Real Estate PLE

Common law

Arises over time from judicial precedent (case law) and custom, not from written statutes

“Dealing at arm’s length”

Where a buyer and a seller deal from equal bargaining positions in a formal manner without trusting solely to the other’s fairness and integrity

Caveat emptor “buyer beware”

A common law doctrine that places the burden on buyers to reasonable examine property before making a purchase. A buyer who fails to meet this burden is unable to recover for defects in the product that would have been discovered had this burden been met

Dual agency

A situation where the same agent (broker or firm) represents multiple parties (buyer and seller) with competing interests in the same transaction. Florida does not permit dual agency and, therefore, a licensee may not operate as a disclosed or undisclosed dual agent

Universal agent

One who is authorized to perform a variety of acts necessary to effectuate a variety of transactions on behalf of another. This is a much broader grant of authority than either the special (authorized to complete a specific act) and general agent (authorized to complete any and all necessary for a specific transaction)

General agent

A person authorized to perform any and all acts associated with a specific service (property manager). General agents have authority to legally obligate clients (may contract on client’s behalf)

Special agent

A person authorized to perform a particular act or transaction pursuant to an agency agreement. In most brokerage transactions, the broker acts as a special agent. Special agency limits the broker to certain activities specified in the listing agreement. Special agents cannot legally obligate clients (cannot accept an offer on client’s behalf)

Express agreement

An agency relationship may be created by express agreement, which is clearly stated orally or in writing by the parties (though it is preferable to have a written listing signed by both parties)

Implied agreement (aka ostensible agency)

Agency relationships may also be created by actions or statements that are short of an express agreement. This may be unintended and may create conflicting duties (dual agency)

Ratification

Agency relationships may arise by ratification. Through ratification, a principal may create an agency relationship where an agent performs for the principal without the principal’s consent, but the principal subsequently ratifies the agent’s conduct

Estoppel

Judges apply estoppel on a case by case basis. Once applied, estoppel prevents one from asserting that there was no agency relationship. Estoppel often involves misleading conduct, or conduct that would otherwise reasonable lead a person to rely on a given set of assumptions

Fiduciary

A person holding a position of trust and confidence by virtue of their representation of another (agent representing a principal). A fiduciary duty is a duty imposed by the common laws of agency

Customer vs. client

A client is a person, aka a principal, who has an agency relationship with an agent. A customer is a person who is not in a brokerage relationship with respect to a particular broker, but for whom a real estate agent may perform ministerial acts in a real estate transaction

Fiduciary duty acronym

OLD CAR

Obedience (requires an agent to follow all lawful client instructions)

Loyalty

Disclosure (requires that brokers and associates disclose who they represent to potential buyers and sellers)

C

Accounting (requires an agent to protect and account for all money and property held on behalf of the client)

Reasonable care and due diligence (requires an agent to act as a competent professional and to make reasonable efforts to keep the client informed)

Commingling

The act of mixing or mingling entrusted client or customer funds with personal or business funds

Conversion

The act of stealing entrusted client or customer funds

Brokerage relationships determined by broker

Generally, the parties in an agency relationship that was created to purchase or sell property are the client and the real estate broker (NOT the sales associate and client)

Applicability

The disclosure requirements apply to all residential sales, the sale of unimproved residential property intended for use of four units or fewer, or the sale of agricultural property of ten acres or fewer

When do disclosure requirements not apply?

-When a licensee knows that the potential seller or buyer is represented by a single agent or a transaction broker

-When an owner is selling new residential unites built by the owner and the circumstances or setting (though you should inform the potential buyer of your status as the owner/agent)

-Non-residential transaction

-To the rental or leasing of real property (unless an option to purchase all or a portion of the property improved with four or fewer residential units is given)

-An open house or model home showing that does no involve eliciting confidential information, the execution of an offer or an agreement for representation, or negotiations concerning price, terms, or conditions of a potential sale

-To unanticipated casual conversations between a licensee and a seller or buyer which do not involve eliciting confidential information, the execution of an offer or an agreement for representation, or negotiations concerning price, terms, or conditions of a potential sale

-To a licensee responding to a general factual questions from a potential buyer or seller concerning properties that have been advertised for sale

-Situations in which a licensee’s communications with a potential buyer or seller are limited to providing general factual information about the qualifications, background, and services of the licensee or the licensee’s brokerage firm

-Auctions

-Appraisals

-Dispositions of any interest in business enterprises or business opportunities, except for property with four or fewer residential units

Designated Sales Associate

In any non-residential transaction where the buyer and seller (or landlord an tenant) have assets of $1 million or more, the broker at the request of the customers may designate sales associates to act as single agents for different customers in the same transaction. A DSA has the same duties as a SA, including the SA disclosure requirements. In addition, the buyer and seller as customers must both sign another disclosure. These disclosures must state that their assets meet the $1 million threshold and request that the broker use the designate sales associate form of representation

No brokerage relationship (NBR)

When a licensee is not acting as a transaction broker or a single agent. The licensee represents no one, but has minimal duties to perform (essentially, this is a customer relationship)

Duties in no brokerage relationship

-Dealing honestly and fairly

-Disclose all known facts that materially affect the value of residential property which are not readily observable to the buyer

-Accounting for all funds entrusted to the licensee

Non-representation

Duties of a licensee who has no brokerage relationship with a buyer or seller much be fully described and disclosed in writing to the buyer or seller

Presumption of transaction brokerage

It is presumed that all licensees are operating as transaction brokers unless a single agent or a no brokerage relationship is established, in writing, with a customer

Transaction broker relationship duties

-Dealing honestly and fairly

-Accounting for all funds

-Using skill, care, and diligence in the transaction

-Disclosing all known facts that materially affect the value of residential real property and are not readily observable to the buyer

-Presenting all offers and counteroffers in a timely manner, unless a party has previously directed the licensee otherwise in writing

-Limited confidentiality, unless waived in writing by a party. This limited confidentiality will prevent disclosure that the seller will accept a price less than the asking price or listed price, that the buyer will pay a price greater than the price submitted in a written offer, of the motivation of any party for selling or buying property, that a seller or buyer will agree to financing terms other than those offered, or any other information requested by a party to remain confidential

-Any additional duties that are mutually agreed to with a party

Record keeping and retnetion

Each broker must preserve at least one legible copy of all books, accounts, and records pertaining to his or her real estate brokerage business for at least five years from the date of receipt of any money, fund, deposit, check, or draft entrusted to the broker. If any brokerage record has been the subject of or has served as evidence for litigation, relevant books, accounts, and records must be retained for at least 2 years after the conclusion of the civil action or the conclusion of any appellate proceeding, whichever is later (but in no case less than a total of 5 years)

Preparation of contracts

All of the following must exist to create a contract:

-Offer/acceptance

-Consideration

-A lack of any defenses that otherwise cancel a contract or prevent it from being formed

Void, voidable, and unforceable contracts

Certain defenses may exist that prevent a contract from being formed in the first place. Other defenses permit a party to escape liability from the contract, even though the contract is valid. These two defenses result in either a contract that is void (a theory that the contract was never properly formed) or a contract that is voidable (a theory that a contract is valid, but fairness dictates that one may avoid liability to perform if they prove the defense). Common defenses which render a contract void or voidable include: incompetency, misrepresentation, mistake

Estoppel certificate

A document that clarifies the amount of debt owed by one party to another, and/or the legal statis between parties as of a specified date. Lenders use estoppel certificates to establish the mortgage amount owed as of a certain date. All parties to a valid estoppel certificate are thereafter estopped (prevented) from claiming any position to the contrary

Consideration

A legal term that has a long history of interpretation and discourse in contract law. However, today it is understood to broadly exist where parties bargain with one another to exchange promises (usually involving money). Without consideration, there is merely a one-sided promise to act out of charity, and courts are reluctant to enforce such charitable promises

Unilateral contract

Contract where a single party promises to perform under specified conditions. A common example of a unilateral contract is the promise to provide reward in exchange for specified conduct (“$50 reward for the return of my dog”)

Bilateral contract

Contract where both parties make promises of performance. That is, one party makes a promise in terms of an offer, and the other party makes a promise in terms of an acceptance of that offer. This is the typical real estate sales contract (promise to sell and promise to pay)

Executory/executed contracts

Contracts are executory where the parties reach an agreement, but have yet to perform (sales contract). Contracts are executed when they have been fulfilled (closing). The contract may be transferred or assigned to a person other than the original party to the agreement

Breach of contract

Circumstance where a party fails to perform as agreed in a contract without any recognized legal excuse. The non-breaching party may be entitled to an award of damages. Such an award may consist of either monetary damages (often in the form of liquidated damages) or specific performance (but not both)

Generally the law does not allow punitive damages (damages imposed solely to punish the breaching party), or damages for “pain and suffering” (intangible harm) for breach of contract