Download III. Types of Listing Agreements

Chapter 6
Real Estate Brokers
Chapter Outline
I.
Overview
A. Real estate broker
1. A broker is licensed under state law to facilitate real estate
transactions in return for compensation (typically commission
which is a certain dollar figure or a percentage of the purchase
price of the property).
2. Brokers are governed by federal and state law.
3. In most states, a broker first must become a licensed salesperson
(or sales associate) and work under a broker for a specified
period of time.
4. Brokers must pass certain courses and pass a state examination.
Coursework and exams usually cover residential and commercial
financing, property valuation, real estate investment, leasing of
real property, zoning, brokerage office procedures, ethics,
handling of escrow accounts, the law of agency, and relevant
state and federal laws.
5. Continuing education required to maintain license.
B. Realtor: a real estate licensee who voluntarily becomes a member of a
local board of realtors that is affiliated with the National Association of
Realtors®.
C. Real estate agent: a real estate licensee, either a real estate salesperson or
real estate broker.
D. Brokerage: the name given to the business engaged in by real estate
brokers.
E. Multiple listing service (MLS): an organization of brokers who agree to
publicize their listings to all other broker members through service.
Information is shared through computerized multiple listing directories.
II.
Role of the Broker
A. Responsibilities of broker versus attorney
1. Brokers are hired for their expertise in marketing real property.
2. Brokers are allowed by law to make representations regarding
the value of a particular property. Valuation is made by
conducting a competitive market analysis, which consists of a
1
comparison of prices of properties similar to the seller’s property
that recently have been sold.
3. Brokers are allowed by law to partake in preliminary
negotiations and the drafting of documents leading to an
agreement between the parties. Brokers may draft memoranda,
deposit receipts, and in some states contracts for sale and
purchase, as long as they do not give legal advice.
4. Brokers may not give opinion of title or prepare documents
effecting the transfer of title; attorneys must do this.
B. The broker as agent and fiduciary
1. Agent: a person authorized to act on behalf of another.
2. Principal: the person upon whose behalf an agent is authorized
to work.
3. Unless acting as a transaction broker, a real estate broker is the
agent of the person the broker is representing in a real estate
transaction, regardless of which party pays the broker’s
commission.
4. Agency relationship also exists between a broker and his/her
salespersons.
a. Respondeat superior: “Let the master answer,” a
legal doctrine that holds the principal legally
responsible for the actions of the agent.
5. Types of agents
a. Universal agent: agent who is authorized to
conduct any and all transactions of every nature that
may be lawfully delegated by a principal. A real
estate broker or salesperson does not act as a
universal agent.
b. General agent: agent who is authorized to act by a
principal in all matters related to a particular
business.
c. Special agent: agent who is authorized to conduct a
single transaction, or a finite series of transactions
not anticipated to be of an ongoing nature.
d. Subagent: someone who is authorized by an agent
to aid in a transaction for a principal if authorized
under the original agency agreement. Examples:
Salespersons are subagents of brokers. A subagents
also may be another brokerage firm.
e. Single agent: a broker representing only one
principal in a transaction. Owes fiduciary duties to
the principal (duties held by a person in a special
position of trust).
2
f. Dual agent: a broker representing both the buyer
and the seller in the same transaction. Some states
permit this. In states that do, the dual agency
arrangement must be disclosed to both parties and
consented to in writing by both parties. Also, in
states that permit dual agency, state law may
indicate that the broker owes certain fiduciary
duties to the parties.
g. Transaction broker: a broker who provides limited
representation to one or both parties in a real estate
transaction and does not represent any one party to
the detriment of the other. States that recognize
transaction brokers typically are not considered
agents of either party, although certain obligations
do exist, such as fair dealing, honesty, disclosure,
accounting, diligence, skill and care in conducting
the real estate transaction. Typically, the transaction
broker does not owe complete confidentiality and
loyalty to any one party.
6. Fiduciary duties of the broker: When acting in an agency
capacity, a broker owes his/her principal the following fiduciary
duties.
a. Care: exercise of reasonable skill and knowledge in
representing the principal in a real estate
transaction. The broker must not bind the principal
to actions not specifically authorized by the
principal, and the broker may not make
unauthorized promises or representations on behalf
of the principal.
b. Obedience: requires a broker to follow all
instructions given by the principal as long as those
instructions are legal. The broker must submit all
offers and counteroffers. If unable to carry out
instructions, the broker must withdraw. A broker
may not obey an illegal instruction (such as
discriminatory practices).
c. Loyalty: requires a broker always to act in the best
interest of the principal to the exclusion of all other
interests. This duty is required of single agents. The
broker must not act in self-interest without the
informed consent of the principal. A broker may not
purchase a property listed with the broker for
himself/herself directly or for any entity in which
the broker has an interest without disclosing the
interest and receiving the consent of the seller. The
broker may not sell real property he/ she owns
3
d.
e.
f.
g.
without disclosing his/her interest in the property
and the fact that he/she is a broker.
Confidentiality: required of single agents; the
broker must preserve the confidences of the
principal, as long as it is ethically correct to do so.
Duty exists both during and after termination of the
agency relationship.
Disclosure: sometimes referred to as notice,
requires that the broker disclose all material facts
that have a bearing on the real estate transaction.
This duty extends beyond the principal and also are
owed to third parties. The duty includes prohibition
of both negligent and intentional misrepresentation
to either party in a real estate transaction.
Misrepresentation includes misrepresentation by
both commission and omission.
(1) Fraudulent misrepresentation: inaccurate
representation made with an intent to mislead or
deceive. Must show that the statements made by
the broker were misrepresentations, the statements
were material to the transaction, and the party
reasonably relied on the statements to his/her
detriment.
Accounting: duty in safeguarding any monies,
documents, or property held by the broker on behalf
of the principal.
Duties of the principal to the broker: include
accessibility to the property, accessibility to the
principal for consultation, and compensation in
accordance with agreement. If the principal is the
seller, the agreement should indicate what
constitutes procurement of the buyer to justify
compensation to the broker. Procurement of a
“ready, willing and able buyer” refers both to the
buyer’s capacity to contract and the buyer’s
financial ability to meet the seller’s price and terms.
C. Broker’s responsibility for earnest money deposits
1. Earnest money: a sum paid by a buyer at the time of entering a
contract to indicate the buyer’s intention of carrying out the
terms of the contract.
2. Earnest money deposits must be held in an escrow account (an
account in a bank, savings and loan, credit union, or similar
financial institution that is held by a third party and into which
4
3.
4.
5.
6.
7.
8.
9.
funds are deposited to be held until the happening of a stated
event).
The broker may act as an escrow agent or may utilize the
services of an attorney or title company to act as an escrow
agent.
Escrow agents are not required to open separate escrow accounts
for each client.
Escrow accounts can be interest-bearing or non-interest-bearing.
If the former, a written agreement should specify who gets the
interest and under what conditions it is paid.
Commingling of escrow deposits with other business funds is
prohibited.
Advance fee trust account: a special escrow account in which
advance fees paid to a broker are deposited. These fees may be
used for advertising and other expenses incurred in marketing
real property. Some states allow advance fees to be deposited in
the common escrow account. Brokers are not required to handle
these trust accounts unless they are asking for advance fees.
Advance fees are not to be used to cover the broker’s normal
overhead expenses.
Brokers handling the above accounts are required by state law to
keep records of monthly statements comparing the broker’s trust
liability with the reconciled bank balances of all escrow and trust
accounts.
State statutes outline the steps to be taken by a broker faced with
conflicting demands for escrow deposits.
D. Broker’s compensation
1. Only licensed real estate brokers and real estate salespersons
(also known as sales associates) are entitled to commissions.
2. They may share commissions with other licensed real estate
brokers and real estate salespersons.
3. Commission is negotiated between the broker and the seller or
buyer.
4. If broker is representing the seller, the commission is stated in
the listing agreement (a contract between a seller and a broker).
5. Typically, commission is computed as an agreed-upon
percentage of the purchase price of the property.
6. Brokers must abide by antitrust laws (laws protecting against
unlawful restraints in trade and commerce) including the
Sherman Act (a federal antitrust law protecting against unlawful
restraints In trade such as price-fixing). Allocation of markets is
also prohibited. This occurs when two or more brokers agree to
assign different market sectors based on criteria such as
geographic location or property price ranges.
5
7. The date the commission is earned may be different from the
date it is paid. The date earned is crucial because it becomes a
legal obligation at that time and the commission may be required
to be paid even if the sale is never completed. The agreement
between the broker and the principal indicates when the
commission is earned. Typically this occurs once the broker
finds a ready, willing, and able buyer or when the broker effects
a sale by obtaining a contract signed by both parties.
III.
Types of Listing Agreements
A. Open listing: the granting of a nonexclusive right to solicit and receive
offers on the seller’s real property.
B. Exclusive listing: a listing agreement in which the seller agrees to list the
property with no broker other than the listing broker for the term of the
agreement. As an exclusive agent, 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.
C. Exclusive-right-to-sell listing: a listing agreement in which the listing
broker is entitled to a commission if anyone (including the seller) procures
a buyer within the listing term.
D. Net listing: a listing agreement in which the seller specifies the net
amount of money that he/she must receive in order to sell the property.
Under the terms of the agreement, the broker receives any monies in
excess of this specified amount as commission.
E. Flat fee sale: an arrangement in which, for a flat fee, a broker evaluates
and photographs a property, inserts a property description in a special
directory, and provides For Sale signs to the seller.
IV.
Broker’s Agreement Checklist
A.
B.
C.
D.
Parties: the names of all parties and marital status of the principal(s)
Commencement date of agreement
Termination date of agreement
Type of agreement established
1. Open listing
2. Exclusive listing
3. Exclusive-right-to-sell listing
4. Net listing
5. Flat fee sales
6. Other (specify)
E. Listing price of the property
F. Amount of commission
1. Dollar figure
2. Percentage of purchase price
6
G. Property description
1. Street address
2. Legal description, if available
3. Size of the lot
4. Size and description of the improvements, including:
a. square footage of the total structure (indicating
whether the derived figure is air-conditioned/heated
space or includes space that is not airconditioned/heated),
b. a room count,
c. square footage of each room within the structure, if
possible,
d. age of the improvements, and
e. method of construction used.
5. Zoning classifications of the property
6. Fixtures to be sold with the premises
7. Any personal property to be sold with the premises
H. Seller’s warranties with regard to the property
I. Broker’s authority
1. Rights given to broker, including
a. permissible types of advertising,
b. holding of open houses,
c. placement of signs on the property, and
d. acceptance of earnest money deposits.
J. Multiple listing service provision
K. Broker’s responsibilities
1. For procuring buyer (if seller agent):
a. finding ready, willing, and able buyer
b. effecting a sale
2. Disclosure of agency relationship
3. Accounting
L. Renewal of agreement
1. Automatic renewal
2. Conditions for renewal
M. Indemnification of broker
N. Termination of the agreement
1. Circumstances under which agreement terminates
2. Broker protection clause (a clause that states that the broker is
entitled to commission within a specified timeframe after
expiration of the agreement if the property is sold to a party
originally in contact with the broker)
O. Signatures of the parties
7