Chapter 13 - The Brokerage Business

Question 1

A broker is reviewing the balance sheet of her new listing to sell a business. Three of the entries on the books are licenses, trademarks, and goodwill. These would be examples of

Answer 1

intangible assets

Question 2

_____ is a valid distinction between a corporation and a proprietorship?

Answer 2

A corporation has perpetual existence; a proprietorship terminates upon the owner’s death

Question 3

The three principal brokerage firms in a market agree to pay sales agents 15% more than any other competitor currently in practice. This is an example of

Answer 3

collusion.

Question 4

A locally-owned brokerage affiliated with a national franchisor for purposes of enhanced image and resources is an example of a …

Answer 4

real estate franchisee

Question 5

critical skills in real estate brokerage

Answer 5

Listing, marketing, facilitating transactions, and managing information

Question 6

Real estate sales agents are legally authorized to

Answer 6

represent their employing broker in procuring clients and customers

Question 7

_____ is the core activity of real estate brokerage

Answer 7

Procuring customers for clients and effecting transactions

Question 8

A salesperson’s commission rate and structure is established by

Answer 8

competitive conditions

Question 9

The core activity of real estate brokerage is the

Answer 9

business of procuring a buyer, seller, tenant, or property on behalf of a client for the purpose of completing a transaction.

Question 10

To generate business, as well as achieve the transactional objectives of clients, a broker must be proficient in four skill areas:

Answer 10

 obtaining a client listing
 marketing a listing
 facilitating the closing of a transaction
 managing market information

Question 11

Types of business ownership that may broker real estate

Answer 11

individual
sole proprietor for-profit corporation general partnership limited partnership joint venture

Question 12

Types of business ownership that may not broker real estate

Answer 12

non-profit corporation business trust
co-operative association

Question 13

In addition to being organized as a sole proprietorship, partnership, corporation or joint venture, a brokerage may be:

Answer 13

 independent or affiliated
 specialized in a type of property
 specialized in a type of transaction
 specialized in a type of client

Question 14

A brokerage that is not affiliated with a franchise is an

Answer 14

independent agency.

Question 15

A franchised brokerage is an

Answer 15

independently-owned company that enters into a licensing arrangement with a franchisor to participate in various benefits offered in exchange for compensation

Question 16

Franchisors generally offer local franchisees:

Answer 16

 the use of a recognized trade name
 national and regional advertising
 training programs
 standardized operating procedures
 a national referral system

In exchange, a franchisee pays the franchisor start-up fees and a portion of gross income.

Question 17

State real estate license laws provide for two distinct licenses to conduct real estate brokerage:

Answer 17

the broker license and the salesperson or sales agent license.

Question 18

A salesperson may not:

Answer 18

 bind a client to any contract
 receive compensation directly from a client
 accept a listing or deposit that is not in the name of the broker

Question 19

In accepting employment from a broker, a salesperson generally makes a commitment to:

Answer 19

 work diligently to sell the broker’s listings
 work diligently to procure new listings
 promote the business reputation of the broker
 abide by the broker’s established policies
 fulfill the fiduciary duties owed clients as their subagent
 maintain insurance policies as required by the broker
 have transportation for conducting business, as required by the broker
 conform to ethical standards imposed by broker and trade organization
 uphold all covenants and provisions of the employment agreement

Question 20

In employing a salesperson, a broker generally makes a commitment to:

Answer 20

 make the brokerage’s listings available
 make the brokerage’s market and property data available
 provide whatever training was promised at the time of hiring
 provide whatever office support was promised at the time of hiring
 uphold the commission structure and expense reimbursement policy
 conform to ethical standards imposed by the broker’s trade organization
 uphold all covenants and provisions of the employment agreement

Question 21

An agent’s commission schedule is a comprehensive summary of commission splits under various circumstances, including:

Answer 21

 listing and selling side
 salesperson’s level of sales performance
 broker’s level of expense reimbursement to agent
 the particular policies or organization of the agency
 prevailing commission splits in the market

Question 22

When marketing activities produce prospects, the agent’s marketing role becomes more interpersonal. An agent must now:

Answer 22

 qualify prospects’ plans, preferences, and financial capabilities
 show properties that meet the customer’s needs
 elicit the buyer’s reactions to properties
 report material results to the seller or listing agent

Question 23

Pre-closing responsibilities are:

Answer 23

An agent’s foremost duty following acceptance of an offer is to submit the contract and the earnest money to the employing broker
 assisting the buyer in obtaining financing
 assisting the seller in clearing title
 assisting the seller in completing property repairs
 recommending inspectors, appraisers, attorneys, and title companies
 assisting in communications between principals
 assisting in the exchange of transaction documents

Question 24

Conversion is the act of

Answer 24

misappropriating escrow funds for the broker’s business or personal use.

Question 25

Sherman Antitrust Act.

Answer 25

Enacted in 1890, the Sherman Antitrust Act prohibits restraint of interstate and foreign trade by conspiracy, monopolistic practice, and certain forms of business combinations, or mergers.

Question 26

Clayton Antitrust Act

Answer 26

The Clayton Antitrust Act of 1914 reinforces and broadens the provisions of the Sherman Act

Question 27

Anti-competitive behavior

Answer 27

The effect of antitrust legislation is to prohibit trade practice and trade restraints that unfairly disadvantage open competition.

Question 28

Collusion.

Answer 28

Collusion is the illegal practice of two or more businesses joining forces or making joint decisions which have the effect of putting another business at a competitive disadvantage. Businesses may not collude to fix prices, allocate markets, create monopolies, or otherwise interfere with free market operations.

Question 29

Price fixing

Answer 29

is the practice of two or more brokers agreeing to charge certain commission rates or fees for their services, regardless of market conditions or competitors

Question 30

Market allocation

Answer 30

is the practice of colluding to restrict competitive activity in portions of a market in exchange for a reciprocal restriction from a competitor: “we won’t compete against you here if you won’t compete against us there.”

Question 31

Tie-in agreements

Answer 31

the sale of one product or performance of a service is tied to the sale of another, less desirable product or service. For instance, “I will sell you this car, but you have to hire my brother-in-law to drive it.” Or, more likely, “I will list and sell your old home if you hire me to find you a new home to purchase.” Tie-ins restrict competition and limit the freedom of the consumer.

Question 32

A _____ sets forth all terms and conditions of the agreement, including exactly what is being sold.

Answer 32

sale contract

Question 33

An ___________ is an agreement for transferring any and all real property involved in the transaction

Answer 33

assignment or real estate sale agreement

Question 34

Tangible business assets include

Answer 34

 cash and marketable securities
 inventory
 trade fixtures and equipment
 real property
 accounts receivable

Question 35

Intangible business assets include:

Answer 35

 the company name
 trademarks
 copyrights
 licenses
 contracts for future sales of goods or services
 goodwill

Question 36

In any case, the value of the business is a function of the following:

Answer 36

 past, present, and future net profits, and capitalized value of these
 amount of risk and certainty associated with realizing future profits
 value of all assets as reflected in the books of account
 impact of goodwill on the value of the business
 prices paid for similar businesses
 all other risks associated with the business

Question 37

A real estate syndication is

Answer 37

a form of investment in which two or more investors contribute capital to a pool for the purpose of acquiring, managing, and selling an investment property for a profit.