Real Estate Principles, 11th Edition By Charles F. Floyd and Marcus T. Allen

Chapter 8 Real Estate Brokerage

The Real Estate Sales Process Listing agreement Marketing the property and qualifying buyers Presentation and negotiations Contracts and closing

Real Estate Brokers and Sales Associates A broker is an intermediary who brings together buyers and sellers assists in negotiating agreements between buyers and sellers executes orders of buyers and sellers receives a commission (or brokerage) in compensation for services rendered.

Real Estate Brokers and Sales Associates, cont. Real estate brokers are individuals licensed by state governments to arrange real estate sale or lease transactions for a commission Real estate sales associates are individuals licensed by state governments to arrange real estate sale or lease transactions under the supervision of a real estate broker

Licensing of Sales Associates & Brokers All states have a minimum education and testing requirement Most states require continuing education to renew license

Real Estate Brokerage Regulation All states have regulatory bodies to ensure compliance with regulations Licenses may be revoked and other penalties imposed for violations

Legal Aspects of Broker-Client Relationship In an “agency relationship,” one party (the principal) authorizes another party (the agent) to act on his or her behalf. The agent is a fiduciary of the principal

Agency Relationships in Real Estate Broker may be hired to help a buyer find and purchase property Broker may be hired to help a seller sell a property Broker may hire associates to assist in locating buyers or properties

The Role of Real Estate Brokers Many transactions have more than one broker involved (e.g., a listing broker and a buyer’s broker) Dual agency – broker represents buyer and seller at the same time (illogical, right?) Transactional agency is allowed in some states where broker helps both parties reach a deal while carefully avoiding working to the detriment of either party

Broker-Seller Relationship (Seller’s Agent) Listing agreements establish the agency relationship between sellers and brokers. Open Listing – owner hires several brokers and is only obligated to pay the broker who finds the actual buyer Exclusive-Brokerage Listing – owner agrees to hire only one broker to search for a buyer, but reserves the right to sell the property without the assistance of the broker and thus avoid paying a commission Exclusive-Right-to-Sell Listing – seller agrees to hire only one broker and to pay that broker a commission if the property is sold, even by the owner, while the listing is active

Broker-Seller Relationship (Seller’s Agent), cont. Net listing – Seller guaranteed certain amount, broker keeps excess. Illegal in some states. Limited-Service Listing – Broker places listing on the multiple listing service but provides little service

Broker-Buyer Relationship (Buyer’s Agent) Types of buyer representation agreements are similar to listings Open Exclusive right to represent

Broker-Buyer Relationship (Buyer’s Agent), cont. Compensation to buyer’s agent Retainer fee Fixed fee Percentage of purchase price Commission split for property listed on the multiple listing service

Duties & Rights Under Agency Relationships Legal duties imposed by statutes and regulations Ethical duties (e.g., National Association of REALTORS® Code of Ethics) An agent is in a position of trust and confidence in relation to another person or his or her property. Fiduciaries must act in the best interest of their clients at all times.

Fraud & Misrepresentation Elements of fraud Intention to mislead False statement material to the transaction Client justifiably relies on the statement Client is injured Misrepresentation can be innocent with no intention to mislead or even simple negligence, but the broker is still responsible.

Seller’s Agent’s Duties to Seller Locate a buyer and keep the seller informed

Seller’s Agent’s Duties to Buyers Disclose negative factors that might adversely affect the property’s value See Legal Highlight “The Seller’s Agent’s Obligations to the Buyer” Keep any money deposits in a neutral location

Buyer’s Agent’s Duties to Buyer Buyer’s agent is a fiduciary of the buyer Act diligently to locate property that matches buyer’s criteria

Buyer’s Agent’s Duties to Seller Treat all sellers fairly, honestly, and with due care.

Fair Housing Prohibits discrimination based on: Sex Race Color Religion National origin Disabilities Familial status

Fair Housing, cont. Cannot engage in steering or blockbusting Civil Rights Act of 1866 prohibits public and private racial discrimination Fair Housing Act of 1988 provides penalties for violation See Legal Highlight “Fair Housing”

Disclosure of Agency Relationships Most states have enacted laws that require brokers to disclose the nature of their agency relationships

Termination of Agency Relationships When a transaction occurs When the agreement expires When the parties agree to terminate When one party breaches the agreement When one party becomes contractually incapacitated The listing property is destroyed The listing property is condemned

Types of Brokerage Firms Franchises Desk fee arrangements Multiple-listing services

Broker & Sales Associate Compensation Usually a percentage of the transaction amount Broker and sales associate usually have an agreed “split” Cooperating brokers – listing broker, through multiple listing service shares fee with buyer’s broker