(Lesson 2) Brokerage Agreements (Unit #6)

Question 1

Define brokerage agreements

Answer 1

brokerage agreements are employment contracts for the personal professional services of the sponsoring broker, not for the transfer of real estate.

**the various types of brokerage agreements establish the basic relationship between the parties and provide different levels of rights and responsibilities for the sponsoring broker.

**brokerage agreements address the essential questions of exclusivity and compensation.

Question 2

Define listing agreement amongst brokers & buyer representation agreement

Answer 2

a listing agreement is an employment contract between a sponsoring broker and a seller.

a buyer representation agreement is an employment contract as well because it establishes the rights and responsibilities of the sponsoring broker as agent for the buyer.

** a management contract sets up the relationship between the sponsoring broker and the owner of a rental property.

Question 3

Define statutes of frauds

Answer 3

In most states, either by statues of frauds or by specific rules from real estate licensing authorities, exclusive brokerage agreements must be in writing to be enforceable in court.

**each brokerage agreement must also clearly state that it is illegal for either the owner or the sponsoring broker to refuse to display or sell to any person because of ones membership in a protected class.. (race, color, religion, national origin) etc.

Question 4

There are different types of listing agreement.. what do they determine?

Answer 4

The type of listing agreement determines the specific rights and obligations of the broker and the seller.

Question 5

Define exclusive right-to-sell listing

Answer 5

one broker is appointed as the sellers sole agent.

The listing broker is given the exclusive right, or authorization, to market the sellers property.

**sellers benefit from this form of agreement because the broker feels freer to spend time and money actively marketing the property, making a timely and profitable sale more likely.

**from a brokers perspective an exclusive right to sell listing offers the greatest opportunity to receive a commission.

**most residential listings are exclusive right to sell agreements

Question 6

define exclusive-agency listing

Answer 6

one broker is authorized to act as the exclusive agent of the seller principal.

**however the seller retains the right to sell the property without obligation to the broker.

**the seller is obligated to pay commission to the broker only if the listing broker or a cooperating broker has been the procuring cause of the sale.

**the seller retains the right to sell the property without financial obligation to the listing broker.

**in Illinois, exclusive listing agreements must be in writing. and must include a list of agreements found on page 90.

Question 7

Define open listing

Answer 7

open listing (nonexclusive lisiting) the seller retains the right to empty any number of brokers as agents.

The brokers can act simultaneously, and the seller is financially obligated only to that broker who successfully produces a ready, willing, and able buyer.

Question 8

Define net listing

Answer 8

a net listing provision specifies that the seller will receive a net amount of money from any sale, with the excess going to the listing broker commission.
**the broker is entitled to any amount exceeding the sellers stated net.. so the broker can technically up charge a property and take away the extra commission

**in Illinois, net listing are legal but not recommended because of the potential for fraud.

Question 9

Define option listing

Answer 9

The broker has the right to purchase the property.

**sometimes brokers and sellers enter into guaranteed sale agreements, in which the broker agrees to buy the listed property if it fails to sell before the end of the listing period.

Question 10

Define multiple listing services (MLS)

Answer 10

an MLS is a marketing organization whose members make their listings available for showing and sale through all other member licensees.

• *sellers gain because of the property is exposed to a much larger market.
• *buyers gain because of the variety of properties on the market.

**MLS helps with (CMA) comparative market analysis to determine the value of a particular property before suggesting an appropriate range of prices.

Question 11

Describe the listing process

Answer 11

before signing a contract, the broker and the seller must discuss a variety of issues. The sellers most critical concerns typically are the selling price of the property and the net amount the seller can expect to receive from the sale.

**an important safeguard is to check title records to see who has an interest in the property so that all Appropriate parties are involved.

Question 12

what is Listing appointment

Answer 12

the backbone of the real estate practice is the listing appointment, the meeting of the licensee with the potential client, the seller.

**it is important to prepare an accurate comparative market analysis and these require the collection of data on other properties, also known as comparable or comps.

they generally fall into 3 categories: solds, actives and expireds.

**solds show an agent as to what prices are attractive to buyers and what the average neighborhood market time is.

**Actives show an agent the competition is and if there are any “price points”, which are the high or low ends of.a range of prices for similar properties.

**An expired comp usually indicates a price that did not attract a buyer. more often than not indicates over pricing.

Question 13

Define ongoing communication

Answer 13

It is imperative to communicate with clients throughout the entire real estate transaction, as well as afterward.

Here are some tips to keep in mind regarding communication

1. after oral conversations, make notes with dates and times
2. save texts and emails
3. follow laws and regulations regarding electronic communication

Question 14

Define pricing the property

Answer 14

While it is the responsibility of the broker to advise and assist, it is the seller who must determine the listing price for the property.

**because the average seller does not have the skills needed to determine a market based listing price, brokers must be prepared to offer their knowledge and expertise.

Question 15

define comparative market analysis

Answer 15

CMA analyzes properties similar to the subject property in size location and amenities.

A broker price opinion or CMA shall be in writing either on paper or electronically…. and shall include lengthy provisions explained on page 94.

• *CMA is based on:
• recently closed (sold) properties
• properties currently on the market
• properties that did not sell

Question 16

What do CMAs and appraisals have in common?

Answer 16

They both seek after property’s market value.

Question 17

Define Market Value

Answer 17

market value: is the most probable price a property would bring in an arms-length transaction under normal conditions on the open market.

Question 18

when determining market value, appraisers and CMAss give two different values. explain

Answer 18

CMAs give values of a range in a market value ($335K-345K) vs. appraisers give an exact value..

*in both cases the seller, must make the final decision on the asking price.

Question 19

IN PRACTICE When helping a seller determine an appropriate listing price:

Answer 19

the broker must give an estimate of value that is reasonable and as accurate as possible.. overpriced listing cause the broker wasted time and money is wasted into marketing etc… and also gives the sellers of false riches to come

Question 20

Information needed for listing agreements

Answer 20

once the broker and owner agree on a listing price, the broker must obtain specific detailed information about the property.

**obtaining as many facts as possible ensures that most contingencies can be anticipated.

**this is particularly important when the listing will be shared with other licensees through MLS, and other licensees must rely on the information taken by the listing broker.

Question 21

define measuring structures and room count

Answer 21

In determining the size and scope of a property, guidelines vary. According to the American measurement standard(AMS), in a single-family detached dwelling, square footage is determined by the measurements of the exterior dimensions.

Question 22

Define disclosures in relating to agency relationships and property conditions

Answer 22

property condition disclosures normally cover a wide range of structural, mechanical, and other conditions that a prospective purchaser should know about to make an informed decision.

**it is the brokers responsibility to ensure that the seller is aware of these mandatory disclosures.

Question 23

The listing agreement

Answer 23

a wide variety of listing agreements forms are available.

**once a long-lasting agreement has been finalized and signed by the broker and seller, Illinois law prohibits the broker from making any addition to, deletion from, or alteration of the written listing without consent of the principal.

Question 24

What disclosures does Illinois law require to be included with listing contracts

Answer 24

• Disclosure of material facts
• disclosure of interest
• disclosure of special compensation
• disclosure of property condition

Question 25

define disclosure of material facts

Answer 25

a broker must not withhold material facts concerning a property of which she has knowledge from any purchaser, prospective purchaser, seller, lessee, lessor, or other party to the transaction.

**Material facts are any facts on which a reasonable person would base a contractual decision.

Question 26

disclosure of interest

Answer 26

a broker must disclose in writing to the parties to the transaction her status as a broker and any direct or indirect interest she has or may have in the subject property.

**for example , if the buyer or seller is a licensed broker, this must be clearly stated in the contract.

Question 27

define disclosure of special compensation

Answer 27

a broker is prohibited from accepting ‘any finder fees, commissions, discounts, kickbacks, or other compensation from any financial institution, title insurance company, or any other person other than another licensee, without full disclosure in writing of such receipt to all parties to the transaction’

Question 28

Define earnest money and purchaser default

Answer 28

when any written listing includes provision that the seller will not receive the earnest money deposit if the purchaser defaults, this fact must appear emphasized in letters larger than those otherwise used in the listing agreement

Question 29

define disclosure of property condition

Answer 29

seller disclosure of property conditions is required by law in Illinois. These disclosures normally cover a wide range of structural, mechanical, and other conditions that a prospective purchaser should know about to make an informed decision.

**brokers should caution sellers to make truthful disclosures to avoid litigation arising from fraudulent or careless misrepresentations.

**a property disclosure statement must be given to the buyer before an offer is made or accepted… or the buyer will have three business days in which to remind the contract, based on any negative disclosures.

Question 30

Define names of all parties to the contract

Answer 30

anyone who has an ownership interest in the property must be identified and must sign the listing to validate it. If the property if owned under some form of co-ownership, that fact must be clearly established.

Question 31

brokerage firm

Answer 31

the brokerage company name, the sponsoring broker, and the designated agent of the sponsoring broker must all be identified

Question 32

Define listing price

Answer 32

this is the proposed gross sales price.

**the sellers proceeds will be reduced by unpaid real estate taxes, special assessments, mortgage or trust deed debts, and another other outstanding obligations

Question 33

Real property and personal property

Answer 33

the listing agreement must note that certain items on the property may be fixtures and if so they must remain with the property unless explicitly identified in the subsequent purchase contract between the seller and buyer.

Question 34

Define leased equipment

Answer 34

it must be determined whether leased equipment-security systems, cable television boxes, water softeners, special antennas- will be left with the property. If so, the seller is responsible for notifying the equipments lessor of the change of property ownership.

Question 35

description of the premises

Answer 35

in addition to street address, the legal description, lot size, and tax parcel number (property index number or PIN) may be required for future insertion into a purchase offer.

Question 36

define evidence of ownership

Answer 36

a warranty deed, title insurance policy, or abstract of title with an attorneys opinion can be used for proof of title.

Question 37

encumbrances

Answer 37

all liens must be paid by the seller or be assumed by the buyer at the closing. Identify as much information as possible about existing loans, such as the name and address of each lender, the type of loan, the loan number, the loan balance, the interest rate, the monthly payment and if the loan can be prepaid without penalty.

**physical encroachments on the property (such as a fence) and their legal implications are questions best referred to an attorney, even if they were noted in the listing file.

Question 38

define property taxes when doing a real estate transaction

Answer 38

ask about current (or most recent) years property taxes and determine the amount of any outstanding special assessments and whether they will be paid by the seller or assumed by the buyer

Question 39

define home warranty program

Answer 39

home warranty: these warranties often benefit both the seller and the buyer. Most real estate offices have information about various home warranty programs available to homeowners.

**brokers must disclose any monies sent to them by a home warranty company

Question 40

define commission

Answer 40

the circumstances under which a commission will be paid must be specifically stated in the contract.

**it is illegal for commissions to be set by any regulatory agency, trade association or other industry organization

Question 41

Define warranties by the owner

Answer 41

the owner is responsible for certain assurances and disclosures that are vital to the agents ability to market the property successfully.

• is the property suitable for its intended purpose
• does it comply with the appropriate zoning and building codes
• will it be transferred to the buyer in essentially the same condition as it was originally presented, considering repairs or alterations to be made as provided for in a purchase contract?
• are there any known defects

Question 42

define indemnification (‘hold harmless’) wording

Answer 42

the seller and broker may agree to hold each other harmless (not to sue one another) for any incorrect information supplied by one to the other.

Question 43

define nondiscrimination (equal opportunity) wording

Answer 43

federal, state and local fair housing laws protect a variety of different groups and individuals. The seller must

Question 44

define minimum services

Answer 44

all exclusive brokerage agreements must specify that the sponsoring broker, through its sponsored licensees, will provide the following required minimum services:

• accept delivery of and present to the client all offers and counteroffers to buy, sell, or lease the clients property or the property the client seeks to purchase or lease.
• assist the client in developing, communicating, negotiating, and presenting offers, counteroffers, and notices that relate to there offers and counteroffers until a lease or purchase agreement is signed and all contingencies are satisfied or waived.
• answer the clients questions relating to the offers, counteroffers, notices, and contingencies

Question 45

what is The signature of the parties

Answer 45

all parties identified in the listing contract must sign the contract, including all individuals who have a legal interest in the property.

Question 46

The date the contract is signed may differ from the date the contract becomes ___

Answer 46

effective

Question 47

Providing additional information on a property may include

Answer 47

although not required on the listing agreement, the listing broker should also obtain any additional information that would make the property more appealing and marketable, such as neighborhood amenities.

amenities may include:

• schools
• parks
• recreational areas
• places of worship
• public transportation

**any written brokerage agreement must provide either an automatic expiration within a definite period of time or provide the client with a right to terminate the agreement annually by giving no more than 30 days prior written notice

Question 48

define broker protection clause

Answer 48

broker protection clause provides that the property owner will pay the listing broker a commission if, within a specified time period after the listing agreement expires, the owner transfers property title to someone who saw the property while it was listed with the broker

**the protection clause protects brokers from losing a commission on a sale, and to discourage others from trying to reach private arrangements with sellers

Question 49

define buyer agency agreements

Answer 49

like a listing agreement, a buyer agency agreement is an employment contract.

in this case, the broker is employed as the buyers agent. The buyer rather than the seller is the principal.

**A buyers broker must protect the buyers interest at all points in the transaction

Question 50

what are the 3 types of buyer agency agreements

Answer 50

• exclusive buyer agency agreement
• exclusive buyer agency agreement
• open buyer agency agreement

Question 51

Define exclusive buyer agency agreement:

Answer 51

also called an exclusive right to represent, this is a true exclusive agency agreement.

**the buyer is legally bound to compensate the broker whenever the buyer purchases a property of the type described in the contract.

**even if the buyer finds the property independently, the broker is entitled to payment

Question 52

define exclusive-agency buyer agency agreement:

Answer 52

this is a exclusive contract between the buyer and the broker.

**however this agreement limits the brokers right to payment. Brokers are only entitled to payment if they locate the property the buyer ultimately purchases.

Question 53

define open buyer agency agreement

Answer 53

this agreement is a nonexclusive buyer representation agreement between a broker and a buyer.

it permits the buyers to enter into a similar agreements with an unlimited number of brokers.

**the buyer is obligated to compensate only the broker who locates the property the buyer ultimately purchases

Question 54

Buyer representation issues

Answer 54

a broker and buyer must discuss a number of issues before entering into a written buyer agency agreement.

• the broker should conduct a counseling seeing with the buyer to determine the buyers needs and goals, financial capabilities, and motivation.
• this session gives the broker the ability to educate the buyer on the buying process and market conditions to formulate a strategy to finding the right property
• compensation needs to be addressed and negotiated in the event there is no offer of cooperative compensation from the listing broker to the buyers broker.
• in Illinois it is common for the listing broker to share the listing fee with the buyers broker.

Question 55

what are buyers qualified services from a broker?

Answer 55

the buyers broker provides the following services throughout the real estate transaction:

• needs assessment: determine and evaluate the needs, wants, and financial capacity of the buyer
• property selection: locate the best property for the buyer by notifying buyers of new listings and for-sale-by-owner properties
• viewing properties: provide an objective evaluation of the property and show buyers how to compare properties. Disclose material facts that are pertinent to the property.
• negotiate: strategize with the buyer, suggesting techniques that strengthen the buyers position. Then, implement those strategies on the buyers behalf. provide price counseling and prepare comparative market analysis on the property the buyer is considering
• follow-up: resolve any issues that could prevent a closing from occurring. provide ongoing communication with the client, preferably by email for maintaining record.

Question 56

The buying process, after the buyers have found the right property

Answer 56

once the buyer has found the right property, the next step is to prepare and negotiate an offer that will lead to a signed sales contract between the seller and the buyer.

**the buyers broker should prepare a CMA to establish a price for the buyer to offer. factors to take into consideration include:

• property condition: does it need a lot of repairs?
• length of time on the market
• supply and demand:
• sellers motivation: is the property in distress, pre-foreclosure-, or requiring a short sale?
• terms and contingencies: the fewer contingencies, the stronger the offer, making it more attractive to the seller or bank.

Question 57

describe termination of broker employment agreements

Answer 57

a broker employment agreement is a contract between a broker and a seller or a buyer. Its success depends on the brokers personal and professional efforts.

**the client cannot force the broker to perform, but the brokers failure to work diligently toward fulfilling the contracts terms constitutes abandonment of the contract.

**in the event the contract is abandoned or revoked by the broker, the principal is entitled to sue the broker for damages

**on the other hand the principal might fail to fulfill the terms of the agreement.. if either party cancels the contract, one party may be liable for damages to the other.

Question 58

An employment agreement may be canceled for the following reasons:

Answer 58

• when the agreement purpose if fulfilled
• when the agreements term expires without successful transfer
• if the property is destroyed or its use is changed by some force outside of the clients control, such as zoning change or condemnation by eminent domain
• if title to the property is transferred by operation of law, as in the case of the clients bankruptcy or foreclosure
• if the sponsoring broker and the client mutually agree to end the agreement
• if either the sponsoring broker or the client dies or becomes incapacitated
• if either the sponsoring broker or the client breaches the contract, the agreement is terminated and the breaching or cancelling party may be liable to the other for damages.