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Chapter 12 The Broker’s Role in the Transfer of Real Estate MN License Rules for Brokers

Chapter 12 The Broker’s Role in the Transfer of Real Estate MN License Rules for Brokers

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Page 1: Chapter 12 The Broker’s Role in the Transfer of Real Estate MN License Rules for Brokers

Chapter 12The Broker’s Role in the Transfer of

Real Estate

MN License Rules for Brokers

Page 2: Chapter 12 The Broker’s Role in the Transfer of Real Estate MN License Rules for Brokers

Know Your Terminology

Agent vs. Broker. The term “agent” is based on the legal relationship of “agency” where a person hires another to act as her agent. A “broker” is an intermediary that brings together buyers and seller – often an agent of either the buyer or the seller.

Broker vs. Realtor® An agent becomes a Realtor when she becomes a member of the National Association of Realtors. It’s a collective trademark, like a union might use. They are subject to a code of ethics.

Listing agent vs. selling agent. Seller’s agent vs. buyer’s agent Dual agency vs. one-party agency Buyer broker vs. seller broker

Page 3: Chapter 12 The Broker’s Role in the Transfer of Real Estate MN License Rules for Brokers

Types of Listings and Listing Terminology

Open listing. Broker only paid if broker activities lead to sale. Could have multiple brokers engaged.

Exclusive agency listing. One broker gets listing but seller can find his own buyer. If the seller enlists another broker, then the seller must pay two commissions if the other broker sells the property.

Exclusive right to sell or exclusive listing to sell. Broker gets commission even if seller finds a buyer directly.

Multiple listing. A service for brokers. Dual agency

Ethical Issue: Is it possible for a dual agent to represent both sides?

Ethical Issue: Tom is an agent of the Daytons, a couple looking to purchase a home. Tom finds a home that is perfect that is not for sale and approaches the owner – “Look, you have what they want. You can pretty much get your asking price. It helps me because I am on commission.” Is this behavior okay?

Page 4: Chapter 12 The Broker’s Role in the Transfer of Real Estate MN License Rules for Brokers

Types of Listings and Listing Terminology

Subagency. A broker that lists a property on the MLS is the listing broker but if another broker then leads a buyer to the property because of the MLS listing that broker is a subagent of the listing broker. This often causes confusion because both the buyer and seller likely believe the subagent represents the buyer not the seller.

Cooperating broker. A special category of subagent that is not by definition loyal to the seller.

Net listing. A special method to pay the agent/broker. The commission is anything received above a set amount.

Designated Agency. When one agency represents both the buyer and seller by appointing two different agents, one to represent each, and properly disclosing the relationship.

Page 5: Chapter 12 The Broker’s Role in the Transfer of Real Estate MN License Rules for Brokers

The Listing Agreement

Evidence of agreement Oral agreements will not allow for commissions in most states Signature (authentication) Authority to sign as owner, agent, executor, administrator Expiration date Amount of commission When a commission is due and owing

– Ready, willing, and able buyer– No deal, no commission

Ethical Issue: Sisson owned a sports bar and contacted Stewart about selling the restaurant. Stewart agreed to do so for a 10% commission. The deal was an oral deal. Sisson eventually sold the bar without Sisson’s involvement. Does Sisson owe Stewart 10%?

Page 6: Chapter 12 The Broker’s Role in the Transfer of Real Estate MN License Rules for Brokers

Code of Ethics (long code – this is just some highlight)The NATIONAL ASSOCIATION OF REALTORS® Code of Ethics: What Does it Mean for Consumers?

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1. Be honest with all parties in the transaction – not just with you, as his or her client, but also with the other real estate practitioner and his or her clients. Promote the interests of your client.For example, if REALTORS® represent a buyer with a spotty credit history, they can’t be dishonest with sellers about this fact. At the same time, REALTORS® can help their buyer clients collect and assemble information, such as credit reports and audited tax returns, to demonstrate that the buyer has addressed the problem and improved their situation.2. Put your (client’s) interests ahead of his or her own, at all times. A REALTOR® makes every effort to understand the housing needs of his or her client, thoroughly researches available inventory, and shares all relevant information with the buyer so that he or she can make an informed decision. This service is provided regardless of the compensation available.3. Disclose all pertinent facts regarding the property and the transaction to both buyer and seller.If a REALTOR® believes information provided by a seller is questionable, the REALTOR® is obligated to investigate. REALTORS® should recommend that buyers consult their own experts, such as home inspectors, to address concerns. For example, if a home seller asks his or her REALTOR® to conceal the fact that the roof leaks, the REALTOR® cannot comply; if the seller insists, the REALTOR® should end the business relationship with that seller. 4. Be truthful in all communications with the public.When REALTORS® distribute newsletters, create Web sites, or place advertisements, they must be careful not to represent other real estate professionals’ work product as their own. If recently sold or listed properties in the community are publicized, it must be clear whether the REALTOR® was actually involved in the transaction, or whether that data came from the local multiple listing service or other source. This ensures that the public understands the REALTOR®’s experience and can make an informed decision when choosing real estate representation.

http://www.realtor.org/realtororg.nsf/pages/codeofethics-consumerquestions

Page 7: Chapter 12 The Broker’s Role in the Transfer of Real Estate MN License Rules for Brokers

Broker Duties

Fiduciary to principal Duty of loyalty Duty of disclosure Duty of competence Duty of care Duties (some statutory) on earnest money

Page 8: Chapter 12 The Broker’s Role in the Transfer of Real Estate MN License Rules for Brokers

Disclosure Issues for Brokers

Misrepresentation Intentional misrepresentation Fraud Nondisclosure Sales puffing Safety standards Statutory duties of disclosure and

nondisclosure

End-of-Chapter Q: 1, p. 317: Misrepresentation of length of time home has been on the market.

Page 9: Chapter 12 The Broker’s Role in the Transfer of Real Estate MN License Rules for Brokers

A Checklist for Brokers on Disclosure

1. Ask about the property repair record.

2. Ask about the utilities.

3. Ask about the condition of appliances, roof, walls, and basement.

4. Include pertinent information about physical condition in the listing agreement.

5. Make an independent investigation of the property, carefully looking for recent cover-ups, redecorating, and hidden defects.

(continued on next slide)

Page 10: Chapter 12 The Broker’s Role in the Transfer of Real Estate MN License Rules for Brokers

A Checklist for Brokers on Disclosure

6. Consider a warranty policy for the home.7. Consider having a professional home

inspection.8. Make no statement that is not based on

your firsthand information or knowledge.9. Have available a list of addresses and

phone numbers for municipal, state, and country offices, so that the prospective buyer may make independent checks on information.

(continued on next slide)

Page 11: Chapter 12 The Broker’s Role in the Transfer of Real Estate MN License Rules for Brokers

Likens v. Prickett’s Properties (#X)943 (NE 2nd 816 Ind App 2011)Agent of Buyer Also Agent of Seller?

Likens Listed Home Through an Agent. Likens hired Leiter to seller their home. Buyer Had Separate Agent – Stump/Prickett’s Properties. Gredys hired Jack

Stump to help them buy a property. Buyer’s Agent Stump Works Directly with Sellers. Stump contacted the sellers

directly and told them “I know I work differently from other realtors – I try to satisfy both sides and keep the experience of buying and selling enjoyable.” The sellers had no “reason to worry” this deal was “going to close” and “was a good deal.”

Purcahse Agreement. The purchase agreement had a clause that correctly defined that the seller had an agent and the buyer had an agent.

$10,000 Earnest Money. Buyer provided a bank letter of gurantee for the $10,000 down payment which Stump gave to sellers. The letter turned out to be a forgery created by the buyers.

Sale Falls Through. The sale did not happen and the Likens sued the buyer’s agent, Stump, and his company, Prickett’s property. The sellers lost another good deal during this time that the seller’s agent was trying to get them to accept.

ISSUE: What duty of care does Stump owe the sellers? 11

Page 12: Chapter 12 The Broker’s Role in the Transfer of Real Estate MN License Rules for Brokers

Ben Farmer Realty, Inc. v. Owens (#3)649 SE2d 771 (GA App 2007), p. 285 NOT IN BOOK

Agreement to run from “Sept 26, 2004 through April 15, 2005.”

Owens directed Farmer to sell it for $479,900 or more and Farmer would get 6% commission.

Owens cancelled contract in Oct, 2004 and put the house on the market himself for $725,000.

Farmer pulled “for sale” sign and the lock box.

Farmer found a buyer for $479,900 and demanded commission.

Was the contract terminated?

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Page 13: Chapter 12 The Broker’s Role in the Transfer of Real Estate MN License Rules for Brokers

MN Disclosures

“Client” v. “Customer” – Client: Real estate agent helps negotiate price.– Customer: Is shown houses and given help with the mechanics but not

price. If a “Client” you sign one of the following:

– Contract for Exclusive Right to Represent Buyer or Contract for Nonexclusive Right to Represent Buyer

– You may also sign: Addendum to Buyer’s Representation Agreement (if agency is not

exclusively for buyers). Business Relationship Disclosure. If the firm has a relationship with

title companies, others. Agency Disclosure to Buyer and Seller at Time of Offer to Purchase. A

reminder of dual agency.

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Page 14: Chapter 12 The Broker’s Role in the Transfer of Real Estate MN License Rules for Brokers

MN Disclosures – Model

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Page 15: Chapter 12 The Broker’s Role in the Transfer of Real Estate MN License Rules for Brokers

MN Disclosures – Listing Agreements

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• Must be in writing• Must include a definite expiration date.• A description of the real property.• The list price and any terms.• The amount of compensation or commission…• A clear statements as to the events that …will entitle the broker to

compensation.• Information regarding an override clause• Dual agency disclosure, if applicable. • The following:

“NOTICE: THE COMPENSATION FOR THE PURCHASE, LEASE, RENTAL, OR MANANGEMT OF REAL PROPERTY SHALL BE DTERMINED BTWEEN EACH INDIVUDAL BROKERA ND THE BROKER’SS CLIENT.”

MN Statutes Chapter 82 – 82.66, Sub 1

Page 16: Chapter 12 The Broker’s Role in the Transfer of Real Estate MN License Rules for Brokers

MN Disclosures – Buyer’s Broker

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• A definite expiration time.• The amount of any compensation or commission…• A clear statement explaining services to be provided…• A clear statement explaining if the agreement can be cancelled…• Information regarding an override clause…• The following notice in no less than 10-point boldface type… “NOTICE: THE COMPENSATION FOR THE PURCHASE, LEASE, RENTAL, OR MANANGEMT OF REAL PROPERTY SHALL BE DTERMINED BTWEEN EACH INDIVUDAL BROKERA ND THE BROKER’S CLIENT.” • Dual agency disclosure.

MN Statutes Chapter 82 – 82.66, Sub 2

Page 17: Chapter 12 The Broker’s Role in the Transfer of Real Estate MN License Rules for Brokers

MN Disclosures – Material Facts

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• Must disclosure material facts.• Facts that are not material

• Owner had AIDs/HIV• Owner/other committed suicide/accidental death• Perceived paranormal activity• Is located in a neighborhood containing any adult home, community-

based residential facility, or nursing home.• Sex offenders – provided that the broker provides a written notice on

where that information can be found.• Airport zoning – if provide information on where the zoning can be

found.

MN Statutes Chapter 82 – 82.68

Page 18: Chapter 12 The Broker’s Role in the Transfer of Real Estate MN License Rules for Brokers

Freeman v. San Diego Ass’n Of Realtors (#4)322 F2d 1133 (9th Cir 2003) Cert denied, p. 287 NOT IN BOOK

11 regional associations of real estate agents operated three MLSs.

The associations got together to combine these three listings into one and created a corporation with that purpose: Sandicor.

Sandicor created a new $25 fee charged to all subscribers and then rebated a lot of this back to the associations.

Issue: Antitrust violation?

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Page 19: Chapter 12 The Broker’s Role in the Transfer of Real Estate MN License Rules for Brokers

Antitrust HypotheticalConsider 12.1

President of Professional Real Estate Assoc. said at meeting:“My business is dying fast. I have already borrowed $75,000 to keep afloat. If I am going bankrupt at 6 percent, I might as well go bankrupt at 7%. I don’t care what the rest of you do, that is what I am going to do?”

Violation?

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Page 20: Chapter 12 The Broker’s Role in the Transfer of Real Estate MN License Rules for Brokers

Queiroz v. Harvey (#X)205 P3d 1120 (Ariz 2009)Agent Misconduct Attributed to Principal?

Harvey Listed Property. Harvey listed 10 acres for sale. Queiroz to Buy Harvey Property Through His Agent, Harrison. Queiroz entered a

deal to buy the property for $150,000 with $68,000 due at closing and the seller to finance the balance of $82,000. Plus, a $1,000 of earnest money was due.

No Earnest Money Paid. Seller Contacts Escrow Agent and Cancels Deal. Buyer’s Agent Hears of Cancellation and Deposits Funds. Harrison deposited

the $1,000 himself after he heard of the cancellation and he represented that his client provided the funds.

Buyer Sues for Specific Performance. Issue: Is a principal liable for wrongful acts of an agent? If so, “unclean hands” is

an argument against specific performance. So is requiring two parties to have an ongoing relationshihp.

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Page 21: Chapter 12 The Broker’s Role in the Transfer of Real Estate MN License Rules for Brokers

Warren v. Merrill (#X)49 Cal Rptr 3d 122 (Cal App 2006), p. 294Duty of Loyalty of Agent to Principal

Warren was a buyer of a condo. He suffered from Tourette's syndrome and other related neurological disorders affecting his short term memory and cognitive abilities. He was also going through a divorce and had a $1 million judgment against him for not paying rent when his business failed.

Merrill was the agent representing the sellers of the condo. Merrill went by the name “Condo Queen.”

Fraud. Merrill engaged in a variety of fraudulent practices to allow Warren to obtain a loan for the property and ultimately to pay for the property titled in her daughter’s name.

– Told Warren he needed a co-owner and co-borrower for the loan. Merrill suggested her daughter. Her daughter would then quick-claim it back to him.

– Merrill offered to defer her $27,000 commission to help with the down payment. – Merrill and Warren stated that the money for down payment was a gift and savings.– Merrill stated that her daughter lived nearby before the ran a catering business. Her

daughter was actually a waitress living in another state.– She had her daughter put on as sole owner to facilitate the sale.

Title to Daughter. Merrill tried to evict Warren. 21

Warren’s Grandfather

Page 22: Chapter 12 The Broker’s Role in the Transfer of Real Estate MN License Rules for Brokers

Terra Firma Co v. Morgan (#X)674 SE2d 190 (W Va 2008), p. 298

Agent worked for coal company buying land to build a coal processing plant.

Seller sold land to agent (agency disclosed but principal not disclosed)

At closing seller said “tell me if this is a coal company or landfill company.” The reply: “rest assured, it is for land development purposes only.”

Seller signed letter of intent long before statements at closing.

No misrepresentations had been made as to relationships except maybe the last one.

Law:– Mutual Mistake– Fraud– Must disclose all material facts

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Coal Preparation Plant

Page 23: Chapter 12 The Broker’s Role in the Transfer of Real Estate MN License Rules for Brokers

Benton v. Clegg Land Co (#X)(Ala App 2012)“AS IS” Clause – Misrepresentation Clause

Clegg Created Man Made 10 Acre Lake. The Cleggs created a dam that allowed for a 10 acre lake to be created on a 646 acre property.

Lake Leaked. The lake leaked and somehow water drained out of it causing the lake level to fluctuate greatly. The Cleggs tried to fix it but were unable to do so.

Property Sold. Agent Representation. The lake was low when the buyer was looking at the

property and the seller’s agent said it’s because of the draught. There was a draught in the area but the agent also knew of the leakage problem but did not say anything.

As Is Clause. The purchase agreement had an “as is” clause. Buyer Sues. “purchased the property to entertain clients.. And intended the lake to

be the jewel of property and instead the low water level made it an eyesore.”

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Page 24: Chapter 12 The Broker’s Role in the Transfer of Real Estate MN License Rules for Brokers

Capiccioni v. Brennan Naperville, Inc. (#7)791 NE2d 553 (Ill App 2003)Brokers Duty to Disclosure – Broker Misrepresentation and Negligent Misrepresentation

Wrong school district represented in sales brochure “Acclaimed District 204”

Home Purchased for Schools. Capiccioni’s moved in and their children attended District 204 for three years until the district discovered they did not live in the district.

Law– Fraud/Negligent

Misrepresentation if over a material fact

False Statement Careless or negligence in

ascertaining the truth An intention to induce Reliance Damages24

Page 25: Chapter 12 The Broker’s Role in the Transfer of Real Estate MN License Rules for Brokers

Fuller v. Croston (#X)725 NW2d 600 (SD 2006), p. 303

State Required Disclosure. “Have you experienced any water penetration problems in the walls, windows, doors, basement or crawl space?” Sellers answered no.

Home Had Water Issues. The home had a number of water issues that had all been fixed. Sellers did not think they needed to disclose. Plus real estate agent told them not to (this point is contested).

Buyer Found Water Damage. – Buyer’s Inspection. The buyer physically inspected the home

and found the water damage and the seller’s acknowledged the issues.

– Hired Inspector. Plus the buyer hired an inspector that also found the damage.

– Purchased Home Anyway. 12.74 Inches of Rain Floods Basement. The basement flooded

after 12.74 inches of rain fell from May 17 to June 16. Record rains caused water problems post purchase.

Are the Oral Disclosures Enough? Is actual knowledge a total defense? If yes, does that punish people who get inspections? Should it impact damages?

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Consider 12.2. p. 290 Property Burns After Sold. Property damaged by fire after sold but before the closing? Does the agent get a commission?

Page 26: Chapter 12 The Broker’s Role in the Transfer of Real Estate MN License Rules for Brokers

Suspension or Revocation of Real Estate License

Commingling of funds. Discriminating practices. Conviction of a felony. Advertising misrepresentations. Splitting commissions with unlicensed party. Failure to deliver required documents. Failure to submit all offers. Breach of duties to seller and unethical conduct.

Unauthorized practice of law.

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Page 27: Chapter 12 The Broker’s Role in the Transfer of Real Estate MN License Rules for Brokers

Dearborn v. Real Estate Agency (#X)53 P3d 436 (Or 2002), p. 312

Agent Convicted of Drug Use/Possesion. Lost real estate license for using and possessing cocaine. Also accused of engaging in prostitution – giving drugs in exchange for sex with women and underage at least one underage girl.

Can He Lose License for This? Law In OR.

– Cannot take license solely for conviction. – Must relate to license– Board argued drug use can result in an agent stealing from homes being sold or

embezzling client funds.– Has not happened yet.

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MN Law for Denial, Suspension or Revocation of License• Incomplete application or false statements on the application• Engaged in fraud, deceptive or dishonest practices• Is enjoined by a court from practicing.• Has failed to reasonably supervise brokers, salespersons, closing agents…• Has violated or failed to follow the real estate law.• Has been shown to be incompetent, untrustworthy or financially irresponsible.• Has acted out of a conflict of interest without consent.

Page 28: Chapter 12 The Broker’s Role in the Transfer of Real Estate MN License Rules for Brokers

Antrim, Piper, Wenger, Inc. v. Lowe (#X)159 P3d 215 (Kan App 2006)

Nonexclusive Right To Sell Agreement Signed. Seller, Lowe, signed an agreement with Johnson (Antrim, Piper Wenger, Inc.) a real estate agent to sell a ranch.

Listing Posted to Website of Agent. Buyer Contacted Agent. A buyer contacted Johnson about the listing and

wanted to see it. Some difference on facts, but the agent did not go to the ranch to show the property but instead asked the sellers to do so directly.

Sellers Sell Property. The owners of the ranch/sellers met with the buyers directly and worked out a deal.

Seller Refused to Pay Agent. Agent did not do anything and seller refused to pay. The commission was 5% of $1,500,000 or $75,000.

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Page 29: Chapter 12 The Broker’s Role in the Transfer of Real Estate MN License Rules for Brokers

Fiduciary Duty - Consider 12.3, p. 293. Duty of buyers agent to seller.

Lombardos were trying to sell their home through MCO realty. Century 21 agent, Elaine Albu, presented an offer. The Lombardoes accepted and took their home off the market. The buyer explained to the Century 21 agent that the husband’s name had to

come off the purchase agreement because he just went through bankruptcy. Century 21 never told the Lombardoes that the buyer’s were having financial difficulty and may not be able to close.

The buyers were not able to close because of financial problems, but only after repeated delays.

The seller sued for fraud as their home was off the market for so long.

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Page 30: Chapter 12 The Broker’s Role in the Transfer of Real Estate MN License Rules for Brokers

MN Broker’s License Requirements

$215 license fee. Must have 3 years (up from 2

years in 2011) of licensed real estate salesperson experience in MN or another state with comparable requirements.

Or, Request for Waiver of Salesperson Experience to Sit for Broker Exam

Salesperson’s license v. broker’s license. A salesperson must work under a licensed broker.

Must be 18. Must pass an exam (one held

at least every 45 days) 75% to pass. Must continue education – 30 hours every 2 years – spread evenly.

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I have a degree in real estate from an accredited college

Page 31: Chapter 12 The Broker’s Role in the Transfer of Real Estate MN License Rules for Brokers

Hypothetical #1: A brokerage firm has a property management subsidiary, and its leasing agents are approaching clients in the firm’s management subsidiary property to place them in other properties.

Hypothetical #2. A broker is a leasing agent for a major anchor tenant and has two listings that will work for the tenant, but only mentions one to the tenant because of this compensation arrangement with owner of that property.

Hypothetical #3. A broker accepts a listing on a property located next to land he owns. A buyer approaches the broker about purchasing the broker’s land and the broker does not disclosure the offer to the listing client/owner of the adjoining land.

Hypothetical #4. A broker lists a property without results. He then decides to purchase the property. While escrow is pending, he receives an offer on the property for $23,000 more than he has paid. What should he do?

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Hypotheticals on Broker DutiesEnd-of-Chapter Q: 5, p. 313: