That Delicate Balance

Steve McTyeire, MBA, BrokerAvery Yarbrough School of Real Estate

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Alabama Real Estate Commission Rules for Classroom CE credit• Sign in, including license number

• You must be here now to receive credit later• 100% attendance is required • Cell phones must be turned off during class•Computers can only be used to take notes

• CMap -http://www.arec.alabama.gov/index.asp • Check credit & leave evaluation

4th Edition Text Written by Jim Lawrence of LAHFor The Alabama Real Estate Commission & Alabama Center for Real Estate, The University of

Alabama

• Available for Purchase $25

Or

• Make notes on Handout

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Two primary Goals

Primary Goal – To generate income

Primary Goal – To care for the consumer

Purpose of the course – To see that delicate balance between managing risk and generating income is obtainable.

Good Referrals, not name in AREC Update

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• Federal Laws – Anti-trust, Fair Housing, RESPA …

Alabama Code - contracts…Alabama Real Estate Laws – 34-27-(1-100)Local Laws – Health & SafetyNAR Code of Ethics “standard of care”Court Decisions - Case Law

Maybe more than one answerAttorneys love “It depends”

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The roof leaks on your listing, and you know it.Do you voluntary disclose it to

A. ConsumerB. CustomerC. Buyer Client in Dual Agency

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The roof leaks on your listing and you know it.If ask a direct question about the roof from one of the below, which must you tell.

A. ConsumerB. CustomerC. Client in Dual AgencyD. Buyer’s Agent

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Are Property Disclosure forms a good idea for

A. SellersB. BuyersC. Agents

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If the house is haunted, do you disclose?

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Is earnest money required for a valid contract?

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Is it illegal to fail to leave a copy of the listing agreement with the seller?

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Can you pay the seller $100 to list with your company?

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Does this $100 payment to the seller need to be disclosed to the buyer?

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When must earnest money be deposited?

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When must RECAD be presented?

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The mayor wants a new site for a city hall. Are you required to RECAD?

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Can Agency be implied?

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You are a licensee and decide to sell your own private residence on FSBO.com

Do you need to disclose your status as an agent?

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Who can you Advise?

A. ConsumerB. CustomerC. Client

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Anti-Trust

Is it alright to say your broker sets the commission rates you charge based on services offered?

How about, My broker charges what everyone else charges?

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Fair Housing

As a property manager, can you discriminate against a drug abuser?

How about, if he is in treatment?

RESPA

Can a lender pay for open house expenses if they don’t attend?

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III. PROPERTY DISCLOSURE Attorneys use a shotgun to hit as many checkbooks

as possible No one wins, even if you win, you bleed

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ACTOR

A Avoid Know RulesC Control Office PolicyT Transfer DiscloseO orR Retain Insurance

The burden is on the buyer in Alabama (Last State)

Modified caveat emptor stateExemptions are written on your HAND

Health and Safety - KnownAssumption of a Duty – Agency New Construction - ExpectDirect Inquiry - Vague

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Fraud and Misrepresentation Intentional Misrepresentation - Mold is Mildew Intentional Concealment - School

Negligent or Innocent Misrepresentation - CarelessNegligence – A responsible agent would have…Suppression – Withholding material fact - Basement

leaksKnowledge of material fact, duty to disclose, failure

to Vicarious Liability – Not unless should have known

SellerBroker

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Elements of Fraud

1. A false representation of an important fact or issue

1. Relied upon by the buyer or seller

2. Who is damaged by reliance

Insist that your buyer inspect propertyGet monkey off your back

Selecting InspectorAgent’s one favorite inspector “Yellow Pages”ListDon’t guarantee inspector

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Do not perform inspection, even if you are an inspectorDo not accompany inspector – What did he say?Do not interpret inspection – draw smiley face Do not select or allow seller to select inspectorDo not allow buyer to fail to see importance of

Inspection Do not allow buyer to refuse inspection without

documentation, especially if Buyer’s Agent – page 78Do not ignore value of specialized inspector - HVAC

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Document, document, document When in doubt, disclose – permission Provider of questionable information takes

ownership – tax record“I don’t know”Point out apparent problems, but draw no

conclusionsCYA – Cover Your AssetsAfter closing, maintain distance

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Courts - Criminal & CivilActual damagesPunitive damagesRescission of contract

The Alabama Real estate Commission (Update)May Revoke license Suspend licenseReprimand licenseeFine licensee $100 to $2500

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• Seller2/3 or more of lawsuits brought by buyers

• BuyerInfo for direct questions

• Seller BrokerCaveat Emptor

• Buyer BrokerAdvice

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Common issues encountered with buyers

Help understand process

• Different inspections, insurance, warranties

• Better to address issues sooner than later

“A property that has been psychologically impacted by an event which occurred, or was supposed to have occurred, on the property, such event being one that has no physical impact of any kind”

Four stepsFact or fiction - Ghost in attic from murder in

MBRCheck state laws - Alabama silentMateriality? - Will ghost stay? Murderer still

there? Disclosure - With written permission

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NO – Don’t do it

• Federal Fair Housing Law• Prohibits disclosure as a protected class - Handicap

• Even if ask a direct question • Not material to transaction

“Condition of property at time of contract”Pictures

Refers to real estate and all its warts.

Caveat Emptor applies

All fraud claims barred if purchaser signs “as is” contract

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You are the listing agent on a property. The seller is your client. The seller tells you that the air conditioning system does not work. It is not a health and safety issue. A buyer sees the home for the third time. The buyer’s agent tells you that the buyer is very interested in making an offer. Concerning the air conditioning, you should

A. Tell the buyer’s agent that the system is broken.

B. Not tell the buyer’s agent the system is broken

C. Require the seller to complete a seller’s disclosure form.

D. Tell the seller to disclose nothing if asked.

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You are the listing agent on a property. The seller is your client. The seller tells you that the back deck, which is 30 feet off the ground, has a lot of rotten wood underneath and is in great danger of collapsing. The buyer’s agent tells you that the buyer is interested in making an offer. Neither the buyer nor the buyer’s agent has questioned the structural integrity of the back deck. Concerning the deck, you should

A. Tell the buyer’s agent that the deck is dangerous B. Don’t tell the buyer’s agent that the deck is dangerous C. Require the seller to complete a seller’s disclosure D. Require the seller to replace the deck

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You are the listing agent. The seller is your client. The seller tells you that the new paneling in the basement was put there by him to cover some mold behind the paneling. The seller also tells you that the mold has been tested by a professional and declared, in the seller’s words as “a little unhealthy.” The seller tells you to keep the covered defect confidential, as he needs top dollar for the house. He also tells you that he will pull the listing should you not agree to the cover-up. Concerning the mold, you should

A. Not disclose the presence of the mold, since the seller is your client and you owe the fiduciary duties of confidentiality, and obedience.B. Not disclose the presence of the mold, since you need the listing and a potential sale and since the mold is only “a little unhealthy”C. Secretly tell the buyer’s agent about the mold.D. Discuss the importance of disclosure with the seller and terminate the listing should the seller not agree.

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You are the listing agent. The seller is your client. There is a slight roof leak over one corner of the third bedroom. It is not a health or safety factor. The seller tells you about the leak, but ask you to keep it confidential. A buyer sees the property for the third time. The buyer’s agent says to you: “I noticed a slight discoloring in the ceiling tile in a corner of the third bedroom. Does the roof leak right there?” Concerning the leak, you should

A. Not disclose the roof leak, because it is not a health or safety factor. B. Disclose the roof leak only with the seller’s permission. C. Disclose the fact that the roof leaks. D. Try to shift the agent’s focus to the positive traits of the property without answering the specific question about the roof.

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You are the listing agent. The seller is your client. Even thought the house is in generally good condition, there is a slight roof leak over one corner of the third bedroom. It is not a health or safety factor. The seller tells you about the leak, but ask you to keep it confidential. A buyer sees the property for the third time. The buyer’s agent ask you this question: “Is the house in generally good condition?” You should

A. Respond, Yes the house is in generally good condition. B. Respond, “No, the roof leaks over one corner of the third bedroom. C. Refuse to answer the question and ask the seller for

permission to disclose the roof leak. D. Tell the buyer’s agent that Alabama is a “caveat emptor” state and it is the buyer’s obligation to discover any and all defects concerning the property.

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You are a buyer’s agent. The buyer’s are your clients. They are from out-of-town and not familiar with any home inspectors in the area. They have put a property under contract with the right to inspect. They ask you, their agent, for a recommendation for a home inspector. You should

A. Give them a copy of the Yellow Pages.B. Give them a limited list of inspectors who are

guaranteed by you and your company.C. Give them a limited list of inspectors who you have

worked with in the past.D. Recommend your one favorite home inspector who

you have been using for years.

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A house is placed on the market for sale. It is listed with a licensee and marketed through the MLS. It is being sold by the owner’s family. The owner murdered his wife in the master bedroom and then took his own life in the same location. Which of the following is not true?

A. Since this is a health and safety issue, the listing agent must disclose the event to all interested parties.

B. The listing agent is not required to disclose the event.

C. To avoid a difficult situation at or following closing, the listing agent should discuss timely and tactful disclosure to an interested party with the seller’s family.

D. A buyer’s agent has the obligation to disclose this event to the buyers even if the agent is unaware of the situation.

One way for a real estate licensee to reduce risks is to have a complete, working knowledge of

Alabama License Law

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Property disclosure - already coveredImmediate family – under the lawAny false promise – reduced commissionDeceptive advertising – as agentEarnest money – account …Placing a sign without permission

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34-27-36(10) Failing to furnish a copy of documents with reasonable promptness

34-27-36(25) It is illegal to fail to leave a copy of the listing agreement with the seller

Expiration date required on listing – No automatic renewal

No Net Listings

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Immediately to brokerRelieved in writing on contract - postdatedMust be deposited when the offer becomes a contract

Unless another date applies

Release of earnest money Mutual Release signed by all parties

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• Must be held in a separate escrow account in FDIC bank• Separate from “operating account”• Accounted – AREC audited • Records kept for 3 years, as most records

• Must never be• Comingled• Converted• Released without authorization

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Alabama License Law

Situations

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Which of the following acts is illegal?

A. Disclosing to a buyer that the listing agent is the wife of the seller/builder

B. Placing a “For Sale” sign on the property with permission

C. Releasing the earnest money to the buyer at the buyer’s request

D. Paying the buyer an incentive to close the sale

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Which of the following acts is illegal?

A. Paying an insurance agent a referral fee for a successful lead.

B. Giving a seller a copy of the listing agreement at signing

C. Informing the seller that the listing agent intends to buy the listed property for himself/herself.

D. A company setting up a “rental deposits” escrow account and an “earnest money” escrow account.

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You are the buyer’s agent. It is Friday. Your out-of-town buyer clients have just had their offer accepted on a piece of property. The earnest money check is made out to your company. The buyers ask you to hold the check until Wednesday of next week so that they can get back home and transfer funds from their savings account to their checking account to cover the check.

Which of the following is true?

A. This is an illegal act, since the earnest money check must be made out to and deposited by the listing agency.

B. Since the buyer is your client and you have the fiduciary duty of obedience , you agree to hold the check until Wednesday.

C. You tell the buyer that you can only hold the check with written disclosure to and agreement from the seller.

D. The check can not be held, it must be deposited immediately.

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You are the buyer’s agent. Your buyer client has written an offer on a property that has been accepted by the seller. The seller is being represented by another real estate broker. The earnest money check was written to your company and has been deposited into your company’s escrow account. Your buyer client calls you, very distraught and agitated , and tells you that she has changed her mind about the purchase of the house and wants her earnest money returned to her immediately. You should

A. Initiate a mutual release form, signed by your buyer client and request return of the earnest money, and deliver the form to the listing agent.

B. Follow your buyer client’s lawful instructions and return the earnest money immediately.

C. Tell her that “a deal is a deal” and instruct her to proceed with the contract and closing.

D. Give her legal advice as to what legal options that both she and the seller might have in a cancelled contract situation.

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ObedienceLoyaltyDisclosureConfidentialityAccountingReasonable skill and care

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Honesty - Lie to no oneConfidential information – Disclosure required by law,

clientAccount for all property – Earnest moneyReasonable skill and care - Standard of carePresent all offers - TimelyAnswer all questions – Completely and accurately Acting on own behalf, family – DiscloseDisclose known latent defects – no obligation to

discover58

Single Agent – representing only one party Must be in writing

Dual Agent – representing both parties Limited Consensual – Must be in writing

Transaction Broker – representing neither partyRelationship without a signed agreement

Sub-Agency – Acting for another licenseePre-RECAD

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A written and signed statement of the law Same form used by all brokerages Must be signed and dated by licensee

“As soon as reasonably possible and before any confidential information is disclosed to any other person by the licensee”

THREE MAGIC WORDS – “Alabama law requires...”

Available Booklet

Will see again in contract

Must have office policy – signed by every licensee each year

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Exempt from RECAD

• Property Management• Dealing with “non persons” such as corporations, governments, ect.

Not Exempt from RECAD

• Commercial Real Estate Services• Selling your own home FSBO

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You are a licensee. You have just met a young couple form out-of-state. You determine they need representation. They express an interest in needing an agent. When you introduce the RECAD form to them, they tell you that their parents told them not to sign anything, so they refuse to sign the RECAD form.Which of the following is true?

A. You can not represent them because they refused to sign the RECAD form.

B. You can represent them with a signed buyer agency agreement.

C. You would be an undisclosed agent if you showed them any houses

D. Alabama License Law requires you and them to sign RECAD

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You are on a listing presentation. You are in competition for the listing. Even though you warned the seller not to disclose any confidential information to you. The seller tells you they are really motivated to sell fast because of a new job starting soon in another state. You later discover that the seller has listed with a competitor. Later, you agree to represent a couple as buyer clients. They sign a buyer’s agency agreement with you. You think the property listed with the other company might be right for your buyer clients. You show the home, and your buyers like it well enough to write an offer. You should

A. Tell your buyers of the sellers motivation so that the buyers can take advantage of that fact.

B. Not tell your buyers because you are a dual agent.C. Not tell your buyers about the seller’s motivation

because the information would be information a reasonable person would want to keep confidential.

D. Get the seller’s permission to disclose their motivation to your buyers

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You represented the seller in the sale of their large, single family home in a sparsely populated area of town. You also represented the buyer. You are a limited consensual dual agent. The property is under contract, but not yet closed. By chance, you discover that an adjoining property consisting of several acres has been rezoned for high density multi-family housing. This would probably have a negative impact on the value of the home under contract. Neither your buyer or seller knows this yet. You should

A. Disclose this fact to your buyer client immediately.B. Keep this information confidential to protect your seller

client.C. Say nothing to anyone, as you need the money from the

closing.D. Discuss disclosure with your seller client to prevent a

future problem

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In situation #14, you chose to discuss disclosure with your seller client to possibly avoid any future problems. Your seller responded to your request for disclosure by saying, “I don’t want you to disclose anything! I need for this sale to close in a most desperate way!” You should

A. Follow your seller client’s lawful instructions.B. Forfeit your commission and walk away from the

sale.C. Have your seller sign a document prohibiting you

from disclosing this information to the purchaser. D. Tell your buyer client anyway to avoid a possible

lawsuit.

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You are a commercial real estate agent. You are to meet with a purchaser who is seeking a piece of commercial property. He contacts you to show him a warehouse downtown that is for sale. Which of the following is true?

A. You do not have to RECAD him because you are a commercial agent.

B. You do not have to RECAD him because he is buying a commercial property.

C. You do not have to RECAD him because he is probably incorporated.

D. You have to RECAD him.

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• Stay within scope of license – Real Estate Salesperson

• It is illegal for a licensee to act negligently or incompetently in performing any act for which a real estate license is required.

• You are not a home inspector or mold expert.

• Don’t put that monkey on your back

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• Disclosure required for pre-1978 Federal Law

• Must be signed by all, including listing agent

• Record kept 3 years

• $11,000 & Fine and then there will be Alabama law violations

Sheriff Taylor and FloydRequired elements

LegalAuthorityAgeObjectiveCompetency

ConsiderationSomething for Something

Offer and Acceptance Interest in RE must be in writing, net sheet

May be void or voidable70

Licensee shall prepare and furnish a net sheet at time of offerBest Reasonable Guess - Informed

Can’t rely on lender

Update as necessary with counterLeave signed copy & retain office copy

How many years?

Rule does not say net sheet must be prepared at time of listing Good idea - no surprises

Not GFE71

Do not negotiate verbally without written follow upDo use a pre-printed form written by an attorneyDo write it as client tells youDo be specific and clear –Refrigerator Do not sign or initial without authorityDo not speak for client without checking with client

first Do not ASSUME you know what they are thinking

Do insure that contract is entire agreementDo not forget net sheet

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A counter does not void a contract – different from offer

To present or not present - Don’t delayBe aware of deadlines - LachesNotification – Imputed knowledge – break clauseContracts- Disclosure of

Alabama Law – Not requiredREALTOR - Standards of Practice 3-6 shall

disclose73

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• Must timely present all written offers, unless relieved • Any order

• May have each buyer’s agent present their offer• With you present

• Discuss pros and cons of each with seller client afterwards• Reject all• Accept one• Counter best one and put in primary position,

with others as backups

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Which of the following is asking for trouble?

A. Negotiating the terms of a contract for your client with the other party’s agent over the telephone without immediate written follow-up.

B. Negotiating the terms of a contract for your client with the other party’s agent because you think you know your client’s desires and intentions.

C. Initialing a sales contract change or counter for your client because your client is out-of-town and probably cannot be reached.

D. All of the above

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You are the listing agent in a multiple-offer situation. One of the offers is from your own buyer client. Therefore, you are a limited consensual dual agent. The best way to minimize risk is to:

A. Present only your buyer’s offer so that you can receive both sides of the commission.

B. Present all offers to your seller client but emphasize the benefits of your buyer client’s offer.

C. Ask each buyer’s agent to present their buyer client’s offer to your seller with you attending the presentations.

D. Staying totally neutral by placing all the offers in an envelope and advising your sellers to study them all and then pick one without any help from you.

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You are the listing agent. You have shown your listing to one of your buyer clients. Therefore, You are a limited consensual dual agent. Your buyer client has written an offer that has been countered by your seller client. The counter is back in your buyer’s hands and they are “thinking about it.” An agent with another company who has shown your listing several times to the same buyer calls and tells you that their buyer is writing an offer. You should

A. Inform both your buyer client and the other buyer’s agent that a competing offer situation may exist.

B. Call your buyer client immediately and tell them to respond quickly or they might lose the house.

C. Call your seller and tell them that they should take your client’s initial offer.

D. Tell the other agent that the property is already under contract and they are too late.

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You are the listing agent. You have received several offers on your seller client’s property. You should

A. Counter them all at list price with no contingencies and deliver the counter offers back to the buyer’s agents.

B. Reject all with instructions to the buyer’s agents to come back with their buyer’s best offers.

C. Accept the best offer.D. Counter the best offer in the primary position and

counter the others in a backup position.

• It is illegal for real estate companies, brokers or agents to be involved in an agreement, a conspiracy, or understanding that fixes prices

Or

• Group Boycott

Don’t even talk about it 80

Liability for three times plaintiff’s actual damagesPay plaintiff’s reasonable attorney’s feesCourt may supervise defendant’s businessFederal Prison

Not just AREC penalty of $100 to $2500, but Federal, Then

• AREC will get involved due to felony conviction 10 days to notify AREC of any civil or criminal – real

estate

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F Familial StatusR RaceE E & O Will not cover violationS SexH Handicap

C ColorO Opportunities should be EqualR ReligionN National Origin

SteeringYou would be better off in this area

BlockbustingYou had better sell while you can, because they

are moving into the neighborhood

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Qualified Senior Citizen Housing - 62 or 80% over 55

Number of persons per bedroom - Local lawsHeath and safety - Threat of Reasonable demands - ModificationUnits operated by a religious group -

May not discriminate in membershipOwner-occupied four-unit buildingA single-family property – No licensee is involved

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• Focus on property and not potential buyers

• If using people in advertisements, vary them

• Prohibited words , more on HUD site• No Mexicans

• Acceptable words • se habla espanol

• Don’t use only publications targeting a certain group

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• RESPA - Requires disclosures that list settlement cost to be given to homebuyers and sellers - GFE – new rules

• RESPA - Eliminates abusive practices, such as kickbacks and referral fees, which increase cost paid by consumers.

• RESPA - Reduces amounts that homebuyers must place in escrow accounts

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• Real estate brokerage services• Services related to issuance of a title policy• Services related to a mortgage loan• Attorney Fees• +• Other services that a settlement services provider requires a borrower to pay

Kickbacks - Anything of value – markup

For• Referrals – an understanding - splits

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Pay for real work

Affiliated Business Arrangements Real workDisclose

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Civil – Harmed party will cost $

Settlement with HUD cost $Felony – Year in prison

Not just AREC penalty of $100 to $2500, but Federal, Then

• AREC will get involved due to felony conviction 10 days to notify AREC of any civil or criminal – real

estate90

Document to CYAObey laws, know office policyKnow duties, limitations Practice Fair Housing, RECAD, RESPA, EthicsInsist your buyer client get a home inspectionWhen in doubt, disclose, with written

permission“I didn’t know that” Can cost you Attorneys love “It depends”Make a good living while protecting the public

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What did you learn?

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