Agency and Sales Contracts

1. Agency and Sales Contracts Real Estate 310 Principles of Real Estate Dr. Longhofer Principles of Real Estate

2. What is a Broker? • A broker is an intermediary who brings together buyers and sellers, without ever actually owning the asset being sold • Stock brokers • Mortgage brokers • Real estate brokers • The broker receives compensation in the form of a commission from either the buyer or the seller Principles of Real Estate

3. Real Estate Brokerage • A real estate broker an individual who engages in the business of buying, selling, exchanging or leasing real estate or who, for compensation, engages in activities requiring a license as an employee of, or on behalf of, the owner, purchaser, lessor or lessee of real estate • A real estate salesperson is an individual who is affiliated with a broker to participate in activities requiring a real estate license. Principles of Real Estate

4. Why Use an Agent? • Real estate agents provide a number of benefits to buyers and sellers • Experience in facilitating real estate transactions Principles of Real Estate

5. Why Use an Agent? • Real estate agents provide a number of benefits to buyers and sellers • Extensive knowledge of the market Principles of Real Estate

6. Why Use an Agent? • Real estate agents provide a number of benefits to buyers and sellers • Provide a “deeper” market for the seller Principles of Real Estate

7. What is a Realtor®? • A Realtor is a real estate professional that is also a member of the National Association of Realtors® • www.realtor.org • www.wichitaareaassociationofrealtors.org Principles of Real Estate

8. Agency • The relationship between a buyer or seller of real estate and the licensee who represents that person is an agencyrelationship • The agent is the individual who is authorized and consents to represent the interests of another person • The principal is the person on whose behalf the agent acts • It is important to distinguish between the client, who is the principal to whom the agent owes a fiduciary duty, and the customer, to whom the agent owes only honesty and fair dealing Principles of Real Estate

9. Single vs. Dual Agency • Under single agency the agent represents only one party in any single transaction (a seller’s agent or a buyer’s agent) • Subagency is created when one broker, usually the seller’s agent, appoints other brokers to help perform client-based functions on the principal’s behalf • Dual agency occurs when the agent represents two principals in the same transaction • Dual agency is not permitted in Kansas Principles of Real Estate

10. Transaction Brokers • What does a real estate agent do if he has a client that wants to purchase or lease a property from another client? • The agent may assume the role of a transaction broker and facilitate the sale without being an agent for either party • A larger office may assign a designated agent to each principal to provide client-based services; the broker then functions as a transaction broker Principles of Real Estate

11. BRRETA • The Brokerage Relationships in Real Estate Transactions Act (BRRETA) governs agency relationships in Kansas • Defines the duties of buyer’s agents, seller’s agents, and transaction brokers • Mandates disclosure of the types of possible agency relationships Principles of Real Estate

12. Duties of a Seller’s Agent • Promote the interests of the client with utmost good faith, loyalty, and fidelity • Present all offers to the client in a timely manner • Disclose to the client all adverse material facts actually known by the licensee about the buyer or tenant • Advise the client to obtain expert advice where necessary • Account in a timely manner for all money and property received Principles of Real Estate

13. Duties of a Seller’s Agent • Protect the client’s confidences, except for the following issues for which disclosure is required • Environmental hazards • Physical condition of the property • Material defects in the property • Material defects in the title to the property • Material limitation on the client’s ability to perform under the terms of the contract Failure to disclose such information to the buyer could constitute fraud or misrepresentation by the agent • Comply with all applicable state, federal, and local laws & regulations Principles of Real Estate

14. Duties of a Buyer’s Agent • Promote the interests of the client with utmost good faith, loyalty, and fidelity • Present all offers in a timely manner • Disclose to the client all adverse material facts actually known by the licensee about the seller or landlord • Advise the client to obtain expert advice where necessary • Account in a timely manner for all money and property received Principles of Real Estate

15. Duties of a Buyer’s Agent • Protect the client’s confidences, unless disclosure is required • Material facts about the client’s financial ability to perform the terms of the transaction • Comply with all applicable state, federal, and local laws & regulations Principles of Real Estate

16. Duties of a Transaction Broker • Present all offers in a timely manner • Disclose adverse material facts actually known by the licensee about any party to the transaction • Advise parties to obtain expert advice where necessary • Account in a timely manner for all money and property received • Protect the confidences of all parties • Assist all parties in complying with the terms of any contract • Comply with all applicable state, federal, and local laws & regulations Principles of Real Estate

17. Real Estate Recovery Fund • The State of Kansas has established a Real Estate Recovery Revolving Fund to compensate individuals who have been harmed by a licensee’s failure to comply with BRRETA and other regulations, and from whom full compensation cannot otherwise be obtained • Payments from the fund are limited to • $15,000 per transaction • $30,000 per licensee per year • $50,000 per licensee lifetime Principles of Real Estate

18. Real Estate Licensing • To obtain a salesperson’s license, one must • Be 18 years of age • Hold a high school diploma or equivalent • Take an approved 30-hour pre-licensing course • Pass a licensing exam • File an application for license that is signed by a supervising or branch broker who will be responsible for supervising the licensee’s real estate activities • After receiving a temporary salesperson’s license, the individual must take a 30-hour salesperson’s post-license course and then file an application to convert this license to a permanent license Principles of Real Estate

19. Real Estate Licensing • To obtain a broker’s license, one must • Be 18 years of age and hold a high school diploma • Take an approved 24-hour broker’s pre-licensing course • Pass a licensing exam • File an application for license that documents that the individual has been licensed as a salesperson and has been actively engaged in activities requiring a license for at least two of the last five years (a real estate degree from WSU may count for up to 16 months of this experience requirement) Principles of Real Estate

20. Real Estate Licensing • Salespersons’ and brokers’ licenses are valid for two years in Kansas • Following licensure, both licenses require continuing education (12 hours) in order to renew the license • Current details about licensing can be obtained at the Kansas Real Estate Commission’s web site:http://www.accesskansas.org/krec Principles of Real Estate

21. Listing Agreements • The listing agreement is the contract that creates the agency relationship between the seller and the broker • Exclusive right to sell listing – The broker is entitled to a commission regardless of who actually finds a buyer for the property, including the seller himself • Exclusive-agency listing – The seller agrees to pay the listing broker a commission if any broker obtains a buyer for the property, but not if the seller himself finds a buyer Principles of Real Estate

22. Listing Agreements • Open listing – The seller retains the right to employ any number of brokers as agents, and only pays the broker a commission if that broker finds a buyer for the property • Net listing – The broker agrees to obtain a given price for the seller, and is allowed to keep any excess obtained for himself as commission • This type of listing is not permitted in Kansas Principles of Real Estate

23. Multiple Listing Services • A multiple listing service (MLS) is a mechanism by which brokers make their exclusive listings available to one another • Under MLS agreements, it is important to clarify whether outside brokers are acting as the agent of the seller or of the buyer that they bring to the transaction • Commercial properties are not typically included on the MLS system, although a number of private commercial listing services do exist Principles of Real Estate

24. Brokerage Commissions • The amount of and who pays the commission are determined by the listing/agency agreements • Buyer broker agreements may require payment by the buyer even if the seller is unwilling to pay the commission • Commissions are typically split between the listing broker, the listing salesperson, the selling broker, and the selling salesperson. • Under an MLS agreement, the listing office and the office that obtained a buyer generally split the commission 50-50 Principles of Real Estate

25. Contracts in Real Estate • Real estate sales contracts must contain the basic elements required of all contracts: • Offer and acceptance must occur, meaning that both the buyer and the seller must agree to the exact same terms • There must be an exchange of consideration, meaning that each party to the transaction must give up something of value • Both parties must have the capacity to contract, meaning each is of legal age and mentally competent • The contract must involve a lawful purpose • Unlike many other contracts, real estate sales contracts must be in writing to be valid Principles of Real Estate

26. Names of the buyer and seller Description of the property Purchase price and terms of financing Type of interest to be transferred and the type of deed to be conveyed Date of closing and possession Agency disclosure Contingencies Seller obligations Escrow arrangements Provisions should the property be destroyed or damaged prior to closing Remedies in case of default Broker’s commission Signatures of all parties Contracts for Sale Principles of Real Estate

27. Other Real Estate Contract Tidbits • Although residential purchase contracts are fairly standard, commercial contracts can be much more involved and individualized • A Binder is often used in the sale of commercial real estate to work out the details of the sale prior to the actual drafting of the purchase agreement. • Breach of the contract occurs if either party fails to fulfill his obligations according to the contract • A seller that fails to perform may be sued for specific performance • A buyer that fails to perform may be sued for damages Principles of Real Estate