Real Estate Practice Chapters 1 10 and 20

Real estate brokerage

serves as an intermediary between buyers and sellers and/or lessees and lessors of real estate, finding buyers for sellers, tenants for landlords, and properties for buyers and tenants

Real estate broker

one who is licensed to represent another person in a real estate transaction with the intent to receive compensation or valuable consideration

Real estate salesperson

an individual licensee associated with a broker who may perform most of the acts of a broker

Property Development

the process of acquiring large tracts of land at a low cost per acre, then subdividing and improving it with streets, sewers, and utilities so it can be resold at a higher ccost per front foot or per square foot

Farming

focusing on one type or style of property or one particular neighborhood

Timeshare

a purchase of an ownership interest in a property for a fixed or variable time period (Ex: 52 different purchasers buy one condominium; each agrees to possession for one week per year; expense are shared)

Commerical Properties

include retail stores, office buildings, hotels, amusement parks, casinos, and funeral homes

Industrial Properties

includes land and structures involved in the production, distribution, and storage of tangible economic goods (warehouses, manufacturing plants, data centers, distribution centers)

Compensation

Sales associates may ONLY be compensated by their broker, never by a member of the public

Agricultural Property

farms, barns, silos, and windmills

Specialty Areas

places of worship, educational, government buildings, cemeteries

What influences the real estate market

Physical Factors: property location, uniqueness/scarcity of property

Economic Factors: interest rates, business/house cycles, employment rates, supply and demand

Governmental Factors: including fiscal policy, planning and zoning, taxation, building and health codes

Social Factors: including migration, demographics, and popular trends

Why do participants in the real estate brokerage business need a license?

1. Protect the general public/consumer

2. Adherence to the real estate laws

Bob and Marley moved to another state. Their home did not sell prior to the move, so their neighbor agreed to show their property to potential buyers and refer them to their attorney. In return, Bob and Marley gave the neighbor their dining room furniture. Does the neighbor need a real estate license?

Yes, she received compensation (the dining room furniture)

Employee/Employer Relationship

1. Income is subject to earnings witholding

2. Brtoker contributes to unemployment compensation, social security, etc.

3. Salesperson receives a W-2 form at the end of the tax year

Independent Contractor (common law)

1. The broker cannot exert control over how the independent contractor performs his/her work

2. The broker can require the salesperson to transact business according to the law

3. The broker MAY provide the salesperson with office equipment, phone, general advice, etc.

4. Salesperson receives a 1099 MISC form at the end of the tax year

5. The broker does NOT contribute to unemployment compensations, social security, etc.

6. The salesperson pay Social Security as a self-employed individual

Independent Contractor (statuatory method)

1. The broker can direct and control the activites and/or schedule of the salespeople

2. Each salesperson recieves a 1099 MISC form at the end of the tax year

3. The salesperson pays social security on productivity income as if self-employed

4. Each salesperson recieves a W-2 form for non-production income and the broker contributes to unemployment compensation, social security, etc.

Independent Contractor Agreement

both parties should sign an Independent Contractor Agrrement that spells out the specifics of the broker-licensee relationship. Without this a real estate licensee could be considered an employee of the broker, which can increase the broker’s liability for the actions of the licensee.

Employee

a person whose results are mandated by the employer and the empployer controls how the results are accomplished. Responsible for withholding income tax as well as Social Security, unenployment, and medicare.

National Association of REALTORS (NAR)

the main orginization real estate licensees join: must be licensed in a state and must join a local real estate board that is a member of the NAR, members agree to voluntarily abide by the REALTOR Code of Ethics and Standards of Practice.

Benefits of NAR

participation in the MLS

the right to use tradmarked term REALTOR

a political and legislative voice at all levels of government defending the interests of the real estate industry

education and training that allow agents to earn professional designations

real estate business publications

the use of standarized real estate forms

MLS

an arrangement whereby local member brokers can agree to share listinings and further agree to share commissions on peroperties sold jointly

You are considering a brokerage to affiliate with and notice it offers a much higher commission split. What might you want to research further within the employment agreement?

What fees am I responsible for?

Desk Fees: an office charge for use of brokerage-related materials, such as a desk, copy machine, phone lines

Errors and Omissions Insurance: to reduce liability of any legal issues that arise during a transaction, some brokerages pay for this others make you pay your portion

MLS fees: Some brokerages require licensees to join the MLS; others don’t. Some pay the fee on behalf of the licensee; some don’t

If you work as an independent contractor and can prove you are working at least 40 hours a week, are you entitled to health insurance?

No, an independent contractor is not an employee

If you work as an independent contractor under “common law” can a broker require you to be a member of NAR?

No, the broker cannot control how you control your work under the common law, however they do not have to hire you.

Physical factor: Uniqueness

refers to the fact that each parcel of land, each building, and each house are said to be different (also called non-homogenity)

Physical Factors: scarcity

refers to the fact that there’s a limited supply of real estate

Physical Factors: Immobility

refers to the fact that land cannot be moved from on place to another

Economic Factors: Business cycle

general swings in business activity resulting in expanding and contracting activity during different phases of the cycle

Economic Factors: Real estate cycles (housing cycles)

general swings in real estate activity resulting in increasing or decreasing activity on property values during different phases of the cycle (dependent on business cycles)

Economic Factors: Interest rates

the single most important factor in determining demand in the real estate market…the cost of money, which is the IR people or businesses must pay to use another’s money for their own purposes.

Economic Factors: Inflation

an increase in the cost of goods or services. Also called cost inflation becuase its the result of manufacturers and others passing along increases in their costs to the consumer.

Sherman Anti-Trust act

outlaws business practices that are considered to be harmful to consumers, such as:

1. monopolies and price fixing

2. collusion

Clayton Anti-trust Act

stregthened and expanded Sherman Antitrust act by:

1. banning mergers and acqusitions that lessen competition through monopoly creation

2. creating harsher penalties for violations

Antitrust in real estate

1. Enabling prices to be determined by agreements between competitors rather than by free market forces and conditions (Ex: my company charges a 6% commission rate to all customers, its the standard rate or my company will not charge under 6.5% commission if you agree your company will not charge under 6.5% commission)

2. Boycotting a competitor because of their fee structure or marketing practices (refusing to show homes from ABC reality because they charge a commission fee of only 1%)

3. Allocating markets between competitors (my company will not open an office in area A if your company will not open an office in area B)

4. Disparaging a competitor

5. Using commission splits to induce another brokerage to adjust rates/fees or alter marketing practices

Penalties for antitrust

Antitrust laws are enforced by the Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ)

1. violations of the Sherman Act, fines up to $350,000 and sentenced up to 3 years in prison. Companies can be fined up to $10 million.

2. Violations of the Clayton Act, individuals can sue the violators in court for three times amount of damages suffered

For a typical real estate salesperson, in what specific situations would antitrust violations present themselves?

social gatherings where people talk about fees and commissions

not telling your buyer client about a home you saw in the MLS because theres no fee agreement

What are examples of statements that could be antitrust violations?

Market Allocation: lets not sell properties in each others areas so we dont step on eachothers toes"

Boycotting: Dont work with that agent, were refusing to cooperate with them

Federal Civil Rights Act of 1866

This law states that all citizens of the United States shall have the same right in every State and Territory, as is enjoyed by the white citizens thereof to inherit, purchase, lease, sell, hold, and convey real and personal property.

Exemptions: None

Limited to housing: No

Federal Civil Right Act of 1968 (Title VIII or the Fair Housing Act)

FRESH CORN

This law identifies protected classes and prohibits discrimination in these specific areas in housing as well as vacant land offered for residential construction or use.

1. Race

2. Color

3. Religion

4. Sex

5. National Orgin

6. Familial Status

7. Handicapped or disabled

Exemptions for the Fair Housing Act

A building can be excluded from this area if it satisfies ONE of the following THREE expectations

1. It provides housing under the state or federal program that the Secretary of HUD determines is specifically designed to assist older persons (65 and above)

2. The building provides housing intended for, and is solely occupied by persons 62 years of age or older

3. At least 80% of the units have one person 55 years of age or older per unit along with the publication of, and adherence to, policies and procedures that demonstrate an intent to provide housing for persons 55 years of age or older.

Discrimination against “protected classes” is prohibited in the following areas

Refusing to rent, sell, or negotiate

Blockbusting/Panic selling: any effort, with a profit motive, to induce a person to sell or rent a dwelling by making representations regarding undesirable consequences that will occur beause of the alleged entry into a neighborhood of any of the protected classes

Steering: actions that channel home seekers to or from a particular area to maintain a homogeneity within the area

Discriminating in the terms or conditions of financing or financial assistance (redlining: the practice of refusing loans in an area based solely on the location of the home)

Pennsylvania Human Relations Act of 1955

this law prohibits discrimination in housing based on:

1. Race

2. Color

3. Religious Creed

4. Sex

5. Ancestry

6. National Origin

7. Handicap or Disability

8. Age 40 and over

9. Familial Status

10. The Use of a guide, service, or support animal

Is it lawful for a real estate agent to ask the following?

How many kids will be living in the home?

NO

Is it lawful for a real estate agent to ask the following?

Do you work at an AIDS clinic?

NO

Is it lawful for a real estate agent to ask the following?

Have you ever illegally used a controlled substance?

NO

An individual was born with male genitalia but identifies as a female. Based on federal law, can a landlord refuse to rent to her?

Yes, under federal law but not PA law

An individual was born with male genitalia but identifies as a female. Based on federal law, can a lender refuse to provide her with a loan for housing if using FHA-insured loan?

No, this is redlining

Puffing

exaggerated or subjective statements about a property to make it more appealing to potential buyers

Agency

a relationship of trust created when one party gives another the right to represent him in dealings with third parties

Agent or fiduciary

the individual authorized to represent the client

Client or principal

the party granting the right of representation through an agency relationship, such as in a real estate transaction (the party being represented)

Customer

someone the agent works with, but not for

Universal Agency

authorized to do anything and everything that can be lawfully delegated to a representative

General Agency

one who has authority to act for a principal in all business of a particular kind

Special Agency

one who has the authority to act on behalf a principal in only a specific transaction or task

Actual Authority

power or permission that a principal intentionally gives an agent

Express Authority

power or permission that the principal communicates to the agent for a specific act or outcome

Ostensible (apparent) authority

a relationship that exists between two parties that would lead a person to believe one party is the agent of the other

What are the six ways to terminate an agency?

1. Full performance: the terms of the agreement are completed in full

2. Mutual agreement: both parties agree to end the agreement prior to performance or expiry

3. Destruction of property: the property is destroyed through natural or unnatural events

4. Expiry: listing contracts all have an expiration date; in Pennsylvania, an exclusive listing contract cannot exceed the period of one year

5. Death, bankruptcy, or insanity of principal or agent: these events would render the property owner unable to convey property

6. Agent’s neglect or abandonment

Fiduciary Duties

OLD CAR

Obedience: requires the agent follow all lawful instructions and to act subject to the prinicpal’s continuous control by not exceeding the scope of authority

Loyalty: the agent must act in the best interests of the client and avoid advancing any interests that may conflict to the principal’s interest

Disclosure: the agent must disclose to the principal all information which might affect the principal’s best interst

Confidentiality: a licensee may not disclose any confidential information provided by the principal

Accountability: requires the agent to safeguard money or property held on behalf of the principal; the agent mist promptly report to the principal all money and property receive and paid out, and upon request, render an accounting

Reasonable Skill and Care: the agent is require to protect the client from foreseeable risks or harm and recommend that the principal obtain expert advice when the principals needs are outside the scope of the agent’s expertise

Duties of a Licensee

HARD

Honesty: licensees must deal honestly and in good faith with all consumers

Accountability: the agent must promptly report all money and property receive and paid out, and upon request, render an accounting

Reasonable skill and care: exercise reasonable professional skill and care which meets the practice standards required by the RELRA

Disclosure: the agent must disclose any conflict of interest, licensee status, and material defects of a property

Sellers Agent

a licensee acting as an agent of the seller or landlord (single agency)

Duties: loyal to the seller, good faith effort

Single agency

When one agent represents just one party in a specific transaction

Buyers agent

a licensee acting as an agent of the buyer or tenant (single agency)

Dual Agency

refers to one licensee who represents both a buyer and seller in the same transaction. Creates a conflict of interest and requires written consent from both parties

Duties: Take no action that is detrimental to either parties, good faith effort to find a property for the buyer

Designated Agent

an exception to the general rule that all licensees in the broker’s employ share the same relationship to consumers as the broker.

Transaction licensee

is not an agent of any party to a transaction, but assists in a transaction by performing real estate acts without representing either party (facilitator for paper work, no advice)

Subagent

agents who are working for a broker other than that of the principal but have no relationship with a principal of their own (no contract with the principal)

If a real estate licensee if acting as a buyer’s agent, who is the client and who is the customer?

client = the buyer

customer = the seller

If a real estate licensee is acting as a seller’s agent, who is the client and who is the customer?

client = the seller

customer = the buyer

As a general rule, with whom can you share the confidential information of your client?

Designated Agency: only the designated agent and broker can share confidential information

No Designated Agency: All licensees in the brokerage share the same clients and can share information

Can a broker be a designated agent?

No, all contracts are with the broker

Can a designated agent be a dual agent?

No, a designated agent represents only the client they are assigned to (the buyer or seller)

Is a designated transaction licensee relationship possible?

No, they do not represent either party

In a company that does practice designated agency, a salesperson wants to show an in-company listing and has no relationship with the buyer? What is the salesperson?

The sellers agent

A salesperson wants to show an out-of-company listing and has no relationship paperwork with the buyer. What is the salesperson?

a subagent of the seller

In a sales transaction, when must the licensee provide the Consumer Notice?

at the initial substansice meeting

Consumer Notice

a document that real estate licensees must provide to consumers at the first substantive discussion about a real estate transaction

Is just providing the Consumer Notice sufficient?

No, you must provide, explain, and sign it

How long must the Consumer Notice be retained?

If no relationship - 6 months

If relationship is entered - 3 years

If the initial interview is not face-to-face what do you do?

Oral consumer notice WORD-FOR-WORD

XYZ realty represented the owners of 123 main street in the sale of their property. The listing agreement expired. Now XYZ realty is representing a buyer who is interested in 123 Main Street. Is there a conflict of interest?

Yes, XYZ realty has confidential information about 123 Main Street, they cannot share this with the buyers

Mary represented Susan and Dave Myers in the sale of a property, but will not represent them in the purchased of another property. Mary will act as the seller’s agent when she takes the Myers’ to 123 Main Street. Is there a conflict of interest?

Yes, Mary has confidential information about the Myers because she had an agency relationship with them

What happens at the listing appointment?

1. Provide and explain the consumer notice

2. Inspect the premises, paying special note to positive and negative aspects of the property

3. Uncover the sellers expectations and concerns in selling the property and selecting an agent

4. Respond to the seller’s expectations and concerns

5. Present a Comparative Market Analysis (CMA) so the seller can make an informed pricing decision

6. Agree on a listing price

7. Have the seller complete the seller’s disclosure form and sign listing agreement

Why is it important to uncover the seller’s concerns and expectations before beginning a presentation?

If you dont know concerns, you cant meet/address them…not everyone needs the same services

Exclusive right to sell

type of listing contract, a bilateral contract between a seller and broker that gives the broker the exclusive right to represent the seller in the sale of the seller’s property

The broker receives compensation REGARDLESS of who produces a purcahser in accordance with the terms in the listing agreement

Exclusive Agency

type of listing contract, a bilateral contract that also gives a specific broker the exclusive right to represent the seller in the sale of the sellers property. The listing broker receives compensation only if someone other than the seller finds the buyer during the term of the listing agreement

Open listing

type of listing contract, a nonexclusive (unilateral) listing that a seller gives to as many brokers as he chooses; the listing broker becomes an agent of the seller, but not an exclusive agent. This fee will be paid only if the listing broker finds the buyer.

Net listing

type of listing contract, structured around fees and not representation. Net listing states how much the seller must “net” after the sale (NOT ALLOWED IN PA)

Which listing agreement would result in the maximum commitment from the agent?

Exclusive right to sell, because you get paid no matter what

All listing agreements must include:

Property Description

Asking Price

Commission

Expiration Date of the contract

A statement that a Real Estate Recovery Fund exists

A statement that all funds received by the broker shall be deposited into an escrow account

A statement that the broker’s commission and the duration of the listing period have been determined as a result of negotiations

What elements cannot appear on an exclusive listing contract

A duration exceeding one year

An automatic renewal clause

A clause requirining cancellation notice to terminate at the end of the year

A clause authorizing the broker signed an Agreement of Sale or lease on behalf of the owner

An option by the broker to purchase the listed property

A Confession of Judgment in favor of the broker for the commission in case of a sale or lease

What is included in the real estate seller’s disclosure act for Pennsylvania

Applies to transfers of 1 to 4 family dwellings

Seller must disclose to buyer ANY material defects

The agent for the seller must advise the seller of the seller’s duties under this Act and shall provide the seller with a copy of the disclosure form

The seller shall not make any represntations which the seller or the sellers agent knows is false

This form must be signed and dated by the seller and delivered to the buyer prior to the signing by the prospective buyer of an agreement of sale

Delivery of the disclosure to one buyer is deemed to delivery to all buyers

What are the exemptions for the Disclosure Act of Pennsylvania

Transfers pursuant to a court order

Transfers from one co-owner to another co-owner

Tranfers made to a spouse or a person “in the lineal line of consanguinity”

Transfer between spouses due to divorce

Transfers by a coorporation to its shareholders pursuant to a plan of liquidation

Transfers of new residential construction that has not been previously occupied when:

1. the buyer has received a 1 year written warranty covering such construction

2. the dwelling has been inspected for compliance with the applicable building code

When are you not liable for the Disclosure Act?

If the seller had no knowledge of the error

If the seller had reason to believe the item had been corrected

If the error was based on information provided by a public agency, licensed engineer, land surveyor, or structural pest control inspector, home inspector, or contractor

When inspecting a property, you see evidence of a “wet basement”. When you ask the seller anout the situation, the seller responds that the condition was corrected. What would you do?

Suggests they disclose it, and ask for the receipts. If they don’t, disclose it or drop them as a client.

An attorney tells a seller that the seller will not have to comply with the Seller’s Disclosure Act if they do not list with a real estate brokerage company. Is the attorney correct?

No, applies to all 1-4 family dwellings

Broker compensation

the amount of the brokers compensation should be specified in the agency contract

Brokerage fees to brokers may be paid by anyone as long as three conditions exist. What are these conditions?

1. all parties know and understand who is representing whom in the real estate transaction

2. all agents and subagents act in a way which is consistent with their agency relationship

3. all parties know, undestand, and agree how the brokerage fees will be paid