Test 5: Brokerage Business; Sale Contracts

Non-profit corporation.

A non-profit corporation is a corporate entity which is not legally entitled to generate profit. A non-profit organization may not broker real estate.

are properly licensed.

A joint venture is a partnership formed to complete a specific business endeavor, such as a real estate development. Individuals, general and limited partnerships, and corporations may participate. A joint venture may broker real estate, provided the co-venturers are duly licensed.

a single employing broker who has an active broker’s license.

Only a broker with an active broker’s license can hire and employ a licensed salesperson. A licensed salesperson may work only for the employing broker and may not work for or receive direct compensation from any other broker.

Offer a property for lease on behalf of the employing broker.

A sales agent is only authorized to represent a broker and carry out such duties as the broker may legitimately delegate. Thus a sales agent does not directly represent the client in a transaction but is rather the agent of the broker and subagent of the client.

The employing broker.

Agents can only receive compensation from their employing brokers. Co-op commissions, referral fees, and other compensations always flow through the broker to the sales agent

$4,940.

First calculate the total commission, then the co-brokerage splits, then the agent-broker split. Thus: $380,000 x 6.5% = $24,700 total commission. ($24,700 x 50%) = $12,350 total listing broker share. ($12,350 x 40% = $4,940 agent’s share.

$4,278.

The total commission is ($245,000 x 3%) = $7,350. The agent gets (65% x $7,350) – $500, which equals $4,278.

complete the signing of the listing.

Once the seller signs the listing, the next critical task is to get it signed, thereby making the listing a contract. Some states allow a salesperson to do this and in other states, the listing must be given to the broker for signing. This result will set in motion the process of marketing the property. The agency disclosures must take place prior to the execution of the agreement.

Present the offer to the seller at the earliest possible moment.

When a buyer or tenant makes an offer, the agent must present it to the seller or landlord at the earliest possible moment. If the terms of the offer are unacceptable, the agent may assist the seller in developing a counteroffer.

The broker has illegally converted security funds for business use.

Conversion is the act of misappropriating escrow funds for the broker’s business or personal use. Conversion carries serious consequences, including license revocation.

Never.

All advertising must reveal the identity of the broker; licensed brokers and agents may not use blind ads that conceal their identities.

fair trade and anti-trust laws.

Brokerage companies, like other businesses, are subject to anti-trust laws designed to prevent monopolies and unfair trade practices. In real estate brokerage, the primary manifestations of unfair trade practice are collusion, price fixing and market allocation. In this instance the brokers are price fixing.

Outside brokers assist a listing agent in procuring a buyer.

Most listing agreements provide for brokerage cooperation in the multiple listing clause. A transaction involving a cooperating subagent is called co-brokerage. In a co-brokered transaction, the listing broker splits the commission with the ‘co-broker,’ typically on a 50-50 basis.

Only members of the National Association of Realtors®.

The term Realtor® is a protected trade name of the National Association of Realtors®. Only members of this organization may use the term to refer to themselves.

represent their employing broker in procuring clients and customers.

Agents may only act on behalf of their broker. They may not assume responsibilities for other listings since listings are not transferable.

The IC is responsible for his or her own taxes; the broker does not withhold.

Generally, a broker has limited control over the actions of a contractor. Specifically: a broker can require performance results, but is limited in demanding how a contractor performs the work; and the broker does not take responsibility for a contractor’s income and social security taxes.

competitive conditions.

Commission structures are negotiated between the agent and employing broker as a function of competitive market conditions.

avoid disclosing what price the owner will accept.

An agent must be extremely careful at this point to abide by fiduciary obligations to the client, whoever that party may be. Discussions of price are particularly delicate: whether the client is buyer or seller, the agent’s duty is to uphold the client’s best interests. Thus it is not acceptable to suggest to a customer what price the client will or will not accept.

mixing escrow funds with the broker’s operating funds.

Commingling, a prohibited activity, is the act of mixing the broker’s personal or business funds with escrow funds.

There is insufficient evidence of anything other than a normal business practice.

Charging identical commission rates in itself is legitimate. Price-fixing occurs when competitors have in fact colluded together to set prices.

all the obligations and promises are performed and the transaction is closed.

An executory contract is one for which the signatories have yet to perform their respective obligations and promises. Upon closing, the sale contract is fully performed and no longer exists as a binding agreement.

Use a standard contract promulgated by a state agency or a real estate board.

It is advisable, and legally required in most states, for a broker to use a standard contract form promulgated by state agencies or real estate boards, as such forms contain generally accepted language. This relieves the broker of the dangers of creating new contract language, which can be construed as a practice of law for which the broker is not licensed.

be written.

A contract for the sale of real estate is enforceable only if it is in writing. A buyer or seller cannot sue to force the other to comply with an oral contract for sale, even if the contract is valid.

The contract has been legitimately cancelled and is null and void.

To be valid, a contract must meet the criteria of: competent parties, voluntary act of good faith, mutual consent, legal purpose, and valuable consideration. The buyer broke the mutual consent requirement by opting out before being told of the seller’s acceptance. Thus, there is no valid contract.

An offer and acceptance.

A contract of sale is created by full and unequivocal acceptance of an offer. Offer and acceptance satisfy the mutual consent requirement for a valid contract. The offeree must accept the offer without making any changes whatsoever.

Equitable title.

A sale contract gives the buyer an interest in the property that is called equitable title, or ownership in equity. If the seller defaults and the buyer can show good faith performance, the buyer can sue for specific performance, that is, to compel the seller to transfer legal title upon payment of the contract price.

a condition that, if unmet, renders the contract unenforceable.

A contingency is a condition that must be met before the contract is enforceable. If one party cannot meet a contingency condition by a specified deadline, the other party may cancel the contract.

The buyer may be able to have the contract canceled.

The termite inspection clause is a contingency clause. If one party cannot meet a contingency condition by a specified deadline, the other party may cancel the contract. Did the clause state that the inspector had to be properly licensed? If so, the buyer has a good case for cancellation.

Until the seller communicates acceptance of the offer.

An offeror may revoke an offer for any reason prior to communication of acceptance by the offeree.

Fred has entered into contracts with both Jack and Sally to sell the same property.

Jack’s acceptance of Fred’s offer creates a valid contract, just as Fred’s acceptance of Sally’s offer creates a valid contract. Fred should have revoked his offer to Jack before accepting Sally’s offer.

agency relationships and property condition.

It is common for the seller to disclose the property condition requiring the buyer to acknowledge receipt of the disclosure. The broker discloses the applicable agency relationships in the transaction and names the party who must pay the brokerage commission.

valuable consideration and a right to buy.

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. In exchange for the right of option, the optionee pays the optionor valuable consideration.

Schmidt must sell to Carboy for $10,000.

Mary’s option-to-buy contract is enforceable, assuming she paid a consideration for it.

It is always assignable unless the contract prohibits assignment.

A real estate contract that is not a personal service contract can be assigned to another party unless the terms of the agreement specifically prohibit assignment. An option-to-buy is therefore assignable in the absence of such a prohibiting clause.

At the end of the contract period, the vendor conveys legal title, provided the vendee has fulfilled all obligations.

A contract for deed is a bilateral agreement between a seller, the vendor, and a buyer, the vendee, in which the vendor defers receipt of some or all of the purchase price of a property over a specified period of time. At the end of the period, the buyer completes payment to the vendor of the full purchase price and the vendor deeds legal title to the vendee.

the parties have completed a verbal, executory contract.

As a sale contract created by an offer and acceptance, the parties have an executory contract: the parties have yet to perform their respective obligations and promises. However, as a contract for the sale of real estate, this verbal contract is not enforceable. An enforceable real estate sale contract must be in writing.

The assignor has completed a legal action.

Either party to a sale transaction can assign the sale contract to another party, subject to the provisions and conditions contained in the agreement.

any conveyance may trigger an acceleration of any loans secured by the property.

The mortgage agreement may or may not state that the seller’s loan will be accelerated by the lender and called due on sale. The due-on-sale clause in the sale contract merely stipulates that the buyer and seller recognize the possibility that loans that survive the closing may be called due.

The option is expired, and the tenant has no rightful claim to money paid for the option.

The option automatically expires at the end of the option period. The landlord has no obligation, either to sell the property or to return the consideration, after the expiration date.

the seller retains legal title while the buyer makes partial payments until the contract is fully executed.

In a contract for deed, the seller, or vendor, defers receipt of some or all of the purchase price of a property over a specified period of time. During the period, the vendor retains legal title and the vendee acquires equitable title. At the end of the period, the buyer pays the vendor the full purchase price and the vendor deeds legal title to the vendee.

Brokers may maintain an amount of operating funds in the trust account in order to pay monthly banking
fees.

The activity is called group boycotting and is a violation of fair trade laws. It is an illegal activity for a
number of competitors in a given market to “gang up” on a competitor in that market so as to limit the
boycotted party’s access to customers and patrons.