Real Estate Transactions

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  1. Broker and Listing Agreements pp. 25-41 


    •                                       i.     All 50 states regulate the business of
    • real estate

    • ii.     A state administrative agency often
    • called the real estate commission or the department of real estate is
    • responsible for enforcing the laws pertaining to brokers
  2. i.     Broker
    • 1.    
    • A
    • licensed professional involved early on in the transaction that finds the
    • parties for the deal and acts as a transactional intermediary in the market.
  3. i.     Real Estate Salesperson
  4. 1.    
    • Unlicensed
    • person who acts as a broker but only under the supervision of an licensed
    • broker.
  5. i.     Realtor
  6. Member of NAR (National Association of Realtors).
  7. Residential
    • 1.    
    • Single-family
    • homes, condos, vacant lots (to build homes)
  8. i.     Commercial
  9. 1.    
    • Office
    • Buildings, retail centers, warehouse/industries, vacant lots for commercial
    • development.
  10. i.     Leasing broker
    • Deal with landlords and tenants.(most often commercial leasing
    • transactions)
  11. i.     Mortgage brokers
    • 1.    
    • Match up
    • people in need of a loan with a financial instiution that is looking to lend
    • money. Again, this is divided between residential and commercial. Can also help
    • with refinancing
  12. i.     Listing
    • 1.    
    • When
    • owner hires a broker to sell his property. There are four types of listing
    • agreements.
  13. i.     Open listing
    • 1.    
    • The
    • broker earns his commission if he procures a ready, willing, and able buyer for
    • the property. The owner may engage multiple brokers, and the first one to
    • procure a buyer earns the commission. The seller may also find the buyer on his
    • own, thus avoiding the commission.(whoever finds a buyer first)
  14. i.     Exclusive agency
    • 1.    
    • Agreement
    • contains a promise by the seller not to engage another broker during the term
    • of the agreement. The broker I the exclusive agent with respect to the listed
    • property. If the owner sells using another agent, the exclusive agent is still
    • entitled to his commission. Like the open listing, however, the owner may sell
    • by his own efforts and thereby avoid a commission.
  15. i.     Exclusive right to sell agreement
  16. 1.    
    • The
    • broker will earn commission if a buyer is procured during the term of agreement
    • regardless of who procures the buyer (including if the seller does
    • so).(guaranteed commission for broker, even if buyer finds seller)
  17. i.     Net listing (less common)
    • 1.    
    • The commission
    • is not specified as a percentage, and the seller agrees to pay the broker all
    • amounts received in excess of a set price established by the broker and the
    • seller.

    • 2.    
    • The word
    • net means the seller is guaranteed a net amount of sales proceeds, but that is
    • also the limit of the limit of what the seller can get from the sale.

    • 3.    
    • Ex

    • a.    
    • The agreement
    • might say the seller is to receive a net price of $100k and the borker might
    • set an initial asking price of $110,000

    • 4.    
    • Some states
    • do not even allow, rarely ever seen)(common in marine sales)
  18. a.    
    Listing Service (MLS)
    •                                       i.     Facilitates the sharing of listings
    • among member brokers. Database of info pertaining to all current listings.
    • Geographically local – citywide, countywide, or metropolitan. Mostly used in
    • the residential market. Almost all listings are exclusive right to sell
    • listings.
  19. 1.    
    important in brokerage K
    -       Term

    • o   Exclusive
    • right to sell your home

    • §  You
    • want to limit that period

    • -       Carve
    • out

    • o   Already
    • working with one broker but you want another broker to have an exclusive right

    • §  You
    • carve out prospects seller has

    • -       Type
    • of transaction

    • o   What
    • if you decide not to sell and you rather decide to lease the unit

    • §  Need
    • to state in K if there is commission for leasing

    • -       Commission
    • rate

    • -       When
    • the commison is due + when the commission is earned

    • o   When
    • does the broker get paid

    • §  Common
    • law (law if not stated in K)

    • ·      When
    • the broker procures a ready buyer at the time of transaction

    • o   Regardless
    • if the deal was closed

    • §  Question
    • is whether you brought an able buyer?

    • §  Other
    • jurisdictions have scraped this general rule

    • ·      Unless
    • the listing agreement says otherwise the commission is not due unless there is
    • a sale

    ·      Exception

    • o   If
    • the sale does not occur because of a willful act on the part of the seller

    • o   Sabotage
    • the sale as a seller to avoid the commission

    • §  If
    • you have listing agreement you should address this issue

    • o   If
    • you just say commission is payable at closing

    • §  Have
    • you changed the common law rule?

    ·      No

    • §  Didn’t
    • say when it was earned

    • §  Just
    • said time of payment

    • o   Commission
    • is earned only if closing occurs

    • §  You
    • have changed the common law rule
  20. 1.    
    Duties to clients
    • a.    
    • When a
    • person hires a broker, their relationship is governed chiefly by the law of
    • contracts and the law of agency

    • b.    
    • Broker
    • has a fiduciary duty with his client
    Duties to clients 
    primary duties
    ii.     Duty of loyalty

    • iii.     Duty of confidentiality
  22. a.    
    Duty of
    •                                       i.     The broker should do his utmost to
    • protect the client and advance the client’s interest. Encompasses traits such
    • as honesty and fidelity.
  23. a.    
    Duty of
    •                                       i.     When a broker learns facts or other
    • information that are material to the client’s position or interest, the broker
    • should promptly tell the client

    • ii.     The broker must jeep the client
    • informed
  24. a.    
    Duty of
    •                                       i.     In the course of representing  a client, the broker gains information
    • about the client’s objectives and the property that, absent the client’s
    • consent, should not be disclosed to third parties.  Sometimes the client’s interst is simply privacy, but of
    • then the information has economic value
  25. 1.    
    Types of
    relationship with broKER
    • Broker who represents one party to the transaction – either the seller
    • or buyer. Owes fiduciary duties to that party
  26. Dual agent
    •                                       i.     Owes fiduciary duties to both the buyer
    • and the seller

    • ii.     Dual agency is permissible in most
    • states, meaning that the broker may lawfully represent both the buyer and the
    • seller in the same transaction, provided the broker discloses the dual agency
    • to both parties. This may pose a problem with conflicting fiduciary duties to
    • the clients.

    • 1.     Florida
    • (and some other states) forbids dual agency!! (Will be on the exam!)

    • 2.     Two
    • brokers, a listing broker and a selling broker, may be involved in the same
    • transaction.
  27. a.    
  28.                                       i.     The sellers agent
  29. a.    
    •                                       i.     Is considered the listing broker’s
    • subagent, who is engaged by the listing broker to help perform his task

    • ii.     The buyer does not pay the selling
    • broker; instead the listing broker shares part of his commission with the
    • selling broker
  30. a.    
    sub agency
                                          i.     Criticism

    • 1.    
    • Buyers are
    • misled into thinking that the selling broker is their agent

    • 2.    
    • The buyers
    • deserve representation at the critical stage of selecting a property and
    • negotiating the terms of a purchase contract

    • ii.     Presently more than 40 states require a
    • written disclosure, either by statue or by brokers regulation
  31. Transactional Broker or non-agency brokerage
    •                                       i.     Doesn’t owe either buyer or seller a
    • fiduciary duty. Just acts as an intermediary.(middleman)
  32. a.    
    More common for condo developers to employ these. (Less common
  33. 1.    
    Right to commission

    •                                       i.      Broker gets paid at the time she procures a buyer with an
    • acceptable offer. Under this rule the transaction does not necessarily have to
    • close.
  34. 1.    
    Right to commission     
    •                                       i.     Broker gets commission at the closing.
    • (Exception to this is if the buyer does something to thwart the closing, the
    • broker will still get the commission.

    • b.    
    • In the
    • term provision of the contract, you must address the issue of sale after term:
    • Such as if you have a 12-month term, and the broker brings a buyer/prospect on
    • day 363 but the closing doesn’t happen until day 368. Might do so with a
    • “prospect list” – list of prospective buyer who, if sold to, the seller must
    • pay commission (and must set criteria for who may be placed on this list).
  35. 1.   
    Preparing to K 

    •                                      i.     Real property law
    • and  contract law apply to every
    • transaction

    • ii.     Buyer and seller have
    • an inverse relationship in the trade-off between risk and price

    • 1.   
    • The greater the risk to a seller, the higher the selling
    • price

    • 2.   
    • The lower the risk, the lower the selling price
  36. Real estate Transactions
    Time line
    • a.   
    • Pre-contract(A)------------Executory
    • Contract(B)------------Closing the K(C)------Post closing(D)
Card Set:
Real Estate Transactions
2013-05-01 16:24:53
Real Estate Transactions Exam

Real Estate Transactions
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