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Risk management power point

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  • 1. That Delicate Balance Steve McTyeire, MBA, Broker Avery Yarbrough School of Real Estate
  • 2. 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
  • 3.
    • 4 th Edition Text Written by Jim Lawrence of LAH
    • For The Alabama Real Estate Commission &
    • Alabama Center for Real Estate, The University of Alabama
    • Available for Purchase $25
    • Or
    • Make notes on Handout
  • 4.
            • 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
  • 5.
    • Federal Laws – Anti-trust, Fair Housing, RESPA …
    • Alabama Code - contracts…
    • Alabama Real Estate Laws – 34-27-(1-100)
    • Local Laws – Health & Safety
    • NAR Code of Ethics “standard of care”
    • Court Decisions - Case Law
    • Maybe more than one answer
      • Attorneys love “It depends”
  • 6. The roof leaks on your listing, and you know it. Do you voluntary disclose it to A. Consumer B. Customer C. Buyer Client in Dual Agency
  • 7. 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. Consumer B. Customer C. Client in Dual Agency D. Buyer’s Agent
  • 8. Are Property Disclosure forms a good idea for A. Sellers B. Buyers C. Agents
  • 9. If the house is haunted, do you disclose?
  • 10. Is earnest money required for a valid contract?
  • 11. Is it illegal to fail to leave a copy of the listing agreement with the seller?
  • 12. Can you pay the seller $100 to list with your company?
  • 13. Does this $100 payment to the seller need to be disclosed to the buyer?
  • 14. When must earnest money be deposited?
  • 15. When must RECAD be presented?
  • 16. The mayor wants a new site for a city hall. Are you required to RECAD?
  • 17. Can Agency be implied?
  • 18. 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?
  • 19. Who can you Advise? A. Consumer B. Customer C. Client
  • 20. 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?
  • 21. Fair Housing As a property manager, can you discriminate against a drug abuser? How about, if he is in treatment?
  • 22.
    • RESPA
    • Can a lender pay for open house expenses if they don’t attend?
  • 23. III. PROPERTY DISCLOSURE
    • Attorneys use a shotgun to hit as many checkbooks as possible
      • No one wins, even if you win, you bleed
  • 24. ACTOR A Avoid Know Rules C Control Office Policy T Transfer Disclose O or R Retain Insurance
  • 25.
    • The burden is on the buyer in Alabama (Last State)
    • Modified caveat emptor state
    • Exemptions are written on your HAND
      • H ealth and Safety - Known
      • A ssumption of a Duty – Agency
      • N ew Construction - Expect
      • D irect Inquiry - Vague
  • 26.
    • Fraud and Misrepresentation
      • Intentional Misrepresentation - Mold is Mildew
      • Intentional Concealment - School
    • Negligent or Innocent Misrepresentation - Careless
    • Negligence – A responsible agent would have…
    • Suppression – Withholding material fact - Basement leaks
      • Knowledge of material fact, duty to disclose, failure to
    • Vicarious Liability – Not unless should have known
      • Seller
      • Broker
  • 27.
    • Elements of Fraud
    • A false representation of an important fact
    • or issue
    • Relied upon by the buyer or seller
    • Who is damaged by reliance
  • 28.
    • Insist that your buyer inspect property
      • Get monkey off your back
    • Selecting Inspector
      • Agent’s one favorite inspector
      • “ Yellow Pages”
      • List
      • Don’t guarantee inspector
  • 29.
    • Do not perform inspection, even if you are an inspector
    • Do not accompany inspector – What did he say?
    • Do not interpret inspection – draw smiley face
    • Do not select or allow seller to select inspector
    • Do 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 78
    • Do not ignore value of specialized inspector - HVAC
  • 30.
    • 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 conclusions
    • CYA – Cover Your Assets
    • After closing, maintain distance
  • 31.
    • Courts - Criminal & Civil
      • Actual damages
      • Punitive damages
      • Rescission of contract
    • The Alabama Real estate Commission (Update)
      • May Revoke license
      • Suspend license
      • Reprimand licensee
      • Fine licensee $100 to $2500
  • 32.
  • 33.
    • Seller
    • 2/3 or more of lawsuits brought by buyers
    • Buyer
    • Info for direct questions
    • Seller Broker
    • Caveat Emptor
    • Buyer Broker
    • Advice
  • 34.
    • Common issues encountered with buyers
    • Help understand process
    • Different inspections, insurance, warranties
    • Better to address issues sooner than later
  • 35.
    • “ 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 steps
      • Fact or fiction - Ghost in attic from murder in MBR
      • Check state laws - Alabama silent
      • Materiality? - Will ghost stay? Murderer still there?
      • Disclosure - With written permission
  • 36. 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
  • 37.
    • “ 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
  • 38.
  • 39. 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.
  • 40. 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
  • 41. 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.
  • 42. 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.
  • 43. 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.
  • 44. 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.
  • 45. 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.
  • 46.
    • One way for a real estate licensee to reduce risks is to have a complete, working knowledge of
      • Alabama License Law
  • 47.
    • Property disclosure - already covered
    • Immediate family – under the law
    • Any false promise – reduced commission
    • Deceptive advertising – as agent
    • Earnest money – account …
    • Placing a sign without permission
  • 48.
    • 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
  • 49.
    • Immediately to broker
    • Relieved in writing on contract - postdated
    • Must be deposited when the offer becomes a contract
      • Unless another date applies
    • Release of earnest money
      • Mutual Release signed by all parties
  • 50.
    • 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
  • 51. Alabama License Law Situations
  • 52. 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
  • 53. 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.
  • 54. 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.
  • 55. 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.
  • 56.
  • 57.
    • O bedience
    • L oyalty
    • D isclosure
    • C onfidentiality
    • A ccounting
    • R easonable skill and care
  • 58.
    • Honesty - Lie to no one
    • Confidential information – Disclosure required by law, client
    • Account for all property – Earnest money
    • Reasonable skill and care - Standard of care
    • Present all offers - Timely
    • Answer all questions – Completely and accurately
    • Acting on own behalf, family – Disclose
    • Disclose known latent defects – no obligation to discover
  • 59.
    • 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 party
      • Relationship without a signed agreement
    • Sub-Agency – Acting for another licensee
      • Pre-RECAD
  • 60.
    • 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
  • 61.
    • 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
  • 62.
  • 63. 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
  • 64. 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
  • 65. 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
  • 66. 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.
  • 67. 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.
  • 68.
    • 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
  • 69.
    • 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
  • 70.
    • Sheriff Taylor and Floyd
    • Required elements
      • Legal
        • Authority
        • Age
        • Objective
        • Competency
      • Consideration
        • Something for Something
      • Offer and Acceptance
        • Interest in RE must be in writing, net sheet
    • May be void or voidable
  • 71.
    • Licensee shall prepare and furnish a net sheet at time of offer
      • Best Reasonable Guess - Informed
        • Can’t rely on lender
    • Update as necessary with counter
    • Leave 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 GFE
  • 72.
    • Do not negotiate verbally without written follow up
    • Do use a pre-printed form written by an attorney
    • Do write it as client tells you
    • Do be specific and clear –Refrigerator
    • Do not sign or initial without authority
    • Do not speak for client without checking with client first
      • Do not ASSUME you know what they are thinking
    • Do insure that contract is entire agreement
    • Do not forget net sheet
  • 73.
    • A counter does not void a contract – different from offer
    • To present or not present - Don’t delay
    • Be aware of deadlines - Laches
    • Notification – Imputed knowledge – break clause
    • Contracts- Disclosure of
      • Alabama Law – Not required
      • REALTOR - Standards of Practice 3-6 shall disclose
  • 74.
    • 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
  • 75.
  • 76. 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
  • 77. 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.
  • 78. 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.
  • 79. 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.
  • 80.
    • 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
  • 81.
    • Liability for three times plaintiff’s actual damages
    • Pay plaintiff’s reasonable attorney’s fees
    • Court may supervise defendant’s business
    • Federal 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
  • 82. F Familial Status R Race E E & O Will not cover violation S Sex H Handicap C Color O Opportunities should be Equal R Religion N National Origin
  • 83.
    • Steering
      • You would be better off in this area
    • Blockbusting
      • You had better sell while you can, because they are moving into the neighborhood
  • 84.
    • Qualified Senior Citizen Housing - 62 or 80% over 55
    • Number of persons per bedroom - Local laws
    • Heath and safety - Threat of
    • Reasonable demands - Modification
    • Units operated by a religious group -
      • May not discriminate in membership
    • Owner-occupied four-unit building
    • A single-family property – No license e is involved
  • 85.
    • 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
  • 86.
    • 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
  • 87.
    • 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
  • 88.
    • Kickbacks - Anything of value – markup
        • For
    • Referrals – an understanding - splits
  • 89.
    • Pay for real work
    • Affiliated Business Arrangements
      • Real work
      • Disclose
  • 90.
    • 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 estate
  • 91.
    • Document to CYA
    • Obey laws, know office policy
    • Know duties, limitations
    • Practice Fair Housing, RECAD, RESPA, Ethics
    • Insist your buyer client get a home inspection
    • When 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
  • 92.
    • What did you learn?