Real Estate Transactions Outline

 
Real Estate Transactions Outline Fall 2015
 
Real Estate Broker: Licensed broker
Real Estate Agent: Works for broker and acts under broker’s supervision
(1) Have to market someone else’s property for sale or lease; and (2) With the expectation for getting compensation for doing so
·         Have to be licensed by the state and have to satisfy certain educational requirements/exams
·         Don’t get compensation if not licensed, unless that person introduces buyer and seller (finders fee)
Listing Process of Agent and Seller
·         Involves execution by seller of a contract appointing broker to be seller’s agent in obtaining a buyer
·         The listing agreement is the process by which the seller lists the property for sale through the services of the real estate agent
·         If the broker is successful, seller will be obligated to pay the broker a commission (% of sale price)
·         Listing agreement must satisfy the SOF in nearly all jurisdictions
Seller à Listing Agent
Buyer à Selling Agent
Multiple Listing Services (MLS): Form prepared with detailed information about house or other property
Broker’s Authority
·         Broker shows, advertises, and markets the property; does not enter into an actual contract of sale
·         Equal Dignities Rule: The power of attorney has to be signed with the same formalities that the attorney at fact will sign
·         Attorney at Fact: If authorized to act as power of attorney by someone
o   However, if the language of the listing agreement is specific enough, it may give the broker a “power of attorney” to enter into a sales contract and consummate sale; Must be VERY clearly stated
·         Must get a written list of prospects within 72 hours from agent to prevent double compensation to two agents if listing agreement expires and new agent sells it to buyer who was around during first listing agreement
 
Types of Listings
Open Listing (Non-Exclusive Listing Agreement)
·         The property owner agrees to pay to the listing broker a commission if that broker effects the sale of the property but retains the right to sell the property himself as well as the right to procedure the services of any other broker in the sale of the property
·         Agent gets commission, only if that agent finds the buyer (broker lacks incentive to work)
Exclusive Agency Listing
·         For a time certain and authorizes only one broker to sell the property but permits the property owner to sell the property himself without incurring a commission
·         Agent gets commission if anyone other than the seller finds the buyer
Exclusive Right to Sell Listing (Nearly all residential properties are listed as this)
·         The sale of the property during the contract period, no matter by whom negotiated, obligates the property owner to pay a commission to the listing broker (incentivizes broker but restricts seller)
·         No matter who finds the buyer, agent gets commission
·         Executed: Seller signs, two witnesses and notary
·         If husband and wife, spouse automatically gets marital property interest so both have to sign to execute listing agreement even if just one name is on title
 
If Listing Agreement is Ambiguous: Because normally drafted by agency, construe against agent if the language isn’t clear; unless listing agreement expressly says if seller finds buyer, agent still gets the commission, then construe against agent and its just Exclusive Agency
•Want to include specific things for the agent to do such as newspaper ads, show the house a certain amount of times, so if the agent does not, you can fire the agent
Minimum Service Statutes
·         Purpose of statute is to require that real estate brokers provide a full panoply of services, and prevent the operation of “free for service” brokers
·         Cons: Raises cost of selling house, diminishes consumer choice, does not ensure equality, fosters competition
Fees for Service Brokers
·         Brokers who sell each service individually, with a separate charge for each
·         Pros: Clear about what the broker will do and not do, financial savings for consumer
 
Drake v. Hosley (SC of Alaska, 1986)
Majority Rule from Drake: Unless agreed otherwise, broker earns a commission when he produces a buyer ready, willing, and able, even if the sale is not closed
Dobbs Rule: Agent is entitled to commission only when the closing happens because until buyer buys the property, we don’t know if buyer is ready, willing, and able (absent default by seller). Public policy reasons
What can you do: Change clause to say agent is entitled to commission only if sale closes, non-waivable, and that if the seller defaults, commission is still owed, but buyer must make tender of payment so demonstrate they were willing to perform
 
Licensing
·         Salesperson: Entry-level license that requires no experience and the passage of a fairly simple examination. Works under the supervision of a broker and commissions must be paid to the broker, which is then divided
·         Broker: Requirement of prior experience as a salesperson for 3-5 years and a more difficult exam
·         In some states, licensed attorneys may act as brokers, although they are usually not allowed to supervise other salespersons
Conflicts of Interest/Agency Disclosure Requirements
·         Unless agreed to by all parties after full disclosure, conflicts of interest by a broker can give rise to private liability as well as public discipline from the state licensing body
·         In a large number of states, statutes or regulations require real estate brokers to disclose in writing whether they represent the buyer or seller (selling agent is subagent of the seller)
 
Other Forms of Representation
Dual agency: Broker represents both the buyer and the seller quite explicitly. Dual agent must disclose the existence of the dual agency to both principles
Transaction broker or non-agent broker: Does not represent either party to the exclusion of the other, but has a duty to facilitate the transaction for both sides. Both have a duty of evenhandedness toward the parties, and cannot disclose confidential information obtained from either party to the other. They are both paid as a % of the selling price, which gives them an economic incentive to maximize the price and thereby favor the seller
Different Types of Relationships You Can Have with an Agent
Seller’s Broker: Don’t tell anything to agent, because they have a duty to disclose it to the buyer
Subagent: Selling agent
Buyer’s Broker Buyer’s broker owes the buyer fiduciary duty; if buyer, you would want this. Danger to using this is because it prohibits the buyer from entering into agreement with another broker or to look at properties on your own-jf you do, you have to pay the commission still
Dual-Agency-Broker Representing both Seller and Buyer
Facilitator: Does not owe any party any fiduciary duty; only function is to make the closing happen
 
 
Duty to Disclose Material Facts
·         Common law duty of disclosure: Agent is expected to give detailed disclosure with respect to this specific transaction/ should be tailored to transaction; not boiler plate
·         A broker has a duty to disclose to a buyer material defects known to the broker but unknown to and unobservable by the buyer
·         This is true even if the broker is the agent only of the seller
·         Easton v. Strassburger (Cal. 1984): Court held agent liable for damages when he did not disclose damage to house to buyer
·         Latent: Something that is not readily discoverable (obvious)
Duty to Disclose Latent Defect: Has to be material
Fraud by Omission: Falling to disclose a latent defect
 
California Statute
·         The scope of inspection required does not include an inspection of areas that are norma