Chapter 4: In This Chapter  The Real Estate Licensee  Compensation  Referrals  How to Find a Referral Partner  Agency  How Relationships Are Formed  Elements of an Agency Agreement  Growth of Buyer Representation  Foreclosures and Short Sales Page 60

The Real Estate Licensee  Brokers and agents licensed by states  Little reciprocity, high degree of uniformity Licensing criteria Continuing education requirements  Commission oversees licensing and regulation  Brokers and agents can be licensed in more than one state Page 60

REALTOR ® Business Activities Source: The 2006 NATIONAL ASSOCIATION OF REALTORS® Profile of Real Estate Firms: An Industry Overview Page 61

Types of Real Estate Professionals  Brokers  Agents  Real Estate Professional Assistants (REPAs)  Office Managers Page 62-63

Compensation  Traditional compensation is commission Percentage of sales price Paid by seller May vary (e.g., large commercial transactions)  Split 50/50 between listing agent and agent who found buyer Transaction “sides”  Agent and broker typically split commission  Other modes of compensation Page 63-64

Modes of Compensation for REALTORS ® Page 64

Very Important Facts About Compensation  Commissions and fees always negotiable No standard percentage or fee  Federal antitrust law  Firms may set confidential policies  Only licensees may receive commissions  Kickbacks are illegal  Compensation does not determine agency representation status Page 64

Other Compensation Issues  Buyer’s agent usually paid by commission split with seller’s agent Seller authorizes through listing agreement Buyer may pay if seller refuses Terms subject to negotiation  For Sale By Owner (FSBO) Compensation of buyer’s agent subject to negotiation  Commission protection clause  Receiving commission funds Page 65-66

Hypothetical Commission Splits Hypothetical 1: Broker to Broker  Seller’s agent and buyer’s agent split 6% commission on a US $250,000 home  $250,000 x 6% = $15,000/2 = $7,500/agent Hypothetical 2: Referral  Receiving agent agrees to pay 20% of her half of a 6% commission on a US $300,000 home. Referring agent receives:  $300,000 x 6% = $18,000/2 = $9,000 x 20% = $1,800 Page 66

Referrals  Common practice in U.S. Other markets and property types Specialized services  Receiving agent pays fee to referring agent when transaction closes Usually percentage of one transaction side  Referrals make good business sense  Referrals and market conditions  Referring foreign buyers Page 67-68

How to Find a Referral Partner  Referring agent: makes the referral and receives referral fee  Receiving agent: receives the referral and pays the referral fee  Find the right receiving agent CIPS Network Cooperating and Ambassador Associations Page 68-73

EXERCISE: REFERRALS Page 74

Agency  Relationships defined by state laws  Client  Customer  Broker  Agent  Transaction broker  Finder Page 75-76

Agency and NAR Policy  NAR policy states that disclosure of agency relationships should be meaningful, written, and timely  Allows buyer or seller to make informed decisions Page 76

How Relationships Are Formed  Express agreement Written Oral  Implied agreement Page 76-77

Elements of an Agency Agreement  Exclusivity  Purpose  Duration  Services  Compensation Page 77

Client and Customer Who Is the Client? Who Is the Customer? If the agent:the customer is:The agent provides: Represents the seller The buyer Customer service to the buyer Client (fiduciary duty) service to the seller Represents the buyer The seller Customer service to the seller Client (fiduciary duty) service to the buyer Acts as a facilitator or transaction broker Both buyer and seller Limited client-level services for both according to state law Page 78

Fiduciary Duties to Client  Obedience  Loyalty  Disclosure  Confidentiality  Accounting  Reasonable care and diligence Page 78

Responsibilities to Customer  Honesty  Accounting  Reasonable skill  Agency and material fact disclosures Page 79-80

Growth of Buyer Representation  Real estate professional works solely for the buyer  60% of buyers use a buyer’s agent  Services include: Counseling Negotiation Managing the transaction Page 81

Buyer Counseling Session  Learn needs, wants, goals, and motivations  Define parameters, price range, and timeframe  Help form realistic expectations  Obtain representation commitment  Plan strategy to find the right property Page 81-82

Agents May Avoid Some Buyers  Not ready to buy  Financially unqualified  Unrealistic expectations  Late, inconsiderate, overly demanding, dishonest  Conflict of interest or legal liability  Will not sign an exclusive agreement  Want to work with several agents  Negotiate directly with seller’s agent  Violate fair housing laws  Take or damage seller’s property  Ask for rebates or kickbacks Page 82

Foreclosures  Forced sale of real property to pay debt  Issues that could negate price discount include: Length of transaction time Inspection issues Property condition Title issues Income issues (commercial properties) Page 82-83

Short Sales  Borrower (owner) and lender agree to sell property for less than principal owed  Issues include: Length of transaction time Consent Parties involved Seller in financial hardship Property condition Page 83-84

EXERCISE: SHORT QUIZ Page 85-86