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National Exam > Chapter 5 > Flashcards

Chapter 5 Flashcards

1
Q

A licensee should practice within his area of

A

Competence

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2
Q

Due Diligence

A
  1. a fair, proper and due degree of care and activity. An expressed or implied requirement in certain real estate contracts stating that a person use good faith efforts to perform obligations under a
    contract. A buyer who makes an offer contingent on obtaining financing must use due diligence in
    seeking such financing.
  2. A time period in which a buyer is given the opportunity to have experts
    inspect the property, examine the title, and review the leases to determine whether the property
    matches the buyer’s needs. The due diligence period usually begins after the contract has been signed
    and acceptance communicated. If the buyer finds objectionable conditions, he or she typically has
    the right to withdraw from the purchase prior to expiration of the due diligence period.
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3
Q

If a client wishes to add terms, conditions or contingencies to a contract, always recommend

A

they talk to an attorney to prepare the correct wording.

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4
Q

When advising a client to see an attorney, it should be done before

A

a client signs anything he/she does not understand

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5
Q

A license holder who wishes to telemarket must comply with the

A

Federal Do Not Call Registry

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6
Q

Federal Do Not Call Registry is administered by the

A

FTC (Federal Trade Commission)

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7
Q

Consumer privacy for emails falls under the

A

CAN-SPAM Act

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8
Q

The purpose of the listing is to

A

place a seller’s property on the market and find a buyer

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9
Q

Requirements

of a valid listing include:

A
  • signatures of all the owners and the listing licensee
  • property description
  • list price – this must be set by the seller
  • definite starting and termination date
  • broker compensation
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10
Q

There are four types of listing agreements:

A
  1. Exclusive Right to Sell
  2. Exclusive Agency
  3. Open Listing
  4. Net Listing
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11
Q

Exclusive Right to Sell

A

The broker is the exclusive agent, and receives the commission
even if the seller sells the property himself. This type of listing eliminates most procuring
cause controversies. This is the type of listing a broker wants. The broker will be entitled to
a commission no matter who sells the property. Therefore, if a seller sells his own property
and owes a commission on the sale, the seller had probably signed an Exclusive Right to
Sell Listing.

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12
Q

Exclusive Agency

A

The broker is the exclusive agent and receives the commission unless
the seller sells the property himself. The seller competes with the broker. This type of listing
is often used by builders who reserve the right to sell new construction through their own
sales office without paying a commission.

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13
Q

Open Listing

A

The owner reserves the right to list with as many brokers as he chooses. He
also reserves the right to sell the property himself and avoid paying a commission. Open
listings are not found in the MLS. Only a broker who brings a written contract will be
paid. An open listing can be compared to a FSBO where the owner advertises a willingness
to cooperate with licensed agents

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14
Q

Net Listing

A

All money over the amount the owner wants for the sale of the property is
treated as the broker’s commission.

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15
Q

Most exclusive listings are placed in the

A

MLS (Multiple Listing Service) to provide broad exposure

of the property in the market.

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16
Q

License holders must follow the rules of the local MLS, which is
owned and operated by

A

the Board of Realtors. If a client does not want their property in the MLS,
an agent must observe the wishes of the client.

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17
Q

A “Buyer Rep”

A

is an employment contract wherein the broker will be the buyer’s agent. The purpose
is to find a suitable property for the buyer. The buyer’s broker must protect the buyer’s interests at all
points in the transaction. The specific services provided to the buyer should be spelled out. Compensation
issues should be addressed. The agreement must have a starting date and a termination date

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18
Q 
All listings (and buyer representation agreements) are taken in the name of the broker and become
the broker’s property
A

If a sales licensee leaves his sponsoring broker he also leaves (or loses) any
listings or buyer representation agreements he procured under that broker.

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19
Q

All agency agreements must be in writing to satisfy the

A

Statue of Frauds

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20
Q

Listing or buyer representation agreements will automatically terminate on the agreement termination
date. They are also terminated by:

A

• Fulfillment of purpose
• Abandonment or cancellation by the broker
• Revocation by your principal
• Mutual consent
• Acts of law including:
- Bankruptcy of the seller or the broker, or foreclosure
- Death – although sales contracts and leases survive death, service contracts are terminated
by the death of either party. The broker and seller are the parties to the listing.
The salesperson is not a party, therefore the death of the salesperson will not terminate a
listing.
- Destruction of the property or condemnation under Eminent Domain
- A change in property use by outside forces, such as zoning

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21
Q

Many listing agreements and Buyer Representation agreements have a protection period for the
broker.

A

The length of the protection period is negotiable. During the protection period, even though
the listing has expired, the broker may still be entitled to a commission if all the criteria are met.

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22
Q

A property manager is a

A

General agent with a broad scope of responsibilities and liabilities

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23
Q

A management agreement is used to

A

create this relationship and define the role and responsibilities of the
agent and the owner. The management agreement will cover such topics as accounting for funds,
maintenance, leasing, collecting rents, security deposits and budgeting. Once a licensee agrees to be
a property manager the first step is to sign the management agreement.

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24
Q

Property managers’ roles cover four basic areas of responsibility. These are:

A
  1. Finances and marketing of the property
  2. Tenant relationships and occupancy
  3. Managing the facility
  4. Administration of the lease agreements and risk management (insurance)
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25
Q

Finances and marketing of the property

A

often the property manager will have access
to a cash/checking account to pay operation expenses and deposit rents and a separate
trust account to hold tenant security deposits. Marketing the property will ensure that
it is generating income for the owner/investor. Generating income is considered the
key responsibility of the property manager. He or she must make periodic reports to the owner.
The property manager will develop an operating budget to give the owner an idea of the
net income to expect. Net income is effective gross income minus operation expenses.
Operating expenses will be provided to the owner. These are recurring expenses necessary
for the operation and maintenance of a property. They include fixed expenses such as
taxes and insurance, and variable costs such as utilities, payroll and reserves for repairs,
replacement and maintenance. Operating expenses DO NOT INCLUDE mortgage
payments/debt reduction, depreciation and capital improvements/ expenditures.

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26
Q

Tenant relationship and occupancy

A

meeting tenant needs and requests will help

ensure high occupancy rates

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27
Q

Managing the facility

A

a good property manager’s concerns include maintenance and

safety

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28
Q

Administration of the lease agreements and risk management (insurance)

A

Property
and Casualty insurance will be necessary to compensate any individuals who may be
injured on the property. Contractors or employees who handle cash or the private
property of tenants should be bonded (under surety bond).

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29
Q

If the property is a condominium complex the property manager will address insurance issues
accordingly

A

In a condominium complex, each unit owner will have his/her own policy to cover
the unit. The complex will have a policy to cover all the public or common areas such as elevators,
hallways, parking lots, etc.

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30
Q

The Civil Rights Act Of 1866 prohibits

A

discrimination based on race or color. There are no exceptions
or exemptions for this law

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31
Q

The Federal Fair Housing Act, known as the Title VIII of the Civil Rights Act of 1968

A

forbids discrimination

on the basis of race, color, national origin, and religion.

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32
Q

A 1974 amendment added

A

sex as a protected category. Sexual orientation is not a protected category.
The LGBTQ community is not protected by this law

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33
Q

This act was amended in 1988 to include family composition and the handicapped. That amendment
went into effect in 1989. (Family composition may be referred to as familial status.)

A

• Familial status means a minor living with a parent or guardian. Familial status also includes
a pregnant woman.
• Handicapped means mental or physical impairment – alcoholics or recovering drug users
and AIDS victims are included in the list. A handicapped tenant may modify an apartment
to meet his needs, at his own expense, but, must be willing to restore the apartment before
moving out, again at his own expense, if the landlord requires it. An apartment complex can
advertise the existence of handicapped accessible units on site.

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34
Q

Violations include

A

charging higher security deposits, segregating any one category from any other,
or refusing to permit a handicapped tenant to modify rental space

35
Q

Age is not covered.

A

This is to allow for senior housing. Senior housing properties are sometimes
described as having a Familial Status Exemption

36
Q

There are two ways that a community can qualify

as senior housing

A
  1. 100% of the units must be occupied by someone 62 or older.
  2. 80% of the units must be occupied by someone 55 or older
37
Q

Senior housing communities can refuse to

A

sell or rent to those who do not meet the age requirement

or to families with children.

38
Q

Note:

A

no one is protected based upon their occupation

39
Q

The law forbids discrimination and discriminatory practices in connection with the LEASING
or SELLING of residential real estate not only by owners, but also by lenders, investors, builders,
brokers, and real estate organizations and services.

A

A landlord can refuse to lease to a mentally
handicapped tenant who is a danger to himself and others. Since there is no federal standard for
determining mental handicap, a landlord has to rely on a background check.

40
Q

A landlord can refuse to lease to a party who has been convicted of

A

using or selling illegal drugs.

41
Q

Note:

A

There are some exceptions to the rules, but Real Estate Licensees are NEVER exempt.

42
Q

Exception include:

A

FSBO of a single-family home when the owner owns no more than three homes at a time, and
no discriminatory advertising is used.
• Rental of an owner-occupied 1-4 family home when the services of a broker are not used and
no discriminatory advertising is used.
• Churches owning rental property may restrict occupancy to members of the congregation, as
long as membership in the congregation is open to all.
• Private clubs owning lodgings may restrict occupancy to members as long as the lodgings are
not operated commercially.

43
Q

The law prohibits blockbusting

A

causing panic selling by homeowners, also known as panic

peddling.

44
Q

The law prohibits steering

A

directing buyers into or away from certain areas because of their race,
color, etc. This is also known as channeling

45
Q

Discrimination in advertising is also a

A

violation of this law.

46
Q

In advertising, terms used to describe the property would be acceptable

A

two-bedroom, master down

47
Q

Terms used to describe or imply the type of person/people who might live on or in a property
would be a violation:

A

“no Irish”, “no wheelchairs”, etc.

48
Q

The law requires that every broker must prominently display the Equal Housing Opportunity Poster
in his or her office.

A

The Equal Housing Poster is available from HUD. Failure to display the poster
may be considered prima facie evidence of discrimination – evidence so great that no further investigation
is necessary. If a broker fails to display the poster, the broker is guilty of discrimination. The
Equal Housing symbol is a house with an equal sign inside.

49
Q

Judges may award both economic and non-economic damages, issue injunctions, assess attorney’s
fees and assess civil penalties

A

There are no criminal penalties. The maximum penalty for a Fair
Housing violation is $150,000.

50
Q

If a complaint is filed against a licensee, the licensee’s best defense is

A

written records of interaction

with clients and prospects

51
Q

This law is administered by HUD. When a complaint is made to HUD, HUD will try

A

mediation
and conciliation to resolve the problem before pursuing the matter in court. This will result in the
soonest or quickest resolution of the problem in most cases.

52
Q

Victims have up to 1 year to seek mediation through HUD and

A

up to 2 years to file a complaint with

the courts.

53
Q

The Americans with Disabilities Act was passed to prohibit

A

discrimination against individuals with
special needs by denying them the full and equal enjoyment of goods, facilities, accommodations,
services and privileges.

54
Q

The removal of barriers requires

A

ramp installations, curb cuts in sidewalks, repositioned shelves and
phones, flashing alarm lights, Braille markers on elevator control buttons, wider doors, elimination
of turnstiles, alternate paths for travel, and levered door handles for easy access.

55
Q

In commercial properties, both the landlord and tenants will be held responsible for access

A

Therefore,

both can be fined if the building is in violation of the law.

56
Q

Individuals with a history of mental impairment who have been declared recovered, continue to be

A

protected under ADA.

57
Q

Risk Management

A
  1. Supervision and compliance with Federal Laws
  2. Vicarious liability
  3. Antitrust laws
  4. Fraud and misrepresentation
58
Q

Supervision and compliance with Federal Laws

A

All federal and state laws and regulations
must be observed and obeyed by both broker and sales license holders. The broker must
ensure the compliance of his sponsored agents.

59
Q

Most often, a license holder is an independent contractor when sponsored by a broker, rather than
an employee.

A

Independent contractor status must be established by written agreement between the
parties to comply with IRS regulations. An associate must have a real estate license and 90% or more
of his income must be from production and commission based rather than hours worked. A broker
cannot require his sales associates to work strictly scheduled hours but he may require a full-time
commitment. An independent contractor must agree to pay all his own payroll taxes; none will be
withheld from any payment he receives. Income will be reported to the IRS on form 1099 MISC.

60
Q

TRUST ACCOUNTS:

A

If the broker accepts the earnest money or deposit and acts as an escrow
agent, the money must be deposited in a special trust account set up for this purpose. All clients’
funds can be kept in the same account as long as written records are maintained. No commingling
or conversion is allowed. In commingling, a broker mixes client money with his or her funds, either
business or personal. Commingled funds could be subject to the claims of creditors of the broker,
thus placing client funds in jeopardy. In conversion, a broker uses a client’s money or commingled
funds for his or her own purposes. Whenever money is held in a trust account, whether the funds
Copyright © 2020 Champions School of Real Estate®
56
Chapter 5
Real
Estate
Practice
relate to a lease or sale, before funds can be released from the account, both parties to the transaction
must be notified, i.e. both landlord and tenant, or both buyer and seller.

61
Q

A broker should keep copies of all documents involved in his/her business for a minimum of

A

four
years. Real estate brokers can protect themselves and their clients from any loss of records due to
theft, vandalism, fire or flood by making use of “cloud” or offsite storage.

62
Q

Cloud storage will often involve electronic documents

A

E-Sign and UETA are two federal laws confirming
the use of electronic documents and e-signatures as being valid and binding on the parties
to a transaction, as long as the parties have agreed to their use

63
Q

Vicarious liability

A

This is liability created not because of the broker’s actions but because
of the broker’s relationship with the liable party – his sponsored agents. The broker will be
held liable for the acts of his or her salespeople while acting on behalf of the broker, even if
the broker did nothing to cause liability.

64
Q

Antitrust laws

A

The Sherman and Clayton Anti-Trust Acts were passed to preserve business
competition by prohibiting monopolies, monopolistic practices, and restraint of trade.
The most significant impact of this on real estate is in the area of commissions.

65
Q

Commissions are always

A

negotiable. There is no standard or fixed rate

66
Q

Competing broker-to-broker commission discussions are

A

prohibited

67
Q

Listening to competing broker-to-broker commission discussions is

A

prohibited. If a broker overhears

other brokers discussing commission rates, that broker should walk away.

68
Q

Any MLS requirement for a minimum commission on listings would be a

A

Violation. Any attempt to

price fix is a violation.

69
Q

An agreement by competing brokers to confer with one another regarding their commission rates or
any agreement to limit competition by assigning market areas would be a

A

violation

70
Q

Boycotting discount brokers is

A

prohibited

71
Q

Fraud and misrepresentation

A

The licensee/agent should make every effort to be knowledgeable
about the conditions of the property. This will help to avoid exposure to lawsuits.
All material facts about the property must be disclosed. This would include anything that
might influence the decision of a purchaser. Death on the property due to a material defect
must be disclosed. Death due to violent crime (murder) on the property must be disclosed.
We are not required to disclose death by natural causes or suicide. We can never disclose
death due to HIV/Aids

72
Q

A property where there has been a murder or alleged haunting is called

A

Stigmatized.

73
Q

A property can

be considered stigmatized if it is in the vicinity of the residence of a known

A

Sexual offender

74
Q

Megan’s Law

A

is a federal law requiring all states to release information to the public about known convicted
sex offenders when necessary to protect the public’s safety. Licensees are not required to disclose the
information but should refer buyers to local information sources if buyers ask about this.

75
Q

Fraud and misrepresentation of any kind must be avoided. A seller who asks a licensee to misrepresent
the property condition should be

A

Denied representation

76
Q

Puffing is not

A

misrepresentation

77
Q

Puffing is

A

marketing. Puffing uses adjectives and opinions rather
than details or facts (the most beautiful landscaping). Exaggerated puffing can lead to misrepresentation
(Example: The best water in the world).

78
Q

Opinions are

A

subjective and not factual.

79
Q

Latent or hidden defects must also be disclosed.

A

This would include things like encroachments or

zoning or deed restrictions.

80
Q

Types of Insurance

A
  • Errors and Omissions Insurance
  • General Liability Insurance

should be
carried by all Brokers.

81
Q

Errors and Omissions Insurance

A

E&O – insurance protects both broker and sales licensees from
a legal claim or liability for mistakes, errors, and negligence in usual listing and selling activities.
It does not provide protection for fraud, punitive damages or the personal/non business actions of
license holders.

82
Q

General Liability Insurance

A

liability risks may include bodily injury or property damage caused
by direct or indirect actions of the insured. General Liability Insurance protects a company’s assets
if someone is injured on company property.

General liability insurance coverage most often appears in homeowners’ insurance policies obtained
by individual homeowners.

83
Q

A homeowner’s policy will protect the property from damage due to a variety of reasons, including
but not limited to

A
  • Fire
  • Storms
  • Smoke
  • Vandalism
  • Other perils

National Exam (8 decks)

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