Agency and Sales Contracts

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Agency and Sales Contracts

• Real Estate 310
• Principles of Real Estate
• Dr. Longhofer

2
What is a Broker?

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

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Real Estate Brokerage

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

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Why Use an Agent?

• Real estate agents provide a number of benefits
  to buyers and sellers
• Experience in facilitating real estate
  transactions

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Why Use an Agent?

• Real estate agents provide a number of benefits
  to buyers and sellers
• Extensive knowledge of the market

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Why Use an Agent?

• Real estate agents provide a number of benefits
  to buyers and sellers
• Provide a deeper market for the seller

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What is a Realtor?

• A Realtor? is a real estate professional that is
  also a member of the National Association of
  Realtors
• www.realtor.org
• www.wichitaareaassociationofrealtors.org

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Agency

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

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Single vs. Dual Agency

• Under single agency the agent represents only one
  party in any single transaction (a sellers agent
  or a buyers agent)
• Subagency is created when one broker, usually the
  sellers agent, appoints other brokers to help
  perform client-based functions on the principals
  behalf
• Dual agency occurs when the agent represents two
  principals in the same transaction
• Dual agency is not permitted in Kansas

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Transaction Brokers

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

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BRRETA

• The Brokerage Relationships in Real Estate
  Transactions Act (BRRETA) governs agency
  relationships in Kansas
• Defines the duties of buyers agents, sellers
  agents, and transaction brokers
• Mandates disclosure of the types of possible
  agency relationships

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Duties of a Sellers Agent

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

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Duties of a Sellers Agent

• Protect the clients confidences, except for the
  following issues for which disclosure is required
• Environmental hazards
• Physical condition of the property
• Material defects in the property
• Material defects in the title to the property
• Material limitation on the clients ability to
  perform under the terms of the contract
• Failure to disclose such information to the
  buyer could constitute fraud or misrepresentation
  by the agent
• Comply with all applicable state, federal, and
  local laws regulations

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Duties of a Buyers Agent

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

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Duties of a Buyers Agent

• Protect the clients confidences, unless
  disclosure is required
• Material facts about the clients financial
  ability to perform the terms of the transaction
• Comply with all applicable state, federal, and
  local laws regulations

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Duties of a Transaction Broker

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

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Real Estate Recovery Fund

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

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Real Estate Licensing

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

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Real Estate Licensing

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

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Real Estate Licensing

• Salespersons and brokers licenses are valid for
  two years in Kansas
• Following licensure, both licenses require
  continuing education (12 hours) in order to renew
  the license
• Current details about licensing can be obtained
  at the Kansas Real Estate Commissions web
  sitehttp//www.accesskansas.org/krec

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Listing Agreements

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

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Listing Agreements

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

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Multiple Listing Services

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

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Brokerage Commissions

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

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Contracts in Real Estate

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

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Contracts for Sale

• Names of the buyer and seller
• Description of the property
• Purchase price and terms of financing
• Type of interest to be transferred and the type
  of deed to be conveyed
• Date of closing and possession

• Agency disclosure
• Contingencies
• Seller obligations
• Escrow arrangements
• Provisions should the property be destroyed or
  damaged prior to closing
• Remedies in case of default
• Brokers commission
• Signatures of all parties

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Other Real Estate Contract Tidbits

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