Unit 1: Brokerage

Question 1

Open Listing Agreement

Answer 1

Seller can engage many different brokers at the same time for the same property. Owner only has to pay the broker that finds the buyer. But brokers might search in vain, so they aren’t going to devote as much work.

Question 2

Exclusive Right to Sell Agreement

Answer 2

Broker has exclusive right to sell. If you sell independently of broker, broker still gets 100% of the commission.

Question 3

Job of a Seller’s Agent

Answer 3

Represent interests, find a buyer
Duties: Reasonable care, undivided loyalty, confidentiality, full disclosure, obedience, duty to account
Obligations: Reasonable skill and care, honest/fair/good faith dealing, disclose all facts affecting property’s value & desirability (with exceptions)

Question 4

Buyer’s Agent

Answer 4

Represents the buyer
Job is to negotiate the purchase of a home at a price and on terms acceptable to the buyer
Same duties to buyer as seller’s agent to seller
Obligations to seller: Reasonable skill and care, honest/fair/good faith dealing, disclose everything that affects buyer’s ability and willingness to buy

Question 5

Broker’s Agent

Answer 5

Cooperates or is engaged by a listing agent or a buyer’s agent to assist the listing agent or buyer’s agent in locating a property to sell or buy
No direct relationship with buyer or seller
Listing and buyer’s agents provide direction/instruction to broker’s agent and have liability for their acts. Buyers and sellers however do not.

Question 6

Dual Agent

Answer 6

Real estate broker may represent both the buyer and seller if both buyer and seller give informed consent in writing
Agent must disclose they are working for both parties and this means they won’t have undivided loyalty
Principals and the real estate broker who represents both parties as a dual agent may designate a sales agent to represent the buyer and another sales agent to represent the seller

Question 7

Desired Term Length of Brokerage Agreement

Answer 7

Broker wants it as long as they want, seller wants a shorter term to sell quickly but not too short

Question 8

Concession

Answer 8

The difference between listing price and eventual proceeds from the sale.

Concession could be something like…$1.5 mil apartment sold for but $100k must be spent repairing air conditioners so will only pay $1.4 mil

Question 9

What do brokers do to ensure payment?

Answer 9

Broker is concerned with: If the term expires naturally, the seller could let the term expire and then sign the contract without paying the owed $90k commission to the broker. They will not allow seller to do this.

Question 10

Why does the broker list all the buyers they showed the real estate to?

Answer 10

Keeps broker honest so broker can’t just show to like 100 people and just pretend to the seller that whoever they get was shown the place

Question 11

What types of property are or are not real estate?

Answer 11

Real Estate: House, land, commercial property, and condominiums.
Not real estate: Co-ops (stock certificate, proprietary lease)

Question 12

How does buying a coop differ from buying real estate?

Answer 12

If you buy a piece of a building in a coop, you are buying into the corporation that owns the real estate. It’s the corporation who owns the building
It’s like buying a stock in Amazon
But it has a real estate relationship. Only way to do it is proprietary lease
Proprietary lease gives your client the right to live in that apartment, but you do not own the entire thing
Company takes ownership of the proprietary lease

Question 13

What does a sponsor do for a coop?

Answer 13

Sponsor forms the coop, typically gets a mortgage for the building. Mortgage typically paid off as they sell the apartment

Question 14

How many mortgages does a coop have on it, and who holds the mortgages?

Answer 14

If you have a coop, it’s rare the coop doesn’t have an underlying mortgage in the real estate. And yet your client who’s buying the coop apartment is also getting financing
So we’ve got two mortgages at play basically–one for the company that owns the real estate, one for your client buying that apartment

Question 15

What is required for a buyer to buy a coop?

Answer 15

Application and interview

Question 16

What is required for a buyer to buy a condo?

Question 17

Right of first refusal

Answer 17

The buyer/tenant’s sole right when buying a condominium. The ROFR guarantees the tenant to have the right to enter a property transaction before anyone else.

HOAs or condo boards may also have the right of first refusal, forcing sellers of a home or condo to sell to them first.

Ensures that you sell something for its value.

Question 18

Statute of Frauds requirement for sale of real property

Answer 18

It must be in writing.

Question 19

Form contract

Answer 19

A preset contract that contains terms you won’t have to change for most things.

Question 20

Who bears the burden of making sure that a contract of sale is correct?

Answer 20

Purchaser & purchaser’s counsel.

Question 21

Indications of ownership in a coop

Answer 21

Share certificate (analogous to stock certificate) and proprietary lease

Question 22

Closing

Answer 22

A transfer of ownership.
In coops: A transfer of ownership, shares and lease.

Question 23

Flip tax

Answer 23

A transfer fee charged by coops when an apartment unit is sold. The seller of the apartment pays the tax. Flip tax disincentivizes buying to swiftly resell for a profit.

Question 24

Meaning of “no dollars attributable toward the value of the personalty”

Answer 24

So there is no sales tax attributable to personal property.

Question 25

Who has the risk of loss from when the contract is signed until closing?

Answer 25

The seller.

Question 26

The seller lawyer should limit buyer to…

Answer 26

….a set number of times they can come inspect the apartment, even if the buyer wants any reasonable time.

Question 27

No Hazard Representation

Answer 27

Buyer lawyer will want in their rider a representation from the seller that there are no hazards. But sometimes, you won’t even get that.

Question 28

Explanation of “Seller is not a foreign person”

Answer 28

1940s and 50s: US government got annoyed at foreign nationals with no connection to the U.S. except owning property there. Foreigners were buying US properties, selling them for profit, and taking all the money–US was unable to tax it, which was unfair to the US government because US nationals all pay a sales tax.

FERPA law was made to stop this: If you are a foreign national with no tax returns in the United States, then there is a withholding tax at closing that the seller is obligated to give to the IRS

Question 29

Roles of Seller’s Attorney

Answer 29

Counselor, attorney, escrowee (fiduciary duty to escrow funds)

Question 30

Properties of a Deal Sheet

Answer 30

Purchase price
Property address
Names and addresses of the parties
Closing date
Mortgage contingency time period

Question 31

Components of Due Diligence Review

Answer 31

For a house: Review property inspection reports, as well as survey and title reports.

For a condo:
Offering plan and any amendments
Financial statements
Board of manager’s meeting minutes

Question 32

Purchaser’s attorney should note…

Answer 32

What is included in common charges (utilities, property insurance, amenities)
Owner obligation to maintain and repair
Special fees, charges or limitations when reselling or leasing
Other “material provisions”
If a condo, whether the condo is financially healthy (ex: no extensive repairs, pending litigation or repeated negative trend in financial statements)

Question 33

Residential Contract of Sale provisions often negotiated about

Answer 33

Representations and warranties
Closing schedule
Mortgage contingencies