Chapter 8 - PowerPoint PPT Presentation

Chapter 8

Real Estate Brokerage

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Listing agreement

Marketing the property and qualifying buyers

Presentation and negotiations

Contracts and closing

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A broker is an intermediary who brings together buyers and sellers, assists in negotiating agreements between them, executes their orders, and receives a commission (or brokerage) in compensation for services rendered.

Real estate brokers are individuals licensed by state governments to arrange real estate sale or lease transactions for a commission

Real estate sales associate are individuals licensed by state governments to arrange real estate sale or lease transactions under the supervision of a real estate broker

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All states have a minimum education and testing requirement

Most states require continuing education to renew license

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All states have regulatory bodies to ensure compliance with regulations

Licenses may be revoked and other penalties imposed for violations

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In an “agency relationship,” one party (the principal) authorizes another party (the agent) to act on his or her behalf.

The agent is a fiduciary of the principal

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• Broker may be hired to:
• Help a buyer find and purchase property
• Help a seller sell property
• Broker may hire associates to assist in locating buyers or properties

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• Many transactions have more than one broker involved e.g. a listing broker and a buyer’s broker
• Dual agency – broker represents buyer and seller
• Transactional agency is allowed in some states where broker helps the parties reach a deal

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Listing Agreements establish the agency relationship between sellers and brokers.

Open Listing – seller hires several brokers and is only obligated to pay the broker who finds the actual buyer (See Figure 8.1 Commission Agreement)

Exclusive-Brokerage Listing – seller agrees to hire only one broker to search for a buyer, but reserves the right to sell the property without the assistance of the broker and thus avoid paying a commission (See Figure 8.2 Exclusive-Brokerage Listing)

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• Exclusive Right to Sell Listing – seller agrees to hire only one broker and to pay that broker a commission even if the seller locates a buyer without the assistance of the broker (See Figure 8.3 Exclusive-Right-to-Sell Listing Agreement)

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Net listing – Seller guaranteed certain amount, broker keeps excess. Illegal in some states

Limited-Service Listing – Broker places listing on the multiple listing service but provides little service (See Figure 8.4 Limited-Service Listing Agreement)

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• Types of buyer representation agreements are similar to listings
• Open
• Exclusive right to represent (See Figure 8.5 Exclusive Buyer Brokerage Agreement)

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Retainer fee

Fixed fee

Percentage of purchase price

Commission split for property listed on the multiple listing service

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Legal duties imposed by statutes and regulations

Ethical duties e.g. National Association of REALTORS® Code of Ethics

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The broker is as a fiduciary is a person who occupies a position of trust and confidence in relation to another person or his or her property. Fiduciaries must act in the best interest of their client at all times.

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• Elements of fraud
• Intention to mislead
• False statement material to the transaction
• Client justifiably relies on the statement
• Client is injured
• Misrepresentation can be innocent, no intention to mislead, or negligent i.e. a mistake

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Locate a buyer and keep the seller informed

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• Disclose negative factors that might adversely affect the property’s value
• See Legal Highlight “The Seller’s Agent’s Obligations to the Buyer”
• Keep any money deposits in a neutral location

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Buyer’s agent is a fiduciary of the buyer

Act diligently to locate property that matches buyer’s criteria

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Treat all sellers fairly, honestly, and with due care.

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• Prohibits discrimination based on:
• Sex
• Race
• Color
• Religion
• National origin
• Disabilities
• Familial status

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Cannot engage in steering or blockbusting

Civil Rights Act of 1866 prohibits public & private racial discrimination

Fair Housing Act of 1988 provides penalties for violation

See Legal Highlight “Fair Housing”

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Most states have enacted laws that require brokers to disclose the nature of their agency relationships

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When a transaction occurs

When the agreement expires

When the parties agree to terminate

When one party breaches the agreement

When one party becomes contractually incapacitated

The listing property is destroyed

The listing property is condemned

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Franchises

Desk fee arrangements

Multiple-Listing services

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Usually a percentage of the transaction amount

Broker and sales associate usually have an agreed “split”

Cooperating brokers – listing broker, through multiple listing service shares fee with buyer’s broker

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