COMPASS FINAL EXAMINATION III

Hint

General requirements: broker ans sales associates

• submit to background check, provide fingerprints; provide information about criminal history
• DBPR to approve or deny application within 90 days of receipt; applicant has right to appeal denial
• application valid for 2 years; prelicense course valid for 2 years for licensure exam
• exempt: attorneys; those with 4-year real estate degrees; those with mutual recognition agreement
• applicants must disclose aliases; whether under investigation; if ever convicted of a crime; if ever denied licensure; if any discipline is pending; if ever lost license

Broker requirements           

• SS number, application approval, fees paid, meet age, education, character, competency, background requirements; complete sales associate post license education
• active sales associate license for 2 years within past 5 years; worked under broker within 2 years of course completion; failures may retake exam unlimited times; may review incorrect answers issued as inactive; activate by filing form

Sales associate requirements

• SS number, application approval, fees paid, meet age, education, character, competency, background requirements
• 60-hour course, 3-hour exam with 70% pass score
• within 2 years of course completion; pass with 75% score; print and activate license
• retake failed exam unlimited times; may review incorrect answers
• license issued in inactive status; licensee must associate with broker before performing services

Hint

General requirements: broker ans sales associates

• submit to background check, provide fingerprints; provide information about criminal history
• DBPR to approve or deny application within 90 days of receipt; applicant has right to appeal denial
• application valid for 2 years; prelicense course valid for 2 years for licensure exam
• exempt: attorneys; those with 4-year real estate degrees; those with mutual recognition agreement
• applicants must disclose aliases; whether under investigation; if ever convicted of a crime; if ever denied licensure; if any discipline is pending; if ever lost license

Broker requirements           

• SS number, application approval, fees paid, meet age, education, character, competency, background requirements; complete sales associate post license education
• active sales associate license for 2 years within past 5 years; worked under broker within 2 years of course completion; failures may retake exam unlimited times; may review incorrect answers issued as inactive; activate by filing form

Sales associate requirements

• SS number, application approval, fees paid, meet age, education, character, competency, background requirements
• 60-hour course, 3-hour exam with 70% pass score
• within 2 years of course completion; pass with 75% score; print and activate license
• retake failed exam unlimited times; may review incorrect answers
• license issued in inactive status; licensee must associate with broker before performing services

Hint

Most policies include a deductible, which is a stated amount of money the policy holder must pay before the insurance benefits commence. The deductible amount will be determined by the premium amount – the lower the deductible, the higher the premium. The typical deductible on a homeowner’s policy is $500 to $1,000.

Hint

Many forms of insurance are available for property owners and managers. Some of these types are also used to manage certain risks of brokers and licensees. General liability insurance provides coverage for risks incurred by a property owner when the public or a licensee enters the owned property (public liability). The insurer pays the covered claim and legal fees, costs, and expenses, including medical expenses, resulting from owner negligence or other causes. This type of insurance does not cover professional liability, for which an Errors & Omissions policy is necessary.

Hint

The management agreement establishes an agency agreement between manager and owner as well as specifying such essentials as the manager’s scope of authority, responsibilities, objectives, compensation, and the term of the agreement. Property managers are usually considered to be general agents empowered to perform some or all of the ongoing tasks and duties of operating the property, including the authority to enter into contracts.

The contractual relationship effected by the management agreement ensures that the manager will strive to realize the highest return for the owner consistent with the owner’s objectives and instructions. The agreement should be in writing and include at least the basics of any real estate contract, as follows

• Names of the parties–owner, landlord, manager, tenant or other party to be bound by the contract
• Property description–street address, unit number and location, square footage, and other information that specifies the leased premises
• Term–time period (months, years) covered by the contract; termination conditions and provisions
• Owner’s purpose—maximize net income, maximize asset value, maximize return, minimize expenditure, maintain property quality, etc.; long-term goals for the property
• Owner’s responsibilities—management fees, plus any management expenses such as payroll, advertising and insurance that the manager will not be expected to pay
• Manager’s authority–the scope of powers being conveyed to the manager: hiring and staffing, setting rents, contracting with vendors, ordering repairs, limits on expenditures without seeking owner permission
• Manager’s responsibilities—specification of duties, such as marketing, leasing, maintenance, budgeting, reporting, collecting and handling rents; the manager should be included as an additional insured on the liability policy for the property
• Budget–amounts, or percentages of revenues, allotted for operations, taxes, insurance, capital expenditures, etc.
• Reporting--how often and what kind of reports are to be made
• Compensation–the management fee or other means of compensation to the manager

Hint

The management agreement establishes an agency agreement between manager and owner as well as specifying such essentials as the manager’s scope of authority, responsibilities, objectives, compensation, and the term of the agreement. Property managers are usually considered to be general agents empowered to perform some or all of the ongoing tasks and duties of operating the property, including the authority to enter into contracts.

The contractual relationship effected by the management agreement ensures that the manager will strive to realize the highest return for the owner consistent with the owner’s objectives and instructions. The agreement should be in writing and include at least the basics of any real estate contract, as follows

• Names
• of the parties–owner, landlord, manager, tenant or other party to be bound by the contract
• Property description–street address, unit number and location, square footage, and other information that specifies the leased premises
• Term–time period (months, years) covered by the contract; termination conditions and provisions
• Owner’s purpose—maximize net income, maximize asset value, maximize return, minimize expenditure, maintain property quality, etc.; long-term goals for the property
• Owner’s responsibilities—management fees, plus any management expenses such as payroll, advertising and insurance that the manager will not be expected to pay
• Manager’s authority–the scope of powers being conveyed to the manager: hiring and staffing, setting rents, contracting with vendors, ordering repairs, limits on expenditures without seeking owner permission
• Manager’s responsibilities—specification of duties, such as marketing, leasing, maintenance, budgeting, reporting, collecting and handling rents; the manager should be included as an additional insured on the liability policy for the property
• Budget–amounts, or percentages of revenues, allotted for operations, taxes, insurance, capital expenditures, etc.
• Reporting--how often and what kind of reports are to be made
• Compensation–the management fee or other means of compensation to the manager

Hint

Florida statute mandates that each active broker maintain an office that is located in a building of “stationary construction.” The law further mandates that only brokers can own and maintain an office. Sales associates and broker associates may not have their own offices.

Brokers’ offices must be registered with the Department of Business and Professional Regulation (DBPR). The office must include at least one enclosed room and have space to conduct private transactions. Additionally, the broker is required to keep any real estate files and records (physical or electronic) in the office so they are immediately available for inspection by the FREC or other governing authority.

If local zoning allows, the broker may set up the office in a residential location, such as the broker’s home, as long as all office requirements are met, including display of the broker’s sign.

Hint

Under the Real Estate Settlement Procedures Act (RESPA), it is illegal for a real estate licensee to accept a kickback or rebate from any business providing a service used to close a real estate transaction, such as a surveyor, appraiser, property inspector, title company, mortgage lender, etc. A kickback may take the form of favors, advertising, money, gifts, or other items of value given to the licensee or broker in return for sending clients to the particular service provider.

The licensee may utilize these service providers and pay them for services they actually perform. However, the licensee must not accept anything in return from the service provider for utilizing a particular provider.

The licensee also may not give or accept any portion, split, or percentage of any fee the service provider is paid for the service. Brokers may have affiliated business arrangements with certain service providers but must be careful that the arrangement does not include any illegal kickback or rebate.

Hint

The third section of NAR’s Code of Ethics covers how Realtors^® should behave when interacting with the public. Articles 10 to 14 and their Standards of Practices identify specific behavior and guidelines for dealing with the public.  This section restates many of the same ideas expressed in Articles 1 through 9; however, it explicitly identifies the duties owed to the member of the public

Hint

“REALTORS^® shall not deny equal professional services to any person for reasons of race, color, religion, sex, handicap, familial status, national origin, sexual orientation, or gender identity. REALTORS^® shall not be parties to any plan or agreement to discriminate against a person or persons on the basis of race, color, religion, sex, handicap, familial status, national origin, sexual orientation, or gender identity.”

“REALTORS^®, in their real estate employment practices, shall not discriminate against any person or persons on the basis of race, color, religion, sex, handicap, familial status, national origin, sexual orientation, or gender identity.”

Hint

Depreciation.  Cost recovery, or depreciation, allows the owner of income property to deduct a portion of the property’s value from gross income each year over the life of the asset. The “life of the asset” and the deductible portion are defined by law.  The amount of deductible value is the value of the property minus the land.  When the property is acquired, this amount is the beginning basis.  When periodic amounts of the improvement value are depreciated, the depreciable basis is lowered by such amount.

Hint

Basis and depreciable basis.  Basis is the cost of a capital asset at a point in time.  In real estate, the basis of a property is both the value of the land and any improvements.  Since the land portion of the real property is not depreciable, only the improvements acquired can be depreciated.  The undepreciated improvement portion of the property is therefore the depreciable basis.  As the property is depreciated, or new capital improvements are added, the basis is adjusted accordingly and becomes a new adjusted basis.

Hint

The Lead-based Paint Act of 1992 requires a seller or seller’s agent to disclose known lead problems in properties built before 1978. The licensee must give the buyer or lessee a copy of the EPA-HUD-US Consumer Product Safety Commission booklet, “Protect Your Family from Lead in your home.”

Further, the 1996 lead-based paint regulation requires sellers or lessors of almost all residential properties built before 1978 to disclose known lead-based paint hazards and provide any relevant records available. The seller is not required to test for lead but must allow the buyer a ten-day period for lead inspection. Only a licensed lead professional is permitted to deal with testing, removal or encapsulation. It is the real estate practitioner’s responsibility to ensure compliance.

Hint

Under CERCLA and the Superfund Amendment of 1986, current landowners as well as previous owners of a property may be held liable for environmental violations, even if “innocent” of a violation. Sellers often carry the greatest exposure, and real estate licensees may be held liable for improper disclosure.

Hint

The Florida Real Estate Sales Contract is essential for all real estate agents to understand.  Currently, two versions are used by real estate agents in the State of Florida: the Florida FAR/BAR As-Is contract and the CRSP-16 contract.  The Florida Realtors and the Florida Bar Association have approved both versions.  Agents must understand the various provisions of the contracts and the law behind them.

This unit will review these important terms and concepts.  It will then review the provision and sections of the Florida Sales and Purchase contract, and the areas they should review with their customers.  Finally, it will introduce some of the more commonly used sales contract addenda.

LEGAL CHARACTERISTICS

Validity and Enforceability

To be an enforceable contract in the State of Florida, a real estate contract must have five essential elements:

• Competent parties – parties must be of legal age and with sound mental capacity
• Offer and acceptance – there must be a clear meeting of the minds
• Legal purpose – the contract must represent an agreement to perform a legal act
• In writing – contracts must be in writing as required by the Statute of Frauds for all transfers of a real property interest
• Consideration – the contract must exchange something of value (good or valuable consideration) between both parties

Hint

The seller agrees to produce the best possible proof of property ownership.  This is most commonly in the form of title insurance in Florida.  If the seller is not going to pay for the title insurance, this needs to be written in the contract notes section.

It is important to remember that anything written or added to the contract supersedes anything typed or part of the standard contract.

Hint

Redlining is the residential financing practice of refusing to make loans on properties in a particular neighborhood regardless of a mortgagor’s qualifications. In effect, the lender draws a red line around an area on the map and denies all financing to applicants within the encircled area, usually based on the neighborhood’s socioeconomic makeup.

Hint

The ADA, which became law in 1990, is a civil rights law that prohibits discrimination against individuals with disabilities in all areas of public life, including employment, education, transportation, and access to facilities that are open to the general public. The purpose of the law is to make sure that people with disabilities have the same rights and opportunities.

The Americans with Disabilities Act Amendments Act (ADAAA) became effective on January 1, 2009. Among other things, the ADAAA clarified that a disability is “a physical or mental impairment that substantially limits one or more major life activities.” This definition applies to all ADA titles and covers private employers with 15 or more employees, state and local governments, employment agencies, labor unions, agents of the employer, joint management-labor committees, and private entities considered places of public accommodation. Examples of the latter include hotels, restaurants, retail stores, doctor’s offices, golf courses, private schools, daycare centers, health clubs, sports stadiums, and movie theaters.

Hint

Avoidance includes refraining from an activity that carries risk. Complete avoidance of risk in real estate practice is almost impossible. A broker, for instance, may believe that hiring only experienced affiliates eliminates the risk that affiliates will commit license law violations. However, even experienced practitioners may not know the law, and, sometimes, people break the law deliberately. The risk may be reduced, but it remains.  Perhaps a better example is bragging about a neighborhood and how the homes in it are virtually assured to enjoy a very high degree of appreciation.  That form of exaggeration creates an unnecessary risk that the licensee will be sued when such appreciation doesn’t happen.  The lesson is to avoid indefensible claims using the avoidance strategy.

Hint

A written and uniformly enforced company policy manual lets everyone in the firm know what to expect before problems arise. The policy manual should cover the company’s rules in such areas as floor duty privileges, assignment of relocation properties to agents, referrals between agents within the company, and requirements for continuing education, sales meeting participation, and property tours.

Company procedures in the P&P manual should spell out how to handle every aspect of the company’s business that agents and brokers need to know—from handling consumers’ funds and documents, conducting consumer transactions, dealing with MLS-related matters, and placing signage, to all procedures prescribed by state or federal law, especially license, banking and fair housing laws. Whenever changes are made to the P&P manual, each agent should sign the revised manual as evidence that the agent has examined it.

Hint

• of the Code of Ethics serves as a vision statement and lays out the duties and responsibilities for Realtors^®.

Hint

SP 12.1 – Realtors^® who advertise something as free must disclose if they will receive any compensation and from whom they are going to receive the payment.

SP 12.2 – Deleted in January 2020.

SP 12.3 – Realtors^® should use care if offering a prize or other compensation for real estate services.  They must fully disclose the requirement to receive the compensation.

SP 12.4 – Realtors^® should not advertise a property they are not authorized to market.

SP 12.5 – Realtors^® must be careful not to practice Blind Advertising.  The brokerage name must always appear in all advertising.

SP 12.6 – When selling their own property, a Realtor^® must disclose their license status.

SP 12.7 – Only the brokers directly involved in a transaction may advertise that they sold or have a contract on the property with permission from the owner.

SP 12.8 – A Realtors^® website should present current, accurate information, and they should keep the information current.

SP 12.9 – A Realtors^® website shall disclose the brokerage’s name and licensure state in a readily apparent manner.

SP 12.10 – Realtors^® must advertise truthfully and give correct information and not deceptive the public in their URLs, websites, or the images they use.

SP 12.11 – Realtors^® who intend to sell consumer information should disclose this wherever they gather the data.

SP 12.12 – Realtors^® shall not use URL or domain names that may mislead the public.

SP 12.13 – Realtors^® are only allowed to use designations, certifications, and other credentials they have earned and have maintained membership.

Hint

To qualify as a comparable, a property must:

• resemble the subject in size, shape, design, utility and location
• have sold recently, generally within six months of the appraisal
• have sold in an arm’s-length transaction

To complete the analysis, the appraiser will consider three to six comparables.  Preferably the chosen comps are as similar to each other as possible and have sold as recently as possible. 

Hint

If the comparable is better than the subject in some characteristic, an amount is deducted from the sale price of the comparable. This effectively accounts for the comparable’s value difference in an adjustment category.

For example, a comparable has a swimming pool and the subject does not. To equalize the difference, the appraiser deducts an amount, say $6,000, from the sale price of the comparable. Note that the adjustment reflects the contribution of the swimming pool to market value. The adjustment amount is not the cost of the pool or its depreciated value.

If the comparable is inferior to the subject in some characteristic, an amount is added to the price of the comparable. This adjustment equalizes the subject’s competitive advantage in this area.

Hint

Arbitration is a voluntary process where an independent third party listens to the individuals involved in the dispute and makes a binding decision on who is the winner. 

Hint

The fourth section of NAR’s Code of Ethics covers how Realtors^® should behave when interacting with other Realtors^®.  Articles 15 to 17 and their Standards of Practices identify specific behavior and guidelines for dealing with other Realtors^®.  This section restates many of the same ideas expressed in Articles 1 through 14; however, it explicitly identifies the duties owed to NAR members.

Hint

Anyone can file a complaint.  It can be Realtor^® vs. Realtor^® or client/customer against Realtor^®.  Once filed with a local association of Realtors^®, the complaint is then forwarded to the Grievance Committee to determine if there is a violation of the code of ethics and an arbitrational issue.  If the Grievance Committee believes there is sufficient evidence of an Ethics violation, a hearing will be scheduled with the Professional Standards Committee to hear the case and recommend the Board of Directors on outcome and punishment.

If there is a monetary issue, then the matter will be sent to the local Board’s Ombudsman program to help the parties decide.  If the Ombudsman does not settle the dispute, the parties will be offered the opportunity to enter mediation and then go on to arbitration to resolve the dispute.

Hint

Intangible tax is paid on all new mortgages to record them in public records.  It is only paid on new mortgages and not on assumed mortgages.  It is paid at a rate of 2 mils (.002) on the new mortgage cost and is generally paid by the buyer.

Example: Calculate all applicable State Doc Stamps and Intangible taxes dues for recording the new instruments for the below transaction.

Selling Price                                           $150,000

Cash Binder Deposit                              $   5,000

ASSUME Existing 1^st Mtg                        $ 75,000

NEW PMM 2^nd Mtg                               $ 45,000

Cash at Closing                                      $ 25,000

 $150,000  Doc Stamp on the Deed (1^st Mtg.)

 $75,000 ÷ 100 = 750 x $.35 = $262.50 Doc Stamp on the Deed (2^nd Mtg.)

 $45,000 x .002 = $90.00 Intangible Tax on New Mortgage

 $45,000 ÷ 100 = 450 x .35 = $157.50 Doc Stamp on the Note

$1,050 + $262.50 + $90.00 + $157.50 = $1,560.00 Total Transfer Taxes

                        $1,050 paid by the seller and     $510 paid by the buyer

Hint

The purchase contract usually contains several different contingencies to the purchase.  The most typical contingencies include the following

• the buyer obtaining financing
• the buyer performing a home inspection and, if needed, a “wood-destroying organism” inspection
• the seller’s disclosure of all known material facts that can affect the home’s value
• the seller’s completing any agreed-upon repairs
• the buyer’s right to cancel the contract based on the results of the inspection
• the home appraising for the sales price or higher
• the title search being completed with the result being unclouded, marketable title
• a survey that clears any encumbrances not already identified

Hint

A voluntary process where an individual appointed by a local Board of Realtors^® receives assistance to resolve disputes through constructive communication and advocating for consensus and understanding.