REAL ESTATE FINANCE OUTLINE
1. Chapter 1: THE ROLE OF THE PROFESSIONAL AND THE REAL ESTATE TRANSACTION
2. The Role of the Real Estate Broker pp. 1-28
2.1.1. Usually the first to become involved in the real estate transaction.
2.1.2. Facilitate the sale by bringing the buyer and seller together.
2.1.2.1. Usually involved in selling individual dwelling units but also for selling all other kinds of land parcel,s including commercial and industrial.
2.1.2.2. Brokers are considered to be the legal agent of the seller not the buyer; and commissions when earned are owed only by sellers.
2.1.2.3. Sometimes the broker provides assistance to the buyer, but a dual servicing role can raise conflict of interest problems.
2.1.2.4. Typical real estate transaction includes: Seller of property, Buyer, Real estate broker, Lending institution, and Lawyer.
2.1.2.5. Realtors are brokers who belong to the National Association of Realtors.
2.1.2.6. Brokers-usually show listed properties to prospective buyers(listing agent/supervisor) and usually where the money came from to start the real estate firm.
2.1.2.6.1. Sub-agent/saleperson the cooperating broker, is possible because most real estate transaction involves two brokers.
2.1.2.6.1.1. The rule of subagency-the cooperating broker or selling broker is an agent of the listing broker and thus a subagent of the seller.
2.1.2.6.2. The listing broker contracts with the seller to sell property and to sub-agent gets access to the property and to collect a part of the commission if the sale is completed.
2.1.2.6.3. The contract takes the form of a “listing agreement” and creates an express agency relationship between the listing broker and the and the seller.
2.1.2.6.3.1. Multiple listing Service-“MLS”- For residential sales, a large percentage of the transactions involve two brokers.
2.1.2.7. BUYER’S BROKER-The buyer’s broker contracts with a prospective buyer, promising to represent the buyer in finding and purchasing property.
2.1.2.8. DUAL REPRESENTATION-A broker may with full disclosure and consent, lawfully represent both seller and buyer in the same transaction, as a dual agency.
2.1.2.9. TRANSACTION BROKER-Sell services, but has no agency relationship with seller or buyer. This avoids fiduciary duties. Non agency brokerage.
2.1.2.10. AGENCY RELATIONSHIP-The broker’s duties to her client stem from agency law. The client is the principal whether seller or buyer or both. Under agency principles the broker owes fiduciary duties to her clients.
2.1.2.10.1. FIDUCIARY DUTIES ARE:
2.1.2.10.2. Full disclosure
2.1.2.10.2.1. Good faith
2.1.2.10.2.2. Fair dealing
2.1.2.10.2.3. No self dealing
2.1.2.10.2.4. Accounting
2.1.2.10.2.5. Reasonable care for the profession’s knowledge base
2.1.2.10.2.6. Loyalty
2.1.2.10.3. The listing agreement is not subject to the statutes of frauds because it is a contract to render service., it is not the transfer of the property.
2.1.2.10.4. The relationship between the broker and the seller is a agency relationship. A special agency relationship because it is limited to a specified set of instructions. The listing agreement is what list the specified instructions.
2.1.2.10.5. The agency relationship requires no self dealing, disclosure a lot more duty is involved in this relationship. This fiduciary duty is much higher.
2.1.2.10.6. Breach of fiduciary duties will subject the broker to liability to the client and to the risk or disciplinary action from the state agency that regulates the brokers.
2.1.2.10.7. DUTY OF LOYALTY: The broker owes the client the duty of loyalty.
2.1.2.10.7.1. Disclosure of client’s bottom line: Cannot disclose to potential buyer the owner’s lowest acceptable offer or “bottom line” without the client’s consent.
2.1.2.10.7.2. SELF DEALING-The broker is prohibited from self-dealing.
2.1.2.10.8. DUTY OF FULL DISCLOSURE: The broker must keep the client informed. When the broker learns of facts or other information that is material to the client’s position or interests, the broker should promptly tell the client.
2.1.2.10.8.1. Duration of duty: After the broker-client relationship terminates, the broker and the client may transact on an arms’ length basis. So the broker may use new information to the broker’s advantage.
2.1.2.10.8.2. Duty of Confidentiality-in the course of representing a client, the broker gains information about the client’s objectives and the property that absent the client’s consent, should not be disclosed to third parties.
3. Broker Duties to Buyers, Sellers and Others pp. 29-54
3.1.1. Broker’s duties are determined by the brokerage contract and the law of agency.
3.1.1.1. Some states require the brokers inspect the property being offered for sale and notify prospective buyers of what the inspection has disclosed as to the value and desirability of the property.
3.1.1.2. Court held that the brokers had breached their fiduciary duties owed to the buyer and was awarded the commission and prejudgment interest. Daubman v. CBS Real Estate.
3.1.1.3. Court held that seller’s agent does not owe fiduciary duty to buyer. Buyer did not have broker/client relationship with seller’s agent/broker and so did not have a duty to uphold. Haldiman v. Gosnell Development.
3.1.1.4. As a general rule an agent knows through his contacts with his principal how anxious he is to sell, and whether or not the principal will accept less than the list price. To inform a third party of that fact is a clear breach of duty of loyalty owed to principal. Such a breach will result in the agent loosing his right to compensation for services to which he could otherwise be entitled. Haymes v. Rogers.
3.2.WHEN IS COMMISSION EARNED?-
3.3. Broker’s claims against seller: Traditional Rule-When customer is found-the broker earns his commission when he procures a ready, wiling and able buyer at terms acceptable to the seller.
3.3.1.1. New Rule- Implied condition that sale must close-Some states have replaced the traditional rule with an implied condition that the sale must close in order for the broker to earn the commission. This is th
negotiated to at arms length it is enforceable.
11.1.1.2. In a exclusive authorization and right to sell contract the court held that with a withdrawal from sale clause is valid and enforceable. Blank v. Borden.
12.The Role of the Lawyer pp. 67- 96
12.1.1. A lawyer gets involved in the residential transaction later in the deal, in a commercial transaction the attorney is involved at the beginning. Normally, the conflicts will come up in a commercial transaction, because the attorney is all over a commercial transaction.
12.1.2. Unauthorized practice of law-most states now permit brokers to prepare standard form contracts of sale for customers who are not represented by an attorney. Several tests are used to determine when a broker’s activities constitute unauthorized practice of law.
12.1.2.1. Contract vs. Conveyances Test-The broker may prepare the contract for sale or earnest money contract between the parties, but MAY NOT prepare deeds and other closing instruments that convey interest in land.
12.1.2.2. Simple-complex Test-If the transaction is simple and straightforward, a broker is permitted to select standard form instruments and assist the parties in filling in blanks.
12.1.2.3. Incidental test-Broker drafting of instruments is authorized if it is incidental to the broker business and no separate compensation is paid therefor.
12.1.2.3.1. LAWYER’S ROLE-Determining the status of title-this is the most important legal work in connection with the transaction
12.1.2.3.1.1. The Survey-to determine whether the legal description of the land conforms to the lines laid down on the ground. Also to to determine whether structures on the premises violate restrictive covenants or zoning ordinances, or encroachment.
12.1.2.3.1.2. Curative Action-In some cases curative action is needed to make title marketable. All curative action should be carried out by a lawyer for the seller, buyer or the lender.
12.1.2.3.1.3. Drafting Instruments-Before closing a lawyer should draft the deed, mortgage and bond or note secured by the mortgage.
12.1.2.3.1.4. Obtaining Title Insurance-secured title insurance policy prior to closing.
12.1.2.3.1.5. Closing-The parties attorneys should make sure they understand the nature and amount of all closing costs. At the closing the parties exchange executed instruments, make require payments and conclude formal aspects of transaction. All parties should be represented by their own attorney.
