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RE Principles > Chapter 3 - Working with Buyers and Sellers Prior to the Real Estate Transaction > Flashcards

Chapter 3 - Working with Buyers and Sellers Prior to the Real Estate Transaction Flashcards

1
Q

Prospecting

A

The process of FINDING buyers and sellers and TURNING them in to CLIENTS.

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2
Q

Markets can be segmented by:

A
  1. Psychographics (lifestyles) *
  2. Geographical (farm areas) *
  3. Socio-economic/behaviorial factors (social classes)
  4. Demographics (age, sex, martial status, etc.)

*Most common methods used - “P&G”

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3
Q

What are some examples of Active Prospecting Methods?

A

Knocking on doors
Telemarketing
Open houses

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4
Q

What are some examples of Passive Prospecting Methods?

A

For sale signs
Newsletters/mailers
Renting a kiosk at the mall

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5
Q

Neighborhood Life Cycle

A

“GPSDG”

  1. GROWTH in desirability
  2. PEAK desirability
  3. STABILITY for a time
  4. DETERIORATION
  5. GENTRIFICATION
  6. Starts back at 1
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6
Q

What are some reasons people want to buy a home?

A

Price appreciation
Leverage
Taxation
Amortization

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7
Q

Price appreciation

A

Increase in a PROPERTY’S VALUE over a holding period (time the purchaser owns the property).

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8
Q

Leverage

A

When a property owner increases return on investment by placing a small down payment and financing the remaining balance of the purchase price.

Example – placing 20% down payment instead of purchasing a home in full with all cash

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9
Q

Tax shelter

A

Depreciation allows real estate to be considered a tax shelter.

a. HOMEOWNERS may deduct mortgage interest from their real estate loans in the same year it incurred.

For those who lived 2 out of the last 5 years may receive $250,000 in net proceeds (single), $500,000 (married couple) from the sale of their home without paying capital gains taxes.

b. INVESTORS may deduct mortgage interests paid on real estate loans, most property expenses and some capital improvements made to a property in the year they occur. It’s advantage: This can reduce active/passive income tax liability on a yearly basis.

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10
Q

Loan Amortization

A

The systematic liquidation of a debt obligation on an installment basis over a period of time.

Each loan payment is part PRINCIPAL and part INTEREST. Over the life of the loan, the portion of the payment applied to PRINCIPAL INCREASES and the portion that is paid in INTEREST DECREASES.

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11
Q

True or False: The sale of the home must be a win-win situation for the property owner and the RE agent.

A

True – The cost of an agent’s services must be LESS than the total benefits the agent provides to the seller in the sale of the home.

The owner wins by SAVING $$ when using an agent to sell the home.

Agent wins by collecting a commission with the sale of the property.

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12
Q

Open Listing / Open Agreement

A

A listing agreement where MULTIPLE BROKERS work simultaneously to sell the property. Commission is only paid to the broker who is the PROCURING CAUSE of the sale.

When a seller says “I’m not going to list the property with only one agent, I’m going to pay whoever brings in the buyer”

Known as a UNILATERAL contract in which the seller promises to pay commission upon the act of an agent bringing a buyer who purchases the property.

*Level – OK

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13
Q

Exclusive Authorization and Right to Sell Listing

A

A listing agreement that provides the real estate broker to receive a commission no matter who sells the property.

*Level – BEST!

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14
Q

Exclusive Agency Listing

A

A listing agreement in which the seller must pay the agent a commission no matter who sells the property, EXCEPT if the seller sells the property themselves.

If the property is sold buy the seller, under this type of listing agreement, the seller does not owe the agent a commission.

*Level – OK

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15
Q

Net Listing

A

Broker is informed that the seller requires a certain amount from the sale of the property. Any amount above this price the broker can keep as a commission.

Seller states: “I want $200,000 for my property and you can keep anything above that.”

If the agent can sell the property for $225,000, the agent will receive a $25,000 commission.

Although legal in CA, the agent may do everything correctly and not receive and commission.

*Level– OK

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16
Q

Option Listing

A

A listing agreement that allows an agent to list a property for sale AND, at the same time, the AGENT PERSONALLY HAS AN OPTION TO PURCHASE the property for a specified purchase price and length of time to exercise the option.

*Level – OK

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17
Q

Oral Listing

A

Agency relationship created by oral agreement and is effective in establishing the relationship, but IS NOT ENFORCEABLE.

Is effective in establishing the agency relationship; HOWEVER
the agent does NOT HAVE THE ABILITY TO ENFORCE COLLECTION of a commission

*Level – WORST!

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18
Q

Pocket Listing

A

When a listing agent “pockets a listing” and does not place it in MLS.

*LEVEL – Is UNETHICAL, UNLESS the SELLER INSTRUCTS the listing agent to do so.

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19
Q

Procuring Cause

A

Broker WHO BRINGS IN THE BUYER

REQUIRED FOR –

  1. Open Listing / Open Agreement
  2. Exclusive Agency (EA)
  3. Net Listing
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20
Q

Exclusive Authorization to Locate Property Agreement (EALP)

A

Provides the broker/agent representing the BUYER a commission no matter which property the buyer purchases. This allows for the agent to search for not only properties that are listed in the MLS, but for foreclosures owned by banks and for sale by owner (FSBO) properties.

The agent is assured of being paid a commission, so the agent can expend time and effort finding potential properties for the buyer to purchase.

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21
Q

Broker’s Protection Clause

A

aka Safety Clause or Protection Period

A clause contained in the listing agreement that allows the real estate broker to receive a commission after the listing agreement has expired.

A clause contained in the listing agreement – if the property sells to a registered prospect who saw the property during the listing period and is on a list that was given to the seller by the listing agent by the end of the listing period, and the agent may be due a commission after the listing has expired.

22
Q

What are the 3 types of EXCLUSIVE listings? What must they all have?

A
  1. Exclusive Authorization and Right to Sell (EARS)
  2. Exclusive Agency (EA)
  3. Exclusive Authorization to Locate Property Agreements (EALP)

**All MUST have a DEFINITE TERMINATION DATE OF when the listing agreement will end.

23
Q

When an agent has an EXCLUSIVE LISTING, what may cause disciplinary actions?

A

They may be subject to DISCIPLINARY ACTION by the Real Estate Commissioner for:

  1. Not giving a copy of the Exclusive Listing to the seller; and
  2. Not including a definite TERMINATION DATE in the agreement
24
Q

What are some sources for Sales Comparables?

A
  1. County tax assessor’s records
  2. Title insurance company records
  3. County recorder’s office files
  4. Multiple Listing Service records
  5. Financial news
  6. Other comparative market analyses completed by the agent on similar properties in the past
25
Q

Broker Price Opinion (BPO)

A

An opinion of VALUE provided by a broker for a parcel of real property.

The broker uses recent comps to help determine the subject property’s value on the open market , then provides the BPO amount to the lender for review.

This amount may be used by the lender to select an opening bid price for a trustee’s sale (foreclosure) auction.

Commonly used by lenders dealing with foreclosed properties.

26
Q

Automated Valuation Model (AVM)

A

Uses sales comparables to come up with an estimated value for a subject property.

Commonly used by lenders to determine a ballpark estimate value of a subject property.

*A major drawback – not being able to consider the condition of the subject property.

27
Q

California Association of Realtors (CAR)

A

Most common source for agents to electronically access highly-acclaimed forms (CONTRACTS and DISCLOSURES) that are continually updated in response to changes in RE law.

Industry group of real estate brokers, salespersons and other affiliate entities. Membership required

*Very valuable – although there are other sources of RE contracts and disclosures available in CA as well.

28
Q

A real estate agent must provide more _______ ( ______ ) than costs to owner-occupied homeowners by becoming a _________ and __________ their interest throughout one of the largest transactions of their lifetimes.

A

benefit ; (value) ; consultant ; protecting

29
Q

The value a real estate agent provides to real estate investors is ____________ and ___________.

A

Market knowledge ; convenience

30
Q

Property Marketing

A

Advertising a property for sale.

Advertising the brings in buyers to buy a listed property or may be used to pick up buyers and show them other properties to purchase.

31
Q

Agent Marketing

A

Occurs when an agent advertises their name toward specific target markets.

Prospects contact an agent directly to purchase/sell a property.

32
Q

Image Advertising

A

Advertising that promotes a real estate broker’s business / name recognition.

33
Q

Misleading Advertising

A

Advertising that misleads a buyer into thinking a property is in better condition than its present state.

Advertisements CAN NOT be misleading!!!

34
Q

Prima Facie Evidence

A

A fact presumed to be true (or untrue) unless there is substantial contradictory evidence against the “prima facie” evidence.

aka– a fact presumed to be true until disproved

Latin for “FIRST SIGHT”

35
Q

Blind Advertisement / Blind Ads

A

Are ILLEGAL

When an ad does not include the name of the broker who has listed the property for sale.

Name of the broker must always accompany each advertisement for the sale of real property.

When a real estate salesperson advertises a property for sale, it must include their broker’s name. Salespersons’ name is not enough to fulfill legal requirements.

36
Q

According to DRE, “ all first point of contact solictation materials must include:

A
  1. Name & number of the licensee
  2. Responsible broker’s identity – Name under which the broker is currently licensed by the DRE and conducts business as or is a substantial division of the RE firm.

*Broker’s license is optional

37
Q

Puffing

A

A statement of OPINION that is NOT TAKEN as a statement of FACT.

The use of words in advertising that are the broker’s own OPINION and are not considered statements of FACT about the property.

Examples–
Opinion: “Big and wonderful home.” (not illegal)
Fact: “The home will double in value in two years.” (agent can get into trouble if the property does not double in value in the next two years)

38
Q

What happens if a real estate agent breaks a promise to advertise a listing for sale?

A

It is illegal to break a promise to advertise. The agent may be liable for damages under fraud.

39
Q

Deceptive Advertising/ Deceptive Ad

A

Example – “This home is move-in ready!”

When in reality, the home is overpriced, has a leaky roof and structural defects which makes this deceptive since work will be needed.

Agent can get into trouble with the RE Commissioner and possible become the defendant in civil litigation brought from by the buyer.

40
Q

Under what 3 types of listings, when agents MUST PROVE they are the PROCURING CAUSE :

A
  1. Open Listing (non-exclusive listing)
  2. Exclusive agency listing (EA) (at least prove the seller did not personally sell the property)
  3. Net listing
41
Q

Under what type of listing is an agent NOT REQUIRED to prove they are the PROCURING CAUSE of a sale?

A

Exclusive Authorization and Right to Sell listing agreement (EARS)

42
Q

Difference between an Exclusive Agency Listing (EAL) and Exclusive Authorization and Right to Sell (EARS) listing agreement?

A

EAL - seller must pay agent commission no matter who sells the property, EXCEPT if the seller sells the property themselves (OK)

EARS - seller pays agent commission no matter who sells the property (BEST)

43
Q

True or False: Agents have a FIDUCIARY RESPONSIBILITY toward their clients.

A

TRUE!

44
Q

For OWNER-OCCUPIED HOMES – How can agents provide MORE VALUE than cost to their client?

A

Holding their hand through a largest financial transaction in their lives by becoming a CONSULTANT and PROTECTING your clients’ interests.

45
Q

For INVESTORS – How can agents provide MORE VALUE than cost to their client?

A
  1. Current market knowledge
  2. Convienence

By research of:

a. Comps
b. Prevailing Capitalization Rates for other similar income producing properties

46
Q

Capitalization Rate

A

The RETURN an investor receives if the investor pays all cash (and no loan) to purchase a property.

A good indication of CURRENT MARKET VALUES (CMV) for INCOME PRODUCING PROPERTIES because they show what OTHER INVESTORS have accepted as the return on SIMILAR PROPERTIES.

47
Q

IRS form _______ - Used to defer capital gains tax for investors.

A

1031 tax-deferred exchange

48
Q

What are next steps after a single-family home has been placed on the market?

A

Listing agent will implement their MARKETING PLAN to sell the property by:

  1. Placing ad on MLS
  2. Advertise using other mediums
49
Q

What are the 3 levels of advertising?

A
  1. Property marketing
  2. Agent marketing
  3. Image advertising
50
Q

What are the 4 MUSTS for advertising?

A

“AIDA”

  1. attract audience’s ATTENTION
  2. garner INTEREST
  3. elicit DESIRE
  4. generate ACTION
51
Q

Example of an effective advertising strategy:

A

Determining what has worked in the past and seeing if it still works today

Can ask each prospect how they heard about the agent/home and save this information in a database.

52
Q

According to DRE, all first point of contact solicitation materials MUST INCLUDE:

A
  1. Name & license number
  2. The responsible Broker’s identity (what your broker is licensed by DRE as)
  3. Broker’s license number (optional)
SAMPLE-- 
Agent Name
(XXX) XXX-XXXX
agent@email.com
Agent’s License Number
Broker Information

RE Principles (14 decks)

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