CHAMPIONS SCHOOL OF REAL ESTATE : LAW OF AGENCY EXAM TEST, Exams of Nursing

Download CHAMPIONS SCHOOL OF REAL ESTATE : LAW OF AGENCY EXAM TEST and more Exams Nursing in PDF only on Docsity! is know as the client. CHAMPIONS SCHOOL OF REAL ESTATE : LAW OF AGENCY EXAM TEST Texas Real Estate License Act (TRELA)- Makes it illegal to practice any form of real estate brokerage without a license, the purpose of the Act is to protect the public against unscrupulous brokers and sales agents. What is Agency? An agency relationship exist when one person, the Agent, acts on the behalf of another person, the principle, who Fiduciary relationship is based off trust. STATE LAW - TRELA AND RULES OF THE COMMISSION (ETHICS) All license holders are required to adhere to the provisions of the Texas Real Estate License Act and the Rules of the Texas Real Estate Commission. The act and the Rules describe a wide range of lawful and unlawful behavior. The fact that brokers do business in an ethical manner requires far more than a strict application of rules and laws. Remember, a business practice may not be ethical, even if it is legal. The Texas Real Estate Commission has included the Canons of Professional Ethics and Conduct for real estate license holders in the Rules of the Commission. ARTICLE 1. FIDELITY A real estate broker or sales agent, while acting as an agent for another, is a fiduciary. Special obligations are imposed when such fiduciary relationships are created. They demand: •Thattheprimarydutyoftherealestateagentistorepresenttheinterestsofhisorherclient,andhis or her position, in this respect, should be clear to all parties concerned in a real estate transaction, that however, the agent, in performing his or her duties to the client, shall treat other parties to a transaction fairly; •That the real estate agent be faithful and observant to trust placed in him or her and be scrupulous and meticulous in performing his or her functions; •That the real estate agent place no personal interest above that of his or her client. Absent any specific definition in a set of rules or statutes, the common definition of the word or term normally applies. Scrupulously is defined as acting in strict regard for what is considered CHAMPIONS SCHOOL OF REAL ESTATE : LAW OF AGENCY EXAM TEST right or proper; punctiliously exact; painstaking. Meticulously is defined as marked by extreme or excessive care in the consideration or treatment of details; careful. These definitions indicate that li cense holders must perform their duties in a way that exhibits knowledge of what is right and appropriate under the circumstances and with care about details. ARTICLE 2. INTEGRITY A real estate broker or sales agent has a special obligation to exercise integrity in the discharge of his or her responsibilities, including employment of prudence and caution so as to avoid misrepresentation, in any way, by acts of commission or omission. ARTICLE 3. COMPETENCY CHAMPIONS SCHOOL OF REAL ESTATE : LAW OF AGENCY EXAM TEST •“Top Grade” •“The sellers have to sell.” •“You automatically get this by buying in this area.” •“NoProblem.” •“This is a small repair.” •“This is not a big problem...” •“Looks good to me!” •“I can take care of everything for you...” •“Don’tWorry.” Any of the above words and phrases can be misinterpreted and result in a lawsuit under the DTPA. Puffing (puffery) is 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. (Best water in the world). License holders should take care not to overstate the positive features of a property that could lead to a claim of misrepresentation. DEFAMATION What can a license holder do if someone publishes a defamatory statement about the license holder? First, the license holder should ask the publisher to remove the statement or ask for a correction or retraction in a printed document. If the publisher does not remove the statement or take other actions, then the license holder may have the legal right to sue the publisher for defamation if the false statement is injurious. Defamation is the act of harming the reputation of another person by making a false statement to a third party either by slander (spoken words) or libel (printed words). Usually, a defamation claim requires evidence of: • a false statement, • a statement made to someone other than the person who is allegedly defamed, and • the damage to the person allegedly defamed (either by intention or reckless disregard for the CHAMPIONS SCHOOL OF REAL ESTATE : LAW OF AGENCY EXAM TEST truth). ADVERTISING COMPLIANCE ISSUES Section 1101.652(b) of the Act contains a list of misconduct for which TREC may impose disciplinary action against a license holder. Advertising provisions under §1101.652(b) provide that a license holder may not: • publish any advertisement that misleads or is likely to mislead or is likely to deceive the public, tends to create a misleading • offer to sell or lease property without the knowledge and consent of the owner or the owner’s agent; • offer a property on terms other than those terms authorized by the owner or the owner’s agent; • make misrepresentations or false promises through advertising or otherwise; or • place a sign on property for sale or lease without the written consent of the owner or the own- er’s agent. ***When the designated broker of a business entity dies, the licenses of agents sponsored by the business entity are placed on Deceptive Advertising A license holder may not place an advertisement that • implies a sales agent is responsible for the brokerage business, or • causes someone to believe a person not authorized to conduct brokerage is engaged in brokerage. Assumed Names • A broker’s assumed name is the broker’s name, and the broker may use the assumed name to satisfy this requirement. • A broker is required to register an assumed name with TREC (even if the assumed name is a impression, or does not identify the publisher as a broker or agent; inactive status.*** CHAMPIONS SCHOOL OF REAL ESTATE : LAW OF AGENCY EXAM TEST sales agent’s name; for example, a team name). •If the broker’s name or assumed name includes a sales agent’s name, the advertisement must include another assumed name without the sales agent’s name or include the designated agent’s name. •A broker must notify TREC within 30 days after the broker or the broker’s sales agent starts or stops using an assumed name. •Signage and other advertising media must contain the broker’s name or assumed name in at least 50 percent of the size of the largest item of contact information on the advertisement. (DETERMINATION OF FITNESS) (a) If before applying for a license under this chapter a person requests that the commission determine whether the person possesses the fitness to engage in the profession for which the license is required and pays the required fee, the commission shall make its determination of the person’s fitness to engage in the profession. Canons of Professional Ethics, which outlines a broad range of agent duties and obligations to others. ROLES PEOPLE PLAY IN AGENCY RELATIONSHIPS - CLIENT OR CUSTOMER? • A broker works for a client. • A broker works with a customer. The initial relationship with all potential buyers and sellers is a customer. The individual remains a customer until he or she enters into an agency agreement . A seller becomes a client by entering into a listing agreement with the broker, while a buyer becomes a client by entering into a buyer representation agreement with the broker. The relationship (customer or client) determines the level of service that can be provided by the agent. Cooperative Broker - A broker selling the listing of another broker. A cooperative broker may CHAMPIONS SCHOOL OF REAL ESTATE : LAW OF AGENCY EXAM TEST Reimbursement refers to the fact that the agent should be reimbursed by the principal for expenses incurred on behalf of the principal, above and beyond the expenses related to the sale itself. INDEMNIFICATION Indemnification means that the principal will protect the agent from suffering a loss due to the agent’s reliance on information received from the principal. For example, if a seller gave a broker false information, which the broker passed on to a prospective buyer, the broker would be justified in expecting indemnification from the seller. PERFORMANCE- Performance means the principal is expected to perform as promised in the agency agreement. AUTHORITY OF AGENT The authority of an agent is determined by the manner in which the relationship is created. Agency by actual authority exists when an individual grants express authority to the agent to perform some act. The authority granted may be in oral or written form. Actual, written authority is given to a broker when a seller signs a listing agreement. Ostensible agency exists when actions lead another person to assume that one is an agent. Agency as a result of the actions of an agent and the response of others to those actions are Ostensible Agency. For example, a license holder might falsely make public statements that he or she is representing a commercial property owner as a leasing agent or property manager. If the property owner learned of the misrepresentation and made no effort to correct it, ostensible agency may be created because it is reasonable for others to believe the license holder. Agency by ratification occurs when an agent acts without prior authorization, and the principal accepts it upon learning of the action. For example, a seller, relocating to another state, has left the house vacant and listed with a local real estate agent. The agent has found a buyer, listing agreement CHAMPIONS SCHOOL OF REAL ESTATE : LAW OF AGENCY EXAM TEST and the seller accepts the offer. At closing, the seller is surprised to learn that he will receive one week’s rent in addition to the sales price. Although the agent had no authority to do it, the seller’s agent authorized the buyers to move in one week before closing. This behavior on the part of the agent was extremely risky and unprofessional. The seller accepts this action on the part of the agent and receives rental income in addition to the sales price. By accepting the rent payment, this seller has ratified the unauthorized action of the agent. Agency by estoppel, which is created when a principal inadequately supervises an agent. The agent takes on powers that go beyond the scope of authority given by the principal. If this activity causes a third party to believe the agent has these powers, agency by estoppel has been created. Agency coupled with an interest. When a broker is the owner of a property that is being sold, or when a broker is interested in buying a property, we have agency coupled with an interest. A real estate license holder is obligated to advise a property owner as to the license holder’s opinion of the market value of a property when negotiating a listing or offering to purchase the property for the license holder’s own account as a result of contact made while acting as a real estate agent. A written or buyer representation agreement is evidence that the agency relation- ship exists, and provides the agent with express authority . Express authority also comes from the specific oral instructions given to the agent by the principal. Implied Authority, Agent authority, or rights, may also be a result of “the norm,” or what is considered customary in the business. Fiduciaries are held to the highest amount of good faith, are required to exclude all selfish interest, are prohibited from putting themselves in positions where personal interest and representative interest will conflict and must, in any direct dealing with the principal, make full disclosure of all relevant facts and give the latter an opportunity to obtain independent CHAMPIONS SCHOOL OF REAL ESTATE : LAW OF AGENCY EXAM TEST advice. CLASSIFICATIONS OF AGENCY There are three categories or types of agency: 1. Universal agency CHAMPIONS SCHOOL OF REAL ESTATE : LAW OF AGENCY EXAM TEST client choose the provider. Always supply clients with lists of choices for professional services, rather than CHAMPIONS SCHOOL OF REAL ESTATE : LAW OF AGENCY EXAM TEST recommending any one in particular. Once a client has chosen the provider, it would be acceptable for the agent to arrange the service requested. If a principal wants an agent to violate the law, the agent should explain the law and state that all agents are required to follow the law. If a client “insists” on illegal behavior, the agent should with- draw from the transaction. Note that a license holder may refuse to do business with a prospect at will as long as he or she is not doing so for reasons prohibited by the Fair Housing Act. LOYALTY Loyalty means putting the interests of a client first. Loyalty is working to assist the client in all phases of the transaction to arrive at the best possible result for the client, exercising maximum effort for the client’s benefit. The duty of loyalty is limited by the duty of honesty to all parties. Therefore, the only time it would be improper to place the interests of a client first would be in a situation where this action would require you to treat others dishonestly. Failure to demonstrate loyalty could lead to loss of commission, loss of license, and a lawsuit for damages, in addition to the possible cancellation of the transaction. DISCLOSURE An agent has a duty of full disclosure of all information relating to the property and the other par- ties in the transaction. This would include such things as the broker’s opinion of value, negotiation strategies, or techniques to assist the client in negotiating the transaction, motivation of the other parties, and the financial condition of the other party. Ultimately, full disclosure to the client is required, regardless of whether the fact is favorable or not, whether the fact is found before or after the contract is signed or whether disclosure might prevent the successful execution of the contract. The client is entitled to know the same facts that the agent knows. DISCLOSURE OF REPRESENTATION At the first contact with a party to a potential transaction, a license holder must disclose to that party whom he or she represents. The disclosure of representation may be done orally or in writing. For example, when a prospective buyer calls on a listed property, the agent must inform the prospective buyer that the firm represents the seller. If a buyer’s agent comes into contact with a seller or agent of the seller, the buyer’s agent must likewise notify that person that he or she is a buyer’s agent. CONFIDENTIALITY (MEANING FOREVER!!) CHAMPIONS SCHOOL OF REAL ESTATE : LAW OF AGENCY EXAM TEST Any confidential information learned about a client must be kept confidential forever, and may not be disclosed without the written consent of the client. The only confidential information that may be disclosed is that required to be disclosed by law, such as information regarding the condition of the property or the title. ACCOUNTING funds are held for a client or a customer, these funds are said to be held in trust and must be placed in a separate account set up for this purpose. Commingling is mixing clients’ funds with the business, operating, or personal funds of a broker, and is prohibited by the License Act. Conversion- when a broker spends his or her client’s funds without authorization, that broker is guilty of conversion. Both commingling and conversion are serious violations of TRELA. Sec. 1101.652(b) The commission may suspend or revoke a license issued under this chapter or take other disciplinary action authorized by this chapter if the license holder, while acting as a broker or sales agent: (10) commingles money that belongs to another person with the license holder’s own money; TREC (Texas Real Estate Commission) rules are specific about the proper handling of client funds: Failure To Properly Account for Money; Commingling REASONABLE CARE (BE A GREAT COMMUNICATOR) Reasonable care is a requirement that an agent exhibit competence and expertise, keep clients informed, and take proper care of their property. An agent is hired to do more than merely locate a property or find a ready, willing, and able buyer, and an agent’s obligations extend beyond selling or locating a property. The agent must use reasonable care and diligence in: • guiding the seller to arrive at a reasonable listing price • advising the seller-client to accept a reasonable purchase price from a buyer-client, always in light of current market values • making reasonable efforts to sell the property, such as Open Houses, MLS, Advertising, etc. CHAMPIONS SCHOOL OF REAL ESTATE : LAW OF AGENCY EXAM TEST • Buyer Agency • Subagency • Intermediary Oral agency agreements are legal (and quite common) in Texas. There are few positives with an oral agreement and numerous downsides. *****Refer to Page 42-43 Pictures for Break Down in Agency Relationships****** *The written listing agreement created a Special Agency Relationship* *General Agency Relationship is created when a broker hires an agent; the license holder becomes the general agent of the broker. In other words you become the agent for your broker. THE ANATOMY OF A TRANSACTION All transactions are said to have two “sides”: 1.A listing side where the seller retains the services of a broker. 2.A selling side where the buyer retains the services of a broker. The agent working with the buyer is referred to as the selling agent. When a brokerage firm sells a property, two possibilities exist: 1. The property is sold by a firm other than the listing firm, which is referred to as a cooperative sale. 2. The property is sold by the listing firm, which is referred to as an in-house sale. COOPERATIVE SALE or (Co-op) **picture graph page 44** In many cases, a property is listed by one firm and later sold by another. Many of these firms are members of the Multiple Listing Service (MLS), which significantly facilitates cooperative sales. Signed an agency agreement known as a Buyer/Tenant Representation Agreement. BROKER AND AGENT COMPENSATION: COOPERATIVE SALE **picture graph page 45** CHAMPIONS SCHOOL OF REAL ESTATE : LAW OF AGENCY EXAM TEST The commission charged is negotiated between the seller and the broker and is not set or recommended by TREC or any other organization. REPRESENTATION IN A COOPERATIVE SALE **picture graph page 45** If a party to a transition is not being represented by an agency, that party is know as a customer. A customer is a person who receives limited brokerage services without entering into an agency relationship with a broker. The customer is not represented in the transaction by anyone. Until a buyer or seller becomes a client, that person remains a customer. According to the Texas Real Estate License Act, when one firm sells a property listed by another firm to a buyer that they are not representing, the selling firm represents the seller in a subagency relationship. Subagency relationship is created automatically with no discussion or action needed on the part of the listing or selling firm. HOW AGENCY IS TERMINATED Agency relationships are terminated by any of the following: •When the purpose of the agency is completed (i.e., the property is sold). A buyer/tenant representation agreement is generally for the purchase of a single property. When the property has been purchased, the agreement is terminated. There is no presumption of an on-going agency relationship between the broker and buyer. Likewise, a listing agreement is terminated when the property is sold and closed. There is no presumption of an on-going relationship with the seller after closing. •The expiration of the period stated in the listing contract. The License Act requires that listing agreements must have a definite termination date that is not subject to prior notice: Sec. 1101.652. Grounds for Suspension or Revocation of License. (a) The commission may suspend or revoke a license issued under this chapter or take other disciplinary action authorized by this chapter if the license holder: CHAMPIONS SCHOOL OF REAL ESTATE : LAW OF AGENCY EXAM TEST (12) fails to specify a definite termination date that is not subject to prior notice in a contract, other than a contract to perform property management services, in which the license holder agrees to perform services for which a license is required under this chapter; •At any time by mutual agreement. The parties are certainly free to terminate the agreement. •Death or incapacity of either party. If the broker or client dies or is determined to be insane, the agency agreement is terminated. Note that, because the parties to an agency agreement are the client and broker, the death or incapacity of a sponsored license holder has no legal effect on the agreement. When the broker is given notice of termination, the broker must: **Remove Immediately** 1.Cease all marketing activities. 2.Remove signs and lockboxes. 3.Remove the listing from websites and other advertising media. 4.Terminate the listing in the MLS. Note that a “Withdrawal” would not comply with this requirement. The listing must be terminated. In the MLS, a withdrawal removes the listing from the market but does not terminate the listing. DUTIES OF AGENCY THAT SURVIVE TERMINATION The duties of the agent do not end with the termination or expiration of an agency relationship. The duty of confidentiality extends forever into the future. The client is reasonable in expecting confidential information will be kept confidential. The duty of confidentiality lasts forever unless the broker is required by law or a court order to disclose the information. CHAMPIONS SCHOOL OF REAL ESTATE : LAW OF AGENCY EXAM TEST TREC’S ADVERTISING RULES **A TEAM NAME MUST END WITH THE WORD “TEAM” OR “GROUP”** MUST USE MAY USE DO NOT USE- MISLEADING Team Realty (followed by team or group) Company Group Brokerage Associates ADVERTISING AND SOCIAL MEDIA License holders who advertise on their social media accounts must also adhere to the TREC Rules on advertising. The broker’s logo does not usually count as the broker’s name unless the logo contains either the broker’s licensed name or assumed business name (DBA) in full (not a shortened version of it) and the printed name is 1/2 the size of the largest contact information in the ad. It is important to make a distinction between the size of the logo and the size of the text. The size of the logo does not count. All social media advertising must contain the required information either on each advertisement or may contain a direct link that leads to the required information. The rule is one click. If the information takes two clicks, then that is one click too many! SELLER’S DISCLOSURE OF PROPERTY CONDITION. CHAMPIONS SCHOOL OF REAL ESTATE : LAW OF AGENCY EXAM TEST In Texas, most sellers prepare a Seller’s Disclosure Notice, and the seller is responsible for its accuracy. The agent’s role is to encourage honesty and full disclosure. STIGMATIZED PROPERTIES A property is stigmatized when some adverse event occurs on-site, or some people believe that a past event or condition is affecting it. A property that is stigmatized psychologically or physically can be challenging to sell. An example of a psychological stigma would be the belief among some that a house is haunted. Events on a property such as murder, death, and infectious disease can also create psychological stigma. When stigmatized properties do sell, they often do so with a deep discount on the sales price. A property can be stigmatized for a number of reasons: •Murder on the premises - a great many buyers object to living in a property where a murder has been committed. The impact on the desirability and value of the property is proportionate to the amount of time that has elapsed and the severity of the crime. •Death on the property - some buyers will pass on the opportunity to buy a property in which anybody has died for any reason. This may be problematic for homes that are quite old, as death at home was the norm prior to the early 20th century. THE LISTING AGREEMENT The listing agreement is an employment contract used by sellers to employ a real estate broker or brokerage firm, to find a buyer for their property. Requirements of a valid listing agreement include: • The signatures of all of the owners and the listing agent • A legal description of the property, including the street address • The list price of the property as set by the seller CHAMPIONS SCHOOL OF REAL ESTATE : LAW OF AGENCY EXAM TEST • A definite starting (commencement) and ending (termination) date • The agreement to pay a stated commission (compensation) to the broker, usually a percentage of the sales price TYPES OF LISTING AGREEMENTS The four major types of listing agreements are: 1.Open listing 2.Exclusive agency 3.Exclusive right to sell 4. Net listing OPEN LISTING The open listing gives the seller the right to list the property with multiple competing brokers and to sell the property personally without liability for payment of a commission. Some sellers believe that an open listing best serves their interest - that listing with several brokers produces more prospects than does a single listing company. Real estate brokers recommend against open listings for several reasons. EXCLUSIVE AGENCY In an exclusive agency listing, the seller agrees to list the property with only one broker during the listing term, with the provision that the seller can sell the property himself or herself, without payment of a commission. EXCLUSIVE RIGHT TO SELL grants an exclusive right to sell the property during the listing term. A commission is paid even if the property is sold by the owner. *Real estate brokers recommend this listing* NET LISTINGS **CAN BE ABUSED NOT RECOMMENDED) IT’S BASED ON WHAT THE SELLER WANTS DISREGARDING MARKET VALUE** CHAMPIONS SCHOOL OF REAL ESTATE : LAW OF AGENCY EXAM TEST **ALL LISTING AGREEMENTS MUST HAVE A DEFINITE TERMINATION DATE.** DECIDING TO REPRESENT THE BUYER The NAR®’s Accredited Buyer Representative (ABR®) designation is an excellent designation to obtain. The ABR® designation takes the fundamentals of agency law and looks deeper. The duties we know as OLDCAR apply in all states, and understanding these duties on the highest level establishes the agent’s creditability and competitive standing in the marketplace. BENEFITS OF BUYER-AGENCY RELATIONSHIPS In the past, buyer representation was rare. Sellers were clients, and buyers were customers. Over time, buyers have discovered the benefits of representation, including: •Access to market data - While some of the data in MLS is accessible to the public, the majority of it is not. •Investment analysis - if the property is going to be rented or held for appreciation or development. •Assistance in “culling out” unsuitable properties - Buyers will spend a lot of wasted time look- ing at neighborhoods and properties that do not fit their criteria. •Assistance in obtaining financing - Buyers’ agents will have several trusted lenders to refer buyers to, which is preferable to the random selection of a lender. •Assistance with negotiations - The buyer’s agent “stands between” the seller and buyer, which allows the buyer to contemplate offers and counteroffers thoughtfully. •Assistance in preparing offers and negotiating strategies. •Assistance with surveys, inspections, repairs, and many of the details that must be taken care of in order to close a sale. WRITTEN NOTIFICATION OF COMPENSATION TO BROKER In the Texas residential real estate business, commissions are commonly paid CHAMPIONS SCHOOL OF REAL ESTATE : LAW OF AGENCY EXAM TEST by sellers to the listing broker. The listing broker may agree to split the fee with a cooperating broker in the listing agreement. BUYER’S BROKER DISCLOSURES Regardless of representation, all buyers should be provided with an oral or written disclosure of representation at first contact. That disclosure is normally done orally when the buyer first calls or visits the office. Whatever the method of contact, personal visit, phone, fax, or e-mail, the notice of representation should be given. CHAMPIONS SCHOOL OF REAL ESTATE : LAW OF AGENCY EXAM TEST BROKER EMPLOYMENT The listing agreement or buyer representation agreement is an employment contract. SUIT FOR COMMISSION Only a broker may earn a commission, and only a broker may sue to collect a commission. AGENTS DUTIES TO CUSTOMERS Honest Dealing — An agent may not deceive, defraud, or otherwise dishonestly deal with a customer. Reasonable Care and Skill in Performance — This means that an agent will be held to the standards of knowledge, expertise, and ethics that are spelled out in the Texas Real Estate License Act. Disclosure of all Material Facts — The license holder must disclose all facts that he or she knows or should reasonably be expected to know that materially affect the value of or desirability of the property. Facts include disclosure of agency, property condition, and environmental hazards. COMMISSION RATES Any attempt by a group of brokers to set the commission rates in their area or between a group of brokerage firms would be considered illegal price-fixing. The federal laws that have the most significant impact in this area are the Sherman Anti-Trust Act and the Clayton Act. ‘Defining the Market Area,’ requires the agent and buyer to be clear on the market area or areas in which this agreement applies, especially if the cli- ent is also being represented by another broker in another market area. **KNOW YOUR AREA** **INTERMEDIARY RELATIONSHIPS** Intermediary is a process that makes it possible to bring client buyers and sellers together while CHAMPIONS SCHOOL OF REAL ESTATE : LAW OF AGENCY EXAM TEST INFORMATION ABOUT BROKERAGE SERVICES (IABS) Information About Brokerage Services (IABS) is to be provided when the first substantive discussion of a real estate transaction takes place. The license holder should determine when a discussion is turning “substantive.” At that point, the IABS should be presented. The license holder should take care to provide this information before doing a listing presentation for a seller and before discussing properties, needs, and wants with a potential buyer. The contact information is required to be filled in at all times. It is a violation to provide a blank IABS without the contact information. License holders must provide a link to the IABS form in a readily noticeable place on the homepage of their business website, in at least 10-point font, and labeled WHAT DOES SUBSTANTIVE DIALOGUE MEAN? “substantive dialogue”- meeting or written communication that involves a substantive discussion that relates to a specific property. Substantive dialogue means that once the potential client starts to talk to the agent about specific real property, the dialogue has become specific. There are some situations, however, that do not apply; open houses. •No intermediary. The broker may represent buyers and/or sellers, but will not do so in the same transaction. •Intermediary with appointments only . If a single agent in the firm is working with both buyer and seller, another agent in the firm needs to be brought into the transaction so appointments can be made. •Intermediary with or without appointments. ** WHAT DOES IABS DO? ** It explains the way an agent can represent a party to the transaction. UNDERSTANDING A BROKERAGE COMPANY’S POLICY CHAMPIONS SCHOOL OF REAL ESTATE : LAW OF AGENCY EXAM TEST A broker should define what type of agency relationships will be allowed in the brokerage, and the license holder, aka Agent should be aware of the types of relationships in which the firm will engage: ADVANTAGES OF BUYER AGENCY ONLY AND SELLER AGENCY ONLY (NO INTERMEDIARY) • Firms that practice Buyer Agency Only or Seller Agency Only do not have to worry about unintentional dual representation. • Brokers do not have to act as intermediaries or make appointments. • Agents are only responsible for giving advice and opinion to the buyer or seller, avoiding conflicts of interest that may occur when representing both sides of a transaction. INTERMEDIARY DISADVANTAGES Some of the common problems that should be addressed in an agency policy manual are: • Presenting the IABS at the wrong time. Presenting the IABS as the buyer is about to write an offer is too late. It must be presented at the first substantive discussion. INTERNAL REVENUE SERVICE In 1976, the IRS set guidelines to determine whether or not a sales agent would be classified as an independent contractor or an employee when sponsored by a real estate broker. The IRS uses the following list as a guideline for the determination. No single factor is greater than the whole. All of these factors are important for an overall view of the position governed by the independent contractor relationship: • Commissions must compensate the sales agents. There are to be no advances against their commissions. •There may be a policies and procedures manual provided but there may not be mandatory compliance with the policies. It is only a suggested procedure manual. • The sales agent shall pay his own business expenses. • The sales agent cannot be made to attend sales meetings. • The sales agent cannot be made to attend training seminars. •The sales agent cannot be made to work set hours. A broker can require that the agent be “full time,” but cannot dictate set work hours. CHAMPIONS SCHOOL OF REAL ESTATE : LAW OF AGENCY EXAM TEST Under the Tax Equity and Fiscal Responsibility Act, there are three tests for specifying that a sales agent is an independent contractor: 1.The sales agent must hold a real estate license. 2.The sales agent must be paid on a commission basis. 3.The sales agent must have a written contract with the broker specifying the sales agent is not an employee. FIVE SOURCES OF ETHICAL STANDARDS 1.The Utilitarian Approach - Ethical action produces the greatest balance of good over harm to those who are affected. 2.The Rights Approach - Individuals have the right to have their moral rights protected and respected, and the right to be told the truth, and not to be injured. 3.The Fairness or Justice Approach - Ethical action is equal for all, or if not, then fair for some, based on some defensible standard. 4. The Common Good Approach - Ethical standards and actions embrace common conditions that are important to the welfare (common good) of all. 5. The Virtue Approach - Ethics are habits that enable us to act accordingly as persons who are truthful, honest, courageous, compassionate, generous, tolerant, and possess integrity, fairness, self-control, and prudence. ETHICAL DILEMMAS The term “ethical dilemma” is defined as a situation in which individuals may find themselves when they: • do not know the right course of action • have difficulty doing what they consider to be right • find the wrong choice very tempting FEDERAL AND STATE LAW RELATING TO CONDUCT Sherman Anti-Trust Act - prevents any combination in restraint of trade. Commission rates must always be a matter of negotiation between the broker and the client. Any hint that there is a “standard” or “going rate’ for commissions in a given market area could be evidence of violation and restraint of trade. Any attempt to boycott a discount real estate broker is a violation. Attempts to limit competition by allocating markets or customers is also a violation.