Chapter 3 - Agency & Practice of RE Flashcards
Who is the principal?
The principal delegates authority to the agent to represent the principals interest in the transaction (broker)
What does the broker do?
An agent who represents the interests of the principal (client), who agrees to let the broker exercise authority on behalf of the principal
What is the client?
The principal whom the agent is expected to give advice and counsel during time of agency
What is universal agency?
In writing, unlimited power of attorney to do anything the clients could do for themselves
What is general agency?
In writing, limited power of attorney or a general power of attorney. Gives authority to negotiate contracts and bind a client to a contract - but only within specially designated and limited areas
Property managers usually have this type of agency - which usually must be in writing
What is special agency?
Most common form of agency in RE. An agreement often in writing. The agent had all fiduciary duties, but not ability to bind client to anything
What is a sub-agent?
A person to who agency has been delegated, always by an agent who is responsible to the principal and with permission of the principal
Any agent of brokerage where duties are assigned
What are the 6 fiduciary responsibilities?
COLDAC
Care - put forth best efforts
Obedience - to client
Loyalty - loyal to client and his interests
Disclosure - info must reach client if significant (material facts) or if reasonable person would ask questions (duty of further inquiry)
Accountability - agent may receive money, property, or other things of value which belong to the client
Confidentiality - must keep info about which if disposed without client’s permission could hurt bargaining position
What is agency?
What’s clients duty towards the agent?
The fiduciary relationship between the agent and the principal
Duty of Indemnification - if agent suffers injury (most likely financial) while acting in the client’s behalf, the client must indemnify, or secure against the loss, the broker or agent
What is an agent’s duty to third parties?
Deal in a truthful and honest fashion and disclose all material facts which the agent knows about the property, or should know about the property or through the exercise of reasonable due diligence
What is single agency?
Typical agency used in RE. One agent represents the seller and another agent represents the buyer
What is dual agency?
Multiple party representation
A situation where the agent represents the buyer and the seller. Allows the agent to receive commission from both sides of the transaction
What are the conflicts of interest in dual agency?
- Sellers wanting higher price and buyers wanting lowest price
- Sellers giving “bottom dollar” and buyers giving “top dollar”
Buyer and seller will need to agree in writing to the dual agency representation
What is an assigned or designated agency?
When a broker “designate” agents to represent clients. Gets around dual agency but keeps representation in-house
What is an agent’s responsibilities relative to environmental hazards?
Agents are required by federal law to disclose the following hazards:
- lead-based paint
- presence of mold
- asbestos
- radon gas
- toxic-waste dumping
- underground storage tanks
- contaminated soil or water
- nearby chemical or nuclear facilities
Opinion vs fact
Statements of fact are always permissible if true, opinion is permissible if there is no intent to deceive
What is puffing or puffery?
Exaggeration of a property’s benefits and is legal because it’s based on opinions
Agents must make sure the comments are not treated as fraudulent
What is fraud?
Intentional use of deceit or dishonest means to take money, property, or a legal right
What is negligent misrepresentation?
When an agent should have known a statement about a material fact was false. Lack of knowledge is no excuse and can be sued.
Difference between this and fraud is intent
What are categories of facts that a seller must disclose?
- Material construction defects
- patent defects - accessible, un-hidden, visible defects
- latent defects - defects not visible. If known, seller must reveal
- violation of building codes
Does “as is” mean buyer beware?
It does not absolve all responsibility relative to defects
What is a stigmatized property?
When a negative event happened in the local area. Such as:
- a death or homicide
- illegal drug manufacturing
- gang activity
- a suicide
- a sec offender living in the area
If an agent doesn’t know, he should seek legal counsel
What are the provisions of the Uniform Residential Landlord Tenant Act (URLTA)?
- deposits, including security and last month’s rent, cannot exceed 3x monthly rent
- reasonable rules made available to tenant
- tenant can’t deny access for inspection or making repairs
- landlord may not use right of access to harass tenant and must give 24 notice of access, unless emergency
- landlord can’t take property unless court ordered
- assure parties to lease that neither tenant nor landlord has unreasonable rights
What did the 13th amendment do?
Abolish slavery
What did the 14th amendment do?
Established citizenship for all persons born in the US or naturalized, and granted them federal civil rights, including due process of law
What did the 15th amendment do?
Decreed the right to vote could not be denied based on race, color, or slavery. It did not give the right to vote, but wouldn’t allow denial based off those aspects
What is the Civil Rights Act of 1866?
The Reconstruction Act - declared all people born in the US are citizens (regardless of race or color) and shall have the right to enter into contracts, sue, acquire and dispose of property, and equally benefit from the law
Classes protected: race and color
What is the Fair Housing Act?
Provides basis for fair housing rights and enforcement throughout US. Provides accessibility requirements for multi-family housing being built after 1991
Covers classes in sales, rentals, advertising, and financing:
- Race (1866)
- Color (1866)
- Religion (1968)
- Nayional origin (1968)
- Sex/gender (1974)
- Family status (1988)
- Disability (1988)
Formally Title VIII of the Civil Rights Act of 1968, was amended in 1988
What is steering?
Showing properties to a buyer in areas that are generally the same ethnicity
What is blockbusting?
Inducing neighborhood owners to sell (panicked selling) by creating a sales contract with a member of a protected class. Before the neighborhood becomes too “mixed”
What is redlining?
A lender refusing to lend in an area because it’s populated with members of a protected class
What protected class was added to the Fair Housing Act in 1974?
The Housing and Community Development Act added gender. Bringing the total to 5
What two protected classed were added to the Fair Housing Act in 1988?
Disability and families with children 18 and under
When is it not illegal to discriminate for rent or sale?
When renting or selling a property to an individual whose tenancy would constitute a threat to other individuals or their health and safety, or would result in damage to their building or the property of others
What is the rule regarding multi-family properties and the disabled?
They must be constructed so that the public portions and common-use areas are accessible to people with disabilities
What are the rules around selective advertising?
The Fair Housing Act prohibits advertising programs that selectively market to minorities, especially segregated or over-priced
Cannot say “exclusive neighborhood”
What does HUD do?
Makes info available to public regarding the process to citizens who feel they were discriminated illegally. They fine and civil or criminal lawsuits van be brought
What is the “Sun City Exception”?
Ownership based communities can market to persons over the age of 55 and prohibit against children in the project
What members can discriminate?
- Single family homeowners - own less than 3 single family dwellings, must reside in most recent dwelling, cannot use services of RE, cannot publish or advertise that would violate act
- Multi-family home owners (up to 4)
- Religious organizations
- Private clubs
- Senior citizens
What is the Equal Credit Opportunity Act (ECOA)?
Act prohibits creditors from discriminating based on Fair Housing Act rules or if an applicant receives income from a public assistance program
What’s the Housing and Community Development (HCD) Act of 1974 purpose?
End discrimination in various areas of community development
Created a block grant program titled the Community Development Block Grant program (CDBG)
What is the Americans with Disabilities Act?
Deals with physical workplace accommodations for disabled persons
Buildings owned privately are covered if they are open to the public or residential properties consisting of 5 or more units
Protected disabilities are - vision, limit mobility, wheelchair, hearing, alcoholism (in program), drug addiction (in program), HIV/AIDS
Handicap parking must be available
What is the Housing for Older Persons Act (HOPA 1995)?
Outline the requirements for the persons who are 55 or older exemption estate listed in the Fair Housing Act that communities can legally market themselves as “age-restricted” or “age-qualified” provided 80% of occupied units are occupied by at least one person 55 or older
Are people in protected classes who are seeking mortgage loans similarly protected?
Yes, a lender cannot discriminate against any of the classes on things like providing info, different conditions, charges on rates or points or fees
What does the Federal Trade Comission (FTC) do?
Enforces truth-in-advertising claims
What are the laws regarding earnest money deposits?
A brokerage may be holding thousands of dollars in earnest money
It may not mix (commingled) with the broker’s operating funds or spend it (conversion)
When must a broker present offers to the principal?
Promptly when received. Brokers and principal can agree on timeframes (review Monday morning or review after the weekend), but otherwise cannot withhold info
What does cooperating brokers mean?
Buyers who work with (cooperate with) listing brokers to produce a buyer ready, willing, and able
What types of agent employment statuses are there?
- Employee status - true in some states and would require broker to train and supervise
- Independent contractor status - a tax status (IRS agreed to) for RE agents. Must have a written agreement w broker. Can deduct business expenses for tax purposes - resulting in greater operating expenses
What are the rules with sharing commissions?
Brokers can only share with employees or other licensed brokers. When sharing with other brokers, do not have to be in the same state or country, hut just be licensed in their own jurisdiction
How does commission payment occur?
Commissions are paid to the broker who will share with the salesperson. Usually defined according to a predefined agreement
How can the ethical behavior of RE agents be summarized?
Tell the truth, tell the whole truth, don’t steal, do homework, don’t act like an expert in an area you’re not, treat clients like you’d like to be treated, keep confidential client info to self, disclose required info even if it blows the deal, know the law and follow it, and understand your ethical obligations and practice them at he highest level
What are the rules on timing around contacting previous customers or people requesting for information?
You can call customers you’ve had business relations with for up to 18 months after a purchase or 3 months after last request for assistance
What are the 2 types of e-contracts allowed by the government?
Uniform Electronic Transaction Act (UETA)
- if state requires signature, electronic is sufficient
- if state requires written record, electronic is sufficient
- cannot be denied just because electronic
- record or signature cannot be denied just because electronic
Electronic Signs in Global and National Commerce Act (E-Sign)
What are some of the anti-trust laws?
What is the range of penalties for violation of the Sherman Antitrust Act?
- Price fixing - agreeing to set prices or fees at a predefined level. Cannot discuss with other brokers to establish a standard fee
- Group boycotting - cannot withhold patronage as a business or group of businesses (maybe to an escrow company or home warranty)
- Allocation of customers - if firms divide markets and refrain from competing for customers
- Tie-in agreements - agreements to sell a product it they agree to purchase another
Braking of Sherman up to $1mm for individuals and $100mm for corporations
