Florida Real Estate Principles, Practices & Law 38th Edition

Linda L. CrawfordCopyright © 2015 Kaplan, Inc.

All rights reserved.

Chapter 5

Real Estate Brokerage Operations

Brokerage Offices

• Active brokers must have an office– Enclosed room—stationary construction

• Privacy to conduct negotiations

– Brokers must keep records in office• Books, real estate transaction files

– If zoning allows, office may be in broker’s residence– May have offices in another state– Sales associates may NOT open an office of their own

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Branch Office

• Broker must register each branch office– Temporary shelter in a

subdivision being sold by broker is NOT a branch office unless sales transactions are concluded at location

– Branch office registrations are Not transferable

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Office Signs

• Trade name (if used)• Broker’s name• Words “Licensed Real Estate Broker” or

“Lic. Real Estate Broker”

Little Mo RealtyMurl H. Crawford

Licensed Real Estate Broker

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Associates Names on Entrance Sign

• Names of sales associates and broker associates are optional– If included

• Associate names must be below names of brokers• Include title next to each name, such as sales associate• Line or space must separate associate names from

broker names

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Brokerage Entity Signs

• If the brokerage entity is a partnership, corporation, or limited liability partnership/company sign must contain• Name of firm or corporation • Name of at least one active broker• Words, “Licensed Real Estate Broker”

Kellogg Real Estate, Inc.Sandi M. Kellogg

Licensed Real Estate Broker

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Advertising

• Advertising must inform people they are dealing with a licensee or a brokerage firm

• Must include name of brokerage firm• Blind advertising

– Fails to disclose name of brokerage firm and includes only P O box, telephone number and/or street address

– Blind advertising is illegal

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Names of Licensees in Advertising

• Must use last name as registered with FREC when including personal name in an ad

• Yard signs and classified ads must include registered name of the brokerage firm

• Promotional materials– Name of brokerage firm– Sales associate’s name may also appear

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Internet Advertising

• Point of contact information The means to contact the brokerage firm or a licensee including– Mailing address, street address, e-mail

address, telephone or fax number

• Brokerage name must appear adjacent to or immediately above/below point of contact information

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“For Sale By Owner”

• Licensees may sell their own property “by owner”– Can advertise property

and include personal contact information

– Should disclose that seller is licensed before beginning negotiations and in the contract

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Telephone Solicitation

• Telephone solicitation initiation of a call for the purpose of encouraging purchase or investment in property, goods or services

• Making telephone calls to obtain listings or buyers is telephone solicitation

• Regulated by state and federal law– Calling hours restricted

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Telephone Solicitation Regulation

Florida Law

• No Solicitation List• Maintained by Dept

of Agriculture & Consumer Services

• $10,000 fine• For-sale-by-owner

exception (Federal law supersedes state law)

Federal Law

• National do-not-call registry

• $11,000 fine• No exception for

FSBOs (must check registry)

• Florida list added to national registry

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Exceptions to National Do-Not-Call List

• When representing a potential buyer may call a FSBO seller, provided the buyer is interested in the property

• May contact individuals with whom associate had an established business relationship for up to 18 months

• May contact a customer for three months after a business inquiry

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Fax Solicitations

• Unsolicited fax ads are prohibited• Requirements to send fax

advertisements1. Established business relationship2. Voluntarily received fax number3. Clearly state opt-out procedures4. Honor opt-out requests within 30 days

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Escrow or Trust Accounts

• Escrow (trust) account An account for the deposit of money the broker holds in trust for others

• Deposit Money delivered to a licensee in connection with a real estate transaction– Earnest money deposit can be cash or anything

that can be converted into money

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Timely Deposit of Escrow Funds

Sales Associates

Deliver to broker no later than end of the next business day

Brokers

Deposit in escrow account no later than end of the third business day– Broker’s time starts

after sales associate receives the deposit

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Example of Escrow Deposit

• Sales associate received earnest money deposit on Wednesday

• Sales associate must deliver deposit to broker no later than Thursday

• Broker must deposit in escrow account no later than Monday (no holidays)

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Escrow Check Payable to Sales Associate

• Have buyer write a new check payable to broker’s escrow account

• If not practical endorse check and write, “For deposit only to (name of escrow)”

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Postdated Checks and Insufficient Funds

• Obtain seller’s approval before accepting• Broker must secure check until payable and

then immediately deposit in escrow• Checks returned for insufficient funds

– Broker is not responsible if the broker made a timely deposit

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Acceptable Depositories

• Broker-held escrow accounts– Florida commercial bank – Credit union– Savings (and loan) association– Broker must be a signatory on broker-held

accounts

• Florida-based title company or Florida attorney (broker is not the escrow agent)

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Title Company/Attorney Escrow Accounts

• Indicate title company (or attorney) name, address, and telephone number on contract

• Within 10 business days after deposit is due, broker must make written request to title company (attorney) for verification of receipt of deposit

• Within 10 business days after broker made written request, provide seller’s broker with a copy of written verification

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Interest-Bearing Escrow Accounts

• Written permission from all parties before placing in interest-bearing account

• Written authorization who is entitled to interest

• Broker, if authorized, may receive interest earned

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Record Keeping

• Brokers must keep business records, books, and accounts in compliance and available for DBPR audit

• Must preserve records for five years and two years beyond court proceeding

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Money to Maintain Escrow Account

• Brokers may place $1,000 personal or brokerage funds in a sales escrow account

• Brokers may place $5,000 personal or brokerage funds in property management escrow account

• Escrow accounts must be reconciled each month

• Broker must review, sign and date monthly reconciliation

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Misappropriation of Escrow Funds

• Trust funds must be kept in a separate account

• Commingle The illegal practice of mixing another’s funds with broker’s money

• Conversion Unauthorized control or use of another person’s property

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Notice and Settlement Procedures

• Broker must not disburse escrow funds until transaction closes or with agreement of the parties

• Broker has conflicting demands– When buyer and seller make demands regarding

disbursing of escrow funds that are inconsistent with each other and cannot be resolved

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Conflicting Demands

– Must notify FREC in writing within 15 business days of receiving conflicting demands

– Begin settlement procedure within 30 business days of receiving conflicting demands

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Settlement (escape) Procedures

• Mediation Informal, nonbinding process, negotiated settlement

• Arbitration Binding judgment by third party (prior consent of parties)

• Litigation– Interpleader – broker has no financial claim– Declaratory judgment – judge declares each party’s rights

to funds

• Escrow disbursement order (EDO)

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Escrow Disbursement Order (EDO)

• Commission issues a determination of who is entitled to disputed funds

• Funds must be held in brokerage escrow account

• Must inform FREC within 10 business days if dispute is settled or it goes to court

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Exceptions to Notice and Settlement Procedures

• Sale of HUD-owned property

• Timely notice to cancel a residential condominium contract

• Failure to satisfy the financing clause in a contract

Brokers are not required to notify FREC or

start a settlement

procedure in these

situations

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Good-Faith Doubt

• Broker doubts either party’s intention to act in good faith according to the contract

• Notify the FREC in writing within 15 business days of having the doubt

• Begin a settlement procedure within 30 days of having the doubt

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Rental Information and Lists

• If rental information provided under contract is not current or accurate, consumer may demand within 30 days of contract date a return of fee

• If consumer does not obtain a rental, entitled to receive a return of 75% of the fee paid, if demand is made within 30 days of contract date

• Failure to provide accurate and current rental information for a fee is first-degree misdemeanor

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Antitrust Laws

• Antitrust laws protect competition and ensure against restraint of trade– Sherman and Clayton Antitrust Acts– Federal Trade Commission

• It is illegal to– Fix commissions or fees for services (price-fixing)– Conspire to split up market areas to avoid

competition (market allocation)

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Broker’s Commission

• Established by agreement between broker and party who agrees to pay– Negotiable

• Liens on residential property for nonpayment of commission– Only allowed if broker is given that authority in a

contract– Otherwise seek civil judgment

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F.S. 475, Part III

• Commercial Real Estate Sales Commission Lien Act• Gives broker lien rights on seller’s net proceeds

from sale of commercial property• Not lien rights on the real property• Brokerage agreement (listing contract) must clearly

state broker’s lien rights• Effective date of the lien is date of recording

commission notice

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F.S. 475, Part IV

• Commercial Real Estate Leasing Commission Lien Act

• Gives broker lien rights for commission earned for leasing commercial real estate– If landlord agreed to pay commission, lien is

against landlord’s interest in the real property– If tenant agreed to pay commission, lien is on

tenant’s leasehold estate

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Sales Associate’s Commission

• Must be paid by associate’s employer; not directly by buyer or seller

• Associate’s split determined by agreement with employer

• Associates may not operate independently

• With broker’s written authorization, closing agent may prepare check payable to associate for associate’s share of commission (no blanket authorizations)

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Kickbacks, Rebates, Unearned Fees

Referral fees for non-real estate services– Buyer and seller must be fully informed

– Must not violate RESPA (Illegal for closing services, title searches, appraisals, etc.)

– Person receiving kickback must be properly licensed if applicable (e.g., mortgage loan originator license)

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Referral Fees for Real Estate Services

• Licensees may share their commission with the buyer or seller in that transaction (with full disclosure)

• May not share commission with any other unlicensed person

• May not pay an unlicensed person for referral of real estate business (finder’s fee of up to $50 to a tenant exception)

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Change of Employer

• Sales associate license ceases to be in force when associate changes employer

• DBPR must be notified within 10 days after change to new employer

• Associate may not conduct real estate services until registered under new employer

• Fiduciary relationship between associate and broker

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Membership in Organizations

Licensees cannot use term Realtor® unless a member of NAR

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Brokerage Business Entities

• Chapter 475 defines broker to include anyone who is general partner, officer or director of brokerage partnership or corporation

• Chapter 475 prohibits a person licensed as a sales associate or broker associate from registering as a general partner, officer or director of a brokerage entity

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Business Entities That May Register as Real Estate Brokers• Sole Proprietorship• Partnerships

– General– Limited

• Limited Liability Partnership (LLP)

• Corporation• Limited Liability

Company (LLC)

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Sole Proprietorship

• Owned by one person• Owner must hold active broker license• Trade name must be registered with DBPR• Owner liability

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General Partnership

• Two or more persons engaging in business together

• Created by written, oral, or implied agreement

• Each is liable for partnership debts and can bind other partners in contracts

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Real Estate Brokerage General Partnership

• Register partnership with the DBPR• At least one partner must be an active broker• Partners who deal with public and perform real

estate services must be active brokers• Sales associates may not be general partners

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Limited Partnership

• Created by written instrument filed with FL Dept. of State

• One or more general partners and one or more limited partners

• Limited partners make investment of cash or property – not services

• Limited partners have limited liability

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Real Estate Brokerage Limited Partnership

• Register limited partnership with the DBPR• General partners who perform real estate

services must be active brokers• At least one general partner must be active

broker• All other general partners must register with

DBPR• Sales associates may not be general partners• Limited partners do not register with DBPR

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Ostensible Partnership

• Quasi partnership• When the actions of two or more persons

create the appearance that a partnership exists– Each may be liable for other person’s debts and

torts

• Subject to license suspension

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Limited Liability Partnership (LLP)

• Protection from personal liability• Partners are not subject to limitations

imposed on limited partners in a traditional limited partnership

• Name of registered limited liability partnership must include in name– Registered limited liability partnership or LLP at

end of name

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Corporations

• An artificial person or legal entity created by law– File articles of incorporation with FL Dept. of

State– Foreign corporation is organized under laws of

another state; may do business in Florida– Domestic corporation incorporated in Florida– Managed by board of directors & officers

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Real Estate Brokerage Corporation

• Register corporation with the DBPR• At least one officer or director must be an active

broker• Active and inactive brokers and unlicensed people

may serve as officers and directors– Must be active brokers to perform real estate services

• Unlicensed officers and directors register with the DBPR– Sales associate may not be officer or director– Sales associate may be shareholder

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Death of Only Active Broker

• If only active broker of a brokerage partnership or corporation dies, resigns, or is removed from office, the vacancy must be filled within 14 calendar days

• No new brokerage business may be conducted until a new active broker is registered with DBPR

• Failure to timely replace broker results in cancellation of the registration and licensees become involuntary inactive

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Limited Liability Company (LLC)

• Best features of a corporation and a partnership– Protection from personal liability– IRS treats LLC as a partnership for tax purposes– Income is taxed only once, as in a partnership

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Business Entities That May NOT Register

• Corporation sole – church organization• Joint venture – temporary business

arrangement• Business trust – involves entity’s own property• Cooperative association – involves own

property• Unincorporated association – example is

property owners in a subdivision

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Trade Names

• Business name other than the legal name of the person doing business

• T/A “trading as”• D/B/A “doing business as”• Fictitous name refers to the name registered

with the Dept of State• Associates must have licenses issued in their

legal names (not under a trade name)

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Personal Assistants

Unlicensed• Administrative tasks• May not perform duties

requiring a license• May not be paid a

commission• Licensee who employs

unlicensed assistants– Must comply with state

and federal employment laws

Licensed• Can perform services of

real estate• Must be registered with

employing broker• Broker must pay licensed

assistant for brokerage activities

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