Chapters 13 & 14: Brokerage

Real Estate Principles: A Value ApproachLing and Archer

Outline

Brokerage functions Agency relationship RE sale

The economic functions of brokerage

Bring buyers and sellers together. In real estate needs. Physically. Emotionally.

Collect commission for a successful transaction. Usually, percentage of price.

What a broker can add:

Prices and terms in current market. Marketing approaches that work. Legal obligations of buyers and sellers. Properties in market. Potential customers and their needs. Procedures and requirements of

transaction.

Law of agency

RE brokers and salespersons (agents) operate under the law of agency.

Under the Law of agency: The agents must look out for the best interests

of the principal. Agents have a fiduciary relationship with their

principals. Duties: disclosure (open and honest); confidentiality; accounting (keep the principals informed); obedience to legal and ethical limits; loyalty; skill and care.

Principals need to be open, honest, and fair.

Brokers vs. salespersons

RE Broker: an agent who can operate his/her own brokerage agency.

RE salesperson: an agent who must work for a broker. This license is earlier to obtain than broker.

They must be licensed by states to provide RE estate transaction services for others: buying, auctioning, renting, selling, appraising, leasing, exchanging.

Usual requirements for licensing

Minimum age (18 for both broker and salesperson in VT), high school diploma (not this in VT), good reputation.

Pre-licensing education requirement (40 hours in VT from many providers, e.g., Brokers Institute, South Burlington).

Pass state licensing exam. Minimum experience (2 years and 8 transactions for

broker’s license). The licensing administration authority in VT is:

http://vtprofessionals.org/opr1/real_estate/

Listing contract

An agency relationship is created between a seller and a broker (not just with a salesperson) when both parties agree to a listing contract.

A contract for services, not for real estate. Frequently involves subagency through a

multiple listing service (MLS). Brokers have access to each other’s listings

in a MLS. Thus, all other members are a member’s subagents.

Buyer agency agreement

In a buyer agency agreement, a broker agrees to use his/her best efforts to find properties meeting the requirements of the buyer.

Increasingly between buyers and brokers. When a buyer agent is a member of MLS

and use the MLS to identify a property, the agent is also a subagent of the listing (seller) agent. This is a dual agency in which the buyer agent represents both the buyer and the seller. Conflict of interests?

Commission splittingSale of Property

$100,000Sale of Property

$100,000

Commission 6.0%

$6,000

Commission 6.0%

$6,000

Listing Broker Firm 50% of Commission

$3,000

Listing Broker Firm 50% of Commission

$3,000

Selling Broker Firm 50% of Commission

$3,000

Selling Broker Firm 50% of Commission

$3,000

Listing Salesperson 50% of Firm’s Commission*

$1,500

Listing Salesperson 50% of Firm’s Commission*

$1,500

Selling Salesperson 50% of Firm’s Commission*

$1,500

Selling Salesperson 50% of Firm’s Commission*

$1,500

*These Percentages can vary from 50 percent to 90 percent depending on such factors as the length of time the sales person has been with the firm and whether he or she is an officer of the firm.

Internet marketing

Residential www.realtor.com

Commercial www.costar.com

RE sales: 2-step process

1. Once the buyer and the seller identify each other, they first reach an agreement on the contract for sale.

Contract for sale is the most important document in RE sales: it specifies the rights and the type of deed to be delivered by the seller and, in return, the purchase price.

2. Sometime later, the 2 parties complete the sale at a meeting called the closing.

Contract for sale

Determines price and terms of the transaction.

Defines property interest being conveyed. Determines the grantee. Determines other conditions of the

transaction: Financing. Date of occupancy. Any repairs or other conditions of the sale.

Handling of funds

Broker normally handles funds for a transaction.

Broker must put deposits in escrow. Escrow account: an account holding

funds dedicated for a particular purpose. Must be with insured institution or title

company. At closing, money is disbursed in

accordance with a closing statement.