Florida Real Estate Principles, Practices & Law 39th Edition Unit 5: Real Estate Brokerage Activities and Procedures

Brokerage Offices Active brokers must have an office Enclosed room—stationary construction Privacy to conduct negotiations Brokers must keep records in office Books, real estate transaction files If zoning allows, office may be in broker’s residence May have offices in another state Sales associates may NOT open and register an office of their own

Branch Office Broker must register each branch office Branch office registrations are Not transferable Temporary shelter in a subdivision being sold by broker is NOT a branch office unless sales associates are permanently assigned or sales transactions are closed at that location

Licensed Real Estate Broker Office Signs Little Mo Realty Murl H. Crawford Licensed Real Estate Broker Trade name (if used) Broker’s name Words “Licensed Real Estate Broker” or “Lic. Real Estate Broker”

Associates Names on Entrance Sign Names of sales associates and broker associates are optional If included Associate names must be below names of brokers Include license type next to each name, such as sales associate Line or space must separate associate names from broker names

Brokerage Entity Signs If the brokerage entity is a partnership, corporation, or limited liability partnership/company sign must contain Name of firm or corporation Name of at least one active broker Words, “Licensed Real Estate Broker” Kellogg Real Estate, Inc. Sandi M. Kellogg Licensed Real Estate Broker

Advertising Advertising must inform people they are dealing with a licensee or a brokerage firm Broker is responsible for all advertising Must include name of brokerage firm Blind advertising Fails to disclose name of brokerage firm and includes only PO box, telephone number and/or street address Blind advertising is illegal

Names of Licensees in Advertising Licensees may include personal name in ads Must use last name as registered with FREC when including personal name in an ad Yard signs and classified ads must include registered name of the brokerage firm Promotional materials Name of brokerage firm Sales associate’s name may also appear

False Advertising False, deceptive, or misleading information in advertisements for real estate is illegal Second degree misdemeanor

Internet Advertising Point of contact information is the means to contact the brokerage firm or a licensee including Mailing address Street address Email address Telephone or fax number Brokerage name must appear adjacent to or immediately above/below point of contact information

Membership in Organizations Licensees cannot use term REALTOR® unless a member of NAR

For Sale By Owner Licensees may sell their own property “by owner” Can advertise property and include personal contact information Should disclose that seller is licensed before beginning negotiations and in the contract

Telephone Solicitation Telephone solicitation initiation of a call for the purpose of encouraging purchase or investment in property, goods or services Making telephone calls to obtain listings or buyers is telephone solicitation Regulated by state and federal law Calling hours restricted

Telephone Solicitation Regulation Florida Law No Solicitation List Maintained by Dept. of Agriculture & Consumer Services $10,000 fine For-sale-by-owner exception (Federal law supersedes state law) Federal Law National do-not-call registry $11,000 fine No exception for FSBOs (must check registry) Florida list added to national registry

Exceptions to National Do-Not-Call List When representing a potential buyer may call a FSBO seller, provided the buyer is interested in the property May contact individuals with whom associate had an established business relationship for up to 18 months May contact a customer for three months after a business inquiry

Fax Solicitations Unsolicited fax ads are prohibited Requirements to send fax advertisements Established business relationship Voluntarily received fax number Clearly state opt-out procedures Honor opt-out requests within 30 days

Escrow or Trust Accounts Escrow (trust) account An account for the deposit of money the broker holds in trust for others Deposit Money delivered to a licensee in connection with a real estate transaction Earnest money deposit can be cash or anything that can be converted into money

Timely Deposit of Escrow Funds Sales Associates Deliver to broker no later than end of the next business day Brokers Deposit in escrow account no later than end of the third business day Broker’s time starts after sales associate receives the deposit

Example of Escrow Deposit Sales associate received earnest money deposit on Wednesday Sales associate must deliver deposit to broker no later than Thursday Broker must deposit in escrow account no later than Monday (no holidays)

Escrow Check Payable to Sales Associate Have buyer write a new check payable to broker’s escrow account If not practical endorse check and write, “For deposit only to (name of escrow)”

Postdated Checks and Insufficient Funds Obtain seller’s approval before accepting Broker must secure check until payable and then immediately deposit in escrow Checks returned for insufficient funds Broker is not responsible if the broker made a timely deposit

Acceptable Depositories Broker-held escrow accounts Florida commercial bank Credit union Savings (and loan) association Florida-based title company or Florida attorney (broker is not the escrow agent)

Broker-Held Escrow Accounts Broker must be a signatory on escrow account Additional persons (e.g., bookkeeper) may also be a signatory Escrow accounts must be reconciled each month Broker must review, sign and date monthly reconciliation

Title Company/Attorney Escrow Accounts Indicate title company (or attorney) name, address, and telephone number on contract Within 10 business days after deposit is due, buyer’s broker must make written request to title company (attorney) for verification of receipt of deposit Within 10 business days after broker made written request, provide seller’s broker with a copy of written verification

Interest-Bearing Escrow Accounts Written permission from all parties before placing in interest-bearing account Written authorization who is entitled to interest Broker, if authorized, may receive interest earned

Recordkeeping Brokers must keep business records, books, and accounts in compliance and available for DBPR audit Must preserve records for five years and two years beyond court proceeding

Money to Maintain Escrow Account Brokers may place $1,000 personal or brokerage funds in a sales escrow account Brokers may place $5,000 personal or brokerage funds in property management escrow account

Misappropriation of Escrow Funds Trust funds must be kept in a separate account Commingle The illegal practice of mixing another’s funds with broker’s money Conversion Unauthorized control or use of another person’s property

Notice and Settlement Procedures Broker must not disburse escrow funds until transaction closes or with agreement of the parties Broker has conflicting demands When buyer and seller make demands regarding disbursing of escrow funds that are inconsistent with each other and cannot be resolved

Conflicting Demands Must notify FREC in writing within 15 business days of receiving conflicting demands Begin settlement procedure within 30 business days of receiving conflicting demands

Settlement (Escape) Procedures Mediation Informal, nonbinding process, negotiated settlement Arbitration Binding judgment by third party (prior consent of parties) Litigation Interpleader – broker has no financial claim Declaratory judgment – judge declares each party’s rights to funds Escrow disbursement order (EDO)

Escrow Disbursement Order (EDO) Commission issues a determination of who is entitled to disputed funds Funds must be held in brokerage escrow account Must inform FREC within 10 business days if dispute is settled or it goes to court

Exceptions to Notice and Settlement Procedures Brokers are not required to notify FREC or start a settlement procedure in these situations Sale of HUD-owned property Timely notice to cancel a residential condominium contract Failure to satisfy the financing clause in a contract

Good-Faith Doubt Broker doubts either party’s intention to act in good faith according to the contract Notify the FREC in writing within 15 business days of having the doubt Begin a settlement procedure within 30 days of having the doubt

Rental Information and Lists Written disclosure required, stating If rental information provided under contract is not current or accurate, consumer may demand within 30 days of contract date a return of fee If consumer does not obtain a rental, entitled to receive a return of 75% of the fee paid, if demand is made within 30 days of contract date Advertising rental information that is inaccurate or not current is first-degree misdemeanor

Antitrust Laws Antitrust laws protect competition and ensure against restraint of trade Sherman and Clayton Antitrust Acts Federal Trade Commission Act It is illegal to Fix commissions or fees for services (price-fixing) Conspire to split up market areas to avoid competition (market allocation)

Broker’s Commission Established by agreement between broker and party who agrees to pay Negotiable

Sales Associate’s Commission Must be paid by associate’s employer; not directly by buyer or seller Associate’s split determined by agreement with employer Associates may not operate independently

Liens on Real Property Liens on residential property for nonpayment of commission Only allowed if broker is given that authority in a contract Otherwise seek civil judgment

F.S. 475, Part III Commercial Real Estate Sales Commission Lien Act Gives broker lien rights on seller’s net proceeds from sale of commercial property Not lien rights on the real property Brokerage agreement (listing contract) must clearly state broker’s lien rights Effective date of the lien is date of recording commission notice

F.S. 475, Part IV Commercial Real Estate Leasing Commission Lien Act Gives broker lien rights for commission earned for leasing commercial real estate If landlord agreed to pay commission, lien is against landlord’s interest in the real property If tenant agreed to pay commission, lien is on tenant’s leasehold estate

Kickbacks, Rebates, Unearned Fees Referral fees for non-real estate services Buyer and seller must be fully informed Must not violate RESPA (Illegal for closing services, title searches, appraisals, etc.) Person receiving kickback must be properly licensed if applicable (e.g., mortgage loan originator license)

Referral Fees for Real Estate Services Licensees may share their commission with the buyer or seller in that transaction (with full disclosure) May not share commission with any other unlicensed person May not pay an unlicensed person for referral of real estate business (finder’s fee of up to $50 to a tenant exception)

Change of Employer Sales associate license ceases to be in force when associate changes employer DBPR must be notified within 10 days after change to new employer Associate may not conduct real estate services until registered under new employer Fiduciary relationship between associate and broker

Change of Mailing Address Licensees must notify DBPR within 10 days of change to current mailing address Failure to notify DBPR: Citation Fine of $500

Brokerage Business Entities Chapter 475 defines broker to include anyone who is general partner, officer or director of brokerage partnership or corporation Chapter 475 prohibits a person licensed as a sales associate or broker associate from registering as a general partner, officer or director of a brokerage entity

Business Entities That May Register as Real Estate Brokers Sole Proprietorship General Partnership Limited Partnership Limited Liability Partnership (LLP) Corporation Limited Liability Company (LLC)

Sole Proprietorship Owned by one person Owner liability Owner must hold active broker license Register under own name or trade name

General Partnership Two or more persons engaging in business together Created by written, oral, or implied agreement Each is liable for partnership debts and can bind other partners in contracts

Real Estate Brokerage General Partnership Register partnership with the DBPR At least one partner must be an active broker Partners who deal with public and perform real estate services must be active brokers Sales associates may not be general partners

Limited Partnership Created by written instrument filed with Florida Department of State One or more general partners and one or more limited partners Limited partners make investment of cash or property – not services Limited partners have limited liability

Real Estate Brokerage Limited Partnership Register limited partnership with the DBPR General partners who perform real estate services must be active brokers At least one general partner must be active broker All other general partners must register with DBPR Sales associates may not be general partners Limited partners do not register with DBPR

Ostensible Partnership Prohibited Quasi partnership When the actions of two or more persons create the appearance that a partnership exists Each may be liable for other person’s debts and torts Subject to license suspension

Limited Liability Partnership (LLP) Protection from personal liability Partners are not subject to limitations imposed on limited partners in a traditional limited partnership Name of registered limited liability partnership must include in name Registered limited liability partnership or LLP at end of name

Corporations (Inc.) An artificial person or legal entity created by law File articles of incorporation with FL Dept. of State Foreign corporation is organized under laws of another state; may do business in Florida Domestic corporation incorporated in Florida Managed by board of directors & officers

Real Estate Brokerage Corporation Register corporation with the DBPR At least one officer or director must be an active broker Active and inactive brokers and unlicensed people may serve as officers and directors Must be active brokers to perform real estate services Unlicensed officers and directors register with the DBPR Sales associate may not be officer or director Sales associate may be shareholder

Death of Only Active Broker If only active broker of a brokerage partnership or corporation dies, resigns, or is removed from office, the vacancy must be filled within 14 calendar days No new brokerage business may be conducted until a new active broker is registered with DBPR Failure to timely replace broker results in cancellation of the registration and licensees become involuntary inactive

Limited Liability Company (LLC) Best features of a corporation and a partnership Protection from personal liability IRS treats LLC as a partnership for tax purposes Income is taxed only once, as in a partnership

Business Entities That May Not Register Corporation sole – church (religious) organization Joint venture – temporary business arrangement Business trust – involves entity’s own property Cooperative association – involves own property Unincorporated association – example is property owners in a subdivision

Trade Names Business name other than the legal name of the person doing business T/A (trading as) D/B/A (doing business as) Fictitious name refers to the name registered with the Dept. of State Brokers who operate under trade names must also register trade name with DBPR Associates must have licenses issued in their legal names (not under a trade name)

Personal Assistants Unlicensed Licensed Administrative tasks May not perform duties requiring a license May not be paid a commission Licensee who employs unlicensed assistants Must comply with state and federal employment laws Licensed Can perform services of real estate Must be registered with employing broker Broker must pay licensed assistant for brokerage activities