REAL ESTATE TRANSACTIONS OUTLINE
I. Real Estate Brokers:
The REB is a licensed professional who makes exchanges of land for purchase between a seller and buyer.
The function of reb is to sell the seller’s property, to negotiate, to prescreen the buyer—factors the reb will use to complete this: race, income, marital status, etc.
The reb will continue to assist the buyer to finish the deal.
Reb’s get paid through a commission, typically 7% of the purchase price for a single family home.
Qualifications of the REB:
All must get an initial license
Annual renewal of license
To get a license the reb will have to complete courses, and must pass courses at different stages of their training.
Reb acts on behalf of others, handles other people’s money—thus they are held to a highest value of fiduciary duties for integrity, competency, and honesty to their clients and fellow brokers.
In most jurisdictions, the brokerage contract must be in writing to be enforceable, but a principal-agent relationship can be created far more casually.
II. The Three Standard Form of Listing Agreements: 3 types—the LA is an agreement made by the owner and the REB to sell the property:
Open Listing agreementà is an offer to pay a commission when the broker procures a purchaser ready, willing, and able to accept the owner’s terms. The seller hires one or 20 brokers, or sells the property himself or herself. The seller prefers to sell an open listing agreement b/c the seller can sell it themselves and not pay a commission. This is rare in residential listings—why? Brokers will not sign them.
Exclusive agency—one broker is hired, and no other broker may be hired. But the owner can still sell the property himself or herself, and the REB will not get a commission. So the broker is the exclusive agent.
The exclusive right to sell—the REB gets a commission no matter who sells the property. So if it is sold during the terms of the listing agreement the REB is entitled to a commission. Generally, the courts require very clear and concise language in this type of LA. Agreement will have to state that the owner is liable for the commission even if the agent doesn’t sell the property. The courts will view an unclear agreement as an exclusive agency, so be CLEAR.
The Brokers Fiduciary Obligations to the Parties
Broker’s Duty to Seller as Principal:
Hale v. Wolfsen:
Hale was a little loose with her representations.
Was her (REB) behavior reasonable to her clients? Maybe, but Hale became a subagent to the respondents by cutting in on Johnson’s commission.
The buyer here is asking for rescission, and the court could not do this unless it found the Hale owed a duty to the buyers—that she is an agent of the buyer and thus broke a fiduciary duty to the buyer.
Does a broker in CA owe a duty of full disclosure? This opinion probably doesn’t go that far.
S lists property Broker for 380,000. But seller will sell for $360,000. Can the broker say to buyer—“offer 360 and it will sell.” Is this wrong? The broker is negotiating away the sellers bottom line. A broker violates a fd to the seller if they negotiate away the seller’s bottom line.
The broker is obligated to get the best price for the seller. If the broker get 375, and the seller refuses to sign- the broker gets nothing.
The Brokers Duty to Buyer:
Keyerleber v. Euclid Congregation of Jehovah’s Witnesses:
Is silence permissible?? A misrepresentation is LYING. And here when have a misrepresentation.
Does a nondisclosure under these facts amount to fraud? Is the identity of the buyer here material to the seller? Yes, b/c it will affect the sellers property value, they own the land next to what will become the buyer’s land.
So if it is a material decision affecting the seller must the broker of the buyer disclose? In this case, yes. But, in other cases–? The courts are mixed, some states say the REB must disclose anything that is material and unknown; other states say only if the disclosure would affect the health then it must be disclosed; and other states say—No, never have to disclose.
The broker in this case lied. What is the brokers obligation when the seller says, “Who is the buyer?”
The Broker SHOULD SAY – my client doesn’t wish to be identified – THIS IS HOW YOU MAINTAIN YOUR FIDUCIARY DUTY to the buyer. If the seller then doesn’t want to sell, so be it.
à Undisclosed principal situation—this is a classic real estate transaction situation.
Rescission of Contract based on a ground of fraud: the plaintiff must exercise the right promptly upon the discovery of the fraud and that any delay or act inconsistent with the degree of promptness required by the circumstances is a bar to relief and constitutes a defense to the proceeding. (p. 13).
B. The Key Elements of a Brokerage Contract:
· The Statute of Frauds bars any contract for the sale of land absent “some memorandum or note thereof.”
· REB’s can only collect commission if there is a writing with a binding, signed agreement (binder).
2. The Three Types of Listing Agreements:
a) open listing—an offer to pay a commission when the broker procures a purchaser ready, willing, and able to accept the owner’s terms. The owner can have many brokers; the commission is earned by the first broker to produce a buyer on the seller’s terms.
b) exclusive agency—when the owner can sell the property which would cut the broker out of commission, however if the broker produces a buyer f
**if the deal falls through due to the buyers lack of funds—the REB get no commission; if however, the seller interferes or does some wrongful act—the REB must be paid.
**The REB will not earn his commission if there is a “substantial inequality” of bargaining power between the REB and the seller (i.e. seller never sold a house before, and buyer is not r,w, and able—but REB presents buyer as legitimate).
o Other situation when a REB should receive their commission:
1) when a seller successfully sues for specific performance from the buyer.
2) Buyers seeks out an REB, knows the REB works on commission, then Buyer refuses to pay up when buyer purchases a home.
3) REB can sue a buyer for commission who refuses to carry out his contract w/ seller, even though the REB has agreed to get comm.. from the seller, pg. 33).
o If a property is at $300k, and the REB finds a buyer at the listing price, and the seller rejects that—then the seller owes the REB his commission.
o Seller can always reject a lower offer than listing agreement.
o Seller can not reject an offer from a ready, willing, and able buyer at the listing price and then refuse to pay the REB’s commission.
II. Contract of Sale:
Why do we need a contract in real estate transactions?
1) the seller must actually own the property—must figure this out they own it and no other interests;
2) defects in the title must be resolved;
3) the buyer needs to obtain financing for the property;
4) time is needed to prepare necessary closing documents;
5) you might need extra time to work out deed, contract of sale, title = the executory period. Generally, for a single family home the executory period is 45-60 days.
Statute of Frauds: any contract for the sell of RE must be in writing.