45 HOUR POST LICENSE FLORIDA EXAM 3 2024, Exams of Nursing

Download 45 HOUR POST LICENSE FLORIDA EXAM 3 2024 and more Exams Nursing in PDF only on Docsity! 1 | P a g e 45 HOUR POST LICENSE FLORIDA EXAM 3 2024 WITH ACTUAL CORRECT QUESTIONS AND VERIFIED DETAILED ANSWERS BY EXPERTS |FREQUENTLY TESTED QUESTIONS AND SOLUTIONS |ALREADY GRADED A+ | NEWEST |LATEST UPDATE |GUARANTEED PASS A salesperson wishes to take home $80,000 annually. If taxes, dues, advertising, and fees are about 35% of his total earnings, he should set his goal at around $123,000. // Divide the desired earnings by .65 (100% - 35%). $80,000 ÷ .65 = $123,077, rounded to $123,000. A sales associate is estimating the prepayments for a new loan that will close on April 12. If the first payment is due on June 1, how will the prepaid interest be calculated for the closing statement? The buyer will be charged from April 12 through April 30. Which federal law requires fair consideration of consumer loan applications from women, minorities, part-time employees, and others who may have suffered prejudicial treatment in the past? The Equal Credit Opportunity Act If a neighborhood has good turnover but has a low price range it is unlikely to be a good farm area. In order to make successful prospecting calls, a sales associate should be consistent, making them at the same time each day. Open listings may be oral, written, or implied. Effective gross income is the amount remaining when vacancy and collection losses are subtracted from potential gross income. It is a bad idea for sales associates to personally perform the preclosing walk-through inspection to be certain all items are in working order. 2 | P a g e If the seller defaults, and the contract was written using the Florida Realtors®/Florida Bar Residential Contract for Sale and Purchase, the buyer may get the binder back and cancel the contract Which is correct about real estate licensees who prepare an appraisal? The appraisal cannot be used by a bank for a new loan. A property sold for $149,300. How much must be paid for the documentary stamp taxes on the deed? $1,045.10 When at least 80% of units in a complex have at least one occupant who is at least 55 years of age, the owners can advertise it as "adults only." Which is NOT a requirement for a successful listing presentation? Must be younger than 60 years old Which is an operating expense of an income property? Management fee A person who has an immediate need to buy is called a Priority 1 buyer. When you talk with a for sale by owner about her property, your principal objective should be to make an appointment. The Civil Rights Act of 1866 prohibits discrimination based on race. The sphere of influence is NOT a farm area Hearing, understanding, and evaluation are part of what type of skill set? Listening A show list consists of apartments that are currently available for rent and in excellent condition. A sales associate who asks a prospective buyer, "How many bedrooms do you need in the house?" is qualifying the buyer's housing objectives. A sales associate receives a good-faith deposit from a buyer on Wednesday. The broker must deposit the funds into the escrow account no later than the following 5 | P a g e It is not legal to pay a personal assistant—whether licensed or unlicensed—a portion of a real estate commission. In a relatively new neighborhood with 524 homes, 72 houses were sold. The turnover index in this neighborhood is 13.7% // 7%. 72 houses sold ÷ 524 total homes = .137 or 13.7% The Florida Realtors®/Florida Bar Residential Contract for Sale and Purchase is best for a residential sale. Sometimes when a buyer is not quite ready and wants to think about it a while longer, the salesperson should ask permission to prepare the paperwork as if they were buying, then go over it. An exclusive agency listing is used when an owner lists with a broker on the basis that if the property is sold by a broker, the broker is entitled to a commission, but if the owner sells his own property, he owes no commission. If a selling sales associate attempts to present an offer without the listing agent being present, it would likely alienate the seller because the seller has more trust in the listing sales associate. A single agent broker must give a brokerage relationship disclosure when a transaction is the sale of a duplex. A woman had a fourth bedroom built onto her house last year that cost $75,000. A recent appraisal valued the bedroom at $52,000. This demonstrates the principle of contribution. When should the price be covered when presenting an offer? Last At what rate do taxpayers pay for short-term capital gains? The investor's ordinary income tax rate A buyer can save money by making at least a 20% down payment because the buyer won't have to pay for mortgage insurance. The total room count in a house would include bedrooms. The four basic loan processing procedures are checking the borrower's ability to repay, appraising collateral's property value, preparing loan documents, and checking the title of the collateral. 6 | P a g e The three types of operating expenses of an income property are reserves for replacements, fixed, and variable. Which emails are illegal under the CAN-SPAM Act? Misleading from and to information in the email A home is being appraised for a mortgage loan. One of the comparable properties is smaller than the subject property, and the appraiser estimates the difference to be $7,800. The appraiser will make a plus $7,800 adjustment to the comparable. Which purchase and sale agreement item supersedes the other? Handwritten clause supersedes the printed clause Which listings may be entered into the MLS? Exclusive agency listings and exclusive right-of-sale listings Florida law requires brokers to give sellers the copies of written listing agreements within 24 hours. A sales associate is talking with a customer. When the customer crosses his legs, the associate smiles and crosses his arms. The associate is using a reflecting method called matching. A substantial good-faith deposit and a bank preapproval letter means that the buyer is ready, willing, and able. What are the requirements for persons disturbing lead-based paint in a house? The person must be certified and follow specific work procedures. Reconciliation is the resolution of several adjusted values on a comparative market analysis. Which would be considered a preclosing duty? Making a walk-through inspection of the property A buyer is closing on the purchase of a residence. The ad valorem taxes for the year are estimated to be $2,640. The closing date is February 1, and the day of closing belongs to the buyer. Using the 365-day method, what is the proration? Debit seller, credit buyer $224.22 Under the Americans with Disabilities Act, there must be at least one accessible parking space for every 25 spaces. 7 | P a g e What is the purpose in having your buyers write a letter to the seller saying why they want to buy the home? To help sellers favor your buyers over competing buyers An economic contraction is the phase of a business cycle after a recession in which consumer confidence is shaken and consumers reduce spending. What is the most likely reason why a sales associate sets appointments with the seller using a range of time rather than a specific time? Because a prospective buyer may stay longer in some houses than the sales associate had planned A sales associate was preparing a comparative market analysis for a three-bedroom home. One of the three comparable sales he reviewed had an extra bedroom and a larger lot. He made a $7,000 adjustment for the extra garage stall and a $4,000 adjustment for lot size. Which is TRUE about his analysis? The subject home is less valuable than the comparable property. Pyramiding gives the impression of superiority. What must be given to borrowers within three days after the loan application? Loan estimate A noncash expense similar to depreciation that accounts for the eventual wearing out of major components of the property is called reserves for replacements. The components of a full title report are a survey, a physical inspection of the collateral, and a search of the records. A sales associate wants to earn at least $45,000 next year. If the average commission from listings sold is $3,000, how many listings must she sell in order to achieve that portion of her goals? 15 A person who calls for the address of a property is likely looking at a real estate classified ad. A feature of a biweekly mortgage is 26 annual payments. 10 | P a g e "You should be able to get information from the school board about which school your child can attend if you purchase this home." A man has a capital gain of $197,000 on the sale of his principal home, which he owned for three years. What are the capital gains taxes on this sale if his normal tax rate is 25%? $0 Two sales associates work for a commercial broker. The broker allows one sales associate to act as a single agent for the buyer and the other sales associate to act as a single agent for the seller. Both the buyer and the seller have assets of more than $1 million, and each agrees to this form of representation. The situation describes a designated sales associate A licensee who sells commercial property need not give the customer a no brokerage relationship notice before showing property unless acting as a designated sales associate. A principal is responsible for the acts of his single agent Licensed sales associates working at the seller's single agent brokerage firm are legally bound to represent the seller A broker shows a house to a buyer. The broker knows that there was a murder in the house five years earlier. The broker need not disclose the incident to buyer It is a violation of antitrust laws for brokers to conspire to set standard commissions with competing brokers Which is NOT a requirement to become a Florida home inspector? At least 100,000 net worth An owner sold commercial property and had a $100,000 short-term gain. His ordinary tax rate is 25%. How much will he pay in taxes for this gain? $25,000 A person violates the CAN-SPAM Act if that person sends an email that is a commercial advertisement that does not have an opt-out method If a broker complies with an owner's instructions to restrict prospective tenants to Christian persons, will the broker violate the Fair Housing Act? Yes, because it shows a preference or limitation based on religion 11 | P a g e A licensee is the single agent for a minority couple. He says, "Are you more comfortable buying a home in a neighborhood with people of your race?" Does this question violate any laws? Yes, this is an illegal question that is considered "steering." When the parties involved in a HUD complaint come together to attempt to resolve the issues, it is called conciliation Existing structures must be made accessible under the ADA as long as the goal is readily achievable Which person or entity is covered by the Fair Housing Act? An owner of five single-family houses Which is FALSE about accessible parking requirements of the Americans with Disabilities Act? Parking areas should have one accessible space for every 40 total spaces Which is NOT a Fair Housing Act advertising violation? No university students Under the fair housing laws, it is legal to advertise using human models that are representative of majority and minority populations in the area The vertical height for a wheelchair-accessible ramp is 30 inches. How many feet must the ramp be to meet the ADA guidelines? 30 What is redlining? Lender discrimination A prospective tenant asks a landlord to provide a reserved handicapped-accessible parking space at the entrance to the apartment building. This is a request for an accommodation Under the Housing for Older Persons Act, certain communities are exempt from the familial status portion of the Fair Housing Acts if at least 80% of the units have at least one person who is 55 or older A broker manages a single-family home. Harry, a disabled person, wants to rent the property and wants to make alterations, including installing a ramp at the entrance, lowering the kitchen counters, and widening some of the doorways. He agrees to pay for the remodeling and for restoring the premises at the end of the lease term. Which is TRUE? If the broker explains that the owners will not allow the alterations, that would violate the law 12 | P a g e Which advertising term would be a violation of fair housing laws? English-speaking tenant wanted Accessibility standards for restrooms do NOT require that the bottom of the lavatory should be no lower than 21 inches, and the rim should be no higher than 42 inches Which party is protected under the Americans with Disabilities Act? Persons recovering from drug abuse A private homeowner refused to sell to a buyer because of his race. The homeowner has violated the Civil Rights Act of 1866 Which is NOT discrimination based on familial status? Requiring a couple to be married before occupancy Unless either party elects to have a discrimination case heard in court the case will be heard by an administrative law judge If a sales associate leans back and puts his hands behind his head during a meeting, the customer is likely to perceive that the sales associate is acting in a superior way A customer who observes a sales associate covering his mouth while giving a listing presentation would MOST likely perceive that the sales associate may not be speaking honestly What is FALSE about an unlicensed personal assistant who works for a sales associate? Assistants rarely help increase the income of the sales associate enough to cover the assistant's compensation A sales associate's goal is to make $61,000 from listings sold next year. If the average commission per transaction in his office is $2,100, how many listings does he need to sell to meet the goal? 29 A sales associate's assistant tells a prospective buyer, "I'm sorry, but she is on the caravan." Puzzled, the buyer hangs up with thoughts of the desert. This expression is an example of jargon Which is NOT a basic listening skill? seeing Which is LEAST likely to be one of a sales associate's five-year goals? 15 | P a g e sphere of influence When using direct mail as a prospecting tool for FSBOs, the mailing should be followed by a phone call or a visit What type of prospecting is direct mail? passive What is the MOST effective way to get an FSBO listing? visit What must be consulted before making telephone canvassing calls? The national and state do-not-call registries A married couple lives in a 2,100-square-foot home. House sizes in the area range from 1,200 square feet to 2,100 square feet. A sales associate found seven comparable sales from different sized homes. He calculated the sales price per square foot for each home, averaged all the prices, and applied it to the square feet in the subject home. In preparing the CMA, the sales associate should have used only the sales prices of similar-size homes. Of all the factors that influence market value, the MOST important is the highest and best use. The comparable sales approach to value is based primarily on what principle of valuation? Substitution An appraisal of real property is an estimate of its value A sales associate is preparing a CMA for property located in Arbor Hills. She finds three homes that sold recently: a four-bedroom home with a pool that sold for $190,000; a three-bedroom home with no pool that sold for $181,000; and a three-bedroom home with a pool that sold for $185,000. Based solely on this information, what does a swimming pool contribute to value in Arbor Hills? Compare the houses that are similar except for the pool. The two three-bedroom homes' only difference is the pool, and the price difference is $4,000 ($185,000 - $181,000). That can be attributed to the contribution value of a pool. The MOST profitable legally and physically permitted use of real property is called its highest and best use. When a man added a family room to his house, which was already too large for the area, the value did not increase as much as the cost of the addition. What principle applies? Law of diminishing returns 16 | P a g e A mansion in a neighborhood of smaller, average homes would violate the principle of conformity. When listing a property in the ordinary course of business, any active real estate licensee in Florida is authorized to prepare an opinion of value. Which is designed to promote the principle of conformity to maintain and enhance value in a subdivision? Restrictive covenants The ideal kitchen service triangle should be from 12 to 22 feet When the term recently is used to describe a comparable sale, it is generally understood to mean that the property sold within the past how many months? 6 If the sellers want to list the property before you have completed the listing presentation, you should take the listing On the seller's net proceeds form, which proration should NOT be included? insurance A broker is making a listing presentation to a FSBO. She completes the CMA and the sellers agree to accept the net amount shown on the seller's net proceeds form. She should be able to take the listing now primarily because the commission is included on the seller's net proceeds form, and the sellers have agreed to the amounts shown. When preparing the interest proration on a seller's net proceeds form, the BEST policy is to enter a full month of interest. When helping a seller price a property, a licensee should NOT recommend a price before going over the data in the CMA. The reason for eliminating cents and rounding to the nearest $100 on the seller's net proceeds form is to make the statement easier to understand, provide a cushion in the estimate, and avoid giving the impression that the figures will be exactly as shown at closing. Which part of the CMA shows overpriced listings? Expired listings 17 | P a g e The reason MOST FSBOs won't be able to save the commission is that the prospective buyer is buying direct to save the same commission. The final step in the listing presentation is asking for the order The reason it is not practical for a licensee to determine the exact prorations on the seller's net proceeds form when taking a listing is that the exact closing date is unknown. The components of the seller's equity section of the seller's net proceeds form include sales price, mortgages, and seller's equity. The preferable approach to setting the listing price is to go over the CMA carefully and help the seller to arrive at an appropriate range of values. Which is NOT one of the three major problems in showing the property a FSBO might expect? The likelihood that the seller will save the commission. If sellers, when listing the property, offer to leave a washer-dryer combination, the sales associate should suggest it not be included until an offer is received. The legal description entered into the listing agreement and into MLS should be taken from the owners' deed or the public records. An open listing may be terminated at will What type of listing is used when an owner selects one brokerage firm to sell his property but reserves the right to sell the property personally and not pay a commission? exclusive agency What clause in a listing contract contains a promise by the owner certifying that all the information related to the property is true and accurate? Warranty of owner A broker is talking with a man about listing his home. If the man says that he is ready to list but has two people he wants to exclude (not have to pay a commission for) from the listing for three weeks, the broker should have the man sign an exclusive right-of-sale listing with an addendum that excludes the two prospective buyers. 20 | P a g e the services of a lender to do it. One way to find many buyers at one time is conducting buyer seminars If your prospective buyer has a home she must sell, you should look at her home and make a listing presentation. A sales associate's statement that "the house is built of brick" should be followed immediately by the bridge. When making an appointment with a seller to show her property, a sales associate should NOT fail to call if it looks like the visit will be much later than the time specified. A broker entered into an agreement with a prospective buyer, using the Florida Realtors® Exclusive Buyer Brokerage Agreement. The broker showed the buyer a property, but the buyer said he really didn't care for it. After their agreement expired, the buyer signed a similar agreement with a second broker. About one month later, the second broker showed the buyer the same property and the buyer bought it. Which is TRUE? According to the terms of the contract, the second broker is entitled to the commission as the procuring cause of the sale. Before showing properties to buyers, a sales associate should NOT find out what church they would like to live near. According to the Florida Realtors® Exclusive Buyer Brokerage Agreement, if there is a dispute between the buyer and the broker that they are unable to resolve, the dispute will be settled first by mediation, and if that is not successful, to arbitration. If a property is particularly attractive from the front, the BEST way to show it is by parking at the street. The principal reason buyers don't qualify for an FHA mortgage is because the buyer's total obligations ratio is too high. A prospective buyer signs a sale and purchase contract form offering to pay the seller $175,000. The seller counteroffers for the full list price of $190,000. The buyer refuses the counteroffer. Later, a remorseful seller signs the original $175,000 offer. Which is TRUE? No enforceable contract exists because the counteroffer terminated the original offer. The minimum description requirement in a contract for a platted subdivision does NOT include any reference to section, township, and range. The effective date of the Florida Realtors®/Florida Bar contract is the date 21 | P a g e that the most recent of the buyer or the seller signs the contract and communicates it to the other. Sales tax liability is due on a real estate purchase contract when personal property is itemized and a separate value for each item is entered in the contract. A man purchases an option on property. He requires that the option contract be acknowledged and recorded. The seller asks his agent about the best way to proceed. How should the agent answer? The option should include a defeasance clause stating that the recorded option will automatically cease to be a lien on the property upon expiration of the exercise date. A good practice when writing an offer to purchase a house owned separately by one spouse is to have both spouses sign the contract. The Florida Realtors®/Florida Bar Residential Contract for Sale and Purchase requires that the initial deposit is to be held in escrow subject to collection. A sales associate drafts a six-month option agreement for a buyer on a commercial property. The buyer pays $2,000 option money. The sales associate writes "Terms of owner financing will be negotiated when this option is exercised." When the buyer later exercises the option, the seller wants a higher interest rate and a shorter loan term than the buyer will accept. In this case, which is TRUE? If the buyer sues, the court probably will decide that the option contract is not enforceable because it is too vague. When writing a contract, sales associates should NOT get the legal description from the tax appraiser's office. What is the classic test of the sufficiency of a legal description? A surveyor can locate the property by reference to the description. What is FALSE about a valid real estate sales contract? It requires witnessing. An option contract is unilateral and binds the optionor Under the Florida Realtors®/Florida Bar Residential Contract for Sale and Purchase, the party responsible for a property tax increase because of a change in ownership is the buyer. If the buyer asks to have occupancy of a house before closing, the BEST suggestion from the sales associate to the seller would be "Don't let them move in if you can avoid it." 22 | P a g e A sales associate wrote a special clause into paragraph 20 of the Florida Realtors®/Florida Bar Residential Contract for Sale and Purchase that contradicted one of the preprinted clauses in paragraph 4. The special clause as written is valid and binding. Which statement is FALSE regarding a violation of the statute of frauds? It carries with it prescribed times for enforcement. When "time is of the essence," failure of any party to perform within established time limits can result in automatic default by the tardy party. When a licensee verifies contract information, one of the preferred sources regarding the name of the owner-seller and the legal description is a previous title insurance policy. The Florida Realtors®/Florida Bar Residential Contract for Sale and Purchase is LEAST suitable for transactions involving the sale of a business. A man is trying to close on his new home. The required closing date was August 26. The previous day, a hurricane in the Caribbean caused insurance underwriters to suspend writing new policies. If the man fails to close on the 26th, what effect will this have on his Florida Realtors®®Florida Bar contract? He has three days to close after restoration of utilities and insurance coverage becomes available. Which is NOT correct about the new Loan Estimate? It combined the HUD-1 Settlement Statement and the Good Faith Estimate. When the seller wants to make a counteroffer, The answer is the sales associate should prepare a counteroffer form; the seller should sign the original offer and the counteroffer. A counteroffer form is preferable to marking up the original offer. If you have an offer to present to a seller and you are not the listing sales associate, you should after making sure the sellers have no further questions for you, excuse yourself after making the presentation. The buyers have been prequalified for a $160,000 mortgage. If the buyers have enough cash for a 20% down payment, they can get a house priced at The buyer can purchase a $200,000 home ($160,000 ÷ .80). When presenting an offer, a sales associate should NOT give the seller the offer with the original signatures. 25 | P a g e On January 10, the one-year Treasury bill index was 4%. A mortgage company used that index to write a new one-year adjustable-rate with a 2.5% margin. What is the calculated interest rate? 6.5% The factor in an adjustable-rate mortgage that causes the calculated interest rate to change is the index. In 2012, a man purchased a new home at the FHA appraisal amount of $100,000 and financed it with an FHA mortgage loan. To what amount must he reduce the outstanding loan balance before he no longer has to pay the 0.5% annual mortgage insurance premium? The borrower must increase the equity to 22%, (by reducing the mortgage to 78%) of the purchase price of the property. The component of an adjustable-rate mortgage that does NOT usually change is the margin. The components that together make a title report complete are a physical inspection of the collateral property, a search of the public records, and a survey of the property. When a loan officer evaluates a credit report, the MOST important part of the report is the payment history. Qualifying the buyer has to do with income and assets. Qualifying the property has to do with the appraisal, survey, and title report. The employment verification is NOT a check on the applicant's assets. The guidelines for loan underwriting are tightly structured. The one facet that allows the MOST subjectivity on the part of the lender's evaluation is the credit profile. Which is NOT one of the basic loan processing procedures? Use of an appraisal management company The primary assurance to the lender if the borrower defaults on the loan is the property value. A title policy offering coverage over and above the standard coverage is which type of policy? ALTA 26 | P a g e Which federal law requires fair consideration of loan applications from women, minority races, part- time employees, and others who may have been discriminated against in the past? Equal Credit Opportunity Act The maximum fine for each violation against a Florida mortgage loan originator or mortgage broker under Chapter 494 is $25,000. Bonuses are acceptable as income on a loan application, provided they are regular occurrences. Because of the financial crisis, lender standards have become more strict A lender, interested in evaluating an applicant's willingness to pay, reviews the credit report. If a cloud on title cannot be easily removed by ordinary means, a court case is often the result. The legal action is called a suit to quiet title. What is given greatest weight in calculating the FICO credit score? Payment history, with higher weight for recent history Which action will NOT negatively affect a FICO score? Paying down debt The MOST common credit scoring used by lenders today was developed by Fair, Isaac & Co. A man has a FICO credit score of 725. He pays an additional $1,000 down on his installment debt. His FICO score will MOST likely increase because he has less debt. An appraisal management company does NOT violate the law if it registers with the DBPR and passes a criminal background check. A second job will NOT be counted as a source of income on a loan application if it is temporary. A seller told the listing agent that the pool liner was defective. The sales associate disclosed the statement to the buyers. The contract was written reflecting that the buyers would pay for replacing the liner. The sales associate called a pool company and authorized the liner replacement at a cost of 27 | P a g e $1,750. The buyers' mortgage application was subsequently rejected and the sale did not close. The sales associate might have to pay for the pool liner. A sales contract required that the buyer give an additional binder within 10 days of the contract date. If the buyer failed to give the additional binder, the buyer has defaulted. Contract contingencies should be cleared as soon as possible after the contract has been signed. What are the documentary stamp taxes on the deed if the sale price of a property is $214,500? Divide $214,500 by 100 = 2,145 × .70 = $1,501.50. The BEST way for a buyer to determine that the seller has moved out and the property is ready for occupancy is by doing a preclosing walk-through inspection. On what page of the Closing Disclosure will the prorations be found? 3 What would NOT be given to the title-closing agent when the order is given? A signed and dated listing agreement A sales associate is estimating the prepayments for a new loan that will close on February 4. If the first payment is due on April 1, how will the prepaid interest be calculated for the closing statement? The buyer will be charged from February 4 through February 28. The preclosing walk-through inspection is NOT intended to ensure that the roof is structurally sound. Closing date is May 1. Property taxes are $3,567 annually. What's the proration, and where is it found on the Closing Disclosure? Debit seller, credit buyer $1,172.71, shown on page 3. Funds set aside to prepare for the eventual replacement of worn-out appliances, carpeting, and drapes are called reserves for replacements. An apartment property has potential gross income of $155,000, effective gross income of $150,000, operating expenses of $58,000, including reserves for replacement of $2,400, and debt service of $40,800. What is the property's net operating income? $150,000 effective gross income - $58,000 operating expenses = $92,000 net operating income. 30 | P a g e Single Agent Notice A disclosure form informing the principal of the duties of his single agent. Transaction Broker A licensee who has limited representation to the buyer, the seller, or both in a transaction. Instead of being an advocate for the buyer or the seller, the licensee is working for the contract. Customer A person who works with a sales associate or a broker. While the person could be a principal, the usual definition is that the broker is either a transaction broker or has no brokerage relationship with the person. Transaction broker duties -Dealing honestly and fairly. -Accounting for all funds. -Using skill, care, and diligence in the transaction. -Disclosing all known facts that materially affect the value of residential real property and are not readily observable to the buyer. -Presenting all offers and counteroffers in a timely manner, unless a party has previously directed the licensee otherwise in writing. -Limited confidentiality, unless waived in writing by a party. The transaction broker may not reveal to either party:that the seller might accept a price less than the asking or list price,that the buyer might pay a price greater than the price submitted in a written offer,the motivation of any party for selling or buying property,that a seller or a buyer will agree to financing terms other than those offered, andany other information requested by a party to remain confidential. -Any additional duties that are entered into by this or a separate agreement. Principal (1) The person who enters into a fiduciary relationship with a single agent licensee. (2) The amount of money remaining due on a mortgage loan. Fiduciary Relationship A relationship of trust and confidence between an agent and a principal. Singe AGent Duties -Dealing honestly and fairly -Loyalty -Confidentiality -Obedience -Full disclosure -Accounting for all funds -Skill, care, and diligence in the transaction -Presenting all offers and counteroffers in a timely manner, unless a party has previously directed the 31 | P a g e licensee otherwise in writing -Disclosing all known facts that materially affect the value of residential real property and are not readily observable Buyer Brokerage Agreement An agreement between a buyer and a broker for the broker to provide services to a buyer for compensation. The broker may be acting as a single agent, a transaction broker, or a nonrepresentative. Consent To Transition To Transaction Broker Notice A disclosure form that allows a single agent to become a transaction broker. The notice must be signed by the principal before the broker can make the change. Fiduciary Relationship -A relationship of trust and confidence between an agent and a principal. -Only single agent relationship creates this Role of Sales Associate Sales associates are agents of their registered brokers. If a seller's broker has a listing, that broker and all the sales associates in that firm represent the seller. No brokerage relationship notice A disclosure that must be given by a licensee who does not represent a buyer or a seller before entering into an agreement or showing a property. Need not be signed. no brokerage relationship duties -Dealing honestly and fairly -Disclosing all known facts that materially affect the value of the residential real property that are not readily observable to the buyer -Accounting for all funds entrusted to the licensee No Broker Relationship Example Broker Helen lists the Smiths' home as a single agent. Later, Helen shows it to Mr. Jones, a prospective buyer, and gives him a no brokerage relationship notice. While Helen is writing his offer for the property, Jones says, "I'll pay the asking price of $200,000 if I have to, but I would like to start the negotiations at $185,000." When Helen presents the offer, she must tell the Smiths that Jones has said he will pay up to the listed price. Failure to make this disclosure would expose her to disciplinary action and civil liability for violation of her fiduciary duty of full disclosure. Designated Sales Associate A sales associate who is appointed by a broker as a single agent for a buyer or a seller in a nonresidential transaction when another sales associate in the firm has been appointed as the single agent for the 32 | P a g e other party in the transaction. Both buyer and seller must have assets of at least $1 million and agree to the arrangement. Assets Things of value owned by a person or organization. Designated Sales Associate Example FatBurgers, Inc., is searching for five store locations in Pompano. It engages Mary Stevens of Pompano Commerce Realty as single agent because of her knowledge and expertise in the Pompano fast-food field. Jack Wilson, of the same firm, represents the seller of one of the potential sites. Because FatBurgers, Inc., wants Mary to be its single agent, the broker appoints Mary as a single agent for FatBurgers, Inc., and Jack as single agent for the seller. Mary and Jack are now designated sales associates. Team Advertising FREC rule 61J2-10.026, effective July 1, 2019, regulates advertising by teams or groups as follows: (1) "Team or group advertising" shall mean a name or logo used by one or more real estate licensees who represent themselves to the public as a team or group. The team or group must perform licensed activities under the supervision of the same broker or brokerage. (2) Each team or group shall file with the broker a designated licensee to be responsible for ensuring that the advertising is in compliance with Chapter 475, Florida Statutes, and division 61J2, Florida Administrative Code. (3) At least once monthly, the registered broker must maintain a current written record of each team's or group's members. (4) Team or group names. Real estate team or group names may include the word "team" or "group" as part of the name. Real estate team or group names shall not include the following words: (a) Agency(f) Corporation(k) Properties(b) Associates(g) Corp.(l) Property(c) Brokerage(h) Inc.(m) Real Estate(d) Brokers(i) LLC(n) Realty(e) Company(j) LP, LLP or Partnership(o) or similar words suggesting the team or group is a separate real estate brokerage or company (5) This rule applies to all advertising. (6) In advertisements containing the team or group name, the team or group name shall not be in larger print than the name of the registered brokerage. All advertising must be in a manner in which reasonable persons would know they are dealing with a team or group. (7) Nothing in this rule shall relieve the broker of the legal obligations under Chapter 475, Florida Statutes, and division 61J2, Florida Administrative Code. Community Association A residential homeowners association in which membership is a condition of ownership of a unit in a part of a residential development that is authorized to impose a fee that may become a lien on the parcel. Homeowners Association Disclosure 35 | P a g e Fax opt-out notice requirements Senders of fax advertisements must provide specified notice and contact information on the fax that allows recipients to opt out of any future faxes from the sender and specify the circumstances under which a request to opt out complies with the act. Fax broadcasters Fax advertisements are often sent in bulk on behalf of a business or entity by separate companies called fax broadcasters. Generally, the person or business on whose behalf a fax is sent or whose property, goods, or services are advertised is liable for a violation of the junk fax rules, even if the person or business did not physically send the fax. CAN-SPAM Act -The Controlling the Assault of Non-Solicited Pornography and Marketing Act (CAN-SPAM Act) of 2003 establishes requirements for commercial email, spells out penalties for spammers, and gives consumers the right to ask emailers to stop spamming them. -The act covers only commercial electronic mail messages and regulates emailers whose primary purpose is to advertise a commercial product or service. Income Tax Regulations Affecting Residential Real Property Real estate licensees are not income tax experts, but should be knowledgeable about federal taxes related to real estate transactions. Licensees always should advise consumers to seek professional tax advice. Be careful what you tell buyers about tax deductions Don't tell buyers that they can deduct property taxes and interest to get them to purchase a home. You must be certain that they have enough other deductions (e.g., combined deductions exceeding $24,000 for a married couple filing jointly in 2018) so they can take full advantage of the real estate-related deductions. Exclusion of Gain From the Sale of a Personal Residence A taxpayer may exclude up to $250,000 ($500,000 for a married couple filing jointly) of gain on the sale of a personal residence if the taxpayer owned and occupied the residence for at least two of the previous five years. If the taxpayer held the home less than two years, a prorated portion of the exclusion may apply. -The exclusion is available only once every two years, but there are several exceptions. unforeseen circumstances -divorce, legal separation, or death of a spouse; -becoming eligible for unemployment compensation; -a change in employment that makes it impossible to pay the mortgage or basic living expenses; -multiple births resulting from the same pregnancy; -damage to the home from a natural disaster, act of war, or terrorism; and condemnation, seizure, or involuntary conversion of the property, such as foreclosure. 36 | P a g e Taxation of gain from sale of real estate -Short-term capital gains (for property held for one year or less) are taxed at the investor's ordinary income tax rate. Long-term capital gains (property held for more than 12 months) are taxed at different rates, depending on the taxpayer's income. -Capital gains income is subject to an additional 3.8% Medicare tax for single filers making more than $200,000 or married couples filing jointly who make more than $250,000. -When investment property is sold, the investor must pay 25% (recapture rate) of the amount that the taxpayer used for depreciation deductions. Taxation of independent contractors Brokers must meet three major requirements in order for their sales associates to qualify for independent contractor status: The sales associate must hold a real estate license. The sales associate's gross income must be based on production rather than on the number of hours worked. The sales associate's work must be done based on a written contract that states, among other things, that the sales associate will not be considered an employee for federal tax purposes. Antitrust Laws Brokers risk their assets and careers by conspiring with other brokers to set a standard commission. Antitrust laws prohibit any action by a party to fix prices or inhibit competition by using unfair practices. Some of the prohibited actions under antitrust laws include: conspiracy to set prices, splitting up competitive market areas, conspiring to boycott cut-rate brokers or otherwise interfering with their business, and requiring a minimum commission before allowing listings to be circulated in any service, such as through a multiple listing service (MLS). Misrepresentation A false or misleading statement made intentionally or unintentionally, or the failure to disclose a material fact. Material Fact An important fact that may affect a buyer's decision to buy or a seller's decision to sell. Licensees must disclose facts that materially affect the value of residential property. False or misleading statement In real estate, a statement made by a licensee or a party in a real estate transaction that is not factual. Intentional misrepresentation Fraud Unintentional misrepresentation 37 | P a g e Negligence To win a fraudulent misrepresentation case against a broker, the plaintiff must prove that the: -broker made an error in giving information, oral or written, to the buyer or failed to disclose a material fact to the buyer; -broker knew the statement was not accurate or the information should have been disclosed; -plaintiff reasonably relied on such statement; and -plaintiff was damaged as a result. Don't make any of the following statements to a buyer: -"No need to get a title search. I sold this house last year and title was fine." You must tell buyers to get an attorney's opinion or purchase title insurance. -"Don't worry, the seller told me by phone that I could sign the contract for her." A contract for sale of real property is not enforceable unless the person has a power of attorney. A sales associate or broker should avoid using a power of attorney because of representation issues. -"I won't be able to present your offer until the seller decides what to do about the offer I submitted yesterday." You must present all offers. -"That roof is in great condition—I can tell just by looking at it." If it's not OK, you may get to repair it at your expense. Practical Steps for Sales Associates Brokers and sales associates should follow these practical steps to decrease the risk of misrepresentation claims: -Have the seller complete a property condition disclosure form and discuss any potential problem areas. Inform the seller of the legal duty to disclose material facts that affect the value of residential property and are not readily observable. -Disclose pertinent information in writing, such as in a property condition disclosure form from the sellers. The buyers should sign the disclosure indicating that they have received it. A confirmation letter would confirm earlier discussions in which you pointed out a leaky roof or the need to consult with a soil engineer, and it would affirm that neither you nor the seller makes any warranty as to the condition of the roof or the foundation. Keep copies of these documents in the transaction file. If the seller refuses to disclose material defects, decline the listing. Taking a listing of this nature is not worth damage claims, loss of reputation, and the potential loss of your license. -Ask about factors outside the property boundaries that might influence its value and affect a person's decision to buy, such as these:Abutting and nearby uses (present and propose, such as a rock band venue next door)Highway expansion or rerouting of a bus line -Do not make statements when you don't have firsthand knowledge or that are not based on expert opinion or advice. Have a list of government agencies from which you can get information. Suggest that the buyer check things out, too, by providing the telephone numbers and website addresses of the appropriate government agencies. It is best that important technical information come directly to the buyer from the government agency. -Avoid exaggeration. If you wish to venture a quick opinion about things you are not certain about, make sure the buyer understands that it is only a guess, and be certain the buyer does not rely on it in making a decision. 40 | P a g e The law applies to persons who own four or more homes, multifamily properties (except properties with four or fewer units, one of which is occupied by the owner), brokers and sales associates who sell two or more homes in a year, and transactions in which a broker is involved. While it appears that a private owner may be able to discriminate under the 1968 act, the 1866 act clearly prohibits discrimination based on race. Who is not covered by the Act? -Religious organizations may limit the sale, rental, or occupancy of dwellings that they own or operate for other than a commercial purpose to persons of the same religion, and they may give preference to such persons, unless membership in such religion is restricted because of race, color, or national origin. -Private clubs that provide lodgings that they own or operate for other than a commercial purpose may limit the rental of such lodgings to its members. -Owners of any single-family house may restrict the sale or rental of the house, provided the following conditions are met:The owner does not own or have any interest in more than three single-family houses at any one time.The house is sold or rented without the use of a real estate broker, agent, or salesperson. If the owner selling the house does not reside in it at the time of the sale or was not the most recent resident of the house before such sale, the exemption applies to only one such sale in any 24-month period.The rooms or units in dwellings contain living quarters occupied or intended to be occupied by no more than four families living independently of each other, if the owner actually maintains and occupies one of such living quarters as her residence. -Students and smokers are not protected. Income status, sexual orientation, marital status, and age are also not protected groups. These classes may, however, be protected under a local ordinance. Blockbusting The illegal act of a licensee who frightens homeowners into selling by raising fears that minority homeowners are moving into a neighborhood. Steering The illegal, discriminatory act of a sales associate who brings buyers into an area based on the racial or ethnic makeup of the neighborhood. Codes A method used by persons to discriminate in employment and housing. An employer may pencil in a series of numbers on an application form (for example, the number 11 may mean "Asian" and the number 15 may mean "African American"). These tactics are illegal. Redlining A lender's refusal to loan money in an area based on illegal discrimination. Selective geographic advertisements. Such selective use may involve the strategic placement of billboards, brochure advertisements distributed within a limited geographic area by hand or in the mail, or advertising in particular geographic-coverage editions of major metropolitan newspapers. 41 | P a g e Selective use of equal opportunity slogan or logo. When placing advertisements, such selective use may involve placing the equal housing opportunity slogan or logo in advertising reaching some geographic areas but not others. Selective use of human models when conducting an advertising campaign. Selective advertising may involve an advertising campaign using human models primarily in media that cater to one racial or national origin segment of the population without a similar advertising campaign directed at other groups. In the investigation of complaints, HUD will consider, as evidence of compliance, among other things: -the use of the equal housing opportunity logo, statement, or slogan stating that the property is available to all persons regardless of race, color, religion, sex, handicap, familial status, or national origin; and -that when photographic ads are used, human models should be representative of the majority and minority populations in the area, including both sexes and children, where appropriate. HUD's Fair Housing Complaint Process People have one year to file a complaint with HUD. The complaint should include: -the complainant's name and address, the name and address of the person or company who is the subject of the complaint, -the address or other identification of the housing involved, -a short description of the facts that caused the complainant to believe his rights were violated, and -the dates of the alleged violation. Intake After HUD has received the initial information, an intake specialist will contact the complainant by phone to collect facts about the alleged discrimination. The specialist will then review the allegations to determine whether the matter is within HUD's jurisdiction. Filing If HUD accepts the complaint for investigation, the investigator will draft a formal complaint on HUD's standard form and mail it to the complainant. The complainant must sign the form and return it to HUD. Within 10 days after receiving the signed complaint, HUD will send the respondent notice that a fair housing complaint has been filed against him along with a copy of the complaint. Within 10 days of receiving the notice, the respondent must submit to HUD an answer to the complaint. Investigation As part of the investigation, HUD will interview the complainant, the respondent, and pertinent witnesses. HUD has the authority to take depositions, issue subpoenas and interrogatories, and compel testimony or documents. Conciliation 42 | P a g e The Fair Housing Act requires HUD to bring the parties together to attempt to resolve every fair housing complaint. If the parties sign a conciliation agreement, HUD will end its investigation and close the case. No-cause determination If, after a thorough investigation, HUD finds no reasonable cause to believe that housing discrimination has occurred or is about to occur, HUD will issue a determination of "no reasonable cause" and close the case. A complainant who disagrees can request reconsideration of the case. Cause determination and charge If the investigation produces reasonable cause to believe that discrimination has occurred or is about to occur, HUD will issue a determination of reasonable cause and charge the respondent with violating the law. After HUD issues a charge, a HUD administrative law judge (ALJ) will hear the case unless either party elects to have the case heard in federal civil court. Parties must elect within 20 days of receipt of the charge. Hearing in a U.S. District Court If the court finds that a discriminatory housing practice has occurred or is about to occur, it can award actual and punitive damages as well as attorney's fees. Hearing before a HUD ALJ When the ALJ decides the case, the ALJ will issue an initial decision. If the ALJ finds that housing discrimination has occurred or is about to occur, the ALJ can award a maximum civil penalty of $19,787 per violation for a first offense, in addition to actual damages for the complainant, injunctive or other equitable relief, and attorneys' fees. Florida Fair Housing Act A state law, modeled after the federal Fair Housing Act, that prohibits discrimination based on race, color, religion, sex, national origin, familial status, or handicap. Americans With Disabilities Act (ADA) A federal law that guarantees equal opportunity for individuals with disabilities in public accommodations, employment, transportation, state and local government services, and telecommunications. Disability An individual with a disability is a person who (1) has a physical or mental impairment that substantially limits one or more major life activities, (2) has a record of such an impairment, or (3) is regarded as having such an impairment. Existing structures must be made accessible when that goal is readily achievable 45 | P a g e The organization of a person's day to maximize efficiency. It includes planning, scheduling, and prioritizing. Goals should be written, measurable, and attainable, and should contain deadlines. Ethical The right thing to do. Usually a higher standard than legality. Professional Ethics A body of accepted codes of behavior for a specific industry. National Association of REALTORS® (NAR) has standardized a code four types of communication skills -Listening skills -Oral communication skills -Written communication skills -Nonverbal communication skills Listening skills -You must hear. -You must understand. -You must evaluate. Oral communication The ability to speak effectively one on one or in a group presentation. Jargon A word or expression related to a specific vocation or profession that a layperson may not understand. Avoid using it. Written communication The ability to communicate effectively in letters, emails, and other documents. nonverbal communication Unspoken communication expressed by the position of the body, hands, arms, legs, or facial expressions, commonly called body language. OFTEN CALLED BODY LANGUAGE Body Language 46 | P a g e Nonverbal communication expressed by the position of the body, hands, arms, legs, or facial expressions. Reflecting When reflecting what the other person has said, you show not only that you have understood but also that you indicate interest in the other person and help establish rapport. Testing understanding The best way to use reflection is to test your understanding of what the customer has said. This could also help to build rapport. If you repeat the words exactly, it's called parroting. Rephrasing in your own words is called paraphrasing. Creating rapport Reflecting what a person says can create a bond of agreement. You can reflect their words by echoing what they say. You can reflect their style by using their modes of speech. However, poor use of this technique can have the opposite effect. Nonverbal reflecting You can also reflect nonverbal body language by repeating what they do, rather than what they say. Mirroring displaying the same body language as the other person. EASY TO RECOGNIZE, MAY BACKFIRE. Matching reflects nonverbal signals, but it is less obvious and not copying. Better way to relate. Less obvious. To be more effective with your customers:(communication) -Your handshake should be firm, but not too hard. -Usually, direct eye contact when you are talking or listening is good. Staring without blinking or looking away occasionally may be disconcerting to the listener. -Persons from certain cultures may perceive constant direct eye contact as disrespectful. -Don't cross anything. Arms and legs should be open and relaxed. -Lean forward into the conversation to display your interest. If you lean backward, especially if hands are joined behind the head, it may be perceived as a sign of superiority or aloofness. parroting If you repeat the words exactly Sales associates need three types of knowledge: 47 | P a g e -Technical knowledge -Marketing knowledge -Product knowledge Technical Knowledge The knowledge needed by licensees to properly conduct their business that relates to filling out contracts, preparing seller's proceeds estimates, doing comparative market analyses, et cetera. This course includes technical knowledge in the following areas: State and federal laws Preparing a comparative market analysis (CMA) Preparing a listing contract Qualifying a buyer Understanding financing plans Preparing a sales contract Reviewing closing statements Analyzing real estate investments Marketing Knowledge A licensee's knowledge of the sales process, including the psychology of selling, advertising, personal marketing, and prospecting. This course includes marketing knowledge in some of the following areas: -Business planning (section on self-marketing) -Prospecting for listings -Making an effective listing presentation -Prospecting for buyers -Showing and selling the property Product Knowledge A licensee's familiarity with the real estate market and specific properties available for sale. to-do list A daily list, usually designed in priority order, of tasks to be completed that day. prioritize To set up a list of activities in an order based on their importance. An unlicensed individual may not negotiate or agree to any commission split or referral fee on behalf of a licensee. The most important sources of listings for a new sales associate 50 | P a g e Passive Prospecting A method of prospecting that does not include direct face-to-face or telephone conversations. Advertising and direct mail are examples of passive prospecting. FSBO Telephone Calling Guide -Check the do-not-call registry before calling. -Introduce yourself, your company, and say why you're calling. -Ask to visit the home at a specific time. -If the seller declines, you might ask whether the seller would agree to pay a commission if you bring a buyer. -If the seller agrees to pay a commission, get an appointment to see the home. -If the seller doesn't agree, ask whether he'd sell if the buyer agreed to pay the commission. -If the seller says no, ask whether you can call again in the future. For Rent By Owner (FRBO) An owner who attempts to rent his own property without using a broker. Canvassing Prospecting for buyers or sellers by telephoning or walking door to door. Power Prospecting A type of prospecting that seeks to make contact with many more buyers and sellers and that results in much higher income levels. Power Prospecting Setting high-income goals requires a commitment to prospect. The three keys to prospecting success are as follows: Numbers Consistency Organization Numbers The difference between making a living and becoming a real estate sales superstar is numbers. Following these tips will help you become a successful prospector: -Follow all laws when prospecting, paying particular attention to the National Do Not Call Registry. -A cross-reference directory can give you information on area residents and businesses. Cross-reference directories are arranged by street addresses and numerically by phone number. Listings arranged by street addresses allow you to find all the residents and businesses on a particular street in sequence. Listings arranged by phone number allow you to find all the numbers and names for a particular area code and exchange. The product is available in print, online, or on CD. An annual subscription (costing from $150 to $400, depending on the location) will give current information, and can filter out phone numbers that appear on the National Do Not Call Registry 51 | P a g e The amounts shown won't magically work for every sales associate, but they do depend on the following two assumptions: -The sales associate likes people and is articulate and organized. -The sales associate has finished training and knows how to: prepare a CMA, make an effective listing presentation, show properties, ask closing questions, and ask for the order. turnover rate for a neighborhood dividing the number of homes sold last year by the number of homes in the neighborhood. Your Leads Database First, set up a customer relationship manager (CRM) database. There are many programs available, including Microsoft Outlook, Salesforce, and Top Producer. five database categories: Close friends and family Friends Customers Acquaintances Targeted strangers Acquaintances people we've met or spoken to by phone but don't know well. We will develop this group into a powerhouse of direct and referral business. One of the major objectives of our prospecting efforts is to move as many targeted strangers to this category as possible. combination of contacts with this group using mail and telephone at least twice monthly. targeted strangers Persons not known to a licensee who are qualified as prospects by income, occupation, or residence address. largest group in your database seven important points to remember when you are prospecting: -Success is in the numbers. Be confident that this process will result in much higher income levels. You will discover a strong correlation between your prospecting and the number of transactions you make. When you discover what your personal ratios are, you will find it easy to better control your income levels by your daily prospecting. If you get $3,000 extra income, on average, from every 100 contacts you make, you should assume that by making 1,000 additional contacts (20 per week) you can increase 52 | P a g e your income by $30,000. -Be consistent. Make your contacts at the same time every day. Stick to the schedule, but if a closing or an appointment is unavoidably scheduled, make sure the prospecting time is rescheduled for later in the day. It's like a diet; you might get off track, but success will come only if you get back to the plan. -Call at your best time of day. Some of us are great in the morning. Others are a little grumpy and should set a later prospecting time. Just be sure you have a high energy level. Because showing and listing appointments are usually set for afternoons or evenings, morning may be the best time for a prospecting routine. -Make the first call! The calls that follow will be easier. Think of the athletic slogan "Just do it!" The hardest call is the first call. Just think one call at a time. -Don't leave a message. They likely will not call back and may recognize your phone number and will probably avoid future calls when you call back. -You'll get better. As you make your daily calls, your contact skills will get better and your enthusiasm levels will increase. -Remember the goal. Before you make your calls, visualize what you want to happen as a result of the call. Put a sign above the phone that says "Get an appointment!" Another sign might read "Get a referral!" Saturate and Remind When you meet a new qualified prospect by phone or in person, that person is now put in the saturate mode, with at least a weekly contact for six weeks. Now they know who you are and what you do. If your contacts have been skillful, they also like you, will do business with you, and will send you referrals. After the saturation period, you can reduce the number of contacts to twice monthly, and you'll have a steady source of business. Getting Listings Using Social Media Most real estate professionals who use the internet for prospecting have found that it can be the most powerful of all lead generators. Social media is a new frontier for many real estate professionals. It can be a daunting task just to decide which media to use. Most experts say you should write a daily blog, have a strong presence on Facebook and Google+, use Twitter, place pay-per-click advertising, and use email marketing. That's a lot to do. As of June 2016, Facebook is by far the most popular of all social media sites with more than 1 billion users. But what about other social networking sites like LinkedIn, Pinterest, YouTube, and Foursquare? Perhaps the best course of action is to master a few of the more important media sites before trying to be expert in all of them. blogging A blog is a contraction of two words—web log. It's an article written by an individual or a group of individuals (like a company) that is posted on a website. The blogger must set aside a specific time for writing content that is relevant to real estate, the local scene, events in the area, schools, entertainment, et cetera. It's hard to think of fresh content, so the blogger should make notes as new ideas come to mind. Looking at feeds from other good real estate bloggers may generate ideas (but you can't plagiarize). You have to be authentic and write engaging 55 | P a g e greater or smaller than its cost. A licensee's opinion should be determined by a feature's contribution to value, not its actual cost. Law of increasing and diminishing returns Improvements to land and structures can reach a point at which they have no positive effect on property values. As long as money spent on such improvements produces a proportionate increase in income or value, the law of increasing returns is in effect. When additional improvements bring no corresponding increase in income or value, one can observe the law of diminishing returns. Smaller homes in a neighborhood of larger homes may experience increasing returns when improved. Homes that are the same size or larger than surrounding homes should not be improved significantly until the owners have considered the economics of their decisions. Competition All residential properties are susceptible to competition. The only house for sale in a nice, well- maintained neighborhood has a better chance of selling at or near market value than if several houses on the same street were for sale. change All property is influenced by the principle of change. Because no physical or economic condition remains constant, licensees must be aware of market forces when preparing opinions of value. Anticipation Most buyers purchase real estate with the expectation that its value will increase, and they have been rewarded when the anticipation proves to be correct. In inflationary times, the anticipation of higher prices creates a multitude of buyers, driving prices higher than can be supported for long periods. Property Characteristic The features of a property that are used as a basis of comparison in an appraisal or comparative market analysis. Subject Property The property being appraised. Once the property inspection has been completed, the licensee should select the best properties for comparison. Sellers and buyers will get a better feel for the market if the sales associate includes the following: -Properties that have sold -Properties that are now on the market -Property listings that have expired The CMA will be a good indication of value only when comparables exist in a reasonably active market and where sufficient, reliable market sales information is available. 56 | P a g e comparable property A similar property in the same market area that may be used to help estimate the value of the property being appraised. A comparable property should meet the following four conditions before it is used in a CMA: -It should be similar to the subject property. -If this is a sale, it should have sold recently—within the past six months. -It should be located in the same market area as the subject property. -It should have changed owners as a result of an arm's-length transaction. Properties that have sold Reviewing actual sales prices of comparable properties helps buyers and sellers see what buyers actually pay in the marketplace. Comparable sales data are important when new financing is necessary because an appraiser relies on the data to estimate market value. Many sales are contingent on financing the purchase price, so it is of no value to overprice a property only to lose the sale when the lender and the buyer receive the appraisal report. Properties that are now on the market Reviewing the prices of comparable properties now on the market shows the seller what owners of properties with similar characteristics are asking. These properties will compete with the seller's. The principle of substitution means that a buyer will select the property with the best price, all other things being equal. A seller who wishes to position the property in the most effective price window values it just above recent sales and just below competing properties. A properly priced listing should result in a reasonably quick sale at the optimum price. Property listings that have expired The listing prices of properties that do not sell demonstrate the resistance level of buyers to overpriced listings. In almost every case, the expired listing has been priced too high for the amenities offered. The best sources for gathering CMA information include: -multiple listing service (MLS) records, -company files, -public records, -other licensees, and -data service companies. Selecting Comparable Properties A licensee preparing a CMA has two choices when selecting properties to include in the report. -The first choice is to report every sale and every listing in the neighborhood, together with features and prices. -The other choice is to analyze only the properties that are comparable. Listing only three or four comparable properties makes a clearer presentation for a seller and reduces 57 | P a g e the chance for confusion about values. Appraisers use this approach. Perhaps the best approach for the licensee is to prepare a comprehensive list of all properties that have sold, are listed currently, or have expired and then select the most comparable properties from that list for analysis. This method satisfies the needs of completeness and clarity. Comparable properties A similar property in the same market area that may be used to help estimate the value of the property being appraised. Location What are the three most important determinants of property value? The old expression "location, location, location" is the best answer. Location is so important that only in very unusual circumstances would a licensee use a property outside the subject's neighborhood as a comparable sale. In such a case, the comparable should come from a similar neighborhood. Even within the same neighborhood, locations can result in significant variances. A property across the street from a park is more valuable than one across the street from a commercial area. Size and shape of lot Irregularities can make portions of a site unusable for building, impair privacy, or restrict onsite parking, which could require major adjustments. Street frontage and total square footage of the lot are other important considerations. Landscaping The sales associate should evaluate the size, quantity, and quality of trees, plantings, and other types of landscaping. Construction quality The sales associate will make a major adjustment if construction quality of a comparable is not equivalent to that of the subject property and may disqualify the property as a comparable if the difference is too pronounced. Style Generally, the style of a house follows the rule of conformity (a house should not be the only one of its type in the neighborhood). An important aspect of style is the number of floors of the residence. A one- story ranch house probably could be compared to a split-level, with some adjustment made. A three- story house is not comparable to a one-story ranch house, however. Design Design must be viewed from both functional and aesthetic standpoints. Functional aspects include the existing traffic patterns in a house, placement of doors and windows, room-to-room relationships, and the usefulness of rooms. Aesthetic aspects focus on how pleasant and attractive an interior appears to an observer. Age 60 | P a g e Another method for setting a range of values is to reconcile the sold properties to a value estimate, then check to see what properties sell for as a percentage of list price, then divide the value estimate by that amount. The two values comprise the range high and low. A Visual Aid to the CMA "A picture is worth a thousand words" is a timeworn expression because it is true. Sellers who review CMAs with licensees often have difficulty visualizing the comparable properties. The licensee who provides visual data can make a clearer presentation, and that may result in more realistic pricing. Owners who are motivated to sell do not set out to overprice their properties. include plat maps of the subdivision and pictures of the comparable properties A sales associate is preparing a CMA. If he wants to find comparable sales of properties sold directly by owners, he should look in The clerk's office will show all deed transfers. The tax appraiser's office will also show the information, but may be easier to locate, because the information is easily accessed by legal description or address. A married couple lives in a 2,100-square-foot home. House sizes in the area range from 1,200 square feet to 2,100 square feet. A sales associate found seven comparable sales from different sized homes. He calculated the sales price per square foot for each home, averaged all the prices, and applied it to the square feet in the subject home. In preparing the CMA, the sales associate When preparing a CMA, licensees should use only comparable homes. Only the larger home sales should have been considered in this analysis. Service Triangle A service triangle measures the distance from the range to the refrigerator to the sink and back to the range. Smaller than 12 feet would be a cramped kitchen (like a boat galley). Larger than 22 feet would require a great deal of walking to get needed items. 12-22 A home has dimensions of 35 feet by 57 feet that include an attached 24-by-22-foot garage and a 200- square-foot screen porch. How many square feet of gross living area does the home have? The total area of the improvements is 1,995 square feet (35 × 57). The garage has 528 feet (24 × 22). So the living area of the house is 1,267 square feet (1,995 - 528 - 200). Recently Most appraisers try to find sales for the previous six months. Real estate licensees should be looking for sales within the past six months as well. 6 months An appraisal of real property is Because it is an estimate, it is not a precise or accurate "determination" of value. 61 | P a g e Explaining the Pricing Process Here's an 11-step sequence that works for many sales associates: 1. Before talking about pricing the house, begin by helping the seller understand current market conditions. You can get this information from MLS statistics, your broker, and local news outlets. Use statistics for the overall market, such as the number of homes for sale, number of homes sold last month, and the number of month's supply of homes on the market. Talk about the differences between buyers' markets and sellers' markets and how they affect the time of sale and pricing. 2. Once you've explained general market conditions, tell the sellers the:number of houses currently listed in the neighborhood,number of homes sold last month, andmonth's supply of homes on the market (divide listed homes by sales). 3. Give the sellers your analysis of the market:Is it a buyers' or a sellers' market?Are prices rising or falling?What is likely to happen if interest rates rise (or fall)? 4. Explain the importance of pricing the property within the selling range. Use the pricing pyramid in The Pricing Pyramid to show the sellers how overpricing the property reduces the pool of likely buyers. 5. Inform the sellers that the purpose of the CMA is to determine the best list price for the property. 6. Explain the report and how you researched the properties. If your conclusions of market value are less than the sellers' desired price, you may have a problem. Hold off on stating your conclusions. Wait to see what the sellers conclude from the comparable sales. (Usually, sellers will quickly realize that their price is too high and, if motivated to sell, will agree to reduce the price.) 7. Explain how each section of the CMA is important in the decision-making process by giving the sellers an overview of the following: Sold listings prove what selling prices have been and what bank appraisals might show. Homes now for sale illustrate the importance of competitive pricing. Expired listings demonstrate the futility of pricing property at an unrealistically high price. 8. Review individual properties on the report while referring to visual aids such as a subdivision map and photos. 9. Ask the sellers for questions or comments. 10. Give the sellers time to arrive at a range of values independently. 11. If the sellers want to price the property too high, discuss the reasons why that approach is unproductive. 12. When a realistic listing price has been agreed upon, complete the seller's net proceeds form. net proceeds The amount available to a seller after paying the expenses of the sale and satisfying liens on the property. Seller's Net Proceeds Form A form used to show the seller's equity, expenses, and prorations, as well as the net amount the seller is estimated to receive as proceeds from the sale of the property. Equity The amount of the owner's portion of the property value after deducting mortgages and other liens. 62 | P a g e Special assessment liens and construction liens would be shown in the space provided for other encumbrances. All items should be rounded because this is an estimate. An exact mortgage balance is unnecessary because of the closing date's uncertainty. Uneven dollars and cents amounts should not be included. Exact amounts imply an accuracy that does not exist in the estimate. Expenses section Expenses that the seller might be required to pay should be listed. It is better to overestimate than to underestimate the expenses. -The documentary stamps tax on the deed is $.70 per $100 or fraction thereof of the sales price. The seller normally pays the tax. -Wood-destroying organism (WDO) inspection (treatment and repairs) could be a substantial expense to the seller, but the cost is not known at the time of listing or contract. A conservative approach would be to show the cost of both in this section. A licensee should stay current on the costs of inspection and treatment in the property's market area. In many areas, the inspection is paid by the buyers. -Title insurance and related costs are based on local practice. -Homeowners warranty costs help the sellers to assure the buyer that the home is in good condition. The home will be warranted against many defects by an independent home warranty company. Depending on the company, these costs may range from $300 to $500. -Buyer's closing costs, the origination fee, and discount points can be very substantial expenses to the seller if the seller agrees to pay them. When taking a listing, a sales associate should include these items if sellers in the market customarily pay them. When preparing this estimate at the time of contract, the sales associate should take extra care if the seller will pay the buyer's costs. The licensee should use the lender's Loan Estimate, with a maximum amount agreed to in the contract. Leaving this open-ended in a contract can be problem if the discount points or other costs increase between the time of acceptance and the time of closing. -Lenders sometimes require repairs and replacements before making a loan. The repairs also could be the result of wood-destroying organisms or nonfunctioning appliances. The licensee should overestimate somewhat as a cushion for such contingencies. -The seller's attorney fee is an optional expense. The licensee should list the normal closing review fee for the market area of the seller. -The brokerage fee is the commission the brokerage firm charges. -Other miscellaneous costs include items such as express mail fees for mortgage payoffs and recording mortgage satisfactions. The licensee should overestimate somewhat as a cushion here to allow for contingencies. This line also could be used to round uneven expense amounts into even amounts. For example, if the expenses were $8,945.60, the miscellaneous costs could be estimated at $54.40, resulting in total estimated expenses of $9,000. Prorations section Prorations are usually debits (charges) to the seller. Because the closing date is not certain, the sales associate need not do exact prorations; approximations are satisfactory if amounts are rounded higher. The statement offers no provision for insurance prorations. The buyers should purchase a policy, and the seller should get a cancellation refund. Because the insurance refund and escrow refund from loans paid off are not received at closing, the net proceeds statement does not include these items (if the 65 | P a g e -Counteroffer If you don't like some part of the offer (price, closing date, etc.) you can change it. The buyers can accept your counteroffer—you have a contract. The buyers can reject the your counteroffer and look for another house. Open Listing A nonexclusive agreement in which a seller agrees to pay a broker if the broker sells the property. The broker is not paid if the seller or another broker sells the property. CANT BE ENTERED INTO THE MLS Brokers may work simultaneously, but the first broker who produces a ready, willing, and able buyer at the terms accepted by the seller is the only one who earns a commission. If the owner himself sells the property without the aid of any of the brokers, he is not obligated to pay any commission; but if a broker can prove she was the procuring cause of the transaction, she may be entitled to a commission. Either or all parties may terminate an open listing at will, and in the absence of formal notification, an open listing may terminate after a reasonable time. The owner is not obligated to notify any of the brokers that the property has been sold. Exclusive Agency Listing A listing that requires the owner to pay the listing broker if the property is sold by any broker but allows the owner to personally sell the property without being liable for a commission. Exclusive agency residential listings are less common than exclusive right-of-sale listings. A common problem with exclusive agency and open listings is the exposure to lawsuits for procuring cause between the broker and the seller. Exclusive Right-of-sale Listing A listing that requires the owner to pay the listing broker no matter who sells the property. The broker is automatically the procuring cause of the sale. To be enforceable it must be in writing and include valuable consideration (promise for promise). most advantageous listing from the broker's viewpoint and the most common type of listing. Florida Laws Regarding Listing Agreements Florida law recognizes written, oral, or implied listings, assuming evidence is available to support a claim for compensation. If a listing is written, it must include a definite expiration date, a description of the property, the price and terms acceptable to the sellers, the amount of commission due upon the broker's performance, and the signature of the parties. A written listing agreement may not have wording that makes it self-renewing, or the listing will be void. 66 | P a g e The broker, or the broker's authorized representative, must deliver to the sellers a copy of the listing agreement within 24 hours of signature. Performance The completion of a contract's requirements. Warranties by the Owner If the listing broker is a single agent for the seller, both the broker and the seller have obligations under the listing agreement. The principal has legal obligations to the broker, including performance of all promises made in the contract, as well as the obligation to engage in honest, straightforward dealing. The actions and misrepresentations of a seller can become a liability to the agent. For example, if a seller tells a sales associate that the plumbing pipes are copper and the sales associate passes along that information to a buyer without qualification, both the seller and the brokerage firm may be liable for damages if the buyer later discovers the plumbing pipes are polybutylene. Litigation may result in damages assessed against both the seller and the broker. Authority to sell property This paragraph gives the broker an exclusive right to sell the property. The listing term also is shown here. Many brokerage firms have policies for the listing term, depending on the type of property. A typical residential period is six months. The licensee should examine that policy carefully, however, in light of the best marketing period. For instance, in many areas of Florida, the best sales period is May through August. If that is the case, a six-month listing taken on January 2 expires July 2, with two months remaining in the best selling period. A far better approach is a minimum of six months, provided all listings remain active at least through August 31. A contract written during the listing period extends the listing until the closing. The seller agrees to offer the property without unlawful discrimination. The seller warrants that he can convey the property legally. Description of property. -Real property street address. The property address is entered here. The legal description should be taken from the public records or from the owner's deed, if available. If it is a metes-and-bounds description, it should be attached. A description taken from the tax records or from former listing information is not satisfactory because these sources are not always reliable. -Personal property. Fixtures, as well as other personal property, must be listed here. Often a seller agrees to leave a refrigerator, drapes, or a washer/dryer; however, the licensee should discuss with the seller the possibility of holding back the offer of these items, using them as negotiating tools when an offer is made (for example, "The seller says that if you can increase your offer by $1,000, she will give you her washer-dryer."). -Some items are not included as part of the agreement. The licensee should ask the seller an important question: "Is any item attached to the property that you do not want to be included with the sale?" The agreement does not provide a section for this exclusion, but the licensee should be certain to include any such items on an addendum. If possible, the fixture should be removed before the home is shown. -Occupancy. This section covers the seller's representation about occupancy rights by another party. If a third party is in possession of the property, the buyer's rights are subject to those of the tenant. The licensee might look over the lease to see if the landlord has the right to terminate the lease upon the 67 | P a g e sale of the property. If it can't be terminated easily, a buyer may be found who will purchase the house as an investment property, leaving the tenant in place. Price and terms -Price. Here the licensee records the price at which the property will be offered. -Financing terms. The terms are important to the seller and the listing broker, particularly in the way the property is marketed. If the seller agrees to seller financing, the terms of such financing are stated here. If there is an existing mortgage on the property, the seller is asked whether it can be assumed with or without lender approval. The seller is warned about liability in case of assumption. The seller also agrees that the loan is current in case of assumption. The Consumer Financial Protection Act has regulations that might require sellers who offer financing to get a mortgage originator's license. Sellers should consult a legal or mortgage professional before offering to offer financing. -Seller expenses. This section limits the amount the seller agrees to pay for discount points and other closing costs as a percentage of the sales price. This section allows the licensee to advertise that the seller might pay some closing costs. Broker obligations The broker makes promises to work diligently to sell the property. Multiple listing service. The broker (unless otherwise directed by the seller) will timely deliver the listing to the MLS. Some brokers hold a listing out for an extended period, during which time the broker attempts to sell the property himself. If the licensee is a single agent, this could be considered as subordinating the principal's interests to the broker's personal interests, a clear violation of fiduciary duties. The seller authorizes the broker to report listing information, price and terms, and financing information for any resulting sale to MLS participants. Broker authority The seller authorizes the broker to do the following: -Advertise the property as the broker deems advisable, place an appropriate sign on the property, and use the seller's name in marketing the property. This section also allows the seller to opt out of displaying the property on the internet. The property address will not be included in internet advertising. -Place appropriate signs on the property, including For Sale and Sold signs. -Obtain information about the mortgage (usually a signed request from the seller for a status letter). -Provide a CMA to potential buyers. -Place a lockbox on the property, if the seller specifically authorizes it. The seller is asked to relieve the broker, staff, and board of Realtors® from liability due to loss. The seller may request that the broker withhold oral offers and all offers once the seller accepts a contract. -Act as a transaction broker. Florida Realtors® has a different form for each of the available brokerage relationships. -Virtual office websites that allow automated estimates of value or comments or reviews about the property. This section allows the seller to opt out of the value estimates or comments. 70 | P a g e arbitration was unsuccessful, that might be better handled in the employment agreement. The agreement suggests that the costs will be split among the three parties. Miscellaneous The agreement may be assigned to another listing office. Electronic signatures and facsimile communications are enforceable. Information and signature section This section provides space for additional terms and personal information, including tax ID numbers, as well as signature lines. Note that the listing sales associate may be authorized to sign the listing for the broker. This facilitates giving the seller a copy of the agreement immediately, satisfying the 24-hour requirement. The box at the bottom of the contract indicates when the seller's copy was legally delivered. The broker has been hired to get the best price in the shortest time and with the least inconvenience to the seller. This requires the licensee to market the property in ways other than just showing it herself. Some of these activities include: -educating the sellers on what to do when the house is going to be shown, such as turning on the lights, removing clutter, removing or locking up the pets, and leaving the property, if possible; -disseminating the property information to all agents in the company; -putting the sign on the property; -putting an MLS lockbox on the property (if approved by the seller and available in the market area); -arranging for all company sales associates to inspect the listing on caravan day; -getting the information into the MLS as soon as possible; -announcing the listing at company sales meetings and at the board of Realtors® marketing meetings; -preparing a brochure to place in the home for prospective buyers and cooperating licensees; scheduling an open house, if appropriate, for the listing; -writing at least three good ads to generate potential buyers; -putting the listing on websites (personal page, company page, and other advertiser's pages); using email autoresponders to get immediate feedback for customers who ask for information from a website; -preparing web advertising and virtual tour; -preparing mail-outs to send to potential buyers; telling 20 neighbors about the listing by mail; calling the neighbors to ask for help in finding buyers; -holding Realtors® luncheon at the property to increase activity; and -reviewing sales and listing activity in the neighborhood. Update the CMA at least once a month. Servicing The Listing The actions of a licensee who stays in touch with a seller regularly, getting feedback from licensees who have shown the property, sending the seller copies of advertisements, and generally keeping the seller informed of the marketing efforts. 71 | P a g e A seller who does not hear from the listing sales associate perceives that the agent is not doing her job. --Select one evening each week, such as Thursday night, to service your listings. Listing Servicing Schedule First Day: Verify tax information and legal description. Send out mortgage status request. Write three ads. Place listing on web page. Send thank-you card to seller. Enter listing information in computer. Put copies of listing information in floor book. Distribute copies of listing information to all sales associates. Put sign and lockbox on property. Second Day: Mail notice of listing cards to at least 20 neighbors. Call or email seller to tell of above steps. End of First Week: Send letter to seller signed by broker. Day after Caravan: Collect caravan comment sheets. Visit with seller to evaluate results of caravan and comments. Second Week: Clip ads of property. Send to seller in postcard format. Check MLS information on computer, verify information, and then email to seller. Call seller to tell of progress. Ask seller to call when house is shown. Third Week: Clip ads of property. Send to seller in postcard format. Run MLS computer check for new listings and listings under contract, and then email information to seller. Call or email seller to find out who has seen home. Check with sales associates who have shown home; give feedback to seller. Fourth Week: Clip ads of property. Send to seller in postcard format. Run MLS computer check for new listings and listings under contract, and then email information to seller. Call or email seller to find out about who has seen home. Check with sales associates who have shown home; give feedback to seller. Fifth Week: Clip ads of property. Send to seller in postcard format. Run MLS computer check for new listings and listings under contract, and then email information to seller. Visit seller in the home, and go over CMA. Get price reduction if appropriate. Walk through property again. Point out areas needing attention. 72 | P a g e Sixth Week: Clip ads of property. Send to seller in postcard format. Run MLS computer check for new listings and listings under contract, then email information to seller. Call or email seller to find out who has seen home. Check with sales associates who have shown home; give feedback to seller. Schedule open house for the property, if appropriate. Send notice of open house to at least 20 neighbors. Seventh Week: Run open house, and leave a note for seller on results. Call later. Clip ads of property. Send to seller in postcard format. Run MLS computer check for new listings and listings under contract, then email information to seller. Call or email seller to find out who has seen home. Check with sales associates who have shown home; give feedback to seller. Send out notice of listing to additional 20 homes in neighborhood. Eighth Week: Clip ads of property. Send to seller in postcard format. Run MLS computer check for new listings and listings under contract, and then email information to seller. Call or email seller to find out who has seen home. Check with sales associates who have shown home; give feedback to seller. Ninth Week: Clip ads of property. Send to seller in postcard format. Run MLS computer check for new listings and listings under contract; then email information to seller. Call or email seller to find out who has seen home. Check with sales associates who have shown home; give feedback to seller. Do another CMA. Visit with seller, and get price reduction and extension. Schedule luncheon for sales agents. 10th Week: Clip ads of property. Send to seller in postcard format. Run MLS computer check for new listings and listings under contract, and then email information to seller. Call or email seller to find out who has seen home. Check with sales associates who have shown home; give feedback to seller. Continue this pattern until listing has been sold. What clause in a listing contract contains a promise by the owner certifying that all the information related to the property is true and accurate? Warranty of owner A seller refuses to allow the listing broker to split commissions with buyers' brokers, transaction brokers, or nonrepresentation brokers. Based on this information, which statement is TRUE? The broker may take the listing but may not enter it in the MLS. 75 | P a g e Qualifying the Buyer (1) What are the buyers' housing objectives? (2) What can the buyer afford to pay? What Are the Buyers' Housing Objectives? Some of the information the sales associate should get from the buyers includes the following: -What features do they want in the home? -How quickly do they need to move? -Must the buyers sell their current home? -If they're leasing now, when does the lease expire? -Have the buyers already spoken to a lender and been preapproved? -Is there a specific area they want? Financial qualification is the key to a successful sale If the buyer contracts for a home and applies for a loan that is later denied, the seller, the buyer, and the sales associate have wasted time and effort. In addition, loan application fees ranging from $250 to $500, depending on the lender, could be lost. Having a lender preapprove the buyer is the best approach and should be used whenever possible, but certainly before the buyer actually contracts for property. Preapproval means the buyer has been interviewed and the buyer's credit report has been reviewed and the income verified. Preparing the Customer to Buy After qualifying the buyer's needs, the sales associate should give the buyer a copy of the contract for purchase and sale and explain the more important paragraphs to the buyer. This explanation of the contract serves two important functions: -If the buyer receives important information from the sales associate at their first meeting, this works to cement the buyer's loyalty to the associate. -Because the buyer is given a copy of the contract along with an explanation, the contract becomes the buyer's property. When the buyer becomes interested in a particular property, she is not startled when the sales associate pulls out a contract form. buyer brokerage agreement An agreement between a buyer and a broker for the broker to provide services to a buyer for compensation. The broker may be acting as a single agent, a transaction broker, or a nonrepresentative. Buyer Brokerage Agreement -Parties. The parties are the buyer and the broker. This paragraph also explains that the terms "acquire" or "acquisition" include "purchase, option, exchange, lease, or other acquisition or ownership or equity interest in real property." -Term. This paragraph sets forth the dates the agreement will be effective. Notice that if a contract is pending on the expiration date of the agreement, the agreement is extended until the contract is closed or terminated. 76 | P a g e -Property. This section shows the following:Type of property—for example, residential, agricultural, office, et cetera.Location would normally be used to describe a city or a county, or another geographic area.Price range would set the minimum and maximum limits the broker should use in selecting properties to show. This section also discloses that the buyer may have already been preapproved for a mortgage.Preferred terms and conditions sets out the buyers' preferences, such as owner financing, small down payment, lease-purchase, and so forth. -Broker's obligations.Broker assistance: The broker agrees to cooperate with seller's brokers to complete a transaction. It also states that even if the broker is paid a commission split from the seller's broker, the broker's duties to the buyer are not reduced.Other buyers: This section discloses to the buyer that the broker may work with another buyer interested in the same property but must maintain confidentiality as to the terms of any offers.Fair housing: Broker states he will not participate in unlawful discrimination.Service providers: Broker will not be responsible for acts of a third party recommended by the broker, such as a home inspector or title insurance company. -Buyer's obligations. In this section, the buyer agrees to tell sellers or other brokers that he is working under contract with a broker, to conduct all negotiations through the broker, to give the broker personal financial information and allow the broker to run a credit check, to hold the broker harmless for any damages, and to consult an appropriate professional for tax, legal, and other services. -Retainer. Many licensees ask prospective buyers for a nonrefundable retainer at the time this contract is signed. It has an option for the retainer to be credited to the total compensation. -Compensation. This obligates the buyer to pay a commission to the broker, offset by any commissions the broker may receive from a seller or a broker working with the seller. The broker is entitled to a commission if the customer purchases, leases, or options the property. The commission may be stated as a percentage of the sale, lease, or option, or it can be a fixed fee. The broker is also entitled to a commission if the buyer defaults on any contract. -Protection period. If the broker has shown property to the buyer and the buyer purchases the property within the agreement period, the buyer will owe the commission unless the buyer has entered into a buyer brokerage agreement with another broker after the termination date. -Early termination. The buyer may terminate the agreement, but if the buyer buys property that she learned about during the contract term, the buyer owes the commission. The broker may terminate the agreement at any time by giving written notice. -Dispute resolution. Disputes must be mediated first. If mediation is not successful, the parties must agree to submit the dispute to binding arbitration. -Assignment; persons bound. The broker is allowed to assign the agreement to another broker. -Brokerage relationship. The form shown here is the one used by transaction brokers. There are separate buyer brokerage forms for each of the other brokerage relationships. -Special clauses. This gives the parties additional space to add other provisions to the agreement. -Acknowledgment; modifications. Indicates the buyer has read and understands the agreement. There are spaces for signatures of the buyer(s), sales associate, and broker. Showing the Property -Setting the appointment -Previewing the properties -Planning the route -Entering and showing the properties 77 | P a g e -Evaluating the buyer's level of interest -Writing the contract Many times a sales associate will not set an appointment until he has previewed homes and is confident that good choices are available to show. Two disadvantages in this approach follow: -The sales associate might spend a lot of time looking at properties, only to find that the buyer is working with another licensee. -If the sales associate can't find anything just right and puts the buyer off, the buyer might decide to work with another licensee. When highlighting a property's features, the sales associate must remember the most important words in any sales presentation: Fact Bridge Benefit Picture The fact is that the property is on the cul-de-sac. The bridge might be "What that means to you, Mr. and Mrs. Jones, . . ." The benefit is the rest of the sentence: "is that because there is no through-traffic, automobiles travel very slowly, resulting in greater safety to your children." The picture is a word picture: "Imagine being out here on the street while your children roller-skate safely." Previewing Properties The activity a licensee uses to stay abreast of the market and to find specific properties to show to a prospective buyer. Lockbox A secure box holding the key to the home, usually attached to a door handle, allowing licensees who are members of the MLS easy access to the property by using a special access key to the box. Here are some important points to remember about buyers' objections: -An objection can be an opportunity to make the sale. Many objections can be turned into immediate selling points. "The house needs paint" might provoke an argument from an unprofessional sales associate. The empathetic sales associate simply asks, "Would you paint it yourself, or would you hire someone to paint it for you?" With a positive response from the buyer, both parties are happy. -Be certain you understand the objection; restate it. For example, a buyer may say, "This house costs too much money!" You may follow with a question like, "If I understand you, you feel that the house is overpriced?" The buyer may answer, "No, I'm just not certain I want to buy a house at this price level." By clarifying with a question, you avoid being argumentative. Don't answer an objection until you have isolated it; if there are many more objections, this is not a suitable property. 80 | P a g e -The owner/seller's name and address and the property's legal description. MLS data, property appraiser information, and even listing agreements have been in error on occasion. The sales associate should get the information from a title insurance policy, a deed, or a survey. -Financing information. Financing data tend to change frequently and require last-minute updating. Check with local lenders to make certain that times allowed for obtaining financial commitments are realistic and that the rates and terms contemplated actually are available. Title Insurance A guarantee to reimburse a loss arising from defects in title or liens against real property. Residential Contract for Sale and Purchase 1. Parties Seller: The seller's name(s) should be the same as that shown in the property's title, showing the marital status of the seller. You can get this information from the seller's title insurance policy or a copy of the recorded deed. Residential property: If a married person owns the residential property individually, you should also obtain the signature of the nonowning spouse. Joint ownership: If the property is jointly owned, obtain the signatures of all joint owners. If a residence is located on the property, obtain the signatures of joint owners and their spouses. Corporations, partnerships, estates, trusts, and use of powers of attorney: Each requires special attention and instructions. Seek broker or legal counsel, as appropriate. Buyer: Buyer's name(s) should be shown in the same manner as the buyer wishes title to be taken at closing. Other points to consider include the following: -Each buyer shown on the contract must sign the contract. -If the buyer later desires to take title in some other manner and this is permitted by the contract, an appropriate assignment or amendment to the contract should be obtained at closing. -Buyers often seek advice as to the manner in which they should take title to property—for example, tenancy by the entireties, tenants in common, and so on. If the buyer asks how title should be taken, advise the buyer to see an attorney. -Non-U.S. corporations, U.S. corporations, partnerships, et cetera: Seek broker or legal counsel, as appropriate. -Address: Insert the street address, city, and ZIP code, which may render an otherwise insufficient legal description legally sufficient. Residential Contract for Sale and Purchase Propertydescription: -Material term: The legal description of the property to be sold is an essential provision of the contract. A defective legal description can render the contract unenforceable. -Sufficiency test: The classic -test of the sufficiency of a legal description is whether a surveyor can 81 | P a g e locate the property by reference to the description used. -Reliable information: Do not rely on tax roll descriptions. The tax rolls are filled with errors and abbreviated descriptions that could be regarded as legally insufficient. Also, do not rely on descriptions contained in MLS listing sheets because they may only repeat errors others have made. Instead, rely on copies of prior deeds, prior title insurance policies, or prior surveys. -Description not known at time of contract: If any question remains as to the property's exact location, size, or description, and if the question cannot be resolved before the execution of the contract, agreement must be reached as to the survey of the property and as to who will bear the expense of the survey. Furthermore, agreement must reflect that the contract will be amended to conform to the legal description. The buyer also should have the right to terminate the contract if the property location and size are not substantially as represented. -Easements, other interests: The legal description should include any interest in the property being conveyed—for example, private right-of-way or common elements. This information usually is found on the deed or the title insurance policy. -Quantity: From the seller's point of view, references to exact acreage in the legal description should be avoided. This could give rise to a right on the part of the buyer either to cancel the contract or to reduce the purchase price should the actual acreage prove to be materially different. -Minimum description requirements—platted subdivision: County in which property is located Lot and block numbers Name of subdivision (include phase or unit if applicable) Plat book and page number of recorded plat -Minimum description requirements—condominium: County in which property is located Condominium unit or parcel number Name of condominium complex Identification of common elements—for example, parking spaces and storage spaces, if applicable Recording information (official record book and page number) of original declaration of condominium and any amendments Reference to ground lease or recreational lease and recording information if applicable -Minimum description requirements—unplatted property: County in which property is located Legal description provided by survey or prior deed(s) Reference to section, township, and range Improvements and attachments: The contract includes all improvements and attached items, and further describes fixtures, built-in furnishings, built-in appliances, ceiling fans, light fixtures, attached wall-to-wall carpeting, rods, draperies, and other window coverings, refrigerators, ranges and ovens, storm shutters, and smoke detectors (unless any of these items are specifically excluded). Fixed purchase price: The format of the preprinted contract calls for a fixed purchase price to be expressed in monetary terms using U.S. dollars. 82 | P a g e Variable price: If the full purchase price cannot be expressed in monetary terms, the manner in which it might be determined accurately should be stated in the contract in an addendum. For example, if acreage is involved and the parties agree on a price per acre, that price per acre should be set forth in an addendum (under "Special Clauses," check "Addendum is attached"), together with a provision for an accurate survey determination. Whenever an addendum is used, it should have the date of the original contract, the complete names of the parties, and a complete legal description. It also must be dated and signed by the parties. Method of payment: The subparagraphs set forth the manner in which the purchase price is to be paid. The sum total of the monetary amounts set forth in these subparagraphs should equal the purchase price. Deposit Received 2(a) With the amount of the deposit, the date, and the escrow agent. The deposit is subject to collection, which means the funds have been fully deposited into the account of the escrow agent. 2(b) This line is used when the payment of the deposit is split between the initial deposit and an additional deposit. Typically, the second deposit is much larger than the initial deposit. The amount of the additional deposit and the date or the number of days within which it must be made should be inserted. The contract allows the seller to recover not only the initial deposit but also any unpaid deposit. If the buyer defaults by failing to make the additional deposit, the seller is faced with having to initiate litigation to recover the balance. While the seller has an alternate remedy of specific performance, the seller's best remedy in the event of buyer default is a forfeiture of the deposit. 2(c) Enter the amount of total financing in this line. It can be shown as a dollar amount or as a percentage, but a dollar amount is usually better for determining whether the balance to close is correctly added. 2(d) This line can be used for items that are not cash or financing. For example, it might be a boat taken as part of the purchase price. 2(e) State the balance of the cash to be paid after deducting from the purchase price the cash deposit, financing, and other payments. Note that this figure does not include closing costs, prepaid items, or prorations. The contract requires that the funds be by wire or by other collected funds. "Collected" means any checks, including deposits, must have become actually and finally collected and deposited in the account of escrow agent or closing agent. Collected Funds Checks or wired funds that have become actually and finally collected and deposited into the escrow agent's or the closing agent's account. Time for Acceptance of offer and counteroffers; effective date: (a)If the contract is not signed and delivered to all parties by the date entered in the offer, the offer is void and the deposit is to be returned to the buyer. If a date is not inserted, counteroffers will be void if not signed within two days. 85 | P a g e This section covers disclosures such as radon gas, permits, mold, flood zones, energy disclosure, lead- based paint, homeowner's association, ad valorem taxes, and FIRPTA withholding. The sellers must also disclose all known defects that materially affect the value of the property, other than those that are readily observable. Property maintenance: This section requires the seller to keep the property in the same condition until closing, except required repairs. Property inspection and repair: (a) Inspection period: Inspections must be completed within 15 days or at least five days before closing. If the property sale does not close, the buyer must repair property damaged by the inspections and give the seller paid receipts for all work done. (b) General property inspection and repair: (i) General inspection: The buyer will notify the seller of any items not functioning correctly as noted by a licensed home inspector. (ii) Property condition: Ceiling, roof, exterior and interior walls, doors windows, and foundation shall be free of leaks, water damage, or structural damage. Pool equipment, major appliances, heating and cooling, mechanical, electrical, security, sprinkler, septic and plumbing systems must be in working order. Torn screens, fogged windows, and missing roof tiles will be repaired or replaced by seller. Seller need not repair cosmetic items. (iii) General property repairs: The seller is to pay for repairs up to the general repairs limit as shown in the contract. If the amount is higher, the seller may elect to pay the excess; or the buyer can designate which repairs are to be done so that the total does not exceed the contractual limit; or if neither party delivers written notice to the other, then either party may terminate the contract. (c) Wood-destroying organism (WDO) inspection and repair: (i) Property may be inspected by a licensed WDO inspector. If infestation or damage is found, the buyer must notify the seller within the contract's time limits. (ii) The seller is to pay for repairs up to the general repairs limit as shown in the contract. If the amount is higher, the seller may elect to pay the excess; or the buyer can designate which repairs are to be done so that the total does not exceed the contractual limit; or if neither party delivers written notice to the other, then either party may terminate the contract. (d) Inspection and closeout of building permits (e) Walk-through inspection/re-inspection: The buyer may perform a walk-through inspection solely to confirm that all items of personal property are on the property and to verify that the seller has maintained the property as required and has made required repairs. Escrow agent: This paragraph authorizes the escrow agent to accept and disburse funds and releases the escrow agent from liability unless there has been willful breach of the contract or gross negligence. If the escrow agent has to interplead the subject matter with a court, the court costs and attorney's fees may be paid from the deposit. Professional advice; Broker liability: 86 | P a g e This section advises the buyer to get legal and other professional advice. The buyer agrees to look solely to the seller for property condition, square footage, and other facts that affect property value. If the buyer or the seller makes misstatements, the broker is entitled to collect court costs and attorney's fees to defend against damage claims. Default: (a)Buyer default: If the buyer defaults, the seller can collect the deposits as liquidated damages, agreeing to pay the broker 50% of the deposits up to the full brokerage fee. (b) Seller default: If the seller defaults, the buyer can get the binder back and cancel the contract, seek damages, or sue for specific performance—or all of these. The seller will also owe the broker a commission. Dispute resolution: (a)In case of a dispute over the escrow deposit, the buyer and the seller have 10 days to resolve the dispute. After that, the parties must submit to mediation. (b)In disputes other than over escrow deposits, the parties will attempt to settle the dispute by mediation, after which they may have to seek a resolution in the courts. Attorney fees; costs: The parties will split the mediator's fee and pay their own costs, expenses, and attorney fees. In any litigation, the winning party is entitled to collect all costs and fees from the other party. Standards: Some of the more important standards are shown here. Effective Date; Time: This paragraph makes the effective date the date that the last of the parties initialed or signed the latest offer. Calendar days will be used in computing time periods. It also has the wording that "time is of the essence." Time periods other than time for acceptance and effective date that end on Saturdays, Sundays, or holidays will extend to 5:00 pm of the next business day. Notices: Notices may be made by mail, personal delivery, or electronic media. The paragraph emphasizes that if the buyer does not make the required notices about contingencies to the seller on time, the contingency will no longer exist. Complete agreement: Except for brokerage agreements, this is the only agreement between the parties. Handwritten portions of the agreement supersede preprinted portions if the two conflict. This sentence protects the contract if a licensee fails to delete an inconsistent provision covered in handwritten clauses or to protect any riders or addenda that are designed to show the parties' true intent. To know whether it is necessary to revoke, amend, or replace a printed provision, a licensee must know the content of the printed provisions. 87 | P a g e Rider An attachment to a contract. Addenda: The licensee should check the appropriate boxes for addenda that apply to this agreement. The Comprehensive Addendum to the Residential Sale and Purchase Contract has many of the most common clauses. Various laws and regulations require that some riders be attached to the contract and that other riders expand and clarify contract terms. All the riders listed are available as preprinted forms. Additional terms: This is the area for special clauses specific to the needs of this particular transaction. Brokers: Parties agree in this paragraph that the listing and cooperating brokers are the only brokers entitled to compensation. The seller and the buyer direct the closing agent to disburse brokerage fees according to the brokerage agreements and the cooperating broker arrangements for commission splits. Under the "time is of the essence" provision failure of any party to perform the duties or promises made within the exact time limits established in the contract constitutes an automatic default and, in turn, grants the performing (other) party the right of cancellation. Licensees should be careful that the legal description is stated correctly on the contract. Licensees should be careful that the legal description is stated correctly on the contract. Option Contract An agreement that allows one party to buy, sell, or lease real property for specified terms within a specified time limit. exercised Used in connection with an option contract. An option contract is a unilateral contract until the optionee agrees to purchase and is then said to have "exercised" the option. A professional sales associate can ensure that the buyer will have this information before showing properties. The steps are to: -get the buyer preapproved by a lender, and get a Loan Estimate, -show the buyer the important financial aspects of the purchase, and -describe the sales process to the buyer. Loan Estimate A required disclosure that shows the amount of cash needed at closing, as well as the annual percentage rate of interest charged on the loan. Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) The GFE was combined with the TIL 90 | P a g e of the applicant's job attitude and give a prognosis for continued employment and prospects for advancement. Employment may be checked again before closing. Credit report The loan processor requests the borrower's credit report. The credit report is an important part of the loan approval process. Of the two types of credit reports, consumer credit and mortgage credit, this discussion centers on the latter. A credit report is the product of information accumulated from a thorough check of the creditors indicated on the loan application, as well as a review of the public records to discover whether any lawsuits are pending against the applicant. When completed, the credit search company sends the loan processor a report of its findings. credit scoring A method of credit reporting using a numeric score. A higher score reflects a person with better credit history. FICO score A proprietary numeric credit score used to evaluate a prospective borrower, developed by Fair, Isaacs, & Co. The most commonly used credit score today The scoring models use the following information when evaluating a score: -Of the score, 35% is determined by payment history with higher weight for recent history. Late payments, collections, and bankruptcies that appear in the credit report are subtracted from the score. -Outstanding debt is very close in importance to payment history—30% of the total score. Many scoring models evaluate the amount of debt compared with the credit limits. If the amount owed is close to the credit limit, it affects the score negatively. -Of the score, 15% is the result of credit history. A long history is better if payments are always on time. -The score assigns 10% to very recent history and "inquiries" for new credit. If the applicant has recently applied for credit in many places, it will negatively affect the score. This problem occurs when a person goes car shopping. Sales associates at each car lot will ask for the consumer's Social Security number in order to pull a credit report (at "no charge"). The shopper has no idea that as more reports are ordered, the shopper's credit rating declines. -Finally, 10% is based on the mix of credit, including car loans, credit cards, and mortgages. Too many credit cards will hurt a person's credit score. In some models, loans from finance companies or title loan companies will also hurt the score. To improve the credit score, persons should pay bills on time, pay down outstanding balances, and not take on new debt. Quality Income A lender's analysis of factors that reveal the likelihood of the borrower's income continuing over a long period. 91 | P a g e Self-employed people also find it difficult to obtain a mortgage without the following: -More documentation. Now, small-business owners will need more documentation, including two years of tax returns, profit and loss statements, bank statements, and proof that they've been in business for at least two years. -More money down. They'll also need a bigger down payment. It may take 20% down to qualify. -Great credit. An application will probably be declined if the credit score is lower than 700. Quantity of income The total amount of a borrower's income from all sources. The 30-year amortization schedule and regular monthly payments of principal and interest serve as the framework for real estate financing. True To reduce the risk of loss in a default situation, lenders look to the credit rating of the borrower. False credit rating is not relevant in default. The value of the collateral becomes the most important factor. The definition of market value now includes foreclosed properties as comparable sales. TRUE In order to find market value in many areas, the high numbers of foreclosed properties really establish market value. In Florida, two methods are used to obtain assurance of good title: (1) the abstract and attorney's opinion of title and (2) title insurance. Title insurance is preferred. If title is later found to be bad, and an attorney's opinion was used, the buyer or the lender would have to sue the attorney to recover, but the attorney may not have the financial strength to reimburse for the loss. Lenders prefer title insurance, but whichever method is used, the title report should provide the loan officer and the lender's attorney with all available information relevant to the legal status of the subject property, as well as any interests revealed by constructive notice. Title Insurance Title insurance companies combine the abstracting process with insurance that guarantees the validity and accuracy of the title search. A purchaser of title insurance can rely on the insurance company's assets to back up its guarantee of a property's marketable title. This guarantee is evidenced by a policy of title insurance. Most financial institutions now require that a title policy be issued to them for the face amount of a loan. When a title insurance policy is issued to a lender, it is usually on the American Land Title Association (ALTA) form. While a standard title policy insures against losses overlooked in the search of the recorded 92 | P a g e chain of title, an ALTA policy expands this standard coverage to include many unusual risks, such as forgeries, incompetency of parties involved in issuing documents pertaining to the transfer of ownership, legal status of parties involved in the specific loan negotiations, surveying errors, and other possible off-record defects. Some additional risks can be and usually are covered by special endorsements to an insurance policy. These could include protection against any unrecorded easements or liens, rights of parties in possession of the subject property, mining claims, water rights, and additional negotiated special items pertinent to the property involved. Participants in the secondary mortgage market (Fannie Mae, Freddie Mac, and Ginnie Mae) generally require the expanded ALTA policy for the added protection it provides. Many lenders use the phrase "an ALTA policy" when describing an extended-coverage policy. Surveys Whether the abstract and opinion of title method or the title insurance policy method is used, a property's title is searched by an experienced abstractor who prepares a report of those recorded documents that clearly affect the quality of ownership. In addition, lenders usually require a survey of the collateral property as a condition for a new loan. Although many properties are part of subdivisions that have been engineered and described by licensed and registered surveyors and engineers, some owners might have enlarged their homes or made additions to the improvements since the original survey. These might not meet the various setback restrictions set forth in the local zoning laws. Some properties might have been resubdivided, while others now might have encroachment problems. An ALTA survey is a boundary survey prepared in a way that meets minimum standards adopted by the American Land Title Association/American Congress on Surveying and Mapping (ALTA/ACSM). It's much more than just a boundary survey of the land with flags at the corners. An ALTA survey shows improvements, easements, rights-of-way, and other encumbrances that affect land ownership. The surveyor must have a current title commitment. The title commitment includes the legal description of the property and legal descriptions of any easements and encumbrances. The surveyor works closely with the title insurance company because each depends on the other's work. The surveyor must show any encroachments, including pertinent information. The certification language of the ALTA survey includes the names of the parties, including buyer, seller, title company, and lender. Defects If a defect is found, sometimes called a cloud on the title, the loan process stops until the issue is cleared to the lender's satisfaction. The issue might be an unsatisfied construction lien, an income tax lien, a property tax lien, an easement infraction, an encroachment, or a zoning violation. Sometimes a borrower's name is not correct on the deed, an error exists in the legal description, the deed has a faulty acknowledgment, or it lacks the appropriate signatures. Because of the many complexities in a real estate transaction, it is not uncommon to find problems in a title search or a property survey. In certain instances where clouds are difficult to remove by ordinary means, they must be cleared by filing suits to quiet title. After appropriate evidence is submitted, a judge removes or modifies an otherwise damaging defect in a title. The loan process can continue when a clear chain of title is shown on the public records. Municipal Lien Search 95 | P a g e a default. The seller must be notified and the seller's instructions followed. Loan application made by buyer The Florida Realtors® contract requires that the buyer make application for the loan by a certain date. The buyer's failure to comply with contract terms is a default, and the seller must be notified. Contingencies cleared in writing Sales associates must ensure that contingencies are satisfied as soon as possible. An unsatisfied contingency may make the contract voidable. Some normal contingencies include a home inspection, a soil test, a roof inspection, and financing. If a problem arises with one of the contingencies, sales associates should do everything within their power to correct the problem, and all parties should be made aware of the situation. Appraisal The appraisal normally is ordered and paid for at the time of loan application. The sales associate wants to be certain that the appraiser selected by the financial institution has complete cooperation, particularly with respect to access to the property. Failure to provide access wastes the appraiser's time and may delay the closing. Loan approval The Florida Realtors® contract requires a loan commitment within a certain number of days from the contract's effective date. The licensee must monitor the lender's progress and provide to the lender immediately any information or documents requested. The lender's failure to provide the commitment within the required time may allow the buyer or the seller to void the contract. Title insurance ordered Many lenders permit the sales associate to select the title-closing agent, provided the company is on the lender's approved list. The seller or the buyer also may have a preference in making the decision, based on who will pay for the policy. Many title companies prefer that the agent deliver the contract and financing information even before loan approval is obtained so that the title search can begin. Often little time is available from loan approval to closing, and the companies like a head start. If that is the case, the licensee must verify that the title company agrees to take the risk of a failed closing and that it will not charge a fee if the sale does not close. The licensee should give the title-closing agent the following items when a title insurance order is placed: A signed and dated sales contract A previous title insurance policy on the property, if available Enough information about the sellers, the buyers, the property, and the lender to process and close the transaction, including:the sellers' and the buyers' marital status;a complete legal description—for example, lot, block, subdivision name, phase or unit, recording information, and county;street address, including ZIP code;terms of any purchase money mortgage the title company must prepare;closing date and information about whether all parties will attend; andinformation on commission to broker and commission splits between brokers. Wood-destroying organisms inspection ordered As soon as possible after loan approval, the wood- destroying organisms (WDO) inspection should be ordered. When it is completed, copies of the report should be delivered to the buyer, the lender, and the title-closing agent. If treatment or repairs are required, agents working with the buyer and the seller should communicate and agree on the details. If a structural inspection is required, a licensed contractor should be engaged to report on and estimate repair costs. Normally, the lender requires that treatment and repairs be completed satisfactorily before closing, so parties should act immediately in having the work performed. Required repairs ordered Many contracts require repairs other than those covered by termite damage. The appraisal could show the need for a new roof, or the buyer may have made the contract contingent on the seller's replacing a swimming pool vinyl liner, for example. As soon as loan approval is obtained, 96 | P a g e the work should be ordered. In Practice Don't order repairs in your name. If the transaction doesn't close, you might have to pay for the repairs ordered. The seller or the buyer, as appropriate, should contract for the work. You should limit your activities to getting estimates and putting the parties in touch. Required repairs completed and approved When the work has been completed, the appropriate party should inspect the work to be sure that it has been done properly. A licensee who takes on this responsibility is responsible if deficiencies are discovered later. Survey ordered The lender or the title-closing agent often orders the survey after loan approval. A licensee who orders the survey without written approval may be liable for the fee if the sale does not close. In case of survey problems such as encroachments, the sales associate must act quickly to help clear up the problems. Buyer purchases hazard insurance The buyer should purchase the hazard insurance policy as soon as possible in the transaction, especially during Florida's hurricane season. If a hurricane or tropical storm develops anywhere within the "box," as shown in Area of Tropical Storms and Hurricanes That Cause Insurance Delays, insurance companies stop writing insurance until the danger has passed. If there are several hurricanes at sea, the delay could be for a week or more and might cause significant delay of a closing. Contact buyer and seller for closing appointment Soon after loan approval, the title-closing agent should be able to set a closing date and time. The sales associate should coordinate with the buyer and the seller in setting a time agreeable to all. All parties should be notified of the date, time, and place of the closing as far in advance as possible. Area of Tropical Storms and Hurricanes That Cause Insurance Delays Preclosing inspection The buyer should make a preclosing walk-through inspection. The inspection is to ensure that: the property is ready for occupancy; personal property the seller is required to leave remains on the property; all required repairs and maintenance have been completed; and the property has been maintained in the condition as it existed at the time of contract, ordinary wear and tear excepted. The sales associate should not conduct such an inspection because of the liability involved. When the inspection has been completed to the buyer's satisfaction, the sales associate should ask the buyer to sign a preclosing clearance form, such as the Preclosing Walk-Through Inspection Results here. Closing papers reviewed with buyer and seller before closing Upon receiving the documents, the sales associate should arrange an appointment to visit the buyer or the seller and deliver copies of all documents that the person will sign. The sales associate should review the Closing Disclosure carefully to ensure that all items are correct and should explain each item to the buyer or the seller at the appointment. The closing will go more quickly and pleasantly for the person who has reviewed all documents the evening before. In Practice If you're working with the seller, compare the Closing Disclosure with the net proceeds statement you prepared. If the figures are materially different (especially if the seller is getting less than predicted, you should reconcile the difference and prepare to explain it. 97 | P a g e Buyer given figure for certified check for closing This settlement check figure should be provided to the buyer as soon as possible to allow time for the buyer to wire funds to the title-closing agent. Most closing agents now require that the amount due at closing be in "collected funds." Binder check prepared to take to closing At least one day before closing, the sales associate should get the binder check from the broker and clip it to the file folder that will be taken to the closing. Also included in the folder will be the contract and other related material, as well as copies of the inspection reports. Previous NextGo to Summary True If a sales associate gets a good-faith deposit on Wednesday, the broker must deposit the funds no later than Monday. A sales associate must give the earnest-money deposit to the broker no later than the end of the next business day. FREC rules require that the buyer's good-faith deposit be placed in a bank no later than three business days after receipt of the funds. The broker should deposit the funds immediately. Closing Disclosure A detailed accounting of charges and credits for the buyer and the seller in a real estate transaction. Prorations and Prepayments Property income and expenses should be prorated between the buyer and the seller. Usually, the 365-day method is used for prorations of annual expenses. The annual cost is divided by 365 days to get a daily rate. That rate is then multiplied by the number of days involved to get the amount due. Proration calculations should be based on the last day of seller ownership. The day of closing is charged to the buyer, although it is possible that, by negotiation or custom in an area, the day of closing would be charged to the seller. Prorating property taxes Property tax is the most common proration on a closing statement. The buyer normally pays property taxes in arrears, so they would be a debit to the seller and credit to the buyer. If the closing occurs in November or December, it is possible that the seller has paid the tax bill already, resulting in a credit to the seller and a debit to the buyer. Closing date—April 15 Property taxes—$2,275 Number of days from January 1 through April 15: January31February28March31April14Total104