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Terms in this set (144)

(Brokerage fee)

"The standard form of payment for a real estate broker"

To be legally entitled to a commission, a listing broker must meet three requirements.

The broker must:

1) have a written listing agreement with the seller,

2) have been licensed at the time brokerage services were provided, and

3) have fulfilled the terms of the listing agreement.

"The commission is usually computed as a percentage of the purchase price (the price that the property is sold for), as opposed to the listing price."

"In California, a broker can't sue a seller to collect a commission unless they had a written listing agreement.

(Note that an oral agreement between brokers to split a commission is enforceable, even though an oral listing agreement is not.)

The broker must also have been properly licensed at the time the brokerage services were provided.

In addition, the broker must have fulfilled the terms of the listing agreement that establish under what circumstances the seller is obligated to pay the broker a commission."

-"A provision stating the rate or amount of the broker's commission is another key part of every listing agreement.

The commission is usually computed as a percentage of the purchase price.

The commission rate or amount must be negotiable between the seller and the broker.

In fact, it's a violation of state and federal antitrust laws for brokers to set uniform commission rates.

Any discussion of commission rates among members of competing firms could give rise to a charge of price fixing"

"A special law applies to listing agreements for one- to four-unit residential properties and mobile homes.

If the broker uses a preprinted form for the listing agreement, it must state in boldface type that the amount or rate of the commission is not fixed by law and may be negotiated.

The commission rate or amount can't be printed in the form—it must be filled in for each transaction."

On the other hand, if a buyer makes an offer that does not match the terms spelled out in the listing agreement, then the seller can refuse it without owing the broker a commission.

The buyer wasn't ready and willing to buy on the seller's terms.
Generally, once a ready, willing, and able buyer has been found, the broker has earned the commission, whether or not the sale is ever completed.

When failure to close is the seller's fault, the broker is still entitled to the commission (although the broker might decide not to demand payment).

For example, once the seller accepts an offer, she still owes the broker a commission if the sale fails to close for any of these reasons:

1. the seller has a change of heart and decides not to sell;

2. the seller doesn't have marketable title;

3. the seller is unable to deliver possession of the property to the buyer; or

4. the seller and the buyer mutually agree to terminate their contract.

"Unless specifically required by the listing agreement, it isn't even necessary for the buyer and the seller to execute a written purchase agreement in order for the broker to be entitled to a commission.

It is enough if the buyer and the seller have reached an agreement as to the essential terms of the sale:

-the price,
-loan term,
-interest rate, and

If the seller backs out before the agreement is put into writing, the broker could still claim the commission.

Sometimes the seller and the broker disagree as to whether the buyer located by the broker was in fact ready, willing, and able.

In California, a court will presume that the buyer was ready, willing, and able if a written purchase agreement was signed.

Since the seller accepted the buyer by entering into the contract, the seller has waived the right to claim that the buyer was unacceptable.

This rule can be applied even if the buyer immediately defaulted because of financial inability to go through with the purchase.

On the other hand, if no contract has been signed and the agreement between the buyer and the seller is still at the unwritten stage when it falls through, the broker is NOT entitled to a commission unless she can prove that the buyer was financially able to perform the contract."

What if an offer comes in that meets all the seller's terms, but the seller decides not to accept it?

In most cases, the seller is still obligated to pay the broker the commission, since there was a ready and willing buyer.
(Nonexclusive listing)

Unilateral contract

The seller agrees to pay the broker a commission if the broker finds a buyer, but the broker does not promise to put forth any effort to find a buyer.

A seller can give an open listing to more than one broker at the same time.

Only the broker who is the procuring cause of the sale will be entitled to a commission.

"A type of listing that requires the property owner to pay a broker's commission only if the broker is the procuring cause of the sale."

"Under an open listing agreement, the seller is obligated to pay the broker a commission only if the broker was the procuring cause of the sale."

"An open listing is also called a nonexclusive listing, because a seller is free to give open listings to any number of brokers.

If a seller signs two open listing agreements with two different brokers, and one of the brokers sells the property, only the broker who made the sale is entitled to a commission.

The other broker isn't compensated for his efforts.

Or if the seller sells the property directly, without the help of either broker, then the seller doesn't have to pay any commission at all.

The sale of the property terminates all outstanding listings.

The open listing arrangement has obvious disadvantages.

If two competing brokers both negotiate with the person who ends up buying the property, there may be a dispute over which broker was the procuring cause of the sale.

Also, because a broker with an open listing agreement is not assured of a commission when the property sells, he may not put as much effort into marketing the property, so it may take longer to sell.

For the most part, open listing agreements are used only when a seller is unwilling to execute an exclusive listing agreement.

Multiple listing services generally do not accept open listings."
"A listing agreement should specify what the seller wants in the way of an offer.

This includes how much money the seller wants for the property (the listing price) and any other terms of sale that matter to the seller.

Any items that the seller wants to exclude from or include in the sale that wouldn't otherwise be excluded or included should also be noted in the listing agreement."

"The seller can reject any offer that doesn't meet the terms of sale described in the listing agreement without becoming liable for a commission.

However, if an offer is made that does meet those terms, and the seller rejects the offer, the broker may be entitled to a commission.

Thus, it is very important for all of the essential terms of sale to be set forth clearly and fully in the listing agreement."

-"The purchase agreement should set forth as clearly as possible all of the terms of the sale, such as the total purchase price, the amount of the downpayment, the method of payment, and what items are included in or excluded from the sale.

Many purchase agreement forms include a preprinted checklist of the most common types of financing arrangements.

But regardless of the form used, the financing arrangements should be fully described, including the type of loan the buyer intends to obtain, the principal amount, the interest rate, how the loan is amortized, and the term of the loan."

If the seller is willing to pay discount points or other costs to help a buyer obtain a loan, the listing agreement should state the maximum amount the seller is willing to pay toward these costs.

Most listing agreements also provide that the seller will pay for title insurance and certain other closing costs.
A net listing is a listing agreement in which the seller sets a net amount she is willing to accept for the property. If the sales price is more than that set amount, the broker is entitled to keep the excess.

Net listings are legal in California only if the commission amount is disclosed to the seller before she becomes committed to the sale.A type of listing in which the commission is any amount received from the sale over and above the "net" required by the seller."

"Sometimes the amount of the broker's commission is determined in an unusual way.

Under a net listing, the seller stipulates the net amount of money he requires from the sale of the property.

The broker then tries to sell the property for more than that net amount.

When the property is sold, the seller receives the required net and the broker keeps any money in excess of that amount as the commission."

"Net listings can be open, exclusive agency, or exclusive right to sell listings.

Whatever the type, net listings carry the potential for abuse; an unscrupulous broker could easily use a net listing to take advantage of a seller.

In California, a broker who uses a net listing must reveal the amount of his commission to the seller before the seller becomes committed to the transaction.

Failure to do so may result in disciplinary action."

"Ex. The seller insists on getting $645,000 from the sale of her property.

The broker sells the property for $678,000.

$678,000 less the required $645,000 net equals $33,000.

Thus, the broker's commission is $33,000.

If the broker had sold the property for more, his commission would have been more.

Likewise, if the broker had sold the property for less, his commission would have been less."
To establish a buyer agency relationship, a buyer and a broker may enter into a written representation agreement.

The agreement should state the term of the agency, the characteristics and price of the desired property, conditions under which the fee will be earned, who will pay the fee, and the agent's contractual duties.

An agreement between a prospective property buyer and a real estate broker, in which the buyer hires the broker to find suitable property to purchase."

"A written and signed agreement between a real estate buyer and a broker"

Typically states:

-characteristics of the property the buyer wants to find
-a price range
-the broker's duties
-the broker's compensation

"With this type of contract, a prospective buyer employs a broker to help her find and purchase a suitable property.

As with a listing agreement, even though the buyer representation agreement form is likely to be filled out by a salesperson, the contract is between the buyer and the broker, NOT the salesperson, and it creates an agency relationship between the broker and the buyer "

"Like a listing agreement, a buyer representation agreement can be exclusive or nonexclusive.

Under the terms of an exclusive agreement, the broker may be entitled to compensation if the buyer purchases property during the term of the agreement, whether or not it's the broker who finds the property or negotiates with the seller."

"To comply with the statute of frauds, a buyer representation agreement must be in writing and signed by the buyer to be enforceable.

The term of the broker's relationship with the seller should be established in the contract.

The Real Estate Law requires an exclusive buyer representation agreement, like an exclusive listing agreement, to specify a termination date."
"General characteristics of the property the buyer wants, the acceptable price range, the broker's duties, and the broker's compensation.

The type of property that the buyer wants should be described in enough detail so that the contract accurately states the buyer's requirements.

The buyer could become liable for the broker's compensation if the broker finds property within the stated price range that fits the description provided, even if the buyer doesn't want to purchase it.

Sometimes a buyer hires a broker not to find property but to negotiate the purchase of a particular property that the buyer has already found.

In that case, the buyer representation agreement should include a legal description of the property.

The broker's duties listed in the contract may include:

-locating properties,
-preparing offers on the buyer's behalf and presenting them to sellers,
-negotiating with sellers,
-helping the buyer obtain financing, and
-providing other guidance

In an exclusive representation agreement, the broker usually agrees to make a reasonably diligent effort on the buyer's behalf.

"The representation agreement is also likely to make it clear that the broker isn't prevented from working with other buyers during the term of the contract, or from showing other buyers the same properties she's showing this buyer.

When the broker negotiates for the purchase of a property on behalf of this buyer, it won't be a breach of contract or a violation of the broker's duties if she also negotiates for the same property on behalf of another buyer at the same time."
A buyer's agent may be compensated with a retainer, a seller-paid fee or commission split, or a buyer-paid fee.

Accepting compensation from a seller does not create an agency relationship between a buyer's agent and the seller.

"A buyer representation agreement includes a promise to compensate the broker.

Paid by:

-Seller-paid Fee
-Buyer-Paid Fee

The compensation must be negotiable, and if the buyer is seeking to purchase residential property with up to four units, the agreement must include a notice explaining that the compensation is negotiable.

The agreement should specify the conditions under which the broker's compensation will be earned and how the compensation will be determined.

There are a variety of ways in which a broker representing a buyer may be compensated.

Most buyer representation agreements provide for payment by means of a commission split when the buyer purchases a home that's listed through a multiple listing service.

MLS listing agreements authorize the listing broker to share the commission with other brokers.

Typically, the listing broker will pay half of his commission to the broker who finds a buyer, regardless of which party that other broker is representing."

"When a broker representing a buyer accepts a commission split, she's effectively being paid by the seller rather than by her own client, the buyer.

Under California law, a broker's duties to her client aren't affected by which party pays her fee."

-"Many purchase agreements also provide for the payment of the broker's commission.

In most cases, this provision is merely a reaffirmation of the commission agreement set forth in the listing agreement.

But if the broker has risked working under an oral or implied listing agreement so far in the transaction, such a provision in the purchase agreement will satisfy the requirement for a written listing agreement, in case the broker needs to sue the seller for the commission."
(Deposit receipt)
(Purchase and sale agreement)

usually a conditional agreement

"A contract between a buyer and a seller of real property.

Also called a purchase and sale agreement, a contract of sale, or a deposit receipt."

"A purchase agreement is a written contract between a buyer and a seller that establishes all of the terms of the sale."

"When a real estate seller accepts a buyer's offer to purchase the property, they enter into a purchase agreement."

"In a residential transaction, the buyer's offer is usually prepared by filling out a standard purchase agreement form."

"The buyer signs the form, which is then presented to the seller along with a good faith deposit.

If the seller decides to accept the offer, she also signs the form, and the form then becomes the binding contract of sale.

The form also serves as the buyer's receipt for the deposit.

(For that reason, you may occasionally hear a purchase agreement referred to as a deposit receipt.)"

"After a purchase agreement has been signed, there are still many details to be taken care of before the transaction can close: financing arrangements, inspections, a title search, and so on.

As a legally binding contract, the purchase agreement keeps the buyer and the seller committed to the transaction while all of those tasks are performed.

It protects both parties by providing legal recourse if either of them backs out of the transaction."

Serves 3 functions

1. it is the buyer's offer to the seller

2. it is the buyer's receipt for the deposit

3. when signed buy the seller and returned to the buyer, it becomes a binding contract
A contingency clause makes a transaction dependent on the fulfillment of a specified condition. If the condition is not fulfilled, the transaction will terminate without liability for either party.

"A contract clause which provides that unless some specified event occurs, the contract is null and void."

"Most purchase agreements are conditional, or contingent.

For example, it's common to condition a sale on the buyer's ability to obtain the necessary financing.

If the buyer isn't able to obtain the financing after making a good faith effort to do so, she doesn't have to go through with the purchase; she can withdraw without forfeiting the deposit.

Any and all conditions must be clearly stated in the purchase agreement.

A provision setting forth a condition is called a contingency clause.

A contingency clause should state exactly what must occur to fulfill the condition, and it should explain how one party is to notify the other when the condition has been either fulfilled or waived.

There should also be a time limit placed on the condition (for example, if the condition isn't fulfilled or waived by January 15, the contract is void).

Finally, the contingency clause should explain the parties' rights in the event that the condition isn't fulfilled or waived.

If a real estate licensee believes that a condition imposed in a purchase agreement may affect the date of closing or the date the buyer can take possession of the property, the licensee is required to explain that to the parties.

Failure to do so is a violation of the California Real Estate Law and may lead to disciplinary action"

-Time limit

-contingent on the buyer's ability to obtain financing
-contingent upon receiving satisfactory results from inspection
-contingent upon sale of buyer's current home
-contingent on closing date
A land contract is a financing agreement between a buyer (vendee) and a seller (vendor).

The vendee takes possession of the property, but pays for it in installments.

The vendor delivers the deed only when the vendee makes the final contract payment.

"A contract for the sale of real property in which the buyer (vendee) pays the purchase price in installments.

The vendee takes possession of the property, but the seller (vendor) retains legal title until the full price has been paid."

"What we'll refer to as a land contract is also known by several other names:

-real property sales contract,
-real estate contract,
-conditional sales contract,
-installment sales contract, or
-contract for deed

Under a land contract, a buyer purchases property on an installment basis, rather than paying the seller the full purchase price all at once.

The buyer takes possession of the property immediately, but the seller doesn't convey title to the buyer until the full price has been paid.

The California statute concerning land contracts provides this specific definition:

" agreement wherein one party agrees to convey title to real property to another party upon the satisfaction of specified conditions set forth in the contract and that does not require conveyance of title within one year from the date of formation of the contract."

"The parties to a land contract are usually referred to as the vendor (the seller) and the vendee (the buyer)."

"During the period in which the vendee is making payments on the contract, the vendor retains legal title to the property.

The vendor doesn't deliver the deed to the vendee until the full purchase price has been paid.

In the meantime, the vendee has equitable title to the property."

In a land contract for residential property with up to four units, the vendor can prohibit prepayment for only 12 months following the sale.

At any time after that point, if the vendee wants to pay off the entire balance of the contract price, the vendor is required to accept that payment.
"While the vendee is paying off the contract, the vendor has the right to transfer or encumber the property without the vendee's consent.

However, if legal title is transferred, the new owner takes title subject to the rights of the vendee under the land contract.

If the vendor creates any liens against the property, the law requires the vendor to apply the vendee's contract payments to amounts due on the liens.

This protects the vendee from the possibility that the vendor will default on the liens and lose the property through foreclosure."

"The vendor must pay off any liens before delivering the deed to the vendee.

The vendor is required to deliver clear, marketable title when the vendee pays off the contract.

A land contract can't be recorded unless the vendor's signature has been acknowledged.

The vendor can't prevent or prohibit the vendee from recording the contract.

If, for some reason, a land contract isn't recorded, there are some additional statutory restrictions on the vendor's right to create liens.

Unless the vendee consents to the liens, the vendor can't encumber the property with liens that add up to more than the unpaid contract balance.

And the monthly payments on those liens can't total more than the vendee's monthly payment on the land contract.

The vendee's main responsibility is to make the required installment payments to the vendor.

The vendee is generally also responsible for keeping the property insured and paying the property taxes.

In a land contract for residential property with up to four units, the vendor can prohibit prepayment only during the first 12 months following the sale."

"(Prepayment refers to paying all or part of the amount owed before it's due.)"

"After that point, the vendee has the legal right to prepay any or all of the contract price.

So if the vendee wants to pay off the entire balance of the contract price a year after entering into the contract, the vendor can't refuse to accept the payment.

The vendee has the right to encumber the property, although few lenders are willing to make loans with a vendee's equitable interest as the only security.

The vendee may sell her interest in the property by assigning the right to receive the deed when the contract price has been paid in full.

(However, the vendee will remain responsible for making the contract payments unless the vendor releases the vendee from liability.)

The vendee also has the right to devise (will) her interest."
"California law defines a security deposit as any payment, fee, deposit, or charge (including an advance payment of rent) paid by the tenant to secure the performance of the lease agreement.

Such a payment is considered a security deposit no matter what the landlord and tenant call it.

The total security deposit for a residential lease generally can't exceed twice the monthly rental payment for unfurnished units, or three times the monthly payment for furnished units.

However, if the lease term is six months or longer, the landlord can require a deposit of six times the monthly payment or more, as long as it is designated as an advance payment of rent.

Within 21 calendar days after a residential tenant vacates the leased property, the landlord must return the security deposit to the tenant, or send a letter explaining the reason for not returning any portion of the deposit.

If the deposit or a written explanation isn't given to the tenant within the 21-day period, the landlord could be liable for a penalty of up to twice the amount of the security deposit, in addition to actual damages.

Labeling a deposit "nonrefundable" (for example, "nonrefundable cleaning deposit") has no bearing on this requirement; the landlord must still return the payment or give a written explanation within 21 days.

In fact, it's illegal to describe a deposit as nonrefundable in a residential lease.

All or a portion of a tenant's security deposit may be withheld to cover unpaid rent, or to pay for cleaning the rental unit or repairing damage caused by the tenant.

The tenant can't be charged for normal wear and tear, however."