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national chp. 7
laws of agency and mandated disclosures
| Term | Definition |
|---|---|
| 7-1 obligations of the BROKERAGE FIRM | owns ALL contracts -salespeople and broker associates may not take contracts or listings w/out permission when they leave the firm |
| ...employing broker (responsible/principal broker or broker in charge) is responsible for... | -all contracts, listings (employment), and purchase agreements -supervising all licensees under them |
| role of salesperson or broker associate | employed to rep the broker and brokerage firm -owes duties to the client equivalent to the duties owed by the employing broker |
| ...a salesperson/broker associate can be a? | employee or independent contractor(employed) |
| employee | -broker must withhold taxes -does not have to guarantee vacations, set schedules, or work set hours |
| independent contractors (employed) | -have a WRITTEN AGREEMENT that states they may set their own work hours -pay their own taxes |
| 7-2 parties to an agency relationship principal | one who employs another to act on her behalf -agent owes fiduciary duties to the principal who EMPLOYS him (this may or may not be who pays the agent) |
| agent/fiduciary | person who is employed to represent a principal |
| subagent | person who is employed to rep an agent representing a principal |
| third party | a party to a transaction who is not a party to the particular agency agreement -agent owes honesty and fair dealing |
| ...in 3rd party, w/ customers | at first contact w/ customers, must disclose that customers should not give confidential info to agents -agents' fiduciary duties would require them to share that info w/ their principal |
| 7-3 common laws of agency agents fiduciary responsibilities | OLD CAR Obedience, Loyalty, Disclosure, Confidentiality, Accounting, Reasonable care and skill |
| agents always owes... | fiduciary duties (obligations) to the principal who employed her |
| agent must keep confidential | PTM price, terms, and motivation of the principal |
| accountings includes | accounting for all money and personal property given to the broker |
| most states define agency relationship by.. | statute -may see common laws of agency on national portion of exam |
| types of agency- created by a FIDUCIARY AGREEMENT | 1. special agency 2. general agency 3. universal agency |
| 1. special agency | created when an agent is authorized to perform a particular act w/out the ability to bind the principal -seller contracts w/ broker using a listing contract -buyer contracts w/ a broker using a buyer brokerage contract |
| 2. general agency | agent is authorized to perform a series of acts associated w/ the continued operation of a particular business (limit power to bind principal) -salesperson is licensed to broker -property manager is employed by property owner |
| 3.universal agency | agent is authorized to perform in place of principal (total power to bind principal) -power of attorney is used, which appoints the attorney-in-fact |
| expressed agency | created thru oral or written listing or buyer representation agreement -REAL ESTATE CONTRACTS SHOULD BE EXPRESSED |
| implied agency | created thru actions of the parties and should not be used for listing as it is not in writing |
| each employing broker is responsible for? | all professional acts and conduct performed by the broker or by a salesperson/associate broker working under them |
| brokers may NOT? | misrepresent property or conceal material facts -ex: broker promised "I know the new light rail will run here," when in fact it doesn't, the broker would be guilty of material misrepresentation |
| 7-4 mandatory disclosures disclosure of representation | either orally or in writing, prior to showing or receiving any confidential info -if representation changes, new disclosure is required at once -must disclose if reping a relative or if licensee is the principal |
| dual agency | reping both buyer and seller -agent must get consent of both parties in WRITING -disclosure must state the source of any expected compensation to the broker |
| sellers property disclosure | may be required form or written list should cover: -land/soil & environmental conditions -structural issues and condition of fixtures -lot size, encroachments, easements, and so forth -all issues that might make a buyer change a decision |
| how does the seller complete the disclosure? | to the best of his current actual knowledge -NEVER the broker! |
| what must the seller and broker disclose? | ALL material defects(facts), both visible and latent (hidden) to all buyers |
| material facts | seller and broker/salesperson must reveal all known material facts -broker not responsible for discovering latent (hidden) facts that the seller does not disclose |
| to who are the first material facts revealed to? | the party the agent reps and then to the other broker/salesperson and parties to the transaction |
| stigmatized property | requirements (e.g., disclosure of a murder) are determined by state law |
| licensee who w/holds or lies about material facts? | may be guilty of misrepresentation or fraud -contract may be voidable |
| puffing | exaggerated opinion ex- "This is the best house on the market" "This house has the best lake view" (doesn't constitute misrepresentation) |
| listing agent has duty to? | present all offers to client, unless otherwise specified in writing -multiple offers should be presented simultaneously |
| broker must do as the seller request? | to make sure all parties, even 3rd parties, are protected -listing broker must follow seller's directions to prevent harm to others (especially for setting showings) |
| listing broker follow sellers directions | ex- if the house has a hazard that the seller warned the listing broker about, the listing broker is responsible to make sure no one enters |
| buyer's ability to get loan | considered material fact -buyer and buyer's agent have to disclose if buyer is unable to get a loan |
| if a broker is ask to lie? | MUST disclose all know material facts -brokers owe those they don't rep. honesty, fair dealing, and care (even if principal ask them to lie or keep silent) |
| unethical behavior | licensee may not inflate sales price in hopes of securing a listing then lowering the price later |
| environmental issues | regulated by the EPA! (environmental protection agency) -known or suspected environmental issues must be disclosed as they can impact value |
| asbestos | mineral used in building that can cause respiratory disease -used prior to 1978 in variety of building materials, including insulation, b/c of its fire resistance |
| asbestos only harmful if? | fibers are exposed -hazard is from inhaling the microscopic fibers |
| removal of asbestos | abatement- if building is being demolished or renovated and should be done by licensed professional prior to demolition |
| better choice than removal for asbestos? | encapsulation (sealing in place) -there is no danger of exposing the fibers |
| lead-based paint | seller must give a copy of the EPA pamphlet to buyers of homes that were built prior to January 1, 1978 -buyers have 10day opportunity to have the home tested and may waive the right for the inspection |
| who is not required to do a lead inspection or removal? | seller |
| where is lead found? | soil, pipes, and paint -not typically found in wall insulation |
| brokers responsibility of lead-based paint | listing broker: makes sure that the purchase agreement includes signed acknowledgements by the buyers, sellers, and all agents -real estate brokers are responsible for making sure all parties are IN COMPLIANCE |
| ...property managers and landlords? | must give similar disclosure and EPA pamphlet to renters if the property was built before 1978 -renter dosen't have to be given the opportunity to test or have lead-based paint removed |
| radon | naturally occurring odorless radioactive gas -enters thru cracks in basement -can cause lung cancer |
| how is radon taken care of? | typically MITIGATED by adding a ventilation system to move the gas outside -relatively inexpensive to detect and mitigate |
| carbon monoxide (CO) | odorless gas that is the by-product of combustion |
| ...proper ventilation | if combustible appliances, furnaces, and wood stoves are working properly and have proper ventilation -CO is not an issue |
| ...improper ventilation | or equipment malfunction can cause buildup of CO gas and lead to death |
| how is CO detected? | with a CO monitor/detector -many states mandate that properties must have CO detectors |
| mold | toxic mold created by excess moisture -all mold requires moisture to grow |
| are all molds hazardous? | NO! it is naturally occurring in the air |
| if mold is found in walls or other areas of housing? | may be considered toxic and would require remediation |
| remediation | removal should be done per EPA and state regulations |
| federal disclosure law on mold? | no federal disclosure law -some states have disclosure requirements |
| who must disclose if there is a mold issue? | sellers -brokers should be aware of the indications of mold, including musty smell, water damage, high humidity, water leaks, and so forth |
| other environmental issues | formaldehyde, chlorofluorocarbons, electromagnetic fields, and methamphetamine labs all pose problems -brokers and salespeople should also be aware of the impact of underground storage tanks, groundwater pollution, brownfields, and waste disposal sites |
| all known environmental issues? | may impact value -must be disclosed by the seller and brokers, or salespeople |
| 7-5 listing agreement | contract is owned by the brokerage firm |
| types of listings | broker may refuse to take any listing 1. exclusive right-to-sell listing 2. exclusive-agency listing 3. open/nonexclusive listing |
| exclusive right-to-sell listing | -agent paid even if the seller or someone else finds the buyer -gives maximum broker protection by eliminating procuring cause disagreements |
| exclusive-agency listing | -owner retains right to sell himself w/out paying commission -if anyone other than the owner obtains the buyer, the agent gets paid -agent would put into MLS but would be less motivated due to competition from the seller |
| open/nonexclusive listing | -owner may list w/ more than one broker or may just offer to pay anyone who brings an offer -listing broker is paid only if she obtains buyer and is the procuring cause of the sale -may be terminated at any time prior to performance |
| essential elements of a listing | -express agreement (in writing and signed) -amount/method of compensation paid to listing broker is negotiable -price and terms -specific termination date |
| commissions are? | negotiable in ALL CASES -price-fixing is a violation of Sherman Antitrust Act |
| how a listing terminates | 1. performance by both parties (closing the sale) 2. expiration 3. mutual recession 4. death or incapacity of either employing broker or seller 5. destruction of premises 6. bankruptcy of broker or seller 7. breach or failure to uphold agreement |
| if listing expires while property under contract | listing broker agrees to close the transaction in order to receive a commission |
| death of salesperson/broker associate | does not terminate a listing |
| destruction of premises ex. | house burns down |
| protection clause/extension clause/holdover clause/safety clause | provides for broker to collect a commission for a certain length of time after the termination of the listing -if a buyer the broker procured during the listing purchases the property |
| do not confuse w/ loan clauses such as... | alienation, acceleration, or co-insurance |
| who terminates this clause? | many states have laws that terminate this clause, once seller signs new listing -otherwise, seller could potentially become liable for two commissions |
| obligations of listing broker | 1.present all written offers 2. complete written offer if buyer requests it 3.pay fees only to licensed brokers 4. put all agreements in writing, have them signed & give copies to all parties 5. verify all mkt correct and truthful 6.seller misrep |
| ...pay fees only to | licensed brokers -no fees or commissions may be paid to unlicensed persons -broker may pay referral fees to other brokerage firms but never to broker associates or salespeople |
| ...verify that all mkting is | correct and truthful -includes disclosure of material facts and property info (property taxes, HOA dues, and so forth) -buyer has received seller's property disclosure prior to making an offer |
| ...seller misreps a latent defect in the seller's property disclosure | as long as the broker had performed a visual inspection and found no obvious defects -broker would not be held liable for the misrep |
| obligations of all brokers and salespeople | -verify info & statements made by buyer & seller (especially if they appear to be untrue) -complete CMA to verify value -material facts must be disclosed immediately to all parties - complete visual inspec -answer 3rd party ?s w/ honesty & clarity |
| ...complete CMA | -to verify value -even if broker or salesperson believes they know the current value |
| ...material facts disclosed ex. | hail damage or roof issues |
| ...complete a visual inspection of property | looking for material defects and environmental property disclosure -recommend buyer have inspection to check for latent defects and environmental issues -point out any "red flag" issues that may rep potential problems (ex-sagging floors, water stains) |
| 7-6 buyer agency agreement buyer representation agreement | exclusive right to rep authorizes one broker to rep the buyer & requires the buyer to compensate the agent when purchasing property thru any source |
| ...termination | same as listing agreements (death, bankruptcy, etc) -buyer rep agreements must have definite termination date |
| agent showed property based on potential commission | not b/c of buyer's needs would be violating the fiduciary obligation of loyalty |
| ...buyer who hired an agent using exclusive agency contract | would not pay a commission if the buyer found & bought a property on her own accord |
| 7-7 sherman antitrust act | antitrust laws prohibit anticompetitive behavior such as price-fixing |
| price-fixing | competitors agree to charge the same rates -is ILLEGAL as it inhibits competition |
| ...brokers must not discuss commissions where? | outside of their office -ex: one employing broker to another employing broker |
| ...brokers may have commission side agreements w/? | their salespeople or broker associates -not w/ someone outside the firm |
| ...if a broker hears commission conversations outside brokers? | broker should shout and get out. -"i wouldn't talk about commissions outside of the office" and leave |
| 7-8 warranties | disclosure requirements set by state law |
| home warranty programs for existing homes | cover the majority of the home, including all major systems and appliances |
| ...home warranty provided as? | listing or offer -feature a deductible and may exclude some items from coverage |
| ...terms and lengths determined by? | BY THE CONTRACT w/ the warranty company |
| ...warranties are available? | brokers should make sure buyers know that warranties are available |
| new home construction warranties | provided on newly constructed homes by the builder and must meet strict underwriting guidelines |
| ..what does a new home construction warranty cover? | -failure of workmanship and material -failures of inclusions |
| ...what does it cover after closing? | roof or other structural failure -wouldn't cover structural damage from outside forces |
| ...at what level are requirements for builder warranties set at? | state or local level |
| ...who makes sure buyers understand limits of all warranties? | brokers |
Created by:
kmills5
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