Real Estate Practice: Ch 3

Agency

The word agency defines the basic relationship between a broker and the person represented in a transaction.

In California an agent is defined as a person licensed as a real estate broker. Licensees who work under the supervision of the broker are designated as associate licensees.

Agency relationship

Is created when a person (principal) delegates to another person (agent) the right to act on his or her behalf in business transactions with third parties.

Several principles govern that relationship:

• Both parties must consent and agree to form the relationship.
• The relationship is fiduciary- the agent owes certain duties to the principal.

If the principal in the relationship is the seller, then the broker is the seller's agent. If the principal is the buyer, the broker) is the buyer's agent.

Listing agent

licensee who lists the seller's property.

Selling agent

licensee who brings the buyer to complete the transaction.

An agency relationship is based on authorization and mutual consent, not on compensation.

The duties that the agent owes his or her principal are:

Care, Obedience, Accountability, Loyalty, Disclosure or Notice
These are often referred to by the acronym COALD or COALN.

Fiduciary Duties Care

The law expects an agent to do his or her job with care, skill, and diligence: If the agent represents the seller:

• Helping the seller set a realistic asking price and evaluate purchase offers.
• Discovering and disclosing facts that affect the seller.
• Marketing the property and presenting contracts properly. If the agent represents the buyer:
• Helping the buyer locate appropriate housing.
• Evaluating property values and property conditions.
• Determining financing alternatives.
• Presenting offers and counteroffers with the buyer's interests in mind. An agent is liable to the principal for any loss that results from carelessness or negligence.

Obedience

Requires that the agent act in good faith and obey the principal's directions as outlined in the contract, as long as they are legal.

Accounting

An agent must be able to account for all monies, documents and other property he or she receives from the principal; keeping copies of the trust account records for three years.

Loyalty

Requires the agent to place the client's interests above those of all others. Confidentiality remains even after a relationship has been terminated. The agent must disclose material facts about the property.

- If the agent represents the seller, he or she may not disclose:
* Client's willingness to accept an offer lower than the asking price.
* Client's anxiousness to sell.
* Client's willingness to pay more than asking price.
* Client's need or desire to move quickly.

Disclosure

An agent is bound to inform the client of ALL material facts that might affect the client's interests in the transaction.

An agent for a seller has a duty to disclose:
* Purchase offers.
* Who the prospective purchasers are and if the agent has a relationship with them in any way.
* Ability of the purchaser to complete the transaction.
* Ability of the purchaser to offer a higher price.
* Purchaser's intention to resell the property for a profit.

An agent for the buyer has a duty to disclose:
* Deficiencies in the property.
* Any contract provision of financing terms that don't suit the buyer's interests.
* How long the property has been listed.
* Why the seller is selling.

Single Agency

the agent can represent only one party in a single transaction, exclusively.

Seller/Buyer Agreement

the agent is accountable only to the seller/buyer (never both at the same time)

Dual agency

representing both parties in the same transaction - the seller and the buyer.

California law allows dual agency if the buyer and seller are informed of the situation and give their written consent.

Designated Agency

broker, with the written consent of the principal, may designate one or more licensees to act exclusively as the agent of the seller or landlord, and designate one or more licensees to act exclusively as the agent of the buyer or tenant in the same transaction.

Transaction Broker

These licensees work as facilitators or intermediaries to assist the buyer and seller in the property transfer. They are obligated to disclose known material defects in the property.

Agency Disclosure

Licensees use California's Disclosure Regarding Real Estate Agency Relationships form with their clients.

• The licensee must explain to the client the three types of agent relationships - seller's agent, buyer's agent or dual agent.
• If the client elects the dual agent option, the agent must have the buyer sign one copy of the form and the seller sign another copy of the form.

Agency Disclosure [When to disclose]:

• The listing agent must provide the disclosure to the seller prior to securing the listing agreement.
• The selling agent must provide the disclosure to the seller "as soon as practicable" prior to presenting a purchase offer.
• The selling agent must provide the disclosure to the buyer "as soon as practicable" prior to the execution of the buyer's offer to purchase.

Any person who is selling a one-to-four-unit property must provide the buyer with a written Real Estate Transfer Disclosure Statement, which describes the condition of the property in detail.

Real Estate Transfer Disclosure Statement includes:

Part A - Identifies the items contained in the home and whether or not they are operational.
* Part B - Describes any significant defects or malfunctions in the home.
* Part C - Identifies miscellaneous items such as known environmental hazards, easements or encroachments, improvements or alterations to the property, zoning or neighborhood concerns.

The buyer must receive a copy of this disclosure statement prior to the execution of an offer to purchase, delivered as follows:

If there is only one agent involved in the transaction, that agent is responsible for the delivery.
* If there are two agents, the selling agent is responsible for delivery.

If the disclosure is delivered after the execution of the offer to purchase, the buyer has the right to cancel the offer within three days.

Agent's Inspection Disclosure

• California agents are required to conduct a visual inspection (does not include areas that would be deemed as reasonably or normally inaccessible) of a one-to-four-unit property and disclose the material facts to a prospective buyer.
• If an agent does not comply, a buyer has two years from the date of possession to file suit.
• Important things to look for include structural defects, deterioration, water or insect damage.

Environment Hazards

• Residential Earthquake Hazards Report is filled by the seller and signed by the buyer as acknowledgment of receipt.

• The buyer must receive a copy of The Homeowners Guide to Earthquake Safety/Residential Environmental Hazards Guide. Then, the seller is not required to furnish any additional information, unless there is actual knowledge of hazards affecting the property.

• Natural Hazard Disclosure Statement. The seller must disclose if the property is located in a hazard area

Military Ordinance

if residential property is located within one mile of a former military training site, the seller must inform the potential buyer in writing that the ordinance site may contain ammunition or explosives.

Sex Offender Database

every sales contract must contain a notice with information about sex offenders registered under Megan's Law. Information not required to be disclosed:

Death

not required to disclose any death that happened on a property more than three years before the offer to purchase was made.

AIDS

sellers are prohibited from disclosing that a former occupant ever had AIDS. California Disclosures

Mello-Roos Community Facilities Act of 1982

authorized the formation of community facilities districts, the issuance of bonds, and the levying of special taxes to finance certain public facilities and services.

• If the seller fails to provide the notice prior to signing a sales contract or lease, the buyer or tenant has the right to cancel the contract within three days after the receipt of the notice.

Subdivision Disclosures

any person intending to offer subdivided lands for sale or lease must apply for and obtain a public report from the Department of Real Estate.

public report

discloses to prospective buyers pertinent facts about a subdivision. The report may include information about utilities and water, roads, soil and geologic conditions, title, zoning and use, hazards and any financial arrangements for completion of the subdivision.

Common Interest Subdivision

The owners own/lease an individual unit and have an undivided interest in the common areas of the development. The subdivider or agent must give the buyer the public report and also the Common Interest Development General Information.

Right to Rescind

Purchasers in two types of subdivisions have an unqualified right of rescission: •Timeshare buyers have a right to rescind the purchase within 7 calendar days after receiving the public report or after signing the purchase contract, whichever is later. • Undivided interest buyers have a right to rescind the purchase by midnight of the third calendar day following the day the purchaser executed the offer to purchase.

Seller Financing Disclosure

The seller financing arrangements on all one-to-four-unit residences must be disclosed to both the seller and the buyer using the Seller Financing Addendum and Disclosure form.

Mortgage Loan Disclosure Statement.

Real estate brokers negotiating loans which will be secured by liens on real property must deliver a written MLDS to the borrower within three business days of receipt of the borrower's written loan application

Adjustable Rate Loan Disclosure.

A lender offering adjustable-rate residential mortgage loans must provide prospective borrowers with a copy of the Consumer Handbook on Adjustable-Rate Mortgages.

The Real Estate Settlement Procedures Act (RESPA):

The lender or mortgage broker must furnish a Loan Estimate of closing costs within three days of the loan application and provide a copy of the booklet Your Home Loan Toolkit published by the Consumer Financial Protection Bureau (CFPB).
o At least three business days before the settlement or the anticipated close of the loan escrow, the borrower must receive a copy of the Closing Disclosure form which details all the closing costs.

The Truth in Lending Act

requires a creditor to furnish certain disclosures to the consumer before making a contract for a loan. Allows the consumer the right to rescind.

Regulation Z

requires that creditors make certain disclosures for real property secured loans such as Amount financed, Finance charge, Annual percentage rate, Total of payments, Payment schedule

Notice of Transfer of Loan Servicing

If a loan is secured by a one-to-four-unit property, the lender must notify the borrower when the loan collection is transferred to another entity.

Notice of Adverse Action (Equal Credit Opportunity Act)

A lender or creditor who denies an application for credit must provide the applicant with a statement of reasons within 30 days after receiving the completed loan application.

Housing Financial Discrimination Act (Holden Act)

At the time of the loan application, lenders must notify all prospective borrowers of their rights under the Holden Act and its prohibitions against discriminatory practices by lenders