Section 12: Ethics and Risk Management in Delaware

Acceptable Explanation. vs. Crossing the Line

"This clause in the contract describes what happens if either party breaches the contract." vs. "This clause in the contract says that if the seller breaches the contract, you're guaranteed a full refund of your earnest money." -Always encourage clients to seek legal advice before signing any legal document. -Don't advise clients on landlord/tenant rights and responsibilities.

Donald owned a commercial property he wanted to sell, so he hired Marcus as his real estate agent. After the property sold, Donald was upset to learn that had he disposed of the property through a trade rather than through a sale, his tax position would have been more favorable. What two actions should Marcus have taken?

-Advise Donald that the sale of the property might lead to unfavorable tax consequences. -Suggest that Donald contact an attorney to discuss tax consequences of the transaction.

Group Boycotting Not Permissible (Antitrust Violation)

-Agreeing among competing firms not to do business with another competitor, type of competitor, or type of customer -Discussing competitor A's business model with competitor B to determine a joint course of action against competitor A

The U.S. Department of Justice (DOJ) identifies other types of price fixing, including:

-Agreements to establish or adhere to uniform price discounts -Agreements to eliminate discounts to all customers or certain types of customers -Agreements to adopt a specific formula for computing selling prices -Agreements on terms and conditions of sale, including uniform freight charges, quantity discounts, or other differentials that affect the actual price of the product -Agreements not to advertise prices or to refuse to sell the product through any bidding process

Tie-In Examples

-An agent tells a client that if she chooses to finance her mortgage through Alamo Bank & Trust, the broker will take 1% off her commission rate. -An agent agrees to work with a client, but only if he agrees not to do business with Peak Mortgage.

Some additional types of group boycotting include:

-Boycotting a competitor -Boycotting a supplier or vendor -Discussing or agreeing to the different treatment of a competitor as a group Often, group boycotting involves brokers agreeing to not show the listings of limited services firms, hoping to drive them and their competitive pricing out of the market. In whatever form it takes, group boycotting is a violation of antitrust law.

What three factors should a broker use in calculating the firm's risk exposure level?

-Category (source) of risk -Likelihood of occurrence -Severity of impact

Price Fixing Not Permissible (Antitrust Violation)

-Discussing or implying a standard price for the industry -Stating: "The MLS requires us to have at least 90-day listings" -Stating any of the following: "This is the price all other brokers charge" or "This is the standard price for a full-service listing" -Agreeing to a specific price, range, or minimum or maximum charges among competing firms -Stating: "Four-month listings are standard in this area"

Supervising Licensees- The broker's supervisory responsibilities specific to sales associates include:

-Ensuring proper compliance with laws and office policy and procedure through: -Training -Answering associates' questions -Monitoring paperwork -Communicating clearly with associates who aren't following laws or office policy properly -Letting associates go if problems persist -Monitoring associates' continuing education requirements -Monitoring associates' Errors & Omissions insurance

Consider the following proactive steps to protect yourself, your business, and your clients and customers:

-Establish fees individually or as a company, not among competitors. -Make independent decisions about co-op fees. -Make independent decisions about compensation with other firms. -Walk away from discussions with agents in other companies about fees, rates, listing policies, non-cooperation with other firms, etc.

What E&O Typically Covers

-Inadvertent acts -Attorney's fees and court costs -Negligence or misrepresentation in personal property transactions (i.e., the broker has an interest in the property beyond brokerage services, or there's a dispute over compensation for those services)

Effective risk management techniques to avoid antitrust violations include:

-Internal training programs (participate in or conduct them) educating firm members on what is and is not allowed in the four primary areas of antitrust violation: -Group boycotting -Price fixing -Market allocation -Tie-in arrangements -Policies designed to prohibit antitrust activities within the policies and procedures manual -Discussion of antitrust scenarios at staff meetings -Notifying your sponsoring broker if you witness an antitrust violation (and documenting it) -If you are the sponsoring broker, dealing swiftly and firmly with firm members who violate antitrust law, and making it clear that you will do so

How can you best avoid even unintentional unauthorized practice of law?

-Know what your state defines as unauthorized practice of law. -Don't draft your own agreements or forms. -Whenever possible, use approved agreement forms from your local or state association. -If your client or transaction requires a form not provided by your association or firm, encourage the client to engage an attorney to draft the form. -Make changes to forms (adding or striking provisions) only to the degree allowed by law in your state. -Use standard, approved language in contingencies, addenda, and additional provisions areas. -Don't charge a fee for preparing transaction documents. -Don't interpret contract provisions. You can generally explain the purpose of a provision, but don't provide advice to the client regarding the legal implications of those provisions.

What are the sources of potential risk if a licensee fails to properly disclose an agency relationship?

-Legal -Regulatory -Fiscal -Brand

While associated licensees are the lifeblood of any brokerage, they also pose the greatest risk to an organization. This is true because:

-Licensees may lack the education or training in areas of practice and make innocent mistakes, unintentionally provide misinformation, or fail to disclose known defects. -Some agents commit direct acts of fraud or intentional misrepresentation. -Many others act beyond the scope of their license or expertise. They're often trying to be helpful, but are putting their license, their broker's license, and the consumer, at risk. For these reasons, state license laws require a broker properly supervise each licensee under that broker's license.

Ensuring Due Diligence

-Licensees must practice reasonable skill and care, which includes performing any required due diligence. -While these are responsibilities of the individual licensee, part of a broker's supervisory responsibilities include making sure that all licensees are competent and aware of their requirements to disclose and provide reasonable skill and care. -In non-full disclosure states (caveat emptor states), licensees should encourage buyers to perform their due diligence on a property. Sellers must honestly respond to property condition questions and disclose any items required by law, and it's the licensee's responsibility to inform clients of these requirements.

The Delaware Consumer Fraud act doesn't apply to the following:

-Media that merely disseminate others' advertising (newspapers, radio stations, etc.) -Advertising that's subject to and compliant with Federal Trade Commission regulations -Advertising subject to the Public Service Commission or Delaware's Insurance Commissioner

What E&O Doesn't Cover

-Nuisance cases -Judgments against the licensee -Out-of-court settlements -Fraudulent, criminal, or dishonest acts -Punitive damages Note: E&O may or may not cover real estate commission claims. Also, personal property may be excluded. Review the details of any policies you are considering to verify coverage.

Tie-In (or Tying) Arrangements Permissible (Not an Antitrust Violation)

-Offering the services of an affiliated business with full disclosure of your business relationship -Requiring a brokerage's buyers to be qualified by an affiliated mortgage business -Demonstrating quality service so a subdivision developer wants to list with you when the project is built ou

Antitrust Penalties

-Penalties for violating antitrust laws are very severe. According to the Federal Trade Commission, fines can be as high as $100 million for a corporation or $1 million for an individual and may include prison terms of up to 10 years. -The Sherman Act permits (in certain cases) the maximum fine to be increased to twice the gain or loss involved. -Collusion among competitors may constitute violations of the mail or wire fraud statute, the false statements statute, or other federal felony statutes, all of which the Antitrust Division prosecutes. -A corporation or individual convicted of a Sherman Act violation may be ordered to make restitution to the victims for all overcharges. -Victims of price-fixing conspiracies may also be awarded up to three times the amount of damages suffered in a civil suit.

There are many actions that can be taken to reduce risk and liability. Which five of these are discussed in the resource?

-Policies and procedures manual -Company checklists -Insurance -Documentation -Internal training

Why is errors and omissions insurance recommended for real estate licensees?

-Real estate transactions are becoming more complex. -Litigation is rising. -E&O insurance helps manage risk.

Tie-In (or Tying) Arrangements Not Permissible (Antitrust Violation)

-Requiring a consumer to use another service provider as a stipulation for doing business with that consumer -Requiring all buyers to finance mortgages through a particular company -Making a subdivision listing subject to a brokerage getting the listings when the subdivision is developed

Actions the Broker Should Avoid In order to maintain the sales associates' classification as independent contractors, the working relationship has to reflect that status, and prevent the creation of an employer/employee relationship. Some actions for the broker to avoid are:

-Requiring the associate to work set hours -Requiring the associate to work at a specific location -Making attendance at staff meetings mandatory

Price Fixing Permissible (Not an Antitrust Violation)

-Setting your own price -Having a price policy for a brokerage's associated licensees -Stating any of the following: "This is the price my brokerage requires me to charge," "I base my price on my services," or "My price is non-negotiable" -Basing length of a listing term on how long it takes you to market and sell similar properties

Delaware's attorney general (AG) investigates alleged violators of the Consumer Fraud Act. If the AG thinks a person or business has engaged in prohibited actions, the AG may seek a court order to investigate further. The investigation gives the AG the power to:

-Take sworn statements detailing the facts and circumstances of the case -Interrogate the parties involved -Demand any records, documents, merchandise, memos, communications, etc.

What are the three ways you and your firm can manage risk?

-Transfer -Prevent (or minimize) -Avoid.

Analyze Risk

-What's the source of the risk (category)? -How likely is it that the risk will occur (likelihood)? -How severe is the adverse effect (impact)? -What's the exposure level of the risk (likelihood x impact)?

Identify the steps a broker might take in risk management planning.

1. Review business practices to determine what types of risks are posed from operations. 2. Decide what level of risk is associated with each risk the firm faces. 3. Determine various ways a specific risk can be managed. 4. Select the preferred method of managing a specific risk.

Vicarious Liability

A broker is liable for the misconduct of the licensees and employees associated with the brokerage. If a lawsuit is brought against one of the broker's licensees because of misconduct, the broker will be held liable for not supervising, and may also be held liable for the misconduct through the legal concept of vicarious liability. Vicarious liability refers to situations in which one party is held responsible for the actions or omissions of another.

Tie In Arrangements

A tie-in arrangement occurs when the providing of one service is made dependent on the customer or client obtaining another. For instance, an agent cannot tell a seller, "I can only offer this commission rate if you use the title company/inspector/mortgage broker I recommend." A tie-in arrangement may also be negative: "I can only work with you if you agree not to use XYZ Title Company." Both types of tie-in arrangements are violations of antitrust law.

Determine if this creates vicarious liability for Sam, the supervising broker. A. Sam himself gives a client advice that's outside his area of expertise. B. Leon, one of Sam's licensees, has failed to properly disclose a dual agency relationship to his client. C. Dinah, another of Sam's licensees, shows her buyer client homes only in neighborhoods that seem to align with the client's Hispanic background, hoping to make that client happy.

A. No. Sam is liable for his own actions, but this doesn't represent vicarious liability, because the error was his own, not that of one of his agents. B. Yes C. Yes

Which of the situations would likely be covered by errors and omissions insurance? A. A broker is sued because she failed to disclose that she knew about the presence of lead paint in her listing. B. A seller sues an agent after her property sells well below asking price. C. A buyer claims his broker was negligent because she failed to successfully negotiate for a property during a bidding war. D. A visitor to an open house sues after a fall on an icy sidewalk.

A. Not covered B. Covered C. Covered D. Not convered

Match each risk-handling action category with the scenario that best demonstrates it. Because her risk exposure will only be a level of 1, Raylene chooses to continue to use an attorney-prepared contract addendum.

Acceptance

Market Allocation Not Permissible (Antitrust Violation)

Agreeing with a competitor (external to your firm) to segment the market

Active Fraud

An intentional misstatement of a material fact. These are two sides of the same coin, and both are fraud.

Unauthorized Practice of Law (UPL)

Article 13 of the National Association of REALTORS® Code of Ethics prohibits the unauthorized practice of law. State licensing laws also prohibit licensees from performing tasks best left to licensed attorneys.

Avoiding Antitrust Violations

As a real estate broker, you must guard against even perceived antitrust violations. In fact, so much as hinting at the impression of price fixing, especially in your discussions surrounding the subject of commission, has the potential to lead to big headaches. When you discuss your fees, avoid using phrases like the "industry rate" or the "going rate." Such wording can give prospective clients the idea that there actually is a standard commission rate in the industry. Instead, if a prospective client questions your rates, focus the discussion on the top-quality services you'll provide.

Process Review

As with any decision-making or problem-solving process, the risk management process is not finite. It should be considered a cycle and reviewed periodically to be sure it's still serving the firm's needs.

Match each risk-handling action category with the scenario that best demonstrates it. Ronner's real estate agency decides not to work with foreclosed properties.

Avoidance

Zoning in broker Corrine's town is a mess. Various locations in the urban renewal area are misclassified and, as a result, some buyers have been prohibited from using the property they purchased for the use they originally intended. The zoning board and city council members have been very slow to respond to concerns. Based on this, Corinne and her staff have decided not to list or write purchase contracts on any properties in the affected area. What method of risk handling has Corrine chosen?

Avoidance Corrine has chosen to avoid this risk entirely, perhaps until the zoning board and city council take action to resolve the issues.

Identify Risk

Being in business-any business-carries risk. Some business practices carry greater risk, either because the risks could result in more damage, or because they're more likely to occur. Risk specific to a real estate brokerage often involves legal and regulatory issues related to agency relationships, fiduciary duties, contract law, and transaction requirements. Fraud, embezzlement, theft, general liability, and other risks associated with all businesses are also concerns.

Micah, a real estate licensee, partners with a local bank to market the bank's foreclosed-on properties. The bank's attorney prepares a lengthy contract addendum that it requires Micah to use. How would you categorize the firm's risk level associated with the use of this addendum?

Both Micah and the firm may be at some additional risk because of the non-standard form, but because it's an addendum prepared by the bank's attorney, some risk is mitigated.

Negligence, Negligent Misrepresentation, and Intentional Misrepresentation

Clients often sue their agents for negligence because they believe the agent did-or didn't-do any of the following things: -The agent should have known something or did know something that she didn't disclose. -The agent took an adverse action that harmed the client. -The agent failed to take action when she should have, which harmed the client.

Real estate licensee William is preparing a sale agreement that will include an unusual circumstance. What's his best course of action?

Consult an attorney.

The Court of Chancery

Court that granted relief based on fairness. Also called equity court. Created in 1792, Delaware's Court of Chancery has jurisdiction over any state matters involving equity. In short, it's a powerful mediator, ensuring that everything's on an even keel. Businesses don't have too much power, citizens have an equal share of things...you get the gist. The Court of Chancery wields a lot of power when it comes to advertising-it needs to ensure that consumers are protected and businesses don't have free rein to make unwarranted claims or fraudulent representations.

Some ways a firm can minimize or prevent risk to the firm's licenses include:

Develop and use a well-written policies and procedures manual and employee manual. -Use company checklists to ensure that everyone in the firm completes every process step. -Record everything about a transaction in your files, including the documents you're required to retain and records related to important conversations about the transaction. -Provide training for all staff, but especially licensees, who are subject to licensing law and discrimination suits. -Retain an attorney to ensure you're not violating laws. -Practice good communication skills, both inside and outside the workplace. -Approach dual agency with caution by either not allowing it at all or by regulating it closely to ensure both sides are treated fairly and that confidential information isn't disclosed.

Market Allocation Permissible (Not an Antitrust Violation)

Developing a market niche based on any legal category (e.g., farming)

Chip is a residential and commercial agent. His friend asks him to list his cattle ranch for sale, but Chip's never listed an agricultural property before. How should Chip handle this listing so he can still work for his friend but also not work outside his area of expertise?

Disclose to his friend that he's not an agricultural expert and ask his friend's permission to work with an agricultural expert in his firm.

Laws, Ethics, and Morals

Ethics- While laws are often based on what society deems ethical, you can't legally enforce ethics. In order to enforce an ethical breach (for instance, stealing someone's car), a law has to be created to make such an action illegal, even though most members of society would agree that it's unethical. -Laws are made by governments to safeguard the welfare of their citizens. If you break a law, you can be punished. Ethics, on the other hand, are dependent upon a person's conscience and values, and, with certain exceptions, there is no external punishment for an ethical breach. Morals- Generally, ethics can be regarded as the principles that govern the behavior of a group, while morals tend to be more specific to the individual, like religious or cultural beliefs. Because morality differs from person to person, laws are made with generally accepted ethics as their guiding principles. Laws codify generally accepted ethical behavior, making a clear distinction for those within their jurisdiction.

Puffing

Exaggerated or superlative comments or opinions: e.g. "This house has the best view in town!"

Negligence

Failing in the duty of care Ex. Failing to present an offer on behalf of a buyer client in a timely manner, which resulted in the seller accepting an offer from another buyer. Or the agent failed to notify the buyer of the importance of having a professional home inspection, and, after the sale, the buyer discovered latent material defects that would have caused him to either offer less for the property or to rescind his offer.

Which of these actions is allowed but avoids the licensee illegally practicing law?

Filling in blanks on an association-approved purchase contract

Transferring Risk: Insuring Against General Liabilities

General liability insurance can be purchased for: -Bodily injury -Property damage -Auto accidents -Fires, floods, crime, and earthquakes -Business interruption Make your insurance cost effective by evaluating the risk of various situations and then deciding what to insure against. In general, it's advisable (and it's required in some states) for a firm to carry general liability insurance, which can help ensure that the firm doesn't incur large costs due to litigation, medical bills, or other expenses if something happens. With general liability insurance, the risk and financial burden are transferred from the firm to the insurance provider.

Group Boycotting

Group boycotting involves two or more businesses conspiring against another. In the real estate profession, this can occur, for instance, when two or more brokers or agents refuse to cooperate and split commissions with another one, or when several brokerages in a certain area agree to stop running advertisements in a local newspaper.

The Department of Justice has a specific definition of price fixing. Which of these statements best fits that definition?

If all brokerages in town change their rates on the same date, it's likely that price fixing has occurred

Court-Appointed Receivers

If the Court of Chancery determines that a party violated the Consumer Fraud Act, the court may appoint a receiver to sue for and collect any property that was acquired due to unlawful practices. And when we say any property, we mean it: money, goods, land, documents, notes, etc. Anything. It's the receiver's duty to settle the estate and sell or assign said property under the court's direction. Damaged parties may appeal to the court for their equitable portion of that distribution; damages are limited to the actual out-of-pocket expenses lost. Any dispute over the proceedings or distribution will be settled by the court.

What is a court-ordered supervision?

If your brokerage is found guilty of violating antitrust laws, it may be subject to court-ordered supervision for up to 10 years. An example is that a court-appointed representative spends one day a week evaluating the activities of your brokerage.

When should your firm perform the risk identification process?

Initially when writing the risk management plan and as needed thereafter

Which of the following is true about errors and omissions insurance?

It covers licensees sued by consumers for inadvertent mistakes.

Which of the following statements is true regarding risk identification?

It involves reviewing every aspect of the firm's operations to determine what risks each poses.

Why would a code of ethics provide minimum ethical expectations?

It sets a baseline for ethical standards.

Errors and Omissions Insurance

Lawsuits are increasingly common, and to protect themselves from possible legal action, all licensees should have errors and omissions insurance (commonly referred to as E&O). It is a way of protecting licensees when lawsuits are filed against them. E&O insurance is recommended for licensees, but not required.

Leo's client is looking for a property with at least 2,500 finished square feet. He finds a 2,200-square-foot property with all the other features the client is looking for and purposely fails to mention the square footage. His client agrees to look at the property, falls in love with it, and wants to make an offer. Which of these statements accurately represents Leo's level of misrepresentation in this situation?

Leo obviously knew about the square footage and intentionally didn't mention it. He's guilty of intentional misrepresentation.

Avoiding Risk

Let's say you know that working with distressed, foreclosed, or bank-owned properties is risky business. You and your firm may choose to avoid this risk completely by not accepting transactions involving these properties.

Annabelle's previous transactions have all been median-priced, detached single-family residential homes in the main part of the city or its suburbs. In which of these situations would Annabelle be practicing within her area of competence?

Listing a property in the main part of the city that she'll market as a fixer-upper

Key factors that impact a person's ethical standards include

Local, state, and federal laws and regulations, industry standards, and personal beliefs

Market Allocation

Market allocation occurs when real estate professionals from two or more competing firms agree to divide their market-by geography, price range, property type, etc.-and then refrain from competing for business. This used to be common practice within a brokerage-"You take the north side of town, I'll take the south"-so real estate agents weren't tripping over one another in their pursuit of business. But any agreement that restricts trade, discourages competition, or restricts choices for the consumer-which market allocation does-is a violation of antitrust law.

Match each risk-handling action category with the scenario that best demonstrates it. Jan creates a strong computer security system to prevent unauthorized access to her accounting records.

Mitigation

Evaluate Alternatives

Next, based on your firm's risk tolerance (willingness and financial ability to withstand risk) and the risk exposure level, you decide how to respond to each risk. -Mitigate : Use control systems to minimize likelihood or impact of occurrence. -Avoid : Decide to not perform the activity or task that poses the risk. -Transfer : Purchase insurance, include a contract contingency or penalty clause, or outsource task to transfer risk to another individual or organization. -Accept : Accept that the risk may occur, prepare to defend the firm in case of occurrence, and monitor the potential risk.

Your seller client has listed a beautiful piece of land on the water. You know this property would be a great investment if it were subdivided and developed, but you don't mention the potential investment value to the seller because you want the property for yourself. You also don't market it or present any offers. After several months, you buy the property at a deep discount. You're guilty of ______.

Passive fraud

Price Fixing

Price fixing is a conspiracy between business competitors to set their prices to buy or sell goods or services at a certain price point.

What's the difference between puffing and misrepresentation?

Puffing appears to a reasonable person as an exaggerated statement that would not be relied on, whereas misrepresentation occurs when a reasonable buyer would consider the statement reliable.

How Are Ethical Standards Formed?

Real estate professionals must behave in an ethical and trustworthy manner at all times. Laws and professional standards of ethics can only go so far in providing guidance. The rest is up to personal ethical standards.

Carla is a licensee helping her seller client, Suzan, who asks Carla to include some false information about the house in her marketing material, saying that it's Carla's duty to obey her wishes. What's the right thing for Carla to do?

Refuse her client's request, since it's her ethical duty to behave honestly.

Group Boycotting Permissible (Not an Antitrust Violation)

Refusing to buy services from a vendor because of shoddy business practices or pricing

David has a hefty balance in his reserve account. He's confident that he could handle the financial impact of damage to his car from a collision and chooses to insure it only for liability. David has based this decision on his _______.

Risk tolerance Risk tolerance is the willingness and ability to withstand various risks. In this case, David has based his decision on his financial ability to pay for collision damage to his car.

When identifying risks for an agent's brokerage, how would one categorize the risk to both the agent and the firm as a result of his specialty area?

Specialty areas such as foreclosures and other distressed sales do pose significantly higher risk to both the licensee and the firm than more standard transactions. Foreclosures are complicated by the use of specialized contracts and regulations governing the sale of foreclosed properties.

What happens if someone accused of violating the Consumer Fraud Act refuses to cooperate with the investigation?

The AG can file a court order to demand that the party cooperate. If that doesn't work, the court can grant an injunction against the party, requiring the party to cease the allegedly unlawful action. The court can also suspend a business's license and any other licenses, permits, or certificates necessary for the business to continue the unlawful action. The court may also hold the party in contempt of court and, at its own discretion, impose fines and other penalties.

The Golden Rule

The Golden Rule tells you to treat others as you would like to be treated. Do what's ethical even when it's not convenient or doesn't suit your purposes. Remember, you have a duty to do so, and an obligation to put your clients' needs ahead of your own.

Prohibited Practices

The act can be summarized like this: Tell it like it is. Any sale, lease, or advertising that deceives or misrepresents a product to a consumer may be categorized as fraudulent. Specifically, the act prohibits things like: -Deception or fraud -False pretense or promise -Misrepresentation -Concealment, suppression, or omission of relevant information These companies are also prohibited from listing a fake business name in the local phone directory if that name implies that the business is local and doesn't properly identify the business's actual location.

Which of these statements defines the vicarious liability assumed by a supervising broker?

The broker is responsible for the actions of supervised licensees and can be held liable for those actions, or omissions, as a result. Vicarious liability is an important legal concept to understand, and a good reason for supervising brokers to take their supervisory responsibility seriously.

According to the DOJ...

The fact that all competitors charge the same price, or use the same terms of sale, is not, by itself, evidence of a price- fixing conspiracy because similar prices may in fact be the outcome of competition. However, where price increases are announced by all competitors at the same time, or prior to a uniform effective date, there is a substantial likelihood of collusion. Further, the fact that all prices are not identical does not indicate the absence of a conspiracy. For example, one company may have traditionally sold at a price lower than the others and, when a general increase in price occurs, the company with the lower price may adopt the same percentage or absolute increase as the others.

Handle the Risk

The final step is to choose the course of action your firm will take based on the data gathered, implement that course of action, and follow up to monitor the effectiveness of your choice. The higher the risk exposure score, the more attention you should pay to handling that risk.

Example of Evaluating Alternatives

The fiscal risk exposure level of an automobile crash in your firm is 2 (likelihood of 2, impact of 1). Ex. Mitigation of this risk might mean that your firm requires anyone who drives a company car to complete an annual driver training course. You may decide to avoid the risk altogether by eliminating company cars. You may transfer risk by providing carrying liability and collision insurance on the car. You may simply decide to accept financial responsibility for a damaged vehicle and provide only liability insurance.

Supervision Requirements- Typical Supervisory Duties of the Broker

The supervising broker must be reasonably available to manage and supervise the day-to-day activities of the brokerage during regular business hours. A supervising broker reviews and approves all real estate agreements, including: -Representation agreements -Compensation agreements -Offers to purchase Counter-offers -Addenda -Accounting and transaction files

Delaware's Consumer Fraud Act

This helps protect consumers from fraudulent advertising and has recovery funds established for consumers in this situation.

Risk Matrix

To complete the risk analysis, multiply the likelihood of this event (1) by the impact (2) to reach a risk exposure score of 2. A matrix may help to evaluate the actual level of exposure. The red zone means risk exposure is high. The yellow zone means risk exposure is medium. The green zone means risk exposure is low.

Match each risk-handling action category with the scenario that best demonstrates it. Sherri and Tom make a contingent offer. If their house doesn't sell, they get their earnest money back.

Transfer

Rodezio Realty offers to purchase any home that it lists if it doesn't sell within three months. Written into the listing contract are contingencies related to accurate pricing of the home, access for showings, and reasonableness of offers received. What risk-handling action is Rodezio using?

Transfer Rodezio has transferred some of the risk of having to purchase a property to the seller by writing contingencies into the contract.

Brokerage firms purchase general liability insurance as a method of ______ risk.

Transferring

Which of these is an example of group boycotting?

Two or more agents or brokerages refuse to cooperate and split commissions with another.

Regarding documentation, which of the following actions can help a licensee avoid being accused of unauthorized practice of law?

Using approved fill-in-the-blank forms

Passive Fraud

When the law imposes a duty to disclose a known fact and someone intentionally remains silent, which is also intentional nondisclosure

Unauthorized practice of law and acting outside the scope of one's expertise are similar issues. Which of the following circumstances specifically relates to the unauthorized practice of law?

Writing contract addenda or additional provisions that cover unfamiliar circumstances

E&O can be purchased from ....

a commercial insurance provider for a relatively small annual fee and may be used to cover legal costs in the event of a lawsuit. legal costs in the event of a lawsuit. This type of insurance is likely carried by the brokerage company, but many individual licensees choose (or are required) to carry an individual policy as well.

Consumer Protection Fund

f the state receives any settlements from the AG's actions or as a result of state or federal antitrust law enforcement, the money is deposited into the Consumer Protection Fund. The fund is used to supplement the recovery of costs and attorney's fees from consumer fraud or antitrust proceedings. The fund is also used to reimburse money the AG expends investigating purported unlawful activity. The AG may also utilize funds from the Consumer Protection Fund to pay salaries and other costs for maintaining consumer protection and antitrust actions. Where appropriate, the AG may also grant funds to the state, its agencies, and even individuals. As a check to the AG's power to disburse money from the Consumer Protection Fund, the AG must periodically submit reports to the Delaware State Clearinghouse Committee, detailing the fund's income and expenditures. If, at the end of a fiscal year, the fund's balance exceeds $3 million, the excess funds are transferred into the state's general fund.

Misrepresentation is fraudulent when

it's intentional misrepresentation . Fraud and intentional misrepresentation are essentially. Fraud and intentional misrepresentation are essentially the same thing and mean not only should the person have known better, but she did know better and intentionally remained silent or misstated the facts. It can include omission of a material fact and not simply a misstatement of one.

Negligent misrepresentation can occur when

someone makes a statement that she should've known was false.

Even if the public sees right through the misleading advertising and no one actually believes the claims, the advertiser can ....

still be cited for a violation.