Chapter 23: Risk Management
1. Probability of occurrence
2. The extent of exposure to monetary or non-monetary consequences.
1. *Avoidance:* refraining from an activity that carries risk.
2. *Reduction:* taking steps to reduce probability or severity of a potential loss. May result in an increase in risk in another area.
*Agent provides consumer with expertise and advice but the consumer decides how much to offer.
3. *Transference:* passing the risk to another party, by contract or other means. In real estate –errors and omissions (E&O) insurance policy.
4. *Retention:* entering into known risk and taking responsibility for consequences.
2. *Disclosure:* Provide information to consumer to avoid misunderstanding and lawsuits. *in writing or verbal. no written acknowledgment.*
-duties and obligations
-personal interest in the transaction
-personal interest in referrals.
3. *Documentation and Record keeping:* provides evidence of compliance with laws and regulations; manuals, forms, records, contracts, accounting, and other important documents.
4. *Insurance:* general liability, E&O, fire and hazard flood, casualty, workers, personal property, consequential loss, surety bond.
-floor duty privileges
-assignment of relocation properties to agents
-referrals between agents within the company
-requirements for continuing education, sales meeting participation, and property tours.
-correspondence and other communication records
-notes and any other relevant information
-date of deposit
-date of withdrawal
-other information deemed pertinent by the real estate commission
Insurer pays: covered claim, legal fees, cost, expenses, and medial expenses due to negligence.
1.* Unprofessional conduct-* claim that one has failed to carry out fiduciary duties and provide standard care.
2. *Breach of contract-* claim that one has failed to perform services in contract in a timely manner.
*Covers:* damages resulting from any negligent act, error or omission arising out of Professional Services.
*E&O insurance covers “mistakes” but not crimes.*
*Disclosure requirements:* verbal to other licensees and to buyer and seller, in writing before listing agreement, signed receipt disclosure was made.
*Duties to all:* honesty, fairness, care, skill, required disclosures.
*Duties to client:* diligence, loyalty, obedience, confidentiality, accounting, full disclosure.
-conflict of interest arises when the agent does not put the best interest of a client ahead of those of everyone else.
Any home built before 1978 is required to provide a lead-based paint disclosure.
Failure to disclose, whether intentional or not, may be construed as misrepresentation.
*Licensees must verify:* the property condition, ownership status, and the client’s authority to act.
*Comparative Market Analysis (CMA)*
-Avoid terms: appraisal, value, recommended purchase price and listing price range to avoid misrepresentation.
-best to be conservative and document that seller went higher than recommended price.
>Licensees should use broker form when providing estimate closing costs and stress to client that it is just an estimate, not actual cost.
> State and federal laws, and the federal Fair Housing laws regulate advertising.
Risks and errors:
-Illegal form; must have termination date.
-Failing to state inclusions and exclusions from parties in transfer of items.
-Fail to complete contingencies such as inspections. “time is of the essence” clause in agreement makes this critical.
-Mistakes in entering data in form. should be checked & verified. checklist.
*Unauthorized practice of law:* non-lawyers may fill in blanks and delete words on standard contract forms; illegal to give legal advice but may express opinion.
-can lead to a *steering* charge or violation
-violations = price fixing.
*Sherman Antitrust Act:* makes illegal all agreements among competitors that would unfairly restrict interstate trade.
*Clayton Act:* prohibits mergers or acquisitions that lessens competition and increases prices.
*Federal Trade Commission Act:* forbids unfair competition in interstate commerce but establishes no criminal penalty.
*Enforcement:* Antitrust Division of the Department of Justice (DOJ), Federal Trade Commission (FTC), and private parties lawsuits.
Causes of discipline include; commission of prohibited acts, practicing with expired license, disclosure failures, earnest money mishandling.
*Intentional misrepresentation:* Also known as fraud, occurs when a licensee knowingly conveys false information about a property, financing or service.
It is best to not recommend vendor or provide a short list of trusted vendors with a disclaimer and allow the consumer to choose.
-Fair housing and ECOA discrimination violations
-failed transactions due to agent failure to monitor contingency period
-Appraisal problems (under- and over-appraisal)
-Failure to qualify buyer
-Failure to ensure proper disclosure of closing costs
-mishandling of earnest money deposits; commingling and conversion.
-broker named trustee on account
-federally-insured bank in state
-account is not interest-bearing
-records in particular format
-separate records kept for each beneficiary, property, or transaction
-records of funds match bank statements
-withdrawals only by broker-trustee or specifically authorized person.