lesson 4: the legal environment Flashcards
The legal environment in real estate transactions includes which two parties?
principal and agent
the principal and agent in real estate are governed by which law?
the law of agency
the law of agency
explain it in the world of real estate
The law of agency entails rules set forth when another individual is doing something on one’s behalf
concerns the legal rights, duties, and liabilities of the principal (P), the agent (A) and a third party (TP), based on contracts and/or the relationship between them
In real estate, a principle hires an agent to sell his house, or a principal can hire an agent to purchase a house on his behalf
when is agency created
Agency is created when one person is given the right to act on behalf of, or under the control of, another
who is the principal?
The person for whom an agent acts is a principal
when does a real estate owner become a principal?
in signing a listing agreement
what is a disclosed principal?
a principal that is identified to the third party
what is an undisclosed principal?
a principal that is not identified to the third party
he is represented by an agent that appears to act in his own self-interest
what is a partially disclosed principal?
principal that is not identified to the third party
the agent acknowledges that a principal is involved
who is the agent?
The person acting for, or representing, another with the latter’s authority
ex: a broker acts as an agent under a listing agreement
who is the third party in real estate?
The third party often refers to a potential buyer
explain a fiduciary relationship
When buying, selling, or leasing, trust and faith should exist between the parties involved
these traits are both expected and necessary
what is the relationship between the principal and the third party?
the principal wants to sell his property to the third party
the latter will pay directly to principal
what is the relationship between the principal and the agent?
the principal hires the agent
the principal pays (commission or pay) the agent for services
what is the relationship between the agent and the third party?
the agent finds the buyer
what is a principal’s main duty?
to compensate the agent in accordance with the contract of employment
how must the principal be accurate when trying to sell his shit?
A principal must also give the broker/agent complete and accurate information when listing a property
explain the principal’s liability?
A principal is liable on all agreements or contracts made by an agent within the authority given the agent
true or false
Agents are personally liable for their own acts
true bruv
what are the agent’s necessary characteristics towards principal and the job?
care
obedience
accountability
loyalty
communication
how must an agent care?
An agent must be diligent, reasonable, and act in good faith in any representation
Agents are personally liable for their own acts
how must an agent be obedient?
An agent should obey instructions that pertain to the purpose of the principal–agent relationship
This includes keeping within the authority granted
what happens when an agent exceeds his or her authority?
any agent who exceeds his or her authority will incur personal liability
how must an agent be accountable?
An agent should keep adequate records concerning funds or property
It is illegal for a broker to commingle or mix personal funds with the funds of a principal
how must an agent be loyal?
An agent must not benefit from the relationship except through compensation from the principal unless otherwise agreed
This is also known as faithful performance
how must an agent communicate with the principal?
Any information given to the agent must be communicated immediately to the principal
when does an agent have the right to enforce a contract between a principal and a third party?
if an interest is held in this contract
ex: the collection of an anticipated commission
when the broker can engage salespersons as agents, what does that mean for the broker?
In this instance the broker/agent acts as the principal
what does a listing agreement do?
- It allows the broker to act on behalf 0f the seller to find a potential buyer to buy the property
- In return, if the property is sold, the seller pays the broker commission
- All these payments must be legally handled by the notary
who handles the payments made by third party and principal?
the notary
what is a listing agreement?
is an oral or written contract of employment between a principal and a broker/agent to buy, sell, or lease real estate
creates the traditional principal-agent relationship discussed earlier
why does an agent/broker need the listing agreement?
agreement in order to enforce his or her right to a commission
makes it the foundation of a broker’s business as it provides the basis of a broker’s trust and confidence in the principal and addresses the right to compensation
is the typical listing a contract? why?
A typical “listing” is not a contract
it is a unilateral contract that becomes bilateral upon performance by the broker
it is revocable by either party at any time prior to performance
what are the types of listings
open
exclusive agency
exclusive right-to-sell
multiple
net
open listing
An owner offers several brokers an equal chance to sell realty
the broker who arranges the sale receives compensation
The owner may receive the right to personally sell the property without becoming liable for a commission
when does an open listing close
when the property sells
exclusive agency
Engaging one broker to sell realty with a right retained by the owner to sell the property without the obligation of a commission
what is the purpose of an exclusive agency?
to give the broker holding the listing the opportunity to apply their “best efforts” without interference or competition from other brokers
exclusive right-to-sell
Engaging a broker to sell realty with commission to be paid to the broker regardless of who sells the property, owner included
multiple listings
A special version of exclusive right-to-sell agreement
it involves multiple listing service groups wherein all members agree to share listings with others in the group
what is the advantage to the owner when doing multiple listings?
property gets wider exposure, a higher price and a likely shorter selling time
net listing
Engaging a broker to sell realty at a fixed or minimum price, with any excess to be considered as the broker’s commission
why would an owner want a high asking price?
it is in his own self interest
he wants more profits
why would a broker prefer a lower asking price?
to sell the property more quickly
what does a fiduciary relationship require?
the broker provide the owner with the market value of the property and document that any suggested listing price is not too low
Reservation of Right-to-Sell
An owner may retain a right-to-sell without a commission being required by reserving in the contract as exceptions the names of parties with whom negotiations have previously or are currently being conducted
can a Reservation of Right-to-Sell happen even with an exclusive right-to-sell agreement?
yeee
what are commission rates mostly set by?
local area customs
are brokers allowed to collude to set commission rates?
nah boy
should the amount of commission or method of determining commission be included in a listing agreement?
ye boy
what are the possible commission methods?
flat commission
percentage commission
split commission
net listing/residual commission
flat commission
fixed dollar amount regardless of sale price
percentage commission
Fixed percentage of sale price
split commission
Different percentages
higher percentage up to a certain amount of the sale price and a lower percentage for the balance
net listing/residual commission
The owner sets the asking price
anything above it is commission
what are the types of contract terminations?
Termination by actions of the parties
Termination by law
what are the types of termination by actions of the parties?
▪ Mutual consent of the parties ▪ Completion of the contract by sale ▪ Time expiration or running-out ▪ Revocation by the principal ▪ Revocation or abandonment by the agent
what are the types of termination by law?
▪ Destruction of the property, as by fire
▪ Death of the principal or agent
▪ Insanity of principal or agent
▪ Bankruptcy of the principal or agent
what is a broker’s obligation?
to find a buyer who is “ready, willing, and able” (RWA).
if the broker finds a buyer who is “ready, willing, and able” (RWA) but the house doesn’t sell, is the commission cancelled?
no
If a qualified RWA buyer is found, the broker is entitled to commission
what is a “no-closing, no commission” clause?
unless the transaction results in a conveyance of title, no commission need be paid
can owners include “no-closing, no commission” clauses?
yeee
To get commission, the broker must:
- Show an agreement or contract of employment
- Be the procuring cause in the sale
- Bring about the deal on the terms of the employer
- Act in good faith
- Produce a purchaser who is “ready, willing and able”
- Arrive at a completed transaction
why do owners use installment sales?
to spread property payments over time in order to keep tax payments low
is a broker entitled to a commission for producing a mortgage loan?
yes only if the loan is approved
is a lease broker entitled to a commission?
not entitled to compensation unless a lease or a complete agreement on their terms is obtained
Important considerations in selecting a broker are:
- Office and agent specialization
- Office location and procedures
- The firm’s attitude and reputation
- . A positive track record evidenced by satisfied clients
