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Fina 210 > lesson 4: the legal environment > Flashcards

lesson 4: the legal environment Flashcards

1
Q

The legal environment in real estate transactions includes which two parties?

A

principal and agent

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2
Q

the principal and agent in real estate are governed by which law?

A

the law of agency

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3
Q

the law of agency

explain it in the world of real estate

A

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

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4
Q

when is agency created

A

Agency is created when one person is given the right to act on behalf of, or under the control of, another

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5
Q

who is the principal?

A

The person for whom an agent acts is a principal

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6
Q

when does a real estate owner become a principal?

A

in signing a listing agreement

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7
Q

what is a disclosed principal?

A

a principal that is identified to the third party

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8
Q

what is an undisclosed principal?

A

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

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9
Q

what is a partially disclosed principal?

A

principal that is not identified to the third party

the agent acknowledges that a principal is involved

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10
Q

who is the agent?

A

The person acting for, or representing, another with the latter’s authority

ex: a broker acts as an agent under a listing agreement

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11
Q

who is the third party in real estate?

A

The third party often refers to a potential buyer

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12
Q

explain a fiduciary relationship

A

When buying, selling, or leasing, trust and faith should exist between the parties involved

these traits are both expected and necessary

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13
Q

what is the relationship between the principal and the third party?

A

the principal wants to sell his property to the third party

the latter will pay directly to principal

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14
Q

what is the relationship between the principal and the agent?

A

the principal hires the agent

the principal pays (commission or pay) the agent for services

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15
Q

what is the relationship between the agent and the third party?

A

the agent finds the buyer

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16
Q

what is a principal’s main duty?

A

to compensate the agent in accordance with the contract of employment

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17
Q

how must the principal be accurate when trying to sell his shit?

A

A principal must also give the broker/agent complete and accurate information when listing a property

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18
Q

explain the principal’s liability?

A

A principal is liable on all agreements or contracts made by an agent within the authority given the agent

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19
Q

true or false

Agents are personally liable for their own acts

A

true bruv

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20
Q

what are the agent’s necessary characteristics towards principal and the job?

A

care

obedience

accountability

loyalty

communication

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21
Q

how must an agent care?

A

An agent must be diligent, reasonable, and act in good faith in any representation

Agents are personally liable for their own acts

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22
Q

how must an agent be obedient?

A

An agent should obey instructions that pertain to the purpose of the principal–agent relationship

This includes keeping within the authority granted

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23
Q

what happens when an agent exceeds his or her authority?

A

any agent who exceeds his or her authority will incur personal liability

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24
Q

how must an agent be accountable?

A

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

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25
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
26
how must an agent communicate with the principal?
Any information given to the agent must be communicated immediately to the principal
27
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
28
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
29
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
30
who handles the payments made by third party and principal?
the notary
31
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
32
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
33
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
34
what are the types of listings
open exclusive agency exclusive right-to-sell multiple net
35
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
36
when does an open listing close
when the property sells
37
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
38
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
39
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
40
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
41
what is the advantage to the owner when doing multiple listings?
property gets wider exposure, a higher price and a likely shorter selling time
42
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
43
why would an owner want a high asking price?
it is in his own self interest he wants more profits
44
why would a broker prefer a lower asking price?
to sell the property more quickly
45
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
46
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
47
can a Reservation of Right-to-Sell happen even with an exclusive right-to-sell agreement?
yeee
48
what are commission rates mostly set by?
local area customs
49
are brokers allowed to collude to set commission rates?
nah boy
50
should the amount of commission or method of determining commission be included in a listing agreement?
ye boy
51
what are the possible commission methods?
flat commission percentage commission split commission net listing/residual commission
52
flat commission
fixed dollar amount regardless of sale price
53
percentage commission
Fixed percentage of sale price
54
split commission
Different percentages higher percentage up to a certain amount of the sale price and a lower percentage for the balance
55
net listing/residual commission
The owner sets the asking price anything above it is commission
56
what are the types of contract terminations?
Termination by actions of the parties Termination by law
57
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 ```
58
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
59
what is a broker's obligation?
to find a buyer who is “ready, willing, and able” (RWA).
60
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
61
what is a “no-closing, no commission” clause?
unless the transaction results in a conveyance of title, no commission need be paid
62
can owners include “no-closing, no commission” clauses?
yeee
63
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
64
why do owners use installment sales?
to spread property payments over time in order to keep tax payments low
65
is a broker entitled to a commission for producing a mortgage loan?
yes only if the loan is approved
66
is a lease broker entitled to a commission?
not entitled to compensation unless a lease or a complete agreement on their terms is obtained
67
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

Fina 210 (28 decks)

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