B LAW 424 CHAPTER 6

Exclusive right to sell

A listing agreement between a seller of real estate and a real estate broker that gives the broker the sole right to sell the property and to receive a commission on the sale regardless of whether the broker is responsible for the sale. If the broker has an exclusive right to sell, she is entitled to a commission even when the owner or another broker locates a buyer. The following language in a listing agreement used in Texas gives a broker the exclusive right to sell the real estate: "Should I [the seller], or anyone acting for me, including my heirs, sell, lease, transfer, or otherwise dispose of said property within the time herein fixed for the continuance of the agency, you [the broker] shall be entitled nevertheless to your commission as herein set out." The standard form listing agreement that a broker presents to a seller is usually an exclusive right to sell agreement. What is more, since many real estate sellers, particularly residential homeowners, know little about alternative brokerage agreements, this agreement is the one that sellers usually sign as well. Even so, sellers who do sign an exclusive right to sell agreement can still sell their real estate without paying a commission if they exclude names of specific parties in the agreement who formerly expressed an interest in buying the property.

Statute of Frauds

Contracts for the purchase and sale of real estate, as well as certain leases, deeds, mortgages and generally any other legal instrument pertaining to land, must be in writing to be enforceable under the Statute of Frauds. In many states, the listing agreement is included within the Statute of Frauds and therefore must be in writing. In states where the agreement must be in writing, most courts require that the names of the parties, the percentage of commission, and an exact description of the real estate be included in the listing agreement. Because of the different types of arrangements between brokers and clients, it is also advisable for the listing agreement to specify the beginning and ending date of the broker's listing, the broker's duties, and the desired sales price.

duty of disclosure

Courts in several states have concluded that selling brokers, including subagents, owe a ____________ to buyers even though a fiduciary duty does not exist where the selling agent fails to disclose fact relating to safety and health issues for example, that "materially affect the value or desirability of the property offered for sale."

Procuring cause of sale

In certain cases, particularly where an exclusive agency or open listing agreement is used, a dispute occasionally arises between two or more brokers or between the broker and seller, each of whom claims tha the buyer was procured through his efforts. This can occur, for example, after these kinds of agreements expire and the owner successfully sells the property on his own. In this instance, the broker who "brings the buyer and seller together, they negotiate, without abandonment, and ultimately agree upon a sale" is generally considered the procuring cause of sale (definition: the actions of a real estate broker that are the direct and primary cause of a real estate sale). For example, assume that L signed open listing agreements with two brokers, A and C. A finds a prospective buyer, Graham, who wants to buy the property if the closing date can be worked out. Without Adam's knowledge, Corey then negotiates the closing date with G and persuades G to sign the contract. In this case, the general rule would entitle only Adam to a commission. As stated in a West Virginia case, "If a broker sets in motion machinery by which a sale is made, which without break in its continuity was procuring cause of sale, he is entitled to commission although he does not conduct all negotiations." Or as a Missouri court poetically expressed it, "he who sows the seed and tills the crop is entitled to reap the harvest - rather than the one who volunteers to assist in tilling a crop, the seed for which he has not sown."

buyer broker

It is increasingly common for buyers to hire their own brokers. The agents, called buyer brokers, owe only the buyer fiduciary duties. Due in part to the preceding problems, buyer brokering is becoming increasingly common. As mentioned, many of the legal and ethical problems associated with subagency are avoided when both parties have their own broker. Buying property is complicated, and both sellers and buyers often prefer someone who gives them their undivided loyalty. But many buyer brokers are reluctant to obtain written contracts from their clients, at least at the inception of the relationship. Since in a subagency arrangement there is neither a contract between the subagent and the buyer, nor fiduciary duties owed to the buyer, buyer brokers may still be hewing to this old model.

Mandatory agency disclosure laws

Know the problems associated with subagents and to whom they owe fiduciary duties and how modern disclosure statutes apply to attempt to control these problems. // However, there are five types of protection for buyers, particularly those pertaining to the problems with subagency: ___________ = state laws requiring agents to disclose to consumers the type of agents they are and the rights and duties that exist in their relationships with the consumers. Although the requirements differ among states, in general, agents must inform their client in writing as to the party (buyer, seller, or both) they represent as soon as the principal/agency relationship begins to take shape.

dual agency

Know the problems associated with subagents and to whom they owe fiduciary duties and how modern disclosure statutes apply to attempt to control these problems. // However, there are five types of protection for buyers, particularly those pertaining to the problems with subagency: __________ = Brokers have, on occasion, accidentally created a dual agency in which they owe a fiduciary duty to both a buyer and a seller. A court, for example, might rule that a buyer-broker agency relationship exists when a broker tells a buyer that a seller's house is overpriced, thus breaching the fiduciary duties he owe the sellers. Such situations are costly to brokers, who will lose commissions and may even be disciplined by their state's real estate commission under mandatory disclosure laws, if the dual agency is not disclosed.

true

T/F A further problem is that subagents often ask the prospective buyers with whom they are dealing to submit earnest money deposits to their client, the seller. These amounts are sometimes significant and are meant to protect the seller, to whom they owe fiduciary duties, from the consequences of a buyer who refuses to consummate the sale. In the opposite manner, buyer brokers must negotiate for an amount that is most beneficial for the buyer. Since buyer brokers have a heightened responsibility that requires more time and money devoted to their clients, many buyer brokers now require the prospective buyer to sign an exclusive agency agreement. This means that if the buyer leaves for another broker or finds his own property to buy, the buyer may still owe his own broker a commission, a term typically agreed to in the contract. Despite these concerns, buyer brokers afford more protection for their clients ahan a subagent would because of the fiduciary duties they owe.

True

T/F In a traditional multiple listing service agreement (MLS), know how the broker for the seller (selling broker) and the broker for the buyer (subagent) divide the commission: Use of the MLS usually leads to the involvement of two brokers in the transaction. One broker has a listing agreement with the seller; and when the listing broker sells the property without another broker's involvement, she receives the full commission. Typically, however, another board member, the "selling broker," procures the buyer. In this event, the commission is normally split 50/50 between the listing broker and the selling broker. Under the traditional approach, the listing broker is the seller's agent to procure a buyer and the selling broker, also called the cooperating broker, is a subagent of the seller. Under a subagency scenario, the home seller often does not even meet and know his own subagent until the end of negotiations or until the closing. Moreover, many buyers often do not even realize the selling broker that had been engaged with, sometimes for months, was really not the agent who is representing their interests, but actually is representing the seller's interests! Today disclosure of the agent as a subagent, as well as other agency statuses discussed later in this chapter, is generally required by law.

True

T/F One of the hard lessons many new salespersons learn is that buyers are not always loyal, even after the salesperson has spent hours of time together with the buyer incurring expenses trying to find for him the right property. Thus, if a salesperson finds a potential buyer who then ceases negotiations and leaves her for a second broker, she generally does not earn a commission; however, the second broker, if challenged by the first one, might still have to prove he was the procuring cause of the sale. An owner who negotiates and signs a contract with a buyer who has been sent by a broker must pay a commission. This rule applies even though the owner was not aware that the buyer had been procured by the broker's efforts. This is one reason why prospective buyers visiting a listing property at an "open house" - a widespread marketing technique brokers employ to sell homes - are asked to sign a sheet. If the seller later tries to consummate a sale to a person who had toured the house, the broker can use this information to help prove that he was the procuring cause of the sale. Likewise, in recent years, brokers who have sent emails or had their websites assessed by prospective buyers can also make an effective argument that they were the procuring cause of the sale. Yet, if the seller reduces the sale price on the belief that the buyer was not procured through the broker's efforts and if the broker did not disclose its role, courts have held that no commission is due to the broker. With this in mind, a sophisticated seller who has not entered into an exclusive right to sell agreement with a broker, should ask an apparently independent buyer to represent that no broker made the referral.

apparent (or ostensible) authority

The authority of the broker might be express, implied, or apparent. For example, Claudine, an owner, expressly hires Demitri, a broker, to sell her real estate. Demitri finds a buyer, Marcus, who signs a purchase agreement and gives Demitri a down payment of $30,000. If Demitri absconds with the $30,000, does the loss fall on Claudine because Demitri was her agent or on Marcus, the buyer? Even in the absence of express or implied authority, the owner, Claudine, might still be liable if Demitri had apparent (or ostensible) authority. This would occur if Claudine gave the impression to Marcus that Demitri had the express authority to perform certain acts on her behalf. The principal's apparent authority also creates an agency by estoppel. In such a case, Claudine is estopped from denying that she was Demitri's principal since she was holding herself out as such. But a third party must reasonably rely on the principal's actions and be induced into a situation in which he incurs a loss.

implied authority

The authority of the broker might be express, implied, or apparent. For example, Claudine, an owner, expressly hires Demitri, a broker, to sell her real estate. Demitri finds a buyer, Marcus, who signs a purchase agreement and gives Demitri a down payment of $30,000. If Demitri absconds with the $30,000, does the loss fall on Claudine because Demitri was her agent or on Marcus, the buyer? If Claudine did not give Demitri express authority to accept the down payment, Marcus still might argue that authority would be implied by the fact that Claudine hired Demitri as her agent. Implied authority means that Demitri can do whatever is necessary and proper, such as advertising and conducting open houses, in carrying out his express authority to sell the home. Still, because Demitri is a special agent, his implied authority is narrowly defined. Thus, a broker hired merely to find a buyer has no implied authority to accept money from a buyer: "Unless specially authorized the broker has no authority other than to state the asking price and to point out the land as described by the owner... He has no authority to receive all or part of the purchase price or to represent to a buyer who makes a deposit that the deposit will be returned if the buyer cannot obtain a mortgage. He is an agent, but with an authority to speak for the principal almost at the vantage point." Still, a broker who is expressly authorized to sign a real estate contract has the implied authority to make representations concerning the property, to give the usual warranties of title, and to receive the down payment. And a broker who is expressly authorized to sign a deed has the implied authority to receive the full purchase price for the seller since receiving the money in exchange for the deed is customary as well as necessary and proper in that particular circumstance.

Express agency

The authority of the broker might be express, implied, or apparent. For example, Claudine, an owner, expressly hires Demitri, a broker, to sell her real estate. Demitri finds a buyer, Marcus, who signs a purchase agreement and gives Demitri a down payment of $30,000. If Demitri absconds with the $30,000, does the loss fall on Claudine because Demitri was her agent or on Marcus, the buyer? If Claudine gave the broker express authority to accept the down payment for her, Claudine, as the principal, would bear the responsibility for the acts of Demitri, her agent, and consequently would bear the loss. Such express authority would typically be explicitly granted in the listing agreement, which could include a statement authorizing Demitri to hold purchaser deposits in escrow.

fiduciary duty

The real estate broker owes a fiduciary duty, a duty of the highest loyalty and trust, to the principal who has engaged the broker. If a broker has a personal interest in a transaction, she has divided loyalties. Brokers, because of their fiduciary duty, cannot purchase the principal's real estate for themselves or for their associates without full disclosure to the principal. Furthermore, even when the purchaser is not associated with the broker, the broker must put the interest of the principal first. Agents breach their fiduciary duty when they secretly receive a commission from the prospective buyer even though they have performed the contract as promised for the seller-princiapl. MLSs raise complex fiduciary duty issues. Clearly, the broker hired by the seller (the listing broker) owes a fiduciary duty to the seller. But the agent who locates the buyer (the selling broker) - who is legally considered a "subagent" - also owes the seller a fiduciary duty (see figure 6.2). buyers who consider the subagent to be their agent frequently misunderstand this point. Since these subagents generally deal with the buyers only, they often do not even meet the sellers - the parties to whom they owe their fiduciary duties. This can have negative consequences for buyers who freely give the subagent important confidential information, such as what they are willing to pay the seller, thereby compromising their own interests.

1968 Fair Housing Act; familial status; handicap

Title VIII of the Civil Rights Act of 1968 that prohibits discrimination in housing based on race, color, religion, sex, and national origin The FHA prohibits the following actions against members of the protected groups: 1. Refusing to sell to, rent to, deal, or negotiate with any person - that is, denying housing because of membership in a protected category 2. Manifesting discrimination in the terms or conditions for buying or renting housing 3. Discriminating by advertising that housing is available only to persons of a certain race, color, religion, or national origin or indicating a discriminatory preference through the use of human models 4. Denying that housing is available for inspection, sale, or rent when it really is available 5. Steering and blockbusting - for example, persuading owners to sell or rent housing by telling them that minority groups are moving into the neighborhood 6. Denying or establishing different terms for home loans by commercial lenders 7. Denying someone the use of real estate services 8. Using interference, coercion, or intimidation to chill the exercise of fair housing rights 9. Discriminating in finance and insurance The FHAA of 1988 also added two new protected classifications: ________ (like single mothers, grandparents raising kids, fosterparents) and ________. Handicap includes "a physical or mental disability (including hearing, mobility, and visual impairments, chronic alcoholism, chronic mental illness, AIDS, the mentally challenged) that substantially limits one or more life activities

Exclusive agency

Under an exclusive agency the broker is names as exclusive agent, but the principal (owner) can find his own buyer without incurring liability for the commission. An exclusive agency is created when the listing agreement uses language similar to the following: "A commission is to be paid to the broker whether the purchaser is secured by the broker or by any person other than the seller." Note: the general rule is that where a contract is ambiguous, the ambiguity is interpreted against the person who drafted the agreement - in this case, the seller. Exclusive agency - A listing agreement between the seller of real estate and a real estate broker that gives the broker the exclusive right to sell the property and a commission on the sale, but the seller may, without owing a commission, use her own efforts to sell the property.

steering

the practice of showing different properties to people of different races or ethnic backgrounds in an attempt to "steer" them to neighborhoods of like composition brokers may become liable for the actions of their salespersons for these activities.

THE SELLING BROKER'S DUTY OF DISCLOSURE TO BUYERS

they have to inform them about off-site conditions like a nearby hazardous waste dump, or earth movement problems (like landslides) in the past. A broker has the duty not only known facts but also facts that should have been discovered through reasonable diligence.

Interstate Land Sales Full Disclosure Act

A 1968 federal statute that regulates the sale of property across state lines by requiring certain advance filings and disclosures to prospective buyers.

Open listing agreement

A contract between a seller of real estate and a real estate broker in which the broker has a nonexclusive right to sell the property.

Americans with Disabilities Act of 1990

A federal statute that prohibits discrimination based on disability and requires reasonable accommodation by employers and landowners

Exclusive agency

A listing agreement between the seller of real estate and a real estate broker that gives the broker the exclusive right to sell the property and a commission on the sale, but the seller may, without owing a commission, use her own efforts to sell the property.

THE SELLING BROKER'S DUTY OF DISCLOSURE TO BUYERS

Although the listing broker, as well as the subagent, typically owes a fiduciary duty to the seller, courts have increasingly imposed upon the broker the duty to disclose to the buyer facts "materially affecting the value or desirability of the property offered for sale" that would not be readily ascertainable to the buyer. Selling brokers and subagents may also owe certain duties not just to actual buyers but to potential buyers as well. A broker, for example, held an open house at a listed property to attract potential buyers. One visitor slipped and fell. - So the broker has the duty of making a reasonable inspection of the property and warning the visitors of reasonably discoverable dangerous conditions. Also, a broker showing a partially completed home was liable for injuries a prospective purchaser suffered when the broker was showing the property. Brokers typically require the seller to sign a written discosure statement describing the condition of the property.

apparent (or ostensible) authority

Authority that a person appears to have to act as an agent of another if the other party's actions led a third party to reasonably believe the agency relationship existed, when, in fact, it did not.

REALTOR

Both real estate brokers and their associated salespeople must be licensed by the state, but they are not legally required to be REALTORS. A REALTOR is a member of the National Association of Realtors. Penalties for acting without a license: In many states, a person who violates the brokers' licensing statutes faces criminal penalties in the form of a possible fine and imprisonment. Under many statutes, a person acting as a real estate broker without a license faces the added penalty of not being allowed to collect a commission from a client.

Not aquainted

Brokers who are __________ with the ADA may be breaching their fiduciary duties of care since they are professionals who are or should be knowledgeable about it and other laws that can impact their principals.

Not liable Seller liable

In an Exclusive agency listing agreement, Seller locates the buyer - liable? Broker B locates the buyer - liable?

Seller liable Seller liable

In an Exclusive right to sell listing agreement, Seller locates the buyer - liable? Broker B locates the buyer - liable?

Not liable Not liable

In an open listing agreement, Seller locates the buyer - liable? Broker B locates the buyer - liable?

Exclusive right to sell Exclusive agency Open listing

Name the three types of listing agreements.

disclose

Note that there are mandatory agency disclosure laws requiring agents to ______ whom they are representing.

Open listing

Occasionally, a listing agreement is signed that merely authorizes "the broker to act as agent in securing a purchaser for my property." This language creates an open listing agreement. The broker is not entitled to a commission if a ready, willing, and able purchaser is secured by another broker or by the seller. Open listing agreements are rare in sales of residential properties; they are more commonly used to sell commercial properties.

True

T/F Sellers sometimes take elaborate measures in attempting to avoid paying commissions to brokers who have procured buyers. For instance, in Flamingo Realty, Inc., v. Midwest Development, Inc., a seller subject to an open listing sold a Nevada property to a company named Toroscan, Inc., for $5,325,000, which Toroscan immediately resold for $5,900,000 to the company that the broker had procured. Toroscan turned out to be a newly formed Nevada corporation owned by the daughter and two sons of a principal shareholder of the seller. Under these circumstances, the court held that the corporation was set up as a scam to avoid paying a commission and so the court ruled that the real estate agent was due a commission.

the FHA of 1968 has affected newer construction to help the disabled

The FHAA requires that new multifamily dwellings, defined as those buildings with four or more units in which first occupancy was on or after March 13, 1991, must be made accessible to the disabled. The Act is aimed particularly at helping wheelchair users who may want to buy or lease property. These dwellings, which include most apartments and condominiums, must have the following seven modifications in place: 1. Accessible building entrance on accessible routes 2. Accessible and usable public and common use areas, such as swimming pools and laundry rooms 3. Usable doors within the entire premises, with clear passage of 32 inches opening to 90 degrees 4. Routes into and through the dwelling unit, including only a half-inch to three-quarter inch threshold 5. Light switches, electrical outlets, thermostats, and other environmental controls in accessible locations 6. Reinforced walls for grab bars 7. Usable kitchens and bathrooms for wheelchair maneuverability It is noteworthy that multistoried dwellings covered under the FHAA are not required to have elevators. Even so, units in any floors accessible to the disabled, such as the first floor or any floors that can be reached by elevator, must all have the seven modifications

listing agreement

Whenever a broker is hired, the broker and the client should enter into an agreement covering such matters as the term of the employment, the amount of the commission, and the duties of the broker. Most states require that the broker and client enter into a written agreement before the broker can collect a commission, place advertisements, or display the broker's sign on the property to indicate that it is for sale. The seller of real estate traditionally hires the broker, although there has been a trend toward the buyer retaining a broker. The written contract between the client and the broker is called a __________ - a contract between a seller of real estate and a real estate broker in which the broker is authorized to serve as the seller's agent. There are three major kinds of listing agreements.

fiduciary duty

a duty to act for someone else's benefit while subordinating one's personal interests to that of another person. It is the highest standard of duty imposed by law.

buyer broker

a real estate agent who acts on the behalf of the buyer

dual agency

a relationship created when an agent simultaneously represents opposite sides in a transaction

real estate broker

an agent authorized under real estate licensing laws to operate independently in a real estate brokerage business The broker typically acts as an agent for the seller of real estate, although he can also act on behalf of a buyer or even a buyer and seller at the same time if the parties agree.

real estate salesperson

an agent authorized under state real estate licensing laws to act in real estate brokerage transactions only under the control and direction of a licensed real estate broker

special agent

an agent with authority to conduct a single transaction or a limited series of transactions

general agent

an agent with broad authority to act on behalf of the principal

implied authority

implementation authority; that authority necessary to carry out the express authority that the principal grants the agent

Subagent

in general agency law, an agent who represents the interests of another agent. In real estate brokerage law, a broker who assists the listing broker and acts as an agent on behalf of the seller to find a buyer

procuring cause of sale

the actions of a real estate broker that are the direct and primary cause of a real estate sale

blockbusting

the attempt to promote sales in a racially transitional neighborhood by encouraging the idea that the transition is harmful brokers may become liable for the actions of their salespersons for these activities.

express agency

the authority a principal specifically grants an agent

subagent

the broker for the buyer

selling broker

the broker for the seller