Real Estate Brokerage

  • The Real Estate Sales Process
    • Listing agreement
    • Marketing the property and qualifying buyers
    • Presentation and negotiations
    • Contracts and closing
  • Real Estate Brokers and Sales Associates
    • A broker is an intermediary who
      • brings together buyers and sellers
      • assists in negotiating agreements between buyers and sellers
      • executes orders of buyers and sellers
      • receives a commission (or brokerage) in compensation for services rendered.
    • Real estate brokers are individuals licensed by state governments to arrange real estate sale or lease transactions for a commission
    • Real estate sales associates are individuals licensed by state governments to arrange real estate sale or lease transactions under the supervision of a real estate broker
  • Licensing of Sales Associates & Brokers
    • All states have a minimum education and testing requirement
    • Most states require continuing education to renew license
  • Real Estate Brokerage Regulation
    • All states have regulatory bodies to ensure compliance with regulations
    • Licenses may be revoked and other penalties imposed for violations
  • Legal Aspects of Broker-Client Relationship
    • In an “agency relationship,” one party (the principal) authorizes another party (the agent) to act on his or her behalf.
    • The agent is a fiduciary of the principal
  • Agency Relationships in Real Estate
    • Broker may be hired to help a buyer find and purchase property
    • Broker may be hired to help a seller sell a property
    • Broker may hire associates to assist in locating buyers or properties
  • The Role of Real Estate Brokers
    • Many transactions have more than one broker involved (e.g., a listing broker and a buyer’s broker)
    • Dual agency – broker represents buyer and seller at the same time (illogical, right?)
    • Transactional agency is allowed in some states where broker helps both parties reach a deal while carefully avoiding working to the detriment of either party
  • Creating Agency Relationships
  • Broker-Seller Relationship (Seller’s Agent)
    • Listing agreements establish the agency relationship between sellers and brokers.
      • Open Listing – owner hires several brokers and is only obligated to pay the broker who finds the actual buyer
      • Exclusive-Brokerage Listing – owner agrees to hire only one broker to search for a buyer, but reserves the right to sell the property without the assistance of the broker and thus avoid paying a commission
      • Exclusive Right to Sell Listing – seller agrees to hire only one broker and to pay that broker a commission if the property is sold, even by the owner, while the listing is active
      • Net listing – Seller guaranteed certain amount, broker keeps excess. Illegal in some states
      • Limited-Service Listing – Broker places listing on the multiple listing service but provides little service
    • Broker-Buyer Relationship (Buyer’s Agent)
      • Types of buyer representation agreements are similar to listings
        • Open
        • Exclusive right to represent
      • Compensation to Buyer’s Agent
        • Retainer fee
        • Fixed fee
        • Percentage of purchase price
        • Commission split for property listed on the multiple listing service
      • Duties & Rights Under Agency Relationships
        • Legal duties imposed by statutes and regulations
        • Ethical duties (e.g., National Association of REALTORS® Code of Ethics)
        • An agent is in a position of trust and confidence in relation to another person or his or her property. Fiduciaries must act in the best interest of their clients at all times.
  • Fraud & Misrepresentation
    • Elements of fraud
      • Intention to mislead
      • False statement material to the transaction
      • Client justifiably relies on the statement
      • Client is injured
    • Misrepresentation can be innocent with no intention to mislead or even simple negligence, but the broker is still responsible.
  • Seller’s Agent’s Duties to Seller
    • Locate a buyer and keep the seller informed
  • Seller’s Agent’s Duties to Buyers
    • Disclose negative factors that might adversely affect the property’s value
      • See Legal Highlight “The Seller’s Agent’s Obligations to the Buyer”
    • Keep any money deposits in a neutral location
  • Buyer’s Agent’s Duties to Buyer
    • Buyer’s agent is a fiduciary of the buyer
    • Act diligently to locate property that matches buyer’s criteria
  • Buyer’s Agent’s Duties to Seller
    • Treat all sellers fairly, honestly, and with due care.
  • Fair Housing Laws
    • Prohibits discrimination based on:
      • Sex
      • Race
      • Color
      • Religion
      • National origin
      • Disabilities
      • Familial status
    • Cannot engage in steering or blockbusting
    • Civil Rights Act of 1866 prohibits public and private racial discrimination
    • Fair Housing Act of 1988 provides penalties for violation
    • See Legal Highlight “Fair Housing”
  • Disclosure of Agency Relationships
    • Most states have enacted laws that require brokers to disclose the nature of their agency relationships
  • Termination of Agency Relationships
    • When a transaction occurs
    • When the agreement expires
    • When the parties agree to terminate
    • When one party breaches the agreement
    • When one party becomes contractually incapacitated
    • The listing property is destroyed
    • The listing property is condemned
  • Types of Brokerage Firms
    • Franchises
    • Desk fee arrangements
    • Multiple-listing services
  • Broker & Sales Associate Compensation
    • Usually a percentage of the transaction amount
    • Broker and sales associate usually have an agreed “split”
    • Cooperating brokers – listing broker, through multiple listing service shares fee with buyer’s broker