Broker in AL, FL & GA Alabama License Instructor

1. RISK MANAGEMENT 2018 Required Salesperson CE May be taken by brokers Broker in AL, FL & GA Alabama License Instructor

2. Alabama Real Estate Commission Rules for Classroom CE credit Sign in, including license number 100% attendance is required Cell phones must not disturb class Computers can only be used to take notes No test for classroom CE CMap -http://www.arec.alabama.gov/index.asp Check credit & leave evaluation

3. Alabama Real Estate Commission Rules for all CE credit Required: 15 total hours Each class is 3 hours of credit Required of all licensees - Level 1 Risk Management – Violations Plus Choose either # 2 or # 3 Level 2 Salesperson Risk Management - Salespersons or broker may take Level 3 Broker Risk Management- Salesperson or broker may take Plus Electives 3 more classes CE must be completed by September 30 of even years 2018, then 2020 License must be renewed by August 31 or $150 penalty

4. Risk Management • Federal Laws – Anti-trust, Fair Housing, RESPA … • Alabama Code - contracts… • Alabama Real Estate Laws – 34-27-(1-100) • Local Laws – Health & Safety • NAR Code of Ethics “standard of care” • Court Decisions - Case Law • Maybe more than one answer • Attorneys love “It depends”

5. Learning ObjectivesAfter this section on Agency, You will be able to state your obligations: • Roles a licensee may perform in Alabama • Obligations licensee has to all parties • Describe fiduciary duties to clients • RECAD provisions • Common misunderstandings about RECAD

6. Salesperson Agency Risk Management Vocabulary Fiduciary Duties Transaction Broker Single Agent Limited Consensual Dual Agency Subagent

7. Agency Relationships Creating Agency Must be in Writing (Expressed Intentions) Statute of Frauds requires written document to enforce commission Don’t confuse with Statute of Limitations (time limits) Fraud, if implied by actions, consumer believes being represented Implied Agency – illegal in Alabama Purpose (Listing, Buyer Agency, Dual Agency, Property Management) Parties Principal – Broker (have client relationship)

8. Agency Relationships Creating Agency Agency – Special fiduciary (faithful high trust, allegiance) relationship between: Broker (Agent) and Principal (Client) Principal delegates to Broker right to act on their behalf (limitations) Sales agents are special agents – very limited authority set up showings & tell prospects about property, accept offer Property management agents will be general agents – broader authority will have responsibility and authority to order repairs as delegated Must put Client’s interest above Agent’s Tell client everything good and bad you may know about situation (Don’t just show the highest commission properties, or your listings only)

9. Agency Relationships Creating Agency Agreement between Broker and Agent is Agency Agent is sub-agent of Broker --- sales agents work under Broker’s license Agents owe broker fiduciary responsibilities All contracts: Agency Listings, Buyer’s Agency, Sales Contracts, Leases & Property Management Agreements belong to Broker If agent changes brokers, contracts stay with former broker Contacting clients to get them to change to new company will cost agent license Interfering with contractual relationship

10. Agency Relationships Types of Agency Representation (including implied agency) • Alabama – Required Representation Notice – RECAD • Real Estate Consumer Agency Disclosure • Transaction Broker – no written agreement • Works WITH one or both parties – Non Agency • Transaction Broker is default (always starts as) relationship • Single Agent – Agency – must have signed agreement • Works FOR one party - principal • Agency agreement must be in writing – Express • Dual Agent (limited consensual) – • Agency with both sides, with limitations • Works FOR both parties, as principals – must have signed agreement • Sub-Agent – works on behalf of broker • No longer used with consumers, pre RECAD • No Implied Agency in Alabama • Implied Agency is fraud – • If customer thinks; by licensee’s action, they are being represented

11. Duties To All Responsibilities of Licensee and Listing Firm Customer – working as Transaction Broker Non-Agency - someone who needs real estate information Work With Customer - Assist – Do not advise HARD ? for Transaction Broker Honesty Accounting of funds Reasonable Care Disclosure of material facts ? Answer questions truthfully All agents (licensee) must timely present all offers, and disclose their interest Transaction Broker may: Provide information about properties Show Properties Assist in making a written offer Provide information on financing

12. Duties To Clients Responsibilities of Licensee and Listing Firm • If Listing or Buyer’s Agency are Single or Dual Agency, then: Agency – Works For Client - Advises Agency duties include HARD ? Plus Confidentiality, Obedience and Loyalty Honesty Accounting of funds Reasonable Care Disclosure of material facts ? Answer questions truthfully All agents (licensee) must timely present all offers, and disclose their interest HARD ? Col. Fiduciary Duties Added: Confidentiality Obedience Loyalty

13. RECAD Required Disclosure All brokerages must use this form Introduce disclosure form at buyer consultation, before any confidential information is disclosed to another Alabama law imposes obligations on all agents: Consumer is not required to sign at first contact, but when you write an offer or get an offer, have it signed. If they don’t sign; note on form when you met

14. Booklet not required to be given to consumer, but is easier than explaining 2 pages Download at AREC.gov

16. Before price or terms are discussed, item #1 is agency disclosure Parties to contract must first know who represents who

17. Violations I. Alabama License Law To perform these services for another in Alabama License Required: Unlicensed Assistants may not: • BARN SALE • Buy • Aid • Rent • Negotiate • Sell • Advertise • List • Exchange

18. RECAD – Broker office policy responsibility Office policy Broker will adopt written policy for services offered under RECAD Policy will be explained every year and signed by agent Keep in file for 3 years

19. Every year, Broker & Agent discuss ways services are offered Agent signs RECAD Office Policy

21. RECAD Exemptions If you deal with a for sale by owner, they are not exempt Commercial not exempt

23. Contracts Intended Learning Objectives: Identify types of contracts License law requirements of contracts Identify elements of a contract Describe issues in contract clauses Describe some do’s and don’ts in a contract Explain how to handle specific situations with contracts

24. Vocabulary Consideration Contingency contract Contract Meeting of minds Statute of Frauds Unauthorized practice of law E-contracts Earnest Money

25. 1. B. 1.General Legal Principles, Theory, and Concept about Contracts Unilateral Offer – not contract yet Uni = one, like unicycle One party has made an offer (promise) to commit Listing (Seller is offering compensation if buyer is procured) Offer to purchase contract (Buyer is tendering offer at some price and terms) Once an offer is accepted, it becomes a bilateral (two sided) contract Acceptance must be communicated (important) If no time is stated in contract for acceptance, a reasonable amount is implied Option contract – allows buyer to purchase in future, but no obligation to If other party makes a mark, besides signature, it becomes a new unilateral offer

26. 1. B. 1.General Legal Principles, Theory, and Concept about Contracts Bilateral - Contract When both parties have signed agreement (express contract) Bi = two, like bicycle Two parties have agreed with two promises (promise is more important than money) May be more parties or promises “Meeting of the minds” At this point it is an executory contract (remaining promises to fulfill) Signed by all parties and ready to move forward to closing Offer and Acceptance Offeror – person giving offer OR = GivOR Offeree- person getting offer EE = GetEE Roles reverse with counter offers Be in writing to be enforceable Signed by all parties

27. 1. B. 2.General Legal Principles, Theory, and Concept about Contracts Validity - All contracts must have: Legal legal purpose legal age of parties (19 or 18 and married) legally competent legally authorized to perform Consideration Good (love & affection) May not be sufficient to support contract Valuable (Cash, or its equivalent) something for something promise is more valuable than money “Meeting of the Minds” voluntary consent no duress

28. 1. B. 2.General Legal Principles, Theory, and Concept about Contracts Validity - All contracts must have: Legal legal purpose legal age of parties (19 or 18 and married) legally competent legally authorized to perform Consideration Good (love & affection) May not be sufficient to support contract Valuable (Cash, or its equivalent) something for something promise is more valuable than money “Meeting of the Minds” voluntary consent no duress Sheriff Taylor sits in Floyd’s barber chair and Floyd picks up scissors Do they have a contract? What kind? Do they have expectations of outcome? Is their purpose legal? Of Age? Competent? Both? Legally authorized to perform? Promise to give something for something – Implied promise more important than handing money up front Voluntary consent from both parties?

29. 1.B. 2.General Legal Principles, Theory, and Concept about Contracts A valid contract is a voluntary, legally sufficient, binding, enforceable promise between two or more competent parties to do or not do some legal act Express - Intentions are stated – may be oral, but may not be enforceable Statute of Frauds Any interest in real estate, other than a lease for less than one year must be in writing to be enforceable Implied Agency - Intentions are demonstrated by actions Illegal in Alabama – Fraud if party thinks they are being represented Governed by Contract Law

30. 1.B. 3.General Legal Principles, Theory, and Concept about Contracts Void, Voidable & Unenforceable Void – having no legal force Lacks one or more elements of a valid contract Voidable – appears to be valid, subject to rescission May be voided if: Signed by a minor < 19 years old May affirm when coming of legal age Signed under duress, (coercive, fear or threat) undue influence on protected or elderly or under influence of alcohol or drugs Unenforceable - Oral agreement to sell real estate May close deal, but no legal way to force parties to act

31. 1.B. 4.General Legal Principles, Theory, and Concept about ContractsNotice of Delivery and Acceptance Agent must timely present all written offers, unless instructed otherwise Get in writing or seller may say they didn’t say that Earnest money not required for a valid contract - In breach, will usually becomes liquidated damages Buyer’s agent has right to present offer to seller Then leave to allow seller to discuss with their agent Delivery of offer or acceptance should be in writing Contract may state method Email, FAX, Letter May have time limit for acceptance; 24 hours, By 5 on Friday A late acceptance is a counter offer May be revoked at anytime before acceptance If Seller takes too long to accept, and buyer revokes, seller can not change mind and accept now

32. 1.B. 4.General Legal Principles, Theory, and Concept about ContractsNotice of Delivery and Acceptance Continued If one party makes a change, it becomes a counter offer Other party may sign as is, and it becomes bilateral once acceptance is communicated back to other party Is unilateral offer until accepted – This is “finalized date” Imputed Knowledge – if agent learns of acceptance, it is as if principal knows When you call your client, don’t start with pleasantries; Immediately say: “Congratulations, you just bought or sold the property”

33. 1.B. 7. General Legal Principles, Theory, and Concept about Contracts Addenda or Amendment ADDenda means “add” to contract at time of contract Personal Property Addenda Lead Based Paint Addenda FHA/VA Addendum Anything parties want to add Contract Clause to replace roof Amendment means to “mend” contract Change closing date Change type of financing

34. Contract Clauses Don’t write your own Illegal practice of law

35. 1.B. 4.General Legal Principles, Theory, and Concept about ContractsNotice of Delivery and Acceptance Closing Date Sales contract has a “time of essence” clause stating closing must occur on time How may close on time? Closing needs to be flexible to accommodate many issues Repairs Financing Title This is a risk management class How can you reduce risk of not closing on time?

36. 1.B. 4.General Legal Principles, Theory, and Concept about ContractsNotice of Delivery and Acceptance Possession Date Another risky issue What if seller moved out and deal falls apart? What if buyer is given early possession and deal falls apart?

37. 1.B. 5. General Legal Principles, Theory, and Concept about Contracts Executory & Executed Executory: One or both parties have yet to perform Period between contract and closing Executed: All parties have fully performed promises Seller delivered marketable title at closing Buyer paid purchase price

38. I am not an attorney or accountant, therefore, will not give legal or tax advise.

39. 1.C.1. Agency Relationships & Contracts Purchase Contracts (between buyer and seller) General Principles and Legal Concepts Legally enforceable promises in written contract plus addenda clearly state expressed intentions of parties Use pre-printed forms, provided by Broker, written by attorney Fill in blanks Writing your own contract is illegal practice of law You do not want a contract that can be understood You want a contract that can not be misunderstood Seller to replace carpet (Do you think seller will get right carpet?) Better: Seller to give $2500 carpet allowance

40. 1.C.1. Agency Relationships & Contracts Purchase Contracts (between buyer and seller) General Principles and Legal Concepts Same rules apply to all contracts Contract Between Seller (Vendor) OR - givOR Buyer (Vendee) EE - getEE Contracts will list everything about transaction: Parties legal names Legal Description (street address is not sufficient) Purchase Price Terms, Conditions If something is missing, it will not effect validity of contract example is closing date missing in contract, it will be inferred as a reasonable time If closing date is missed, as often happens, contract is still valid Unless contract closing date stated “time is of the essence”

41. May be called many names: Sales Contract Purchase Contract Contract of Sale Purchase and Sale Agreement Starts as: Unilateral offer to purchase More to contract than price Terms Possession and Closing date can be deal killers

42. Offer to purchase first draft Buyer’s Agent will send this to Seller’s Agent ---- Confusing, but this is Listing Agent who represents Seller Use blue ink on black printed contracts Hand written overrides printed

43. Offer returned to buyer after changes Is now a counter offer Use one line to strike If acceptable to buyer, It will be initialed by the price change and anywhere else there is a change If unacceptable, buyer does not have to do anything Or They may counter to counter (more likely)

44. 1.C.3 Agency Relationships & Contracts Options (contractual right to buy) Optionor Seller gives option At minimum seller must sign option Optionee Buyer gets option Option gives right to buy property in future Under terms negotiated in present Does not obligate buyer Does obligate seller if option is exercised No contingencies allowed in option contract Either optionee exercises or they don’t Option Premium is money paid up front for right to buy Non-refundable May apply to purchase price if negotiated into option agreement Seller may not sell property to another buyer during option period Time is negotiable Either party may assign option unless not allowed in contract May not use options to get around real estate laws

45. 1. C. 4. Agency Relationships & Contracts Basic Provisions / Purpose / Elements Same rules apply to all contracts Purchase Agreement is most important document Determines legal rights and obligations of parties Sets times and conditions for closing List contingencies - conditions After last person initials changes (called finalized date) Unilateral becomes Bilateral ( 2 sided executory contract) If either party dies, it is still a contract Different from listing agreement, which dies with either party Purchaser obtains Equitable Rights in property (cloud on title)

46. 1. C. 4. Agency Relationships & Contracts Basic Provisions / Purpose / Elements Assignment Rights and obligations are transferred to another Assignor will still be liable if assignee can’t perform Novation Substitute new contract for old one Buyer in new home community decides to get bigger home, same builder Contingencies Conditions that must be met to close deal Financing, Inspections, Replace roof, Sell another house Equitable Title Buyer gets rights in property due to contract Get a Mutual Release if contract falls through Forfeiture of Earnest Money Sometimes buyer will walk away Get a Mutual Release to disperse money, release equitable rights

47. 1. C. 5. Agency Relationships & Contracts Conditions for Termination / Breach of Contract Completely Performed Assignment - doesn’t terminate contract, but transfers rights, not obligations Novation (substitute new contract for old one) Impossibility of performance (house burned) Operation of Law (foreclosure) Rescission – returns parties to original position Falls apart due to contingency (financing) This can happen right up to closing If new construction, builder will money or a promissory note to pay for upgrades. Note survives rescission

48. 1. C. 5. Agency Relationships & Contracts Conditions for Termination / Breach of Contract Breach Cancellation – Parties are in different position May forfeit earnest money Violation of terms Seller can not deliver marketable title Marketable title means it can be easily transferred again Buyer takes on a lot of new debt to keep from qualifying for loan Quits job Buyer backs out (will forfeit earnest money) As seller’s agent you should ask for as much EM as you can get Seller may back out (can sue for specific performance) (rare)

49. 1. C. 6. Agency Relationships & Contracts Offer and Acceptance (counter offers, multiple offers, negotiations, earnest money) Counter offer is a new offer from the other party if anything is changed It is a unilateral offer until there is a “meeting of the minds” Counter offers can be countered with another offer until both sides agree (always expect one or two counters) There may be a point where nothing is happening Make something happen, by calling other agent and see what can be done. (Can we split the difference?) You are not committing anything, but asking what can be done It is agents that keep negotiations moving forward You are not emotionally involved, and can see things more clearly Negotiate away all the little things first, then adjust price

50. 1. C. 6. Agency Relationships & Contracts Offer and Acceptance (counter offers, multiple offers, negotiations, earnest money) Negotiations usually start with a offer lower than the seller will accept Don’t let emotions get involved Don’t get mad about a low offer Determine what buyer is really after Do they need seller to pay closing cost? OK, then price will need to cover this Do they need to sell their home first? This doesn’t give them much leverage to get a lower price If buyer needs contingency to sell their home, Put a 48 hour break clause in to allow your client to keep marketing Buyer is testing the bottom to see what seller will do This can go on several times, even days, until both sides get together Whatever the other agent says; Always say: “Let me check with my client”