COMPASS FINAL EXAMINATION II

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For Active Duty, the member is exempt from all license renewal requirements for the duration of active duty and for a period of six months after discharge.

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There are multiple ways a license may become voluntarily inactive: the licensee does not activate the license when it is initially issued; the licensee chooses to renew an active license on inactive status; or a licensee requests the DBPR place the license on inactive status. Most often, licensees choose voluntary inactive status because they have decided not to practice real estate for a period of time.

When a license is in voluntary inactive status, the licensee may reactivate the license at any time by applying to the DBPR, paying a reactivation fee, and meeting all post-license or continuing education requirements.

Just as with active licenses, voluntarily inactive licenses must be renewed every 2 years to remain valid. The inactive licensee needs to apply for renewal on inactive status, complete 12 hours of continuing education for each year the license was inactive, and pay the renewal fee.

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FLOOD INSURANCE

FEMA & NFIP

The Federal Emergency  Management Agency (FEMA) administers the National Flood Insurance Program (NFIP). The purpose of the NFIP is to reduce the financial impact of flooding on both private and public structures. In addition to providing affordable flood insurance, it also encourages the development of floodplain management regulations as well as their enforcement.

Flood zones

Flood zones as designated by FEMA are areas that border rivers and streams where flooding is a concern. Designated flood hazard zones are subject to restrictions on the location, type, and elevation of all improvements to the land (residential, agricultural, commercial, and industrial). Flood maps generally show a community’s flood zones, floodplain boundaries, and Base Flood Elevation. This information, when examined together, determines the risk of flooding.

Flood hazards will change over time. The flow of water and how it drains can change due to natural or manmade causes. New land use and community development, natural forces such as climate change, terrain changes, and wildfires all can impact the risk of flooding.

To better reflect the current flood risk conditions, FEMA uses the latest technology to update and issue new flood maps nationwide to aid communities, property owners, businesses, and other stakeholders in taking steps to address flood risks. For informative videos and more information including flood maps, visit http://www.fema.gov  and http://www.floodsmart.gov.

Flood insurance requirement

If a property is in a FEMA-designated flood hazard area, and financing is being obtained through a federally regulated mortgage loan, flood insurance is required. Flood insurance, which is a separate policy, cannot be purchased directly from the NFIP but must be purchased through the same companies that provide regular homeowners’ insurance.

If an entire structure is above the 100-year flood plain, it has a 1% annual chance of flooding, and the requirement for flood insurance may be waived. The zone it is located in is called the Special Flood Hazard Area (SFHA), also known as the 1% annual chance flood zone. Properties located in low- to moderate-risk flood hazard areas such as the SFHA are not federally mandated to be covered by flood insurance; however, a lender may still require it. As flood hazard area maps are revised and properties move from low- to high-risk areas, flood insurance becomes a requirement.

Residents in a high-risk flood zone who have received federal disaster assistance in the form of grants from FEMA or low-interest disaster loans from the U.S. Small Business Administration (SBA) following a Presidential Disaster Declaration must maintain flood insurance in order to be considered for any future federal disaster aid.

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The HO-8 policy.  HO-8 policies are for older homes with replacement costs higher than the home’s market value. This policy type pays to repair or replace damaged property with cheaper common construction materials and methods, referred to as functional replacement.

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Eviction

A landlord who needs to remove a tenant from the rental unit must follow the procedure mandated by Florida statute, as follows.

• After serving the tenant notice to vacate the premises, the landlord must give the tenant 3 business days to vacate for not paying rent or 7 days to vacate for other noncompliance issues.
• If the tenant does not vacate in the allowed timeframe, the landlord, the landlord’s attorney, or the landlord’s agent must file a complaint in the local county court that describes the rental unit and the reason it needs to be recovered. A copy of the complaint is delivered to the tenant by the local sheriff’s department.
• If the tenant files a response to the complaint, the court’s clerk will notify the tenant that he or she has 5 business days to pay the rent into the court’s registry.
• If the tenant fails to respond to the court’s notice within the 5 business days, the landlord is entitled to an immediate default judgment for removal of the tenant without further notice or hearing.
• After the judgment has been issued in favor of the landlord, the clerk will issue a writ to the sheriff instructing the sheriff to post a 24-hour notice on the premises and then give possession of the unit to the landlord.
• After the sheriff signs the writ of possession, the landlord or the landlord’s agent may remove the tenant’s personal property remaining on the premises. The landlord may have the sheriff stand by to keep the peace while locks are changed and personal items are removed. The tenant may not hold the sheriff, the landlord, or the landlord’s agent liable for any loss or damage to the property after it is removed.

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Tenant obligations

The tenant is obligated to comply with applicable building, housing, and health codes. The tenant must also keep the premises clean and sanitary, including removing garbage, cleaning plumbing fixtures, and operating the dwelling’s systems in a reasonable manner.  Similarly, tenants are obligated to conduct themselves so as not to disturb neighbors and refrain from damaging or removing any part of the premises that belongs to the landlord. 

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Under certain conditions, kickbacks are legal, as follows:

• all parties to the transaction must be fully informed of the kickback
• the kickback must not be prohibited by any other law, such as RESPA
• a referral or finder’s fee (no more than $50) may be paid to a tenant in an apartment complex for introducing a prospective tenant to the property management company or the complex owner for the purpose of renting or leasing an apartment
• as mentioned above, sharing a commission with an unlicensed buyer or seller as a rebate is allowed as long as all parties to the transaction are informed in writing
• a broker licensed in Florida may pay a referral fee or share a commission with a broker licensed or registered in a foreign state as long as the foreign broker does not violate any Florida law

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Office signage

• Sign must be displayed at office entrance; must contain broker’s name and trade name with “Licensed Real Estate Broker” included; sales associates’ names not required but must be below broker’s name if included

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Article 10 Standards of Practice.  Article 10 has 5 Standards of Practices as follows:

SP 10.1 – Realtors^® may provide necessary demographic information of a neighborhood; however, they cannot provide information about the neighborhood’s racial, religious, or ethnic composition.

SP 10.2 – Realtors^® may gather demographic information; however, they must be careful how the information is used and distributed.

SP 10.3 – Realtors^® should be cautious with any advertisement that indicates a neighborhood’s racial or ethnic makeup or targets one of the protected classes.

SP 10.4 –Realtors^® must follow fair employment practices of employees or independent contractors.

SP 10.5 – Realtors^® may not use harassing speech, hate speech, epithets, or slurs against someone in one of the protected classes.

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Article 10 of the Code of Ethics prohibits Realtors^® from discrimination against the protected classes identified in the Code of Ethics.  NAR has added protected classes to their Code of Ethics, making it stricter than the Federal Fair Housing Laws and the State of Florida’s Fair Housing Laws.

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Besides the capital gain analysis, the other principal type of financial analysis done on real property is the cash flow analysis.  A cash flow analysis can be done on a pre-tax or an after-tax basis.  The term cash flow is essentially the same as profit.  The analysis simply consists of identifying income, expenses, pre-tax profit, tax liability, then after-tax profit.

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Operating expenses paid by the landlord include such items as utilities and maintenance. These are deducted from gross operating income. Some owners also set aside a cash reserve each year to build up a fund for capital replacements in the future, for example, to replace a roof or a furnace. Cash reserves are not deductible for tax purposes until spent as deductible repairs or maintenance.

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The duties of the single agent are enumerated in the single agent’s notice to buyers and sellers (following section).  To wit, these are

• As a single agent, (insert name of Real Estate Entity and its Associates)   owe to you the following duties:
• Dealing honestly and fairly;
• Loyalty;
• Confidentiality;
• Obedience;
• Full disclosure;
• Accounting for all funds;
• Skill, care, and diligence in the transaction;
• Presenting all offers and counteroffers in a timely manner, unless a party has previously directed the licensee otherwise in writing; and
• Disclosing all known facts that materially affect the value of residential real property and are not readily observable.

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Residential sale transactions are those involving

• improved residential properties with four or fewer dwelling units
• unimproved residential properties zoned for four or fewer residential units
• agricultural properties of ten acres or less

No written disclosure is needed when the brokerage is acting as a transaction broker, as this relationship is the default presumed under Florida law.

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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

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Completion by a licensee

• licensee may complete a pre-approved fill-in-the-blank contract approved by Florida Realtors and Florida Bar Association.

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PROTECTED CLASSES

 The protected classes under Title VIII of the Civil Rights Act (known as the Fair Housing Act) as amended are:

• race
• color
• religion
• national origin
• sex
• familial status
• handicapped status

The Federal Civil Rights Act does not directly cover Sexual Orientation or Sexual Identity as protected classes; however, the U.S. Supreme Court recently ruled the LGBT community is protected under the protected class of sex.

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Persons who feel they have been discriminated against under Federal Fair Housing laws may file a complaint with the Office of Fair Housing and Equal Opportunity (FHEO) within HUD, or they may file suit in a federal or state court. 

Filing suit

In addition to or instead of filing a complaint with HUD, a party may file suit in State or Federal court within two years of the alleged violation.

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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.

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Transference means passing the risk to another party, by contract or other means. An insurance policy is the common example.  In the real estate business, transference is typically and most successfully accomplished by means of an errors and omissions (E&O) insurance policy, either on the individuals in a firm or on the firm itself. Another form of transference is recommending licensed specialists to provide advice rather than offering one’s own opinion.  This strategy commonly comes into play when disclosing the condition of a property.  Beyond the superficialities of what the eye can see, there are numerous issues that a professional inspector might unveil.  Using licensed inspectors transfers the risk of a licensee’s liability in representing property condition to the professional inspector.

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The Code of Ethics has four parts:

• The Preamble
• Duties to Clients and Customers (Articles 1 – 9)
• Duties to the Public (Articles 10 – 14)
• Duties to Realtors^® (Articles 15 – 17)

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The Code of Ethics also provides standard practices and procedures setting forth how Realtors^® should react in their dealings with specific individuals and others in their field.  The Code of Ethics, however, is not law.  Rather, the Code of Ethics enhances local, state, or federal laws. 

A quote in the 2020/2021 Code of Ethics and Arbitration Manual reads, “Because the Code is a living document and real estate is a dynamic business and profession, the law need never be its substitute.  So long as the aspiration to better serve the public remails the underlying concept of the code, it must evolve and grow in significance and importance consonant with but independent of the law.”

Structure of the Code of Ethics

The Code of Ethics has four parts:

• The Preamble
• Duties to Clients and Customers (Articles 1 – 9)
• Duties to the Public (Articles 10 – 14)
• Duties to Realtors^® (Articles 15 – 17)

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In real estate, supply is the amount of property available for sale or lease at any given time.  The units of supply used to quantify the amount of property available differ for different categories of property. These supply units, by property type, are:

• residential real estate: dwelling units
• commercial and industrial real estate: square feet
• agricultural property: acreage

Factors influencing supply.  In addition to the influences of demand, real estate supply responds to

• development costs, particularly labor
• availability of financing
• investment returns
• a community’s master plan
• government police powers and regulation

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PRINCIPLES OF VALUE

A number of economic forces interact in the marketplace to contribute to real estate value. Real estate professionals must consider these forces in estimating the value of a property either for a broker’s opinion of value or for a full-blown appraisal.  For residential properties, the primary principles of value are supply and demand (previously discussed), substitution and contribution.  For income properties, the principle of anticipation comes into play.

Substitution

According to the principle of substitution, a buyer will pay no more for a property than the buyer would have to pay for an equally desirable and available substitute property. For example, if three houses for sale are essentially similar in size, quality and location, a potential buyer is unlikely to choose the one that is priced significantly higher than the other two.  This principle underlies the Competitive Market Analysis, or CMA – since buyer will pay similar amounts for similar properties, the analyst’s first step is to identify similar properties and what they recently sold for.

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A voluntary process where an independent third person helps the parties agree to resolve their dispute.  Mediation is considered a win-win option; the idea is that both sides will walk out feeling they got something from the mediation.  In  90 days, if no resolution is met, the parties must move on to another dispute resolution method, preferably arbitration.

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Procuring cause

The agent who starts the uninterrupted chain of events leading to the sale or rental of a listing. 

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Public trust

Public trust refers to misappropriation of client or customer funds or property, discrimination against the protected classes under the Code of Ethics, or fraud.

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A lender subject to RESPA must give loan applicants the Consumer Financial Protection Bureau (CFPB) booklet, “Your Home Loan Toolkit,” within three days of receiving a loan application.  This booklet describes loans, closing costs, and the Closing Disclosure form.

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If the broker is holding any escrow money, this should be transferred to the title company before closing.  Most title companies will not distribute any funds until they have all money from the sale in their escrow account.  Most title companies prefer that all money for the transaction come to them, and all expenses and proceeds get paid out by them.

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TAXES AT CLOSING

Transfer tax, or documentary stamp tax as it is referred to in Florida, is a tax imposed by states, counties, and cities to transfer the title of property from one person or entity to another.  The common practice is for the seller to pay the Documentary Stamps on the Deed and are generally paid at a rate of $.70 per $100.  This is true all over Florida except in Miami-Dade County, where it is paid at a rate of $.60 per $100.  This is paid on the selling price of the house.

Documentary stamp tax on the promissory note is paid on all new notes or assumed notes.  This is paid to add names to a note.  It is generally paid at a rate of $.35 per $100 of the promissory note’s price.  Generally, the documentary stamp on the note is paid for by the buyer.

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.