Chapter 29 - Indiana Brokerage Practice

Question 1

Managing Broker:

Answer 1

A person the Commission holds responsible for the actions of brokers who work under or with the managing broker. Managing brokers are licensed as brokers with a designation of managing broker.

Question 2

Managing Broker Eligible:

Answer 2

The license designation needed to be a managing broker.

Question 3

Authority to Contract:

Answer 3

A broker has no authority to contract with or accept compensation from anyone other than the managing broker – not third parties, other brokers, buyers, sellers, landlords, tenants, nor referral agencies.

Question 4

Employee:

Answer 4

Managing brokers supervise and control brokers hired as employees. Managing brokers can require employees to work certain hours, attend meetings, and meet a prescribed dress code. Managing broker may or may not reimburse employees’ work-related expenses but must withhold federal income, state income, social security, and Medicare taxes from the employee’s compensation.

Question 5

Independent Contractor:

Answer 5

Managing brokers hire independent contractors to perform certain acts. The managing broker has no control over how the contractor performs those a

Question 6

Safe Harbor Test:

Answer 6

IRS Code Section 3508 requires the “safe harbor test” to be conducted to determine if a broker is truly an independent contractor.

Question 7

Employment Agreement:

Answer 7

The managing broker must establish an agreement in writing with each affiliated broker regardless of whether the broker is an employee or an independent contractor. The agreement must be signed and dated by both the broker and the managing broker. It must cover the relationship status and terms, including the level of supervision to be imposed, duties, compensation, duration of the contract, and how the agreement is to be terminated or renewed. Using a standardized contract which has been approved by an attorney will mitigate noncompliance issues.

Question 8

Commission Split:

Answer 8

Indiana real estate law allows a listing broker to pay a portion of the earned commission to another broker who actually sells the property. These other brokers are called cooperating brokers.

Question 9

Referral Compensation:

Answer 9

The incentive to refer potential buyers or renters is compensation for the referral. In the case of a sales lead, when the property sells, both the selling broker and the person who referred the lead are paid. For the referring party, the compensation may be a percentage of the commission or a flat fee, whichever is agreed upon prior to the sale.

Question 10

Listing Agreement:

Answer 10

There are several types of listing agreements that establish agency relationships. Regardless of the type, Indiana requires all listing agreements to be in writing either on paper or in electronic format and must include an agreement expiration date. The seller must receive a copy of the agreement within 3 business days of signing. The original agreement and all electronic files must be retained in the listing broker’s office.

Question 11

Offer to Purchase:

Answer 11

Once a listing agreement has been signed, the property marketed, and a potential buyer procured, that buyer will submit an offer to purchase the property.

The offer should include the following:

the names of the parties involved in the transaction
the location and description of the property
the price the buyer is offering for the property
any deposits or balances due
the amount of earnest money being paid
the commission rate to be paid to the brokerage
any conditions to the offer such as a property inspection, the buyer’s financing conditions, a closing date, and so on
a list of any items that are included with the property
a home warranty, if applicable

Question 12

Counter Offer:

Answer 12

If a seller does not accept the offer price or any of the included conditions, the seller may make a counteroffer that includes the price the seller is willing to accept and any changes to the buyer’s conditions submitted with the original offer.

If the buyer does not agree to the terms of the counteroffer, the buyer may reject the counteroffer and walk away or make a counteroffer of his or her own. Counteroffers can go back and forth once or several times until both buyer and seller are satisfied with the terms and price.

Question 13

Earnest Money:

Answer 13

When the offer is finally agreed upon, the transaction goes into escrow. The listing broker deposits the earnest money and any other funds received from the buyer into an escrow account or deposits the funds with whoever is listed in the purchase agreement to receive the deposit. The funds must be deposited within 2 banking days after the final offer is accepted by both parties.

Question 14

Escrow Funds:

Answer 14

The listing broker is required to hold earnest money and other funds in the escrow account until such a time as it is legally authorized to be disbursed.

If the beneficiary of the funds being held agrees, Indiana allows the broker holding the money to transfer any interest earned on the money to a fund that has been established for the sole purpose of providing affordable housing opportunities in Indiana. The housing opportunities must meet the Internal Revenue Code 501(c)(3) requirements for not-for-profit organizations.

If the transaction does not close, the broker holding the earnest money is not required to pay the seller or the buyer unless the parties agree to a mutual release of the funds or unless a court orders payment.

Question 15

Unfair Inducement:

Answer 15

An inducement is something that helps bring about an action or a desired result. An inducement can be positive in nature, such as the offer of payment or a favor. It can also be negative in nature, such as a threat. There are times when inducements are unfair and even illegal. If the inducement is related to fraud or material deception, it violates Indiana laws and standards of professional practice.

Question 16

Discriminatory Advertising:

Answer 16

Compliance with antidiscrimination laws is critical when advertising real estate housing and services. Any advertising that indicates a preference, limitation, or discrimination based on race, color, national origin, religion, handicap, sex, or familial status is discriminatory and violates fair housing laws.

Question 17

Privacy Act:

Answer 17

The Privacy Act of 1974 established controls over what personal information is collected by the federal government and how the information can be used. Federal agencies, such as HUD, that handle personal information are bound by the Privacy Act not to disclose any of the personal information obtained on an individual without written consent of the individual. They are also required to take prescribed precautions to keep personal information confidential.

Question 18

CAN SPAM Act:

Answer 18

The Controlling the Assault of Non-Solicited Pornography and Marketing Act (CAN SPAM) was established in 2003. The Act sets the national standards for sending commercial email and requires the Federal Trade Commission to enforce the provisions of the Act.

The Act prohibits businesses from sending unwanted commercial emails and texts to wireless devices such as cell phones. The Act requires the Federal Communications Commission (FCC) to develop rules to protect consumers from “unwanted mobile service commercial messages.”

Question 19

Do Not Call Registry:

Answer 19

In 1991, Congress enacted the Telephone Consumer Protection Act (TCPA) to restrict the making of telemarketing calls and the use of automatic telephone dialing systems and voice messages. The TCPA was implemented with the requirement that entities making telemarketing calls maintain company-specific do-not-call lists. The TCPA also regulates the use of SMS text messages and fax machines.

Question 20

Fee Appraisal:

Answer 20

Indiana law (§ 24-5-23.5-1) defines appraisal as “an estimation that: (1) represents the final opinion of the value of real property that is the subject of a real estate transaction; and (2) serves as the basis for the extension of credit, in the case of a real estate transaction involving the making, refinancing, or consolidation of a mortgage loan.”

The term appraisal may include an automated valuation model, a broker’s price opinion, or a desktop evaluation.

In all states, anyone performing valuation work, such as appraisals, for federally regulated institutions must be licensed as an appraiser.

Question 21

USPAP:

Answer 21

The Uniform Standards of Professional Appraisal Practice.

According to Indiana law, any broker who appraises real estate in Indiana must comply with the Uniform Standards of Professional Appraisal Practice (USPAP). The USPAP includes standards and requirements for the development and reporting of a real property appraisal, an appraisal review involving a real property appraisal, and mass appraisals. The USPAP also includes statements that clarify, interpret, explain, or elaborate on a standard rule and opinions that illustrate the applicability of appraisal standards in specific situations.

The USPAP does not require or prescribe specific appraisals methods to be used. Instead, it provides quality control standards for appraisals and requires that appraisers correctly use methods that would be acceptable to other appraisers for the same assignment and to any entity intended to use the appraisal.

The USPAP is updated every 2 years.

Question 22

Broker’s Price Opinion:

Answer 22

A broker price opinion estimates and details the probable selling or leasing price for a particular property. The BPO includes details about the property’s condition, market, neighborhood, and comparable properties. It does not, however, include an automated valuation model. BPOs are often used by mortgage lenders to determine a value range for a property without the time and expense of having a full appraisal performed. It is typically used for pending foreclosures and refinancing.