Nevada REAL ESTATE SAMPLE. Principles SECOND EDITION. Ben C. Scheible, Esq.

Transcription

1 Nevada REAL ESTATE Principles SECOND EDITION Ben C. Scheible, Esq.

2 Nevada Real Estate Principles Ben C. Scheible, Esq. 2 nd Edition

3 This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional advice. If legal advice or other expert assistance is required, the services of a competent professional should be sought. President: Dr. Andrew Temte Chief Learning Officer: Dr. Tim Smaby Executive Director, Real Estate Education: Melissa Kleeman-Moy Development Editor: Adam Bissen NEVADA REAL ESTATE PRINCIPLES SECOND EDITION 2013 Kaplan, Inc. Published by DF Institute, Inc., d/b/a Kaplan Real Estate Education 332 Front St. S., Suite 501 La Crosse, WI All rights reserved. The text of this publication, or any part thereof, may not be reproduced in any manner whatsoever without written permission from the publisher. Printed in the United States of America ISBN: / PPN:

4 Contents Preface ix Acknowledgments x About the Author xi CHAPTER 1 Real Estate Brokerage and Agency 1 Introduction 2 Definition of Real Estate Broker 2 Business Licenses 4 Place of Business and Branch Offices 4 Broker Supervision: Legal Duties of a Real Estate Broker 5 Agency Relationships in Nevada 6 Duties Owed by a Nevada Real Estate Licensee 9 Comparison of Duties Owed to All Parties and Duties Owed to a Client 14 Residential Disclosure Guide 15 Nevada s Stigmatized Property Statute 15 Consequences of a Breach of Duty 16 Disclosure and Confirmation of Agency Relationships 16 Personal Assistants 21 Compliance With Antitrust and Fair Housing Laws 21 Termination of Agency Relationships 22 Advertising 23 Working in Teams or Groups 24 Chapter 1 Quiz 25 CHAPTER 2 Listing and Buyer Representation Agreements 27 Introduction 28 Definition and Legal Elements of a Nevada Brokerage Agreement 28 Requirements for a Brokerage Agreement With an Exclusivity Provision 29 Listing Agreements 30 Buyer Representation Agreements 34 Multiple Listing Services 37 Procuring Cause 37 Broker Compensation 38 Brokerage Agreements Involving Commercial Real Estate 38 Advance Fee Contracts 38 Probate 39 Termination of Brokerage Agreements 40 Chapter 2 Quiz 41 iii

5 iv CHAPTER 3 Interests in Real Estate 43 Introduction 44 Marital Property 44 Homestead 44 Easements 44 Water Rights 46 Chapter 3 Quiz 47 CHAPTER 4 Forms of Ownership 49 Introduction 50 Ownership in Severalty 50 Co-Ownership 50 Ownership in Trust 52 Ownership by Business Entities 52 Condominium and Cooperative Developments 54 Time-Shares 56 Chapter 4 Quiz 57 CHAPTER 5 Legal Descriptions 59 Introduction 60 Legal Descriptions 60 Chapter 5 Quiz 64 CHAPTER 6 Real Estate Taxes and Other Liens 65 Introduction 66 Determining the Amount of Tax Owed 66 Assessment Appeals 66 Payment of Taxes 67 Exemptions 67 Enforcement of Tax Lien 67 Real Property Tax Abatement 68 Information on the Internet 68 Other Taxes Applicable to Real Property 68 Mechanics Liens 68 Chapter 6 Quiz 70 CHAPTER 7 Real Estate Contracts 71 Introduction 72 Broker s Authority To Prepare Documents 72 Standard Contract Requirements 72 Nevada s Electronic Transactions Act NRS Multiple Offers 82

6 v Remedies for Breach of Contract 85 Required Party Disclosures in Nevada 86 Construction Defect and Soils Condition Disclosures 96 Open Range Land Disclosure 96 Chapter 7 Quiz 98 CHAPTER 8 Transfer of Title 99 Introduction 100 Voluntary Alienation 100 Real Property Transfer Tax 102 Involuntary Alienation 103 Transfer of a Deceased Person s Property 104 Chapter 8 Quiz 105 CHAPTER 9 Title Records 107 Introduction 108 Purpose of Recording 108 Recording Requirements in Nevada 108 Evidence of Marketable Title 109 Uniform Commercial Code 109 Chapter 9 Quiz 110 CHAPTER 10 Real Estate License Law 111 Introduction 112 Administration of Nevada Real Estate License Law 112 When Is a License Required? 114 Types of Licenses 115 Qualifications Needed to Obtain Basic Licenses 115 Grounds for Denial of a License 117 Licensing Reciprocity 118 License Renewal and Changes 119 Permits, Certificates, and Required Registrations 121 Grounds for Discipline 123 Statutory Basis for Discipline 124 The Disciplinary Process 127 Education Research and Recovery Fund 130 Chapter 10 Quiz 132 CHAPTER 11 Real Estate Financing: Principles/Practice 135 Introduction 136 Deeds of Trust and Lien Theory 136 Preforeclosure and Foreclosure 137 Chapter 11 Quiz 142

7 vi CHAPTER 12 Leases 143 Introduction 144 Leasehold Estates 144 Residential Leases 144 Owner s Obligations 145 Owner Remedies: Eviction 146 Obligations of a Residential Tenant 150 Lease Terminations With Special Circumstances 152 Property Management 153 Chapter 12 Quiz 156 CHAPTER 13 Real Estate Appraisal 157 Introduction 158 State Regulation of Appraisers 158 Chapter 13 Quiz 161 CHAPTER 14 Land Use Controls and Property Development 163 Introduction 164 Land Use Planning in Nevada 164 Regional Planning in Nevada 165 The Sale of Subdivided Land in Nevada 165 Exemptions to the Subdivided Land Law 169 The Sale of Time-Shares in Nevada 169 Chapter 14 Quiz 175 CHAPTER 15 Fair Housing 177 Introduction 178 Nevada Fair Housing Law 178 Nevada Real Estate Licensees 180 Chapter 15 Quiz 181 CHAPTER 16 Closing the Real Estate Transaction 183 Introduction 184 Preclosing Procedures 184 Title Procedures 185 Conducting the Closing 185 Escrow Agent and Escrow Officer Definitions 186 Closing Statements 187 Chapter 16 Quiz 188

8 vii CHAPTER 17 Environmental Issues and the Real Estate Transaction 189 Introduction 190 Environmental Issues and Real Estate Licensees in a Residential Transaction 190 State Environmental Commission 192 Nevada Division of Environmental Protection 192 Uniform Environmental Covenants Act 192 Chapter 17 Quiz 193 Answer Key: Chapter Quizzes 195 Index 205

9 Preface Nevada Real Estate Principles is a key component of Kaplan Real Estate Education s complete real estate principles learning system. This system offers students and educators a complete turnkey package for prelicense real estate courses, continuing education, and professional enrichment. As the demographics and structure of the real estate industry change, Kaplan Real Estate Education is helping students, instructors, and practitioners adapt to this new environment by providing more accessible and versatile educational tools. NRS AND NAC CITATIONS The purpose of Nevada Real Estate Principles is to highlight the specific way real estate is practiced in Nevada, in particular aspects which make Nevada unique. Questions that may be used for both testing and comprehension of the material follow each chapter. These questions are prepared in a format consistent with the Nevada Real Estate License Examination. The Answer Key for the questions is included at the end of this book. After completing each chapter you should be certain that you are able to answer each question correctly before proceeding to the next chapter. Both Nevada-specific and general real estate law and practice are included in the licensing examination. Students need to be thoroughly familiar with the material contained in this book as well as more general real estate principles and practices. In the footnotes and in the text there are numerous citations to NRS and NAC. Bills passed by the legislature and approved by the governor are published in the Nevada Revised Statutes which is cited as NRS. Regulations to interpret or implement a statute are adopted by various administrative agencies and commissions. Regulations are published in the Nevada Administrative Code which is cited as NAC. Most of the citations refer to chapter 645 of the NRS and chapter 645 of the NAC, which govern and regulate real estate licensees. It is highly recommended that you go to the Nevada State Legislature website at and read all of NRS 645 and NAC 645. ix

10 Acknowledgments The publisher thanks Melody Luetkehans, a Nevada attorney who provided valuable professional guidance and expert advice. Thanks also go to the Reno Sparks Association of REALTORS for permission to reprint many of the forms and documents used in this book. x

11 About the Author Ben C. Scheible, Esq. is professor of real estate at Truckee Meadows Community College in Reno, Nevada, and the owner of a real estate education company. In 2003, he was selected as the Teacher of the Year at Truckee Meadows Community College. and the Educator of the Year for the Reno Sparks Association of REAL- TORS. In 2004, he received a Presidential Award for Teaching Excellence from the college and has been honored three times as the Educator of the Year for the Reno Sparks Association of REALTORS. Prior to joining the college he was a practicing attorney with an emphasis in real estate transactions and litigation. He is a licensed real estate broker-salesperson in Nevada, a licensed attorney, and real estate broker in California. xi

12 1 CHAPTER Real Estate Brokerage and Agency 1

13 2 Nevada Real Estate Principles Second Edition INTRODUCTION In this chapter, we will explore the laws that govern real estate brokerage and real estate agency relationships in Nevada. The law is found in Nevada Revised Statutes (NRS) 645 and the regulations adopted by the Real Estate Commission are found in Nevada Administrative Code (NAC) 645. To operate legally as a real estate broker requires a real estate broker s license. This chapter describes the activities that require a license and the various entities that are qualified to hold a license. In addition to a real estate license, this chapter explains the different business licenses that are also required. DEFINITION OF REAL ESTATE BROKER A broker has the ultimate responsibility for everything that happens within a real estate brokerage firm. In this chapter, we will carefully examine a broker s duties to supervise, to manage, and to monitor the activities of the office. This chapter covers real estate agency relationships in detail, especially the duties owed by a Nevada real estate licensee in an agency relationship. A licensee s duty to disclose the nature of agency relationships is described by including an analysis of the state-mandated forms. The term real estate broker has a lengthy, statutory definition set forth in NRS A good summary is this: A real estate broker is someone who helps someone else with a real estate transaction or business brokerage transaction for compensation or the expectation of compensation. The definition of a broker does not require someone to be licensed; however, a broker s license is required to legally engage in any of the activities listed in NRS : 1. Sells, exchanges, options, purchases, rents or leases, or negotiates or offers, attempts or agrees to negotiate the sale, exchange, option, purchase, rental, or lease of, or lists or solicits prospective purchasers, lessees or renters of, any business or real estate or the improvements thereon or any modular homes or other housing offered or conveyed with any interest in real estate 2. Engages in or offers to engage in the business of claiming, demanding, charging, receiving, collecting, or contracting for the collection of an advance fee in connection with any employment undertaken to promote the sale or lease of business opportunities or real estate by advance fee listing, advertising, or other offerings to sell, lease, exchange or rent property 3. Engages in or offers to engage in the business of property management 4. Engages in or offers to engage in the business of business brokerage 5. Aids, assists, solicits, or negotiates the procurement, sale, purchase, rental, or lease of public lands Only a real estate broker is authorized to independently engage in real estate brokerage activities. A salesperson must be associated with a real estate broker or owner-developer to operate legally, and the broker or owner-developer is responsible for the professional actions of the licensees who are associated with or employed by them. The term owner-developer is explained in Chapter 10, Real Estate License Laws.

14 Chapter 1 Real Estate Brokerage and Agency 3 A salesperson may not perform real-estate-related services without being associated with a licensed broker or owner-developer; accept compensation from anyone other than his or her employing broker or owner-developer; advertise without the broker s supervision; hold a client s funds, but must promptly turn over any money to the broker; or pay a referral fee or give other compensation to an unlicensed person for an activity that requires a license. Only a broker can represent a client, but for the sake of convenience, salespeople often refer to representing a client or refer to my client. Technically this is not correct but it is understood that a salesperson is acting on behalf of the broker. Keep in mind the actual agency relationships when such phrases are used. Broker Entity A broker can be either a natural person operating as a sole proprietor or any one of the following business entities: Corporation Partnership Limited Liability Company A partnership, corporation, or limited liability company that is applying as a broker must file a copy of its partnership agreement, articles of incorporation, or articles of organization, as appropriate, with the Real Estate Division (the Division). Although a general partnership can be legally formed without a written partnership agreement, this regulation requires a general partnership that wants to operate as a real estate broker to have a written agreement. A salesperson or broker-salesperson is allowed to operate as a one-shareholder corporation or a one-member limited liability company. Designated Broker A business entity must designate a natural person to submit an application for a broker s license. A corporation must designate an officer, a partnership must designate a member, and a limited liability company must designate a manager. A business entity may have other brokers act on its behalf, but the designated broker is ultimately responsible for all of the business activities. The designated broker can only act on behalf of the business entity and not on his or her own behalf unless he or she obtains a separate license to act on his or her own behalf. Professional Liability The Nevada Supreme Court has held that a real estate broker operating in a corporate form does not insulate himself from personal liability for professional defaults. 1 The court s reasoning applies equally to a broker operating as a limited liability company, although there is no Nevada case directly in point. 1 Jory v. Bennight, 91 Nev. 763 (1975).

15 4 Nevada Real Estate Principles Second Edition BUSINESS LICENSES Financial Institutions A bank, savings and loan association, savings bank, thrift company, or credit union cannot directly or indirectly hold a broker s license. A broker must also obtain a state business license and, in most circumstances, one or more local business licenses. State Business License The state business license requirement is applicable to brokers and all associated licensees who are retained as independent contractors. The fee is currently $100, and the license must be renewed annually. Local Business License Cities, counties, and towns can also require a business license and often do. Although local entities are authorized to regulate to protect the public, local business license requirements are generally enacted solely for revenue generation. The requirements for a local license depend on the location in which business is conducted. PLACE OF BUSINESS AND BRANCH OFFICES An active broker in Nevada must maintain a definite place of business within Nevada. The office location must be easily accessible to the public. If permitted by local zoning regulations, the office can be located in a private home or in conjunction with another business. In such cases, the office must be separate from other offices. The broker s license must be prominently displayed at that location. A sign that identifies the broker s place of business must be placed so that it is visible from the nearest public sidewalk, street, or highway. If the broker s place of business is located in an office building, hotel, or apartment building, the broker s sign must be posted on the building directory or the exterior of the entrance to the business. The requirement to maintain a definite place of business in Nevada with a visible sign and accessibility to the public probably prohibits the use of a virtual office on the web (VOW) as a broker s principle place of business. Branch Offices A branch office must be managed by a broker or by a broker-salesperson who has two years of active experience within the last four years. While supervising a branch office, a broker-salesperson has all the duties and responsibilities of a broker and is subject to all the penalties applicable to a broker. However, the broker still retains liability. A broker-salesperson can manage only one branch office, and only the broker can supervise the overall business. Displaying the License A broker s license must be prominently displayed at the broker s place of business. If the broker maintains branch offices, the Real Estate Division will issue additional licenses, which must be displayed at each branch office.

16 Chapter 1 Real Estate Brokerage and Agency 5 The broker must maintain custody and control of the licenses of all licensees associated with the broker and prominently display the licenses at the location from which the associated licensees do business. Similarly, an owner-developer must prominently display the license of each licensee the owner-developer employs. BROKER SUPERVISION: LEGAL DUTIES OF A REAL ESTATE BROKER A fundamental duty of a broker is to supervise the activities of the associated licensees, the activities of the employees, and the operation of the business. Furthermore, every real estate broker is required to teach associated licensees the fundamentals of real estate or time-share practice, or both, and the ethics of the profession. The duty to supervise associated licensees applies regardless of whether the licensee is an independent contractor, statutory nonemployee or employee. Associated licensees may only receive compensation, including a gift or bonus, through their employing brokers, and they may not pay a commission to any person except through their broker or owner-developer. However, when an associated licensee changes broker affiliation, the licensee can receive compensation from the previous broker for any real estate transaction that was conducted during the affiliation with the previous broker. A licensee may give a gift of any value directly to a client. A broker must establish policies, rules, procedures, and systems for the office so that the broker can review, oversee, and manage real estate transactions performed by a licensee who is associated with the broker; documents that may have a material effect upon the rights or obligations of a party to such a real estate transaction; filing, storage, and maintenance of such documents; handling of money received on behalf of a real estate broker; advertising of any service for which a real estate license is required; and familiarization by the licensee with the requirements of federal and state law governing real estate transactions, including, without limitation, prohibitions against discrimination. Duty to Monitor A broker must also monitor compliance with the policies and procedures adopted for the office. A broker may use a real estate broker-salesperson to assist with monitoring and administration, as long as the broker does not relinquish overall responsibility. Furthermore, the use of a broker-salesperson in this capacity does not relieve a broker of any liability. A broker cannot legally use a salesperson to assist with monitoring and administration. Recordkeeping A broker must keep, within Nevada, complete real estate transaction and property management records for at least five years. Associated licensees are required to submit all paperwork to their broker within five calendar days after the paperwork is executed by all the parties. The Division must be notified if records are moved.

17 6 Nevada Real Estate Principles Second Edition Trust Accounts Brokers are not required to maintain trust accounts unless engaged in property management. However, if the broker does choose to maintain a trust account, the following is required: Records must be kept of all money deposited into the trust account. Funds must not be commingled. Trust accounts must be reconciled monthly. An annual reconciliation must be provided to the Real Estate Division, on a form provided by the Division. All real estate transaction and property management records must be kept for five years after the date of closing or the last activity involving the property. AGENCY RELATIONSHIPS IN NEVADA Under common law, an agency relationship arises when one person is authorized to act on behalf of another person. The common law is the body of cases, custom, and tradition that originated in England and is used as the foundation of every state s law (except Louisiana). In Nevada, real estate agency relationships are governed, in part, by statutory law and the common law. Two fundamental agency relationships can arise in Nevada real estate transactions. First, there is an agency relationship between a broker and associated licensees, and second, there is an agency relationship between a broker and a client. Statutory Definition of Agency In 2007, Nevada passed a two-part statutory definition of agency. The first part defines agency, and the second part describes a situation that does not give rise to an agency relationship. Part one defines agency as a relationship between a principal and an agent arising out of a brokerage agreement whereby the agent is engaged to do certain acts on behalf of the principal in dealings with a third party. 2 Part two declares that an agency relationship is not created when one broker is negotiating or communicating with another broker s client, with the written permission of the other broker. The second part addresses a situation where a client waives the broker s duty to present all offers, which is discussed later in this chapter. The Relationship Between a Broker and Associated Licensees A salesperson must be associated with a broker (or owner-developer) and does not have any legal authority to enter into a brokerage agreement without that association. All agency relationships flow through the broker. When a salesperson enters a brokerage agreement with a client, the salesperson is acting on behalf of the broker. Many salespeople are classified as independent contractors and NAC authorizes a broker to enter into an independent contractor agreement with an associated licensee. This substantially reduces a broker s tax liability but seems inconsistent with the broker s right and legal obligation to control the manner in which the associated licensees do their work. 2 NRS

18 Chapter 1 Real Estate Brokerage and Agency 7 Federal Income Taxes A real estate licensee s employment status under Nevada state law does not necessarily determine the licensee s status for federal tax purposes. Under 26 USC 3508 a qualified real estate agent can be treated as a statutory nonemployee, which means that, for tax purposes only, the agent is treated like an independent contractor. The following three conditions must be met to be a qualified real estate agent: 1. The individual must be a licensed real estate agent. 2. Substantially all compensation must be directly related to sales or other output rather than the number of hours worked. 3. The services must be performed pursuant to a written contract with a broker, and that contract must provide that the individual will not be treated as an employee for federal tax purposes. Nevada State Unemployment Insurance and Worker s Compensation In Nevada, a real estate broker is not required to make unemployment insurance contributions for a licensed agent if the services are performed for remuneration solely by way of commission. Furthermore, a real estate licensee is not an employee for purposes of workers compensation. Professional Liability Insurance Nevada does not require a broker to carry professional liability insurance, sometimes called errors and omissions insurance or simply E&O insurance. However, many brokers carry E&O insurance for their own protection and to protect their associated licensees and clients. The Broker-Client Relationship In Nevada, a brokerage agreement is defined as a contract, oral or written, between a client and a broker where the broker agrees to accept compensation to provide real-estate-related services to the client. Brokerage agreements are discussed in greater detail in Chapter 2, Listing Agreements and Buyer Representation. Nevada statutes identify three ways that a client can be represented by a real estate broker in Nevada: 1. Single agency (acting for only one party to the transaction) 2. Dual agency (acting for more than one party to the transaction) 3. Assigned agency (referred to in some states as designated or appointed agency) Single Agency In a single agency, the broker represents only one party in any single transaction. The broker owes client duties exclusively to one principal, and customer who may be either a seller/landlord or a buyer/tenant. Brokers owe customer level duties to parties they do not represent. A customer might be represented by another broker or unrepresented, such as a For Sale by Owner (FSBO). The word customer is not used in Nevada law, but the word can be helpful when describing agency relationships and the duties owed in an agency relationship. FOR EXAMPLE A seller s broker, in a single agency, is an agent who only represents the seller in a real estate transaction and is often called the listing agent. The potential buyers, represented by another broker or unrepresented, in this context, are customers of the listing broker. The listing broker owes client duties to the seller and customer duties to the buyers.

19 8 Nevada Real Estate Principles Second Edition Similarly a buyer s broker is an agent who only represents the buyer in a real estate transaction, and is often simply referred to as the buyer s agent or the selling agent. Do not confuse this with the seller s agent who represents the seller. In buyer agency, the sellers whether they are represented or FSBOs are customers of the buyer s agent. The buyer s agent owes client duties to the buyer and customer duties to the sellers. Many real estate transactions in Nevada employ single agency. A listing broker represents the seller, and the buyer is represented by a broker from another firm. Dual Agency The term dual agency is not used in Nevada statutes or regulations. However, it is authorized by NRS (1)(d), which refers to it as acting for more than one party to the transaction. A Nevada licensee may represent more than one party in a transaction but only with the informed, written consent of all parties before entering into negotiations. In Nevada, the consent is obtained by using the state mandated Consent to Act form. A dual agency does not necessarily mean that a single salesperson represents both parties in a transaction. Although it is often misunderstood, a dual agency can arise if the salesperson representing the buyer and the salesperson representing the seller are both associated with the same broker. Because agency relationships flow through the broker, the broker in such a case would be representing both parties in the same transaction. A dual agency can be avoided in this situation by using an assigned agency, which is described in the following paragraph. It is critical to understand that salespeople represent clients only as agents of their broker, and brokers always represent any client within their office. Assigned Agency What might otherwise be a dual agency can be avoided through an assigned agency. In Nevada, a broker may assign one associated licensee to only represent a seller-client and a different associated licensee to only represent a buyer-client in the same transaction. The assigned agents work essentially as single agents for either the seller or the buyer, to the exclusion of all the other licensees within the brokerage. Therefore, two licensees, from the same real estate brokerage, can represent different parties in the same transaction without creating a dual agency. The broker will still be representing both parties, but if the assignment is made, it is not considered a dual agency and the Consent to Act form is not required. Assigned agency is a distinct type of agency representation. The informed, written consent of the parties, required for a dual agency, is not required for an assigned agency. However, to avoid a dual agency, it is critical that an actual assignment be made. Assigned agency does not have to be done on a case-by-case basis. A broker may establish an office policy specifying that whenever one salesperson in the office brings the seller and another salesperson brings the buyer, an assigned agency will be created. Representing Multiple Buyers When a broker represents the buyer and the seller without an assigned agency, it is clearly a conflict of interest and creates a dual agency. The relationship established when a broker represents two buyers who want to make an offer on the same property is not as clear. There is clearly a conflict of interest, but it is not clear how the licensee should handle the situation.

20 Chapter 1 Real Estate Brokerage and Agency 9 Some buyer brokerage agreements include a provision having the client acknowledge and agree to allow a broker to represent another buyer interested in the same property, but it can be argued that this is not a sufficient disclosure and authorization. In Nevada, there is no law directly on point that addresses how this situation should be handled. Agency Relationships Not Used in Nevada Nevada does not have any provisions for transactional agency, nonagency, or facilitator roles that are allowed in some states. In transactional agency, the broker (or salesperson) facilitates the transaction, but does not represent and does not owe any client duties to either party. This is sometimes referred to as representing the transaction, but not the parties, hence the title transactional agency. Nevada does not specifically prohibit transactional agency, but it does not have any specific statutory or regulatory authority for it. In that the acceptable relationships are carefully outlined in the statutes, it is generally agreed that transactional agency is not allowed. In Nevada, a real estate licensee who is acting as a licensee in the transaction must represent a party to the transaction. DUTIES OWED BY A NEVADA REAL ESTATE LICENSEE The primary duties owed by a Nevada real estate licensee are set forth in three statutes. The first statute, NRS , sets forth the duties owed by a licensee to all parties to the transaction. In the context described under the subsection titled Single Agency these would be customer level duties. A broker owes these duties to customers and clients. The second statute, NRS , describes an additional duty for an assigned agency. It is primarily an extension of the duty of confidentiality which is owed to a client and discussed later in this chapter. The third statute, NRS , sets forth additional duties that are owed only to a client and are not owed to a customer. These three statutes are among the most important statutes governing real estate licensees. Material Facts An important duty owed by licensees is the duty to disclose certain material facts. The term material is not specifically defined by NRS 645 or NAC 645. A good working definition is this: A material fact is information that could affect a reasonable person s decision. In the context of a real estate purchase transaction, it would be information that could affect a person s decision to buy or sell, or the terms on which the person is willing to buy or sell. Duties Owed to All Parties (NRS ) Disclosure of certain material facts is a particularly important duty a licensee owes to all parties in the transaction. A licensee must disclose to each party as soon as is practicable: Any material and relevant facts, data or information which he knows, or which by the exercise of reasonable care and diligence he should have known, relating to the property which is the subject of the transaction. Significantly, this provision only applies to material facts relating to the property. Licensees are not required to disclose everything they know to every party in a

21 10 Nevada Real Estate Principles Second Edition transaction. Although limited to facts relating to the property, the should have known standard in this provision can impose liability on licensees for the failure to disclose something they do not necessarily know. FOR EXAMPLE A licensee fails to disclose a leaking roof in a house that he listed. The listing agent was unaware of the leak because she had never been to the property. It could be argued that through the exercise of reasonable care and diligence, the leak should have been discovered, and therefore the licensee is liable for the failure to disclose the unknown fact. In addition to the disclosure of material facts relating to the property, licensees must disclose each source from which they will receive compensation as a result of a transaction; if applicable, disclose that they are a principal to a transaction or have an interest in a principal of the transaction (i.e., any immediate member of the licensee s family); if applicable, that they are acting for more than one party in a transaction; disclose any changes in their relationship to a party; exercise reasonable skill and care with respect to all parties; and provide the appropriate agency disclosure form to each client and any unrepresented parties to a transaction. (This refers to the Duties Owed by a Nevada Real Estate Licensee form, described later.) The reference to disclosing, when applicable, that the licensee is acting for more than one party refers to dual agency. Disclosure alone is not enough. To act for more than one party to a transaction, the licensee needs the informed, written consent of both parties. Duties Owed in an Assigned Agency (NRS ) An assigned agency is not a dual agency. The statute governing assigned agency specifically notes that the consent required for a dual agency is not needed for an assigned agency. The statute governing an assigned agency prohibits the licensee, acting in an assigned agency capacity, from disclosing, except to the broker, confidential information. Additional Duties Owed to a Client (NRS ) A licensee owes to a client the same duties that are owed to all parties in a transaction and additional duties. Seven specific duties set forth in the statute are described below in the same order as they appear in the statute. Duty to Exercise Reasonable Skill and Care to Carry Out the Terms of the Brokerage Agreement A licensee must keep the client s interest first. The licensee has a duty to seek what the client wants even if that is not necessarily in the best interest of the licensee. Duty of Confidentiality Nevada statutes and regulations do not define or describe what constitutes confidential information. It is generally agreed that any personal information about a client that could jeopardize the transaction in which the client is involved is confidential information. However, a licensee still must make disclosures that are

22 Chapter 1 Real Estate Brokerage and Agency 11 otherwise required by law. For example, a broker representing a seller cannot conceal a property defect even if the seller insists. Confidential information can be disclosed with the client s written permission and must be disclosed if compelled by a court. The duty of confidentiality applies for only one year after revocation or termination of the brokerage agreement. This differs from common law that does not place a time limit on the duty of confidentiality. It also differs from the duty of confidentiality in the National Association of REALTORS Code of Ethics, which does not have a time limit. In addition to the described duties, a licensee must promote the interests of the client by seeking a sale, lease, or property at the price and terms stated in the brokerage agreement or at a price acceptable to the client; presenting all offers made to or by the client as soon as is practicable; disclosing to the client material facts concerning the transaction of which the licensee has knowledge; advising the client to obtain advice from an expert relating to matters that are beyond the expertise of the licensee; and accounting as soon as is practicable for all money and property the licensee receives in which the client may have an interest. Carrying Out the Terms of the Brokerage Agreement Licensees must make their best effort to obtain a transaction on the terms stated in the brokerage agreement. Presenting All Offers The duty to present all offers made by or to a client is not limited by time or other conditions. Even if a client has a contract in escrow, subsequent offers must be presented. If a client is inclined to accept such an offer as anything other than a back-up offer, the client should be referred to an attorney. The duty to present offers is also required by a regulation that requires licensees to promptly deliver all offers and counter offers. Waiver of Duty to Present All Offers No duty of a licensee may be waived except the duty to present all offers. Nevada has a procedure that allows a buyer or a seller to waive the broker s duty to present all offers. The waiver must be done on the mandated form as shown in Figure 1.1. The waiver is rare and, when executed, almost always waives the duty of the seller s broker to present offers to the seller. When the situation occurs, the buyer s agent will present any offers directly to the seller. This could pose a problem for the buyer s agent. First, a licensee cannot communicate directly with another broker s exclusive client. Second, the buyer s agent wants to avoid entering an implied agency and possible undisclosed dual agency. Two factors alleviate these concerns. First the definition of agency states that the term does not include a situation arising from one broker communicating with another broker s client, with that other broker s written permission. Second, written permission is provided on the Authorization to Negotiate Directly with Seller form shown in Figure 1.2.

23 12 Nevada Real Estate Principles Second Edition FIGURE 1.1 Waiver of Duty to Present All Offers STATE OF NEVADA DEPARTMENT OF BUSINESS AND INDUSTRY REAL ESTATE DIVISION 788 Fairview Drive, Suite 200 * Carson City, NV * (775) East Sahara Avenue, Suite 102 * Las Vegas, NV * (702) realest@red.state.nv.us WAIVER FORM In representing any client in an agency relationship, a real estate licensee has specific statutory duties to that client. Under Nevada law only one of these duties can be waived. NRS requires a licensee to "present all offers made to or by the client as soon as practicable." This duty may be waived by the client. "Presenting all offers" includes without limitation: accepting delivery of and conveying offers and counteroffers; answering a client's questions regarding offers and counteroffers; and assisting a client in preparing, communicating and negotiating offers and counteroffers. In order to waive the duty, the client must enter into a written agreement waiving the licensee's obligation to perform the duty to present all offers. By signing below you are agreeing that the licensee who is representing you will not perform the duty of presenting all offers made to or by you with regard to the property located at:. Property Address City AGREEMENT TO WAIVER By signing below I agree that the licensee who represents me shall not present any offers made to or by me, as defined above. I understand that a real estate transaction has significant legal and financial consequences. I further understand that in any proposed transaction, the other licensee(s) involved represents the interests of the other party, does not represent me and cannot perform the waived duty on my behalf. I further understand that I should seek the assistance of other professionals such as an attorney. I further understand that it is my responsibility to inform myself of the steps necessary to fulfill the terms of any purchase agreement that I may execute. I further understand that this waiver may be revoked in writing by mutual agreement between client and broker. WAIVER NOT VALID UNTIL SIGNED BY BROKER. Client Date Licensee Date Client Date Broker Date 06/26/

24 Chapter 1 Real Estate Brokerage and Agency 13 FIGURE 1.2 Authorization to Negotiate Directly with Seller AUTHORIZATION TO NEGOTIATE DIRECTLY WITH SELLER Nevada law permits a real estate licensee to negotiate a sale or lease directly with the seller or lessor with written permission from the listing broker. This form grants that permission with respect to the below-named Seller(s) and the listed property. Seller agrees, and the Seller's broker authorizes, that a Buyer's agent or broker may present offers (including subsequent counteroffers) and negotiate directly with the Seller. "Negotiate" means (a) delivering or communicating an offer, counteroffer, or proposal; (b) discussing or reviewing the terms of any offer, counteroffer, or proposal; and/or (c) facilitating communication regarding an offer, counteroffer, or proposal and preparing any response as directed. Seller understands and agrees that, after accepting an offer, additional contact from the Buyer's agent may be required to obtain disclosures and other documents related to the transaction. Seller acknowledges and agrees that Buyer s agent does not represent the Seller, and negotiations pursuant to this authorization do not create or imply an agency relationship between the Buyer's agent and the Seller. Seller understands that he/she should seek advice from Seller's broker and/or financial advisers or legal counsel. Seller acknowledges that Seller's broker will provide a copy of this authorization to the Buyer's agent or broker upon request, prior to presenting an offer. Seller's Name(s): Seller's Signature(s): Property Address: / Date Time City: Zip: Contract Listing Date: Company Name: Seller s Agent Name: Signature: / Date Time Seller s Broker Name: Signature: / Date Time

25 14 Nevada Real Estate Principles Second Edition Disclosure of Material Facts Concerning the Transaction The duty owed to a client to disclose material facts concerning the transaction is not the same as the duty owed to all parties to disclose material facts relating to the property. Nevada law makes a clear distinction between disclosure of material facts relating to the property, a duty owed to all parties, and disclosure of material facts concerning the transaction, a duty owed only to a client. The difference between facts relating to the property and facts concerning the transaction is important. A defect in the property, for example, a leaky roof, is a fact relating to the property. If known, or if it should have been known, by a listing broker, it must be disclosed to buyers even if the broker does not represent the buyers. Facts concerning the transaction are much broader. FOR EXAMPLE The motivation of a seller could be considered a material fact concerning the transaction but not a fact relating to the property itself. If the listing agent knows that the seller is desperate to sell, the listing agent is not required to disclose this to potential buyers. In fact, a listing agent, under the duty of confidentiality, should not disclose it unless the licensee has the client s written permission. However, if for some reason the buyer s agent knows that the seller is desperate to sell, the buyer s agent must disclose this to his client. The buyer s agent does not owe a duty of confidentiality to the seller but does owe a duty to disclose to his client material facts concerning the transaction. Advising Client to Obtain Expert Advice The duty to advise a client to seek appropriate expert advice is not limited to legal or accounting advice. For example, a residential real estate licensee should not get involved in a commercial transaction without advising the client to obtain advice from a commercial real estate expert. Accounting for All Money When receiving money from a client, the licensee must give it to the broker within one business day and account for it. For example, a licensee who receives money to have an inspection conducted must provide an accounting that shows the money was used for the inspection. Figure 1.3 isolates a licensee s disclosure and confidentiality duties. It is not intended to summarize all duties. FIGURE 1.3 Disclosure and Confidentiality Duties Duty All Parties Client Disclose material facts relating to the property YES YES Disclose material facts concerning the transaction NO YES Maintain confidentiality NO YES COMPARISON OF DUTIES OWED TO ALL PARTIES AND DUTIES OWED TO A CLIENT A licensee always owes greater duties to a client than to a nonclient. It is important to understand and recognize the distinction. Figure 1.4 expands on Figure 1.3 and displays the duties owed to all parties and the additional duties owed to a client.

26 Chapter 1 Real Estate Brokerage and Agency 15 FIGURE 1.4 Comparison of Duties Owed to All Parties and Duties Owed to Clients Duties Owed to All Parties (NRS ) Duties Owed to Clients (NRS ) Disclose material facts relating to the property Exercise reasonable skill and care with respect to all parties to the real estate transaction Disclose sources of compensation Disclose if a principal or have an interest in a principal Dual agency disclosure Disclose any changes in agency relationship Provide appropriate agency disclosure form Disclose material facts concerning the transaction Exercise reasonable skill and care to carry out the terms of brokerage agreement Maintain confidentiality Present all offers made by or to client Seek transaction on terms of brokerage agreement Account for money and property RESIDENTIAL DISCLOSURE GUIDE Effective July 1, 2006, licensees must distribute a Residential Disclosure Guide to prospective buyers and sellers in a residential transaction. The Real Estate Commission is required to adopt regulations regarding the distribution of the booklet. The booklet, prepared by the Real Estate Division, provides information about the federal, state, and local disclosures that are required in a residential transaction and is available at the Nevada Real Estate Division website ( NEVADA S STIGMATIZED PROPERTY STATUTE Properties that society has branded undesirable because of events that occurred there or because a sexual offender lives or is expected to live in an area are called stigmatized properties. NRS governs the disclosure of several conditions that could cause a property to be stigmatized. The statute applies to the sale, lease, or rental of property. The conditions covered by the statute include the following: Property that has been the site of a homicide, suicide, or death by any other cause, except a death that results from a condition of the property Property that has been the site of any crime punishable as a felony, other than a crime involving the production of methamphetamine Property that is occupied or has been occupied by a person exposed to HIV or suffering from AIDS or any other disease that is not known to be transmitted through occupancy of the property The fact that a registered sex offender resides or is expected to reside in the community The fact that a licensed facility for transitional living for released offenders is located near the subject property

27 16 Nevada Real Estate Principles Second Edition The statute makes it clear that the above facts are not material and that a real estate licensee cannot be held liable for a failure to disclose any of the facts set forth in the statute. As noted in the list, the failure to disclose that the property was used in the production of methamphetamine is not protected. However, a failure to disclose that fact is protected if all materials and substances involving methamphetamine have been removed from or remediated on the property by an entity certified or licensed to do so, or the property has been deemed safe for habitation by a government entity. A buyer s agent can, by agreement, waive the protection provided by the statute. FOR EXAMPLE A buyer s agent could agree to disclose whether property being considered by the buyer had been the site of suicide, homicide, or death. If the agent then fails to make such a disclosure, the agent would not be protected by the statute and could be subject to liability. Even with an agreement to make disclosures regarding stigmatized property, the occupation of the property by a person exposed to HIV or suffering from AIDS deserves special consideration. The U.S. Department of Housing and Urban Development (HUD) has stated that such a disclosure probably discriminates against handicapped persons and constitutes a violation of the Fair Housing Act. The current position is that even in face of a direct question a licensee should not disclose that the subject property was occupied by a person exposed to HIV. Rumors that a house is haunted can also cause a property to be stigmatized. Nevada s statute does not address that situation. Therefore, licensees must turn to the general duties of a licensee to determine whether the rumor is a material fact relating to the property, which must be disclosed to everyone, or a material fact concerning the transaction, which must be disclosed to a client. CONSEQUENCES OF A BREACH OF DUTY A party harmed by a real estate licensee s breach of duty can recover actual damages from the licensee and the licensee s broker. Some states, depending on the circumstances, allow additional remedies for example, rescission of the transaction. However, in Nevada the recovery against a real estate licensee for a breach of a statutory duty is limited to damages (i.e., money). In addition to civil liability, a breach of duty can result in disciplinary action against the licensee. DISCLOSURE AND CONFIRMATION OF AGENCY RELATIONSHIPS One of the duties of a real estate licensee, as noted previously, is to provide the appropriate agency disclosure form to each client and any unrepresented parties to the transaction. The Real Estate Division has created a mandatory form for agency disclosure, and a separate mandatory form to obtain the informed consent necessary to engage in a dual agency. The two forms are Duties Owed by a Nevada Real Estate Licensee, and Consent to Act.