Activities of Licensees – Michigan Real Estate

Vocabulary flashcards covering key terms and concepts from the “Activities of Licensees” lecture, focusing on disclosure obligations and Michigan brokerage requirements.

Licensee Interest Disclosure

Written notice a licensee must give a seller (or optionor) before a purchase or option agreement is signed when the licensee, family, or business entity has a personal stake in the property.

Compensation Disclosure

Written notification to all parties when a licensee will receive any commission share, bonus, fee, or other financial benefit beyond the amount stated in the listing agreement.

Seller Disclosure Act (PA 92 of 1993)

Michigan law requiring sellers of 1- to 4-unit residential property to complete a written Seller’s Disclosure Statement about the property’s condition before listing.

Seller’s Disclosure Statement

The form used to reveal known material defects and issues; brokers cannot accept a listing without it and should not help complete it.

Material Fact

Information that would influence a party’s decision; in real estate, usually refers to property defects or title issues that must be revealed.

Red Flag

Visible sign or circumstance that should prompt a licensee to investigate further (e.g., water stains, foundation cracks).

Acceptable Nondisclosure

Information a licensee may legally withhold, such as prior homicide, suicide, disability status of occupants, or sex-offender registry data.

Stigmatized Property

Real estate perceived as undesirable because of past events (crime, death, etc.); not a material fact that must be disclosed in Michigan.

Broker Office Requirements

A physical Michigan location (no P.O. box) with an identifying sign, displayed licenses, and maintained records.

Branch Office

Additional licensed office where brokers or salespersons regularly meet clients; must have its own license and supervising associate broker if 25+ miles away.

Death or Disability of Sole Broker

Event triggering up to one year for affiliated licensees to wind up business or appoint a new sole principal associate broker; no new business may be taken during that time.

Compensation Services

Activities for which a license is required: listing, selling, leasing, negotiating transfers, construction contracts, or property management for a fee.

Commission (Real Estate)

Payment—usually from the seller—to the broker for services rendered; may only be paid to licensees through their employing broker.

Referral Fee

Payment a Michigan broker may make to another licensed broker (including out-of-state) for a client referral; cannot be paid to unlicensed persons.

Antitrust Law

State and federal statutes (e.g., Michigan Uniform State Antitrust Act, Sherman Act) that prohibit restraints of trade such as price-fixing.

Price-Fixing

Illegal antitrust practice where competing brokers agree on commission rates or fees; even discussing fixed rates can constitute a violation.

Advertising Requirements (Michigan)

All ads must show the employing broker’s name (same or larger font than agent’s), phone or address, and indicate the advertiser is licensed.

Blind Advertisement

Real estate ad that omits the broker’s business name or the licensee’s status; illegal in Michigan.

Personally Owned Property Rules

Salespersons may sell their principal residence FSBO; other personal transactions must be listed with their broker, and license status must be disclosed.

Inducement (Permissible)

Free, non-gambling promotional offer to attract buyers or sellers; games of chance or lotteries are prohibited.

Misrepresentation (Advertising)

Any false or misleading statement intended to lure consumers to property; illegal under Michigan law.

Out-of-State Property Offering

Transaction requiring the Michigan licensee to file the property’s description and sale terms with the Department before marketing.

Trust Account (Escrow Account)

Non-interest-bearing demand account where brokers hold clients’ funds, kept separate from personal and business monies.

Commingling

Illegal mixing of client trust funds with a broker’s personal or business funds beyond the allowed $2,000 for bank fees or minimum balance.

Conversion

Unauthorized use of client trust money by a broker for personal or brokerage expenses.

Accepting Deposits Rule

Earnest-money checks must be payable to the broker, delivered to the broker immediately, and held until settlement or termination.

Earnest Money Deposit

Buyer’s good-faith money held in trust to secure a purchase agreement; also called escrow money or deposit.

Depositing Earnest Money Deadline

Broker must deposit funds within two banking days after acceptance of an offer; weekends and federal holidays are not banking days.

Dispute over Earnest Money

Broker must hold funds until written agreement, court order, or interpleader action determines proper disbursement.

Interpleader Action

Court procedure allowing a broker to deliver disputed funds to the court for final distribution.

Journal (Trust Accounting)

Chronological record with running balance of all trust receipts and disbursements maintained by a broker.

Ledger (Trust Accounting)

Separate record showing receipts and disbursements for each individual transaction within a trust account.

Record-Retention Period

Brokers must keep trust-account records, journals, and ledgers for at least three years.

Broker’s Obligation at Settlement

Provide each party a complete, signed accounting of all receipts and disbursements, and ensure closing terms match the executed contract unless both parties consent in writing.

Kickback

Undisclosed fee or compensation for business referrals; prohibited under RESPA and Michigan law.

RESPA (Real Estate Settlement Procedures Act)

Federal law banning kickbacks and excessive fees in settlement services; allows certain disclosed compensation arrangements.

Self-Dealing

Licensee purchases or arranges sale of a client’s property for personal gain without full written disclosure and consent.

True Property Value Duty

Licensee’s obligation to inform sellers of the property’s realistic market value, title or condition issues, and inexpensive repairs that affect price.

Financial Condition Disclosure (Buyer)

Material facts about a buyer’s assets, income, credit, down-payment source, or earnest-money form that must be shared with the seller.