real estate
... his own self-interest. Disclosure – it’s the agent duty to keep the principal informed of all facts that could affect a transaction like: all offers, the identity of the prospective purchaser, the purchaser’s ability to complete the sale, any interest the agent has in the buyer, The buyer’s intention to resell the property for a profit. Express agency – the principal and the agent may enter into a contract by expressing their intention to establish an agency and state it’s terms and conditions. Listing agreement – An agency relationship between a seller and a broker is generally created by a written employment contract, commonly referred to as a listing agreement. Implied agency – A person acts on behalf of another as agent. Type of agency relationships: Universal agent – a person empowered to do anything the principal could do personally. General agent – represent the principal in a broad range of matters. Special agent – limited agent is authorized to represent the principal in one specific act. Designated agent – a person is authorized by the broker to act as the agent of a specific principal. Single agency – the agent represents only one party in any single transaction. Subagency - one broker, usually the seller’s agent, appoints other broker to help perform client-based functions on the principal behalf. Puffing – Exaggeration of a property’s benefits. Fraud – intentional misrepresentation of a material fact in such a way to harm or take advantage of a person. Caveat emptor – the broker represents the seller’s interests. Let the buyer beware. Purpose of license law: Establish basic requirements for obtaining a real estate license and requiring continuing education. Defining which activities require licensing. Describing the acceptable standards of conduct and practice for licensees Enforcing those standards through a disciplinary system. Real estate assistance – a combination office manager, marketer, organizer and facilitator, doesn’t have to have a license. Commission – are payable when the sale consummated be delivery of the seller’s deed. It usually earned when: A complete sale contract has been executed by a ready, willing and able buyer (prepared to buy on the seller’s terms and ready to complete the transaction) The contract has been accepted and executed by the seller Copies of the contract are in the possession of all parties. Broker is entitle for commission: A license broker The procuring cause of the sale (broker has started a chain of events that resulted in the sale) Employed by the buyer or seller under a valid contract. In general, a broker is due a commission is a sale is not consummated because of the principal’s default. Transactional broker – is not an agent of either party. The buyer and the seller negotiate the sale without representation. Antitrust Laws: Price fixing – practice of setting prices for products or services rather than letting competition in the open market establish those prices. Group boycotting – two or more business conspire against another business or agree to withhold their percentage to reduce competition. Allocation of customer or market – an agreement between brokers to divide their market and refrain from competing for each other’s business. Tie-in agreements – agreements to sell one product only if the buyer purchases another product as well. Listing agreements – an employment contract rather than a real estate contract for personal professional services of the broker. There are 3 types of listing agreements: Exclusive right to sell – One broker is appointed as a seller’s sole agent. The broker is given the exclusive right to market the seller’s property. One authorized agent-broker receive a commission regardless of who sells the property. Exclusive-agency listing – One broker is authorized to act as the exclusive agent of the principal. However the seller retains the right to sell the property without obligation to the broker. The seller is obligated to pay commission to broker only if the broker has been procuring cause of a sale. Open listing (nonexclusive listing) – The seller retains the right to employ any number of brokers as agents. The seller is obligated to pay commission to only that broker who successfully produces a ready, willing and able buyer. If the seller personally sells without the aid of the broker, the seller is not obligated to pay commission. Special listing provisions – Multiple listing - may be included in an exclusive listing. It is used by brokers who are members of multiple-listing services (MLSs). Net listing – The seller will receive a net amount of money from any sale, with the excess going to the listing broker as commission. The broker has the rights to purchase the property. Option listing – Gives the broker the rights to purchase the listed property. Termination of listings – When the agreement’s purpose is fulfilled. When the agreement’s term expired without a successful transfer. If the property is destroyed If title to the property is transferred by operation of law. If the broker and the seller mutually agree to end the listing. If either party dies or becomes incapacitated. If either the broker or seller breaches the contract. Expiration of listings – all listings should specify a definite period of time during which the broker is to be employed. Competitive market analysis(CMA) – a comparison of the prices of properties recently sold, properties currently on the market and properties that did not sell. The comparison must be made with properties in similar location, size, age, style and amenities to the seller’s property. To calculate the commission: Sales price * commission rate = commission 80,000 * 6% - 80,000 * .06 = 4,800 To calculate the sales price using a commission: Commission / commission rate = sales price 4,550 / 7% = 4,550 / .07 = 65,000 To calculate commission rate: Commission / sales price = commission rate 3,200 / 64,000 = .05 To calculate the net to the seller using sales price and commission rate, multiple the sales price by 100 percent minus the commission rate: Sales price * (100% - commission rate ) = Net to seller 85,000 * (100% - 8%) = 85,000 * (1 - .08 ) = 85,000 * .92 = 78,200 or 85,000 * .08 = 6,800 85,000 – 6,800 = 78,200 Market value – The most probable price property would bring in an arm’s-length (have to sell) transaction under normal conditions on the open market. Information needed for listing agreement – The names and the relationship of the owners The street address and legal description of the property The size type age and construction of improvements The number of rooms and their sizes The dimensions of the lot Existing loans and all the information about them The possibility of seller financing The amount of outstanding special assessments and who pays them, buyer or seller The zoning classification of the property The current property taxes Neighborhood amenities (schools, parks etc) Any real property to be removed from the premises by the seller and any real property included in the sale for the buyer Any additional information that would make the property more appealing and marketable Any required disclosures concerning agency representation and property condition. Listing agreement issues – Type of listing agreement – the contract may be an exclusive- right –to-sell listing (the most common type), an exclusive-agency listing or an open listing The broker responsibilities – the contract will specify weather the broker may place a sign on the property and advertise and market the property. Authorization of subagent or buyer’s broker through MLS. When the broker allows to show the property, what happened to the earnest deposit, The names of all parties in the contract – anyone who owns the property should sign the contract. If the property is possessed by tenant, that should be disclosed. The broker firm – the brokerage firm and the salesperson. The listing price – his is the proposed gross sales price before taxes etc. Real property and personal property – A personal property that will be left with the real estate must be explicitly identified. Any item of real property that the seller expects to remove must be specified. Leased equipment – If any leased equipment, security system, cable television boxes, water softener be left with the property, the seller is responsible for notifying the equipment’s lessor of the change of property owner. The description of the premises – lot size, tax parcel number may be required for future insertion into a purchase offer. The proposed dates for the closing and the buyer’s possession – The anticipated sale date and the physical moves to be arranged by the seller and the buyer. The closing – closing attorney, title company or escrow company, designated party to complete the settlement. The evidence of ownership - proof of title like warranty deed or title insurance policy or an abstract and legal opinion. Encumbrances – which liens will be paid in full at the closing by the seller and which leans will be assumed by the buyer. Homeowner warranty program - in some cases it may be advisable to offer homeowner warranty with the property. Who is paying? The commission – the circumstances under which a commission will be paid must be specifically stated. The termination of the contract – under what circumstances will the contract terminate. The broker protection clause – under what circumstances will the broker be entitled to a commission after agreement terminates? How long will the clause remain in effect? Warranties by the owner – The owner is responsible for certain assurance and disclosures that are vital to the agent’s ability to market the property successfully such as repairs, appropriate zoning and building codes etc. Indemnification (hold harmless) – the seller and the broker may agree to hold each other harmless for any incorrect information supplied by one to the other. Nondiscrimination (equal opportunity) wording- the seller must understand that property will be shown and offered without regard to the race, color, creed or religious preference…. Antitrust wording – all commission have been negotiated between the seller and the broker. The signature of the parties – all parties must be sign, including all individuals who have a legal interest in the property. The date the contract signed. Three basic type of buyer agency agreement: Exclusive buyer agency agreement – the buyer will pay commission if he buys property of the type described in the contract and even if the buyer finds the property himself. Exclusive-agency buyer agency agreement - the broker is entitled to payment only if he locates the property. Open buyer agency agreement – the buyer can enter into multiple agreements with unlimited number of brokers and compensate the broker who finds the property. Prepayment privileges – a borrower may repay an FHA-insured loan without penalty. For loans made before aug. 2 1985, the borrower must give the lender notice of intention 30 days before prepayment, after the above date no written notice is required. Financing techniques: Package loans – includes the real estate and personal property, for furnishing houses. Blanket loans – covers more than one parcel or lot. It is usually used to finance subdivision developments. A blanket loan includes partial release clause which permits the borrower to obtain a release of any lot from the blanket loan by repaying some of the loan. Wraparound loan – enables a borrower with existing mortgage to obtain additional loan from a second lender without paying off the first loan. The second loan has higher rate and assume the payment of the first loan. The second loan total amount includes the existing loan as well as additional funds. The borrower make payment to the secondary lender and the new lender makes payments on the original loan out of the borrower’s payments. This loan is used in refinancing. Open-end loan - Real estate financing market: The federal reserve system – the role of the Fed is to maintain sound credit conditions, create a favorable economic climate. The Fed divides the country into 12 federal reserve districts, each served by federal reserve bank. The Fed regulates the flow of money and interest rate in the marketplace through its member banks by controlling their reserve requirements and discount rate. The Fed can regulate the money supply through the Federal open market committee, which buys and sells U.S. government securities on the open market. When the FOMC sells securities, it effectively removes the money paid bu buyers from circulation. When it buys them, it infuses its own reserves back into the general supply. Reserve requirements – The Fed requires that each member bank keep a certain amount of assets on hand as reserve funds. These reserves are unavailable for loans or any other use. When the amount of money available for landing decreases, interest rates rise. This will slow down an overactive economy, by decreasing the reserve requirements the Fed can encourage more lending which cause interest rates to drop. Discount Rate – Federal Reserve member banks are permitted to borrow money from district reserve banks to expand their lending operations. The interest rate that the district bank charge for the use of this money is called the discount rate. This rate in the basic for the bank to determine the rate of interest they will charge their loan customers. The primary mortgage market – the lenders that originate mortgage loans. These lenders make money available directly to borrowers. From a borrower’s point of view, a Loan is financing an expenditure; for a lender it’s an inves...