Chapter 5 – Real Estate Brokerage Activities – Flashcards
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A Broker desires to keep an escrow account in an interest bearing account. Would this be legal?
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Yes, if all parties to the transaction agree, in writing that the funds will go into an interest bearing account and who is to receive the interest
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A Broker took earnest money from a buyer. He deposited the money in the Trust account, but when his electric bill was due, the Broker deposited the buyer's money into the Broker's business account. This is referred to as
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Conversion
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How long does a sales associate have to deliver earnest money to the Broker?
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immediately
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What is required on a Broker's entrance sign?
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The name of the Partnership as registered, the trade name if the firm operates under a trade name and the Broker's name with the words Licensed Real Estate Broker
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What must a Broker do with his Trust account?
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Reconcile monthly with a statement of any discrepancies
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Broker Paul from ABC Realty and Broker Shawn from XYZ Realty meet to play golf at the country club. During their round of golf and at lunch, both discuss how the cost of business continues to rise. They agree that they should each increase their commission rates. This discussion is
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a violation of the Sherman Anti-Trust Act
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A Corporation Sole cannot register with the Department to perform
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real estate services to the public
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Entities that can register with the Department to perform real estate services to the public include
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a Sole Proprietor, a Corporation, and a Partnership
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John, the actively licensed Broker in a Partnership, has had his licensed revoked. What will be the status of the sales associate license working for that partnership?
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involuntary inactive as the Partnership will be cancelled
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Three Brokers get together and decide to form a Corporation to sell real estate. They want to call their company House of Brokers. Each Broker wishes to maintain contact with the public. What is necessary to do this?
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All three Brokers must be active Brokers, the Corporation and the trade name must be registered
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Broker Sally wants to work out of a trailer at a new home site. She will negotiate deals here and do closings. What is true about this situation?
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Because Sally conducts closings and negotiations here, this would be considered a branch office and must be registered with the Florida Real Estate Commission
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The principal statues affecting the investigative and litigation activities of the Antitrust Division are the
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Sherman and Clayton Acts
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The _______ was enacted because Congress felt that consumers needed protection from unnecessarily high settlement charges caused by certain abusive practices that have developed in some areas of the country
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Real Estate Settlement Procedures Act
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The federal government department, which regulates Fair Housing laws, Real Estate Settlement Procedures Act, and provides funds to states for housing needs is the
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Department of Housing and Urban Development
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RESPA stands for
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Real Estate Settlement Procedures Act
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A demand from the prospective tenant for the return of the fee, because of a rental list not being current or accurate, shall be made within ___ days following the day on which the real estate Broker or sales associate had contracted to perform services to the prospective tenant
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30
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The ______ regulates Fair Housing laws, Real Estate Settlement Procedures Act, and provides funds to states for housing needs
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Department of Housing and Urban Development
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The ______ regulates Fair Housing laws
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Department of Housing and Urban Development
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The ______ regulates the Real Estate Settlement Procedures Act
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Department of Housing and Urban Development
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The ______ provides funds to states for housing needs
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Department of Housing and Urban Development
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The ______ regulates the Fair Housing laws
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Department of Housing and Urban Development
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The Department of Housing and Urban Development regulates the
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Real Estate Settlement Procedures Act
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Department of Housing and Urban Development provides funds to states for
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housing needs
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A ______ is an entity designed basically to allow religious groups to operate without the strict formalities of the typical business Corporation
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Corporation Sole
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The core activity of real estate Brokerage is the business of
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procuring a buyer, seller, tenant, or property on behalf of a client for the purpose of completing a transaction
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In most cases, transactions require the assistance of a cooperating Broker from another Brokerage company acting as a
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Sub-Agent
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Most listing agreements provide for Brokerage cooperation in the
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multiple listing clause
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A transaction involving a cooperating Sub-Agent is called
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Co-Brokerage
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In a Co-Brokered transaction, the listing Broker splits the commission with the Co-Broker, typically on a
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50 50 basis
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A Broker may cooperate with other Brokers on either side of a transaction, either assisting a
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listing agent to locate a buyer or tenant, or assisting a buyer or tenant representative in locating a seller or landlord
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In the most common form of Broker cooperation, an outside Broker locates a buyer for the
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listing Broker's seller. In such cases, the listing Broker shares the commission with the cooperating selling Broker on a pre-determined basis
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A Multiple Listing Service is an
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organization of Brokers who have agreed to cooperate with member Brokers in marketing listings
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Members of a Multiple Listing Service agree to
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enter all exclusive listings into the listing distribution network so that every member is promptly informed of new listings as they come on the market
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The listing agreement used by members of a Multiple Listing Service discloses
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relevant procedures and policies so that all principal parties to the agreement are aware of the pooling of the listing
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A Broker who works on a transaction listed in the multi-listing service has all the duties and responsibilities inherent in the laws of agency as the
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Client's fiduciary agent
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To generate business, as well as achieve the transactional objectives of Clients, a Broker must be proficient in four areas. These areas are
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obtaining a Client listing, marketing a listing, facilitating the closing of a transaction,and managing market information
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A Client hires a Broker by
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executing a listing agreement
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Once a Broker is hired, the Broker or agent implements a
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marketing plan to procure the other principal party for the transaction
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The Broker plays an important role in pre-closing activities to ensure
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successful closing of the transaction
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To serve Clients and locate Customers, a Broker must become expert in the
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local real estate market conditions
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A fundamental part of maintaining market expertise is
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organizing and managing an information system
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It is common for Brokers and agents to specialize in a
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type of property, a type of transaction, or a geographical area
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The distinction between Brokerage and trading for one's own account is important for determining whether one must be
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licensed to perform the real estate activity in question
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To be considered Brokerage, an agent's activity must generally be conducted on behalf of a
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person or business entity other than the agent
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Buying, selling, and leasing real estate for one's own account or for one's company are generally not considered
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Brokerage
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Brokerage is distinct from the practice of rendering real estate Advisory Services. A licensed Broker acting as a consultant for a fee usually is not working to effect a
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particular transaction
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When a licensed Brokers objective is acting as a consultant for a fee, it is not purely transaction oriented, therefore, the activity is not really
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Brokerage
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An example of an Advisory Service is
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providing an estimate of value
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An example of an Advisory Service is
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performing market analysis
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An example of an Advisory Service is
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managing property
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Even though fee consulting is not Brokerage in the strict sense, real estate consultants who offer Advisory Services to the public must have
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a real estate license in most states
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Anyone who plans to obtain a real estate license should become familiar with the
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real estate license law of the relevant state
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All business entities may own, buy, and sell their own real estate in varying degrees without
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violating license laws
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A Sole Proprietorship is a business owned by a
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single individual
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When the sole proprietor dies, the business
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terminates
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Sole Proprietorships must follow state licensing and registration laws to conduct business, such as
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fictitious name laws
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One distinguished characteristic of a Sole Proprietorship is
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liability. Sole proprietors are personally liable for their own debts and actions and those of employees while performing business duties. Proprietors may be sued personally
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One distinguished characteristic of a Sole Proprietorship is
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taxation. business profits are taxed once as the proprietor's personal income
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A Sole Proprietorship may Broker real estate if
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properly licensed
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A Corporation is a legal entity owned by
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Stockholders
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A Corporation for Profit consists of
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one or more persons authorized to conduct business for profit
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In a Corporation for Profit, a Board of Directors elected by Stockholders oversees the
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business
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In a Corporation for Profit, officers (president, vice president, secretary, treasurer) and managers conduct
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day-to-day affairs
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A distinguished characteristic of a Corporation for Profit is
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perpetual existence. The Corporation survives the death of any of the Stockholders, directors, or officers
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A distinguished characteristic of a Corporation for Profit is
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formation. To incorporate, principal parties must complete and file Articles of Incorporation in accordance with state law
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A distinguished characteristic of a Corporation for Profit is
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liability. Shareholders of the Corporation are only liable to the extent of the value of one's shares; officers and directors may be held personally liable for the corporation's actions under the Sarbanes Oxley Act of 2002
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A distinguished characteristic of a Corporation for Profit is
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taxation. Owners are double-taxed on business profits. Corporate profits are taxed and after-tax dividends distributed to shareholders are taxed again as personal income
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A Corporation may Broker real estate if
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it is legally authorized to do business in a state and licensed to Broker there
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Shareholders may not
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Broker real estate for a Corporation
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A Non-Profit Corporation is a Corporate entity which is not legally entitled to
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generate profit
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A Board of Directors and Officers manage operations in a
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Non-Profit Corporation
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A Board of Directors and Officers manage in a Non-Profit Corporation. This refers to
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Operations
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Non-Profit organizations are not subject to
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taxation
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A Non-Profit organization may not
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Broker real estate
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A General Partnership is a
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For-Profit business consisting of two or more co-owners who have agreed to share business profits
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Unlike a Corporation, the General Partnership is not a
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distinct, legal entity, although a Corporation may be a partner in a General Partnership
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Unlike a Corporation, the General Partnership is not a
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distinct, legal entity, although a Corporation may be a partner in a General Partnership
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Unlike a Corporation, the General Partnership is not a distinct, legal entity, although a Corporation may be a partner in a
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General Partnership
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A distinguished characteristic of a General Partnership is
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formation. The Partnership is formed by a written or oral Partnership agreement with or without a financial investment by either partner
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A distinguished characteristic of a General Partnership is
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dissolution. The Partnership may be terminated through mutual agreement, withdrawal, or death of a partner, or by legal action
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A distinguished characteristic of a General Partnership is
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liability. All partners bear full liability for debts and obligations jointly and severally
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A distinguished characteristic of a General Partnership is
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taxation. Partners are taxed once on their respective Partnership profits. Partnership do not have Double Taxation
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A General Partnership may Broker real estate if
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properly licensed
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State law may require one or all partners of a General Partnership to hold an
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active or inactive Broker's licenses
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A Limited Partnership consists of
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General Partners and Limited Partners
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General partners are wholly responsible for
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business operations
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Limited Partners are investors who participate only in
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business profits
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General partners typically receive compensation for their
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management responsibilities
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A limited partner must make an investment, which subsequently comprises the extent of
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the partner's liability
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Limited Partners are taxed
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once, on profits distributed by the Partnership
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General Partners bear sole liability for
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debts and obligations
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A Limited Partnership may Broker real estate. However, Limited Partners may not Broker real estate for the
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Partnership
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State laws may require General Partners to have an
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active or inactive Broker's licenses
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Limited Partners need not be
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licensed for the Partnership to Broker real estate
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A Joint Venture is a Partnership formed to complete a
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specific business endeavor, such as a real estate development
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Individuals, General and Limited Partnerships, and Corporations may participate in a Joint Venture to complete a business endeavor. In forming the entity, the partners identify how they will
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conduct business and share profits
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Principal parties in a Joint Venture, to complete a business endeavor, share liability, but may not obligate the other co- venturers to agreements outside of the
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Joint Venture project
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A Joint Venture may Broker real estate, if
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the co-venturers are duly licensed
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A Business Trust is a
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group of investors who invest in a pooled Trust fund managed by their elected Trustee
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In a Business Trust, the Trustee purchases investment assets and distributes profits and gains to the
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Trustors
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A Business Trust that invests primarily in real estate and meets certain other requirements is a ______ and receives special tax treatment
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Real Estate Investment Trust (REIT)
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A Business Trust may not Broker real estate , but it may
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buy and sell its own real estate assets
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A Cooperative Association is a
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Non-Profit, tax-exempt alliance of individuals or companies formed to promote common goods or services
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A Cooperative Association may Not
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Broker real estate
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A Sole Proprietorship, Partnership, Corporation, or Joint Venture Brokerage may be
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independent or affiliated
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A Sole Proprietorship, Partnership, Corporation, or Joint Venture Brokerage may be
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specialized in a type of property
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A Sole Proprietorship, Partnership, Corporation, or Joint Venture Brokerage may be
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specialized in a type of transaction
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A Sole Proprietorship, Partnership, Corporation, or Joint Venture Brokerage may be
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specialized in a type of Client
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A Brokerage in a Sole Proprietorship, Partnership, Corporation, or Joint Venture that is not affiliated with a Franchise is an
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independent agency
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Many independent agencies of a Sole Proprietorship, Partnership, Corporation, or Joint Venture participate in networks on a local, regional, or national basis. Such networks expose the independent Broker to
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a larger market without compromising individual identity
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A Franchised Brokerage is
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an independently owned company that enters into a licensing arrangement with a Franchisor to participate in various benefits offered in exchange for compensation
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Brokerage Franchisors generally offer
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local Franchisees
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Brokerage Franchisors generally offer
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the use of a recognized trade name
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Brokerage Franchisors generally offer
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national and regional advertising
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Brokerage Franchisors generally offer
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training programs
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Brokerage Franchisors generally offer
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standardized operating procedures
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Brokerage Franchisors generally offer
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a national referral system
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A Franchisee pays the Franchisor
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start up fees and a portion of gross income
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Many Brokerages deal primarily with limited types of property such as
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residential, commercial, industrial, undeveloped land, etc.
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Most residential Brokerage companies conduct a small amount of commercial Brokerage, while commercial Brokerages tend to deal strictly with
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retail, office, industrial, or land properties
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A large Brokerage company may handle all types of properties but will probably have a separate organizational division for each
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property type
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Brokerages often organize around a
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particular type of transaction
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There are Brokerage companies that specialize in
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apartment rentals, office rentals, exchanges, Business Brokerage, and, most commonly, residential sales
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Brokerage companies sometimes specialize by choosing to represent only
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one side in a transaction
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A Brokerage company may choose to represent only
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commercial tenants, or only residential buyers, or some other limited type of Client
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Only a Broker with an active Broker's license can hire and employ a licensed
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Salesperson
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A licensed Salesperson may work only for
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the employing Broker and may not work for or receive direct compensation from any other Broker
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State real estate license laws provide for two distinct licenses to conduct real estate Brokerage. These are
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the Broker license and the Salesperson or Sales Agent license
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A licensed real estate Broker is duly authorized to
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represent Clients directly in Brokering real estate
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A Sales Agent, is only authorized to represent a
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Broker and carry out such duties as the Broker may legitimately delegate
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A Sales Agent does not directly represent the
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Client in a transaction but is rather the Agent of the Broker and Sub-Agent of the Client
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A Sales Agent is a
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fiduciary of the employing Broker
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As Agent of a Broker, a Salesperson may
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offer properties for sale or lease, procure buyers, negotiate transaction terms, and otherwise conduct the business of Brokerage
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A Sales Agent must act entirely on
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the Broker's behalf
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A Salesperson may not
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bind a Client to any contract
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A Salesperson may not
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receive compensation directly from a client
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A Salesperson may not
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accept a listing or deposit that is not in the name of the Broker
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A Broker may hire a Sales Agent as an
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Independent Contractor (IC) or as an employee
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A Broker may hire a Sales Agent as an Independent Contractor (IC) or as an
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employee
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The Broker is responsible and liable for
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a Sales Agent's actions
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A Broker has limited control over the actions of
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an Independent Contractor
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A Broker has limited control over the actions of an Independent Contractor, specifically, a Broker can require performance results, but is limited in demanding how a contractor performs the work. For example,
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a Broker may not prescribe selling methods, meeting attendance, or office hours
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A Broker has limited control over the actions of an Independent Contractor, specifically,
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an Independent Contractor is responsible for income and social security taxes, The Broker does not withhold taxes
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A Broker has limited control over the actions of an Independent Contractor, specifically,
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a Broker cannot provide an Independent Contractor with employee benefits such as health insurance or pension plans
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A Broker has greater control over the actions of an employee. Specifically,
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a Broker can impose a sales methodology. In addition, a Broker can enforce all office policies, including hours, meeting attendance, and telephone coverage
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A Broker has greater control over the actions of an employee. Specifically,
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a Broker must withhold income taxes and pay unemployment compensation tax on behalf of an employee
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A Broker has greater control over the actions of an employee. Specifically,
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an employee may receive the benefits enjoyed by the Broker's non-selling employees
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A written agreement between a Broker and employee or Independent Contractor should clearly state
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each party's duties and responsibilities to the other
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A written agreement between a Broker and employee or Independent Contractor should clearly state each party's duties and responsibilities to the other. In addition, the agreement should clarify
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the agent's compensation program as well as who is to pay for incidental business expenses
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In accepting employment from a Broker, a Salesperson generally makes a commitment to
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work diligently to sell the Broker's listings
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In accepting employment from a Broker, a Salesperson generally makes a commitment to
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work diligently to procure new listings
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In accepting employment from a Broker, a Salesperson generally makes a commitment to
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promote the business reputation of the broker
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In accepting employment from a Broker, a Salesperson generally makes a commitment to
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abide by the Broker's established policies
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In accepting employment from a Broker, a Salesperson generally makes a commitment to
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fulfill the fiduciary duties owed Clients as their Sub-Agent
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In accepting employment from a Broker, a Salesperson generally makes a commitment to
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maintain insurance policies as required by the Broker
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In accepting employment from a Broker, a Salesperson generally makes a commitment to
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have transportation for conducting business, as required by the Broker
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In accepting employment from a Broker, a Salesperson generally makes a commitment to
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conform to ethical standards imposed by the Broker and trade organization
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In accepting employment from a Broker, a Salesperson generally makes a commitment to
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uphold all covenants and provisions of the employment agreement
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In employing a Salesperson, a Broker generally makes a commitment to
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make the Brokerage's market and property data available
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In employing a Salesperson, a Broker generally makes a commitment to
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provide whatever training was promised at the time of hiring
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In employing a Salesperson, a Broker generally makes a commitment to
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provide whatever office support was promised at the time of hiring
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In employing a Salesperson, a Broker generally makes a commitment to
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uphold the commission structure and expense reimbursement policy
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In employing a Salesperson, a Broker generally makes a commitment to
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conform to ethical standards imposed by the Broker's trade organization
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In employing a Salesperson, a Broker generally makes a commitment to
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uphold all covenants and provisions of the employment agreement
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An agent employee of a Broker may receive
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wages, salary, additional commissions, expense reimbursements, and benefit plans
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An Independent Contractor's compensation is normally a
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combination of commissions and free office support
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Most Sales Agents work as
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Independent Contractors who earn a commission
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A Sales Agent earns compensation for
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procuring listings and for procuring buyers or tenants, whenever a transaction results
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In the jargon of Brokerage, these are the two sides to a commission, they are the
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listing side and the selling side
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An agent who procures a listing receives a share of the Broker's listing side commission, according to the
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agent's commission schedule
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An agent who sells a listing, by finding the Customer, receives a share of the Broker's selling side of the commission, according to the
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commission schedule
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An agent who procures both listing and Customer receives a share of the
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Broker's listing side commission and selling side commission
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An agent's commission schedule is a comprehensive summary of commission splits under various circumstances that include the
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listing and selling side
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An agent's commission schedule is a comprehensive summary of commission splits under various circumstances that include
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Salesperson's level of sales performance
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An agent's commission schedule is a comprehensive summary of commission splits under various circumstances that include
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Broker's level of expense reimbursement to agent
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An agent's commission schedule is a comprehensive summary of commission splits under various circumstances that include
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the particular policies or organization of the agency
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An agent's commission schedule is a
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comprehensive summary of commission splits under various circumstances that include commission splits in the market
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Listings are
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the traditional source of a Broker's income
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By obtaining a listing, a Broker obtains a share of the commission generated whenever a cooperating Broker finds
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a buyer
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In the absence of an ______ agreement, a buyer may move from one agent to another without making any commitment
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Exclusive Buyer Representation
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Agents can spend considerable time with a buyer and earn nothing. The special value of a listing is likely to generate
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revenue
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The marketing and self-promotional efforts of agents generate
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listings
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New agents usually focus on becoming well known in a small geographical area and hope to encounter Clients there who are willing to
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list with them
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Prospecting is
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any activity designed to generate listing prospects parties who intend to sell or lease property and who have not yet committed to a Broker
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Prospecting activities include
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mailing newsletters and flyers, selling directly, and person-to-person, advertising, and selling indirectly by community involvement
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The goal of prospecting is to
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reach a potential seller or landlord, make that person aware of the agent's and Brokerage's services, and obtain permission to discuss the benefits of a listing, often in the form of a formal selling presentation
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It is almost always necessary for an agent seeking a listing to suggest a
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listing price or price range for the property
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It is important for an agent that is seeking a listing to make a careful estimate of a property value because
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underpricing a property is not in the best interests of the seller, and overpricing it often prevents a transaction altogether
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An agent, when making an estimate of a property value, usually relies on
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an analysis of comparable properties which have recently sold in the same neighborhood
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When an agent is making an estimate of value on a property, using the comparable property approach, the agent makes adjustments for the differences between the subject property and the comparable, then the agent arrives at a
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general price range
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When an agent is making an estimate of value on a property, agents must be careful to caution sellers that they are not appraisers, and that the suggested price range is not an
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expert opinion of market value
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When an agent is making an estimate of value on a property, agents must be careful to caution sellers that they are not appraisers, and that the suggested price range is not an expert opinion of market value. If a more precise estimate of market value is desired, the seller should hire a
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licensed appraiser
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A listing presentation is an agent's opportunity to meet with a seller and present the merits of the agent's
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marketing plan, personal expertise, and company strengths
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A listing presentation is an agent's opportunity to meet with a seller and present the merits of the agent's marketing plan, personal expertise, and company strengths. At the same time, an agent can explain the many phases and details of a real estate transaction and point out
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how the provisions of the listing agreement and the agent-principal relationship work to ensure a smooth transaction
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Ultimately, an agent's aim in a presentation meeting is to have a principal execute a listing agreement. The agent must then submit the listing to the Broker for approval and signing. This result will set in motion the
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process of marketing the property
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The process of marketing a listed property occurs in three broad steps, leading to the
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desired end of a completed sale contract. At each of these steps, there are critical skills an agent must master
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The process of marketing a listed property occurs in three broad steps, leading to the desired end of a completed sale contract. At each of these steps, there are critical skills an agent must master. The three steps are
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a marketing plan, selling the prospect, and obtaining offers
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After a Broker formalizes a listing agreement, the Sales Agent initiates a
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marketing plan for the property
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An ideal marketing plan that a Sales Agent can initiate after formalizing a listing agreement is a
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combination of promotional and selling activities directed at potential Customers
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The best combination of promotional and selling activities directed at potential Customers is one that aims to have maximum impact on the marketplace in relation to
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the time and money expended
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When marketing activities produce prospects, the agent's marketing role becomes more interpersonal. An agent must now
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qualify prospects plans, preferences, and financial capabilities
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When marketing activities produce prospects, the agent's marketing role becomes more interpersonal. An agent must now
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show properties that meet the Customer's needs
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When marketing activities produce prospects, the agent's marketing role becomes more interpersonal. An agent must now
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elicit the buyer's reactions to properties
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When marketing activities produce prospects, the agent's marketing role becomes more interpersonal. An agent must now
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report material results to the seller or listing agent
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At the earliest appropriate time, an agent must
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make certain disclosures to a prospective Customer
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Depending on state laws, an agent may have to disclose
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the relevant agency relationship, the property's physical condition, and the possible presence of hazardous materials
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If a buyer is interested in purchasing a property, an agent obtains the buyer's
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offer of transaction terms, including price, down payment, desired closing date, and financing requirements
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An agent must be extremely careful to abide by fiduciary obligations to the Client. Discussions of price are particularly delicate, whether the Client is a buyer or seller. The agent's duty is to uphold the Client's
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best interests
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It is not acceptable for an agent to suggest to a Customer what price the Client
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will or will not accept
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With pricing and other issues, it is always a good practice to understand what role the Client wants the agent to assume in the offering phase of the transaction. In other words,
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exactly how far the agent may go in developing terms on the Client's behalf
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When a buyer or tenant makes an offer, the agent must present it to the seller or landlord at the earliest possible moment. If the terms of the offer are unacceptable, the agent may
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assist the seller in developing a counteroffer, which the agent would subsequently submit to the Customer or Customer's agent
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The offering and counter offering process, in a sale contract, continues until
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a meeting of the minds results
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Between the execution of the sale contract and the closing of the transaction, the property is
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under contract or contract pending. During this period, buyer and seller have certain things to do to achieve a successful closing. The buyer often needs to arrange financing and dispose of other property. The seller may need to clear up title encumbrances and make certain property repairs. The sale contract should specify all such required tasks
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The time period between contracting and closing is referred to as the
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contingency period, or pre-closing period
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As dictated by custom and the circumstances of a transaction, an agent has a range of
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duties and responsibilities during the pre-closing period
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An agent's foremost duty following acceptance of an offer is to
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submit the contract and the earnest money to the employing Broker without delay
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Most states impose deadlines for an agent to submit the contract and the earnest money to the
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employing Broker. This requirement, is usually within twenty-four hours from the agent's receipt of the deposit
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One of an agent's foremost duties following acceptance of an offer is
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assisting the buyer in obtaining financing
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One of an agent's foremost duties following acceptance of an offer is
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assisting the seller in clearing title
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One of an agent's foremost duties following acceptance of an offer is
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assisting the seller in completing property repairs
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One of an agent's foremost duties following acceptance of an offer is
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recommend inspectors, appraisers, attorneys, and title companies
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One of an agent's foremost duties following acceptance of an offer is
answer
assisting in communications between principals
question
One of an agent's foremost duties following acceptance of an offer is
answer
assisting in the exchange of transaction documents
question
The listing Broker has the primary responsibility for
answer
handling deposit monies
question
The listing Broker has the primary responsibility for overseeing the agent's
answer
pre-closing activities
question
State license laws require that earnest money deposits be placed in an account which is separate from the
answer
Broker's operating accounts
question
State license laws require that
answer
a Broker keep accurate records and follow accepted accounting procedures
question
A Broker must be careful to avoid two common violations of escrow regulations. They are
answer
Commingling and Conversion
question
Commingling is the act of
answer
mixing the Broker's personal or business funds with escrow funds
question
Commingling is the
answer
failure to deposit earnest money into escrow in a timely manner
question
Conversion is the act of
answer
misappropriating escrow funds for the Broker's business or personal use
question
Conversion carries serious consequences, including
answer
license revocation
question
The ability to satisfy the needs of Clients and Customers is largely dependent on a Broker's ability to
answer
obtain, organize, and manage information
question
Information is the Broker's
answer
perceived value in the marketplace and a major reason why buyers and sellers seek a Broker out
question
Systematic means
answer
having, showing, or involving a system, method, or plan
question
Systematic collection and updating of relevant information is a business
answer
priority
question
Most Brokerages maintain two categories of property data, they are
answer
available properties and all properties in the market area
question
In residential Brokerage, available property basically consists of
answer
the listings in the multi-listing service and For Sale By Owner properties
question
Records for all properties in an area are accessible in
answer
tax records
question
Commercial Brokerages usually keep track of available and occupied commercial properties in a
answer
proprietary database
question
Buyers information is usually
answer
compiled and maintained, often informally, by each agent in a Brokerage
question
An agency's base of prospects who are looking for property at any given time is valuable for
answer
marketing new listings
question
In residential and commercial leasing companies, information is compiled and maintained on all tenants in an area, by property type used. Such files contain
answer
a tenant's lease expiration, property size, and rent
question
It is important to keep track of both
answer
current and former Clients
question
Former Clients are likely prospects to become
answer
Clients again or Customers
question
Former Clients are a source of
answer
referrals
question
Current Clients should be the Broker's
answer
primary concern
question
Knowing a real estate market includes keeping up to date on
answer
pricing and appreciation trends
question
Knowing a real estate market includes keeping up to date on
answer
financing rates and terms
question
Knowing a real estate market includes keeping up to date on
answer
demographic patterns and trends
question
Knowing a real estate market includes keeping up to date on
answer
construction trends
question
Knowing a real estate market includes keeping up to date on
answer
general economic trends
question
A well managed Brokerage relies on a written policy manual to
answer
keep the business running smoothly and professionally
question
A policy manual sets forth
answer
company rules, regulations, and policies
question
Advertising is an important tool in marketing properties and procuring buyers. It is, however, subject to
answer
regulation and restrictions
question
State laws and regulations require that advertising must not be
answer
misleading
question
The Broker of a real estate business is responsible for
answer
the content of advertising done by agents
question
All advertising regarding a real estate business must reveal the
answer
identity of the Broker
question
Licensed Brokers and agents of a real estate business may not use blind ads that conceal
answer
their identities
question
Brokers selling their own property through the Brokerage must disclose
answer
the Brokerage identity
question
Salespersons must include the Broker's business identity in all aspects of
answer
advertising
question
Salespersons of a real estate firm may not
answer
advertise in their own name solely (unless selling their own property through channels other than the agency)
question
Brokerage companies, like other businesses, are subject to ______ designed to prevent monopolies and unfair Trade practices
answer
Anti-Trust Laws
question
Sherman Antitrust Act was enacted in
answer
1890
question
The ______ prohibits restraint of interstate and foreign trade by conspiracy, monopolistic practice, and certain forms of business combinations, or mergers
answer
Sherman Antitrust Act
question
The ______ empowers the federal government to proceed against Antitrust violators
answer
Sherman Antitrust Act
question
The Clayton Antitrust Act was enacted in
answer
1914
question
The Clayton Antitrust Act reinforces and broadens the provisions of the
answer
Sherman Antitrust Act
question
Among the ______ prohibitions are certain exclusive contracts, predatory price cutting to eliminate competitors, and inter-related Boards of Directors and Stock Holdings between same-industry Corporations
answer
Clayton Antitrust Act
question
The ______ also legalizes certain labor strikes, picketing, and boycotts
answer
Clayton Antitrust Act
question
The Clayton Antitrust Act also legalizes certain
answer
labor strikes, picketing, and boycotts
question
The effect of ______ is to prohibit trade practice and trade restraints that unfairly disadvantage open competition
answer
Antitrust Legislation
question
The effect of ______ is to prohibit trade practice and trade restraints that unfairly disadvantage open competition
answer
Antitrust Legislation
question
The effect of ______ is to prohibit trade practice and trade restraints that unfairly disadvantage open competition
answer
Antitrust Legislation
question
The effect of ______ is to prohibit trade practice and trade restraints that unfairly disadvantage open competition
answer
Antitrust Legislation
question
Business practices and behaviors which violate Antitrust laws include
answer
collusion, price fixing, market allocation, bid rigging, restricting market entry, exclusive dealing, and predatory pricing
question
One of the business practices and behaviors that violate Antitrust laws is
answer
predatory pricing
question
One of the business practices and behaviors that violate Antitrust laws is
answer
exclusive dealing
question
One of the business practices and behaviors that violate Antitrust laws is
answer
collusion
question
One of the business practices and behaviors that violate Antitrust laws is
answer
price fixing
question
One of the business practices and behaviors that violate Antitrust laws is
answer
market allocation
question
One of the business practices and behaviors that violate Antitrust laws is
answer
bid rigging
question
One of the business practices and behaviors that violate Antitrust laws is
answer
restricting market entry
question
Collusion is
answer
the illegal practice of two or more businesses joining forces or making joint decisions which have the effect of putting another business at a competitive disadvantage
question
Businesses may not collude to fix prices, allocate markets, create monopolies, or otherwise interfere with
answer
Free Market Operations
question
Price Fixing is
answer
the practice of two or more Brokers agreeing to charge certain commission rates or fees for their services, regardless of market conditions or competitors. In essence, such pricing avoids and disturbs the dynamics of a free open market
question
Example of Price Fixing
answer
The two largest Brokerages in a market jointly decide to cut commission rates by 50% in order to draw Clients away from competitors. The cut-rate pricing could destroy smaller agencies that lack the staying power of the large companies
question
Market Allocation is
answer
the practice of colluding to restrict competitive activity in portions of a market in exchange for a reciprocal restriction from a competitor. We won't compete against you here if you won't compete against us there
question
Example of Market allocation
answer
Broker A agrees to trade only in single family re-sales, provided that Broker B agrees to focus exclusively on apartment rentals and condominium sales. The net effect is an illegally restricted market where collusion and monopoly supplant market forces
question
Violations of Fair Trade and Anti-Trust laws may be treated as felonies, and penalties can be substantial. Loss of one's license is also at stake. Brokers are well advised to
answer
understand and recognize these laws
question
Business Brokerage is
answer
effecting a sale or exchange of an existing business
question
In most cases, the sale of a business entails the simultaneous transfer of
answer
an estate in land, whether a leasehold or a fee
question
To sell businesses, a Broker must generally hold a
answer
real estate license
question
In some states, Business Brokerage is classified into Opportunity Brokerage and Enterprise Brokerage in accordance with
answer
the size of the business being sold
question
Opportunity Brokerage concerns a small business, usually a proprietorship or Partnership, where the transaction consists of a
answer
sale of assets and an assignment of a lease
question
Opportunity Brokerage concerns a small business, usually a
answer
Proprietorship or Partnership, where the transaction consists of a sale of assets and an assignment of a lease
question
Enterprise Brokerage concerns a
answer
larger company, usually a Corporation, where the transaction involves the sale of Stock and multiple real estate parcels leased or owned by the seller
question
Enterprise Brokerage concerns a larger company, usually a Corporation, where the transaction involves
answer
the sale of Stock and multiple real estate parcels leased or owned by the seller
question
The process of Business Brokerage is similar to
answer
real estate Brokerage
question
A Broker secures a listing, procures a purchaser, and facilitates the closing. Once a ready, willing, and able buyer is found, the Broker earns
answer
a commission
question
The critical difference between selling a business and selling real estate is that
answer
selling a business includes the transfer of business income, personal property assets, and, possibly, liabilities, in addition to real property
question
To be competent in the Brokerage specialty of selling a business, a Business Broker must have specialized skills concerning
answer
transactions, accountiing, and pricing
question
To be competent in the Brokerage specialty of selling a business, one thing that a Business Broker must have specialized skills in are
answer
transactions
question
To be competent in the Brokerage specialty of selling a business, one thing that a Business Broker must have specialized skills in is
answer
accounting
question
To be competent in the Brokerage specialty of selling a business, one thing that a Business Broker must have specialized skills in is
answer
pricing
question
A Business Broker must rely on a professional team to complete a transaction. Members of this team would include
answer
the Client's legal counsel, accountant, and, preferably, a professional appraiser
question
A Business Broker must rely on a professional team to complete a transaction. Members of this team would include
answer
the Client's legal counsel
question
A Business Broker must rely on a professional team to complete a transaction. Members of this team would include an
answer
accountant
question
A Business Broker must rely on a professional team to complete a transaction. Members of this team would include preferably, a
answer
professional appraiser
question
There are generally two types of business sale transaction for a Business Broker to be aware of. These are the
answer
Asset Sale and Stock Sale
question
In an Asset Sale, the purchaser takes possession of
answer
some or all of the assets of the business, as well as the real estate, in exchange for the sale price. The purchase usually does not include acquiring the existing business entity or its liabilities
question
An Asset Sale is preferred by buyers who want to
answer
buy only portions of a business, or to avoid liabilities inherent in a Stock purchase
question
In a ______, a purchaser acquires complete ownership of a business, including the legal Corporate entity, all assets, all financial liabilities, and any current or future legal liabilities arising from incidents that have occurred prior to the sale
answer
Stock Sale
question
In a Stock Sale, a purchaser may prefer a Stock Sale to avoid
answer
creating a new business entity or to benefit from a possible tax advantage
question
A purchaser may prefer a Stock Sale to avoid
answer
creating a new business entity or to benefit from a possible tax advantage
question
A purchaser may prefer a Stock Sale to avoid creating a new business entity or to benefit from a
answer
possible tax advantage
question
One of the most common transaction documents in Business Brokerage is a
answer
sale contract, an assignment or real estate sale contract, a No-Compete Agreement, and a Consulting Agreement
question
One of the most common transaction documents in Business Brokerage is a
answer
sale contract
question
One of the most common transaction documents in Business Brokerage is an
answer
assignment or real estate sale contract
question
One of the most common transaction documents in Business Brokerage is a
answer
No-Compete Agreement
question
One of the most common transaction documents in business Brokerage is an
answer
Consulting Agreement
question
A sale contract sets forth
answer
all terms and conditions of the agreement, including exactly what is being sold
question
An assignment or real estate sale agreement is
answer
an agreement for transferring any and all real property involved in the transaction
question
A No-Compete Agreement is
answer
a term used in contract law under which one party (usually an employee) agrees not to enter into or start a similar profession or trade in competition against another party (usually the employer)
question
A Consulting Agreement is
answer
an employment agreement that hires the seller to assist the buyer in taking over business operations
question
For the most part, transaction documents in Business Brokerage are not fully standardized. For that reason, a Business Broker must exercise caution in dealing with document language so as to avoid the
answer
unauthorized practice of law
question
A Broker or agent who wants to undertake Business Brokerage needs basic proficiency in accounting. In particular, one must know how to
answer
read and interpret income, expenses, and profit on an income statement
question
A business's profit is
answer
the revenue remaining from gross income after all expenses have been paid
question
A Business Broker must evaluate an owner's income and expenses in order to determine
answer
what the business may be worth to a buyer
question
Determining what a business may be worth involves interpreting which income and expense items will change after the business is sold. For example,
answer
a seller owns a grocery store and uses family members to perform clerical work without pay. If a buyer is a bachelor without children, much of the clerical work will have to be hired out. The additional payroll suddenly changes the store's profitability significantly. Neglecting to consider how income and expenses might change is likely to lead to serious problems in working with buyers
question
The assets of a business include
answer
tangible assets and intangible assets
question
Tangible assets include
answer
cash and marketable Securities
question
Tangible assets include
answer
inventory
question
Tangible assets include
answer
trade fixtures and equipment
question
Tangible assets include
answer
real property
question
Tangible assets include
answer
accounts receivable
question
Intangible assets include
answer
the company name
question
Intangible assets include
answer
trademarks
question
Intangible assets include
answer
copyrights
question
Intangible assets include
answer
licenses
question
Intangible assets include
answer
contracts for future sales of goods or services
question
Intangible assets include
answer
goodwill
question
In valuing a business, both tangible and intangible assets must be taken into account, even though
answer
intangible assets may be very difficult to appraise
question
In valuing a business, both tangible and intangible assets must be taken into account, even though
answer
intangible assets may be very difficult to appraise
question
In valuing a business, both tangible and intangible assets must be taken into account, even though intangible assets may be very difficult to
answer
appraise
question
Tangible means
answer
something you can see and touch
question
Intangible means
answer
unable to be touched or grasped. Not having physical presence
question
Business liabilities acquired in a Corporate Stock Sale include
answer
short-term debt, such as accounts payable
question
Business liabilities acquired in a Corporate Stock Sale include long-term liabilities, such as, such as
answer
mortgages and leases
question
Business liabilities acquired in a Corporate Stock sale include short-term debt, such as accounts payable, and long-term liabilities, such as
answer
mortgages and leases
question
One sense of Goodwill is an intangible asset consisting of any factor that an owner values in the business, apart from any other specific asset. For example,
answer
goodwill might include reputation, a long history of success in a market, name recognition, a dominant market share, and an excellent business location
question
The most difficult task for a Business Broker is often finding the
answer
proper price range for a business. An owner of a smaller business has probably built the business from scratch and tends to overvalue it. Moreover, such an owner may have incomplete and disorganized accounting records, making the valuation of assets quite difficult
question
A business's true income may be different for one owner than it would be for another because of
answer
variations in management style and ability
question
One of the values of a business is the function of
answer
past, present, and future net profits, and capitalized value of these
question
One of the values of a business is the function of
answer
amount of risk and certainty associated with realizing future profits
question
One of the values of a business is the function of
answer
value of all assets as reflected in the books of account
question
One of the values of a business is the function of
answer
impact of goodwill on the value of the business
question
One of the values of a business is the function of
answer
prices paid for similar businesses
question
One of the values of a business is the function of
answer
all other risks associated with the business
question
A Business Broker generally must have an active real estate license. In addition, the Broker may need to have a
answer
valid Securities license since a transaction may entail the sale of Securities
question
The ______ regulates the sale of personal property on a state-by-state basis, and forms the basis for standardized sale documents. Standard documents include promissory notes, security agreements, and bills of sale
answer
Uniform Commercial Code (UCC)
question
The Uniform Commercial Code regulates the sale of personal property on a state-by-state basis, and forms the basis for standardized sale documents. Standard documents include
answer
promissory notes, security agreements, and bills of sale
question
The ______ protects creditors against loss of collateral in an indebted business through the undisclosed sale of the business inventory
answer
Bulk Sales Act
question
The Bulk Sales Act protects creditors against loss of
answer
collateral in an indebted business through the undisclosed sale of the business inventory
question
The Bulk Sales Act protects creditors against loss of collateral in an indebted business through the undisclosed sale of the
answer
business inventory
question
With regard to the Bulk Sales Act, if a business sells over half of its inventory to a buyer, the Bulk Sales Act declares that
answer
the sale is a bulk sale, and, as such, is potentially an Asset Sale. Since a creditor could lose Security in such a sale, the seller must disclose the names of creditors to the buyer in a Bulk Sales Affidavit. The buyer must notify the creditors of the sale, who may then take appropriate action to secure their loans
question
With regard to the Bulk Sales Act, if a business sells over half of its inventory to a buyer, the Act declares that the sale is a bulk sale, and, as such, is potentially an Asset Sale. Since a creditor could lose Security in such a sale, the seller must disclose the names of creditors to the buyer in a
answer
Bulk Sales Affidavit. The buyer must notify the creditors of the sale, who may then take appropriate action to secure their loans
question
With regard to the Bulk Sales Act, if a business sells over half of its inventory to a buyer, the Act declares that the sale is a bulk sale, and, as such, is potentially an asset sale. Since a creditor could lose Security in such a sale, the seller must disclose the names of creditors to the buyer in a Bulk Sales Affidavit. The buyer must notify
answer
the creditors of the sale, who may then take appropriate action to secure their loans
question
A real estate Syndication is
answer
a form of investment in which two or more investors contribute capital to a pool for the purpose of acquiring, managing, and selling an investment property for a profit
question
There are two groups of parties in a Syndication. They are the
answer
Syndicator and the investors
question
In a Syndication, the Syndicator is the organizer and usually the party who provides the expertise to undertake the acquisition, management, and sale of the property. The investors role is to
answer
provide funds. Investors in a Syndication have little or no role in managing the investment
question
Participants in a Syndication may be any legal entity. For example,
answer
Corporations, Partnerships, individuals, and Joint Ventures
question
Most often, a Syndication is structured as a
answer
Limited Partnership
question
The primary benefit of a Syndication is that
answer
investors can participate and profit in a venture that would otherwise be beyond their individual financial and managerial capabilities
question
Financial benefits of a Syndication include
answer
income, appreciation, and possible passive loss tax deductions resulting from depreciation
question
One of the financial benefits of a Syndication is
answer
income
question
One of the financial benefits of a Syndication is
answer
possible passive loss tax deductions resulting from depreciation
question
One of the financial benefits of a Syndication is
answer
appreciation
question
The Federal Securities Act of 1933 defined Participation in a Limited Partnership as a
answer
Security, since investors expect to make a profit from a common enterprise without direct control over the marketing and managing of the investment
question
The Federal Securities Act of 1933 defined Participation in a Limited Partnership as a Security, since investors expect to make a profit from a common enterprise without
answer
direct control over the marketing and managing of the investment
question
Since the sale of shares in a Syndication represents a sale of Securities, Syndicators and real estate Brokers must
answer
comply with federal and state Securities licensing and registration laws
question
The primary federal law outlining Securities registration and licensing is the
answer
Federal Securities Exchange Act of 1934
question
The ______ law requires that any person selling Securities must be registered, or licensed, with the Securities and Exchange Commission
answer
Federal Securities Exchange Act of 1934
question
DPP stands for
answer
Direct Participation Program
question
NASD stands for
answer
National Association of Securities Dealers
question
At present, all Securities dealers must register with the National Association of Securities Dealers, including
answer
real estate Brokers wishing to sell Syndication Participations
question
Depending on the type of Security in question, the National Association of Securities Dealers issues a variety of licenses authorizing a dealer to
answer
market and sell the Security
question
In 1980, the National Association of Securities Dealers created a limited Securities license exclusively for persons selling real estate Syndications and other similar investment programs. The license is called
answer
the Direct Participation Program license (DPP license)
question
One of the two levels of a Direct Participation Program license is for principals of a Syndication. The Direct Participation Program limited the Principal License by
answer
appropriate examinations and National Association of Securities Dealers (NASD) application forms
question
Real estate Syndications are subject to strict disclosure requirements imposed by the
answer
Securities and Exchange Commission
question
Real estate Syndications disclosure requirements are in the form of a
answer
Prospectus for the investment program
question
A Prospectus is a
answer
comprehensive summary of all facts relating to the investment. The Prospectus also expressly warns investors that there are risks and uncertainties associated with the investment
question
A Prospectus is a comprehensive summary of all facts relating to the investment. The Prospectus also expressly warns investors that
answer
there are risks and uncertainties associated with the investment
question
A Prospectus is a comprehensive summary of all facts relating to the investment. The Prospectus also expressly warns investors that there are
answer
risks and uncertainties associated with the investment
question
SEC stands for
answer
Securities and Exchange Commission
question
Certain Syndications must be registered with the Securities and Exchange Commission. Full-scale registration discloses
answer
all aspects of the prospective program
question
Certain Securities and Exchange Commission rules allow for
answer
exemption from Securities registration
question
Certain Securities and Exchange Commission rules allow for exemption from Securities registration These exemptions are
answer
the Intrastate Exemption and the Private Offering Exemption
question
Example of Intrastate Exemption
answer
if the Syndicator, the property, and all investors are located within a single state, the Syndication is exempt from Securities registration
question
Example of Private Offering Exemption
answer
If the Syndication is limited to 35 investors or fewer, and the Syndication is not advertised in any way, the program is exempt from Securities registration
question
Whether a Syndication is exempt or not from Securities registration, a Syndicator must give investors a
answer
Prospectus of the Syndication
question
All states have Securities licensing and registration laws in addition to federal laws. As a rule, these laws recognize National Association of Securities Dealers licensing and self- regulation practices. However, real estate licensees wishing to engage in Syndications should be familiar with
answer
applicable Securities laws in their state
question
One sense of goodwill, that is more familiar to accountants is that
answer
goodwill is the difference in value between an owner's price and the value of all other business assets
question
Example of goodwill
answer
If an owner wants $100,000 for a business, and the totality of tangible and intangible assets is valued at $80,000, the goodwill is a $20,000 asset
question
Conversion is more serious than Commingling. It is effectively an act of
answer
theft. Using monies which do not belong to the Broker
question
The Maloney Act of 1938 revised the requirement of the Federal Securities Exchange Act of 1934 that Securities sellers register with the Securities and Exchange Commission. Instead, it authorized
answer
self-regulation of the Securities industry through any national association which would itself register with the Securities and Exchange Commission. This precipitated the formation of the only such association ever to register with the Securities and Exchange Commission. The National Association of Securities Dealers, or NASD
question
In most states, Commingling funds constitutes grounds for
answer
license suspension or revocation
question
Bid Rigging is
answer
fraud which involves bidding. It is an agreement among competitors as to who will be the winning bidder. Bid rigging occurs when a purchaser solicits bids to purchase goods or services. The bidders agree in advance who will submit the winning bid. The purchaser, which depends on competition between the bidders to generate the lowest competitive price, receives instead a lowest bid that is higher than the competitive market would bear
question
Restricting Market Entry is
answer
obstacles that make it difficult to enter a given market. The term can refer to hindrances a firm faces in trying to enter a market or industry, such as government regulation and patents, or a large established firm taking advantage of economies of scale, or those an individual faces in trying to gain entrance to a profession, such as education or licensing requirements
question
A Stock Sale is
answer
the purchase of the owner's Shares of a Corporation. While there are many considerations when negotiating the type of transaction, tax implications and potential liabilities are the primary concerns
question
A monopoly is
answer
the exclusive possession or control of the supply or trade in a commodity or service. His likely motive was to protect his regional monopoly on furs
question
A Broker or Agent who wants to undertake Business Brokerage needs basic proficiency in accounting. In particular, one must know how to read and interpret
answer
assets, liabilities, and net worth on a balance sheet
question
Jargon means
answer
special words or expressions that are used by a particular profession or group and are difficult for others to understand
question
A Corporation is domestic if
answer
it is headquartered in the state where the Articles of Incorporation were filed. Otherwise, the Corporation is a foreign Corporation
