1.21 Risk Management in Real Estate (Video Notes)

Vocabulary flashcards covering risk management concepts, disclosures, contracts, licensing rules, and trust fund handling from the video notes.

Risk Management

The process of identifying, assessing, and mitigating risk in real estate practice.

Four Risk Management Strategies

Avoidance, Reduction, Transference, and Retention.

Avoidance

Refraining from a risky activity (e.g., assuring buyers a property will appreciate to avoid risk).

Reduction

Lowering the probability and/or severity of a loss and sharing decision responsibilities.

Transference

Shifting risk to another party (e.g., obtaining E&O insurance by contract).

Retention

Accepting risk and being responsible for its consequences (e.g., pricing strategy on a listing).

E&O Insurance (Errors & Omissions)

Insurance covering negligence in discharging real estate duties.

General Liability Insurance

Insurance covering third-party bodily injury or property damage arising from business activities.

Fire Insurance (Fire and Hazard)

Insurance covering damage caused by fire and related hazards.

Flood Insurance

Insurance covering damage from flood events.

Casualty Insurance

Insurance covering other physical damages not specified in fire or flood policies.

Workers’ Compensation Insurance

Insurance covering job-related injuries for workers.

Consequential Loss Insurance

Insurance covering indirect or secondary losses resulting from a covered risk.

Surety Bond

A commitment by a surety company to fulfill obligations if the principal fails to perform.

Agency Disclosure

Disclosing the agency relationship and duties to clients to fulfill legal requirements.

Fiduciary Duties

Loyalty, obedience, disclosure, confidentiality, accounting, and care owed to clients.

Statutory Duties

Duties required by applicable laws and regulations.

Personal Interest / Conflict of Interest

Disclosure of any personal stake in a transaction to avoid conflicts.

Disclosure (General)

Providing information to reduce misunderstanding and lawsuits.

Property Condition Disclosure

Disclosure of the known condition of the property.

Material Facts Disclosure

Disclosure of facts that could affect value or desirability of the property.

Lead Paint Disclosure

Disclosure of lead-based paint hazards in a property.

Infestations Disclosure

Disclosure of pest infestations (e.g., insects, rodents) affecting property condition.

Mold Disclosure

Disclosure of mold presence or risk in the property.

Radon Disclosure

Disclosure of radon gas levels and related risks.

Listing Agreement

Contract to list a property; should be accurate and complete.

CMA Results

Comparable Market Analysis results used to estimate market value.

Closing Cost Estimates

Estimated costs associated with closing a real estate transaction.

Advertising Authorizations and Permissions

Requirements for advertising activities and any needed permissions.

Exceeding Expertise

Practicing beyond one’s competence or area of expertise.

Contracts Must Be In Writing

Real estate contracts are required to be written to be enforceable.

Unauthorized Practice of Law

Not giving legal advice or filling in blanks on forms; avoid legal counsel beyond real estate scope.

Fair Housing

Advertising must not express discrimination or preferences based on protected classes.

Antitrust

Prohibitions on price fixing, market allocation, and other anti-competitive practices.

Discipline

Sanctions from prohibited acts, expired licenses, disclosure failures, and mishandling of funds.

Prohibited Acts

Actions that can lead to disciplinary measures (e.g., misrepresentation, fraud).

Expired License

License status that can trigger disciplinary action if practiced.

Disclosure Failures

Failure to disclose required information, leading to discipline.

Earnest Money Handling

Handling, mismanagement, or misappropriation of earnest money deposits.

Misrepresentation

Giving false information; can be unintentional (inaccurate measurements) or intentional (fraud).

Measurements

Accurate measurement of property dimensions to prevent misrepresentation.

Property Characterizations

Accurate description of property attributes to avoid misrepresentation.

Exaggeration and Opinions as Expertise

Avoid exaggerating or presenting opinions as professional expertise.

Recommending Providers

Best practice: provide a list of trusted vendors with a disclaimer, not endorsements.

Trust Fund Handling

Management of client funds, including earnest money, with care and compliance.

Commingling

Mixing client funds with broker funds, which is prohibited.

Conversion of Trust Funds

Misuse or inappropriate use of trust funds for other purposes.

Trust Accounts Errors

Mistakes in managing trust accounts that can lead to discipline.

Earnest Money Deposits

Deposits made by buyers as part of the offer; must be handled properly.