Real Estate Practice 051623

1. The Real Estate School
U N I T 1 4
REAL ESTATE BROKERAGE
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2. Is the housing market
going to crash?

3. Mortgage Credit Availability Index (MCAI)
Housing Bubble:
868.7
Today:
103.2
It used to be easier to qualify for a
home loan. Now, lending standards
have tightened, so today’s buyers
are more qualified.

4. Foreclosure Starts – Past and Present
The number of foreclosures
has significantly declined
since the housing bubble.
2007 Q1 – 2010 Q4 2019 Q1 – 2022 Q4
600,000
500,000
400,000
300,000
200,000
100,000
0

5. Annual Average of Months’ Supply of Homes for Sale
There is an undersupply of
homes available for sale
today, which helps keep
prices from crashing
2008
2007 2009 2010 2022
2019 2020 2021
8.9
10.4
8.8 9.4
3.9
3.1
2.3 2.7

6. Total US Homeowner Equity *
Housing Bubble:
1.3
Today:
3.1
* In Trillions of Dollars Between 2007-2022
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Home price gains have resulted in
near-record amounts of equity, and
that puts homeowners in a strong
position.

7. REAL ESTATE BROKERAGE
• The nature of real estate brokerage services has changed
significantly in recent years
• In the 1950’s, brokerage firms were primarily one-office, minimally
staffed, family-run operations
• In the 1960’s, brokers formalized
the exchange of information by
creating a Multiple Listing
Service (MLS)
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8. REAL ESTATE BROKERAGE
• 2nd largest MLS in the US
• 110,000+ subscribers
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9. REAL ESTATE BROKERAGE
• In the 1980’s, transactions became increasingly complex
• Buyers now seek
representation
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10. REAL ESTATE BROKERAGE
• Brokerage – The business of bringing
parties together to buy, sell, exchange,
or lease real property for others and to
charge a fee for these services
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11. REAL ESTATE BROKERAGE
• Challenges facing brokers:
• Mastering the complexities of
real estate transactions
• Set effective policies
• Maintain space & equipment
• Hire personnel
• Determine compensation
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12. PROFIT & LOSS STATEMENT AVERAGE
12
There is 50% less money to pay personnel, occupancy,
advertising/marketing, and administrative costs

13. REAL ESTATE BROKERAGE
• Broker-Salesperson Relationship
• Real Estate Salesperson – Any person licensed to perform real
estate activities on behalf of a licensed real estate broker
• Salesperson carries out only those responsibilities assigned by
the employing Broker
• Salesperson can only receive compensation from their
employing Broker
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14. REAL ESTATE BROKERAGE
• Broker-Salesperson Relationship (cont’d)
• Real Estate Assistant – The extent to which Assistant can help
Salesperson or Broker is determined by licensing laws
• Activities vary based
upon whether Assistant
is licensed or unlicensed
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15. REAL ESTATE BROKERAGE
• Broker’s Compensation – Specified in a contract with the
consumer
• Commissions may be a
percentage of the sales
price, flat fee, or an hourly
rate
• Individual Broker may set minimum rate acceptable in the
Broker’s firm without violating state and federal antitrust
laws
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16. REAL ESTATE BROKERAGE
• Broker’s Compensation (cont’d)
• Most sales commissions are payable when the sale is
consummated by delivery of the seller’s deed
• Commissions are earned when:
• Contract is executed by the Buyer
• Contract is accepted and executed by the Seller
• Copies of contract in possession by all parties
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17. REAL ESTATE BROKERAGE
• Broker’s Compensation (cont’d)
• Procuring Cause – Broker must have started or caused a chain of
events that resulted in the sale
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18. REAL ESTATE BROKERAGE
• Broker’s Compensation (cont’d)
• Broker is entitled to a commission when a Seller accepts an
offer from a ready, willing, and able Buyer
• Ready, Willing, and Able Buyer –
One who is prepared to buy on
the seller’s terms and ready to take
positive steps toward consummation
of the transaction
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19. REAL ESTATE BROKERAGE
• Broker’s Compensation (cont’d)
• If transaction is not consummated, the Broker may still be
entitled to a commission if:
• Seller changes their mind
• A spouse refuses to sign deed
• Title has uncorrected defects
• Seller commits fraud
• Seller can’t deliver possession
• Seller insists on terms not in listing
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20. REAL ESTATE BROKERAGE
• Real Estate Salesperson’s Compensation – Set by mutual
agreement between the Broker and the Salesperson
• There are a variety of different
compensation models depending
upon the firm
• Only the employing broker
can pay compensation to
their salespeople
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21. REAL ESTATE BROKERAGE
• Sharing Commissions
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Sales Price
$189,000
Commission
6% (.06)
$11,340
ABC Realty
Listing Broker
XYZ Realty
Selling Broker
$5,670
(50%)
$5,670
(50%)
$2,551.50
(45%)
$3,118.50
(55%)
Broker’s
Share
Salesperson’s
Share
What is a selling salesperson’s
commission if they are on a 55/45
split with their company and a house
sells at $189,000 at a 6% commission
that is split evenly between the
listing and selling brokers?

22. REAL ESTATE BROKERAGE
• Fee for Services – The internet has revolutionized the real estate
profession in that buyers and sellers now have tremendous access
to information
• Some companies are
unbundling services
and charging hourly
rates or flat fees
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23. REAL ESTATE BROKERAGE
• Independent Contractor versus Employees – Employment
agreement between a broker and a salesperson should define the
nature, obligations, and responsibilities of the relationship
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24. REAL ESTATE BROKERAGE
• Independent Contractor versus Employees (cont’d)
• Employees – Broker can exercise certain controls and require
agents to follow rules
• Independent Contractors –
Broker is permitted to control
what agent does but not
how it is done
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25. REAL ESTATE BROKERAGE
• Independent Contractor versus Employees (cont’d)
• Three requirements are needed to establish an independent
contractor status according to the IRS:
1. Current real estate license
2. Written contract stating that licensee will not be treated as
an employee for tax purposes
3. At least 90% of income based on sales production versus
number of hours worked
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26. REAL ESTATE BROKERAGE
• Independent Contractor versus Employees (cont’d)
• Pennsylvania real estate license law treats
licensees as an employee of the broker
• Broker is accountable for the salesperson’s licensed activities
• Salesperson’s status for income tax purposes is immaterial in
the context of license law
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27. REAL ESTATE BROKERAGE
• Enter . . . the ABC Test from California
• A - The worker is free
from the employer’s
control or direction in
performing
the work
27

28. REAL ESTATE BROKERAGE
• Enter . . . the ABC Test from California (cont’d)
• B - The work takes place outside the usual course of the business
of the company and off the site of the business
28

29. REAL ESTATE BROKERAGE
• Enter . . . the ABC Test from California (cont’d)
• C - Customarily, the worker is
engaged in an independent
trade, occupation, profession, or
business
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30. ANTITRUST LAWS
• The real estate industry is subject to federal and state antitrust
laws
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31. ANTITRUST LAWS
• Three federal laws form the basis of state antitrust laws:
1. Sherman Antitrust Law – Prohibits contracts or conspiracies
that create monopolies
2. Clayton Act – Prohibits actions that unfairly restrain trade
3. Federal Trade Commission Act – Allows for monetary relief
and permits investigations
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32. ANTITRUST LAWS
• Price Fixing – The practice of setting prices for products or services
rather than letting competition in the open market establish prices
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33. ANTITRUST LAWS
• Price Fixing (cont’d)
• Occurs when competing brokers agree to set uniform sales
commissions, fees, or rates
• Multiples listing/REALTOR® organizations may not set fees or
commission splits
• Brokers need to be clear that the rate/fee charged is only what
the broker’s firm charges
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34. ANTITRUST LAWS
• Group Boycotting – Occurs when two or more businesses conspire
against other businesses to withhold their patronage
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35. ANTITRUST LAWS
• Allocation of Customers or Markets – Involves an agreement
between brokers to divide their markets and refrain from
competing for each other’s business
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36. ANTITRUST LAWS
• Tie-in Agreements – An agreement to sell one product (desirable)
that is tied in to the purchase of a second product (less desirable)
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37. ANTITRUST LAWS
• Penalties
• Sherman Antitrust Act – Fined up to $1 million and/or
imprisoned for up to 10 years
• Corporations fined up to $100 million
• Clayton Act – Injured party may be awarded up to three times
the amount of damages plus fees/costs
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38. LEGAL CONSIDERATION
AND TECHNOLOGY
• The internet has brought tremendous change to the real estate
industry
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39. LEGAL CONSIDERATION
AND TECHNOLOGY
• The use of internet in home search
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Younger Millennials
All Buyers
Older Millennials
Gen Xers
Young Boomers
Older Boomers
Silent Generation

40. LEGAL CONSIDERATION
AND TECHNOLOGY
• Top lead-generating tech tools
40
Customer Relationship
Management (CRM)
Social Media
MLS Site
Email Marketing Tool
Listing Aggregator Site
Digital Ad Campaign
Personal Blog or
Business Site

41. LEGAL CONSIDERATION
AND TECHNOLOGY
• Internet Web Sites
• National Association of REALTORS® has adopted an Internet
Listing Display Policy that allows all multiple listing service (MLS)
members to have equal rights to display MLS data
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42. LEGAL CONSIDERATION
AND TECHNOLOGY
• Internet Web Sites (cont’d)
• Blanket Opt-out Provision – MLS
participants may keep their
listings off of competitors’
websites provided they don’t
display competitors’ listings on
their website
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43. • Social Networking Sites – Becoming increasingly useful in the real
estate business
• Brokers must learn about risks and liabilities and create policies
and guidelines for use in an agents’ business
LEGAL CONSIDERATION
AND TECHNOLOGY
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Facebook Twitter YouTube LinkedIn Pinterest
Instagram TikTok

44. LEGAL CONSIDERATION
AND TECHNOLOGY
• Top social media networks used
44
Facebook
LinkedIn
YouTube
Twitter
Pinterest
Instagram
TikTok
Snapchat
Other

45. LEGAL CONSIDERATION
AND TECHNOLOGY
• Social Media Best Practices:
• Be cognizant of the effect social media posts and commentary
has on the image of the industry
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46. LEGAL CONSIDERATION
AND TECHNOLOGY
• Social Media Best Practices:
• Use good judgment when posting material
• Excessive Partying
• Language
• Politics
• Religion
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47. LEGAL CONSIDERATION
AND TECHNOLOGY
• Social Media Best Practices:
• Obtain permission from
agents, clients, and the
public when posting their
images or videos online
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48. LEGAL CONSIDERATION
AND TECHNOLOGY
• E-mail and Texting is speeding
communications between real estate
agents and consumers
• Make sure signature line is up-to-date
and that it is compliant with rules
regarding advertising
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49. LEGAL CONSIDERATION
AND TECHNOLOGY
• Internet Advertising
• Salespeople should consult their
Broker’s Policy Manual for
guidance regarding websites
and social media accounts
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50. LEGAL CONSIDERATION
AND TECHNOLOGY
• Internet Advertising (cont’d)
• Broker’s website must include:
• Broker’s registered name
• Telephone number
• State(s) the brokerage
is licensed
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51. LEGAL CONSIDERATION
AND TECHNOLOGY
• Internet Advertising (cont’d)
• Electronic communication must include the licensee’s name,
office address, and broker affiliation
• Disclose status as a Broker or Salesperson on each page of a
website that contains and advertisement
• Include sponsoring brokers name in salesperson’s
advertisement
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52. LEGAL CONSIDERATION
AND TECHNOLOGY
• National Do Not Call Registry – Managed by the Federal Trade
Commission (FTC) and is a list of consumers who have indicated
their preference not to be called
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53. LEGAL CONSIDERATION
AND TECHNOLOGY
• National Do Not Call Registry (cont’d)
• Licensees may call consumers with whom they have an
established business relationship for up to 18 months after
consumer’s last purchase
• Licensees may call a consumer for up to three months after the
consumer makes an inquiry
• www.DoNotCall.gov
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54. LEGAL CONSIDERATION
AND TECHNOLOGY
• National Do Not Call Registry (cont’d)
• Telemarketers and sellers are required to search the registry at
least once every
31
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days

55. LEGAL CONSIDERATION
AND TECHNOLOGY
• CAN-SPAM Act of 2003 –
Establishes requirements for
sending commercial e-mail,
spells out penalties for those
that don’t comply, and gives
consumers the right to have e-
mailers stop e-mailing them
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56. LEGAL CONSIDERATION
AND TECHNOLOGY
• CAN-SPAM Act of 2003 (cont’d)
• False or misleading header information is banned
• Deceptive subject lines are prohibited
• Recipients must have opt-out method
• Commercial email must be identified as an advertisement and
include sender’s postal address
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57. LEGAL CONSIDERATION
AND TECHNOLOGY
• Junk Fax Prevention Act of 2005 – Prohibits licensees from sending
unsolicited commercial faxes without express written consent or
without an established business relationship
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