Exam 2 - FINC 371 (Peterson)

Generally in real estate, there is what type of relationship between rates and price?

An Inverse Relationship

- Lowering interest rates typically leads to prices going up

- When you increase interest rates, prices usually go down

What are the 5 necessary elements of a contract?

1.) Offer

2.) Acceptance

3.) Consideration

4.) Capacity of the Parties

5.) Lawful Purpose

What necessary element of a contract is a statement that specifies the position of the maker of the offer (called the offeror) and the receiving party is called an offerree; offer becomes a VALID CONTRACT when it is ACCEPTED by the party who receives it?

Offer

What necessary element of a contract expresses satisfaction with an offer and must mirror the precise terms & conditions stated in the offer?

Acceptance

What is it called when the original offeror and offerree SWITCH legal positions and a contract may result when this is accepted; acceptance of contract indicated by signatures of all parties?

Counteroffer

What necessary element of a contract is required by law for a contract to be enforceable; is anything that incurs a legal detriment or the forgoing of a legal benefit; each party of contract must give up something (i.e. land for $$$)?

Consideration

What necessary element of a contract says that to be a valid contract, all parties involved must have "contractual capacity"; all parties must have the mental capacity to know what the contract represents and to understand its terms?

Capacity of the Parties

What are the 2 categories of people that lack contractual capacity?

1.) Those declared mentally incompetent

2.) Minors (typically younger than 18 years of age)

What necessary element of a contract says a valid contract must have as its ultimate purpose some legal act or function; ex.) if you bought marijuana farm in Texas (where it is not legal) that would not be a valid contract?

Lawful Purpose

All contracts involving land or items attached to it must be in what before a court will enforce them; requirement found in each state's Statute of Frauds?

Writing

What spells out legally that real estate purchase contracts have to be in writing; lease agreement does NOT have to be in writing but it is a good idea to do so anyways?

Statute of Frauds

What is failure to perform a required contractual obligation?

Breach of Contract

What is the remedy to a breach of contract; court orders the breaching party to perform the terms of the contract?

Specific Performance

A well-drafted contract provides that the parties will be discharged from performance in the event of certain conditions called what; when the market is slow and it is a "buyer's market" then you can put some of these on as a buyer; when the market is fast and it is a "seller's market", you will probably get passed over if you try to put these on as the buyer?

Contractual Contingencies

What are the 3 types of contractual contingencies?

1.) Financing

2.) Title

3.) Inspection & Repair

What provides for the eventual transfer of title to real property; often preceded in commercial real estate by a letter of intent; Texas real estate agents have access to promulgated forms?

Real Estate Sales Contracts

What element of the real estate sales contract is not contractually binding, but it does establish your intent and you don't spend as much money on a lawyer for drafting the contract?

Letter of Intent

What is an agreement between a property owner and a potential buyer that states that the property owner agrees to keep an offer open for acceptance during a stated period of time; is a "free look"; earnest money will go "hard" after the deadline and will be non-refundable?

Option-to-Buy Contracts

What is used for installment sales and is where the seller retains legal title to property until the agreed-on amount is paid; if the buyer does not make all of their payments, you hold on to the deed (Prof. Peterson's friends got rich doing this in low-income areas); buyer has possession of the property as the "equitable owner"; the benefit to the buyer is that instead of chronically renting, they could gain ownership of the property if all payments are made (normally wouldn't be able to do this through traditional loans because of how bad their financial situation is)?

Contract for Deed

Where does the actual exchange or "trade" of title during title closings usually take place?

Title Company Office (Neutral Site)

Who has the following responsibilities in a title closing:

- Obtaining financing

- Examining the title evidence

- Having the property surveyed

- Obtaining property insurance

- Have property inspected

Buyer

Who has the following responsibilities in a title closing:

- Prepare the required deed

- Remove all encumbrances

- Prepare papers with respect to the seller's loan

- Cooperate with inspectors

Seller

What are some of the closing costs that occur during a title closing?

- Loan origination fee

- Loan discounts or points

- Appraisal fee

- Credit report fee

- Lender's inspection fee

- Mortgage insurance premium

- Attorney or closing agent's fees

- Hazard insurance premium

- Recording fees for the mmortgage

Who has the pay the following closing costs:

- Real estate brokerage commission

- Attorney or closing agent's fees for preparing the deed or other documents

- Documentary stamp taxes, where required

- Recording fees for the certificate of satisfaction of the seller's mortgage?

Seller

What element of title closings involves the proration of expenses like property taxes, etc.?

Proration of Property Expenses

What element of title closings says that the buyer is in the same room as the seller and all of the documents are laid out; shake hands, etc.?

Parties Present at Closing

What element of the title closing is not face-to-face and deals with a 3rd party (escrow agent) who acts as an intermediary to facilitate the closing?

Escrow Closing

Who works at CBRE and played baseball at A&M and TCU; spoke to the Aggie Real Estate Club?

Boomer White

What is the name of the firm who practices a whole new model of brokerage that Peterson's former student created?

Tre Real Estate

What are the broad elements ot the real estate sales process?

- Listing Agreement

- Marketing Property & Qualifying Buyers

- Presentation & Negotiations

- Contracts & Closing

What are the elements of the listing agreement in the real estate sales process?

- Parties (Principal & Agent)

- Property

- Sales Commission

- Time Limitation

- Sales Price

- Fiduciary Relationship

Who is an intermediary who brings together buyers and sellers, assists in negotiating agreements between them, executes their orders, and receives a commission; licensed by the state?

Broker

Who acts only under direction of a licensed real estate broker; licensed by the state?

Salesperson (sales associae)

What is the difference between a real estate salesperson and a realtor?

You are only a realtor if you are a member of the National Association of Realtors (which has different hierarchical associations all the way down to city-level; is a trade organization)

- Peterson has been a realtor for certain years to get information but you have to pay a fee

What is the website where you get your brokerage license; $150 fee and $140 goes to the Texas A&M Research Center for a broker and $40 goes to it for a sales agent); requires 180 classroom hours?

TREC

trec.texas.gov

What are the licensing qualifications to become a broker?

- Citizen of US

- 18 or older

- Meet TREC's qualifications for honesty, trustworthiness, and integrity

- Fingerprints

- Have to be an agent for 4 years before you become broker

What are the steps to get licensed on the TREC website?

- Qualifications

- File Your Application

- Get your fingerprints taken and pass background check

- Submit your qualifying education

- Take the Exam

- Find a sponsor

What is an example of a basic form provided by TREC that was shown in class?

One to Four Family Residential Contract (Resale)

Can you be a real estate agent and not be a realtor?

Yes

Can you be a realtor and not be a real estate agent?

No

What are the different legal aspects of a broker-client relationship?

- Principal

- Agent

- Fiduciary Relationship

- Agency

- Subagent

Theoretically if you are driving around with an agent to look for houses, who do they typically have a higher duty towards?

The owner of the property (seller) unless they sign a buyer representation agreement (always be careful what you say around agents)

What are the 3 different agency relationships that occur in a broker-client relationship?

- Seller / Broker

- Buyer / Broker

- Broker / Salesperson

Who is the salesperson a subagent of?

Principal, or landowner

What are the different roles of real estate brokers?

- Listing Broker (Investment Broker)

- Selling Broker (tenant representative)

- Dual Agent

What are the different aspects of a dual agent?

- "Full Disclosure"

- Illegal in many states

- "Transaction Broker" (states allow limited role in representation)

What was used in the class example where a deal was brokers by a best friend of the buyer who bought property that had major problems; broker allegedly knew about the issues and the friends sued each other and had to deal with this to help pay off the lawsuit?

Professional Insurance

What are the different listing agreement types for the seller's agent?

1.) Open Listing

2.) Exclusive-Brokerage Listing

3.) Exclusive-Right-to-Sell Listing

4.) Net Listing

5.) Limited-Services Listing

What type of seller's agent listing agreement is where the broker is ONLY entitled to a commissions if he / she closes (arranges transaction); created through written commission agreement that identifies parties, location, and compensation?

Open Listing

What type of seller's agent listing agreement is where a different broker CANNOT BE AUTHORIZED to find a buyer; original broker will receive commission EXCEPT the property owner can sell property themselves without paying commission?

Exclusive-Brokerage Listing

What type of seller's agent listing agreement is what most broker's prefer; broker's receive commission, no matter who sells it (even if property is sold by owner or anyone else); broker gets BEST GUARANTEE on receiving a commission?

Exclusive-Right-to-Sell Listing

What type of seller's agent listing agreement is rarely used because it is illegal in many states; owner is guaranteed a amount and the broker receives any above that amount?

Net Listing

What type of seller's agent listing agreement is where the broker only lists property on Multiple Listing Service (MLS) and provides minimal support to seller?

Limited-Services Listing

What is necessary for the creation of an agency relationship for the buyer's agent?

A written buyer's representation agreement

What must a buyer's representation agreement have?

- Essential Elements of a contract

- Type of property desired

- Duties of buyer & seller

- Commission / Fee

What are the types of buyer representation agreements?

1.) Exclusive-right-to-represent

2.) Open arrangement

What type of buyer representation agreement is where if you ever buy a property, that person represents you and gets part of the commission; generally if you are in Dallas, Houston, or another highly populated area, you want to do this so you have a broker that is highly motivated to get the commission?

Exclusive-right-to-represent

What type of buyer representation agreement is where you can have several brokers representing you and whoever gets the deal gets the commission; some brokers may feel like this is a waste of time because it is not guaranteed that you make the sell and get the commisssions?

Open Arrangement

What aspect of a broker's duties is a position of trust & confidence to another person or his or her property; protects client's best interest, at all times?

Fiduciary Duty

When does a breach of fiduciary duty occur?

- Negligence

- Fraud

- Misrepresentation

- Failure to follow instructions

Fraud is present if a broker does what?

1.) Had intention to mislead

2.) Made false statement material to a transaction

3.) Was justifiably relied on by a client

4.) Results in injury to the client

What is fraud without intention to mislead?

Misrepresentation

What are the seller agent's duties to sellers?

Find buyer while performing honestly, diligently, and in good faith

What are the seller agent's duties to buyers?

- Full Disclosure

- Proper handling of "earnest money"

What are the buyer agent's duties to buyers?

Fiduciary

What are the buyer agent's duties to sellers?

Treat seller's fairly, honestly, and with due care

What prohibits housing discrimination based on sex, race, color, religion, national origin, disabilities, or familial status; prohibits steering and blockbusting?

Fair Housing Laws

What is channeling minority prospects only to minority neighborhoods?

Steering

What is using scare tactics to drive down home prices when minority owners begin moving into an area?

Blockbusting

What has to occur at the first substantive contact with clients and customers?

Disclosure of Agency Relationship

Buyers should not assume the broker is working exclusively to benefit them unless what?

A buyer representation agreement is executed

What are the 7 ways to terminate a broker relationship?

1.) Transaction occurs

2.) Term of the agreement expires

3.) Parties agree to termination

4.) One party breaches his or her duties

5.) One party becomes contractually incapacitated

6.) Listed Property's improvements are destroyed

7.) Listed property is taken by the government under the power of eminent domain

What are the types of brokerage firms?

- Franchises

- Desk Fee Arrangements

- Multiple Listing Services (MLS)

What type of brokerage firm is Century 21?

Franchise

What type of brokerage firm is where a sales agent pays for desk, phone, advertising, etc...through commission split with broker?

Desk Fee Arrangements

How do the commission splits vary across broker and sales associate compensation?

- 6% for residential (split 3 and 3 usually)

- 3% for commercial usually

- Land sales would vary between 4 and 6%

What is the firm that Prof. Peterson worked for due to a soft introduction from Ford Madison; had a lot of land listings in key corners and asked if Prof. Peterson to work for him and get time on his license at the same time; didn't make a sale after he had a lot of LOI's but signed a contract for 10,000 where he was 10% owner of the company; ended up leaving because he needed to pay for family and commissions weren't providing enough pay; partner Moore is a big rancher south of Wellborn?

McDougal & Moore

Generally, the seller of a single-family residence pays which closing costs?

The brokerage commission and the deed preparation costs

One would expect to find each of the following in the proration section of the sales contract EXCEPT:

A.) Prepaid discount points

B.) Any current taxes

C.) Other special assessments

D.) Prepaid property insurance premiums

A.) Prepaid Discount Points

All contracts involving land or items attached to it must be in writing before a court will enforce them, as required in each state's what?

Statute of Frauds

If the terms in the purported acceptance differ from those of the offer, then _____.

A counteroffer is made

Suppose John offers to buy Peggy's real estate for $100,000. Peggy isn't sure if she wants to accept his offer. John decides to give her a week to think it over. The next day, Peggy has still not made up her mind and John has found another property he would rather buy. Can John withdraw his offer to Peggy without penalty?

Yes

T/F: Real estate sales contracts transfer ownership of real estate between the parties.

False

The most frequently encountered contingency associated with a typical residential sales contract is the what?

Securing of mortgage financing

From the buyer's perspective, what is the most important thing that happens at a typical real estate closing?

The transfer of title

Which of the following is required for an option to buy contract to be binding?

The buyer must give the property owner some consideration for the option

Of the different types of listings, which do brokers prefer?

Exclusive-right-to-sell listing because they are ensured commission

A local brokerage firm that pays an initial fee plus a percentage of gross receipts in order to be affiliated with a national firm is called a what?

Franchise

A state license is required for anyone who _____.

Sells property for other people

The commission on a buyer broker agreement may either be a percentage of the transaction amount or what?

A fixed fee

The process of evaluating a potential buyer's ability to purchase a listed property is called what?

Qualifying

The commission paid in the real estate brokerage industry is usually what?

Percentage of the gross sales price

The listing is the written agreement between who?

A property owner and a real estate broker

Carl is a real estate broker who has agreed to act as an agent for Sandra to help her sell her home. They sign an exclusive agency listing agreement that gives Carl 90 days to search for a buyer. After 75 days, no buyer has signed a contract to purchase the property and Sandra asks Carl to cancel the listing agreement. Reluctantly, Carl agrees and they go their separate ways. Two days later, Carl learns that Sandra has just signed a contract with a buyer who viewed the home with Carl while the listing agreement was active. Is Carl entitled to compensation if he pursued this matter through the legal system?

Most likely, yes

In the typical agency relationship between sellers and brokers, brokers are the _____ of sellers, and must protect their clients' best interest at all times.

Fiduciary

A local brokerage firm that pays a fee and a percentage of gross receipts in order to be affiliated with a national brokerage firm is called a what?

Franchise

What property did we look at on LoopNet during the class discussion about real estate appraisal; strategically located between A&M and Rellis; 5.93% cap rate; we solved for NOI by multiplying the cap rate by the price?

Finfeather Plaza

Instead of calling it the "cost approach", what did the shopping center in Arizona call it because it was just for the building and not the land value?

Insurable Value

What property did we look at in the class on real estate appraisals that had a 9.7% cap rate?

NAVIDAD

Who uses appraisals?

Buyers, Sellers, Investors, REITs, Lenders, Insurers, Tax Appraisal Districts, Courts, Corporate Acquisitions