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LCAR Unit 14 - Real Estate Brokerage - 14th Edition Revised

  1. The Real Estate School U N I T 1 4 REAL ESTATE BROKERAGE 1 Page 231
  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) 7 Page 232
  8. REAL ESTATE BROKERAGE • 2nd largest MLS in the US • 110,000+ subscribers 8
  9. REAL ESTATE BROKERAGE • In the 1980’s, transactions became increasingly complex • Buyers now seek representation 9 Page 232
  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 10 Page 232
  11. REAL ESTATE BROKERAGE • Challenges facing brokers: • Mastering the complexities of real estate transactions • Set effective policies • Maintain space & equipment • Hire personnel • Determine compensation 11 Page 232
  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 13 Page 233
  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 14 Page 233
  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 15 Page 233
  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 16 Page 233-234
  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 17 Page 234
  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 18 Page 234
  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 19 Page 234
  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 20 Page 234-235
  21. REAL ESTATE BROKERAGE • Sharing Commissions 21 Page 235 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 22 Page 236
  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 23 Page 236
  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 24 Page 236
  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 25 Page 237
  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 26 Page 237
  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 29
  30. ANTITRUST LAWS • The real estate industry is subject to federal and state antitrust laws 30 Page 237
  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 31 Page 237
  32. ANTITRUST LAWS • Price Fixing – The practice of setting prices for products or services rather than letting competition in the open market establish prices 32 Page 237-238
  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 33 Page 237-238
  34. ANTITRUST LAWS • Group Boycotting – Occurs when two or more businesses conspire against other businesses to withhold their patronage 34 Page 238
  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 35 Page 238
  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) 36 Page 238
  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 37 Page 238
  38. LEGAL CONSIDERATION AND TECHNOLOGY • The internet has brought tremendous change to the real estate industry 38 Page 239
  39. LEGAL CONSIDERATION AND TECHNOLOGY • The use of internet in home search 39 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 41 Page 239
  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 42 Page 239
  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 43 Page 239 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 45
  46. LEGAL CONSIDERATION AND TECHNOLOGY • Social Media Best Practices: • Use good judgment when posting material • Excessive Partying • Language • Politics • Religion 46
  47. LEGAL CONSIDERATION AND TECHNOLOGY • Social Media Best Practices: • Obtain permission from agents, clients, and the public when posting their images or videos online 47
  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 48 Page 239-240
  49. LEGAL CONSIDERATION AND TECHNOLOGY • Internet Advertising • Salespeople should consult their Broker’s Policy Manual for guidance regarding websites and social media accounts 49 Page 240
  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 50 Page 240
  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 51 Page 240
  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 52 Page 240
  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 • 53 Page 240-241
  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 54 Page 241 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 55 Page 241
  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 56 Page 241
  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 57 Page 242