Chapter 5: Real Estate Practice

Question 1

When does the due diligence period usually begin?

Answer 1

usually begins after the contract has been signed and acceptance communicated

Question 2

What are the requirements of a valid listing?

Answer 2

• signatures of all the owners and the listing licensee
• legal description of the property
• list price – this must be set by the seller
• definite starting and termination date
• broker compensation

Question 3

What are the 4 types of listing agreements?

Answer 3

Exclusive Right to Sell
Exclusive Agency
Open Listing
Net Listing

Question 4

Exclusive Right To Sell

Answer 4

The broker is the exclusive agent and receives the commission even if the seller sells the property himself. This type of listing eliminates most procuring cause controversies. The broker will be entitled to a commission no matter who sells the property.

Question 5

If a seller sells his own property and owes a commission on the sale, the seller had probably signed which kind of listing agreement?

Answer 5

Exclusive Right to Sell

Question 6

Exclusive Agency

Answer 6

The broker is the exclusive agent and receives the commission UNLESS
the seller sells the property himself.
The seller competes with the broker.

Question 7

This type of listing
is often used by builders who reserve the right to sell new construction through their own sales office without paying a commission

Answer 7

Exclusive Agency

Question 8

Open Listing

Answer 8

• owner reserves the right to list with as many brokers as he chooses.
• also reserves the right to sell the property himself and avoid paying a commission.
• Open listings are NOT found in the MLS.
• Only a broker who brings a written contract will be paid.
• An open listing can be compared to an FSBO where the owner advertises a willingness to cooperate with licensed agents

Question 9

Net Listing

Answer 9

All money over the amount the owner wants for the sale of the property is
treated as the broker’s commission.
The net listing is ILLEGAL IN SOME STATES. Other states have strictly regulated it by setting max. commissions and requiring brokers to provide a CMA to the seller.

Question 10

“Buyer Rep”

Answer 10

An employment contract wherein the broker will be the buyer’s agent. The purpose is to find a suitable property for the buyer. The buyer’s broker must protect the buyer’s interests at all
points in the transaction. The specific services provided to the buyer should be spelled out. Compensation issues should be addressed. The agreement must have a starting date and a termination date.
All listings (and buyer representation agreements) are taken in the name of the broker and become the broker’s property. If a sales licensee leaves his sponsoring broker, he also leaves (or loses) any listings or buyer representation agreements he procured under that broker.
All agency agreements must be in writing to satisfy the Statute of Frauds.

Question 11

Acts of law that terminate a listing/buyer representation agreement

Answer 11

• Bankruptcy of the seller or the broker, or foreclosure
• Death – although sales contracts and leases survive death, service contracts are terminated by the death of either party. The broker and seller are the parties to the listing. The salesperson is not a party; therefore, the death of the salesperson will not terminate a listing.
• Destruction of the property or condemnation under Eminent Domain
• A change in property use by outside forces, such as zoning

Question 12

A property manager is in what kind of agency?

Answer 12

General Agency

Question 13

Operating Expenses

Answer 13

recurring expenses necessary for the monthly operation and maintenance of a property. They include fixed
expenses such as taxes and insurance and variable costs such as utilities, payroll, and reserves for repairs, replacement, and maintenance.

Question 14

Operating expenses DO NOT

INCLUDE

Answer 14

mortgage payments/debt reduction, depreciation, and capital improvements/ expenditures

Question 15

The Civil Rights Act Of 1866

Answer 15

prohibits discrimination based on race or color. There are no exceptions
or exemptions to this law.

Question 16

The Federal Fair Housing Act, known as the Title VIII of the Civil Rights Act of 1968

Answer 16

forbids discrimination on the basis of race, color, national origin, and religion

Question 17

The 1974 amendment to the Fair Housing Act added what as a protected category?

Answer 17

Sex

Question 18

The Federal Fair Housing Act was amended in 1988 to include what?

Answer 18

family composition and the handicapped. That amendment went into effect in 1989. (Family composition may be referred to as familial status.)

Question 19

What is not covered under the Fair Housing Act to allow for senior housing?

Answer 19

Age. Senior housing properties are sometimes described as having a Familial Status Exemption.

Question 20

What 2 ways can a community qualify for senior housing?

Answer 20

1. 100% of the units must be occupied by someone 62 or older.
   OR
2. 80% of the units must be occupied by someone 55 or older.

Question 21

The law forbids discrimination and discriminatory practices in connection with the LEASING or SELLING of residential real estate.
Can a landlord refuse to lease to a mentally handicapped tenant who is a danger to himself and others?

Answer 21

Yes. Since there is no federal standard for determining mental handicap, a landlord has to rely on a background check.

Question 22

blockbusting/ panic peddling

Answer 22

causing panic selling by homeowners

Question 23

Steering/Channeling

Answer 23

directing buyers into or away from certain areas because of their race,
color, etc.

Question 24

What is the max. penalty for a Fair

Housing violation?

Answer 24

$150,000

Question 25

Victims have up to when to seek mediation through HUD and up to when to file a complaint with the courts?

Answer 25

1 year; 2 years

Question 26

What is exempt from the ADA?

Answer 26

Single-family homes, private clubs, historic buildings, and religious organizations

Question 27

Commingling

Answer 27

a broker mixes client money with his or her funds, either business or personal

Question 28

Conversion

Answer 28

a broker uses a client’s money or commingled funds for his or her own purposes

Question 29

Vicarious Liability

Answer 29

Liability created not because of the broker’s actions but because of the broker’s relationship with the liable party – his sponsored agents. The broker will be held liable for the acts of his or her salespeople while acting on behalf of the broker, even if the broker did nothing to cause liability.

Question 30

The Sherman and Clayton Anti-Trust Acts

Answer 30

passed to preserve business competition by prohibiting monopolies, monopolistic practices, and restraint of trade. The most significant impact of this on real estate is in the area of commissions

Question 31

Death on a property - What needs to be disclosed?

Answer 31

Death on the property due to a material defect must be disclosed. Death due to violent crime (murder) on the property must be disclosed. We are not required to disclose death by natural causes or suicide. We can never disclose death due to HIV/Aids.

Question 32

Megan’s Law

Answer 32

a federal law requiring all states to release information to the public about known convicted sex offenders when necessary to protect public safety. Licensees are not required to disclose the information but should refer buyers to local information sources if buyers ask about this.

Question 33

Puffing

Answer 33

not misrepresentation. Puffing is marketing. Puffing uses adjectives and opinions rather than details or facts (the most beautiful landscaping). Exaggerated puffing can lead to misrepresentation (Example: The best water in the world).

Question 34

Errors and Omissions Insurance - E&O

Answer 34

protects both broker and sales licensees from a legal claim or liability for mistakes, errors, and negligence in usual listing and selling activities. It does not provide protection for fraud, punitive damages, or the personal/non-business actions of licensees.

Question 35

General Liability Insurance

Answer 35

liability risks may include bodily injury or property damage caused by direct or indirect actions of the insured. General Liability Insurance protects a company’s assets if someone is injured on company property. most often appears in homeowners’ insurance policies obtained by individual homeowners.

Question 36

General Partner

Answer 36

a co-owner who can enter into contracts on behalf of the partnership and is fully liable for all partnership debts. A general partner can be a person or a company.

Question 36

General Partner

Answer 36

a co-owner who can enter into contracts on behalf of the partnership and is fully liable for all partnership debts. A general partner can be a person or a company.

Question 37

Limited Partner

Answer 37

an investor with no say in the operation of the partnership, whose liability is limited to the amount of their investment

Question 38

S Corporation

Answer 38

a small corporation designed to remove self-employment tax and reduce personal liability