Chapter 7

The Texas Deceptive Trade Practices-Consumer Protection Act (DTPA) states that

"false, misleading, or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful and are subject to action by the consumer protection division.

Except for residential property, DTPA does not apply to transactions that exceed ____________ where there is a written contract and the consumer is represented by legal counsel.

$100,000

What's the penalty for violating the Sherman Antitrust Act?

$350,000 up to 3 years in fed pris, corporations $10 mil $1 million up to 10 years, $100 mil for corporation

Clayton Antitrust Act

1914, made both substantive and procedural modifications to federal antitrust law. cover restraints on interstate trade or commerce that are not covered under the Sherman Act. Preventing individuals from serving as directors at competing companies.

Employee/Broker Relationship

A broker can impose a sales methodology. In addition, a broker can enforce all office policies, including hours, meeting attendance, and telephone coverage A broker must withhold income taxes and pay unemployment compensation tax on behalf of an employee. An employee may receive the benefits enjoyed by the broker's non-selling employees.

Independent Contractor/Broker Relationship

A broker can require performance results, but is limited in demanding how a contractor performs the work. For example, a broker may not prescribe selling methods, meeting attendance, or office hours. An IC is responsible for income and social security taxes; the broker does not withhold taxes. A broker cannot provide an IC with employee benefits such as health insurance or pension plans

What is a commission split?

A share of the broker's listing or selling side of the commission (or both), according to the agent's commission schedule

Tie-in Arrangements

A tie-in arrangement - or tying agreement- is an arrangement that requires the buyer to agree to something in exchange for the sale.

As a result, Section 17.49(i) of the Texas Business & Commerce Code exempts from the DTPA claims against TREC licensees arising from an act or omission by the person while acting as a broker or salesperson, except for claims arising from:

An express misrepresentation of a material fact that cannot be characterized as advice, judgment, or opinion A failure to disclose information concerning goods or services which the licensee knew at the time of the transaction, if the failure to disclose the information was intended to induce the consumer into a transaction which the consumer would not have entered into if he or she was aware of the information An unconscionable action or course of action that cannot be characterized as advice, judgment, or opinion.

Initiating the Marketing Plan

An ideal marketing plan is a cohesive combination of promotional and selling activities directed at potential customers. The best combination is one that aims to have max impact on the marketplace in relation to the time and money expended.

A salesperson may not:

Bind a client to any contract Receive compensation directly from a client Accept a listing or deposit that is not in the name of the broker

What is a salesperson not allowed to do?

Bind a client to any contract Receive compensation directly from a client Accept a listing or deposit that is not in the name of the broker

What are the two types of agent/broker relationships?

Broker/independent contractor Broker/employee

How did the courts make changes to the caveat emptor principle to better protect consumers?

By making it a requirement for sellers to provide buyers with a Sellers Disclosure Notice prior to the effective date of a contract and by obligating licensees to disclose any known or latent defects in a property

Why is it important to get listings rather than work only with buyers?

By obtaining a listing, a broker obtains a share of the commission generated whenever a cooperating broker finds a buyer. It is not so certain that working with a buyer will provide income.

Price Fixing

Collusion between brokers and sales people with competing companies to set commission rates is illegal. You are not allowed to speak about commissions with other brokers, unless you are speaking about a commission split in a cooperative transaction.

Why did the Texas legislature assert that the DTPA did not apply to licensees in claims that arise from an act of omission by that licensee?

In order to reduce the number of frivolous lawsuits brought against salespersons and brokers

Why is a listing presentation important?

It is an agent's opportunity to meet with a seller and present the merits of the agent's marketing plan, personal expertise, and company strengths. At the same time, an agent can explain the many phases and details of a real estate transaction and point out how the provisions of the listing agreement and the agent-principal relationship work to ensure a smooth transaction.

What are some typical prospecting activities?

Mailing newsletters and flyers, selling directly and person-to-person, advertising, and selling indirectly via community involvement

In employing a salesperson, a broker generally makes a commitment to:

Make the brokerage's listings available Make the brokerage's market and property data available Provide whatever training was promised at the time of hiring Provide whatever office support was promised at the time of hiring Uphold the commission structure and expense reimbursement policy Conform to ethical standards imposed by the broker's trade organization Uphold all covenants and provisions of the employment agreement

What is market allocation? Give an example.

Market allocation is the division of markets by location or price. An example would be two companies getting together and deciding that one company would take one part of town, while the other company takes the other part.

What three parameters when present in a business activity constitute an antitrust violation?

Monopoly, contract or conspiracy Restraint of trade Unreasonableness

In order to generate business, in what four skill areas must a broker be proficient?

Obtaining a client listing Marketing a listing Facilitating the closing of a transaction Managing market information

Antitrust laws prohibit:

Price Fixing Group Boycotts Market Allocation Tie-in Arrangements

Obtaining a listing

Prospecting Pricing

Examples of advisory services include:

Providing an estimate of value Performing market analysis Managing property

When marketing activities produce prospects, the agent's marketing role becomes more interpersonal. An agent must now:

Qualify prospects' plans, preferences, and financial capabilities Show properties that meet the customer's needs Elicit the buyer's reactions to properties Report material results to the seller or listing agent

Deceptive Trade Practices-Consume Protection Act lists 27 practices that would be considered misleading or deceptive, including the following:

Representing that goods are original or new if they are deteriorated, reconditioned, reclaimed, used, or secondhand Advertising goods or services with intent not to sell them as advertised Making false or misleading statements of fact concerning the reasons for, existence of, or amount of price reductions Knowingly making false or misleading statements of fact concerning the need for parts, replacement, or repair service Misrepresenting the authority of an agent to negotiate the final terms of a transaction Representing that a guarantee or warranty confers or involves rights or remedies which it does not have or involve Representing that work or services have been performed on a property when the work or services were not performed Failing to disclose information concerning goods or services which was known at the time of the transaction if such failure to disclose such information was intended to induce the consumer into a transaction into which the consumer would not have entered had the information been disclosed

Remember!

Texas law prohibits a licensed broker or salesperson from giving a commission or other valuable consideration (giving certain items for personal property) to anyone who is not licensed as a salesperson or broker. Only gifts that do not exceed $50 (except cash) are acceptable.

Antitrust Laws

The Sherman Antitrust Act of 1890 Criminal Antitrust Penalty Enhancement, and Reform Act Clayton Antitrust Act Federal Trade Commission Act

How long does a consumer have to bring a DTPA suit?

The consumer must commence the suit within two (2) years after the deceptive act occurred (or within two (2) years after the consumer discovered, or should have discovered, the deceptive act.

In a DTPA suit:

The consumer must prove that the deceptive act was the cause of the damages. The consumer must commence the suit within two (2) years after the deceptive act occurred or within two (2) years after the consumer discovered, or should have discovered, the deceptive act.

In general, a violation of an antitrust law occurs when all three of these parameters apply to a business activity:

There is a monopoly, a contract, a conspiracy or a combination of such. The existence of the monopoly or conspiracy creates a restraint of trade - which is a negative impact on an individual's or a company's ability to do business. The restraint of trade unreasonably restricts competition and functions against the public interest.

Broker Jed tells buyer Sam that when he signs his purchase agreement he must also purchase a subscription to Jed's monthly newsletter. What would you say about this?

This is a tie-in arrangement which is prohibited by the Sherman Antitrust Act.

What is an agent's foremost duty following acceptance of an offer?

To submit the contract and the earnest money to the employing broker without delay

In accepting employment from a broker, a salesperson generally makes a commitment to:

Work diligently to sell the broker's listings Work diligently to procure new listings Promote the business reputation of the broker Abide by the broker's established policies Fulfill the fiduciary duties owed clients as their subagent Maintain insurance policies as required by the broker Have transportation for conducting business, as required by the broker Conform to ethical standards imposed by broker and trade organization Uphold all covenants and provisions of the employment agreement

A broker's compensation for effecting a transaction is usually

a negotiated percentage of the purchase price.

Listings are the traditional source of a broker's income. By obtaining a listing, a broker obtains

a share of the commission generated whenever a cooperating broker finds a buyer.

Co-brokerage

a transaction involving a cooperating subagent. The listing agent splits the commission w/ the co-broker, typically on a 50-50 basis.

Commingling

act of mixing the broker's personal or business funds w/ escrow funds. failure to deposit earnest money into escrow in a timely manner.

Advertisement Regulations

advertising must not be misleading the broker is responsible for the content of advertising done by agents all advertising must reveal the identity of the broker; licensed brokers and agents may not use blind ads that conceal their identities. Brokers selling their own property through the brokerage must disclose the brokerage identity. Salespersons must include the broker's business identity in any advertising; they may not advertise in their own name solely (unless selling their own property through channels other than the agency).

In real estate, DTPA applies to the

advertising, offering for sale, selling or leasing of any real or personal property.

The Texas Deceptive Trade Practices-Consumer Protection Act applies to what aspects of real estate?

advertising, offering for sale, selling, or leasing of any real or personal property

Group boycotts

agreements between or among members of a particular trade that would prevent other members from fair participation in the trades activities.

Listing presentation

an agents opportunity to meet w/ a seller and present the merits of the agents marketing plan, personal expertise, and company strengths.

Prospecting

any activity designed to generate listing prospects: parties who intend to sell or lease property and who have not yet committed to a broker.

Buying, selling, and leasing real estate for one's own account or for one's company,

are generally not considered brokerage.

Other pre closing period responsibilities for agent:

assisting the buyer in obtaining financing assisting the seller in clearing title assisting the seller in completing property repairs recommending inspectors, appraisers, attorneys, and title companies assisting in communications between principals assisting in the exchange of transaction documents

2 categories of property data that most brokerages maintain:

available properties, and all properties in the market area.

To be considered brokerage, an agent's activity must generally be conducted on

behalf of a person or business entity other than the agent.

Consumer protection

caveat emptor, "let the buyer beware", of days gone by. Under that principle, it was the buyer's responsibility to inspect a property and even search public records to see if other persons had an interest in the subject property.

Penalties for antitrust violations:

fined up to $350,000 and sentenced up to 3 years in fed prison for each offense;corporations can be fined up to $10 million for each offense.

Brokers responsibilities during pre-closing period

handling deposit monies overseeing the agent's pre-closing activities

Tenant Data

in residential and commercial leasing companies, info is compiled and maintained (by property type used) on all tenants in an area. Such files contain a tenants lease expiration, property size, and rent.

2004, president George W Bush, Criminal Antitrust Penalty Enhancement, and Reform Act

increasing the max criminal penalty for individuals to 10 years imprisonment and $1 million fine, and the max penalty for corporations to a $100 million fine.

A major reason why buyers and sellers seek a broker out is because

information is a cornerstone of the broker's perceived value in the marketplace.

The process of marketing a listed property occurs in three broad steps leading to the desired end of a completed sale contract:

initiating a marketing plan, selling the prospect, and performing pre-closing activities.

Pricing

it is almost always necessary for an agent seeking a listing to suggest a listing price or price range for the property. Be careful w/ estimate, because underpricing a property is not in the best interests of the seller; overpricing it often prevents a transaction altogether.

Client Data

it is important to keep track of both current and former clients. Former clients are likely prospects to become clients again or customers. They are also a source of referrals. Current clients, of course, should be the broker's primary concern.

Policy Manual

keeps the business running smoothly and professionally. Sets forth company rules, regulations, and policies.

An agent's commission schedule is a comprehensive summary of commission splits under various circumstances, including:

listing and selling side salesperson's level of sales performance broker's level of expense reimbursement to agent the particular policies or organization of the agency prevailing commission splits in the market

Prospecting activities include:

mailing newsletters and flyers, selling directly and person-to-person, advertising, and selling indirectly via community involvement.

The ability to satisfy the needs of clients and customers is largely dependent on a broker's ability to

obtain, organize, and manage information.

To generate business, as well as achieve the transactional objectives of clients, a broker must be proficient in 4 skill areas:

obtaining a client listing marketing a listing facilitating the closing of a transaction managing market info

Market Allocation

occurs when competing firms agree to split up an area and refrain from doing business in each other's territory price ranges types of properties sociological divisions of business refusal to deal w/ a competitor

Market data; Knowing a market includes keeping up to date on:

pricing and appreciation trends financing rates and terms demographic patterns and trends construction trends general economic trends

Federal Trade Commission Act

prohibits unfair methods of competition in interstate commerce, but carries no criminal penalties. Also created the Federal Trade Commission (FTC) to police violations of the Act.

One of the new procedures in consumer protection is the requirement for

sellers to provide buyers w/ a Sellers Disclosure Notice prior to the effective date of a contract.

Antitrust laws

state and federal laws designed to maintain and preserver business competition

Agents foremost responsibilities in pre-closing period:

submit the contract and the earnest money to the employing broker w/out delay.

Under the Clayton Act, private individuals are permitted to

sue antitrust violators. if successful, the individuals can recover 3X the damages incurred plus court costs and attorneys' fees.

Conversion

the act of misappropriating escrow funds for the broker's business or personal use. effectively an act of theft: using monies which do not belong to the broker.

the two "sides" to a commission:

the listing side and the selling side.

The Sherman Antitrust Act of 1890

the principal federal statute that covers competition and is one of the most important pieces of antitrust legislation.

Contingency period or pre-closing period

the time period between contracting and closing.

Buyer Data

usually complied and maintained, often informally, by each agent in a brokerage. An agency's base of prospects looking for property at any given time is valuable for marketing new listings.