Chapter 12
Real Estate Brokerage
and Listing Contracts
REAL ESTATE
FINANCE 331
REAL ESTATE BROKERAGE
A. Brokers are intermediaries: they bring buyers and sellers
together
1.
2.
3.
In real estate needs
Physically
Emotionally
B. Brokers charge commissions for their services
1.
2.
Normally, percentage of price
Net commission: Difference between required price and actual
price
REAL ESTATE BROKERAGE
C. What do Brokers bring to the table?
1. Prices and terms in current market
2. Marketing approaches that work
3. Legal obligations of buyers and sellers
4. Properties in market
5. Potential customers and their needs
6. Procedures and requirements of transaction
Law of Agency and Agents
A. Law of agency: Governs relationship between a
principal (client) and someone charged to act on
principal's behalf
1.
2.
Rights and obligations of agent
Rights and obligations of principal
B. Types of Agents
1. Universal agent: Power to act for principal in all matters
2. General agent: Power to act within limits of a business or
employment relationship
3. Special agent: Power to act in a specific event or
transaction
3 Types of Agents
•Medical
documents
•Personal agreements
•Taxes and other
business with govt.
•Living
arrangements
•Insurance
Universal Agent:
Can act for the principal
in ALL matters
General Agent:
Can act for principal
within a specific business
•Property
managers
Special Agent:
Can act for principal
in a specific
transaction
•Brokers
12-5
Duties or Fiduciary Responsibilities
A.Brokers have a fiduciary responsibility to their
clients
1.
2.
3.
4.
5.
6.
7.
Disclosure – open and honest
Maintain confidentiality
Follow the instructions of their principal
Keep principal informed of all financial aspects
Don’t subordinate interest of principal to others
Disclose all relevant information to the principal
Always represent the interest of their principals to the best of
their ability (loyalty)
B. Principal Resposibilities: Open, Honest, Fair
Duties or Fiduciary Responsibilities
B. Agency
1.
2.
3.
relationship begins with a listing contract
Open listing: property may be listed with other brokers (MLS)
Exclusive agency listing: owners may sell the property without
paying commission
Exclusive right of sale listing: broker gets commission regardless
of who sells the property
Listing Contract
A. Creates an agency relationship (special agent)
B. A contract for services, not for real estate
C. Usually a contract between seller and broker
D. Increasingly between buyer and broker
E. Frequently involves sub-agency through
multiple listing service (MLS).
F. Dual agency: Representing both buyer and seller
Listing Contract
A. A broker earns a commission by finding a ready,
willing and able buyer for the specified price and
terms
B. Types of contracts
1. Exclusive right of sale
2. Exclusive agency
3. Open listing
Commission Splitting: Example
The Problem of Dual Agency
A.Natural tendency in brokerage for dual agency
1. Salesperson works closely with buyer but is distant
from seller
a. FTC Study (1984): 74.2 percent of buyers believed
the sales agent worked for them
b. This misunderstanding appears to be unchanged
2. Firm with both seller and buyer agents could
represent both sides of transaction
12-11
The Problem of Dual Agency
B. Solutions?
1. Designated agent: Brokerage representing both sides
appoints separate agent for each
2. Buyer agent by law: Salesperson showing a house
becomes buyer agent unless declaring otherwise
3. Transaction broker: Not an agent for buyer or seller
The Problem of Unintended Dual Agency
Licensing of Brokers and Salespersons
A. Must be licensed to provide real estate
transaction services for others: buying,
auctioning, renting, selling, appraising, leasing,
exchanging
B. Two levels of licensure
1. Salesperson: Must work for a broker
2. Broker: Can operate own brokerage agency
Licensing of Brokers and Salespersons
C. General requirements for licensure:
1.
2.
3.
4.
Minimum age, high school diploma, good reputation
Pre-licensing education requirement
Pass state licensing exam
Minimum experience (for broker’s license)
D. Exemptions from licensure: Attorneys, resident
managers, government employees, trustees,
executors, and those with power of attorney
Industry Certifications or Designations
A. Realtor® or Realtor-Associate®:
Affiliation, through local board, with
National Association of Realtors
B. CCIM: Certified Commercial Investment
Member
C. SIOR: Society of Industrial and Office
Realtors
Anti-Discrimination Laws Affecting
Real Estate Services
A. Title VIII of the Civil Rights Act of 1968 prohibits
discrimination by race, color, religion, national origin,
sex, familial status, and handicap, including:
1. Refusing to rent or sell
2. Offering different terms and conditions
3. Selective advertising
4. “Blockbusting”
5. Denying home loans
6. Denying real estate services
7. Coercing, intimidating or interfering with exercise of these
rights
Growth Areas in Real Estate Brokerage
A. Internet Marketing
1. Residential
www.realtor.com
www.homestore.com
2. Commercial
www.costar.com
www.loopnet.com
B. International brokerage
1. Foreign purchases in the United States
2. U.S. interests purchasing abroad
Considerations in Selecting a Broker
A.How will the firm market the property?
B. Amount and type of advertising?
C.Experience of others with the firm?
D.General reputation in the community?
E. Much like the process of selecting any other
professional
12-19
Single Agent vs. Transaction Broker
A.Single Agent
1. Dealing honestly and
fairly
2. Loyalty
3. Confidentiality
4. Full disclosure
B. Transaction Broker
1. Dealing honestly and
fairly
2. Limited
confidentiality
3. Disclosing all known
facts…affecting
value… that are not
readily observable to
buyer
12-20
REAL ESTATE BROKERAGE
HOMEWORK ASSIGNMENT
A. Key terms: Fiduciary Relationship, Law of
Agency, Principal, Agent
B.What are the 3 types of agents?
C. List and describe at least 5 duties of an
agent
D. List and describe the three main types of
listing contracts.