Assignment 5 - Brokerage Activities/Procedures Flashcards
Deposits
When a deposit is placed or to be placed with a title company or an attorney, the licensee who prepared or presented the sales contract (“Licensee”), shall indicate on that contract the name, address, and telephone number of such Title Company or attorney. Within fifteen (15) business days after each deposit is due under the sales contract, the Licensee’s broker shall make written request to the title company or attorney to provide written verification of receipt of the deposit, unless the deposit is held by a title company or by an attorney nominated in writing by a seller or seller’s agent. Within fifteen (15) business days of the date the Licensee’s broker made the written request for verification of the deposit,
the Licensee’s broker shall provide Seller’s broker with either a copy of the written verification, or, if no verification is received by Licensee’s broker, written notice that Licensee’s broker did not receive verification of the deposit. If Seller is not represented by a broker, then Licensee’s broker shall notify the Seller directly in the same manner indicated herein.
3) Meaning of “immediately” for a broker
Immediately means the placement of a deposit in an escrow account no later than the end of the third business day following receipt of the item to be deposited. Saturdays, Sundays and legal holidays shall not be considered as business days.
Furthermore, 61J2-14.009 states:
4) Sales associate must deliver funds by end of next business day
Every sales associate who receives any deposit, as defined in Rule 61J2-14.008, Florida Administrative Code, shall deliver the same to the broker or employer no later than the end of the next business day following receipt of the item to be deposited. Saturday, Sundays and legal holidays shall not be construed as business days. Receipt by a sales associate or any other representative of the brokerage firm constitutes receipt by the broker for purposes of paragraph 61J2-14.008(1)(d), Florida Administrative Code.
Broker Accounts for Escrow
A broker may place and maintain up to $1,000 of personal or brokerage funds per each sales escrow account. A broker may place and maintain up to $5,000 of personal or brokerage funds per each property management escrow account. Personal or brokerage funds in any escrow account shall not exceed $5,000 per account. A broker shall be provided a reasonable amount of time to correct escrow errors if there is no shortage of funds and such errors pose no significant threat to economically harm the public. For purposes of this subsection, reasonable amount of time shall be defined as 30 days from the date the last reconciliation statement was performed or should have been performed.
1) If the account is interest bearing, requirement for written authorization for distribution of interest
A broker is allowed to place escrow funds in an interest-bearing account. The placement of escrow monies in an interest-bearing account, designation of the party who is to receive the interest, and the time the earned interest must be disbursed, must be done with the written permission of all the parties to the transaction. Said escrow account must be in an insured account in a depository located and doing business in Florida.
Good Faith Doubt
Request that the commission issue an escrow disbursement order determining who is entitled to the escrowed property;
With the consent of all parties, submit the matter to arbitration;
By interpleader or otherwise, seek adjudication of the matter by a court; or
With the written consent of all parties, submit the matter to mediation. The department may conduct mediation or may contract with public or private entities for mediation services. However, the mediation process must be successfully completed within 90 days following the last demand or the licensee shall promptly employ one of the other escape procedures contained in this section. Payment for mediation will be as agreed to in writing by the parties. The department may adopt rules to implement this section.
Escrow Settlement Procedures
The four settlement procedures are as follows:
(a) Mediation. If all parties give written consent, the dispute may be mediated. Mediation is an informal, non-adversarial process intended to reach a negotiated settlement. If the nonbinding mediation process is not successfully completed within 90 days following the party’s last demand for the disputed funds, the licensee must employ one of the other three settlement procedures.
(b) Arbitration. Arbitration is a process whereby, with the prior written consent of all parties to the dispute, the matter is submitted to a disinterested third party. Each side presents its case to a third party, who makes a binding judgment in favor of one side or the other. The parties must agree in advance to abide by the arbitrator’s final decision.
(c) Litigation. If the disputing parties cannot agree, a disputing party may file a lawsuit so that the matter can be resolved in a court of law. Such a legal process is called litigation. The litigation can involve either of two court procedures:
1) Interpleader. A broker who does not have a financial claim to the disputed escrow funds can deposit the funds with the court registry. The broker is then excused from the case, and the disputing parties argue their case in court. This court procedure is known as interpleader.
2) Declaratory judgment. Brokers who believe they are entitled to a portion of disputed funds can file a court action known as a declaratory judgment. In this court procedure, the judge declares each party’s rights to the disputed escrow funds.
(d) Escrow disbursement order. The broker may request that the Commission issue an escrow disbursement order (EDO), a determination of who is entitled to the disputed funds. The FREC will not issue an EDO if the funds are held in an attorney’s escrow account or by a title company. An EDO procedure is only available if the funds are held in a brokerage escrow account. If the broker is informed in writing that the Commission will not issue an EDO, the broker must use one of the other settlement procedures. In such an instance, the broker must notify the Commission which settlement procedure will be used. FREC rules require a broker to notify the Commission within ten business days if the dispute is settled between the parties or if the matter goes to court before the EDO is issued.
Broker/Sales Associate as Expert in Property Transfer
A) Requirement to avoid offering an opinion of title since it can be relied on as expert opinion
The broker must be very careful not to give an opinion as to the value of title to a property since the broker is not an expert in that field. The broker can give information that is a subjective opinion that is called Puffing.
Puffing is making such statements as “The transportation, shopping and schools in this area are terrific.” or “Isn’t this the most beautiful yard you have ever seen.”
B) Ability to offer a representation of value, avoiding misrepresentation through exaggeration, etc.
The broker must take great care to avoid Fraud. This is deception intended to cause unsuspecting person harm, such as giving up a lawful right to a building inspection, etc. Fraud is always done with the intent to take advantage of another person to the benefit of the original person. Fraud can also be an intentional misstatement of fact or an omission of fact, so that the other person makes a decision based on bad information.
C) Misrepresentation of value by a licensee as fraud, breach of contract, or breach of trust
An example of misrepresentation of value by a broker could include lack of information on material facts such as a leaky roof or electrical problem that the broker knew or should have known by asking the seller. Such misinformation is considered fraud, breach of contract or a breach of trust, depending on the situation.
D) Unauthorized practice of law
A broker may never hold himself out of be an attorney or give advice about contract law to anyone; nor should the broker discourage the use of an attorney.
Commissions
B) A Sales associate cannot contract directly with a principal
Only brokers can contract with Principals. A sales associate works under the direction and guidance of a broker and cannot contract directly with the Principal.
The fact that one party such as the seller or another party such as the buyer pays a commission does NOT create an agency relationship. An agency relationship is created by disclosure and written agreement between the parties.
In order to collect a commission, a broker:
Must be a licensed real estate broker or sales associate working under the supervision of an employing broker. A broker can only pay a sales associate licensed and registered under him. A sales associate can never collect a payment from other than the employing broker.
Must have been employed by the principal under a valid contract such as a listing agreement, buyer’s agency agreement etc.
Must have been the procuring cause of the sale. Procuring cause is a series of events leading to the sale/purchase or renting of real property.
Must have a ready, willing and able buyer, seller or tenant, depending who the contract calls for. (There will be more about this under contracts.)
1) The sales associate’s commission is by agreement with the broker
The commission “split”, as real estate professionals call it, is determined in advance between the broker and his sales associates and broker associates. Details of commission splits should be part of the employment agreement between the broker and the sales or broker associate, and should be understood by all parties.
2) A sales associate cannot sue a principal over a commission
The sales associate conducts all business in the name of his broker. All business including the receiving of commission is through the broker, the employing broker of the sales associate only. The sales associate may never accept direct payment from a Principal; the sales associate receives payment only from the employing broker.
Kickbacks
C) “Kickbacks” are legal only under limited conditions
Kickbacks are difficult to manage and document. Brokers can, under some circumstances, receive kickbacks from providers outside the transaction as long as the buyer and seller are informed of the kickback.
A referral fee from a carpet company would be an example of a legal kickback.
In other situations, a broker seeking a kickback from a title company for closing a property with that particular company is a violation of the federal Real Estate Settlement Procedures Act.
Kickbacks are legal only under limited conditions:
- All parties to the transaction must be fully informed of the kickback.
- It must not be prohibited by other law (such as the Real Estate Settlement Procedures Act).
- It is unlawful to share a commission with an unlicensed person, except for the seller or buyer of the property.
- It is unlawful for a licensee to pay any unlicensed person for performing real estate services.
