Practice and disclosure

An agent must account for all money and property that comes into his or her possession, such as earnest money deposits.   State laws regulate when the brokerage firm must enter the earnest money into an escrow or trust account.


An escrow account is for other people’s money. In a real estate transaction, that would include the earnest money check. The broker is not allowed to commingle, or place the check into a business or personal account.


Conversion, which is also illegal, is the act of using the earnest money checks, for example, taking the money to gamble in Vegas.


The duty to work with care and skill is different depending on who your client is.  If the broker’s client is the seller, the broker must properly represent the property, establish a correct list price, warn a seller of tax consequences, and make an effort find a buyer.


The agent is obligated to follow the legal instructions of the client. For example, an agent cannot put a For Sale sign in the front yard if the seller does not want one. However, should the seller not want to sell the property to a minority, which is illegal, the agent should refuse the listing.


An agent’s loyalty to a seller means seeking offers for price and terms acceptable to the seller; explaining offers to a client; disclosing when the broker is purchasing the property for his or her own account; and representing only the interest of the client.


If a seller has accepted an offer, an agent does not have to seek additional offers unless instructed to do so by the client. An agent is required to present offers in a timely manner, as well as present all required forms for the transaction.


An agent must disclose any facts that would affect the principal’s decision to accept or reject an offer or to purchase property. Examples of such facts include but are not limited too, disclosing all offers to the seller; if the buyer does not qualify for a loan; if the buyer is willing to offer more if the seller rejects an offer; or if a buyer intends to re-sell the property.


When a licensee is representing the buyer typically it is his or her duty to find a suitable property, evaluate property values and seek financing alternatives.


When representing a purchaser, an agent must seek property at a price acceptable to the purchaser, and present any offers in a timely manner. A licensee does not breach any agreement or duties to the purchaser by showing the same properties to other purchasers. The licensee cannot accept compensation from a broker who represents a seller without the knowledge and consent of the buyer.


If an agent is representing a buyer, he or she must disclose all the known property defects; the time the property has been on the market; unsuitable contract provisions and financing; and help establish an offering price.


A licensee is not required to discover latent, or hidden, defects. A latent defect is defect not readily seen by anyone looking, for example, a crack in the foundation. A licensee is not required to address matters beyond the scope of his or her knowledge, nor is a licensee responsible to verify the statements made by the seller unless the information provided is questionable.


Stigmatized property


Stigmatized property is a controversial term used in the real estate business which buyers or tenants may shun for reasons which are unrelated to its physical condition or features.   These can include murder, suicide or evenAIDS, in addition to a belief that a house may be haunted.

The argument behind stigmatized property maintains that it is the seller's responsibility to disclose any such past history of the property. This, in practice, falls into two categories; demonstrable (physical) as well as emotional. These guidelines vary from state to state.

Puffing


Puffing is an exaggeration of a fact. Many agents puff when dealing with third parties. Puffing is legal as long as the statements are not fraudulent. We have all heard agents say, “Wow, this is the greatest house I have ever seen in my life” it’s not lying, but is close.


Fraud


An agent must not misrepresent facts, commit fraud, or be negligent.


Misrepresentation is a false or misleading statement or assertion of a material fact with the intent of deceiving someone into taking a course of action he would not otherwise normally pursue. A licensee may be disciplined for misrepresentation even though the misrepresentation did not result in a loss to the principal.  For example, if a party has been told a property has been zoned multi-family when in fact it is zoned single-family, the property has been misrepresented.


There are different types of fraud:

Actual fraud

Constructive fraud

And Negative fraud


Actual fraud

Actual fraud is a deliberate misrepresentation or a representation made in reckless disregard of its truth or its falsity or the suppression of truth or a promise made without any intention to perform it or any other act intended to deceive.


Negative fraud

Negative fraud is the act of not disclosing a material fact to somebody thereby induces him or her into enter into a contractual situation that causes him or her damage or loss.


Constructive fraud

Constructive fraud is a breach of duty without any fraudulent intent such as when a person in a fiduciary capacity takes advantage of another person by misleading them to into a prejudiced position. This is also known as passive fraud


Negligence

Negligence is the omission to perform a duty or failure to exercise a standard of care that a reasonably prudent person would have exercised in a similar situation. Negligence is typically due to a lack of time, forgetfulness, or just plain laziness.


For example, if an agent is listing a property and there is a question regarding the zoning, the agent should contact the zoning office. Usually this can be determined by a phone call or checking the website. If the agent knew that there was a question regarding the zoning of a property and did nothing, the agent could be found guilty of negligence.


Fraud may take the form of either misrepresentation or negligence. In either case the agent may be liable civilly for damages incurred by the purchaser on account of the misrepresentation or the agent may be subject to disciplinary action against the agent's license.


The owner may be vicariously liable in damages for the agent's misrepresentations even where the owner was not the source of the erroneous information conveyed to the agent.


Introduction

Bundle of Rights  

License   

Government Rights  

Police Power   

Eminent domain   

Taxation   

Escheat   

Real vs Personal Property

Annexation   

Appurtenances   

Fixtures   

Trade Fixture   

Emblements   

    OR-EE Rule   

Estates

Freehold Estate   

Fee simple absolute   

Fee simple Defeasible   

Life estate   

Less than freehold estate   

Estate for Years   

Periodic Tenancy   

Estate at will   

Estate in sufferance   

Types of Leases   

Gross lease   

Net lease   

Percentage lease   

Lease option   

Property management

Contracts

Essentials of a valid contract   

Capable parties  

Lawful object   

Consideration   

Offer and acceptance   

Types of Contracts   

Valid, Void & Voidable Contracts   

Implied contract   

Bilateral & Unilateral contacts   

Executed & Executory   

Option contract   

Land Contract   

Listings   

Types of Listings contracts   

Exclusive Listing   

Exclusive Authorization and right to sell Listing   

Exclusive Agency Listing   

Open Listing   

Net Listing   

Listings with an option   

Multiple listing service   

Agency   

Universal agent   

General agent   

Special agent   

Attorney in fact   

Principal and Client   

Transaction broker   

Dual or limited agency   

Practice and disclosure   

Stigmatized property   

Puffing   

Fraud   

Actual fraud   

Negative fraud   

Constructive fraud   

Negligence   

Federal Law   

Truth in Lending   

Fair Housing   

Steering   

Blockbusting   

Sherman antitrust laws   

Easement   

Easement in gross   

Implied easement   

Prescriptive easement   

Termination of Easement   

Encroachment   

Zoning

Property Transfer

    Deeds   

    Wills   

Title   

Title insurance   

Forms of ownership   

Tenancy in common   

Joint tenancy   

Community property   

Trust   

Subdivisions   

Condominium   

Cooperative   

Time Shares   

Cluster housing   

Liens   

Appraisal   

Appraisal Principles   

Principle of Highest and Best Use   

Principle of Substitution   

Principle of Conformity   

Principle of Contribution   

Principle of change   

Market Value   

Steps in the appraisal   

Appraisal methodology   

Market data approach   

Capitalization (income) Approach   

Cap Rate   

Cost (replacement) approach   

Gross Rent Multipliers   

Depreciation   

Physical Deterioration   

Functional Obsolescence   

Economic Obsolescence   

Financing   

Lenders   

Primary mortgage   

FHA   

VA   

Types of Loans   

Loans clauses   

Investing   

Construction Terms   

Test Taking Tips