Real Estate Transactions
Medill
Fall 2016
Real Estate Process Overview
6 steps in the 3 part real estate process
Pre Contract
Listing Contract (optional)
Can choose whether or not to list it with a broker
Decision to sell
Listing with broker
Marketing efforts
Negotiation of contract of sale
Sales Contract
Conveys personal property, does not convey real property
Executory Period (time between execution of a sales contract an closing)
Inspections of Property and Title
Buyers financing (optional)
Mortgage loan application
Appraisal and credit check
Title examination
Survey is needed
Physical inspection
Document Preparation
Recording of the deed
Deed only conveys real property not personal property
Deed and mortgage recorded
Title insurance issued
Mortgage sold on secondary market
Brokers
In order to sell property parties do not have to have an agent, they can list property independent of an agent
Most real estate is listed with a broker
Listing Process:
Execution by the seller of a contract appointing the broker to be their agent in obtaining a buyer
If the broker is successful the seller will be obligated to pay the broker a commission (usually a percentage of the sales price)
Relationship: The relationship between broker and Seller is governed by the listing agreement and state law
Types of agents:
default rule is that brokers represent the Buyer but should enter into contract
Usually in residential real estate
Usually come out of the commission price but if no sale takes place the buyer’s broker can still get commission from the buying party under the Dobbs rule
What about out of the majority rule?
Seller:
Must enter into a listing agreement
Dual:
Must give informed consent, in writing
Owe a duty of loyalty to both parties
Must disclose that they are a dual agent
Agents can be held liable for damages for not disclosing
Cannot disclose confidential information
Paid a percentage of the selling price which causes them to favor the seller
Transaction brokers
Not an agent or either party
Duty is only to facilitate the transaction for both sider
Cannot disclose confidential information
Paid a percentage of the selling price which causes them to favor the seller
Traditional vs. Discount Brokers
Traditional Services offered:
Marketing the home-listing in MLS, advertisements in various media
Reviewing Contracts: might include advice on pricing, home inspections, etc.
Negotiation with potential buyers/sellers
Locating potential properties for buyers
Arranging for prospective buyers to visit
Providing buyers and sellers about the community
Appraising buyers of financial alternatives
Assisting in the formation and negotiation of offers, acceptances
Assisting in closing the transaction
Discount:
Charge only for the services the consumer actually buys
Fee for service Broker
Unbundle the package and charge fixed hourly sum for certain services
Minimum Service Laws: Some states require consumers to purchase certain brokerage services when entering into a contract with a broker and thus prevent discount brokers
Not a broker requirement: Can still sell your house independently
No option to waive services they do not want
Require certain services in Housing contracts
Diminish consumer choice
raise the cost of selling a home
States embracing
9 states require consumers to purchase more services than the want with no option to waive extra services
8 states have minimum service requirements but allow consumers to waive extraservices
Harm consumers by:
Reducing consumer choice by forcing consumers to purchase real estate services they do not want
Lead brokers who used to offer less than the mandated services to add those services and charge more
Not requiring quality just that the service is offered
This can be managed by fostering competition and through the local state licensure
Multiple Listing Services (MLS)
Information cannot be placed in the MLS without a broker
Information regarding the house amenities and a photo will be placed in a MLS book
Only brokers that are a member of the local board of realtors are permitted to list in the MLS
Scope of the relationship:
Entering into Contracts:
General Rule: Broker cannot enter into a contract on behalf of the seller. No apparent authority to do that. Seller may be liable for the commission still
Power of Attorney: Can give authority to the agent to sell your property for you through power of attorney
When you file the deed you include POA in the record when you file it to show that the legal authority was satisfied
Fiduciary Duties
Broker and agents owe fiduciary duty to the contractor (usually the seller)
Default rule: all brokers and subagents of the brokers are agents of the seller and owe fiduciary duties to that seller
Buyer c
al relationship with the buyers
Installment sale
Definition: Seller retains legal possession, buyer makes payments, when buyer finishes payments then the Buyer gets the property at the closing
Default rule: whole commission is due at the close so you need to contract because you might not have the money
Why is this not consistent with the type of jurisdiction it is in? Because the Buyer is not ready willing and able until close?
Can Contract around this
Brokerage agreement can preclude that the broker will be paid only if as the installments are paid (for leases)
From the seller’s point of view putting this provision in is a good idea if the contract will be paid in installments by the buyer that way the money flowing out matches the money flowing in
What if the buyer doesn’t pay an installment? Full commission is payable even in a jurisdiction that has adopted the Dobbs rule
State laws governing relationship with Broker:
State Disclosure Laws:
May states require brokers to make disclosures as to which party they represent
Disclosures under Nebraska law:
Duty to Inform: Brokers have a duty under Nebraska law to inform parties what type of brokerage relationship they have with the buyers/sellers and landlord/tenants. This includes:
What type of agent they will be acting as and whose interests they will be representing during the transaction
Disclosure: That disclosure must be given in writing signed by both parties
Material with Nebraska Disclosure: Accompanying that disclosure is the following material
Disclosures must be made at the earliest practicable opportunity during or following the first substantial contract they make with the non-represented party
Brokers are BY DEFAULT agents of the buyer UNLESS:
They’re in a written listing agreement with Seller
They are a subagent under listing agreement
They are a dual agent
They arein a common law agency relationship
Can provide additional supplemental material
