Exam 4 - FINC 3250 - Principles of Real Estate Exam 4 - Chris Tomlinson questions and answers

Exam 4 - FINC 3250 - Principles of Real Estate Exam 4 - Chris Tomlinson 1. Who works in real estate sales? There are two types of realtors a. Broker: a person licensed to act independently in conducting a real estate business i. A broker brings together buyers and sellers of real estate, and usually actively participates in the negotiation of a deal between the two ii. The broker may represent the seller (as is most common), the buyer, or both with proper disclosure iii. The fee charged for the broker’s services is usually paid via a commission b. Salesperson: a person employed by a real estate broker to list and negotiate the sale, exchange, or lease of real property for others i. Technically, then, when a real estate salesperson accepts a listing, he or she does so in the name of his or her qualifying broker 1. Most salespeople get a negotiated split of the broker’s commission, where the split depends on the salesperson’s productivity (more productive salespeople can negotiate a larger split of their sales) 2. Some very productive salespeople pay a flat fee to their broker and keep 100% of the commission they generate 3. In any case, a salesperson can only receive payment from one broker at any one time 4. For tax purposes, a salesperson can either can be treated as an employee of the broker or as an independent contractor a. This decision also needs to be negotiated with one’s broker ii. A real estate salesperson is what almost everyone has in mind when they refer to a real estate agent 1. However, as we can see, the salesperson is not an agent for the seller - his or her qualifying broker is the agent for the seller 2. So the term “real estate agent” is, in my opinion, one of the most commonly misused phrases in the English language c. California was the first state to require licensing for real estate salespeople and brokers i. Every other state has followed suit in the years since ii. Requirements to get and keep your real estate license vary among states, but the main intent of such laws in all states is to protect the public iii. The qualification in Alabama to get your salesperson license are: 1. 19 years old, US citizen or permanent resident, high school diploma or equivalent, no convictions for crimes involving moral turpitude 2. Pre-license education requirements (60 hours) 3. Exam a. Consists of one section of general real estate questions (the national part) b. Also contains a section of state-specific license law questions 4. Having a qualifying broker hold your license 5. Post-license (30 hours within one year) and continuing education (15 hours every two years) requirements 6. Must renew the license by September 30th each year d. The Alabama Real Estate Commission oversees the licensing of new applicants, the re-licensing of persons already holding a license, all matters relating to real estate education provided in the state (including approval of appraisal courses and instructors), and any complaints filed against salesperson or brokers by the consuming public i. They do not involve themselves in listing or sales commission disputes ii. The Alabama Real Estate Commission issues two types of licenses: broker and salesperson e. The Alabama Real Estate Commission also handles the issuance of nonresident licenses and sets policies for reciprocal agreements with other states i. Nonresident license: a license to practice real estate in a state that the license holder does not live in 1. These are particularly useful for brokers and salespeople who live near the border of two states ii. License reciprocity: whether one state recognizes a real estate license from another state iii. Full reciprocity: State A recognizes a real estate license from State B with no further licensing requirements iv. Partial reciprocity: State A requires something further of license holders from State B in order to obtain a State A license v. The “something else” is usually just taking the state-specific portion of State A’s license exam vi. Not all states have reciprocating agreements f. The main tool the Alabama Real Estate Commission has to punish licensees who violate license laws is the suspension or revocation of the license i. Suspension: the license is invalid for a specified amount of time ii. Revocation: the license is taken away for good 1. A licensee with a revoked license can petition the Commission for reinstatement no sooner than one year after the revocation takes place iii. Other punishments include fines and, if the matter goes to court, possible imprisonment 1. If a monetary award is made to the wronged party, and the licensee cannot pay it, most states have either a bond or recovery fund in place to cover such payments iv. Bond: money put up by the licensee at the time of licensing to cover any future payments for their wrongdoings v. Recovery fund: money set aside by the Commission from license fees collected to cover such payments g. There are a number of people who don’t need licenses to sell real property i. Most of these are common to all states ii. Examples include: 1. An attorney carrying out the regular duties of an attorney 2. An executor or administrator of an estate 3. Trustee selling foreclosed property for a lender 4. Court-appointed receiver disposing of foreclosed property 5. Federal government employees in the course of their jobs 6. Registered foresters h. It was mentioned that a real estate salesperson is, among other things, someone employed by a brokerto list properties 2. Listing agreements: an agreement between the seller of property and their real estate agent a. Listing: an agreement between an owner and a broker that the broker and his sales staff will try to find a ready, willing, and able buyer or tenant to satisfy the conditions contained in the listing i. There are three main types of listing, one relatively common variation on these three, and two typesthat are becoming more common 1. The differentiation between these agreements is how the real estate agent gets paid ii. Most real estate agents get paid a percentage of the sales price 1. Industry standard is 6% b. Exclusive right to sell listing: no matter who sells the property during the listing period, the listing broker gets his commission i. Commission based ii. Even if the owner sells the property theirself, the listing broker still gets paid iii. The broker will usually expend more effort to sell a property listed via an exclusive right to sell listing than any other type of listing, and anything spent to sell the property is to the broker’s benefit iv. These two facts have combined to make this the most common type lOMoAR cPSD|14985576 of listing arrangement in the US c. Exclusive agency listing: very similar to exclusive right to sell listing, except that the owner can sell the property and not owe a commission i. Commission based ii. A broker may not expend as much effortsince her actions can be too easily undermined by the owner d. Open listing: an owner can give this to as many brokers as they like i. Commission based ii. The broker that sells the property earns the commission iii. The owner can also sell the property and not owe any commission iv. As a result of this format, brokers are not inclined to expend a great amount of effort in locating for these e. Net listing: a variation on any of the above three types i. gross/net based ii. The owner states how much he wants to receive for the property and agrees to pay the broker any amount above that figure as the commission iii. Some states (including Alabama) prohibit these types of listing and most brokers try to avoid listing properties via these f. Advance fee listing: the broker gets an advance deposit from the seller to cover a stated hourly fee plus out-of-pocket expenses i. Hourly based ii. This listing type forces the seller to become more realistic about the asking price g. Advance cost listing: similar to the above, except that only out-of-pocket expenses are charged against the up front deposit i. Hybrid based ii. This type of listing is used in conjunction with a sales commission (usually lower than could otherwise be had) h. In order to get paid on a listing, the broker must show that he and/or his sales staff were the procuring cause, the one whose efforts originated procurement of the sale i. With an exclusive right to sell listing, this is not as important since the broker gets paid regardless of who sells the home ii. The vast majority of listing contracts are terminated by either a buyer being produced or expiration of the listing period (an end date must be specific in most states, including Alabama) iii. There are however, two other waysthat a listing contract can be terminated 1. Mutual recession (agreement): both parties agree to end the contract, usually with no money damages owed by either party lOMoAR cPSD|14985576 Downloaded by Clare Kemmy 3. Terms to know 2. Abandonment: the broker either stops seeking to sell the home or performs an act counterto the best interest of the principa