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Real Estate Brokerage Activities: Guides for Salespersons
Terms in this set (25)
All brokers in the state of Florida must have a real estate office and must register that office with the DBPR. This is called the Primary office.
All sales associates working under the broker's direction must be registered and work from the broker's primary office or a branch office. A sales associate or broker associate may not have an independent office of his own.
The office must be within structure of at least one room of stationary construction. The office may be in a residential area if not contrary to local zoning ordinances. The office should be of a private nature so negotiations of the buyer or seller may be held with privacy and confidence.
Temporary shelters in a subdivision (such as a construction trailer) may be used as a temporary office so long as transactions are not closed and salespeople are not permanently assigned there. The permanence, use and character of activities customarily conducted at the office or shelter shall determine whether it must be registered as an office.
The office must have an entrance sign located on the door of, or adjacent to the front entry
Branch Offices -Home Office
Whenever a broker wishes to conduct business in more than one location, each office must be registered with DBPR (Department of Business and Professional Regulation) and the appropriate fee/s paid. All advertising (i.e. phone numbers, letterhead, etc.) of the broker must be displayed to indicate to the public that such an office is operated at that location by the broker.
If a broker closes a branch office and opens a different branch, the registration of the first branch may not be transferred. The new location must be registered and the fee paid for that location. However, if a broker wishes to re-open a branch office at its previous location before the license expires, he may do so without an additional fee.
The branch office must have an entrance sign located on the door of, or adjacent to the front entry.
Brokerage Office Located in Home
The residence of a broker may also be the brokerage business location as long as zoning allows. (Rule 61J2-10.022) NOTE: There is a difference between a home office and a business located within the home. A sales associate may not conduct business from a personal residence. Sales associates must be affiliated or registered from and work out of an office maintained in the name of the broker or employer.
If the office is located within a residence, the broker must:
Comply with the sign requirements of 475.22 F.S.
Deducting the Home Office Expense:
If the home office is used in connection with a trade or business and there is no other business location, deductions may be allowed.
A pro rata share of expenses may be deducted on the federal tax return if the home is used exclusively and regularly.
Examples of deductible expenses are: Maintenance, utilities, insurance and depreciation.
Correspondence and business documents must be kept at the location, in the area used for business.
Sales associates that perform outside sales would probably NOT qualify for the home office deduction because the income is earned from outside sales and not from activity located within the home.
CAUTION: The home office deduction is a complicated and controversial portion of the tax code. While tax law has changed in recent years with regard to the home office deduction, when deducting expenses for the home office, professional advice should ALWAYS be sought.
Office Entrance Signs
Every office entry must have a sign located on the front entry door or directly adjacent to the door. The sign must contain the NAME of the BROKER who is registered as the broker of record for that office. If the office has a trade name, the Trade name must be located on the sign, followed by the broker of record's name. A partnership or corporation shall contain the name of the firm or corporation or trade name along with at least one of the brokers. At a minimum the words "Licensed Real Estate Broker" (or "Lic. Real Estate Broker") must appear immediately below the broker/s name/s
The name of sales associate/s or broker associates may also appear if they are located under the required lines and clearly separated from the broker's identification, and that they show the type of license for each person listed.
Brokers must always advertise in a manner that alerts the public that they are dealing with a real estate professional. All advertisements in the name of the brokerage are the broker's responsibility, no matter who composed it. All advertising must contain the name of the brokerage firm which is registered with the Department. Such name must be conspicuous within the advertisement
No real estate advertisement by a licensee shall show only a post office box number or telephone number or other vague information so that the public does not know that it is a licensee. Such an ad is called a Blind Ad and is illegal under Florida Law.
If a sales associate or broker associate's name appears in the ad, the name of the firm must be identified. If a phone number included in the ad is NOT the number to the brokerage firm, it must be identified as such. "cell phone, home phone."
Advertising includes ads for purchasing; renting, or leasing real property as well as any advertising given to the public such as pens, note pads, etc.
When advertising on the Internet, the brokerage firm name shall be placed adjacent to or immediately above the POINT of CONTACT information. "Point of Contact" refers to any means by which to contact the brokerage firm or individual licensee including mailing address, physical street address, e-mail address, telephone number or FAX number.
No real estate advertisement placed or caused to be placed by a licensee shall be fraudulent, false, deceptive or misleading.
When the licensee's personal name appears in the advertisement, at the very least the licensee's last name must be used in the manner in which it is registered with the Commission. Any sales associate, even if they purchase their own advertising cannot advertise or conduct business in his or her own name.
For Sale or Lease Signs, when used, must also have the brokerage identified. Sales associates may place "pending" and "Sold" signs upon these signs with the permission of the owner.
When a property sells or the listing expires, the advertising sign must be removed.
Punishment for misleading or false information placed by a broker is punishable by an administrative fine of up to $5,000 per count to a one year suspension.
Any person who advertises real estate services for another is interpreted as acting as a broker. Sales associates CANNOT advertise or conduct business in their name only.
Remember, Blind Ads are illegal! -
A blind ad is an advertisement that does not make it clear that a broker or real estate company is advertising the property for sale, rent or lease. The name of the brokerage must always appear in an advertisement, no matter what type of advertisement. Refer to FREC Rule 61J2.10.25
Other People's Money
During the normal course of business the broker or his firm handles money that belongs to others. This can be security deposits, rent money, earnest money deposits or any type of money being held by the broker in escrow for the buyer or seller.
Escrow is an amount of money or property granted to somebody but held by a third party and only released after a specific condition has been met.
If the item collected is not money, the seller must agree in writing that the item in question is acceptable. It is the responsibility of the broker to keep careful records of all items received and to deliver the funds when dispersal is required. It is also the responsibility of the broker to deposit money received in his care in the proper escrow account immediately.
A separate account is required for a broker to deposit these funds apart from his own personal or operating funds. To mix personal and public money is called Commingling and is illegal under Florida law, with the exception of $1000 that a broker may deposit in the escrow (or trust) account to keep the account open. Conversion means taking money that should be held in escrow for the parties and using the money for the broker's own needs (such as operating money). This is an illegal act.
When a sales associate obtains money to be deposited in the escrow account, it must be given to the broker immediately. This means no later than the end of the next business day.
When a broker receives money to be deposited in an escrow account, he must deposit it immediately within three business days. (Holidays and weekends are excluded)
Escrow account deposits
An escrow or trust account is a separate account in a bank or trust company, title company having trust powers, credit union or a savings and loan association within the State of Florida. This must be an account separate from the broker's own operating funds.
The broker must be a signatory on all escrow accounts. If there is more than one broker, then a broker licensee must be designated as the signatory. If the deposit is in securities, intended by the depositor to be converted into cash, the conversion shall be made at the earliest practical time, and the proceeds shall be immediately deposited in the account.
A broker may maintain more than one escrow account and maintain up to $1000 of his own money in each sales escrow account or up to $5,000 in a property management account. The broker must reconcile the accounts no more than 30 days from the date of the last reconciliation was performed or should have been performed. This requirement cannot be delegated to any other person.
A broker is NOT required to have an escrow account. When earnest money or deposit funds are entrusted to a title company or attorney, the licensee who prepares the contract, must indicate on that purchase agreement the contact information for the depository where the funds will be held. Included must be:
Escrow Agent Name
Phone, email, and FAX
Within 10 BUSINESS DAYS of the date of receipt, the broker shall make a written request to the title company or attorney to provide a written verification of receipt of the deposit.
Within 10 days of verification of deposit, the broker shall provide the seller (if unrepresented) or seller's broker a copy of written verification.
Interest Bearing account
If the broker chooses, he may place the escrow money in an interest-bearing escrow account. He may do so only if the following is stated in writing with all parties to the transaction:
the name of the party who is to receive the interest, and
the date the earned interest must be disbursed.
The broker must have the written permission of all parties to the transaction. The escrow account shall be in an insured account in a depository located and doing business in Florida.
To disburse the principal and interest to the designated party, the broker must transfer the principal and interest to a non-interest bearing escrow account before disbursement. If the broker is to receive the interest, the principal is transferred to the non-interest bearing account and the interest is transferred to the broker's operating fund account.
The broker may establish an individual interest-bearing escrow account for a specific transaction or sum of money. On the date agreed on, the broker must close the account with checks issued to the appropriate person or business entity for the principal and interest.
Real estate escrow trust accounts
The broker must keep careful, exact records of the money in trust accounts.
Brokers who fail to reconcile their escrow accounts monthly (or more frequently) are subject to a citation. Failure to properly maintain escrow accounts is the one of the most common problems found during a DBPR Audit.
The broker must keep copies of all records pertaining to the escrow account including but not limited to deposit slips, books, and statements of accounts. These records must be available to the DBPR or its authorized representatives during regular business hours.
Once a month, the broker shall have a written statement made comparing the broker's total liability with the reconciled bank balances of all trust accounts. This includes the sum total of all deposits received, pending and being held by the broker at any point in time.
The minimum information to be included in the monthly report is
the date used to reconcile the balances,
the name of the bank(s),
the name(s) of the account(s),
the account number(s),
the account balance(s),
deposits in transit,
outstanding checks identified by date and check number,
an itemized list of the broker's trust liability,
other items necessary to reconcile the bank account with the balance per the broker's checkbook(s) and other trust account books and records disclosing the date of receipt and source of funds.
The broker must review, sign and date the monthly statement-reconciliation. If the accounts do not balance with the broker's books, a description or explanation of the difference as well as the corrective action must be included in the report.
Escrow accounts in disputes
Escrow is held in an account until it needs to be turned over to the closing source. If a contract does not close, or a portion of the escrow claimed by the brokerage, the broker's portion will be apportioned into the broker's operating account for disbursement as required.
Occasionally, however, there is a dispute over the return or disbursement of earnest money. It is the responsibility of the broker to then notify the FREC within 15 business days from the last party's demand. There are three exceptions to this rule:
if it is a property utilizing HUD (Department of Housing and Urban Development www.hud.com)
if the buyer of a condominium unit delivers written notice to cancel as provided under the Condominium Act 718 F.S.
if the buyer is unable to satisfy a financing contingency within the time frame as provided by the contract
In these cases the broker may disburse the funds according to the guidelines of each situation.
Otherwise, if the broker has a good-faith doubt (meaning the broker honestly doubts the claim of a party), the broker reports the situation to the FREC. The broker has 30 days from the last party's demand to implement one of the procedures set up for escrow disputes. These are
Escrow Disbursement Order,
Four Settlement of Escrow Dispute Procedures
After the broker notifies the FREC of the problem, the broker may wish to request:
An Escrow Disbursement Order (EDO) from the FREC. Once the EDO is requested, the broker must follow the instructions of the FREC. If the EDO is overturned on appeal, the broker may be liable for civil damages in a civil suit. However, if the broker has followed the EDO, damages to the broker can be reimbursed from the Real Estate Recovery Fund without jeopardy to the broker's license, and the broker is not required to repay the Fund. The FREC may refuse to issue a Disbursement Order, in which case the other procedures must be used.
Mediation: Both parties agree in writing to mediation by a mediator. If the issue is not solved within 90 days, the licensee must use the other types of dispute procedures.
Arbitration: If the buyer and seller cannot agree, the issue is submitted to arbitration and a third party (arbitrator) makes a decision for one party or the other. If this fails, the parties go to Litigation.
Litigation: is simply a law suit, asking the courts through a process called Interpleader to determine the rightful owner of the disputed escrow. The court issues a declaratory judgment which is a binding determination of the rights and status of the parties.
Once the dispute is settled, the broker must notify the FREC within 10 days that the dispute is over.
A situation that is considered good faith doubt is when one party to the dispute does not respond to the broker's correspondence about the escrow money when a transaction fails to close on time or if the buyer (or his spouse) refuses to close at all.
Rental Lists and Rental Companies
When a broker provides a list of rental property for a fee and acts as an information broker to a tenant, the FREC requires that the broker give the tenant a contract that specifies that the tenant has the right to:
Request a refund of 75% of the fee (if requested within 30 days) if the tenant does not find a rental; and
Request a refund of 100% of the full fee (if requested within 30 days) if the information is inaccurate.
The penalty for advertising obsolete or otherwise inaccurate rental lists is a fine up to $1,000 and/or up to one year in prison. This is a first degree misdemeanor.
The Role of the Broker in Property Transfer
The broker or sales associate is considered an expert in many aspects of property transfer. There are areas however, when the line of the law could be crossed and unintentional trouble may follow.
The broker must be very careful not to give an opinion as to the validity of title to a property since the broker is not an expert in that field. Only an attorney may give an opinion of title, after reviewing the chain of ownership over a period of time.
Trying to sell a property often requires a creative touch. However, sales associates and brokers could go too far when describing a property. If the write up on the property provides information that is a subjective opinion that is called Puffing.
Puffing is making such statements as "The transportation, shopping and schools in this area are terrific." or "Isn't this the most beautiful yard you have ever seen."
In some cases, salespersons and brokers may exaggerate the benefits or representation of a property's value and added features. This is a misrepresentation of the property and could result in a loss of perceived value on the part of the buyer. If the broker or salesperson causes a material loss to a party as a result of misrepresentation, a resulting charge of FRAUD could follow.
The broker must take great care to avoid Fraud. This is deception intended to cause unsuspecting person harm, such as giving up a lawful right to a building inspection, etc. Fraud is not always done with the intent to take advantage of another person to the benefit of the original person. Fraud can also be an intentional or unintentional misstatement of fact or an omission of fact, where person makes a decision based on bad information.
An example of misrepresentation of value by a broker could include lack of information on material facts such as a leaky roof or electrical problem that the broker knew or should have known by asking the seller. Such misinformation could be considered fraud, breach of contract or a breach of trust, depending on the situation.
A broker may never give advice about contract law or explain the meaning of contract areas to anyone; nor should the broker discourage the use of an attorney in assisting the buyer or selling in the process of the sale.
A commission is compensation paid to a real estate broker for real estate service. It can be paid as a
Percentage of sale price
Flat Fee or Salary
Or a combination of both, as set forth in the listing agreement, management agreement or agreement.
Established by some type of written agreement (listing agreement, property management agreement or agreement) the commission between the parties is always negotiable. Only brokers can contract with Principals or customers. A sales associate works under the direction and guidance of a broker and cannot contract directly with the Principal or customer.
The fact that one party such as the seller or another party such as the buyer pays a commission does NOT create an agency relationship. An agency relationship is created by disclosure and written agreement between the parties.
In order to collect a commission, a broker:
Must be a licensed real estate broker or sales associate working under the supervision of an employing broker. A broker can only pay a sales associate licensed and registered under him. A sales associate can never collect a payment from other than the employing broker.
Must have been employed by the principal under a valid contract such as a listing agreement, agreement etc.
Must have been the procuring cause of the sale. Procuring cause is a series of events leading to the sale/purchase or renting of real property.
Must have a ready, willing and able buyer, seller or tenant, depending who the contract calls for. (There will be more about this under contracts.)
The Sales Associate's Portion of the Commission
The sales associate conducts all business in the name of his broker. All business including the receiving of commission is through the broker, the employing broker of the sales associate only. The sales associate may never accept direct payment from a Principal or customer; the sales associate receives payment only from the employing broker. Any compensation or gifts to a sales associate must also be provided through the broker if it is the result of a real estate transaction.
The commission "split", as real estate professionals call it, is determined in advance between the broker and his sales associates and broker associates. Details of commission splits should be part of the employment agreement between the broker and the sales or broker associate, and should be understood by all parties.
Since the sales associate is an employee of the broker, he or she cannot sue a principal or customer for a commission.
The broker's Policy Manual may discuss how commissions are calculated.
The Sherman Anti-Trust Act
Price fixing- Collusion between brokers and sales associate with competing companies in setting commission rates is illegal. "Everyone charges the same so you might as well list with me" would be considered an illegal statement and a violation of the Act, since brokers cannot get together and set rates.
Making a statement that a broker charges more commission than another or that a broker offers a discount commission could also violate this rule as brokers charge the commission that they need to meet their own business plan. There is NO standard commission in real estate!
Group Boycotts - Licensees of different companies should not agree to boycott a company because of the company's business practices. For example, a group of brokers boycott a discount broker because the discount broker has lower rates. This is illegal.
Division of markets by location or price - Dividing up the town either geographically or by price range is a violation of law. Giving ABC all of the north side while XYZ takes the south side is a violation of law as is ABC taking all the listings of below $200,000 and XYZ all the listings above.
Violations of the Sherman Anti-Trust Act can include prison terms and fines of $50,000 per violation. All business must be allowed to flow freely in an open market.
Kickbacks are difficult to manage and document. Brokers can, under some circumstances, receive kickbacks from providers outside the transaction as long as the buyer and seller are informed of the kickback. A referral fee from a carpet company would be an example of a legal kickback.
In other situations, a broker seeking a kickback from a title company, or mortgage provider for referring and closing a property with their particular company is a violation of the federal Real Estate Settlement Procedures Act (RESPA). As a result of the Dodd Frank Wall Street Mortgage and Consumer Protection Act of 2008, RESPA oversight was transferred from the U.S. Department of Housing and Urban Development to the Consumer Financial Protection Bureau (CFPB).
Kickbacks are legal only under limited conditions:
All parties to the transaction must be fully informed of the kickback.
The kickback must not be prohibited by other law (such as the Real Estate Settlement Procedures Act).
The commission may be shared with an unlicensed seller or buyer of the property sold with lender approval.
NOTE: It is unlawful for a licensee to pay any fee to an unlicensed individual for performing the services of real estate.
Change of employer.
Many real estate professionals change employers. Any time a sales associate changes employers (brokers) he must notify the FREC within 10 days on the current form prescribed by the DBPR. All forms required for real estate changes for individuals and schools are available at: http://myfloridalicense.com/ under the real estate section.
By changing employers, the sales associate does not give up his obligation of confidentiality to a Principal. Remember, the sales associate is an agent of the broker who is his or her principal. All information that is confidential to the Principal shall remain confidential, regardless of where a broker or sales associate is employed.
A broker-sales associate relationship does not end with termination (firing) of employment. Copying records from the previous broker to take new listings to the new broker would be considered a breach of trust and removal of records from a previous employer's office constitutes theft, because all business was done in the initial broker's name.
When a broker or real estate school changes business address, they must file a notice of change and the names of the licensees no longer associated with the firm. This action fulfills the change of address notification requirement of licensees who remain with that firm. Licensees whose names are included in the list of non-associates if not already inactive will become involuntary inactive. The broker or school will have ten business days to notify the FREC, failure to notify will cause the license of the broker or school to be ineffective and the licenses of all who work under that license to be ineffective. A fine will also be charged to the broker for failure to report.
When a sales associate changes his or her address, he or she has 10 business days to notify the FREC. Failure to notify the FREC may result in a fine to that sales associate.
Sales associates and brokers are also required to keep their email addresses current with the DBPR as some requests and communications are now being electronically transmitted.
Using Trade Names of Real Estate Organizations
Unauthorized display of names or insignia of real estate organizations or associations is prohibited by FREC rules. For example, do not use the REALTOR® trademark or any other group insignia or designation unless you are a current member or are qualified in that skill or business.
Types of Business Entities that May Register as a Real Estate Brokerage
A broker may wish to do business as a business entity instead of using his own name. The broker should consult with his own attorney or accountant to find the specific entity that meets his specific needs. These companies will need to be registered with the DBPR.
These specific types of business units can be registered:
Sole proprietorship: is a business owned by one person. It may have a trade name rather than the name of the owner. The advantages are that it is easy to manage - and decisions are made by the owner. The disadvantage is that when the owner dies, the company ceases to amaze "llexist. Liability is completely held by the one owner. All actions of associates to this broker are his responsibility and his alone. A sole proprietor does not need to register with the Secretary of State unless a trade name is used. (See Trade Names)
General Partnership : is a business owned by more than one broker. Each partner in a general partnership is liable for any debt; each partner helps to make the decisions and receives a share of the profits. At least one of the brokers must be specified as the active broker. All partners dealing with the public must be an active broker. A sales associate or a broker associate cannot be partners in a general partnership. Any change in the makeup of the partnership must be reported to the FREC. The partnership is registered with the FREC but does not have to be filed with the Secretary of State.
If the primary broker dies, that broker must be replaced by another active broker within 14 days. If this does not occur, the partnership registration is cancelled and all the licensees associated with the partnership become involuntarily inactive.
A general partnership is dissolved by:
agreement of the partners
death of one of the partners
bankruptcy of one of the partners
bankruptcy of the partnership
Limited Partnerships: is a business owned by at least one general partner and at least one limited partner. All the management is done by the general partner. Limited partners contribute investment cash but are limited in the amount of liability to the amount of money they have already given. Limited partners (sometimes called silent partners) do not have a voice in the managing of the company. The limited partnership is registered with the FREC, and at least one of the general partners must be an active broker.
The partnership is created by filing with the Secretary of State. The partnership must be also be registered with the FREC. General partners who work with the public must be active brokers and licensed with the FREC. All other general partners must also be registered with the DRE. Limited partners do not have to be licensed or registered. Sales associates and broker associates cannot be general partners but they may be limited partners.
If the primary broker dies, that broker must be replaced by another active broker within 14 days. If this does not occur, the partnership registration is cancelled and all the licensees associated with the partnership become involuntarily inactive.
Corporation: is a company that is an entity, rather than a single person. It may have a trade name associated with it. A corporation is formed by filing Articles of Incorporation with the Secretary of State which specify the duties and powers of the corporation. The corporation must be registered with the FREC. Stockholders own the business but it is managed by a board of directors, acting through its officers. The Corporation may be either for profit or nonprofit.
All directors and officers must be active brokers, inactive brokers or unlicensed persons, but at least one officer must be an active broker licensed by the FREC. Sales associates and broker associates cannot be officers or directors. Only active brokers can conduct meetings, direct the sales staff, or can communicate in any way with the public. The word company must appear in all ads in a for-profit company. A corporation may either be a Florida corporation or a foreign corporation, meaning organized under another state besides Florida . Either foreign or domestic corporations must be registered with the FREC.
Corporations may cease to exist when:
the stockholders act to dissolve the company
a court order dissolved the company
the life span has expired, as provided in the charter
the corporation fails to file an annual report with the State of Florida
the annual fee required by the state of Florida is not paid.
If the firm only has one active broker, and that broker dies, the company has 14 calendar days to notify the FREC. If this is not met, the corporation's registration will be cancelled and the licenses of all its associates become involuntarily inactive. If there is more than one active broker, the associates are not affected by the change of leadership.
Limited Liability Partnership
Limited liability company
Limited Liability Partnership:( LLP)is a form of ownership that provides liability protection similar to protection offered to limited partners in a limited partnership. Basically the partner is liable only for the acts the he, himself has done, rather than the partnership, The Limited Liability Partnership must file with the Secretary of State and must always use the letters LLP in it's name.
Limited Liability Company : (LLC) is also called a "professional company" and its purpose is to provide professional real estate services without the liability of an unprotected broker's or sales associate license. Liability of an LLC is limited to a single person's professional action. Broker associates and sales associates may register with the Department as a professional corporation or limited liability company to limit individual liability after providing authorization from the Secretary of State. The license is issued in the licensee's legal name only and shall include the designation LLC.
Example: John D. Smith, LLC.
The department may license broker associates and sales associates as: an individual, professional corporation or limited liability company provided the licensee uses the legal name.
An individual broker, partnership or corporation may use a trade name, and if so it must be disclosed upon the request for a license and be placed upon the registration or license. It cannot be the same as a real or trade name of another registrant or licensee. No individual, partnership or corporation may be registered under more than one trade name. The actual name of the individual or an entity is not a trade name.
Such a name must be noted on the records of the Commission and placed on the license so that the public will know that this is a licensed broker and a registered company.
A sales associate may not use a trade name or fictitious name at any time. They must register and operate under their true name only.
Organizations can't use trade names
The following cannot be registered as a real estate brokerage:
A Corporation Sole- church organization, but not a non-profit
A joint venture-temporary relationship
A Business Trust-investment group for its own purposes
Cooperative/Condominium/Homeowners' Association- These associations are formed to manage common ownership and do not deal in real estate
An unincorporated Association- local property owners, not partners
An Ostensible (Quasi) Partnership - hidden relationship
An ostensible partnership may be formed without the knowledge of a real estate broker.
If you have not done so already,
please complete your Principles of Real Estate Practice Reading Assignment:
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