Real Estate Transactions - Part 1 - Chapters 24-28 Flashcards
Distinguish the difference between exclusive and open listing agreements
Despite the application of various listing agreements, all listings fall into one of two general categories:
1 - Exclusive listing under which a broker receives the SOLE right to represent:
- an owner by marketing the listed property for sale or lease and locating a buyer or tenant
- a buyer or tenant by locating property
- the owner or lender to originate a trust deed mortgage.
- Open Listing, sometimes called a nonexclusive listing does not grant exclusive right to the seller’s broker and their agents to be the sole representative of the client. Open listing is an employment entered into by a broker to render real estate services on a ‘best efforts’ basis under which a fee is due to the broker if they achieve the client’s objectives of the employment before the client or another broker separately first meet the objective, such as the sale or locating of a property.
Thus an open listing is classified as a unilateral contract.
Select between the variations of listing agreements
A variety of listing agreements exist, each employing an authorizing a broker to perform real estate related services under different conditions. The variations usually relate to:
* the extent of the broker’s representation
* the type of services to be performed by the broker and their agents
* the events which trigger payment of a fee
Most listing agreements are for the sale or purchase of a single-family residential property. Others are for residential and commercial income properties such as industrial, motel/hotel, office, farm, or unimproved properties.
agency relationship
The relationship created between the client and broker and properly documented by a written listing agreement has two distinct legal aspects.
- and employment relationship
- and agency relationship
The AGENCY relationship describes the scope of activities imposed on the broker by LAW a arising out of the representation authorized by the employment. Agency carries with it the fiduciary duties of loyalty and full disclosure owed by the broker to the client.
employment relationship
The relationship created between the client and broker and properly documented by a written listing agreement has two distinct legal aspects.
- and employment relationship
- and agency relationship
The EMPLOYMENT relationship describes the scope of activities the broker and the broker’s agents are to undertake in the employment of a client and authorizes the broker to carry them out by contract.
exclusive right-to-sell listing
There are two types of exclusive employment agreements for buyer and selling real estate:
- an Exclusive agency agreement for a seller or buyer
- an Exclusive Right-to-Sell or Right-to-Buy listing agreement
An exclusive right to-sell listing affords a RE broker the greatest fee protection. It is also the MOST COMMONLY used type of employment. It is an agreement employing a broker to act as an agent for the seller of real property in which the seller promises to pay the broker a fee if the property is sold during the period of the employment, whether by the broker, through another broker, or by the efforts of the owner.
fiduciary duty
The Fiduciary duty is that duty owed by an agent to act in the highest good faith toward the principal and not to obtain any advantage over their principal by the slightest misrepresentation, concealment, duress or undue influence.
full listing offer
A full listing offer describes a buyer’s or tenant’s offer to buy or lease on terms substantially identical to the employment terms in the owner’s listing agreement with the broker.
guaranteed sale listing
A Guaranteed Sale Listing is a variation of the exclusive right-to-sell listing in which the broker agrees to buy the property if the property does not sell during the listing period.
This establishes a reverse roll for the seller, not the broker (like in a Option Listing) when the property fails to sell during the listing period. The difference with the guaranteed sale listing is that the SELLER (not the broker) that has the right to exercise the option to sell the house to the broker in the end. The broker’s advantage however is lessened by a DRE regulation which prohibits the inclusion of advance fee provisions in a guaranteed sale listing.
listing agreement
A Listing Agreement is a written employment contract between a client and a licensed RE broker. On entering into a listing agreement the broker and their staff are retained and authorized to perform RE transnational services on behalf of the client in exchange for a fee.
net listing
A NET Listing is used only with SELLERS, not buyers, and can be structured as either an open or exclusive listing. The net listing is distinguishable from all other listing arrangements due to the way compensation is calculated. In a NET listing, the broker’s fee is NOT based on a percentage of the selling price…. rather the broker’s fee equals whatever amount the buyer pays in excess of the seller’s net figure and closing costs.
open listing
An Open Listing, sometimes called a NONEXCLUSIVE listing does not grant exclusive right to the seller’s broker and their agents to be the sole representative of the client. Open listing is an employment entered into by a broker to render real estate services on a ‘best efforts’ basis under which a fee is due to the broker if they achieve the client’s objectives of the employment before the client or another broker separately first meet the objective, such as the sale or locating of a property.
Thus an open listing is classified as a unilateral contract.
option listing
An OPTION listing is normally a variation of the exclusive right-to-sell listing. It’s unique feature is the additional element of a grant to the broker of an OPTION TO BUY the property at a predetermined price if the property does not sell during the listing period. The temptation for or a claim of misrepresentation is quite apparent. The concurrent status of agent and principal (cuz they could buy the prop at the end if it doesn’t sell) is conflict of interest for the broker which is fully disclosed.
Appreciate the need for a buyer’s broker to enter into a written employment agreement with their buyer
Most broker’s realize a signed buyer’s listing agreement produces the maximum financial return for the effort, money, and talent an agent invests when representing an individual in buying a property. Without the buyer’s written promise to pay a fee, the broker is entitled to nothing when your buyer ‘goes around’ the broker and acquires property on which the broker provided them with info.
Advise a buyer on the benefits of entering into an exclusive right-to-buy listing agreement with a broker
When you enter into an exclusive Right-to-Buy listing agreement you agree to work with them as their exclusive agent. In exchange, you agree to diligently engage yourself to the best of your abilities to do what is necessary to meet their objectives.
bilateral employment agreement
When representing a buyer under a written exclusive Right-to-Buy employment agreement, the broker/agents have entered into a BILATERAL Employment Agreement. This agreement obligates the broker and their agents to exercise due diligence to fulfill the client’s real estate objectives in exchange for the promise to pay a fee under various circumstances.
unilateral employment agreement
Without an exclusive Right-to-Buy listing, the brokerage duties which exist to locate properties for a buyer are ‘best-effort’ obligations created by an oral (or written) OPEN listing, called a UNILATERAL employment agreement. A best effort obligation requires no affirmative action (diligence) on the part of the brokers… until a match is located.
exclusive right-to-buy listing agreement
An exclusive Right-to-Buy listing agreement is a written employment agreement by a broker and prospective buyer of real estate employing and entitling the broker to a fee when property is purchased during the listing period.
safety clause
The fee provisions in a buyer’s listing agreement include a SAFETY CLAUSE, which provides added protection against a lost fee for services rendered during the listing period. Under the safety clause the buyer’s broker is entitled to collect a fee if, within an agreed to period after the expiration of the buyer’s listing:
- information specific to the property was provided to the buyer by the buyer’s agent during the listing period
- on expiration of the buyer’s listing, the buyer is handed an itemized list which identifies those properties the buyer’s agent brought to the buyer’s attention needed to ‘perfect’ the brokers right to a fee
- the buyer entered into negotiations with the owner of a registered property
- the safety-period negotiations ultimately resulted in the buyer acquiring an interest in the property.
Real Estate Owned (REO) property
A Real Estate Owned (REO) property is property acquired by a mortgage holder through foreclosure.
Determine the conduct permitted of a finder
A FINDER providing referral services in CA for a fee may:
- find and introduce parties
- locate parties for referral to others
- be employed by principals or brokers
A FINDER may NOT:
- take part in any negotiations
- discuss the price
- discuss the property
- discuss the terms or conditions of the transaction
A finder who crosses into any aspect of negotiation which leads to the creation of a RE transaction needs a licence as they are both soliciting and negotiating. The finer is subject to a penalty up to $20K or 6 month jail for engaging in brokerage activities w/o a license.
Distinguish the exceptions under which referral fees are allowed under the Real Estate Settlement Procedures Act (RESPA)
A broker and their agents are NOT involved in a RESPA transaction when negotiating the sale, lease, or encumbrance of any of the following types of properties:
- apartments with 5 or more units
- commercial building
- agricultural properties
- business opportunities
- vacant land (other then those involving 1-4 unit residential construction loans)
- properties containing 25 or more acres
- leases and rental agreements
- all cash transactions
- seller carryback transactions where no federally-related loan is originated
Finders are also entitled to a fee for referrals under RESPA, depending on the type of business relationship they have to the broker or agent.
- a unlicensed friend or past customer not employed by the customer is NOT entitled to a fee when the transaction contemplated is RESPA-controlled. If RESPA did not control, then the finder is entitled to a fee under CA law if agreed to by the broker.
- a bona fide employee of a broker, such as an Financial Services Representatives (FSR), is not barred from collecting a fee or salary from their employer-broker since employed individuals are exceptions to RESPA
- A person who sells lead lists is also able to legally collect a fee under both RESPA and non-RESPA transactions. Lead lists are considered ‘goods’ and are perfectly legal in CA, as well as under the RESPA exception for goods and services actually furnished/obtained.
fee-splitting
While RESPA exeptions allow Fee-splitting activity, DRE regulations require fee splitting to be limited to:
- payments between brokers (who may split the fee vertically with the agents they employ)
- payment by a broker to their employees, licensed or unlicensed.
finder
A FINDER is an unlicensed individual who locates, identifies, and refers potential clients to broker, agents or principals in exchange for the promise of a fee.
finder’s fee
A FINDER’S FEE is the fee paid to an individual who located, identified, or referred a client to a broker, agent or principal. Generally, a finder’s fee is a lump sum amount or percentage of the fee received by the broker on a closed transaction due to the finder’s referral. Only ‘sound economics’ control the amount of the fee a broker, agent or principal should pay the finder for a lead. Also no limit is placed on the volume of referral business conducted by a finder. Finders are NOT allowed to collect advanced fees.
