Social Science

California Real Estate Practice

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California Real Estate Practice

Third Edition

Robert L. Herd Bruce A. Southstone

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California Real Estate Practice, 3rd Edition

Robert L. Herd and Bruce A. Southstone

Executive Editor: Sara Glassmeyer

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Illustrations xxi Preface xxv Acknowledgments xxix About the Authors xxxi

1 Starting Your Real Estate Career 2 2 Choosing the Right Broker 30 3 Ethics, Fair Housing, and RESPA 54 4 Disclosures 94 5 Lead Generation or Prospecting for Clients and Customers 152 6 Working with Buyers 176 7 Real Estate Financing 196 8 Writing and Presenting Effective Purchase Contracts 242 9 Preparing for the Listing Appointment 302 10 The Listing Presentation 312 11 Servicing the Listing 358 12 Escrow and Title Insurance 390 13 The Life of an Escrow 436 14 Real Estate Taxation 458 15 Advertising and Marketing 498 16 Alternate Real Estate Careers 518

Appendix A: Quiz Answers 560 Appendix B: Licensed Assistant Pre-employment

Application 564

Glossary 569 Index 607

BRiEf ConTEnTs

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Illustrations xxi Preface xxv Acknowledgments xxix About the Authors xxxi

1 Starting Your Real Estate Career 2 1.1 History 3 1.2 Facts and Myths 7 1.3 Attitude is Everything 10 1.4 Goals 12 1.5 Plans 16 1.6 Real Estate Business Plan 19 1.7 On Becoming a Real Estate Professional 23

Learn Office Policies and Procedures 23 Become Computer Literate 23 Tax Knowledge 23 Equipment Needed 24 About You 26

Summary 26 Important Phrases and Terms 28 Class Discussion Topics 28 Chapter 1 Quiz 28

2 Choosing the Right Broker 30 2.1 The Broker is the Agent 31 2.2 Selecting the Right Broker 34 2.3 Broker/Salesperson Relationships 38 2.4 Continued Education and Advanced

Training 44


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Survival Training 48 2.5 Professional Designations 50 Summary 51 Important Phrases and Terms 51 Class Discussion Topics 52 Chapter 2 Quiz 52

3 Ethics, Fair Housing, and RESPA 54 3.1 What Are Ethics? 55 3.2 REALTOR® Code of Ethics—and—The Realtist® 56

National Association of REALTORS® Code of Ethics 56 Realtists® 56

3.3 Fair Housing and Antidiscrimination 56 Federal Laws That Affect Real Estate 65 Thirteenth Amendment 66 Civil Rights Act of 1866 66 Fourteenth Amendment 66 Civil Rights Act of 1870 67 Executive Order 11063 67 Civil Rights Act of 1964 67 Civil Rights Act of 1968 68 Jones v. Mayer 70 1988 Fair Housing Amendments Act 70 Americans with Disabilities Act 71 California Fair Housing Laws 73 Unruh Act 73 Rumford Fair Housing Act 73

3.4 The California Business and Professions Code 74 Section 125.6: Disciplinary Provisions for Discriminatory Acts 74 Section 10177(I): Further Grounds for Disciplinary Action 74 The Holden Act (Housing Financial Discrimination Act of 1977) 75

3.5 Commissioner’s Rules and Regulations 75 Section 2780: Discriminatory Conduct 75 Section 2781: Panic Selling 76 Section 2725f: Duty to Supervise 76

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3.6 Sexual Harassment in the Workplace 77 3.7 Real Estate Settlement Procedures Act

(RESPA) 78 RESPA Prohibitions 78 Exceptions to RESPA’s Prohibitions 79 Examples of Permissible Activities and Payments 80 Examples of Prohibited Activities and Payments 81

3.8 Case Studies of Ethics, Fair Housing, and RESPA 82 Case Study 1 82 Analysis 1 83 Case Study 2 83 Analysis 2 83 Case Study 3 84 Analysis 3 84 Case Study 4 84 Analysis 4 85 Case Study 5 85 Analysis 5 85 Case Study 6 86 Analysis 6 86 Case Study 7 86 Analysis 7 87 Case Study 8 87 Analysis 8 87 Case Study 9 87 Analysis 9 88 Case Study 10 88 Analysis 10 88

Summary 88 Important Phrases and Terms 89 Class Discussion Topics 90 Chapter 3 Quiz 91

4 Disclosures 94 4.1 Understanding Mandated Disclosures 95 4.2 Obligations of a Fiduciary 97 4.3 Agency Disclosure—Process and Timing 100

The Disclosure Process 104

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4.4 Death or AIDS Disclosure 109 Stigmatized Property 110 Licensed Care Facilities 110

4.5 Real Estate Transfer Disclosure Statement (TDS) 110

4.6 Agent’s Inspection Disclosure—How and Why? 111 Insect Infestation 120 Water Damage 120 Material Deterioration 121 Structural Failure 122

4.7 Seller Financing Disclosure 124 Addendum to the RPA-CA Seller Financing Addendum and Disclosure (SFA Revised 11/13) 127

4.8 Environmental Hazards Disclosure 133 Hazardous Substances Released 134 Lead-Based Paint 135 Mold 135 Radon 135 Military Ordnance Location 135

4.9 Natural Hazards Disclosure 136 Earthquake Safety 136 Special Study Zone 140

4.10 Common Interest Subdivisions 143 4.11 Preliminary and Final Public Reports

(Subdivisions) 143 4.12 Right of Rescission 143

Other Required Disclosures 144 4.13 California Association of REALTORS®

Disclosure Chart 145 Summary 147 Important Phrases and Terms 148 Class Discussion Topics 148 Chapter 4 Quiz 149

5 Lead Generation or Prospecting for Clients and Customers 152 5.1 Lead Generation or Prospecting 153

Attitude is Everything 154

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5.2 Do Your Research First 155 5.3 Formulating a Business Plan 156 5.4 The “Do-Not-Call” List 158 5.5 For Sale by Owners 159 5.6 Expired Listings 161 5.7 Your Sphere of Influence 162 5.8 Geographical Farm 163 5.9 Open House 165

Internet Site 167 Absentee Owners 168

5.10 Building Your Database 170 Summary 171 Important Phrases and Terms 172 Class Discussion Topics 172 Chapter 5 Quiz 173

6 Working with Buyers 176 6.1 Sources of Buyers 177 6.2 The First Appointment 180 6.3 Pre-Approved for Financing 183 6.4 Agency Disclosure 185 6.5 Buyer Representation Agreement 186 6.6 Tips on Showing Property 187 6.7 Buying Signals 190 Summary 192 Important Phrases and Terms 192 Class Discussion Topics 192 Chapter 6 Quiz 193

7 Real Estate Financing 196 7.1 An Appraisal or an Estimate

of Value? 197 7.2 Financing Sources 197 7.3 Primary and Secondary Financing 197

Fannie Mae 198 Ginnie Mae 199 Freddie Mac 199 Federal Agricultural Mortgage Corporation 199

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7.4 Conforming Versus Nonconforming Loans 200 7.5 Types of Lenders 200

Institutional Lenders 200 Noninstitutional Lenders 202 Real Estate Brokers 204

7.6 Types of Loans 205 Conventional Loan 206 Government Participation Loans 207 Other Types of Mortgages and Trust Deeds 210

7.7 Getting the Buyers Pre-Approved (The Financing Process) 222 Qualifying the Borrower 223 Qualifying the Property 234 Computerized Loan Origination 235

7.8 Real Estate Financing Regulations 236 Fair Credit Reporting Act 236 Mortgage Loan Originator (MLO) 236 Truth-in-Lending Act (TILA) 237 Real Estate Settlement Procedures Act 237 Affiliated Business Arrangement 237

Summary 238 Important Phrases and Terms 239 Class Discussion Topics 240 Chapter 7 Quiz 240

8 Writing and Presenting Effective Purchase Contracts 242 8.1 Selling or Counseling 243 8.2 The Counseling Process 245 8.3 Understanding the Residential Purchase

Agreement and Joint Escrow Instructions (RPA-CA) 250 Content of the Form 261 Short Sale 290

8.4 Preparing to Present the Offer to Purchase 290 8.5 Negotiating the Offer with the Sellers 291 8.6 Selling Your Own Listing 292 8.7 Handling Single and Multiple Counteroffers 293 8.8 Buyer’s Estimated Closing Costs 296

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8.9 Setting up the Escrow Timeline 296 Summary 297 Important Phrases and Terms 298 Class Discussion Topics 298 Chapter 8 Quiz 300

9 Preparing for the Listing Appointment 302 9.1 Research Thoroughly First 303 9.2 Comparative Market Analysis 304 9.3 The Listing Presentation Manual 306 9.4 Estimated Seller’s Proceeds Form 308 Summary 309 Important Phrases and Terms 309 Class Discussion Topics 309 Chapter 9 Quiz 310

10 The Listing Presentation 312 10.1 The Listing Agreement 313

Definition 313 Elements 314

10.2 Types of Listing Agreements 314 Residential Listing Agreement (Exclusive Authorization and Right to Sell Listing) (C.A.R. Form RLA, Revised 11/13) 315 Exclusive Agency Listing (Residential Listing Agreement–Agency, C.A.R. Form RLAA) 316 Open Listing (C.A.R. Form RLAN) 316 Exclusive Authorization to Acquire Real Property (Buyer Representation Listings) 317 Option Listing 319 Net Listing 324 Alternative Fee Listing (Limited Agency Broker) 324 MLS Access-Only Listing 324

10.3 The Exclusive Authorization and Right to Sell Listing Form 325 Signatures 341

10.4 Presenting the Comparative Market Analysis and Your Marketing Plan 344 Comparative Market Analysis 346

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10.5 Estimated Seller’s Proceeds 349 10.6 Common Seller Objections and

How to Handle Them 349 Summary 353 Important Phrases and Terms 354 Class Discussion Topics 354 Chapter 10 Quiz 355

11 Servicing the Listing 358 11.1 Your Marketing Plan 359

Next Meeting 359 “For Sale” Sign 362 Rider Strips 362 Talking Signs 363 Keysafe Lockbox Installation 363 Information Boxes 363 Property Brochures 364 Multiple Listing Service 364 The Internet 365 Virtual Tours 367 Advertising 367 Open House 368 Office Tour 368 Multiple Listing Service Tour 369 Just Listed Postcard 369 Your E-mail Database 370 Social Networking 370

11.2 Good Communication 370 Weekly Activity Report 371 Broker Letter 371 Showings 372 Explain Your Advertising Policy 372 Prepare the Owners for an Offer 373 Pricing Strategy 373 Market Conditions 374

11.3 Modifying or Extending the Listing Contract 375 11.4 Presenting Offers to Your Sellers 377

Presenting Your Buyer’s Offer 378

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Presenting Offers from Cooperating Brokers 379 Presenting Multiple Offers 380

11.5 Handling Single or Multiple Counteroffers 381

11.6 Cancellation of Contract 384 Summary 386 Important Phrases and Terms 386 Class Discussion Topics 386 Chapter 11 Quiz 387

12 Escrow and Title Insurance 390 12.1 Escrow 391

Escrow Requirements 392 Escrow Responsibility 392 Broker Responsibility 393 Parties to an Escrow 393 Escrow Licensure Requirements 395 Laws Governing Escrow 396 Advantages of an Escrow 397 Escrow Procedures 398 Opening the Escrow 399 Escrow Instructions 399 Closing the Escrow 401 Common Escrow Documents 403 Deed of Trust and Assignment of Rents 403 Confidential Statement of Information 406 Common Escrow Transaction Terms 406

12.2 Title Insurance 418 CLTA Policy 419 ALTA Policy 428 Preliminary Title Report 429 Special Policies 430 Rebates 430

Summary 431 Important Phrases and Terms 432 Class Discussion Topics 432 Chapter 12 Quiz 433

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13 The Life of an Escrow 436 13.1 Open Escrow 437 13.2 Order Inspections 440

Home Inspector 440 Pest Inspector 440 Licensed Roofer 441 Mandated Disclosures 442

13.3 Financing 445 13.4 Review Reports 446 13.5 Negotiate Repairs 449 13.6 Property Insurance 450 13.7 The Final Walk-Through Inspection 451 13.8 The Closing 452 Summary 453 Important Phrases and Terms 454 Class Discussion Topics 454 Chapter 13 Quiz 455

14 Real Estate Taxation 458 14.1 Real Property Taxes 459

The Tax Bill 459 Supplemental Tax Bill 461 Special Assessments 461 Proposition 13 462 Proposition 58 463 Proposition 60 463 Proposition 90 465 Change-in-Ownership Statement 465 Exemptions 465 Homeowner’s Exemption 465 Veteran’s Exemption 466 Senior Citizen Property Tax Postponement Act 466

14.2 Income Taxes 467 Capital Gain Tax 467 Primary Personal Residence 468 Secondary Residence 468 Land 468 Universal Exclusion for Gain on Sale of Principal Residence 469

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Deductible Versus Nondeductible Home Buying Expenses 469 Building a Home 470 Buying an Existing Home 470 Inheriting a Home 470 Business and Investment Property 470 Depreciation 471 Property Basis 471 Original Basis 472 Operating Expenses 472 Depreciable Basis 472 Computing Capital Gain 474 Depreciation Calculation 474 Tax-Deferred Exchanges 474 The Entity Rule 477 The Investment Property Rule 478 Like-Kind Rule 478 The No-Choice Rule 479 The No-Loss Rule 479 The Delayed Exchange 479 Exchange Analysis 480 Installment Sales 480 Sale-Leaseback 481

14.3 Tax Shelter 481 Home Interest 482 Acquisition Indebtedness 482 Equity Indebtedness 483 Points 484 Determining Gain 484 Types of Gain 484 Home Improvements 485 Relief for “Forced” Sales 486 Other Tax Shelter Issues 487

14.4 Foreign Investment in Real Property Tax Act (FIRPTA) 487 Federal Withholding 488 California Withholding 492

Summary 493

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Important Phrases and Terms 495 Class Discussion Topics 495 Chapter 14 Quiz 496

15 Advertising and Marketing 498 15.1 Advertising and Marketing 499

Advertising 499 15.2 A Budget for Your Business Plan 508 15.3 The Advantages of Niche Marketing 509 15.4 Compliance with CalBRE, State, and

Federal Statutes 510 California Business and Professions Code (B&PC) Section 10139 “Penalties for Unlicensed Person” 510

Summary 514 Important Phrases and Terms 515 Class Discussion Topics 515 Chapter 15 Quiz 516

16 Alternate Real Estate Careers 518 16.1 Commercial Real Estate Brokerage 519

Education and Specialization 520 16.2 Property Management and Leasing 522

State-Defined Responsibilities 523 Specific Duties 524 Establishing Rent Schedules 524 Accounting Records 529 Trust Account Ledger 529 Leasing 529 Types of Leases 530 Residential Leasing 533 Tenant’s Responsibilities 546 Landlord’s Responsibilities 546 Assignment versus Sublease 547 Termination of a Lease 547 Evictions and Unlawful Detainer Action 548 REO and Foreclosed Homes 548 Retaliatory Eviction 549

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16.3 Licensed Real Estate Assistant 549 The Value of a Licensee’s Time 549 The Right Time to Hire an Assistant 550 The Art of Transitioning 550 Hiring/Interviewing 551 Training 552 How to Work Effectively with a Licensee 552 The Four Deadly Sins 553 It’s a Family Affair 554

Summary 554 Important Phrases and Terms 556 Class Discussion Topics 557 Chapter 16 Quiz 557

Appendix A: Quiz Answers 560 Appendix B: Licensed Assistant Pre-employment

Application 564

Glossary 569 Index 607

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Figure 2.1 Brokerage Comparison Chart 37 Figure 2.2 Independent Contractor Agreement 39 Figure 2.3 Employee or Independent

Contractor Checklist for IRS Guidelines 45 Figure 3.1 2015 NAR Code of Ethics 57 Figure 3.2 Equal Housing Opportunity Poster 72 Figure 3.3 Reasonable Modifications to Public

Facilities or Services 73 Figure 4.1 Possible Representation of More Than One

Buyer or Seller—Disclosure and Consent (PRBS) 99

Figure 4.2 Disclosure Regarding Real Estate Agency Relationship (AD Revised 11/12) 105

Figure 4.3 Real Estate Transfer Disclosure Statement (TDS Revised 4/14) 112

Figure 4.4 Seller Financing Addendum and Disclosure 128 Figure 4.5 Residential Earthquake Hazards Report 137 Figure 4.6 Residential Earthquake Hazards

Report Receipt 139 Figure 4.7 Natural Hazards Disclosure Statement 141 Figure 4.8 HUD Notice to Purchasers; For Your

Protection: Get a Home Inspection (HID) 146 Figure 5.1 Sample Weekly Prospecting Plan 158 Figure 5.2 Sample Absentee Owner Letter 169 Figure 6.1 Sample Client Information Sheet 182 Figure 6.2 Qualifying Process 183 Figure 6.3 Rules of Professional Conduct 190 Figure 7.1 Government Home Loan Program 207 Figure 7.2 ARM Checklist 220


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xxii Illustrations

Figure 7.3 Uniform Residential Loan Application 224 Figure 8.1 California Residential Purchase

Agreement (RPA-CA) 251 Figure 8.2 Seller Counter Offer 11/14 294 Figure 10.1 Broker Compensation under

Three Types of Listing Agreements 315 Figure 10.2 Buyer Representation Agreement-

Exclusive (C.A.R. Form BRE Rev. 4/13) 320 Figure 10.3 Residential Listing Agreement

(Exclusive Authorization and Right to Sell) C.A.R. Form RLA Rev. 11/13 326

Figure 10.4 Seller’s Advisory (C.A.R. Form SA Rev. 11/13) 342 Figure 10.5 Estimated Seller Proceeds

(C.A.R. Form ESP Rev. 4/06) 350 Figure 11.1 Marketing Plan 360 Figure 11.2 Dividing an MLS Listing Commission 366 Figure 11.3 Modification of Terms Authorization

and Right to Sell 4/13 (Form MT) 376 Figure 11.4 Seller Counter Offer (C.A.R. Form SCO,

and Seller Multiple Counter Offer, SMCO 382 Figure 11.5 Cancellation of Contract

(C.A.R. Form CC 11/14) 385 Figure 12.1 Escrow Responsibilities 392 Figure 12.2 Legal Requirements for Escrow Officers 396 Figure 12.3 The Life of an Escrow 398 Figure 12.4 Grant Deed 404 Figure 12.5 Quitclaim Deed 405 Figure 12.6 Deed of Trust and Assignment of Rents 407 Figure 12.7 Assignment of Deed of Trust 411 Figure 12.8 Buyer’s and Seller’s Closing Costs 413 Figure 12.9 Escrow Closing Statement 417 Figure 12.10 Sample California Land Title

Association Policy 420 Figure 14.1 Real Property Taxation Calendar 460 Figure 14.2 Use of an Intermediary in a

Tax-Deferred Exchange 476 Figure 14.3 Buyer’s Affidavit 489

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Figure 14.4 Seller’s Affidavit of Nonforeign Status 490 Figure 16.1 Property Management Agreement 525 Figure 16.2 Residential Lease Agreement

(C.A.R. Form Revised 12/13) 534 Figure 16.3 Move In/Move Out Inspection

(C.A.R. Form MIMO, Revised 11/07) 541

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a nEW BEGinninG The housing market has undergone volatile changes in recent years, the impacts of which are demanding better performance from those in the field. Although the real estate market has always seen and will always experience fluctuations, the combined fallout in the finance, banking, and construction industries did not help an already fragile situation. We open with this statement because that is where we are— at a new beginning.

Real estate has been and continues to be one of the most exciting and rewarding career paths we know. The opportunity to work with others in brokering the foundation of their dreams has pushed us to want to better ourselves so that we can better serve the consumers who rely on us.

MEasuRaBlE ouTCoMEs The real estate market can be tough—and rewarding. With this third edition, we hope to provide new and updated information to aid instruc- tors in their goal of better preparing students to meet the challenges of an ever-changing real estate market. This challenge is and continues to be one of constant vigilance in the area of professional education so as to maximize the ability of every licensee to meet the changing needs for consumer protection the public has a right to expect.

While it is true that student learning objectives require basic think- ing skills, “student learning outcomes” require a higher order of think- ing, analysis, synthesis, and/or evaluation. The authors sincerely hope that this third edition becomes an instructional tool further facilitating the teaching and learning experience on both sides of the lectern.

CalBRE liCEnsE REQuiREMEnTs The state of California and its Bureau of Real Estate require appli- cants for the salesperson license to show, among other requirements (see BPC §10153), an understanding of California real estate as


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xxvi Preface

evidenced by successful completion of three college-level courses of study in Real Estate Principles, Real Estate Practice, plus one course from a list of approved courses. This text may be used for a college-level course of study to meet the required Real Estate Practice requirement. Also, to qualify to sit for the California broker license examination, one must successfully complete eight required college-level courses, including a course in California Real Estate Practice. This text and the associated college-level course also meet that requirement.

THE THiRD EDiTion Since publication of California Real Estate Practice, 1st Edition, real estate as practiced in California has continued to change and evolve as it has since its earliest beginnings. This third edition underwent significant revision to cover current principles, practices, and technol- ogy. California real estate is a work in progress; therefore, constant adjustment in both detail and practice is necessary to maintain a level of knowledge and professional competence sufficient to meet the high standards of consumer protection demanded by professional stand- ards, the state of California, and the California Bureau of Real Estate (CalBRE).

We have made a concerted effort to minimize the confusing use of the word “agent.” Generally speaking, an agent is one who is authorized to represent another (called the principal) in dealings with a third party. However, California real estate law has limited those who, for compensation, may legally act as agents in real estate and related transactions to those holding a valid California real estate bro- ker license. Hence, there can be only one person in each firm who qualifies as a “real estate agent” and who can legally represent the public for compensation; that person would be the employing broker at each firm.

All other “licensees,” whether broker associate or salesperson, working under an independent contractor agreement with a princi- ple broker, and being therefore an agent of that broker, will be referred to in this text as a either licensee, listing licensee, selling licensee, sales- person, or seller’s or buyer’s representative, not as “agent” as that position is already held by the employing broker who is the only one that by law can be paid directly for her services. We will use the term agent when specifically referring to a firm’s employing real estate bro- ker or professional representatives in other fields such as loan agent or insurance agent. Our intent here is to avoid any confusion that may be caused by misuse of terminology.

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In deference to the fact that a majority of licensees nationally are women and to avoid the repetitious use of gender-specific pronouns, we use the feminine where a gender-specific pronoun is required. It should be understood that we are referring to both genders.

nEW To THE THiRD EDiTion Global changes to the third edition are extensive and include additions of and updates to California real estate law, references to California Civil Code (CCC), Business and Professions Code (B&PC), Regula- tions of the Real Estate Commissioner, revised title of the Department of Real Estate to the California Bureau of Real Estate (CalBRE), and an update of all forms where necessary throughout.

Other significant changes by chapter include the following:

• Chapter 1: Re-titled subsections and edit text, revised chapter quiz.

• Chapter 2: Updated forms, terms, and definitions, revised legal forms and chapter quiz.

• Chapter 3: Newly updated NAR 2015 Code of Ethics, moved and expanded various B&PC definitions 2780, 2781, revised case studies, Section 3.6 modified, revised chapter quiz.

• Chapter 4: Detailed and expanded descriptions, newly revised forms, revised chapter quiz.

• Chapter 5: Minor changes plus revised chapter quiz. • Chapter 6: Major revision and clarifications, new forms, and

revised chapter quiz. • Chapter 7: Formerly Chapter 11, new forms, revised government-

agency descriptions and definitions. • Chapter 8: Formerly Chapter 7, new forms and listing agree-

ment with revised annotations, revised chapter quiz. • Chapter 9: Formerly Chapter 8, minor changes and revised chap-

ter quiz. • Chapter 10: Formerly Chapter 9, newly revised forms, revised

annotations and chapter quiz. • Chapter 11: Formerly Chapter 10, revised forms and chapter quiz. • Chapter 12: Newly revised forms and chapter quiz. • Chapter 13: Newly revised forms and chapter quiz. • Chapter 14: Revised definitions and formulas and chapter quiz. • Chapter 15: Minor changes and revised chapter quiz. • Chapter 16: New and updated forms and revised chapter quiz.

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insTRuCTional suPPoRT Instructors who adopt this book receive access to an online Instruc- tor’s Manual written by the authors. Each chapter is supported with chapter rationale, overall focus of classroom discussions, lecture out- line, classroom discussion topics, and supplemental learning activities or quizzes. In addition, there are a 50-question Mid-Term Exam and a 100-question Final Exam.

Classroom PowerPoint® presentation slides also support each chap- ter outlining learning objectives, emphasizing key concepts, and high- lighting real-world applications to help further engage learners and generate classroom discussion.

These instructional support materials are available online only to adopters from the text companion site:

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When I was asked to write a second edition of this textbook, I asked myself, “What can I do to make it clearly the very best textbook out there? What can I do to make it a valuable cutting-edge resource?” The answer came in the form of Bruce Southstone, a practicing Cali- fornia broker, director of the California Association of REALTORS®, and community college real estate instructor. Bruce and I have nearly seventy years of real estate experience between us, and our collabora- tion gives the reader many useful suggestions about how to handle the everyday issues faced by a licensee.

It was a pleasure to work with Bruce because his tenure as a col- lege instructor brought a very sharp academic viewpoint to the mate- rial conveyed in this book and balances well with what each of us has experienced as working brokers. He is a stickler for detail and regu- larly cites useful Civil Code sections and Commissioner’s rules for the reader to earmark for handy future reference—something I believe you and your students will certainly appreciate.

We hope you enjoy reading this book as much as we did writing it and what you learn will enhance your knowledge, your ability to bet- ter represent your clients, and your ability to earn an excellent living while doing so.

I would also like to express our appreciation to those who served as reviewers and who provided insightful comments and valuable suggestions: George Devine of the University of San Francisco and Hal Bouley of Coastline Community College.


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aBouT THE auTHoRs

Bob Herd started his real estate career in early 1972 with a small real estate company on the San Francisco Peninsula. Although no formal training programs or systems were available in those days, Bob used some good initial training from his branch manager, his natural ability to interact with people, and his keen intuition about human nature to sell more than sixty homes his first and second years in the busi- ness. He was awarded the coveted “Top Salesperson” award in 1974 from the real estate association to which he belonged. Although Bob opened his own highly successful company in 1974, he still remained very active in sales, and under his training and guidance one of his agents won the “Top Salesperson” award every year for the next six years, except in 1979.

Over the course of his career, which spans more than forty-three years, he has been a salesperson, broker owner, branch manager, and regional manager for some of the largest real estate companies in the San Francisco Bay area. Whether he was in a sales position or a non- selling management position, he always maintained and nurtured in his associates a keen sense of the ever-evolving sensible, human nature– based style of professionally handling the needs of customers and clients. A past president of his association, Bob has been a licensed California broker since 1974 and holds the Certified Real Estate Bro- kerage Manager (CRB), Certified Residential Specialist (CRS), and Graduate, REALTORS® Institute (GRI) designations. You may con- tact Bob by e-mail at

Bruce Southstone, a licensed California real estate broker with more than twenty-five years’ experience in real estate sales, management, training, consulting, and coaching has taught for many real estate asso- ciations, franchises, and independent brokers and served more than thirteen years as adjunct instructor in real estate at Cabrillo College, Aptos, CA.

President of the Santa Cruz Association of REALTORS® in 2002, he was named REALTOR® of the Year in 2004 and received the Asso- ciation’s Lifetime Achievement Award in 2008. As a member/director

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xxxii About the Authors

of the California Association of REALTORS®, he has served as mem- ber and Regional Representative of many committees and task forces including but not limited to Legislative, Referral Fee Task Force, Real Estate Finance, Professional Standards, Risk Management, Commer- cial Investment, Nominating, and many more local association groups. He has held many real estate advanced designations, including Certi- fied Real Estate Broker Manager (CRB), Certified Residential Special- ist (CRS), ePRO, and Graduate, REALTORS® Institute (GRI).

He also served as a subject matter expert (SME) on the California Bureau of Real Estate License Examination Validation Study (the most extensive study of its kind in more than forty years) with the purpose of developing real estate license examinations that appropriately test and measure the knowledge levels of salesperson and broker license applicants.

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sTuDEnT lEaRninG ouTCoMEs Upon completion of this chapter, the student will be able to: • Restate the requirements for a California Real Estate Salesperson

license. • Recognize the value of ethical conduct to the real estate professional. • Explain the value that a real estate licensee brings to the consumer. • Identify the two things a licensee has to sell. • Create a personal business plan. • Formulate personal real estate goals.

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1.1 HisToRY Consumer surveys indicate that the biggest shortcoming among real estate professionals is a general failure to communicate effectively with clients, customers, and each other. For communication to be effec- tive there must be a common language and common understanding of terms and concepts. Most students taking a course in California Real Estate Practice have been exposed to many new terms and con- cepts during their study of real estate principles. Terms and their precise meanings have a tendency to change over time. Because real estate, like other professions, is a work in progress, it is imperative that every licensee stay current with the nuances in terms and usage in the industry.

We feel obligated to clarify some of the more prevalent misunder- standings that have come into common usage. Such clarification will aid all licensees in communicating with each other and with consumers.

It is important that we establish and agree on the primary purpose of the real estate professional. Why do we do what we do? Some, who have worked in this industry for years, are not clear about why they are in this business. Many believe they are here solely to “make money.” Of course, they can’t mean that literally because “making money” is a function reserved to the U.S. Mint. What they really mean is that they are in this business to “earn money.” The definition of the word “earn” is “to gain or get in return for one’s labor or service.” Com- pensation follows service. It seems such a small point, but it is critical that every licensee understand the sequence of events: service, then compensation. Our purpose is service and the fee received is a by- product of the labor or service provided.

Now we must ask, if our purpose is service and our goal is earn- ing money, what is the purpose of the Bureau of Real Estate and the licensing structure? Is there a common goal here that can be integrated

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4 CHaPTER 1 Starting Your Real Estate Career

harmoniously? The common goal is consumer protection. If every licensee were to embrace the goal of providing service that facilitates the sale or purchase of property while protecting the clients’ and cus- tomer’s interests, we would have the ultimate in harmonious relation- ships. By using the knowledge gained through the licensing process to protect the interest of the client, the licensee will also have protected the parties to the transaction, themselves, their broker, and the reputa- tion of the industry as a whole. Now there’s a win/win combination.

What constitutes service to one licensee may not fit the definition of service to another. This variation in the definition of “service” is the variable that makes it such a challenge for all licensees to provide identical service to every consumer.

Reality and consistency are as elusive in the world of real estate as in any other. This field is in a constant state of change. The value of the land, as well as the needs of the people who live on it, may be differ- ent today than yesterday. Values and customer needs vary constantly. Because of this, licensees need to be aware of the changing needs of buyers and sellers and the necessity for flexibility in their services and marketing practices. For example, because each property and each buyer are unique, accurate pricing or appraising is more an art form than an exact science. No two properties are identical. Even adjoining properties offer different benefits and burdens.

Strength or weakness in the real estate marketplace is determined by “perceived value” that, in turn, creates supply and demand. Some of the reasons for the broad range of perceived values that exist today are: • Buyer and seller knowledge – The Internet gives buyers and sellers

access to a vast amount of real estate information; however, even if sales data is available, it may be misinterpreted by either buy- ers, sellers, or both. The inability to interpret the data can often lead buyers and sellers to overpay or underprice the homes they buy or sell. The GIGO (garbage in, garbage out) rule applies to real estate marketing as well as to computers. Providing accurate information to clients and customers along with proper interpre- tation of the data is one of the most important consumer protec- tion services offered by the knowledgeable licensee.

• Motivation – Motivation has a major influence on the seller’s asking price, the price offered by the buyer, and the price finally accepted by the seller. A particular home may meet all of a buyer’s needs, but any number of motives may cause that buyer to offer a premium well above the seller’s asking price. Another buyer may be less motivated or only mildly interested in the same home and

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51.1 History

may offer less than the seller’s asking price. Sometimes the moti- vation to accept employment in another city is strong enough to cause the seller to accept less for her home than, say, a seller whose motivation for selling is to purchase a larger, more expen- sive home. For many sellers, getting the highest price for their home may not be their primary goal, just as for many buyers pay- ing the absolute lowest price may not be their primary goal.

• Product differentiation – No property is exactly like another. Even in tract homes with exactly the same floor plan there are differences such as location (one backs up to a busy highway while another is on a quiet street), amenities (one has a remodeled kitchen while another has the original kitchen including dated tile), total area, architectural style, maintenance, external influences such as bark- ing dogs, and/or a stunning view. The appraiser factors all of these variables into an analysis of what the property is worth, but the appraiser’s conclusion is still only an estimate of value that is valid only on that date and at that time. The actual price a property is sold for is generally set by a seller’s acceptance of a buyer’s specific offer. The sellers can ask any price that they want, but if no buyer is willing to accept the property on the terms and conditions set by the seller the property remains unsold.

• The ability of the real estate licensee – Most buyers and sellers rely on information provided by a real estate professional. Even the For Sale by Owner needs the pricing information from the Multiple listing service (Mls) in order to price her property com- petitively. On occasion a licensee will agree to represent a seller whose property is in an area or of a type where the licensee has no experience or knowledge. When this happens, the licensee may suggest an asking price or range that is inappropriately high or low that may have the effect of underpricing or discouraging interest by overpricing. Although most licensees are interested in selling property (not just listing property), there are a few who may purposely suggest an unobtainably high selling price in order to beat the competition for the listing. This is clearly a violation of the national association of REalToRs® (naR) Code of Ethics as well as laws relating to misrepresentation.

• Terms – Because most real estate purchases are financed, there is interdependency between real estate values and the availability of low-cost financing. When interest rates are low, financing is not usually an issue with most buyers. When rates rise, however, an astute seller can get a higher price for a property by offer- ing below market financing, although it’s necessary to become

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6 CHaPTER 1 Starting Your Real Estate Career

familiar with all of the risks associated with doing so. This financ- ing can be in the form of a first or second loan or a seller credit to the buyer for all or part of the buyer’s closing costs. The availability of purchase money from lenders is a critical factor in the viability of markets worldwide. There are specific forms that must be used with seller financing; be sure to familiarize yourself with them.

There are also times when different rules apply to different segments of the real estate marketplace. Different price ranges may have different supply/demand rules in play at the same time, even in the same mar- ketplace: homes in the lower price range may be selling briskly while nearby higher priced homes are taking a long time to sell because of lower demand.

The Mls provides current information on competitive pricing in the marketplace. This allows a licensee to more accurately assess a given property’s comparable market value and then to convey that informa- tion to the client or customer so they can make a better decision about the listing or offering price for a given property.

As a licensee, you must be able to clearly explain the services you offer. You must be able to show the seller/buyer how your service can be of benefit.

Before dispelling and clarifying a few of the more prevalent myths currently embraced by many consumers and professionals alike, we need to define a few basic terms. Here are a few definitions from the California Business and Professions Code (BPC) to aid in a common understanding of this discussion:

• BPC 10011 “Licensee,” when used without modification, refers to a person, whether broker or salesman, licensed under any of the provisions of this part.

• BPC 10131 A real estate broker within the meaning of this part is a person who, for compensation or in expectation of compensa- tion, regardless of the form or time of payment, does or negoti- ates to do one or more of the following acts for another or others: a. Sells or offers to sell; buys or offers to buy; solicits prospec-

tive sellers or purchasers of; solicits or obtains listings of; or negotiates the purchase, sale, or exchange of real property or a business opportunity.

b. Leases or rents or offers to lease or rent, or places for rent, or solicits listings of places for rent, or solicits for prospective ten- ants, or leases on real property, or on a business opportunity, or collects rents from real property or improvements thereon, or from business opportunities.

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71.2 Facts and Myths

c. Assists or offers to assist in filing an application for the pur- chase or lease of, or in locating or entering upon, lands owned by the state or federal government.

d. Solicits borrowers or lenders for or negotiates loans or collects payments or performs services for borrowers or lenders or note owners in connection with loans secured directly or collaterally by liens on real property or on a business opportunity.

e. Sells or offers to sell, buys or offers to buy, or exchanges or of- fers to exchange a real property sales contract, or a promissory note secured directly or collaterally by a lien on real property or on a business opportunity, and performs services for the holders thereof. (Broker’s definition continues in B&PC 10131.1-6)

• BPC 10132 Salesman Defined: A real estate salesman within the meaning of this part is a natural person who, for a compensation or in expectation of a compensation, is employed by a licensed real estate broker to do one or more of the acts set forth in Sec- tions 10131, 10131.1, 10131.2, 10131.3, 10131.4, 10131.5, and 10131.6 (Busi ness and Professions Code 10130, per Califor- nia Bureau of Real Estate 2014 Real Estate Law Book, pp. 24–28, Jan. 1, 2014)

1.2 faCTs anD MYTHs Because our legal system relies to such a large extent on English com- mon law, it is important to know that the word “property” did not refer to the actual dirt but rather to the “bundle of rights” which the owner enjoyed. These include the right to:

• Possess • Use • Encumber • Transfer • Exclude others

English courts distinguished between lawsuits over land itself (the “real” thing) and those suits that could award only monetary damages. One brought “real action” to recover “real property” (real estate) and personal action to recover “personal property”—an “estate” being the ownership interest or bundle of rights, not the actual land itself.

Myth number one: California real estate salespersons sell real estate. After all, that is what it says on the license. This myth has been the cause of much misunderstanding between buyers, sellers, and licen- sees. The real estate licensee has only two things to sell, and neither is real

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8 CHaPTER 1 Starting Your Real Estate Career

estate. Real estate licensees sell time and knowledge to people who need assistance with real estate issues.

Think about it. The actual seller of real property is the owner, not the licensee. The broker acts on behalf of the seller to bring a buyer who is ready, willing, and able to purchase the property on the terms and conditions specified by the seller, or on such other terms and con- ditions the seller finds acceptable, and the licensee acts to find such a person on behalf of the broker. Per the listing contract, the seller is the “principal” and the broker is the “agent” acting on her behalf. It is the employing broker (agent) who, by law, is the only one allowed to receive compensation for effecting the sale or transfer of real property (BPC 10131). Because the broker/agent is the only one authorized by law to collect a fee for real estate services, the licensee (those licen- sees, broker associates, or salespersons) working under the supervision of the employing broker/agent must be employed by a licensed bro- ker, and therefore their compensation must be paid only through that employing broker—never directly from buyers, sellers, or others.

The logical progression is as follows: The property owner or buyer (the principal) hires an “agent” (broker) to represent her in the sale or purchase of property. That broker hires a licensed real estate sales- person (the licensee) to represent her in dealings with the public. The licensee is never the direct representative of the principal; the licen- see always represents the broker who represents the client. In other words, the broker is the “agent” of the principal. The licensee is the “agent of the agent.” Licensees have misunderstood their relationship to the client by referring to them as “my client;” they are not the licen- see’s clients, they are clients of the broker. The licensee’s client is the broker. This concept becomes critically important when the licensee decides to change broker affiliations. Listings taken by a licensee in the name of the employing broker/agent, as well as the buyers being represented directly, through a Buyer Representation Agreement or, indirectly, through a Calif. Purchase Agreement belong to the broker. When any other disposition occurs, it is because the broker and licen- see have negotiated an alternate agreement.

You can see from this discussion how misuse of the term “agent” can lead to universal misunderstanding by brokers, licensees, clients, and customers. It has become standard usage in the industry and by the public to refer to all licensees as “agents.” Although technically correct (all licensees do represent others), we must be very careful to clearly understand who is representing whom because there can be only one “agent” with every firm; that “agent” is, by definition, a licensed California real estate broker. licensees, whether broker asso- ciate or salesperson, work under and offer their services through the

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91.2 Facts and Myths

“employing broker.” It’s that broker who may legally offer to sell, lease, and rent property for compensation, not the salesperson. Prop- erties are listed (and contracts written) in the name of the seller or buyer and the broker, not the salesperson licensee. The authors, when referring to salespersons or broker associates working under an employing broker, will use the term licensee.

Because it is important that you know what service you offer the consumer, you need to be very clear on this point: You have only two things to sell—your time and your knowledge. Your time and your knowledge (that is, the knowledge required to obtain a California real estate license and the “local” knowledge required to be able to give the principals proper advice) are the essence of the consumer protec- tion services you offer. Many careers have met their untimely demise as a result of failure to understand this concept.

Myth number two: All licensees offer the same service so they should all be paid the same fee. Although “activity for which a license is required” may be the same, the real “service” of time and knowl- edge varies with the knowledge and experience of each individual bro- ker and licensee.

Success or failure is not something that happens to you—it’s a choice. The single most important component of that choice is belief. Your belief system will determine your success. Because suc- cess is a concept and not an object, you must have a clear idea of what you mean by success before you can develop a plan to achieve it. When you have created your own clear image of what success is to you “Your beliefs become your thoughts, your thoughts become your words, your words become your actions, your actions become your habits, your habits become your values, and your values become your destiny.” (Mahatma Gandhi)

As a new licensee, there will be many times when you may be tempted to doubt your knowledge and abilities. The more confident you are in your knowledge of any subject, the more confidence you will feel and the more you will project. The authors sincerely encour- age every licensee to maximize their confidence by maximizing their knowledge and ability. Your community college can be of great assis- tance in providing specific instruction in many aspects of business and real estate. Take advantage of this valuable resource.

The California Real Estate Broker License is a good start toward professional competence. The added knowledge and confidence gained through studying for and passing the California Real Estate Broker Exam is the least we owe the people we serve. Although the broker’s license is a good start, education and the acquisition of real estate knowledge does not end there. Beyond the broker’s license, there are

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10 CHaPTER 1 Starting Your Real Estate Career

other professional designations that can enhance your knowledge and expertise.

If you studied for your license through one of the license training schools, you received a three-ring binder with approximately sixteen chapters of information that is critical knowledge to help you pass your real estate exam. This is valuable information, and the authors suggest that you reread each chapter, one chapter a day, until you have re-read the entire binder five times.

1.3 aTTiTuDE is EvERYTHinG “If you think you can do a thing or think you can’t do a thing, you’re right,” said Henry Ford. Real estate is no exception to this rule. As with most human endeavor, belief is a critical component of accom- plishment and plays a major role in determining individual and collec- tive reality. Your attitude, positive or negative, will dictate how others perceive you and how you perceive yourself.

Getting started will be much more difficult if you believe it will be difficult. A negative attitude will almost certainly guarantee a negative result and consequent need for a career change.

There is no substitute for a strong belief in “self.” Do whatever is necessary to put yourself in a positive environment. Surround your- self with as many successful people as you can. Successful people have positive attitudes and are fun to be around. You will find that success, like negativity, can be catching.

You make presentations using your knowledge of real estate regu- lations and the local area and custom. In order to do that effectively, you must bring your positive attitude with you wherever you go. Your broker will not be watching over you every minute of every day. For the positive, “yes, I can” attitude to be there, it must be nurtured and cultivated by you. Many motivational programs on CD and other media are available if you need quick inspiration. Keep a few of your favorites in your car and play them often.

To keep a positive attitude, ask yourself the following questions. If your answer to any of them is “no,” take steps to reaffirm who you are and your role as a service provider and .advocate for consumer protection.

• Are you able to handle your own inner fear? Fear can keep you from taking the bold steps needed to call or see people and help them with their real estate needs. More people fail as real estate profes- sionals due to an unfounded fear of rejection than any other reason. Remember, every buyer or seller needs the knowledge and service you, as a licensee, bring to the relationship through your broker.

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111.3 Attitude Is Everything

• Are you persistent? When a client says no, do you just quit ask- ing or do you take it as a signal to probe for more information? Often when clients say “no” they are really telling you that they don’t have enough information to make a decision. If you just give up, hoping you won’t offend them, you may well be keep- ing them from achieving the result that they truly desire. Only a small percentage of your potential clientele will agree with you or ultimately complete a transaction with you, but the service you provide to that small percentage can make you an excellent living and you will help a lot of people, so keep probing.

• Are you self-confident? There is no substitute for the confidence that comes with professional knowledge and competence. Your clients want you to lead them to a logical and safe conclusion, even before they believe it themselves. If you lack self-confidence, it will be seen as uncertainty and your clients will perceive you as lacking knowledge about the issues at hand. You need to have a deep reservoir of local real estate knowledge so when you are asked for advice or direction by your clients, your knowledge and preparation will reflect your professionalism. You can’t fake this. If you don’t have a ready answer to every question, tell them you will find the answer and get back to them. No one expects you to know everything, but knowledge within the scope of your license is one place where more is better.

• Are you enthusiastic? Enthusiasm can be highly contagious. Enthu- siastic licensees have an insatiable thirst for knowledge about every aspect of the real estate business and are always looking for ways to improve how they represent others. When you are truly enthu- siastic about your work, it rubs off on your clients and they begin to mirror your enthusiasm. Demonstrate enthusiasm in whatever you do.

• Are you a problem solver? Matching motivated buyers and sellers in a real estate transaction will bring many differences into the light. Most can be dealt with creatively, given sufficient understanding by the licensee. This means asking many questions. Approach all differences of opinion with an open mind. Each party will tend to see the solution that works for them; it’s your job to help the client see the “harmony” in the solution. Here is where your crea- tivity and negotiating skills can shine. We sell time and knowledge to people who need advice and direction when they are buying or selling real property.

• Are you adept at handling objections? One of the most difficult clients to represent is the one who never raises any objections but doesn’t commit to buy or sell.

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12 CHaPTER 1 Starting Your Real Estate Career

1.4 Goals You must ask yourself two important questions: Who am I? and What do I want? Most people avoid the first question because they believe the answer to be obvious; it is not. Who you are is not defined by what you do. That’s what our culture would have you believe. Who you are is, perhaps, a philosophical question beyond the scope of this text, but each of us needs an answer to this question.

As the comedian says, “I always wanted to be somebody; … I guess I should have been more specific.” Getting specific about who you are and what you want is the first step toward achievement. It is difficult to achieve what one cannot define.

What do you want to achieve in this life with the time you have available? From the macro to the micro, large to small, lifetime goals to tasks of the present moment, each individual must create their own goal. Since this is a text on California Real Estate Practice, we will assume you have worked through your lifetime goals and are now at the micro level of determining what you will achieve as a real estate licensee.

Goals establish the baseline you will use to measure your progress. A number of factors must be considered when setting goals because these factors will profoundly affect your ability to meet or exceed them. Among the more obvious are:

• Personal motivation – Just how motivated are you to succeed in the real estate business? Some people go into this business think- ing they will “give it a try.” If “trying” is your goal, you will surely succeed at that, but “trying” is not achieving. Many others have a strong desire to become the very best at what they do and will not settle for less. Your attitude is the single biggest factor in deciding your fate as a real estate professional. We are all, at this moment, a reflection of the choices we have made.

• Personal finances – Although some new licensees may establish a meaningful earnings pattern very quickly, some can take a year or longer to become established, depending on economic and other market conditions. Any well-thought-out business plan contains reserves for contingencies. You should be able to support yourself through savings or other income for a minimum of six to twelve months. Financial reserves that will sustain both you and your family for less than a year may cause you to focus your attention on day-to-day survival rather than on your plan to become suc- cessful in real estate. You may have untapped financial resources that you are not aware of, such as a working spouse, an unused car, camper, RV, motorcycle, or boat that you can sell. You may

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131.4 Goals

also have some form of a retirement plan or life insurance policy that you can borrow from. While a loan from family members sounds good, think this through very clearly first!

• Economic and market conditions – Supply and demand has a marked influence on the activity of any product or service industry. Health of the national and local economies affects marketability of most products and services including real estate. Starting a successful career in real estate can be done in virtually any market condition, but it can be much easier when capable buyers are abundant. If you enter the profession during a period of increased demand for real estate, you can expect the number of licensees to increase and competition among those licensees to become more intense. The opposite is also true. A decline in demand will reduce the number of licensees, creating an environment where only the most deter- mined service providers prevail.

• Personal support from family and friends – You need a support group. The added incentive that comes from the support of family and friends can be critical to success in any field. It is particularly important in real estate to enjoy the support of family and friends as this is the group that will make up a major portion of your sphere of influence (soi).

To be effective, goal setting must be an exact, not abstract, exercise, or it loses much of its meaning and effectiveness. As an example, an abstract goal would be: “I will see For Sale by Owners this week.” A much more effective and specific goal would be: “I will talk with each For Sale by Owner on Elm Street between 3:00 p.m. and 6:00 p.m., this Wednesday, Thursday, and Friday.”

To be most effective, your goals must be in writing, on 3 × 5 cards placed in conspicuous places—for example, your car visor, your bath- room mirror, or on the first page of your daily planner.

Goals must be realistic and achievable. This means that you must believe them to achieve them. If goals are set too high, to the point where you subconsciously feel they are unachievable, you may become discouraged or depressed and give up prematurely. Your broker, branch manager, or a successful licensee mentor may be a helpful resource for additional information on goal setting. Goals will vary with the indi- vidual. Some licensees are motivated by the number of personal calls they make, and some get more excited by the number of transactions closed. Fortunately, there are some licensees who take pride in provid- ing the best service possible to clients and customers alike. It is this type of licensee who understands that excellent service brings more satisfied consumers, which leads to more business, more referrals, and ultimately,

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14 CHaPTER 1 Starting Your Real Estate Career

more income. Remember, the money earned is a by- product of the amount and quality of the service provided. More and better quality service will inevitably translate into more income and more referrals.

Setting short-, medium-, and long-term goals with personal rewards for achieving each one can help break down the process into achievable bites. Though a goal may appear to be completely out of reach, small steps with appropriate course corrections can provide the means to achieve almost any goal. The method used is one of “succes- sive approximation”—the process of making small but precise course corrections. For instance, a sailboat, because it cannot sail directly into the wind, must reach its destination by making a zigzag pattern across its intended course. If you have a clearly defined goal or aiming point, you can reach it just like a sailboat or a guided missile reaches its tar- get: through constant course corrections.

As an added incentive to stimulate performance, you might decide to reward yourself with a new car, computer, cell phone, or other helpful piece of equipment after closing a predetermined number of transactions.

Goals must be tied to a specific time line with precise dates for completion built into the plan. Time is of the essence in your quest for success. You want to be able to help enough people so that you can devote full time to your service profession. Those interested in buying and selling homes want results in a reasonable amount of time; ideally in less than three months (six months at the outside). Licensees are not paid for their service until the service has been performed. That usually means a property has actually changed hands and the deed has been recorded or a lease has successfully been negotiated.

We won’t be recommending or endorsing any specific types of cars or other equipment, but it should be obvious that you do need a clean car (preferably a four-door sedan) in excellent mechanical condition with four good tires. The type of car is not nearly as important as its cleanliness and reliability. You should be confident that if you decide to drive this car across the country on the spur of the moment, you could do so without worry or hesitation; after all, you will be showing property to a wide variety of clients and customers; you have a respon- sibility for their safety while they are in your car.

We understand there are exceptions to every rule. We know there are licensees out there who show property using a motorcycle or two- seat sports car; but it’s just not the preferred method nor is it one we would recommend.

Long-term goals can be fun and will help you prepare for your retirement. Perhaps you could set a long-term goal of investing in your first home or your first income property when you reach a certain level of production.

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151.4 Goals

Accountability is extremely important. If you really want to hold yourself accountable for achieving your goals, tell someone special in your life about them. Ask that person to question you often about how you are progressing. That’s real motivation.

Be sure to set goals that you can fully control. For instance, if you set a goal of obtaining two listings this month, you are relying on the timing of other people (potential sellers) to list with you now, and this may not be realistic. A better system is to tie goals to activities, rather than end results. While you are fully in control of the activities you perform, results are really controlled by other people. If you set a goal to make twenty-five contacts on Monday, Wednesday, and Friday of each week, in time you will get business from those activities; however, if you set a goal of obtaining three listings a month, you may end up with a number of people who have committed to list with you, but no actual listings at the end of the month. Over time, goals that are tied to fundamental lead-generating or client acquisition activities and are carried out on a regular basis will help you to quickly become far more successful.

Other examples of goals include: Short term

• Collect thirty business cards (five per day). Asking others for their business cards gives you an opportunity to offer yours in return.

• Research a geographic area and get the owners list from a title company.

• Personally meet with three For Sale by Owners. Intermediate term

• Find buyers for $3,000,000 worth of property this year. • Take three Graduate REALTORS® Institute (GRI) courses and

commit to obtaining the designation. • Purchase a new automobile within eighteen months. • Take two courses toward my broker license each year. • Purchase a rental home every two years.

Long term • Open a real estate firm within seven years. • Purchase a ten-unit apartment house within six years. • Obtain my broker license within three years.

Goal setting not only gives new meaning and importance to time, but it also helps bring a true sense of accomplishment and satisfaction into an otherwise intrinsic world and acts as a barometer of our success along the way.

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16 CHaPTER 1 Starting Your Real Estate Career

1.5 Plans “Plan your work, and work your plan” is an old saying that almost every successful real estate professional takes to heart. Your broker will expect you to know what to do. For tax purposes, the Internal Revenue Service may consider you to be an independent contractor, but the state of California sees you as an employee of your employing broker. Although required by regulation to supervise your work, your broker will not be watching your every move. However, you will be evaluated according to the results you produce. Your ultimate success will be the result of the quality of the service you provide and how well you protect the interests of your broker, your clients, and your- self. You and you alone will be responsible for how much money you earn, which will be a direct result of how effectively you apply your time and your knowledge.

Planning is the process of putting in writing the most efficient use of your time. It is a list of the activities you intend to accomplish on any given day, week, month, or year.

Whether you adopt your own system and style of planning, or adopt one of the many systems available for real estate profession- als, the important thing is to plan your work and then work your plan. Each and every task that must be done on any given day should be reduced to writing, no matter how insignificant it may seem. Then, once your day’s tasks are in front of you, you can pri- oritize them, giving the least significant tasks the lowest priority. Focus, focus, focus.

Planning combined with self-discipline will soon make you keenly aware of time-wasting activities and the importance of your time. Once you are aware of these things, you will begin to see better results in the form of more appointments, listings, and closed sales. In the beginning, you will have more time available for generating leads of people who may be interested in buying or selling because you have fewer, if any, clients or customers; however, as you engage in productive activities, you will start to generate a larger and larger list of people who need your services. If you don’t plan carefully, you will soon find yourself with more tasks than time. Now you must begin to eliminate ineffective methods and systems and become a master planner.

The National Association of REALTORS® surveyed its members several years ago to learn how much time an average licensee spent in front of clients each day. The answer was alarming! The average licensee spent only fourteen minutes a day with clients. Question: Is there any correlation between this very poor use of time and the high attrition rate among new licensees? Answer: Probably.

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171.5 Plans

If there is a marked difference between successful and unsuccess- ful licensees, it is in how they plan and actually use their time. Suc- cessful licensees come into the office with a written agenda for the day. They immediately start to work on that agenda without linger- ing over coffee with others or making small talk in the kitchen for extended periods of time. The real power of starting your day in a focused manner is that you will carry that momentum with you for the rest of the day.

What is your time worth? Remember, in the real estate business, as in any service business,

time is money. Doing the following will help you realize the value of your time:

There are 1,952 working hours in a year (244 days at 8 hours per day). Your desired annual income divided by 1,952 = the dollar value of your time.

Example: If sales licensee Margie Wright makes $60,000 per year, her hourly wage is just under $31 per hour ($60,000/1,952 hours). For purposes of estimating, it is easier to round the 1,952 hours to an even 2,000; then, $60,000 divided by 2,000 equals $30, which is close enough considering the fact that most successful real estate professionals work more than 40 hours a week.

In actuality, you only have a fraction of that time to interact with clients and customers—maybe less than 400 hours over the course of a year. So if you recalculate using only “client contact” hours, you begin to see the real value of the time spent in touch with decision makers. With this newfound knowledge, here are some things you can do to increase the value of the hours you have available for customer communication:

• Increase the number of calls you make. • Increase the number of appointments you get from calling. • Increase the number of closing questions asked per appointment. • Increase the number of prospects you meet each week. • Increase the number of referrals you receive. • Increase the amount of repeat business you receive.

As mentioned earlier, you need to plan your work day every day, preferably the night before. After only a short time in the real estate business, it can often become difficult to preplan days off and vaca- tions as it seems that the more successful you become, the more peo- ple seek you out.

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18 CHaPTER 1 Starting Your Real Estate Career

To be as productive as possible, you will be wise to segment your time into categories. Many real estate professionals use A, B, C, and D categories.

A time: Time spent with decision makers that involves making a listing presentation, writing a purchase contract, or showing property to prospective buyers.

B time: Time spent prospecting for new leads, clients, and customers. Also, time spent preparing for property showings.

C time: Time spent seeing new listings, doing escrow work, and doing other work that supports listings, sales, and open escrows.

D time: Time spent on any non-work-related issues and per- sonal time. This includes time off and vacations, which are important to avoid burnout.

It is easy to see that the more time that you spend doing “A” time activities, the higher your income will be. When you combine this with an ever-increasing amount of skill and knowledge, it only follows that your income will increase dramatically! There will probably come a time when you will want to hire a part- or full-time licensed assistant to conduct much of the “B” time and “C” time activities for you.

As your effectiveness as a licensee grows, so does your hourly worth, and the old saying that “If you don’t have as assistant, you are one” will loom large in your career.

Now that you have a clear understanding of the value of your time, you are ready to obtain a daily planner. Many types are available to you. Be sure to keep your planner with you at all times because you will often encounter situations where you are away from the office and need to schedule an appointment with someone.

Planners vary from the rather sophisticated cell phone/electronic planner combinations and cell phones to the Week at a Glance plan- ners available in every stationery store. There are also many computer programs adaptable to real estate planning.

Remember that you will seldom complete all of the tasks you have in your planner each day. If you don’t complete a task, just advance it to the next day and increase its priority, if appropriate. You will have new things to do and new opportunities coming to you along the way every day that will often require you to push back something you had planned. This is normal, so don’t be frustrated by it. The important thing is to use your planner, whatever type it may be, and always do what is necessary to take care of “A” time activities as soon as possible.

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191.6 Real Estate Business Plan

Every few days, review the activities that have been in your plan- ner for the past few days. See what you did or did not accomplish and critique yourself. By doing this, you increase your awareness of the value of your time. One rule to make each day much nicer and more productive is to do the most unpleasant tasks as early in the day as pos- sible. That way the work you dislike the most is behind you and you don’t have to worry about it all day.

1.6 REal EsTaTE BusinEss Plan There is overwhelming evidence that the failure of the vast majority of new licensees can be traced to a failure to create and execute a business plan.

Most new licensees do not have a large client base, and without one, they have no one to sell to, so they don’t earn any money, get discouraged, and quit, often out of fundamental necessity.

It is essential that new real estate professionals take the time to become technically proficient; however, they also need to learn quickly what “client acquisition” or “lead-generating” techniques are most effective and incorporate those activities into their daily work plan. Where does one get that client base?

It has been estimated that each of us know 250 to 300 people, each of those 250 to 300 people know 250 to 300 people, and so on. Suc- cess depends on how many of these people the new licensee can find who would be willing to pay for the services she offers. The task is called “lead generation.” Finding as many people as you can who are motivated to buy or sell a home in the next 90 days and who need your expert assistance as a real estate licensee should be your goal. How you propose to do that will be your business plan. A real estate licensee without a plan is similar to a ship without a specific destination. Any course is equally effective if you don’t know where you are going.

It is relatively easy to obtain a Real Estate Salesperson license in Cali- fornia. Becoming a successful licensee is another thing entirely. If you take three college-level real estate courses including Real Estate Princi- ples, Real Estate Practice, plus an elective such as Real Estate Finance or Real Estate Law, and pass the state exam with a score of 70 percent or higher, you will qualify for a California Real Estate Salesperson license. In terms of classroom hours, three courses, or approximately 135 classroom hours (three 3-unit classes of 15 hours each), are required to qualify to sit for the salesperson license exam. Approximately 360 classroom hours are required for the broker exam. Compared to other California state licenses, the required educational prerequisite is minimal. For example, the California cosmetology license requires 1,600 hours of classroom

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20 CHaPTER 1 Starting Your Real Estate Career

Business Plan Week 1

• Activate your real estate license, if necessary. • Attend all training classes. • Join the local real estate organization and MLS. • Have the staff give you a tour of the office. • Order business cards and any promotional materials. As a California

licensee, you are required to have your real estate license number on your business cards and all of your marketing materials, including a website. If you use a website, the name of the brokerage firm you are licensed with must be prominently displayed on each page of the site, without having to scroll down to see it.

• Get open House signs from your office if they have them or pur- chase your own.

• Get your desk assignment.

instruction, barber 1,500, and manicurist 400, and none of these people deal with transactions potentially involving millions of dollars.

One reason for the high attrition rate among real estate licensees is that although the requirements to qualify for the license are relatively minimal, the requirements for sustained success are formidable and include having a detailed business plan. New licensees come into this business with little or no business planning knowledge or experience and little or no capital to sustain them through the six to twelve months or longer that it may take to become self-sufficient in this business.

After the initial office orientation where the manager or broker shows the licensee the fax, coffee machine, and computer ports and introduces the staff, many firms begin their “in-house training.” It goes something like this: “Well, now that you’ve met the staff and know where everything is, there’s your desk and there’s your phone, let’s see what you can do.” You must have a plan of your own.

Below is a sample one-month business plan. It is fairly general; however, it is designed to get you in front of prospective buyers and sellers as much as possible. Feel free to add, change, or make adjust- ments to allow it to fit your particular needs and geographic area. Do not succumb to the temptation to delete the activities that get you in front of decision makers. There will be some people who do not need your knowledge or service at this point in time and they will let you know. Do not interpret this as personal rejection. It’s not personal; they simply don’t know what you know they need to know, or they are not in need of your services at the present time.

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211.6 Real Estate Business Plan

• Obtain your e-mail and voice-mail accounts and codes. • Have a studio-quality headshot photo taken for your business cards

and promotional materials. • Purchase all necessary office supplies. • Meet with your broker or branch manager to discuss building

your SOI database. Your goal is to build this list to at least 300 peo- ple.

• Obtain and read several times the purchase contract and listing con- tract that your firm uses. Write down any issues that you do not fully understand and ask your broker to clarify them for you.

• Obtain and study any alternate listing and purchase contracts in use by adjoining counties or regions.

• Preview at least four of the office or company’s listing inventory each day.

• Begin to plan your annual budget. • Attend the office meeting.

Week 2 • Attend all training classes. • Preview at least four of the office listings daily. • Meet with your broker, branch manager, or mentor to finalize your

SOI mailings and database. If you plan to market to a geographical area, research subdivision(s) you will target. Remember, number of sales in a specific area is far more important than the individual selling price.

• Start your computer research of potential geographic areas via the MLS and drive by the areas you are considering. Meet with your bro- ker/manager to discuss your findings.

• Order a list of names and addresses from your title company. • Read the purchase agreement two more times. Memorize paragraph

numbers and their subjects. • Obtain some type of electronic database and start to enter your SOI. • Schedule an Open House for yourself for the following Sunday. (If

you do not yet have a listing, ask your broker/manager if you may hold an Open House for another company listing.)

• Write and send at least five personal notes a day to your SOI, being sure to include your business card.

• Prepare Open House flyers. • Mail or drop off at least fifty Open House invitations with flyer. • Refine your annual budget. • Start to prepare your personal website, if applicable. • Attend the office meeting.

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22 CHaPTER 1 Starting Your Real Estate Career

Week 3 • Attend training classes as scheduled. • On Monday, send thank-you notes or e-mails to prospects you met

at your Sunday Open House. Personal notes are preferred. • Preview at least four office listings per day. • Enter new names to your SOI database. • Tuesday evening, call the people you met on Sunday and ask for a

showing or listing appointment with them. • Meet with your broker/manager to discuss your annual goals. Decide

how you want to “keep score,” for example, volume of sales, total earnings, or number of transactions.

• Research properties to show to your buyers. • Show properties and write contracts. • Make listing presentations. • Arrange an Open House for next Sunday. • Start to assemble your listing presentation. • Prepare Open House flyers.

Week 4 • Attend all training classes. • Preview at least four office listings per day. • On Monday, send personal or e-mail thank-you notes to new leads or

customers you met at your Sunday Open House. • On Tuesday or Wednesday, call all of the new leads or customers

from your Open House and ask for showing or listing appointments. • Research properties to show to your buyers and make any necessary

appointments with licensees or sellers for showing. • Show properties. • Research homes for CMA (Comparative Market Analysis) and con-

duct listing presentations. • Call and see For Sale by Owners (check the Do-Not-Call List first). • Call expired listings (check the Do-Not-Call List first). Make an

appointment to see the home if possible. • Take floor time as appropriate (be prepared). • Call twenty SOI people per week (four per day, on average). Ask for

referrals. • Do escrow work as needed. • Schedule an Open House for next Sunday. • Prepare Open House flyers. • Build and refine your listing presentation manual. • Sign up for floor time for next month. • Write to absentee owners about their property.

(Note: Week 4 is a good example of a week-to-week operational guide of daily activities.)

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231.7 On Becoming a Real Estate Professional

This basic plan may be used as a guideline each month. As you grow and mature as a real estate professional, you will replace “training classes” with “continuing education.” You will also add activities that keep you in touch with your new and growing group of satisfied cus- tomers and clients so they start to send you referrals.

1.7 on BECoMinG a REal EsTaTE PRofEssional learn office Policies and Procedures The Regulations of the Real Estate Commissioner, Article 4, Section 2725, states in part: “A broker shall exercise reasonable supervision over the activities of his or her salespersons. Reasonable supervision includes, as appropriate, the establishment of policies, rules, proce- dures and systems to review, oversee, inspect and manage.” These policies are usually published internally in an Office Policies and Pro- cedures Manual. Many firms incorporate the Office Policies and Pro- cedures Manual into their Broker Salesperson contract that you sign when you affiliate with the firm. You should ask for a copy and study it so you know the office rules and regulations.

Become Computer literate Computer literacy is an absolute must in today’s real estate environ- ment. You should at least have a good working knowledge of:

• MLS property search basics, including the ability to search the MLS database for a specific type of property such as a three- bedroom, two-bath home with a three-car garage in a certain sub- division at a list price of $450,000 to $550,000.

• How to use the MLS data to obtain and print out listing and sales information.

• How to create and send an e-mail message and attach a file to an e-mail.

• How to use word-processing software. • How to use software to create flyers and property brochures for

your listings and marketing materials.

Tax Knowledge You are a real estate professional, not a tax professional. Unless you are prepared to be legally held to the standard of care of a currently licensed tax professional, do not make tax recommendations. That being said, it will be extremely helpful to have a good understand- ing of various types of taxes so that you can make the appropriate

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24 CHaPTER 1 Starting Your Real Estate Career

referral to a tax specialist if one is required. You should know things such as:

• Real property taxes and any special benefits available to home owners.

• Income tax benefits available to homeowners and how they differ from investment property.

• Income tax benefits available to income and investment property owners, and how they vary from those available to homeown- ers, including tax-deferred exchanges of “like kind” commercial properties.

As a real estate professional, you have an obligation to be knowl- edgeable regarding the information necessary to obtain a real estate license. Real estate tends to draw new licensees from a diverse array of other professions. Some licensees have advanced degrees in other professions including, but not limited to, accounting, engineering, general contracting, law, and medicine. Offering advice and opinion beyond that required to obtain a real estate license may expose you and your broker to an unacceptable level of liability beyond the scope of your profession and may not be covered by your employing bro- ker’s Errors and Omissions (E & O) insurance policy. Before offering advice or opinion outside the area of real estate consult with your bro- ker, remember, your broker represents the client and you represent your broker.

Equipment needed You will not always be at your office when you write a purchase con- tract or take a listing. You will need a number of things with you or available at your office to be prepared for what each day will bring. The items you should consider having available are:

• A daily planner – This may be anything from the often-used Day (or Week) at a Glance to some sort of handheld PDA, smart- phone, or tablet. Many title companies give out very nice yearly planners to real estate licensees on a complimentary basis, so don’t be afraid to ask for one. Keep you planner with you at all times.

• Business cards – Your company will have its own format for busi- ness cards, but there is often some latitude for personal numbers or notations about languages you speak and so on. Make the most of them but do not put so much information on your card that it looks too busy and unprofessional.

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251.7 On Becoming a Real Estate Professional

• Your automobile – You should have a fairly modern four-door vehicle. Keep it clean, uncluttered, and well maintained. If you smoke, don’t do it in your car as the smell is offensive to most people (especially, former smokers). It is also reasonable to ask other people not to smoke in your car. Use an air freshener, if necessary. Two-door automobiles are discouraged as they are very tiring to enter and exit from the rear seat.

• In the car – Have a method of storing the following items:

1. Large folder or plastic bag for forms to prevent them from being folded or sun-damaged.

2. Pen. 3. Flashlight. 4. 100-foot tape measure or an electronic measuring device for

your client to use, not you. 5. For Sale sign and stake, if your company doesn’t have them

installed for you. 6. Digital camera. 7. Business cards (include your real estate license number). 8. Financial calculator that can do amortization schedules. 9. Basic tools such as a hammer, a set of both Phillips and

standard screwdrivers, and nuts and bolts for signs and sign riders.

10. Current map of your marketing area, even if you have a GPS. 11. Handheld recorder to record your thoughts and ideas as well

as things that you will enter into your escrow communication log later. (Optional)

12. Portable printer. (Optional)

Gone are the days when cell phones were a luxury. Now it’s almost impossible to do business without one. Cell phones do double duty as lock box keys. Most cell phone models have voice-activated dialing, which is highly recommended as dialing or speaking on a cell phone while driving can be very distracting, dangerous, and illegal. Most real estate companies have policies against it.

As a professional courtesy, it is best to turn your cell phone off or on vibrate when you are in a classroom environment or with clients.

A personal toll-free number is especially effective if the number is shown on the licensee’s personal website and business cards so the public can view listings and call directly for more information or for a showing appointment.

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26 CHaPTER 1 Starting Your Real Estate Career

about You As the saying goes, “You never get a second chance to make a first impression.” Your appearance is a nonverbal statement about you and your firm. What message do you wish to convey? What type of clientele will you be assisting? It is generally good advice to dress as you would expect a person to dress that performed the services of a professional counselor—one that you expected would charge a substantial fee for their service. The way you dress, smell, and act will directly affect how your clients respond to you and feel about working with you.

Watch the use of garlic and other strong or potentially offensive- smelling foods prior to working with clients, and keep perfume or aftershave to a minimum. Some people have allergies and are extremely sensitive to odors and chemicals.

Be approachable and easy to be around; the more you smile and relax around your clients, the more relaxed they will be. Their experi- ence with you should be something they look forward to with pleasure.

Above all, take care of yourself. If you let it, this business will con- sume all of your time, leaving you no time to exercise, eat right, and get enough sleep. It will also prevent you from working efficiently. Take time to keep your “machine” running smoothly.

Is there pride in being a real estate professional? There certainly is! As a real estate licensee, you are at the focal point in what is often the largest single investment a family or person ever makes in life: a home. Buyers are buying much more than a roof over their head, they are buying a lifestyle, a statement of what they are about, and often an environment in which to raise their children. Sellers are not just selling bricks and mortar; they are selling memories and comfort. It is true that you help thousands and thousands of dollars to change hands, but you are also the purveyor of emotions and therefore you hold the true essence of why people really are in your care. You should and must take great responsibility and great pride in doing it well.

Summary The real estate professional is constantly aware of the need for clear communication with clients, customers, and other licensees. The product, or service provided, is time and knowledge—service for a fee through the vehicle of property sale, acquisition, or use. Consumer protection while satisfying client needs is the goal of every transaction.

Licensees understand the various myths that have become accepted by the public and clients alike and know that they represent the buyer

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or seller indirectly through their employing broker. Real estate licen- sees have only two things to sell: time and knowledge. This is a service for fee business and the service must come first. Because time and knowledge vary so extensively these services are rarely, if ever, exactly duplicated by every broker’s licensees. From the client perspective, facilitation of the transaction (purchase, sale, or lease) may be the goal, but to have ultimate value this must be done while protecting the clients’ interests.

Because confidence comes from knowledge, continuing education must be an ever-present goal of every licensee. If you think you can or think you can’t, you are right.

The job of the real estate professional includes maintaining a pos- itive attitude, handling inner fear with confidence, being persistent in the search for knowledge, being enthusiastic, solving problems, handling objections, and accepting failure as a learning experience. Essentially, the job is to create harmony out of chaos wherever possible.

Your attitude is everything. A positive attitude will evoke a favor- able response from your clients, whereas a negative attitude will cause you to be perceived as unsure of what you are doing and will hurt your business.

Establishing goals will help to keep you focused and aware of the progress that you are making and should include short-, intermediate-, and long-term goals. You should create a business plan with the help of your broker/manager or a mentor and stick to it as closely as you can, but be prepared to make changes if you find that your interests or plans change. By planning your work and working your plan, you will maximize the time you spend developing as a real estate profes- sional. It is wise to remember that you should never go to bed at night until your next day is planned in writing and in your appoint- ment book.

As the essence of your job is matching people and property, you must learn the inventory as soon as possible and continue to pre- view new listings to stay keenly aware of what property is avail- able in your marketplace at all times. You must also have a good working knowledge of the real estate taxation issues that can affect your clients so that you may make any necessary referral to a tax professional.

Remember, you never get a second chance to make a good first impression; so dress appropriately and take care of your physical well- being because your health and emotional state can and will affect your productivity.

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28 CHaPTER 1 Starting Your Real Estate Career

Chapter 1 Quiz

1. The real estate market could best be described as being a. perfect. b. not influenced by emotion. c. uninfluenced by external factors. d. stratified.

2. Tax knowledge is important because a. buyers and sellers look to licensees

for tax advice. b. a licensee may refer to competent

professionals when appropriate. c. tax information helps sell homes. d. giving tax advice is part of a licen-

see’s job.

3. A licensed real estate salesperson may collect a commission from a. buyers. b. sellers. c. her employing broker only. d. both buyers and sellers in dual

agency transactions.

Important Phrases and Terms Agent Broker Independent contractor Lead generation Licensee Multiple Listing Service (MLS)

National Association of REALTORS® (NAR)

Open House Salesperson Sphere of influence (SOI)

Class Discussion Topics

1. Describe and evaluate your local market. Is it stratified? If so, how? Are there many layers?

2. What are your goals? Describe your top long-, intermediate-, and short-term goals. Do they complement each other in any way?

3. Take a day from your daily planner and evaluate it for effective- ness. Were all of the “A” time activities completed? If not, why?

4. What steps do you need to take to become computer literate about the necessary real estate programs that you will need to know?

5. Discuss the proper use of cell phones when you are with a client or in a group setting.

6. Whom do you actually represent: the client, the broker, or the customer? Why? Who is the “agent”?

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29Chapter 1 Quiz

4. A salesperson’s use of the MLS a. limits her ability to price a property

to the market. b. provides clients with confidential

information. c. allows buyers to learn the offered

price of a listing. d. allows a more accurate assessment of

a given property’s true market value.

5. Salespersons sometime work in teams for all of the following reasons except a. more members mean better avail-

ability of someone to meet buyers’ and sellers’ needs.

b. better cash flow because of a greater likelihood that someone on the team is selling something every month.

c. having fewer people available to help in an area where help is needed.

d. better utilization of each team member’s time.

6. Reasonable broker supervision includes a. determining dress codes. b. setting mandatory sales meetings. c. setting work hours and schedules. d. the establishment of policies.

7. All of the following can affect your attitude positively except a. the number of licensees in your

office. b. a strong belief in yourself. c. listening to motivational tapes and

CDs. d. negative licensees in your office.

8. Which of the following is not an exact goal? a. I will make personal visits to four

For Sale by Owners on Tuesday. b. I will send a mailing to my entire

farm area on Friday of next week. c. I will have lunch with a successful

licensee in my office this week. d. I will start to telephone prospects


9. To be effective, goals should be a. as broad as possible. b. as high as you can make them. c. set only once. d. attainable.

10. When planning each day, you should a. plan each day weeks in advance. b. maximize “D” time activities. c. minimize “B” time activities. d. maximize “A” time activities.

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sTuDEnT lEaRninG ouTCoMEs Upon completion of this chapter, the student will be able to: • Identify the requirements for an independent contractor as defined by

the Internal Revenue Code. • Compare the job descriptions for a variety of real estate specialties. • Recognize desirable attributes of an employing broker. • Analyze and interpret the broker/salesperson contract. • Recognize three real estate advanced designations.

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2.1 THE BRoKER is THE aGEnT Most real estate professionals represent brokers who are representing parties to a sales contract. They may represent either the buyers only or the sellers only. This is called single agency. With written consent from both parties, they may represent both the buyers and the sellers at the same time, which is called dual agency. The job description of a real estate professional is twofold. She may spend a great deal of time obtaining listings, and through advertising, Open House, and other means, seek buyers for those properties. The licensee may also seek to meet and procure buyers to represent in future property purchases. In short, the job is one of continuous “lead generation.” The licensee must generate a list of potential sellers and buyers of real estate who may need the services of a knowledgeable professional. You will learn how lead generation has largely shifted away from activities such as Open House, cold calling, and floor time to maintaining a presence on many different Internet sites such as Facebook, Twitter, and YouTube.

Real estate brokers and salespersons can expand their efforts on behalf of buyers and sellers through the use of a regional or statewide Multiple Listing Service (MLS). The MLS exists so that brokers can share their listings with each other. This greatly expands the number of properties available to any given licensee. It also gives sellers expo- sure to a larger group of potential buyers and gives buyers a much larger selection of homes from which to choose. Entry of a property into the MLS constitutes the publication of an offer of compensation to all members of the respective MLS and to members of nearby MLS associations that may have reciprocal agreements of cooperation.

There are many other types of real estate activities for brokers and their licensees, including, but not limited to:

• Residential income property – Brokers and salespersons often choose this type of multifamily housing as a secondary brokerage



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32 CHaPTER 2 Choosing the Right Broker

activity, right behind their home sales activity. Proper training in appraisal techniques, government regulations, and Internal Reve- nue Code Section 1031, which deals with tax-deferred exchanges of investment property, is a must before getting involved in this type of brokerage. You should also have a basic knowledge of property management issues.

• Commercial property – Commercial brokers and salespeople tend to specialize in this area because of an interest in, and thorough knowledge of, the needs and demands of commercial buyers. They often specialize in only one type of commercial sales such as retail shopping centers, office buildings, and mini-storage developments. Like residential property, a high degree of tech- nical knowledge and expertise is required to function effectively in any of these specialized areas, especially commercial real estate sales.

• Industrial property – This highly specialized market involves the acquisition, sale, or exchange of factories, warehouses, research and development parks, and manufacturing plants. Although sales are not abundant, the high prices paid for such real estate gener- ates large commissions and fees. Industrial property buyers are usually owner/users who will use the facilities they purchase in the operation of their business and not just as an investment.

• Manufactured home parks (previously known as mobile home parks) – These so-called parks contain spaces that are rented to either owners of mobile homes, now called manufactured homes, or park owners who buy manufactured homes, install them on the pads, and rent both the home and the pad to the public. Real estate professionals may solicit buyers and sellers for manu- factured homes that have been purchased by a user and regis- tered for a year or more, or are already in place on an existing pad or plot of land, but they may not sell new manufactured homes. Selling a new one requires a license from the Depart- ment of Housing and Community Development. As housing and construction costs increase, manufactured homes fill an ever- growing need for low-cost housing.

• Land and farm brokerage – This specialty requires a reasonable knowledge of farming, zoning, crop rotation, and water rights. Many, if not most, brokers and sales licensees who specialize in this type of property cover a very wide territory and often work with investors and/or developers.

• Lot sales – Many licensees represent builders or subdividers in the sale of lots to the public. Some lots are held for investment and

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332.1 The Broker is the Agent

appreciation, whereas others are purchased by builders to create new residential subdivisions. Many real estate brokerage firms deal in the sale of lots and land of all sizes. In California, large parcels of vacant land are becoming scarce, especially in or near the coastal areas and near the major coastal cities.

• Site sales – This specialty often involves an employer/employee relationship with the builder or developer. Licensees work out of on-site sales trailers or model homes that have been converted into sales offices. Generally not involved in listing property on behalf of sellers, these salespersons show lots and “spec” homes to potential buyers and write purchase contracts. This type of posi- tion often calls for a “draw,” a monetary allowance paid to the site sales licensee by the builder or developer as an advance against future commissions earned from new home sales.

• Auction sales – A number of brokerage firms specialize only in auction sales, which are used to sell all types of real estate. Auc- tion sales have become much more in demand due to the recent increase in the number of short sales and foreclosures.

• Property management – (See Chapter 16.) Property management firms often tend to specialize in one type of property, such as retail shopping centers, apartment complexes, mini-storage facilities, office buildings, or resort properties.

• Licensees specializing in leasing – Although many property man- agement firms have leasing specialists on staff, they are not neces- sarily property managers. Each licensee has her own specialized knowledge. Leasing fees are usually a percentage of the gross rental income received per the lease agreement. Like commercial brokerage and property management, there are also subspecialties such as office, retail, or medical within the leasing field.

• Loan brokerage – Loan brokers perform a function that is quite similar to real estate brokers; they find investors with money and match them up with people who need real estate financing. Unlike mortgage bankers, who loan their own funds as well as investors’ funds, mortgage brokers do not loan their own money; they simply act as a “matchmaking” service. (Note: In August 2008, Congress passed the Housing and Economic Recovery Act, HR 3221, covering, among other things, a national licensing and regulatory program for mortgage loan originators [Mlo] called the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 or SAFE Act. This legislation affects all loan originators, including real estate licensees who secure loans for compensation. See Chapter 11.)

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34 CHaPTER 2 Choosing the Right Broker

• Appraisal – Since the mid-1980s, an appraiser must be certified by the state that she works in and she must acquire a license in that state. A large number of former real estate licensees are now certified appraisers.

2.2 sElECTinG THE RiGHT BRoKER Your success as a real estate professional greatly depends on your abil- ity to choose the right employing broker. Although the first offer of employment may be the best, it might also be the wrong move for you. Making the right choice can help prevent wasting a great deal of time spent in a nonlearning environment that can result in becoming cynical about your new career, even to the point of leaving the real estate business altogether.

When you consider the fact that over 50 percent of new licen- sees leave the business before the end of the first year and that over 87 percent leave before the end of the third year, you can see just how important your choice of broker can be. If you do not want to be an “attrition statistic,” then you must pick your broker with great care!

Another major contributing factor to the high failure rate among real estate professionals is a lack of training. The real estate brokerage business, like most others, has a group of success patterns that you need to learn.

Too often a new licensee is given a set of business cards, a desk, and some rudimentary training (sometimes not even that), and told to observe the experienced and successful licensees. At times they are given basic tasks to perform such as telephone solicitation, or the equally onerous and dangerous door knocking. These assignments are often given without training, supervision, or feedback. These activities may lead to significant fines for violating the “Do-Not-Call” statutes or, in some cases, physical assault. Many new licensees are enticed by the offer of very high commission splits from these types of brokerage firms and they do not yet understand that 80 or 100 percent of noth- ing is nothing.

Many firms have formal training schools that all new licensees are required to attend. Some have mentor programs whereby the new licensee is assigned to a knowledgeable, experienced salesperson for the earlier of six months, three transactions, or some other criteria. This is a better way to enter the real estate brokerage business as the licensee will shadow someone attending to the day-to-day tasks of generating leads, presenting offers, and so on. By closely following a successful salesperson, the new licensee will learn how to perform

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352.2 Selecting the Right Broker

her duties successfully. Experienced mentors will also be there for you when licensees have questions.

The amount of training varies widely from company to company. Whereas some firms have almost no training, some may have sales managers, mentors, sales meetings, audio and video training, books, and CDs; some have formal training schools.

There simply is no adequate substitute for education, training, and experience. When you interview prospective employing brokers, ask about their training programs, their training library, and their availability when you have questions. You will also want to know the availability and accessibility of the managing broker or sales manager.

Ask if the firm has any formal type of continuing education or skill enhancement, including gaining an Internet presence. Will there be an administrative assistant or file coordinator to answer telephone calls and help with files and listings? Be an active participant in your interviews. Before your first interview, reread this section and write a list of questions that you feel are important to you and your success, then get answers to each question from the brokers or managers you interview.

Often overlooked by some new licensees is the dynamism of the broker under consideration. Does the broker/manager show signs of a true leader or is she passive and subdued? The broker who demon- strates good leadership talent during an interview is often the type of person who is always thinking of ways to vault her office one step ahead of the competition and always seems prepared for every shift in the marketplace. If you see these traits, ask questions that can further expose the broker’s style of leadership.

You may wish to ask for references from the firm’s current sales staff, as well as the high, low, and average earnings of the existing licensees. Find out all you can about the existing sales and administra- tive staff to determine the type of environment, which must be posi- tive. If you affiliate with a broker whose sales staff is mediocre to poor, you will feel the negative effects of it. A brokerage firm with good management, a supportive administrative staff, and good initial and ongoing training will greatly enhance your chances for success.

Most licensees immediately affiliate with a broker who specializes almost exclusively in residential real estate simply because the majority of real estate sales are residential. You may, however, be drawn toward commercial real estate, in which case you need to be very careful. Although the commissions in commercial real estate can be very large, it can often take more than a year to earn any money, and the chances of depleting your reserves and becoming discouraged are very high unless

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36 CHaPTER 2 Choosing the Right Broker

you have a working and understanding spouse, significant savings, or other means of paying your living expenses for a protracted time.

Even if you want a career in commercial real estate, it is still best to become experienced in residential real estate first. Get familiar with residential clients and customers and how to conduct an escrow. If you still want to specialize in commercial real estate, you will have the basic skills in place to give you a better chance of success.

If you are already an experienced real estate professional, you have a different set of issues to consider. You will be more concerned about commission splits, ongoing training, and the company’s Internet pres- ence. Most firms today have more than one commission split option. Often referred to as a graduated split, the percentage of the total com- mission received by the broker is paid to you in ever-larger percentages as your annual earnings increase. Many brokers also have some form of 100 percent commission plan. Licensees working under this plan will likely begin at a lower commission split, usually in the range of 50 to 60 percent until they reach a threshold earnings level. At that time they receive 100 percent of the commission received by the broker in each transaction that they are involved in, minus some type of transac- tion fee for the balance of their fiscal year, at which time it would start over. These types of commission splits came into being as a way for real estate brokerage firms that had conventional commission splits, as noted previously, to compete with the 100 percent commission brokers.

Under the 100 percent type of commission split program, the sales associate actually pays the broker to belong to the office. The associate also pays a “broker supervision fee” and pays for all forms and sup- plies that she uses plus a pro rata share of the cost to run the office. In return, she is paid 100 percent of the commission earned from each transaction. This type of firm is usually not a good idea for a new licensee because the expenses start right away. It usually takes some time to start generating commission income.

There are also offices that pay a new licensee 80 or 90 percent of the commission right from the start, while charging only a small monthly fee to affiliate with the office. These firms generally have many licensees, minimal broker supervision or mentor availability, and a modest amount of company-paid advertising or other support ser- vices. Such firms tend to take on a large number of part-time licensees as well. As a new licensee, you need as much support and training as you can get. Don’t be lured by a high commission split. A well-run, active firm with lots of training and support is the surest place to gain the experience you need while developing your client base and educating yourself.

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372.2 Selecting the Right Broker

Ongoing education and training may also be obtained through your local real estate association, the California association of REalToRs® (C.a.R.), the National Association of REALTORS®, and national speaker’s bureaus. Many large, multi-office companies pro- vide regular training seminars, the majority of which offer continuing education credits toward your real estate license renewal. The Broker- age Firm Comparison chart shown in Figure 2.1 may be helpful in evaluating brokerage firms during your hiring interviews.

fiGuRE 2.1 Brokerage Comparison Chart.

Type of Real Estate Agency 1. 2. 3.

Broker-provided benefits Broker 1 Broker 2 Broker 3 1. New licensee training program

2. Ongoing training program

3. Mentor system

4. Voice mail

5. E-mail

6. Fax machine

7. Computer/MLS training

8. MLS access

9. Company/office website 10. Advertising program 11. Weekly meeting/property tour 12. Availability of forms/stationery 13. Open House availability 14. Open House signs/flags 15. Toll-free number 16. Floor time offered/required 17. Start-up expenses 18. Ongoing expenses 19. Reserved geographic areas 20. Success of current sales staff 21. Selling versus nonselling broker 22. Any part-time licensees? 23. Strong Internet presence

Source: © 2015 OnCourse Learning

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38 CHaPTER 2 Choosing the Right Broker

What Should the New Licensee Look for in a Brokerage Firm?

• A large proportion of successful licensees. • Longevity of salespeople. • A good supply of various training materials for your use. • A strong Internet presence. • Management and mentors who are available to help you and truly

interested in your success. • Compatibility with and proper support for the type of real estate

brokerage that you wish to pursue. • An office where you feel welcome and secure. If you are not com-

fortable, it will show up in your attitude and your sales.

2.3 BRoKER/salEsPERson RElaTionsHiPs It is mandatory that an employing broker have a written contract with her licensees. Although some real estate professionals are hired as sala- ried employees, it is not very common. Most licensees are hired as independent contractors (Figure 2.2).

Despite the nature of the independent contractor agreement, salespersons and associate brokers (brokers working for other bro- kers) are considered employees of the employing broker by the state of California and not independent contractors because Section 10177(h) of the Business and Professions Code requires that brokers super- vise their salespeople. The ability to supervise salespeople under an independent contractor agreement is recognized as being untenable. Almost all real estate professionals work under an independent con- tractor agreement with their employing broker. According to the 2010 Real Estate Reference Book, published by CalBRE, p. 578: “Independ- ent contractor – A person who acts for another but who sells final results and whose methods of achieving those results are not subject to the control of another.” This means that an independent contractor is responsible only to her employing broker for the results of the work carried out and is not under the direction or control of an employer.

The Internal Revenue Service (IRS) provides guidelines that allow licensees to qualify as independent contractors for tax purposes if the following three criteria are met:

• The salesperson is licensed as a real estate broker or salesperson. • Financial reimbursement to the salesperson is based solely on

sales, not on hours worked. • There is a written contract that states that the salesperson shall be

treated as an independent contractor for tax purposes.

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392.3 Broker/Salesperson Relationships

fiGuRE 2.2 Independent Contractor Agreement.

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40 CHaPTER 2 Choosing the Right Broker

fiGuRE 2.2 (Continued)

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412.3 Broker/Salesperson Relationships

fiGuRE 2.2 (Continued)

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42 CHaPTER 2 Choosing the Right Broker

fiGuRE 2.2 (Continued)

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432.3 Broker/Salesperson Relationships

fiGuRE 2.2 (Continued)

Source: Reprinted with permission from California Association of REALTORS®

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44 CHaPTER 2 Choosing the Right Broker

If the above criteria are met, employing brokers are not required to contribute to their licensee’s Social Security accounts, which currently save the employing broker about 7.5 percent of the sales- person’s earnings, nor are they required to withhold income taxes from a salesperson’s earnings. All salespersons, as independent contractors, are required to file their own estimated tax returns and pay both the employer and employee portions of the Social Security tax.

Despite contract wording to the contrary, if the broker actually does exercise a great deal of control over a salesperson, that person might be considered an employee for tax purposes anyway. Figure 2.3 will help you to understand the factors indicating control.

The fact that a real estate salesperson is treated as an independ- ent contractor by the IRS does not relieve the employing broker from responsibility for the wrongful acts of the salesperson while acting on behalf of the broker. Because of this potential liability, some employing brokers require the licensees who work for them to carry a certain level of automobile insurance and to name the employing broker as a name insured under the policy. In these liti- gious times, it has also become the norm for nearly all employing brokers to require that the licensees working in their office partici- pate in a malpractice insurance policy more commonly known as an Errors and Omissions (E & O) insurance policy. This policy offers protection for both the employing broker and the licensee. It should be noted that “E & O” insurance policies do not cover acts of fraud or malfeasance.

Although unemployment insurance coverage is not required, because real estate professionals as independent contractors are not eligible for unemployment insurance, workers’ compensation insurance is a requirement and all employing brokers must have a policy in place. The employing broker may not pass the cost for this coverage on to the salesperson. Also, employing brokers are exempt from minimum wage laws if all of the licensees working for them are paid by commis- sion only.

2.4 ConTinuED EDuCaTion anD aDvanCED TRaininG Although your initial training is of paramount importance to a suc- cessful start in real estate, you should continually seek to upgrade and enhance your real estate knowledge for the balance of your career. Your local association of REALTORS® as well as your local community college can be a real asset in helping you maintain a high level of knowledge and professional competence. Both offer a wide variety of courses applicable to enhancing professionalism.

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452.4 Continued Education and Advanced Training

Control Considerations Employee Independent Contractor

Note: The factors listed below are only possible indicators of a worker’s status. Each case is determined individually.

Must employer instructions be complied with about when, where, and how work is to be performed?

Yes No

Is training mandated by the employer? Yes No

Does the worker hire, supervise, and pay others to perform work for which she is responsible?

No Yes

Are the worker’s hours set by the employer? Yes No

Must the work be performed on the employer’s property?

Yes No

Must tasks be performed on the employer’s property? Yes No

Must tasks be performed in a certain order set by the employer?

Yes No

Are regular reports required of the worker? Yes No

Is the worker paid hourly, weekly, or monthly? Yes No

Is payment for work performed in a lump sum? No Yes

Are the worker’s business and travel expenses paid by the employer?

Yes No

Does the worker rent her own office or work space? No Yes

Does the worker make her services available to the general public?

No Yes

Does the worker have the right to quit the job at any time, whether or not all tasks are complete?

Yes No

Are the tools and materials required for the job furnished by the employer?

Yes No

Will the worker realize a profit or loss as a result of her services?

No Yes

Does the individual work for more than one firm at a time?

No Yes

Does the employer have the right to fire the worker? Yes Yes

Source: © 2015 OnCourse Learning

fiGuRE 2.3 Employee or Independent Contractor Checklist for IRS Guidelines.

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46 CHaPTER 2 Choosing the Right Broker

The continuing education required by the California Bureau of Real Estate (CalBRE) for license renewal every four years should be con- sidered a bare minimum. It has been said that the only constant in real estate is change. Virtually all of the top real estate profession- als in the country are constantly seeking to increase their skills and overall knowledge of the business. You must remember that as real estate professionals, we do not sell real estate; sellers sell real estate and buyers buy it. Licensees offer their time and knowledge as inde- pendent contractors to their employing broker so that she might best protect the interests of all concerned parties. Those who have qualified for a salesperson license by completing a minimum of three college- level courses in real estate and who intend to act as an agent for a licensed broker whose minimum qualifications include the comple- tion of eight college-level courses should constantly seek to enhance their own education and knowledge.

There are many ways to acquire the education you need on a con- tinuing basis, including the seminars mentioned earlier. Most commu- nity colleges offer courses appropriate to enhancing your professional real estate education. The education divisions of the National Asso- ciation of REALTORS®, the California Association of REALTORS®, and your county or regional association of REALTORS® all have books, CDs, DVDs, and tapes available for loan to members, and they all sponsor continuing education courses. On the national level, REALTOR® Magazine, published by the National Association of REALTORS®, offers many fine articles that will help you to suc- ceed. Your state and local associations may have similar publications available.

All well-run real estate offices have some continuing training as a regular part of their weekly office meetings. You will learn new ways of doing things all the time. Part of your job will be to evaluate these various new ideas and concepts to see if you would be comfort- able using them, and then thoroughly learn each one, so that when the time arises using them will be automatic.

Role-playing is an effective tool used by many successful licensees. New salespersons seem to be reluctant to practice new techniques using this process, but this is a mistake. Shakespeare said it first, “All the world’s a stage, And all the men and women merely players; They have their exits and entrances, And one man in his time plays many parts” (As You Like It, Act I, Scene VII). So you see, role- playing is simply a part of what all of us do every day. Role-playing new ideas will help make using them sound natural and automatic rather than stilted and memorized. If you hear an idea that you like, don’t be shy about asking another new or newer licensee in the

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472.4 Continued Education and Advanced Training

office if he or she will role-play with you. Your office or company may have a training director who will provide new training and ideas to you and may offer to role-play with you and critique you on how well you are doing. Don’t be bashful about asking some- one’s help with this. You may think you are the only one in the office that a certain idea is new to, but there are surely several other licensees who would like to enhance their newfound skills through role-playing.

The successful licensees in your office are a wealth of great ideas and most of them are quite willing to share them with you. If you really want to “learn from the pros,” develop a good relationship with a successful licensee in your office and shadow her as much as possible and ask questions. They will be flattered by your attention and you will have obtained a wonderful new mentor. This kind of relationship is especially beneficial during your “formative” months and will accelerate your learning—especially if you have a broker or branch manager who is too busy to give you a lot of individual attention.

Learn about new and different ways to generate leads, hold an Open House, meet and work with For Sale by Owners, handle incoming ad and sign calls during floor time, and consider taking the Electronic Professional (ePRO) course offered by the National Associ- ation of REALTORS®. You can try each one for a reasonable amount of time to see how each one fits your particular style and how effective each one is at getting you new business. Also, keep in mind that you should use each new technique as soon as you can so that it is fresh in your mind. The authors highly recommend role-playing with another licensee until you become comfortable with the dialogue. Your deliv- ery will be much more effective than attempting to fumble through it, unrehearsed.

Community colleges often offer real estate courses and business courses on general sales techniques that are applicable to the real estate profession, so be sure to check with them. There are also many private business schools with similar offerings. If you are the stay-at-home type, you might want to look into taking courses via the Internet or correspondence courses.

As a real estate licensee, you will be required to take a certain num- ber of continuing education classes every four years to renew your license. The important issue here is to start early and take courses that you know will expand your knowledge of real estate and finance. You will be required to take forty-five clock hours, of which fifteen are from CalBRE-approved continuing education courses in ethics, fair housing, agency, trust fund handling, and risk management, as well as

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48 CHaPTER 2 Choosing the Right Broker

a minimum of eighteen clock hours of consumer protection courses. The remaining fifteen hours are in courses related to consumer service or consumer protection. By starting early, you will be able to choose what you really want to learn or learn more about. If you wait until the last minute, like way too many people do, you will be forced to take a three-day “crash course” from one of the license training schools, and your course topics will be mandated in a package deal. Remember, we sell time and knowledge, not real estate, so choose your renewal classes early and carefully.

Many national sales trainers offer available courses geared strictly to real estate salespersons. Some of these include excellent, cutting- edge sales techniques and business plans that help to boost your sales activity immensely. The best way to find out which ones are the most effective is to ask one or more seasoned licensees in your office, your broker, or branch manager.

survival Training Earlier in this book, we talked about the high fallout rate of real estate licensees (50 percent by the end of year one and 87 percent by the end of year three). The two biggest reasons for this high attrition rate are a lack of training and the lack of a business plan.

From your first day as a real estate professional, you need to be on a quest for knowledge, customers, and clients, in that order. Your “formal” training period will last from a few days at some companies to well over a month or two at others. Your ongoing training program should continue throughout your entire career. Training of only a few days, without being assigned to a mentor or some other form of guid- ance by an experienced professional, is an open invitation to failure in most cases.

Whatever the circumstances of your training and ongoing guidance as a new licensee, you should be prepared to spend far more than the average eight-hour day “learning and doing.” If available, use your office library or the public library to check out tapes, CDs, or books on real estate sales, or at least sales. Spend some time each day in a learning mode, even after your formal classroom training, and couple it with time spent in “client acquisition mode” during which you are doing activities that get you in front of For Sale by Owners, or other potential sellers and buyers.

Another critical step in your success is to learn as much as you can as quick as you can about the inventory of properties in your market area. It’s important to learn about all of the different neigh- borhoods as far as current home values are concerned, but there is

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492.4 Continued Education and Advanced Training

much more to it than that. You need to know where the shopping centers are and about schools, including how they rate academically. Find out where the different religious facilities are located, and if there are cultural facilities in your area learn as much about them as you can. In this age of two-income families, it will serve you well to know the location of any day-care centers in your market areas for buyers moving into a new area. The Internet will help in gathering this information.

Any resource materials available to you are only as good and as effective as you make them. Many real estate salespeople have hun- dreds of dollars’ worth of tapes and CDs that remain unopened and/ or unused that they may be willing to share or sell at a discount, but you must ask. It takes a real commitment on your part to balance con- tinued learning with doing.

The undisputed best method of internalizing new sales techniques and strategies is to role-play each new one with a spouse, friend, or associate. Whether you are on a listing appointment, writing a con- tract with a buyer, presenting a contract to the sellers, or handling an ad or sign call from an interested party, your ability to put fear behind you and speak naturally and effectively with people depends a great deal on how comfortable you are with what you are talking about and how often you have done it before. Role-playing offers you the opportunity to practice, drill, and rehearse until you reach an effective comfort level with each of the many situations you will encounter.

There are two types of role-playing. The first is to role-play with one or more licensees taking turns practicing the skill. This can be fun, plus it gives you a chance to hear objections, deal with them effectively, and then get feedback from the others in your group. The second method is simply to visualize yourself in a sales situation (such as presenting an offer to a seller) and then verbalizing what you would say. If you do this in front of a mirror, you will see your facial expres- sions and body language. We also suggest calling your own voice mail or your home answering machine and role-play situations so that you can hear your voice as others do over the phone. This can be very enlightening!

The overall effectiveness of your role-playing efforts is greatly enhanced if you follow it with a critique session. Be sure to assess what you or another person if you are role-playing in a group did right, and what needs improvement.

Role-playing helps to minimize fear. If you are not sure of yourself in any given situation, you will have a fear of failure in the back of your mind. This often shows in your voice inflection, body language, or

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50 CHaPTER 2 Choosing the Right Broker

attitude and often appears to other people as a lack of self-confidence. People who are about to make a huge financial decision using your input will sense this and it will put them off. If you have role-played this situation many times, you are far more likely to appear as a self- confident, caring professional.

2.5 PRofEssional DEsiGnaTions Little else in the real estate profession synchronizes as well with the premise that what we sell is knowledge as the subject of professional designations. Many designations are available to practitioners, on both the state and national levels.

These designations are earned by taking a course of study and, in many cases, taking a comprehensive examination. Some designations require a minimum number of closed transactions as well.

The most well-known example of a state-level professional designa- tion is the Graduate REALTORS® Institute (GRI) designation. This involves several classes that are often given at state conventions and at the local real estate association level.

On the national level, there are a number of professional designa- tions. Five of the most common are:

• Certified Residential Specialist (CRS) • Certified Residential Brokerage Manager (CRB) • Certified Commercial Investment Member (CCIM) • ePRO (a REALTOR® who has successfully completed the

National Association of REALTORS® Technology Certification Program)

• Seniors Real Estate Specialist (SRES) There are several others that deal with specialized knowledge and expertise in dealing with land specialties, industrial real estate, appraisal, and property management to name a few.

A recent study by the National Association of REALTORS® found that real estate licensees with professional designations make on aver- age far more money than their counterparts who do not hold some type of professional designation.

Since selling knowledge is our business, professional designa- tions are an indication to all that you care enough to continually enhance your professional ability. This speaks volumes with respect to your desire to provide maximum protection to those you serve. For an extensive list of advanced designations, go to designations-and-certifications.

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51Important Phrases and Terms

Summary Although the majority of real estate licensees are involved with residen- tial property, listing, and sales activities, other areas of activity include:

• Residential income property • Commercial property • Land and farm brokerage • Subdivision/Lot sales • Manufactured home sales • Industrial property • Auctions • Property management • Leasing • Property auctions • Appraisal

Real estate professionals are considered employees of brokers by the state of California for almost all purposes except taxes, but most work as independent contractors. If the salesperson or associate broker meets the IRS test criteria to be an independent contractor, there is no with- holding tax deducted from the salesperson’s commission checks, and the responsibility for payment of Social Security taxes belongs to the licensee.

Choosing a broker or brokerage firm is an extremely important decision. The emphasis on training and education should be of par- amount importance to the new licensee. Training should consist of classroom study, field training through a mentor, solo or group role- playing, and panel discussions.

Professional designations can be obtained through California state or national real estate associations. On average, licensees with pro- fessional designations earn far more money than their noncertified counterparts.

Important Phrases and Terms 100 percent commission plan California Association of

REALTORS® (C.A.R.) Cold calling Commission splits Dual agency

Employees Floor time Mortgage loan originators [MLO] Single agency Workers’ compensation insurance

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52 CHaPTER 2 Choosing the Right Broker

Chapter 2 Quiz

1. In what area of real estate are most licensees engaged? a. Land sales b. Subdivision home sales c. Commercial property d. Residential property

2. Which of the following are the most effective aids to the real estate salesper- son in representing buyers and sellers? a. and www.realtors.

com b. The Multiple Listing Service and

national knowledge c. Open House and private showings d. Choosing the right broker and real

estate knowledge

3. Which of the following criteria must be met for the IRS to treat real estate sales- persons as independent contractors? a. The worker is required to undergo

training. b. Payment is made only when and if

the job is fully completed. c. The worker does not make her

services available to the public. d. The worker’s business and travel

expenses are paid by the employer.

Class Discussion Topics 1. What area of real estate would you want to specialize in? Are you

interested in a particular type of real estate, a geographic area, or both? Why?

2. Describe what you know about the training available at the vari- ous real estate firms in your area. Whose is the best, and why?

3. What are the advantages to the designated broker of having her licensees work as independent contractors?

4. As a group, list the top five characteristics of a successful office. Put them in order of importance.

5. Role-play with another classmate how you would handle an incoming sign call on a property that is already under contract. You act as the duty salesperson and your classmate can be the potential buyer.

6. Have two students role-play an interview between a broker and a new licensee.

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53Chapter 2 Quiz

4. When choosing a broker, a new licensee should be most interested in one that offers a. excellent initial and ongoing

training. b. a 100 percent commission plan. c. an office of thirty or more licensees

where only a couple are successful. d. an office with a very busy selling


5. When choosing a broker, a new licensee should select a. the office with a 100 percent

commission split. b. one who offers a private office. c. the office with company-provided

computers. d. and interview as many brokers as


6. Which of the following is not true of role-playing? a. Role-playing can only be used

for interpersonal activities, not telephone techniques.

b. Role-playing situations are as limit- less as our imaginations.

c. Role-playing can involve more than one person.

d. Group role-playing with honest critiques after each session are a very effective way to learn.

7. Independent contractors working for an employing broker a. must pay their own as well as the

employer’s part of the Social Security tax.

b. are excluded from any type of litigation.

c. are not responsible to the employing broker for their actions.

d. are not considered employees by the federal government.

8. What is the most effective type of training? a. Classroom training b. CDs and tapes c. Books d. Role-playing

9. As real estate professionals, the only product or service we have to sell is we sell is a. time and knowledge, b. condominiums and townhomes. c. residential one to four units. d. farm, commercial, and industrial


10. What is the ultimate advantage of professional designations? a. Their cost is tax deductable. b. They impress For Sale by Owners

(FSBOs). c. They help generate more listings and

referrals. d. They yield higher income through

more knowledgeable performance.

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sTuDEnT lEaRninG ouTCoMEs Upon completion of this chapter, the student will be able to: • Differentiate REALTOR® versus real estate licensee. • Define and discuss acts prohibited by fair housing laws. • Describe real estate activities permissible under RESPA. • Compare and contrast referral and finder fees. • Define and recognize steering, blockbusting, and redlining.

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3.1 WHaT aRE ETHiCs? The word ethics is derived from two Greek words: ethikos, which means moral, and ethos, which means character. Ethics has nothing to do with what is or is not legal. We have laws that set minimum stand- ards of acceptable behavior and create “legal boundaries” for people in our society to live within. Ethics has to do with standards of moral character. The Golden Rule: “Do unto others as you would have them do unto you,” is the keystone of ethical behavior.

Licensees who adhere closely to the tenets of ethical conduct will have a far more rewarding career, a far better reputation, and much more repeat and referral business. Plus they will seldom, if ever, have to worry about any action being taken against them for unethical activity.

There is a big difference between being unethical and breaking the law. Ethics precedes the law. If licensees conduct themselves ethically, they will probably never break the law. Laws change but the definition of ethics remains fairly constant.

For example, in past years, some appraisers valued property for the amount they were told the client needed, not the actual value of the properties. As a result, properties turned over several times very quickly, and always for new and higher prices with new bank loans. These appraisals were unfounded and purposely overstated to meet the clients’ needs, not the lender’s. Although it was not considered illegal to perform such appraisals, it was certainly unethical to breach the trust that was placed in the appraisers by the shareholders of the lending institutions that made the loans, as well as the trust of inves- tors who lost hundreds of millions of dollars.

Simply put, good ethics is good business. It is well documented in the real estate business that nothing spreads as fast as a bad reputation. If you conduct yourself in an ethical manner, your reputation will quickly produce a loyal following of satisfied customers and clients who will become the hallmark of your business. Salespeople who put

ETHiCs, faiR HousinG, anD REsPa


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56 CHaPTER 3 Ethics, Fair Housing, and RESPA

compensation before service or “doing the deal” before ethical prac- tice soon pay for those shortsighted choices through:

• a constant struggle to find new clients who don’t yet know their tainted reputation.

• censure from a Professional Standards Ethics Hearing Panel. • actions of the Bureau of Real Estate to suspend or revoke their


3.2 REalToR® CoDE of ETHiCs—anD—THE REalTisT®

national association of REalToRs® Code of Ethics Although any number of professional organizations, including the American Bar Association, have codes of ethics, the REALTORS® Code of Ethics is based on the Golden Rule and by nature acts as an excellent guide to ethical behavior. Although we are including the text of the National Association of REALTORS® 2015 Code of Ethics (see Figure 3.1), the reader should be aware that it may be subject to annual revision by the NAR. Always refer to the most current edition.

The word REALTOR® is a registered trademark of the National Association of REALTORS® (NAR) and may only be used by its members. Although the word is often used interchangeably with real estate licensee, such use is not accurate because REALTORS® are all licensees, but not all licensees are REALTORS®. Even real estate licensees who are not REALTORS® are encouraged to read and abide by the Code of Ethics in their dealings with others. Some courts have found the naR Code of Ethics to be the standard of care expected of real estate licensees in general.


Up until the mid-1940s, African Americans were denied the right to join nearly all professional groups or associations. In 1947, a group of African American real estate brokers founded the national association of Real Estate Brokers and adopted the registered trademark Realtist® to designate its members. Like the NAR, the National Association of Real Estate Brokers strives to enhance the professionalism of the real estate profession.

3.3 faiR HousinG anD anTiDisCRiMinaTion The federal government as well as state governments have passed extensive legislation affecting fair housing issues. The Real Estate

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573.3 Fair Housing and Antidiscrimination

fiGuRE 3.1 2015 NAR Code of Ethics.

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58 CHaPTER 3 Ethics, Fair Housing, and RESPA

fiGuRE 3.1 (Continued)

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593.3 Fair Housing and Antidiscrimination

fiGuRE 3.1 (Continued)

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60 CHaPTER 3 Ethics, Fair Housing, and RESPA

fiGuRE 3.1 (Continued)

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613.3 Fair Housing and Antidiscrimination

fiGuRE 3.1 (Continued)

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62 CHaPTER 3 Ethics, Fair Housing, and RESPA

fiGuRE 3.1 (Continued)

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633.3 Fair Housing and Antidiscrimination

fiGuRE 3.1 (Continued)

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64 CHaPTER 3 Ethics, Fair Housing, and RESPA

fiGuRE 3.1 (Continued)

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653.3 Fair Housing and Antidiscrimination

Commissioner’s Rules and Regulations and the California Business and Professions Code also contain many references to discrimination in housing as it pertains to real estate licensees. The astute licensee takes the time to seek out these issues and become familiar with them. In addition to being the right thing to do in one’s dealings with others, avoiding any hint of discriminatory behavior has the result of elevating oneself to a higher degree of professionalism.

federal laws That affect Real Estate The purpose of this section is to review the history of antidiscrimina- tion legislation as it pertains to housing issues, why it is needed, and the real estate professional’s role in seeing that these laws are carefully followed during the entire home buying or selling process.

The original draft of the Declaration of Independence contained language that condemned slavery, but it was removed just prior to the creation of the signed document to ensure the consensus of all of the states. However, the statement, “We hold these truths to be self- evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the pursuit of Happiness,” was retained.

Although the economy of the South had become very dependent on slave labor, strong antislavery sentiment had grown. Because tech- nology and the Industrial Revolution made growing cotton so prof- itable, Congress in the early 1800s was under considerable pressure to protect this lucrative industry while addressing the issue of slavery at the same time. The result, in 1820, was the Missouri Compromise, which allowed Missouri to enter the Union with no restrictions on slavery while Maine would enter as a free state. It was also decided that the western territories would be free.

In 1857, the U.S. Supreme Court handed down the Dred scott decision, essentially requiring the federal government to keep out of any slavery issues, as they were strictly a matter for the states. This mandate negated the Missouri Compromise as being unconstitutional by stating that Congress had exceeded its authority by prohibiting slavery in the territories.

It is also interesting to note that the Constitution contained a pro- vision that, in determining how many congressional representatives a state could have, a slave was to be considered three-fifths of a person. The courts also stated that slaves were considered to be property, the Constitution guaranteed property rights, and that “Negroes” were not entitled to rights as U.S. citizens.

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66 CHaPTER 3 Ethics, Fair Housing, and RESPA

Anger over the Dred Scott decision in the north was a major factor leading to the Civil War.

To see how the political thinking of the country evolved over the years, we need to look at several pieces of legislation that affect how we, as a country, changed the way we view discrimination and fair housing.

Thirteenth amendment The Thirteenth Amendment to the U.S. Constitution abolished slav- ery but did not address the rights of former slaves.

Civil Rights act of 1866 The intent of the Civil Rights act of 1866 was to provide equal treat- ment of former slaves, and states in part that all citizens of the United States “shall have the same right, in every State and Territory . . . to inherit, purchase, lease, sell, hold, and convey real and personal property . . . as is enjoyed by white citizens.”

This act applied to race only and could be enforced by anyone who was discriminated against, without exception. Legal remedies included injunction, compensatory, and punitive damages.

fourteenth amendment The fourteenth amendment to the Constitution was passed after the Civil Rights Act of 1866 to protect the rights granted in the 1866 Act by providing permanent constitutional protection, thus prevent- ing a later Congress from repealing the act and taking away the rights it afforded.

The Fourteenth Amendment states: “All persons born or natural- ized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property without due process of law; nor deny any person within its jurisdiction the equal protection of the laws.”

This language is very broad in scope, not limited to race or any other specific issue, and may be interpreted as comprehensive civil rights protection.

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673.3 Fair Housing and Antidiscrimination

Civil Rights act of 1870 Because some attorneys felt that the Fourteenth Amendment effec- tively replaced the Civil Rights Act of 1866 and that it was no longer law, a statement was “tacked on” to another voting rights act that became known as the Civil Rights act of 1870. The purpose of this act was to prevent later courts from nullifying the remedies granted in the 1866 Act. The actual legislation reads: “and be it further enacted that the act to protect all persons in the United States in their civil rights and furnish the means of their vindication, passed April nine, eighteen hundred and sixty-six, is hereby reenacted.”

In a matter of only a few years, Congress had addressed civil rights issues on three separate occasions, making the protections granted broader on nearly every occasion. Even though the Civil Rights Act of 1866 was passed twice, to ensure that it would withstand future legal challenges, it was effectively rendered all but useless by court decisions that limited its enforcement to government property. Both the Civil Rights Act of 1866 and the Fourteenth Amendment were largely ineffective in providing equal rights for almost one hundred years.

Executive order 11063 On November 21, 1962, President John F. Kennedy issued Executive order 11063, which prohibited discrimination in housing wherever federal funds were involved. The order affected all property sales that involved FHA and VA loans, as well as other programs subsidized by the federal government. It stated that “the executive branch of the government, in faithfully executing the laws of the United States which authorize federal financial assistance, directly or indirectly, for the pro- vision, rehabilitation, and operation of housing and related facilities, is charged with an obligation and duty to assure that those laws are fairly administered and that benefits thereunder are made available to all Americans without regard to their race, color, creed, or national origin.” Thus began the modern-day focus by the federal government to put teeth into antidiscrimination laws as they relate to civil rights and fair housing.

Civil Rights act of 1964 The Civil Rights act of 1964 made John Kennedy’s 1962 Executive Order 11063 a matter of law and is considered one of the first of the

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68 CHaPTER 3 Ethics, Fair Housing, and RESPA

modern civil rights acts. Although not as comprehensive as later acts, it prohibited discrimination in all federally assisted programs.

Civil Rights act of 1968 The Civil Rights act of 1968 prohibited discrimination in hous- ing based on race, religion, color, and national origin. Sexual dis- crimination was added by Congress in 1974. The act prohibits the following:

• Discrimination by brokers toward clients and customers. • Discrimination as to access to Multiple Listing Service (MLS). • steering, or directing people of protected classes away from or

toward particular areas. • Redlining, or the refusal by a lender to loan within certain

areas. • Refusal to show, rent, or sell through the false representation that

a property is not available. • Discriminatory sales or loan terms. • Blockbusting, which is inducing panic selling in an area or

neighborhood by representing that property values will decline or the crime rate will increase due to the entry of minority group members to the area.

• Retaliatory acts against persons making fair housing complaints and intimidation to discourage complaints.

• Discriminatory advertising, which is prohibited in all cases, even when it relates to activities that are exempt from the act.

There has been much concern and frustration on the part of real estate licensees regarding what actually constitutes discriminatory advertising. Essentially, advertising that describes the property is usually acceptable while advertising that describes the buyer, espe- cially a buyer from a protected class, is almost always discrimina- tory. Advertising a property as being near a Jewish synagogue, for instance, would be considered discriminatory as it can be deemed steering of an ethnic or religious nature. Advertising that indicates a preference for a particular sex or age group suggesting that members of other protected categories are not welcome would probably be considered discriminatory. When writing ads, keep the Golden Rule in mind and ask yourself, “How would I feel if I was a minority and read this ad?”

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693.3 Fair Housing and Antidiscrimination

The U.S. Department of Housing and Urban Development (HUD) issued the following list of terms and phrases that it has indicated are not discriminatory in nature:

Master bedroom Happy Easter Easter Bunny Two-bedroom Quiet streets Walk-in closets Walk to bus stop Kosher meals available Rare find Mother-in-law suite St. Valentine’s Day Sober No bicycles allowed Third-floor walkup Jogging trails Santa Claus Desirable neighborhood Great view Merry Christmas Nonsmoking Family room Bachelor apartment

Several different entities issue lists of words they feel are either dis- criminatory or nondiscriminatory in nature. These lists often differ in what words may or may not be used, in part because different groups have different connotations of the same words. As a licensee, you are well advised to take note that such lists do not solve the problem because words take on different meanings depending on their context. The idea here is to use extreme caution in writing real estate advertis- ing and have the final version checked by the principal broker.

Exemptions to the Civil Rights Act of 1968 include the following:

• Religious groups, which can discriminate in providing nonprofit housing, so long as the religion is open to everyone, regardless of race, sex, color, or national origin.

• Private clubs, which can discriminate or give preference to members when selling or leasing housing for noncommercial purposes.

• Owners of one to four residential units who occupy a unit can discriminate, provided that they do not use a real estate licensee when renting.

• Owners of single-family homes can discriminate when selling or renting without a real estate licensee, provided they do not own more than three such homes and are not in the business of renting.

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70 CHaPTER 3 Ethics, Fair Housing, and RESPA

Jones v. Mayer In 1968, the Supreme Court held in the Jones v. Mayer case that the Civil Rights Act of 1866 applied to private property as well as real prop- erty, and that it could be enforced by the party being discriminated against. The court’s decision was based on the Thirteenth Amend- ment to the Constitution. It is interesting to note that the Thirteenth Amendment was drafted in its original form to perpetuate slavery but was changed, largely through the efforts of President Lincoln and the Republican Party, to abolish slavery.

1988 fair Housing amendments act The 1988 fair Housing amendments act is an important piece of leg- islation that further extends protection against housing discrimina- tion to families and handicapped persons. It prohibits discrimination in the sale and rental of housing based on the presence of children under the age of 18, pregnancy, or any potential pending adoption. Adult-only designations are essentially a thing of the past, except for exempt subdivisions or housing complexes for the elderly where owners or managers may refuse to sell or rent to anyone under the age of 55 if 80 percent of the occupied units are lived in by at least one person who is at least fifty-five years old. This percentage may be further reduced by voluntary action of the controlling home- owners association, but it may not exceed the 80 percent limit set by the federal government. It is common today for homeowners associations to reduce the percentage to 75 percent so as to allow a buffer and further keep them from being in violation of the federal statute.

Creating a separate area within a condominium or apartment com- plex as an age-restricted area does not meet the federal standard of 80 percent and is illegal. This type of activity is considered steering, as it tries to place certain tenants in a particular area within a complex and violates the anti-steering provisions of the law.

It is legal for apartment and condominium complexes to have rules for children’s use of the facilities, such as being accompanied by an adult to the pool or spa area if they are under the age of twelve, pro- vided that the rules are nondiscriminatory in nature and are applied fairly and evenly to everyone. If rules adopted by a complex are unrea- sonable, they are not enforceable.

Discrimination against handicapped persons is prohibited. The term handicapped refers to both physically and mentally handicapped per- sons. Landlords and sellers cannot discriminate against persons with

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713.3 Fair Housing and Antidiscrimination

HIV (Human Immunodeficiency Virus) or AIDS (Acquired Immune Deficiency Syndrome) as they are considered a handicap under the act. Guide dogs and support animals are protected under the act as well, and discrimination against them is strictly prohibited, including any requirement for additional security deposits.

If a handicapped person rents a property and must make alterations to accommodate the handicap, the property manager or landlord may not prohibit the renter from doing so, so long as the tenant pays for the alterations; the landlord is under no obligation to pay for such alterations. The property manager or landlord can require the tenant to restore the premises to their original condition upon vacating the premises, at their discretion.

In the event that someone files a complaint alleging housing dis- crimination against brokers, those brokers will find the burden of proof shifted to them to prove they did not discriminate, unless they have prominently displayed the Equal Housing Opportunity poster shown in Figure 3.2 in all of their rental offices.

americans with Disabilities act The americans with Disabilities act (aDa) prohibits discrimination that would deny the equal enjoyment of goods, facilities, services, and accommodations in any existing place of public accommodation, based on an individual’s physical or mental disabilities. A “place of public accommodation” applies to offices, stores, and other nonresi- dential, commercial public facilities.

Property management firms and virtually all owners and operators of such public facilities must make the facilities accessible to the extent readily achievable. “Readily achievable” is defined as easily accom- plished without a great deal of expense. This would be based on the cost of compliance related to a property’s value and on the financial abilities of the person or people involved. New construction, however, must be readily accessible unless it is impractical for structural reasons. Figure 3.3 lists some reasonable modifications to public facilities or services.

Employment discrimination is also protected by the ADA. If an employer has fifteen or more employees, the workplace must provide reasonable accommodations for handicapped employees unless alter- ing it causes an undue hardship.

The act provides for civil penalties of $50,000 for the first dis- criminatory act and $100,000 for each subsequent violation, includ- ing compensatory damages and attorneys’ fees.

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72 CHaPTER 3 Ethics, Fair Housing, and RESPA


fiGuRE 3.2 Equal Housing Opportunity Poster.

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733.3 Fair Housing and Antidiscrimination

California fair Housing laws California has administrative regulations as well as several fair housing laws that deal with discrimination. Real estate professionals should take great care to become familiar with these acts and regulations to avoid the violation of more than one state and/or federal laws or regulations by committing just one act.

unruh act The unruh act prohibits discrimination in all business establishments. It applies to all real estate licensees as well as any person managing an apartment building or other business establishment. A person found guilty of violating this act may be fined for any personal damages plus $250. Age discrimination has been added to the provisions of the act in rental apartments and condominiums. Housing that is developed and designed for the special needs of senior citizens is exempt from this act.

Rumford fair Housing act The fair Employment and Housing act (Government Code Sections 12900 et seq.), also known as the Rumford act, prohibits discrimina- tion in supplying housing accommodations on the basis of sex, color, race, religion, marital status, ancestry, or national origin. Anyone selling, renting, leasing, or financing housing must comply with the Rumford Act. An individual who violates this act may be reported to the Fair Employment Practices Commission within sixty days of the occurrence. Any violation of this act also violates the federal act. The Rumford Act predates the Civil Rights Act of 1968.

• Provide doors with automatic opening mechanisms. • Lower public telephones. • Provide ramps in addition to entry stairs. • Install an intercom so customers can contact a second-�oor business in a

nonelevator building. • Add grab bars to public restroom walls. • Permit guide dogs to accompany customers. • Provide a shopper’s assistant to help disabled customers. • Provide menus (and real estate listings) in a large-print or Braille format.

fiGuRE 3.3 Reasonable Modifications to Public Facilities or Services.

Source: © 2015 OnCourse Learning

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74 CHaPTER 3 Ethics, Fair Housing, and RESPA

3.4 THE CalifoRnia BusinEss anD PRofEssions CoDE In addition to compliance with federal and state fair housing laws, the behavior of real estate licensees is governed by the California Busi- ness and Professions Code. The code provides detailed antidiscrimina- tion information, including a definition of the term discrimination as used within the code. It also contains sections dealing with behavioral guidelines for licensees and what constitutes grounds for disciplinary action in the event of noncompliance.

section 125.6: Disciplinary Provisions for Discriminatory acts Under Section 125.6, every person who holds a license under the provisions of the code is subject to disciplinary action if she refuses to perform the licensed activity or makes any discrimination or restric- tion in the performance of the licensed activity because of an appli- cant’s race, color, sex, religion, ancestry, physical handicap, or national origin.

section 10177(i): further Grounds for Disciplinary action Discrimination occurs if a licensee “solicited or induced the sale, lease, or the listing for sale or lease of residential property on the ground, wholly or in part, of loss of value, increase in crime, or decline of the

at Home with Diversity

The typical buyer in today’s real estate market is very diverse in many different ways. The NAR and HUD have recognized this by creating a program called “At Home with Diversity.” The purpose of this program is to expand homeownership opportunities for more Americans by training real estate professionals to actively and aggressively seek out potential homebuyers from all racial and cul- tural backgrounds. Licensees who take this training program will:

• Learn how attending diverse cultural and community events will help to expand their client bases.

• Learn how education in simple multicultural etiquette can lead to success with new clients and customers.

• Develop sound diversity practices and strategies to incorporate into their overall business plan.

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753.5 Commissioner’s Rules and Regulations

quality of the schools, due to the presence or prospective entry into the neighborhood of a person or persons of another race, color, reli- gion, ancestry, or national origin.”

The Holden act (Housing financial Discrimination act of 1977) The Holden Act prohibits financial institutions from engaging in dis- criminatory loan activities or practices. Activities covered under this act include awarding building, improvement, purchase, or refinanc- ing loans using the criteria of race, color, national origin, ancestry, sex, religion, or marital status. Discrimination based on the ethnic composition of the area surrounding a property (redlining) is also illegal.

3.5 CoMMissionER’s RulEs anD REGulaTions Article 10 of the Real Estate Commissioner’s Rules and Regulations concerns the discriminatory activities of real estate licensees. Regu- lations 2780, 2781, and 2725f, which are contained within Article 10 and summarized below, list unacceptable discriminatory practices by licensees. According to Regulation 2780, real estate licensees may be disciplined by the Commissioner for conducting discriminatory activities.

section 2780: Discriminatory Conduct Section 2780 prohibits discriminatory conduct by real estate licensees based on race, color, sex, religion, physical handicap, or national ori- gin and includes:

a. Refusing to negotiate for the sale, rental, or financing. b. Refusing or failing to show, rent, sell, or finance. c. Discriminating against any person in the sale or purchase, collection

of payments, or performance of services. d. Discriminating in the conditions or privileges of sale, rental, or

financing. e. Discriminating in processing applications, referrals, or assigning

licensees. f. Representing real property as not available for inspection. g. Processing an application more slowly. h. Making any effort to encourage discrimination. i. Refusing to assist another licensee. j. Making an effort to obstruct, retard, or discourage a purchase.

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76 CHaPTER 3 Ethics, Fair Housing, and RESPA

k. Expressing or implying a limitation, preference, or discrimination. l. Coercing, intimidating, threatening, or interfering.

m. Soliciting restrictively. n. Maintaining restrictive waiting lists. o. Seeking to discourage or prevent transactions. p. Representing alleged community opposition. q. Representing desirability of particular properties. r. Refusing to accept listings. s. Agreeing not to show property. t. Advertising in a manner that indicates discrimination. u. Using wording that indicates preferential treatment. v. Advertising selectively. w. Maintaining selective pricing, rent, cleaning, or security deposits. x. Financing in a discriminatory manner. y. Discriminating in pricing. z. Discriminating in services.

aa. Discriminating against owners, occupants, or guests. ab. Making an effort to encourage discrimination. ac. Implementing discriminatory rule in multiple listings and other

services. ad. Assisting one who intends to discriminate.

section 2781: Panic selling Section 2781 prohibits discriminatory conduct that creates fear or alarm to induce sale or lease because of the entry into an area of persons of another race, color, sex, religion, ancestry, or national origin.

section 2725f: Duty to supervise Section 2725f requires a broker to take reasonable steps to be familiar with, and to familiarize her salespersons with, the federal and state laws pertaining to the prohibition of discriminatory process. This should be done by designated brokers and office managers on an ongoing basis.

Sometimes politics and other national issues play a significant role in the passage of legislation by Congress. It was the assassination of Dr. Martin Luther King, Jr., in 1968 that finally led Congress to enact fair housing legislation at that time. Another issue was that the deaths

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773.6 Sexual Harassment in the Workplace

in Vietnam at that time were falling most heavily on young, poor, African and Hispanic Americans. While these groups were suffering the most casualties, on the home front they could not purchase or rent homes for their families due to unfair housing practices. It is bad busi- ness for a broker or licensee to be anything but “color blind” in any and all real estate dealings with the public.

3.6 sExual HaRassMEnT in THE WoRKPlaCE In today’s work environment, a licensee must be keenly aware of what may be regarded by others as sexual harassment. sexual harassment can be defined by how a licensee’s actions are viewed by others, not nec- essarily by a licensee’s intent.

A claim of sexual harassment may seriously harm the reputation of any firm or individual licensee involved in the controversy. No one emerges untainted from such a charge, regardless of any legal verdict.

Always remember that the main purpose of the broker and her licensees is to protect the interests of the consumer and by so doing (within the scope and knowledge required to obtain a real estate license) protect the interests of all parties to the transaction.

In implementing the full meaning and intent of the Golden Rule, a licensee should:

• Avoid sexually oriented jokes and stories. • Take great care in touching others; a friendly pat may be mistaken

for something that wasn’t intended. • Be aware of the “personal space” requirements of various cultures.

Although some cultures may find it acceptable to be very close and face to face, it may be interpreted as intimidation, sexual harassment, or at the very least an invasion of personal space by others.

• Romantic overtures, gestures, and entanglements are to be dis- couraged in the workplace. Repeatedly asking someone for a date may be deemed harassment, and if a licensee starts a relationship that doesn’t end well, it can create an untenable work environ- ment as well as legal entanglements for all parties.

If a client or customer seems to be inviting sexual advances, ignore them. No matter how you respond, you will be wrong and you and your broker could end up facing sexual harassment charges or at least find yourself in an embarrassing situation, in addition to losing the cli- ent and your reputation. It’s a no-win situation.

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78 CHaPTER 3 Ethics, Fair Housing, and RESPA

3.7 REal EsTaTE sETTlEMEnT PRoCEDuREs aCT (REsPa) During the 1960s and early 1970s, companies involved with “set- tlement procedures” that were necessary to conduct an escrow for the purchase and sale of a property were often engaged in “buying” business from real estate brokers and others. Complaints to the fed- eral government from consumers and from within the real estate and related industries caused Congress to direct HUD to start an investi- gation of the matter. Upon completion of HUD’s findings, Congress enacted the Real Estate settlement Procedures act of 1974, or Regula- tion X, commonly referred to as REsPa. The act was revised in 1980.

Although there was a flurry of initial activity, enforcement quickly became almost dormant; however, in 2003, under the Bush admin- istration, HUD stepped up its enforcement activity considerably. By entering into a contract with an investigation firm in Arlington, Vir- ginia, to conduct on-site reviews to monitor conformity, the depart- ment nearly tripled its enforcement staff, which included many former FBI agents who actively took on the role of testers as well as enforcers.

Who is covered by RESPA? • Real estate brokers and salespersons. • Mortgage bankers, mortgage brokers, and mortgage loan

originators (MLOs). • Title and/or escrow companies and title agents. • Home warranty companies. • Hazard insurance agents. • Appraisers. • Home inspection and pest control inspectors.

RESPA does not apply to: • Moving companies. • Gardeners. • Painters. • Decorating companies. • Home improvement companies.

REsPa Prohibitions • RESPA prohibits a real estate broker or licensee from receiving

a thing of value for referring business to a Settlement Service Provider (SSP), such as a mortgage banker, mortgage broker, title company, or title agent.

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793.7 Real Estate Settlement Procedures Act (RESPA)

• RESPA also prohibits SSPs from splitting fees received for settlement services, unless the fee is for a service actually performed. For example, while a real estate licensee may refer a client or customer to another licensee and legitimately collect a referral fee through their employing broker, that same licensee cannot fill out a loan application for a mortgage broker, can do no other work on the loan, and cannot collect all or a portion of any loan fee paid by the borrower.

• RESPA prohibits a seller or listing licensee from requiring that a buyer use and pay for a certain title insurance company or policy. No seller “shall require directly or indirectly, as a condition of selling the property, that title insurance covering the property be purchased by the buyer from any particular title company” (12 U.S.C. § 2608(a)). This can happen in northern California when the licensee opens an escrow for a new listing “with the buyer to come.” Because title insurance companies and escrow companies are one and the same entity, by the seller opening the escrow before the buyer is acquired, the net effect is to indirectly force the buyer to use a particular title insurer. The seller or seller’s licensee who violates this law “shall be liable to the buyer in an amount equal to three times all charges made for such title insurance” (12 U.S.C. § 2608(b)). This would suggest that a seller or seller’s licensee should not require the use of a particular title company even if the seller pays for the title policy.

With the passage of AB957 Buyer’s Choice Act, by Assembly mem- ber Cathleen Galgiani, on October 12, 2009, California buyers of short sale and foreclosed properties have the option of choosing their own local title and escrow company when purchasing bank-owned houses.

For non-RESPA transactions, such as those involving commer- cial property or vacant land, sellers are not expressly prohibited from demanding the use of a specific title company.

Exceptions to REsPa’s Prohibitions Not all referral arrangements fall under RESPA’s referral restrictions. In fact, RESPA and its regulation feature a number of exceptions, including the following:

• Promotional and educational activities • Settlement Service Providers (SSPs), such as mortgage bankers,

mortgage brokers, title insurance companies, and title agents, can provide normal promotional and educational activities under RESPA.

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80 CHaPTER 3 Ethics, Fair Housing, and RESPA

• The above activities must not defray the expenses that the real estate licensee would otherwise have to pay.

• The activities cannot be in exchange for or tied in any way to referrals.

• Payments in return for goods provided or services performed • A real estate licensee must provide goods, facilities, and services

that are actual, necessary, and distinct from what they already provide.

• The amount paid to a real estate licensee must be commensurate with the value of the goods provided and services performed. If the payment exceeds market value, the excess is considered a kickback that violates RESPA.

• Payment for services rendered should not be based on whether the real estate licensee’s services resulted in a successful trans- action. Payment may not be tied to the success of the real estate licensee’s efforts but must be a flat fee that represents fair market value.

• Affiliated business arrangements • Real estate licensees are permitted to own an interest in a

settlement company, such as a mortgage brokerage or title company, so long as the real estate licensee: • Discloses her relationship with the joint venture company

when it refers a customer to the mortgage broker or title company.

• Does not require the customer to use the joint venture mortgage broker or title company as a condition for the sale or purchase of a home.

• Does not receive any payments from the joint venture com- pany other than a return on its ownership interest in the company. These payments cannot vary based on the vol- ume of referrals to the joint venture company.

The joint venture mortgage broker or title company must be a bona fide, stand-alone business with sufficient capital, employees, and separate office space, and must perform core services associated with that industry.

Examples of Permissible activities and Payments • A title company provides a food tray for an Open House and posts a

sign in a prominent location indicating that the event was sponsored

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813.7 Real Estate Settlement Procedures Act (RESPA)

by the title company, and its representative stays at the Open House and distributes brochures about the company’s services.

• A mortgage lender sponsors an educational lunch for real estate licensees where employees of the lender are invited to speak. If, however, the mortgage lender subsidizes the costs of continuing education credits, this activity may be seen as defraying costs the licensee would otherwise incur and may be characterized as an unallowable referral fee.

• A title company hosts an event that various individuals, including real estate licensees, will attend and posts a sign identifying the title company’s contribution to the event in a prominent location for all attending to see and distributes brochures regarding the title company’s services.

• A hazard insurance company provides notepads, pens, or other office materials reflecting the hazard insurance company’s name.

• A mortgage broker sponsors the hole-in-one contest at a golf tournament and prominently displays a sign reflecting the brokerage’s name and involvement in the tournament.

• A real estate licensee and a mortgage broker jointly advertise their services in a real estate magazine, provided that each individual pays a share of the costs in proportion with her prominence in the advertisement.

• A lender pays a real estate broker fair market value to rent a desk, copy machine, and phone line in the real estate broker’s office for a loan officer to prequalify applicants.

• A title company pays for dinner for a real estate licensee during which business is discussed, provided that such dinners are not a regular or expected service.

Examples of Prohibited activities and Payments • A title company hosts a monthly dinner and reception for real

estate licensees. • A mortgage broker pays for a key box without including any

information identifying the mortgage broker on the key box. • A mortgage lender provides lunch at an Open House but does

not distribute brochures or display any marketing materials. • A hazard insurance company hosts a “happy hour” and dinner

outing only for real estate brokers and licensees who have referred business to them in the past year.

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82 CHaPTER 3 Ethics, Fair Housing, and RESPA

• A home inspector pays for a real estate licensee’s dinner but does not attend the dinner.

• A title company makes a lump-sum payment toward a function hosted by the real estate licensee but does not provide advertising materials or make a presentation at the function.

• A mortgage broker buys tickets to a sporting event for a real estate licensee or pays for the licensee to play a round of golf.

• A title company sponsors a “getaway” in a tropical location, during which only an hour or two is dedicated to education and the remainder of the event is directed toward recreation.

• A mortgage lender pays a real estate licensee for taking the loan application and collecting credit documents only if the activity results in a loan.

Before you undertake any activity with a SSP or accept any pay- ments, goods, or services from a SSP, you should speak with your employing broker or a real estate attorney who is familiar with RESPA. Make sure the activity complies with state and local laws. Some of these laws prohibit activities that are otherwise permissible under RESPA.

3.8 CasE sTuDiEs of ETHiCs, faiR HousinG, anD REsPa The following case studies regarding compliance with ethical conduct, fair housing issues, and adherence to RESPA’s guidelines will help you be a responsible public servant in your role as a real estate professional.

Case study 1 Broker Evans was contacted by Mary, an elderly widow who said she wanted to sell her home and move closer to her children. Even though she was anxious to move, Mary said she wanted to get as much for the property as she could, as the proceeds from the sale would represent her total assets. Broker Evans did a market analysis that clearly showed a comparative market value of $350,000. When she met with Mary, she told her, without presenting the research she had done, that she “could sell at $300,000 very quickly.” Broker Evans then listed the property and immediately presented Mary with an offer from one of her clients for that amount and told her she should sign it as it was “a good deal.” The property never had any MLS exposure and it was a “hot market.” Broker Evans did not disclose her dual agency status. Analyze Broker Evans’ actions from an ethical perspective.

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833.8 Case Studies of Ethics, Fair Housing, and RESPA

analysis 1 The minute Broker Evans signed the listing contract, a fiduciary relation- ship was created between her and Mary. Broker Evans had the utmost duty of fidelity, loyalty, and honesty to Mary as well as a duty to protect and promote Mary’s best interests. It is clear that she violated every one of the requirements of a fiduciary as well as Article 1 of the NAR Code of Ethics. Knowing that Mary was elderly, she probably should have rec- ommended that she consult an attorney or one or more of her children prior to making any decisions. Broker Evans also had a duty to share with Mary all of the information she had gathered about the property’s value and the market conditions; she certainly had a legal duty as well as an ethical one to disclose her role as a dual agent. The Golden Rule was tossed out the window by broker Evans. She is very likely guilty of gross negligence as well, if Mary and/or her children should pursue the issue. See Code of Ethics Article 1, Standard of Practice 1-3 and 1-5.

Case study 2 Manuela Campolina wanted to buy a home in a particular subdivision where there were no listings available at the time. She signed a Buyer/ Broker Representation Agreement with a local real estate licensee and asked her to find her a home. After checking the National Do-Not- Call-Registry, the licensee began cold calling in the neighborhood and found a couple that was willing to sell if they “could get their price” of over $500,000 net to them. The licensee’s commission was to be any- thing over that. Even though the licensee’s broker charged an average of 6 percent of the sales price as a commission, she listed the home on those terms (often called a “net” listing) and showed the home to Manuela, stating that the sellers were firm at $570,000. Manuela really liked the home and agreed to pay the asking price, and the licen- see’s broker was paid a $70,000 commission. Did this licensee violate any ethical standards? Did she violate the law?

analysis 2 The first issue to address here is the licensee’s relationship with Manuela Campolina. This buyer signed a Buyer/Broker Represen- tation Agreement with the licensee’s broker with the licensee acting as agent of that employing broker. That created a fiduciary relation- ship between the parties (broker and prospective buyer) and made the buyer’s interests “of the utmost importance” to the broker and therefore to the licensee. By increasing the price by more than double her company’s normal compensation, the licensee definitely did not

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84 CHaPTER 3 Ethics, Fair Housing, and RESPA

act in her buyer’s best interest nor did she make any attempt to nego- tiate this fee. In fact, the licensee lied when she said the owners were firm at $570,000 when they were actually “firm at $500,000.” It was the licensee’s fee of $70,000 that was firm. The licensee could have secured the property for Manuela at a lesser price and still received rea- sonable compensation. When the licensee took the listing, she also cre- ated a fiduciary relationship between her broker and the sellers when she executed a contract making her broker an agent/fiduciary to the sellers and agreed to act in their best interest as well. By not informing the sellers of the actual fair market value and then securing a buyer for that amount plus a compensation charge based on negotiation with the seller, the licensee placed her own interests ahead of those of the sellers, thus breaching the contract as well as her ethical and fiduciary duty. See NAR Code of Ethics, Article 1.

Case study 3 Ming is very effective at listing property for sale. When she gets a low or mid-priced listing, she always submits it to the MLS within two days as prescribed by the MLS rules and regulations. When she gets a more expensive listing, however, or one she knows is highly saleable, she convinces the owners that it would be best to take an exclusive listing only for their protection and privacy and not invite MLS participation by the other brokers. When other brokers call about her signs or advertising on these “exclusive” listings, Ming tells them that the owner only wants her firm to work on the sale of the property and that at the owner’s direction, she is not cooperating with other brokers. Is there anything unethical about her activities?

analysis 3 This is a clear example of business conduct that goes completely against the Golden Rule as well as ethical conduct. By not cooperating on her higher-priced listings and refusing to share them with other brokers, licensee Ming has greatly diminished the exposure and the competi- tion for these listings. Because of this licensee’s selfish and unethical actions, her broker’s clients may very well receive lower sales prices for their homes. Licensee Ming’s actions Violate Articles 3 and 12 of the Code of Ethics in addition to laws prohibiting misrepresentation.

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