. -In Pennsylvania Pennsylvania's Real Estate Seller Disclosure Act requires sellers of residential real properties (an individual, partnership, corporation, trustee, or combination) who intend to transfer an interest in a one- to four-family residential property to disclose to the buyer all material defects. -Although there are some exceptions, most residential transactions require the seller's completing a disclosure (see Seller's Property Disclosure Statement). Seller's Property Disclosure Statement Seller's Property Disclosure Statement Source: Reprinted with permission of the Pennsylvania Association of REALTORS® -The law defines a material defect as a problem with the property or any portion of it that would have a significant adverse impact on the value of the residential real property or that involves an unreasonable risk to people on the land. -The seller must complete a disclosure statement; the licensee is responsible for advising the seller of this duty and providing an appropriate form for the seller's use. -Agents should caution sellers to make truthful disclosures to avoid litigation arising from fraudulent or careless misrepresentations. -A signed and dated disclosure statement must be presented to prospective buyers before they sign an agreement of sale.

Nondiscrimination (equal opportunity) wording

-The seller must understand that the property will be shown and offered without regard to the race, color, religion, national origin, family status, sex, or disability of the prospective buyer. -Refer to other federal nondiscrimination laws and state and local fair housing laws for a complete listing of protected classes in your area.

The proposed dates for the closing and the buyer's possession

-These dates should be based on an anticipated closing date. -The listing agreement should allow adequate time for the paperwork involved (including the buyer's qualification for any financing) and the move-in date to be arranged by the seller and the buyer.

The date the contract is signed

-This date may be different from the date the contract actually becomes effective. -For example, a salesperson takes the listing and then must have the broker sign the contract to accept employment under its terms.

The listing price

-This is the proposed sales price. -The seller's proceeds will be reduced by: 1. unpaid real estate taxes 2.special assessments, 3. mortgage debts, and any other outstanding obligations.

Real Estate Recovery Fund information

-This required statement briefly explains the purpose and intent of the Fund.

Types of Buyer Agency Agreements

-Three basic types of buyer agency agreements exist: 1. Exclusive buyer agency. -This is a completely exclusive agency agreement. - The buyer is legally bound to compensate the broker if the buyer purchases a property of the type described in the contract within the agreed-upon time frame. -The broker is entitled to compensation regardless of whether the property is located by the broker, the buyer, or another licensee. 2. Exclusive agency buyer agency. -Like an exclusive buyer agency agreement, this is an exclusive contract between the buyer and one broker. -However, this agreement limits the broker's right to compensation. -Brokers are entitled to payment only if they locate the property the buyer ultimately purchases. -The buyers retain the right to locate a suitable property on their own without obligation to compensate the broker. 3. Nonexclusive buyer agency. -This agreement is an open agency contract between a broker and a buyer. -It permits the buyer to enter into similar agreements with an unlimited number of brokers. - The buyer is obligated to compensate only the broker who locates the property the buyer ultimately purchases.

Marketing the Property . Advertising Checklist

-When advertising, licensees should think about the following questions to ensure compliance with federal, state, and local rules and regulations. -Does the advertisement include the licensee's name as printed on her license? -Does the advertisement contain the name and contact information of the employing brokerage? -Is the brokerage name and/or logo of equal size/prominence to the licensee's name? -Does the licensee have the written permission of the property owner to advertise the property? -Does the advertisement represent the property in an honest and truthful manner? -If the licensee has an ownership interest in the property, does the advertisement state this fact? -Do all print and electronic (internet, social media, etc.) advertisements conform to the Pennsylvania Real Estate Commission advertising rules?

Listing Agreements and Buyer Representation Contracts

Section 35.332 of the Real Estate Commission's Rules and Regulations requires that an exclusive right-to-sell or exclusive right-to-lease agreement contain a statement in boldface type: "The broker earns a commission on the sale (or lease) of the property, regardless of who, including the owner, makes the sale (or lease) during the listing period." The agreements also must contain (in addition to the other requirements for written contracts) *the seller's asking price, *broker's expected commission on the sales prices, *explanation that payments of money received by the broker will be held by the broker in an escrow account, and *duration of the agreement. The broker cannot have authority to execute an agreement of sale for the owner or have an option to purchase the listed property. Nor can the broker have authority to confess judgment for the commission in the event of a sale.

Buyer Representation Agreement

Some brokers have attorneys create buyer agency contract forms for their own office, while others use forms prepared by professional associations. -Licensees should be familiar with the forms used by their company and be prepared to explain their provisions. -As always, licensees must remember that they are not permitted to give legal advice or practice law unless separately licensed as an attorney at law. -An exclusive buyer representation agreement, which is incorporated in the Buyer (Tenant) Agency Contract form illustrated in Buyer (Tenant) Agency Contract, contains the following provisions: 1. Type of buyer agency relationship 2. Time period (the term) of the contract 3. Brokerage fee and obligation of buyer to compensate broker (if that's the case) 4. Property requirements and terms of purchase 5. Broker protection clause 6. Provision for licensee to act as designated agent (if applicable) 7. Provision for dual agency (if that's the broker's policy) 8. Provision for assignment of the contract by the broker 9. Signatures of all parties 10. Disclosures relating to conflict of interest 11. Nondiscrimination wording 12. Disclosures regarding zoning issues, the Real Estate Recovery Fund, and any others required by law or rule

Any other disclosures required by law or rule

The contract should include any other disclosures as required by law or the Regulations.

Seller's Return

With simple calculations, the licensee can show the seller roughly how much will be netted from a given sales price or what sales price will produce a certain net amount. The mathematical examples show the net the seller would receive after the sales commission. In addition, the seller incurs other expenses. Calculating Sales Prices, Commissions, and Nets to Seller When a property sells, the sales price is equal to 100% of the money being transferred. Therefore, if a broker is to receive a 6% commission, 94% will be left for the seller's other expenses and equity. To calculate a commission using a sales price of $225,000 and a commission rate of 6% (0.06 as a decimal), multiply the sales price by the commission rate: $225,000 × 0.06 = $13,500 commission To calculate a sales price using a commission of $13,500 and a commission rate of 7% (0.07 as a decimal), divide the commission by the commission rate: $13,500 ÷ 0.07 = $192,857 sales price To calculate a commission rate using a commission of $8,200 and a sales price of $164,000, divide the commission by the sales price: $8,200 ÷ $164,000 = 0.05 as a decimal = 5% commission rate To calculate the net to the seller using a sales price of $125,000 and a commission rate of 8% (0.08 as a decimal), multiply the sales price by 100 percent minus the commission rate: $125,000 × (100% - 8%) = $125,000 × 0.92 = $115,000 The same result can be achieved by calculating the commission ($125,000 × 0.08 = $10,000) and deducting it from the sales price ($125,000 - $10,000 = $115,200). However, this involves unnecessary extra calculations. In summary: Sales price × Commission rate = Commission Commission ÷ Commission rate = Sales price Commission ÷ Sales price = Commission rate Sales price (100% - Commission rate) = Net to seller In Practice Licensees must comply with certain requirements that are detailed in the Real Estate Licensing and Registration Act and Rules and Regulations when they are listing real estate. Click here to view the current Pennsylvania Real Estate Licensing and Registration Act. Click here to view the current Rules and Regulations of the State Real Estate Commission. 2228357