National Practice
National Practice Chapter5 Textbook Summary
Unit 1 Summary
Real Estate Brokerage: Agency Law
The term agent is actually a term that refers to a very precise legal relationship between a licensee and a seller, a buyer, a landlord, or a tenant.
Agency law is a body of law that governs these relationships in very specific ways.
An agent is a person who is empowered by contract to represent the interests of a client, also known as the principal. The principal could be a seller, a buyer, a landlord or a tenant. The agent represents the principal in dealings with third parties, who are known as customers.
National Practice Textbook Summary
The agency relationship established between the agent and the principal puts in place a set of fiduciary duties that an agent owes to the principal. A fiduciary relationship is one of utmost trust. Agents do have certain duties to customers even though they do not represent them.
The law expects an agent to:
• Do his or her job with a reasonable degree of care, skill, and diligence.
• Obey the principal’s directions as outlined in the contract, as long as they are legal.
• Account for all monies, documents and other property he or she receives from the principal.
• Be loyal by placing the client’s interests above those of all others, including his or her own.
• Maintain client confidentiality.
• Note: The duty of confidentiality extends beyond the termination of the relationship.
An agent is bound to inform the client of all facts that might affect the client’s interests in the transaction. This includes both the facts that the agent knows and those that the agent should have known.
An agent is responsible for discovering anything that might be deemed important to his client in making an informed decision, whether or not they are favorable to the client’s position. An agent could be held liable for damages if he or she failed to disclose such information.
There is a difference between the level of service an agent provides to a client and the level of service he or she provides to a customer.
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The agent can offer advice and counsel to his or her principal. On the other hand, the licensee can impart factual knowledge to a customer, but the licensee does not provide advice and counsel to the customer. In essence, the agent works for the principal and with the customer.
Licensees owe their customers:
• Honesty and fair dealing – an agent may not deceive, defraud, or otherwise take advantage of a customer
• Reasonable care and skill – an agent will be held to the standards of knowledge, expertise, and ethics that are commonly maintained by other agents in the area.
• Proper disclosure – disclosure of agency, property condition, and environmental hazards
Active fraud is an intentional misrepresentation of a material fact for the purpose of gaining an unfair or dishonest advantage over another person. This results in an injury to the person who is relying on the information.
Passive fraud is an intentional nondisclosure of a material fact. This can happen if a person intentionally fails to disclose a fact or actively attempts to hide the fact.
An agent can be liable for violating a duty to a client or customer. Since clients and customers rely on the expertise and actions of agents performing within the scope of their authority, agencies and courts aggressively enforce agency laws, standards, and regulations.
Violation of a duty owed to a client or customer could result in:
• Rescission of the listing agreement (causing a loss of a potential commission)
• Forfeiture of any compensation that may have already been earned
• Disciplinary action by the authorities, including license suspension or revocation
• Suit for damages in court
An agency relationship is created when a person (buyer or seller, landlord or tenant) delegates to another person, the agent, the right to act on his or her behalf in business transactions with third parties (customers).
Several principles govern that relationship.
• Both parties must consent to the relationship.
• Both parties must agree to form the relationship.
• The relationship is fiduciary – meaning the agent owes certain duties to the principal as we have previously discussed.
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An agency relationship can be created by either an oral or a written agreement between the principal and the agent. It can also be implied from either words or actions.
Three types of agency relationships exist.
• Express agency
• Implied agency
• Agency ratification and estoppel (Ostensible agency)
Entering into an agency agreement is a legal action, which could make an agent legally liable if he or she violates the duties owed to the client.
An agent has a responsibility to inform the client of any facts or information that could affect the client’s position in a transaction.
The essence of the agency relationship is trust, confidence, and mutual good faith. An agency relationship is based on authorization and mutual consent. It is not based on compensation.
The agency relationship is not determined by who pays the commission. The compensation or commission the broker will receive is usually spelled out in the listing agreement, the buyer’s agency agreement or the management agreement.
Commission is usually paid after the transaction has been consummated. However, the commission is earned when the following activities have occurred.
• The broker has produced a ready, willing and able buyer.
• The buyer has signed an offer to purchase.
• The seller has accepted the offer.
• Both buyer and seller have received signed copies of the agreement.
The commission is paid to the broker who was the procuring cause of the sale, in other words – the broker who took action to start or to cause a chain of events that resulted in the sale.
The Sherman Antitrust Act of 1890 is the principal federal statute that covers competition and is one of the most important pieces of antitrust legislation.
Antitrust laws prohibit:
• Price Fixing – Collusion between or among members of a particular trade to maintain prices at a set level.
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• Group Boycotts – Agreements between or among members of a particular trade that would prevent other members from fair participation in the trade’s activities.
• Market Allocation – Agreements between or among members of a trade to avoid doing business in specific market areas.
• Tie-in Arrangements – Arrangements that requires a buyer to purchase additional or unrelated products or services when making a product purchase.
It is critical that real estate licensees comply with federal and state antitrust laws. The penalties for violations can be severe.
The Clayton Antitrust Act of 1914 made both substantive and procedural modifications to the federal antitrust law. Under the Clayton Act, private individuals are permitted to sue antitrust violators. If the suits are successful, the individuals can recover three times the damages incurred plus court costs and attorneys’ fees.
The Federal Trade Commission (FTC) also has the power to judge whether particular trade practices are unfair. The FTC can enforce compliance with the Sherman Act and some sections of the Clayton Act.
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Unit 2 Summary
Real Estate Brokerage: Agency Relationships and Disclosures
Seller agency is the most common form of the agency relationship. While seller agency is the most common form, subagency is probably the most confusing of all agency relationships.
Subagency may be created by a written agreement (express), or it may be created by words or actions (implied). Often subagency is created within the structure of the local MLS, although that does not have to be the case. Although subagency can be created within the MLS structure, it can also be offered outside the MLS system.
If a cooperating broker accepts the offer of subagency, the cooperating broker has the same fiduciary responsibilities to the seller as does the listing broker and is working for the best interests of the seller, NOT for the best interests of any prospective buyers to whom he or she may show the property.
Even though subagents are working for the seller, they must also deal honestly and ethically with all their buyer customers. In addition, subagents are bound to disclose any pertinent information that may affect the value of the specific property they are showing their buyers.
Dual agency exists when a real estate firm or a real estate licensee represents both the seller and the buyer or the landlord and the tenant in the same transaction.
Dual agency must be disclosed to both the buyer and the seller. Both parties must agree in writing to the dual agency relationship. If the dual agency relationship is not disclosed and agreed to in writing, it is known as an undisclosed dual agency. If this situation occurs, the agent has breached his or her fiduciary responsibilities to the client and has violated state law in most cases.
An alternate way to handle dual agency situations is called designated agency. A broker may designate one or more licensees to act exclusively as the agent of the seller or landlord, and designate one or more licensees to act exclusively as the agent of the buyer or tenant in the same transaction. This arrangement must also be disclosed to both parties, and the broker must obtain the written consent of both the buyer and the seller.
The broker is still a dual agent in the transaction, but by designating separate agents for each principal, the individual client’s interests are protected.
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In a single agency relationship, the agent can represent only one party – either the buyer or the seller – in a single transaction, but never both. He or she owes fiduciary duties to one principal and can provide advice to that client. All other parties to the transaction receive services as customers, not clients. In other words, the licensee owes honesty and fair dealing to those customers.
If the agent enters into an agency agreement with the seller, the agent becomes the seller’s agent. The seller is the principal or client. The listing agreement is the document that creates the seller agency.
If an agent enters into an agency agreement with a buyer, the agent becomes the buyer’s agent. This is also known as buyer brokerage. The buyer is the principal or client. In this arrangement, the agent is accountable only to the buyer. If a buyer decides that he or she wants client-level services, the buyer will sign a document known as an exclusive right to represent agreement.
A buyer’s agent is required to disclose to the listing broker that he or she is representing the buyer.
An agency relationship is terminated when one of the following occurs:
· Performance
· Expiration of the agreement term
· Termination of the relationship by mutual agreement of the parties
· Termination of the relationship by one party
Some reasons why an agency relationship may terminate involuntarily include:
· Death or incapacity of either party
· Agent abandonment
· Condemnation of the property
· Destruction of the property through fire, vandalism or natural disaster
· Renunciation by the client
· Breach of the contract
· Bankruptcy
· Revocation of the agent’s license
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Unit 3 Summary
Real Estate Brokerage: Contracts -Listing Agreements
The listing agreement is a legally-binding contract that creates an agency relationship authorizing a broker to serve as the agent for a principal in a real estate transaction.
Listing agreements must be in writing to be enforceable. The three most common types of listings are:
· Open Listing
· Exclusive Right to Sell Listing
· Exclusive Agency Listing
The most widely used agreement is the exclusive right to sell listing agreement.
Similar to listing agreements, there are three common types of buyer agency agreements:
· Exclusive buyer agency agreement
· Exclusive-agency buyer agency agreement
· Open buyer agency agreement
Since the listing agreement is a valid contract, it can only be modified with the written consent of all the parties. A special listing agreement amendment form is the best way to make those changes. The two most common changes are price changes and listing period extensions. All other terms and conditions of the original listing agreement remain unchanged.
A listing agreement can terminate when one of the following occurs:
· Performance – The licensee has helped the seller find a ready, willing, and able buyer to purchase his or her home.
· Expiration of the agreement term – The date arrives that was stated in writing on the listing agreement.
· Termination – The parties either mutually agree to end the relationship, or one party decides to end it.
But there are other situations that can affect a listing agreement. If the broker dies, loses his or her license, or the firm goes out of business, the licensing authority can choose to appoint a
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temporary broker to close any transactions that are pending. If not, all the broker’s listings will terminate.
If the listing agent transfers to another firm, the listing agreement will stay with the original broker, unless that broker gives permission for the licensee to take the listing with him or her.
In most states, a seller is required to provide a copy of a completed Property Disclosure Statement to a buyer within some specified number of days of the acceptance of a purchase and sale agreement, but the seller is not required to provide the statement before that time.
Real estate licensees are not responsible for filling out the disclosure form. That responsibility belongs to the seller. The form allows the seller to give information about the condition of the property, the status of buildings and utilities, whether or not there are easements or encumbrances that affect the property, and information about important environmental factors.
If something happens to change the condition of a property after the disclosure has been completed and delivered, the seller must amend the disclosure statement and deliver the amendment to the buyer. However, the seller will not have to do an amendment if he or she takes whatever corrective action is necessary to restore the accuracy of the disclosure statement prior to the closing date.
When a seller hires a broker, that broker produces a ready, willing and able buyer and the seller accepts an offer from that buyer, the seller has now become responsible for paying compensation to that listing broker.
If for some reason a transaction does not complete, the seller may still be responsible for paying a commission to the listing broker.
Only a broker can initiate an action or file a suit against a seller or a buyer (with whom he or she had a valid written agency agreement) to receive payment of a commission. An agent cannot initiate such an action against a client.
Even after a listing expires, a broker may still be entitled to receive a commission. Most listing agreements have a clause in place (often called a carryover or safety clause) which says that the broker is still entitled to a commission for a set period of time after the listing expires, if the property is sold to a prospect that the broker introduced to the property during the time of the listing.
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Unit 4 Summary
Real Estate Brokerage: Contracts – Sale and Lease Contracts
A contract is an agreement between two or more parties who, in a “meeting of the minds,” have pledged to perform or refrain from performing some act.
A valid contract is one which meets the legal requirements for validity.
A void contract is an agreement that does not meet the tests for validity and therefore is no contract at all.
A voidable contract is one which initially appears to be valid but is subject to cancellation by a party to the contract who is believed to have acted under some kind of disability.
An express contract is one in which all the terms and covenants of the agreement have been clearly stated and agreed to by all parties, whether verbally or in writing.
An implied contract is an unstated or unintentional agreement that may be considered to exist when the actions of any of the parties suggest the existence of an agreement.
A bilateral contract is one in which both parties promise to perform their respective parts of an agreement in exchange for performance by the other party.
In a unilateral contract, only one party promises to do something, provided the other party does something.
A contract is valid only if it meets all of the following criteria:
· Competent parties
· Mutual agreement
· Lawful objective
· Consideration
· In writing
· Voluntary Good Faith
The Statute of Frauds requires that certain contracts must be in writing to be enforceable.
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Termination of a contract, also called cancellation and discharge, may occur for any of the following causes:
· Performance
· Infeasibility
· Mutual agreement
· Operation of Law
The Statute of Limitations restricts the time period for which an injured party in a contract has the right to bring a lawsuit against the other party.
A real estate contract that is not a personal contract for services can be assigned to another party unless the terms of the agreement specifically prohibit assignment.
A breach of contract gives the damaged party the right to take legal action in one of these ways:
· Rescission
· Forfeiture
· Suit for damages
· Suit for specific performance
The purchase and sale agreement is the contract in which the buyers agree to purchase a property for a certain price, and the sellers agree to convey title to the buyers using a deed or an assignment of lease (for leasehold property).
An installment sales contract is a bilateral agreement between a seller, the vendor, and a buyer, the vendee, in which the vendor defers receipt of some or the entire purchase price of a property over a specified period of time.
An option to buy is an enforceable contract in which a potential seller, the optionor, grants a potential buyer, the optionee, the right to purchase a property before a stated time for a stated price and terms. An option to buy places the optionee under no obligation to purchase the property. However, the seller must perform under the terms of the contract if the buyer exercises the option.
A right of first refusal is the right of a person to have the first opportunity to purchase or lease a property.
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A lease is both an instrument of conveyance and a contract between principal parties to uphold certain covenants and obligations. The legal essence of a valid lease is that it conveys an exclusive right to use and occupy a property for a limited period of time in exchange for rent and the return of the property after the lease term is over.
· In a lease arrangement, the owner is the landlord or lessor, and the renter is the tenant
or lessee.
· The covenants (agreements or promises) in the lease are very important. The following eight covenants are essential:
· Capacity to contract
· Demising clause
· Description of the premises
· Clear statement of term
· Specification of rent and how it is to be paid
· In writing
· Signatures
· Delivery
A sublease is the transfer by a tenant of a portion of the leasehold interest to another party.
An assignment of the lease is a transfer of the entire leasehold interest by a tenant to a third party.
A lease may terminate for any of the following causes.
· Term expiration
· Notice
· Voluntary agreement
· Property destruction
· Condemnation
· Foreclosure
· Breach of contract
A gross lease requires the landlord to pay the property’s operating expenses, including utilities, repairs, and maintenance, while the tenant pays only rent.
In a net lease, the tenant pays not only the rent for occupancy, but also pays maintenance and operating expenses such as taxes, insurance, utilities, and repairs.
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In a graduated lease, the rent payments start at a fixed amount but increase as the lease term matures.
A ground, or land lease, concerns the land portion of a real property. The owner grants the tenant a leasehold interest in the land only, in exchange for rent.
A percentage lease is a lease whose rental is based on a percentage of the monthly or annual
gross sales made on the site.
A proprietary lease conveys a leasehold interest to an owner of a cooperative.
An index lease provides for the adjustment of rent according to changes in a price index.
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Unit 5 Summary
Real Estate Brokerage: Broker-Agent Relationship
Licensees must perform all activities in the name of the broker.
A salesperson may receive compensation for performed activities ONLY from his or her employing broker.
An employee works under the supervision and control of the broker. The broker can require the employee salesperson to follow the rules regarding such things as working hours, office duty, meetings and dress code.
When paying employees, the broker must withhold all federal and state taxes and Social Security taxes from the salesperson’s wages.
An independent contractor is hired to perform certain acts, but the broker cannot control how the salesperson performs those acts. Salespersons working as independent contractors are paid a commission rather than an hourly or weekly salary.
Independent contractors must pay their own income tax, self-employment taxes, Social Security tax, and Medicare tax.
It’s important that a licensee spends time and effort in choosing a broker/employer. The licensee needs to ask the right questions and get the right information when deciding what kind of firm to join.
Regardless of a licensee’s status as an employee or independent contractor, the broker must enter into a written agreement with each affiliated licensee.
Affiliated licensees owe certain responsibilities to their broker. As part of those responsibilities, every licensee should maintain his or her own business records.
Responsibilities that brokers have to their affiliated licensees may include the following:
· Assure that the licensee has a copy of the firm’s policy and procedures manual.
· Provide access to all the firm’s listings and marketing data.
· Provide all training that was agreed upon when the licensee was hired.
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The written agreement the broker has with each affiliated licensee should outline the specifics of the licensee’s compensation. The broker can choose to pay the salesperson a salary or a percentage share of the commission from the transaction.
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Unit 6 Summary
Real Estate Brokerage: Advertising
Real estate firms engage in two forms of advertising:
· Institutional – sometimes called corporate advertising) attempts to establish a positive image of the company, its services and its reputation in the minds of the public.
· Product – directed toward the particular properties a company has for sale.
A time-tested method for writing good advertising is referred to as the “AIDA” standard. AIDA is an acronym for:
Attention Interest Desire Action
The main purpose of real estate advertising is to reach the largest number of probable prospects, not the most people.
Media choices available for advertising include:
· Newspapers
· Magazines
· Shopping guides
· Telephone directories
· Signs
· Outdoor ads
· Direct mail
· Direct e-mail
· Newsletters
· Promotional items
· Radio and TV
· Internet
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Truth in Lending prohibits what’s called bait-and-switch advertising. This is advertising property or credit terms for a property that an agent doesn’t intend to sell or that is actually not available just to attract buyers for other properties the agent has for sale.
Compliance with antidiscrimination laws is critical when doing advertising.
Discriminatory advertising is defined as advertising that indicates a preference, limitation or discrimination based on race, color, religion, handicap, sex, familial status or national origin.
It is probably safe to say that any advertising that describes the property would be considered
acceptable, while advertising that describes buyers could be considered discriminatory.
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Unit 7 Summary
Real Estate Brokerage: Marketing Property
Probably the single most important decision to make when listing a home for sale is the listing price.
Even though it is ultimately up to the seller to decide on the final listing price, it is the listing agent’s responsibility to provide the seller with advice and information to help the seller arrive at the best figure. A listing agent helps the sellers set a realistic selling price by considering the seller’s wishes, market conditions, and timing of the sale.
Since market conditions play a large role in setting a realistic selling price, one of the most important tasks a licensee needs to perform with the seller-client is to give a market analysis of what the property is worth.
The most common reason a property fails to sell is because it was overpriced. When computing seller’s net, use this T formula:
The primary criticism sellers have about their agents is a lack of communication.
When the agent meets with the sellers, he or she should share important information on the following topics.
· Homeowner Tips
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· Activity Reports
· Showings
· Advertising Plan
· Preparing for Offers
Homeowner tips should be written and include information about the cosmetic aspects of the exterior and interior of the home.
The weekly activity report will include, as applicable:
· Number of inquiries on the property that week
· Number of showings
· Advertising done that week
· Open houses held
· Number of open house visitors
· Comments made by other agents or prospective buyers
Be sure to advise sellers of how the showings could go. Sellers need to know the “schedule” of when their property will be advertised and the methods you’ll use to do that advertising.
It’s vital for you to have a written plan for how you will market each of your listings. Your marketing approach should consist of the following:
· Traditional Tools- For-Sale sign, photos, classified ads, etc.
· E-Tools- Multiple Listing Service, virtual tours, etc.
· Ancillary Tools- Office tours, Open Houses, etc.
You should have a client-specific marketing plan for each of your listings. Some items will be standard for all your listings, but it is important to customize the plan for each client.
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Unit 8 Summary
Real Estate Brokerage: Trust Accounts
Earnest money, also known as trust account money, is a deposit, usually made in the form of a check, to show evidence of the buyer’s intention to carry out the terms of the contract in good faith.
Earnest money is provided when the offer to purchase real estate is made. The amount of the earnest money deposit is something the parties should agree upon, and the amount generally varies with the value of the property being purchased.
Sponsoring brokers responsible for earnest money must establish an escrow account.
· An escrow account must be non-interest bearing.
· A sponsoring broker may maintain more than one escrow account.
· All escrow accounts must be maintained at a federally-insured depository.
· All licensees should give earnest money checks to their sponsoring broker immediately.
· Earnest money must be deposited by the next business day of contract acceptance.
Commingling is an illegal act in which a real estate licensee places client or customer funds with his or her own personal funds. Commingling of a licensee’s business and personal funds is prohibited.
The sponsoring broker must keep all escrow moneys on deposit in an escrow account until a transaction is consummated or terminated. Then he or she must disburse the funds according to the terms of the contract.
If any disputes between parties arise regarding escrow money, the sponsoring broker should continue to “hold” the money until one of the following happens:
· The sponsoring broker receives a written release from both parties.
· An interpleader action is filed.
· The funds are turned over to the State Treasurer and become unclaimed property.
Each sponsoring broker who accepts earnest money must maintain in his or her office a bookkeeping system that complies with sound accounting principles. The system should consist of at least the following escrow records:
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· Master escrow account log
· Journal
· Ledger
· Monthly reconciliation statements
The sponsoring broker must reconcile each escrow account that he or she maintains within a specified number of days after he or she receives the monthly bank statement.
The broker must keep copies of all escrow money instruments received from a principal as part of a transaction. A sponsoring broker must keep all escrow records for 3-5 years (as designated by that particular state’s laws).
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Unit 9 Summary
Real Estate Brokerage: Closings
Once the purchase offer has been accepted, the closing process begins in which the buyers secure their financing, get whatever inspections they want and get a preliminary title report, and the sellers pay off any liens against the property, make or arrange for repairs and execute the deed.
A seller is required to deliver a marketable title at closing. Once the lender has qualified the property that will be used as collateral for the loan the lender is preparing to issue to the borrower, the loan officer will request and review a title search on that property.
Title insurance guarantees the validity and accuracy of the title search. Generally, the insurance policy that the title company issues will protect the policyholder against losses that arise from any number of “hidden” defects.
Both the buyer and the lender should have title insurance. Insurance for the buyer ensures a clear title and protects his or her investment. Insurance for the lender protects the lender’s interest in the property.
A standard title insurance policy may be issued to a lender only, a buyer only or jointly to lender and buyer.
An extended coverage policy insures against many of the items excluded in the standard policy. Lenders require their mortgagee policies to be extended coverage policies.
Escrow is defined as the process in which a disinterested third party holds all money and documents relating to a transaction until all of the terms and conditions of the escrow instructions have been satisfied.
A closing agent oversees the preparation and recording of all the legal documents, prorates the settlement costs, prepares the settlement statements and does various other tasks.
Most buyers condition the sale on one or more inspections of the property by one or more experts. So inspections and their results are an important aspect of the closing process.
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For every kind of inspection ordered, the reports must be approved or rejected by the buyers or the lender, any repairs must be done and then re-inspected, and the buyers and lender must get notification of the final results.
Most lenders require the buyers to purchase property insurance. The most common type of insurance is homeowner’s insurance. Most homeowner’s policies have what’s called a coinsurance clause. This clause requires that the homeowner has insurance that is equal to 80% of the home’s replacement value. Flood insurance is not included in a basic homeowner’s policy.
The Real Estate Settlement and Procedures Act (RESPA) requires that the parties to certain transactions receive the correct figures pertaining to their closing costs.
RESPA applies to purchases:
· Of residential property
· Involving first or second mortgages
· Financed by a federally-related loan
RESPA specifically prohibits any payment or receiving of fees or kickbacks when a service has not been rendered.
RESPA requires lenders to use the Closing Disclosure form to detail the costs that the buyer and seller will pay at closing.
The settlement statement has a list of the debits and credits for both the buyer and the seller. A debit is money that the buyer or seller needs to pay at closing.
A credit is money that the buyer or seller receives at closing, either because it was already paid, it’s being reimbursed, or there is a promise to pay.
Some expenses paid at closing must be prorated or divided proportionately between the buyer and the seller. Any item that is prorated is shown on the settlement statement as a debit to one party and a credit to the other party for the same amount.
After all the closing documents have been signed, the settlement agent arranges for the recording of the grant deed and security instrument. The title to the property has transferred when the deed is delivered and accepted by the buyer. Delivery and acceptance must occur during the lifetime of the seller.
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Unit 10 Summary
Real Estate Brokerage: Fair Housing and Ethics
Managing brokers have a responsibility to comply with fair housing policies. Licensees share in the responsibility of complying with fair housing laws.
Fair Housing law first began with the Civil Rights Act of 1866 which prohibited discrimination in housing based on race. The list of protected classes of the Federal Fair Housing Act are:
· Race
· Religion
· Color
· National origin
· Sex
· Handicap
· Familial status
Any person who believes he or she has been discriminated against may file a complaint with HUD within one (1) year of the alleged act.
In addition to or instead of filing a complaint with HUD, a person may file a suit in a state or federal court within two (2) years of the alleged violation.
The Americans with Disabilities Act mandates that persons with disabilities have equal access to jobs, public accommodations, government services, public transportation and telecommunications.
Discriminatory activities in real estate include refusing to sell, rent or negotiate with any person who is a member of a protected class.
Fair Housing laws also prohibit these activities.
· Blockbusting – Making a profit by inducing owners to sell by telling them that persons of a protected class are moving into the neighborhood which will have detrimental results.
· Steering – Channeling homebuyers toward or away from homes in certain neighborhoods in order to preserve or alter the makeup of that neighborhood.
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· Redlining – Restricting the number of loans in certain areas of a community because of its racial or ethnic makeup. Compliance with antidiscrimination laws is critical when doing advertising.
Private fair housing groups, along with government agencies, have developed an investigative tool called testing to uncover housing discrimination. Testers with similar profiles and housing needs, but different in their protected class status (for example, in race or sex), visit a real estate office and ask to see the same available unit to ascertain if they are treated differently because of this protected class status.
It would be inappropriate and dangerous for a licensee to answer questions about the minorities living in a specific area. The licensee should refer the buyer to experts in this field — someone who would actually be in possession of the demographics in a particular area.
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Unit 11 Summary
Real Estate Brokerage: Property Management
Property management can be defined as the administration of rental or other property by a person or a team of people who are acting for the owner.
A property manager has a dual responsibility – to the owner and to the tenants of a property. There are several types of property managers.
· An individual property manager is usually a real estate broker who manages properties for one owner or a number of owners.
· An individual building manager usually manages a single large property.
· A resident manager lives on the property.
· A real estate asset manager acts as the property owners’ agent and adviser for the property.
Before entering into a formal agreement, a property manager will submit a management proposal to the property owner.
The management agreement is the employment contract for a property manager. The owner is the principal, and the property manager is the general agent in this agreement.
Property management services are available for different types of properties.
· Office building management
· Retail management
· Residential management
· Condominium and cooperative management
The property manager’s first responsibility is to realize the maximum profit on the property that is consistent with the owner’s instructions.
A property manager should establish three types of budgets for each rental project:
· Operating budget
· Capital reserve budget
· Stabilized budget
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A critical task for a property manager is the supervision of the property’s maintenance. There are basically three types of maintenance:
· Preventive maintenance is a schedule of planned maintenance actions aimed at the prevention of breakdowns and failures.
· Corrective maintenance involves the repair or replacement of components which have failed or broken down.
· Construction involves remodeling, interior redecorating or new capital improvements.
It is critical for a property manager to know how to market the space available for rent effectively.
The property manager must set up and maintain proper records, making regular reports, called property management reports, to the owner that are easily understandable and that cover all operations. A property manager should provide the owner with
· Monthly and annual account statements
· Delinquent account reports
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Unit 12 Summary
Real Estate Brokerage: Commercial Real Estate
Several kinds of property exist in real estate markets, but in effect, they fall into two major classifications: residential and nonresidential.
Residential properties include single-family homes and multiple-family properties such as apartments, condominiums, and co-ops.
Nonresidential properties are broken down into five major subcategories: commercial, industrial, agricultural, recreational and institutional. Commercial real estate can be further subcategorized into office buildings, retail space and hotels/motels.
In some cases, a commercial building can contain both office and retail space. In other cases, that same building could even have residential units. When the uses for one property are combined, we refer to as a mixed-use development.
There are some important reasons why a business would choose to lease space rather than purchase the building.
· Most tenants find leasing to be more cost-effective than owning.
· Owning a building would reduce the flexibility of the business.
· Engaging in the activities of leasing, repairing and maintaining extra building space could cause the business to lose focus on its major business activities.
· If the business decided it wanted to downsize from using its existing space, the building owner would have to find someone to use or purchase the excess space.
A particular building’s potential for generating income depends on two factors:
· Its ability to attract tenants to rent space
· The expenses involved with the building’s operation
Net operating income or NOI is the term used for the net income produced by a specific property after all expenses have been deducted from the gross receipts. Net operating income is affected by market rent, vacancies and both fixed and variable operating expenses.
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Income properties are usually leased to tenants for a designated time period. Different property types customarily have different lease terms.
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