Real Estate Law Real Estate Brokers Real Estate Law Real Estate Brokers

Subjects Covered: The Role of the Broker The Role of the Broker Types of Listing Agreements Types of Listing Agreements Broker’s Agreements Broker’s Agreements

Real Estate Brokers Real Estate Agents – Definitions: Broker Broker One employed to negotiate the sale, purchase or exchange of land. Compensation generally in the form of a commission. One employed to negotiate the sale, purchase or exchange of land. Compensation generally in the form of a commission. Salesperson Salesperson Employee of broker. Receives compensation from broker. Responsible only to the Broker. Salesman's activities performed in the name of the Broker.

Licensing Requirements All states and Canadian provinces require Real Estate Brokers to be licensed. All states and Canadian provinces require Real Estate Brokers to be licensed. Purpose of licensing laws: Purpose of licensing laws: − protect public from dishonest or incompetent Brokers. − prescribe standards and qualifications for licensing Brokers. − maintain high standards in real estate profession. − protect licensed Brokers from unfair competition.

Licensing Requirements (cont’d) Real Estate Broker NOT entitled to commission unless he had license at time he was hired to perform services for which he received the commission. Real Estate Broker NOT entitled to commission unless he had license at time he was hired to perform services for which he received the commission. Criminal penalties often imposed on person who violates Broker's licensing statutes. Criminal penalties often imposed on person who violates Broker's licensing statutes.

Agency Relationship The Listing Agreement serves as an employment contract and establishes an agency relationship. The Listing Agreement serves as an employment contract and establishes an agency relationship. Parties in Agency Relationship: Parties in Agency Relationship: Principal (Seller or Buyer) Principal (Seller or Buyer) Agent (Broker) Agent (Broker)

Agency Relationship Powers and Duties of Agent Powers and Duties of Agent Authority limited to agreement between principal and agent. Some duties set forth in agreement (e.g., Buyer’s Broker to “assist Buyer in locating property, negotiating the purchase thereof, and obtaining financing therefore”), others are implied by law.

Agency Relationship (cont’d) Broker is generally not given broad authority to act for principal. Broker is generally not given broad authority to act for principal. Example: Example: Broker may not represent condition of property (but must disclose known material defects), receive all or part of the purchase price, or make representations to a Buyer that the deposit will be returned if there is no sale unless these powers are specifically provided for in Listing Agreement. Note situations where Broker is given express authority to perform certain acts and other apparent authorities are assumed granted. Note situations where Broker is given express authority to perform certain acts and other apparent authorities are assumed granted.

Implied Duties of Real Estate Brokers Derived from general agency principles. Derived from general agency principles. Broker always must put interest of Principal first. Broker always must put interest of Principal first. Guidelines: Guidelines: Care Care Broker must exercise a reasonable amount of care while transacting business. Obedience Obedience Broker must act in good faith and in conformity with Principal's instructions and authority.

Implied Duties of Real Estate Brokers (cont’d) Loyalty Loyalty Broker owes Principal 100% loyalty. Place Principal's interest above those of any other person he/she is dealing with. Accounting Accounting Broker must be able to report status of all funds entrusted to them by Principal. Notice Notice Broker must keep Principal fully informed at all times of all facts which might affect Principal's business decisions.

Types of Agents Single Agent Licensee who is acting as agent of only one principal in a transaction, either the Buyer or the Seller (i.e., either “Buyer’s Agent” or “Seller’s Agent”). Dual Agent Licensee who is acting as agent of both the Seller and the Buyer. General rule prohibits dual agent situation except when parties provide written consent.

Types of Agents (cont’d) Subagent Licensee who is authorized by an agent to aid in a transaction for a Principal, if authorized under the original Agency agreement. Facilitator (non-agent) Licensee who assists the Seller and Buyer in reaching an agreement but does not represent either in the transaction.

Types of Agents (cont’d) Problem arises when the Seller is represented by one employee of a brokerage, and the Buyer is represented by another employee of the same brokerage (e.g., Coldwell Banker). Problem arises when the Seller is represented by one employee of a brokerage, and the Buyer is represented by another employee of the same brokerage (e.g., Coldwell Banker). Ordinarily, employees of a single firm could represent only either the Seller or the Buyer, since they are both employees of the same brokerage. Ordinarily, employees of a single firm could represent only either the Seller or the Buyer, since they are both employees of the same brokerage. Massachusetts permits an exception – the brokerage can designate one employee as the Seller’s Agent, and the other as the Buyer’s Agent (i.e., “Single Agents) – the brokerage itself then becomes a Dual Agent. Massachusetts permits an exception – the brokerage can designate one employee as the Seller’s Agent, and the other as the Buyer’s Agent (i.e., “Single Agents) – the brokerage itself then becomes a Dual Agent.

Sherman Antitrust Act A federal antitrust law protecting against unlawful restraints in trade and commerce, such as monopolies and price-fixing. A federal antitrust law protecting against unlawful restraints in trade and commerce, such as monopolies and price-fixing. Two concerns: Two concerns: 1. Per se violations where activities are found to cause a “restraint of trade”. 2. Whether activities affect Interstate Commerce.

Sherman Antitrust Act (cont’d) Four Common Violations: Four Common Violations: 1. Price fixing - discussion of commissions with competitors 2. Group Boycott - two or more competitors boycott a non competitor 3. Dividing the Market - division based on geography, race or any other criteria 4. Contingent Sales - making the sale of a product or service contingent on consumers purchase of another product of service

Sherman Anti-Trust Act (cont’d) Penalties: Penalties: Corporations - up to $1 million per offense Corporations - up to $1 million per offense Individuals - up to $100,000 plus 3 yrs. imprisonment per offense Individuals - up to $100,000 plus 3 yrs. imprisonment per offense Civil Penalties - Triple Damages plus attorneys fees plus court costs Civil Penalties - Triple Damages plus attorneys fees plus court costs

Types of Listing Agreements Open Listing Open Listing Most favorable to the Seller. Most favorable to the Seller. Seller retains right to retain any number of Brokers to act as his or her agents. Seller retains right to retain any number of Brokers to act as his or her agents. Brokers act simultaneously, all looking for buyers. Brokers act simultaneously, all looking for buyers. Seller only pays commission to Broker who successfully produces a ready, willing and able buyer. Seller only pays commission to Broker who successfully produces a ready, willing and able buyer.

Types of Listing Agreements (cont’d) Exclusive Agency Exclusive Agency One Broker is authorized to act as the exclusive agent of the principal, BUT Seller retains right to sell the property himself or herself without obligation to the Broker. One Broker is authorized to act as the exclusive agent of the principal, BUT Seller retains right to sell the property himself or herself without obligation to the Broker. Exclusive Right to Sell Exclusive Right to Sell Most common form for residential sales. Most common form for residential sales. One broker is appointed as the sole agent of Seller and given the exclusive right to represent the Seller in marketing the property and finding a purchaser. One broker is appointed as the sole agent of Seller and given the exclusive right to represent the Seller in marketing the property and finding a purchaser.

Broker’s Compensation The Broker’s Commission Broker is paid usually in form of commission Broker is paid usually in form of commission ONLY entitled to commission IF: ONLY entitled to commission IF: 1. Licensed 2. Employed by Seller 3. Procuring cause of sale (i.e., from a ready, willing and able buyer). To be considered the procuring cause of sale, Broker must have taken action to start or cause a chain of events that resulted in the sale. To be considered the procuring cause of sale, Broker must have taken action to start or cause a chain of events that resulted in the sale.

Real Estate Brokers (cont’d) “Ready, Willing and Able Buyer” Generally, once a Seller accepts an offer from a ready, willing and able Buyer, Seller is liable for Broker's commission regardless of whether or not the Buyer completes the purchase. Generally, once a Seller accepts an offer from a ready, willing and able Buyer, Seller is liable for Broker's commission regardless of whether or not the Buyer completes the purchase. "Ready, Willing and Able Buyer" is one who is prepared to buy on the Seller's terms as specified in the listing contract and ready to take necessary steps to close the deal. "Ready, Willing and Able Buyer" is one who is prepared to buy on the Seller's terms as specified in the listing contract and ready to take necessary steps to close the deal.

Real Estate Brokers (cont’d) Broker gets commission in the following situations: Broker gets commission in the following situations: 1. If Seller refuses to sign purchase agreement, generally no liability to buyer, but Seller must pay Broker commission; or 2. Seller's title has uncorrected defects; or 2. Seller's title has uncorrected defects; or 3. purchase agreement signed and sale never consummated, Seller MUST pay commission; or 4. Seller's spouse refuses to sign deed, Seller MUST pay. Principal may terminate listing agreement but must be acting in good faith and agreement is not for a set term. Principal may terminate listing agreement but must be acting in good faith and agreement is not for a set term.

Quiz 1. The term “real estate agent” may refer to either a real estate sales person or a real estate broker. 2. A special agent is one who is authorized to conduct a single transaction, or a finite series of transactions not anticipated to be of an ongoing nature. 3. A transaction broker is considered an agent of both parties to a transaction. 4. The fiduciary duty of obedience includes the prohibition of both negligent and intentional misrepresentation. 5. A title company can act as an escrow agent for funds received by a broker. T F F T T

6. The duty of disclosure is owed to principals as well as third parties. 7. Escrow agents are required to open separate escrow accounts for each client. 8. The fiduciary obligations that transaction brokers do not owe to any one party are the obligations of disclosure and accounting. 9. The federal antitrust law prohibiting price-fixing is known as the Sherman Act. 10. An exclusive listing agreement is one in which the listing broker is entitled to receive compensation if the listing broker or any person other than the seller procures a buyer within the listing term. Quiz (cont’d) T F F T T