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Chapter 12 The Broker’s Role in the Transfer of Real Estate

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1 Chapter 12 The Broker’s Role in the Transfer of Real Estate
MN License Rules for Brokers 1

2 Know Your Terminology Agent vs. Broker. The term “agent” is based on the legal relationship of “agency” where a person hires another to act as her agent. A “broker” is an intermediary that brings together buyers and seller – often an agent of either the buyer or the seller. Broker vs. Realtor® An agent becomes a Realtor when she becomes a member of the National Association of Realtors. It’s a collective trademark, like a union might use. They are subject to a code of ethics. Listing agent vs. selling agent. Seller’s agent vs. buyer’s agent Dual agency vs. one-party agency Buyer broker vs. seller broker 2

3 Types of Listings and Listing Terminology
Open listing. Broker only paid if broker activities lead to sale. Could have multiple brokers engaged. Exclusive agency listing. One broker gets listing but seller can find his own buyer. If the seller enlists another broker, then the seller must pay two commissions if the other broker sells the property. Exclusive right to sell or exclusive listing to sell. Broker gets commission even if seller finds a buyer directly. Multiple listing. A service for brokers. Dual agency Ethical Issue: Is it possible for a dual agent to represent both sides? Ethical Issue: Tom is an agent of the Daytons, a couple looking to purchase a home. Tom finds a home that is perfect that is not for sale and approaches the owner – “Look, you have what they want. You can pretty much get your asking price. It helps me because I am on commission.” Is this behavior okay? 3

4 Types of Listings and Listing Terminology
Subagency. A broker that lists a property on the MLS is the listing broker but if another broker then leads a buyer to the property because of the MLS listing that broker is a subagent of the listing broker. This often causes confusion because both the buyer and seller likely believe the subagent represents the buyer not the seller. Cooperating broker. A special category of subagent that is not by definition loyal to the seller. Net listing. A special method to pay the agent/broker. The commission is anything received above a set amount. Designated Agency. When one agency represents both the buyer and seller by appointing two different agents, one to represent each, and properly disclosing the relationship. 4

5 The Listing Agreement Evidence of agreement
Oral agreements will not allow for commissions in most states Signature (authentication) Authority to sign as owner, agent, executor, administrator Expiration date Amount of commission When a commission is due and owing Ready, willing, and able buyer No deal, no commission Ethical Issue: Sisson owned a sports bar and contacted Stewart about selling the restaurant. Stewart agreed to do so for a 10% commission. The deal was an oral deal. Sisson eventually sold the bar without Sisson’s involvement. Does Sisson owe Stewart 10%? 5

6 Code of Ethics (long code – this is just some highlight) The NATIONAL ASSOCIATION OF REALTORS® Code of Ethics: What Does it Mean for Consumers? 1. Be honest with all parties in the transaction – not just with you, as his or her client, but also with the other real estate practitioner and his or her clients. Promote the interests of your client. For example, if REALTORS® represent a buyer with a spotty credit history, they can’t be dishonest with sellers about this fact. At the same time, REALTORS® can help their buyer clients collect and assemble information, such as credit reports and audited tax returns, to demonstrate that the buyer has addressed the problem and improved their situation. 2. Put your (client’s) interests ahead of his or her own, at all times. A REALTOR® makes every effort to understand the housing needs of his or her client, thoroughly researches available inventory, and shares all relevant information with the buyer so that he or she can make an informed decision. This service is provided regardless of the compensation available. 3. Disclose all pertinent facts regarding the property and the transaction to both buyer and seller. If a REALTOR® believes information provided by a seller is questionable, the REALTOR® is obligated to investigate. REALTORS® should recommend that buyers consult their own experts, such as home inspectors, to address concerns. For example, if a home seller asks his or her REALTOR® to conceal the fact that the roof leaks, the REALTOR® cannot comply; if the seller insists, the REALTOR® should end the business relationship with that seller. 4. Be truthful in all communications with the public. When REALTORS® distribute newsletters, create Web sites, or place advertisements, they must be careful not to represent other real estate professionals’ work product as their own. If recently sold or listed properties in the community are publicized, it must be clear whether the REALTOR® was actually involved in the transaction, or whether that data came from the local multiple listing service or other source. This ensures that the public understands the REALTOR®’s experience and can make an informed decision when choosing real estate representation.

7 Broker Duties Fiduciary to principal Duty of loyalty
Duty of disclosure Duty of competence Duty of care Duties (some statutory) on earnest money 7

8 Disclosure Issues for Brokers
End-of-Chapter Q: 1, p. 317: Misrepresentation of length of time home has been on the market. Disclosure Issues for Brokers Misrepresentation Intentional misrepresentation Fraud Nondisclosure Sales puffing Safety standards Statutory duties of disclosure and nondisclosure 8

9 A Checklist for Brokers on Disclosure
Ask about the property repair record. Ask about the utilities. Ask about the condition of appliances, roof, walls, and basement. Include pertinent information about physical condition in the listing agreement. Make an independent investigation of the property, carefully looking for recent cover-ups, redecorating, and hidden defects. (continued on next slide) 9

10 A Checklist for Brokers on Disclosure
Consider a warranty policy for the home. Consider having a professional home inspection. Make no statement that is not based on your firsthand information or knowledge. Have available a list of addresses and phone numbers for municipal, state, and country offices, so that the prospective buyer may make independent checks on information. (continued on next slide) 10

11 Likens v. Prickett’s Properties (#X) 943 (NE 2nd 816 Ind App 2011) Agent of Buyer Also Agent of Seller? Likens Listed Home Through an Agent. Likens hired Leiter to seller their home. Buyer Had Separate Agent – Stump/Prickett’s Properties. Gredys hired Jack Stump to help them buy a property. Buyer’s Agent Stump Works Directly with Sellers. Stump contacted the sellers directly and told them “I know I work differently from other realtors – I try to satisfy both sides and keep the experience of buying and selling enjoyable.” The sellers had no “reason to worry” this deal was “going to close” and “was a good deal.” Purcahse Agreement. The purchase agreement had a clause that correctly defined that the seller had an agent and the buyer had an agent. $10,000 Earnest Money. Buyer provided a bank letter of gurantee for the $10,000 down payment which Stump gave to sellers. The letter turned out to be a forgery created by the buyers. Sale Falls Through. The sale did not happen and the Likens sued the buyer’s agent, Stump, and his company, Prickett’s property. The sellers lost another good deal during this time that the seller’s agent was trying to get them to accept. ISSUE: What duty of care does Stump owe the sellers?

12 Ben Farmer Realty, Inc. v. Owens (#3) 649 SE2d 771 (GA App 2007), p
Ben Farmer Realty, Inc. v. Owens (#3) 649 SE2d 771 (GA App 2007), p. 285 NOT IN BOOK Agreement to run from “Sept 26, 2004 through April 15, 2005.” Owens directed Farmer to sell it for $479,900 or more and Farmer would get 6% commission. Owens cancelled contract in Oct, 2004 and put the house on the market himself for $725,000. Farmer pulled “for sale” sign and the lock box. Farmer found a buyer for $479,900 and demanded commission. Was the contract terminated?

13 MN Disclosures “Client” v. “Customer”
Client: Real estate agent helps negotiate price. Customer: Is shown houses and given help with the mechanics but not price. If a “Client” you sign one of the following: Contract for Exclusive Right to Represent Buyer or Contract for Nonexclusive Right to Represent Buyer You may also sign: Addendum to Buyer’s Representation Agreement (if agency is not exclusively for buyers). Business Relationship Disclosure. If the firm has a relationship with title companies, others. Agency Disclosure to Buyer and Seller at Time of Offer to Purchase. A reminder of dual agency.

14 MN Disclosures – Model

15 MN Disclosures – Listing Agreements
Must be in writing Must include a definite expiration date. A description of the real property. The list price and any terms. The amount of compensation or commission… A clear statements as to the events that …will entitle the broker to compensation. Information regarding an override clause Dual agency disclosure, if applicable. The following: “NOTICE: THE COMPENSATION FOR THE PURCHASE, LEASE, RENTAL, OR MANANGEMT OF REAL PROPERTY SHALL BE DTERMINED BTWEEN EACH INDIVUDAL BROKERA ND THE BROKER’SS CLIENT.” MN Statutes Chapter 82 – 82.66, Sub 1

16 MN Disclosures – Buyer’s Broker
A definite expiration time. The amount of any compensation or commission… A clear statement explaining services to be provided… A clear statement explaining if the agreement can be cancelled… Information regarding an override clause… The following notice in no less than 10-point boldface type… “NOTICE: THE COMPENSATION FOR THE PURCHASE, LEASE, RENTAL, OR MANANGEMT OF REAL PROPERTY SHALL BE DTERMINED BTWEEN EACH INDIVUDAL BROKERA ND THE BROKER’S CLIENT.” Dual agency disclosure. MN Statutes Chapter 82 – 82.66, Sub 2

17 MN Disclosures – Material Facts
Must disclosure material facts. Facts that are not material Owner had AIDs/HIV Owner/other committed suicide/accidental death Perceived paranormal activity Is located in a neighborhood containing any adult home, community-based residential facility, or nursing home. Sex offenders – provided that the broker provides a written notice on where that information can be found. Airport zoning – if provide information on where the zoning can be found. MN Statutes Chapter 82 – 82.68

18 Freeman v. San Diego Ass’n Of Realtors (#4) 322 F2d 1133 (9th Cir 2003) Cert denied, p. 287 NOT IN BOOK 11 regional associations of real estate agents operated three MLSs. The associations got together to combine these three listings into one and created a corporation with that purpose: Sandicor. Sandicor created a new $25 fee charged to all subscribers and then rebated a lot of this back to the associations. Issue: Antitrust violation?

19 Antitrust Hypothetical Consider 12.1
President of Professional Real Estate Assoc. said at meeting: “My business is dying fast. I have already borrowed $75,000 to keep afloat. If I am going bankrupt at 6 percent, I might as well go bankrupt at 7%. I don’t care what the rest of you do, that is what I am going to do?” Violation?

20 Queiroz v. Harvey (#X) 205 P3d 1120 (Ariz 2009) Agent Misconduct Attributed to Principal?
Harvey Listed Property. Harvey listed 10 acres for sale. Queiroz to Buy Harvey Property Through His Agent, Harrison. Queiroz entered a deal to buy the property for $150,000 with $68,000 due at closing and the seller to finance the balance of $82,000. Plus, a $1,000 of earnest money was due. No Earnest Money Paid. Seller Contacts Escrow Agent and Cancels Deal. Buyer’s Agent Hears of Cancellation and Deposits Funds. Harrison deposited the $1,000 himself after he heard of the cancellation and he represented that his client provided the funds. Buyer Sues for Specific Performance. Issue: Is a principal liable for wrongful acts of an agent? If so, “unclean hands” is an argument against specific performance. So is requiring two parties to have an ongoing relationshihp.

21 Warren’s Grandfather Warren v. Merrill (#X) 49 Cal Rptr 3d 122 (Cal App 2006), p. 294 Duty of Loyalty of Agent to Principal Warren was a buyer of a condo. He suffered from Tourette's syndrome and other related neurological disorders affecting his short term memory and cognitive abilities. He was also going through a divorce and had a $1 million judgment against him for not paying rent when his business failed. Merrill was the agent representing the sellers of the condo. Merrill went by the name “Condo Queen.” Fraud. Merrill engaged in a variety of fraudulent practices to allow Warren to obtain a loan for the property and ultimately to pay for the property titled in her daughter’s name. Told Warren he needed a co-owner and co-borrower for the loan. Merrill suggested her daughter. Her daughter would then quick-claim it back to him. Merrill offered to defer her $27,000 commission to help with the down payment. Merrill and Warren stated that the money for down payment was a gift and savings. Merrill stated that her daughter lived nearby before the ran a catering business. Her daughter was actually a waitress living in another state. She had her daughter put on as sole owner to facilitate the sale. Title to Daughter. Merrill tried to evict Warren.

22 Terra Firma Co v. Morgan (#X) 674 SE2d 190 (W Va 2008), p. 298
Coal Preparation Plant Agent worked for coal company buying land to build a coal processing plant. Seller sold land to agent (agency disclosed but principal not disclosed) At closing seller said “tell me if this is a coal company or landfill company.” The reply: “rest assured, it is for land development purposes only.” Seller signed letter of intent long before statements at closing. No misrepresentations had been made as to relationships except maybe the last one. Law: Mutual Mistake Fraud Must disclose all material facts

23 Benton v. Clegg Land Co (#X) (Ala App 2012) “AS IS” Clause – Misrepresentation Clause
Clegg Created Man Made 10 Acre Lake. The Cleggs created a dam that allowed for a 10 acre lake to be created on a 646 acre property. Lake Leaked. The lake leaked and somehow water drained out of it causing the lake level to fluctuate greatly. The Cleggs tried to fix it but were unable to do so. Property Sold. Agent Representation. The lake was low when the buyer was looking at the property and the seller’s agent said it’s because of the draught. There was a draught in the area but the agent also knew of the leakage problem but did not say anything. As Is Clause. The purchase agreement had an “as is” clause. Buyer Sues. “purchased the property to entertain clients.. And intended the lake to be the jewel of property and instead the low water level made it an eyesore.” Start here on tuesd

24 Capiccioni v. Brennan Naperville, Inc
Capiccioni v. Brennan Naperville, Inc. (#7) 791 NE2d 553 (Ill App 2003) Brokers Duty to Disclosure – Broker Misrepresentation and Negligent Misrepresentation Wrong school district represented in sales brochure “Acclaimed District 204” Home Purchased for Schools. Capiccioni’s moved in and their children attended District 204 for three years until the district discovered they did not live in the district. Law Fraud/Negligent Misrepresentation if over a material fact False Statement Careless or negligence in ascertaining the truth An intention to induce Reliance Damages

25 Fuller v. Croston (#X) 725 NW2d 600 (SD 2006), p. 303
Consider p. 290 Property Burns After Sold. Property damaged by fire after sold but before the closing? Does the agent get a commission? Fuller v. Croston (#X) 725 NW2d 600 (SD 2006), p. 303 State Required Disclosure. “Have you experienced any water penetration problems in the walls, windows, doors, basement or crawl space?” Sellers answered no. Home Had Water Issues. The home had a number of water issues that had all been fixed. Sellers did not think they needed to disclose. Plus real estate agent told them not to (this point is contested). Buyer Found Water Damage. Buyer’s Inspection. The buyer physically inspected the home and found the water damage and the seller’s acknowledged the issues. Hired Inspector. Plus the buyer hired an inspector that also found the damage. Purchased Home Anyway. 12.74 Inches of Rain Floods Basement. The basement flooded after inches of rain fell from May 17 to June 16. Record rains caused water problems post purchase. Are the Oral Disclosures Enough? Is actual knowledge a total defense? If yes, does that punish people who get inspections? Should it impact damages?

26 Suspension or Revocation of Real Estate License
Commingling of funds. Discriminating practices. Conviction of a felony. Advertising misrepresentations. Splitting commissions with unlicensed party. Failure to deliver required documents. Failure to submit all offers. Breach of duties to seller and unethical conduct. Unauthorized practice of law.

27 Dearborn v. Real Estate Agency (#X) 53 P3d 436 (Or 2002), p. 312
Agent Convicted of Drug Use/Possesion. Lost real estate license for using and possessing cocaine. Also accused of engaging in prostitution – giving drugs in exchange for sex with women and underage at least one underage girl. Can He Lose License for This? Law In OR. Cannot take license solely for conviction. Must relate to license Board argued drug use can result in an agent stealing from homes being sold or embezzling client funds. Has not happened yet. MN Law for Denial, Suspension or Revocation of License Incomplete application or false statements on the application Engaged in fraud, deceptive or dishonest practices Is enjoined by a court from practicing. Has failed to reasonably supervise brokers, salespersons, closing agents… Has violated or failed to follow the real estate law. Has been shown to be incompetent, untrustworthy or financially irresponsible. Has acted out of a conflict of interest without consent.

28 Antrim, Piper, Wenger, Inc. v. Lowe (#X) 159 P3d 215 (Kan App 2006)
Nonexclusive Right To Sell Agreement Signed. Seller, Lowe, signed an agreement with Johnson (Antrim, Piper Wenger, Inc.) a real estate agent to sell a ranch. Listing Posted to Website of Agent. Buyer Contacted Agent. A buyer contacted Johnson about the listing and wanted to see it. Some difference on facts, but the agent did not go to the ranch to show the property but instead asked the sellers to do so directly. Sellers Sell Property. The owners of the ranch/sellers met with the buyers directly and worked out a deal. Seller Refused to Pay Agent. Agent did not do anything and seller refused to pay. The commission was 5% of $1,500,000 or $75,000.

29 Fiduciary Duty - Consider 12.3, p. 293. Duty of buyers agent to seller.
Lombardos were trying to sell their home through MCO realty. Century 21 agent, Elaine Albu, presented an offer. The Lombardoes accepted and took their home off the market. The buyer explained to the Century 21 agent that the husband’s name had to come off the purchase agreement because he just went through bankruptcy. Century 21 never told the Lombardoes that the buyer’s were having financial difficulty and may not be able to close. The buyers were not able to close because of financial problems, but only after repeated delays. The seller sued for fraud as their home was off the market for so long.

30 MN Broker’s License Requirements
I have a degree in real estate from an accredited college MN Broker’s License Requirements $215 license fee. Must have 3 years (up from 2 years in 2011) of licensed real estate salesperson experience in MN or another state with comparable requirements. Or, Request for Waiver of Salesperson Experience to Sit for Broker Exam Salesperson’s license v. broker’s license. A salesperson must work under a licensed broker. Must be 18. Must pass an exam (one held at least every 45 days) 75% to pass. Must continue education – 30 hours every 2 years – spread evenly.

31 Hypotheticals on Broker Duties
End-of-Chapter Q: 5, p. 313: Hypothetical #1: A brokerage firm has a property management subsidiary, and its leasing agents are approaching clients in the firm’s management subsidiary property to place them in other properties. Hypothetical #2. A broker is a leasing agent for a major anchor tenant and has two listings that will work for the tenant, but only mentions one to the tenant because of this compensation arrangement with owner of that property. Hypothetical #3. A broker accepts a listing on a property located next to land he owns. A buyer approaches the broker about purchasing the broker’s land and the broker does not disclosure the offer to the listing client/owner of the adjoining land. Hypothetical #4. A broker lists a property without results. He then decides to purchase the property. While escrow is pending, he receives an offer on the property for $23,000 more than he has paid. What should he do?

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