COR Core A: Fair Housing, Agency, License Law & Escrow

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1 COR Core A: Fair Housing, Agency, License Law & Escrow Lynn Madison, Author

2 Completing Your Homestudy Course: The student should look through the entire course to get a feel for the format (quizzes, notes, etc.) Highlighted areas and pre-quiz questions have been written to help students recognize key information in the material. At the end of the course, students will take a proctored exam that will cover the course information. When you have completed the course and have had time to review, please contact education@iar.org to schedule your proctored exam Instructor Availability Lynn Madison is the author and instructor for this home study program. As this program is designed to allow you to work at your own pace, it may be necessary for you to contact the instructor at some point if you are struggling with a certain area of the course. It is the policy of the Illinois Association of REALTORS and Lynn Madison to make available to you, an address for a quick response to your questions, concerns, or comments about the home study program. Contact: lynn@lynnmadison.com Always leave a detailed message with specific pages and/or topics you would like to discuss Maximum Allowable Time: The maximum allowable time to complete this home study package is 90 days from the date of purchase. List of Proctor Locations: ocations2.pdf When you have determined which location would work best for you, contact: Education@iar.org Any student not achieving a 70% score on the Final Exam must contact IAR to prepare for a successful re-take of the Final Exam.

3 CORE A - COR-1651: Fair Housing, Agency, License Law & Escrow Fair Housing Review Protected under Federal Fair Housing Laws Protected under Illinois Law All Federal Classes - plus: Protected in Cook County All State and Federal - plus: Protected Classes Age Ancestry Attorneys Buyers with full price offers Color Criminal conviction Familial Status Gender Identity Handicap Housing Status Housing Voucher Program (Section 8) Marital Status Military Discharge Status National Origin Parental Status Race Religion Sex Sexual Orientation Source of Income Your local municipality or county: All state, federal, county - plus: 17.

4 Fair Housing Quiz 1. Under federal fair housing laws, it is legal to prohibit which of the following in a housing unit? a. Smoking b. A live-in caregiver for a resident with a disability c. Drinking alcohol d. Both a and c 2. Which of the following are violations or potential violations of the Fair Housing Act? a. A seller tells you he doesn t want to sell to African-Americans b. A agent puts the phrase adults only in an MLS listing c. Both a and b d. None of the above 3. The fair housing laws prohibit all of the following, except: a. Refusal to show, sell or rent a property because of disability b. Expressing a preference for young adults in a listing comment c. Evicting a current user of illegal drugs d. Marketing your listings exclusively in a religious publication 4. The Civil Rights Act of 1866 does which of the following? a. Grants all citizens the same rights as white citizens to own, purchase, lease, transfer or use real property. b. Allows exemptions only for homes sold without the assistance of an agent c. Effectively prohibits all discrimination in real estate based on race d. Both a and c 5. Based on federal fair housing law, which of the following people would be protected? a. A divorced female single parent b. A 53 year old single Jewish man c. A 50 year old white man d. All of the above

5 6. When a prospect inquires about the racial makeup of neighborhoods or schools, you should respond by saying: a. I believe the neighborhood has a few Hispanic families, I can check and get back to you b. The Fair Housing Act prohibits me from providing that kind of information. I recommend you contact the school district, municipal government or appropriate websites c. I wouldn t worry about that, the neighborhood is safe and the schools are good d. Residents in this neighborhood value diversity, you ll fit right in. 7. If a seller using a real estate agent refuses an offer because of the buyer s national origin, who may file a federal lawsuit against the seller? a. The prospective buyer b. The agent c. The federal government d. All of the above 8. Looking at the following four marketing examples, identify which one is OK. a. Advertise only in a strategically limited geographic area that is populated by a particular ethnic group. b. Limit advertising to small papers which cater to particular religious groups. c. Promote a listing only in selected sales offices in communities with similar ethnic populations. d. Advertising your knowledge of a language other than English in an Englishlanguage advertisement. 9. In an advertisement for a small, two-bedroom house in a neighborhood where many families live, which of the following language is clearly improper under the Fair Housing Act? a. Small, cozy home in quiet neighborhood b. Two-bedroom home, near playground and senior center c. Family friendly d. Perfect for empty nesters or newlyweds 10. If a prospective tenant has an assist animal, which of the following statements is true? a. The landlord can deny the animal if there is a no-pet rule. b. The landlord must allow the animal but can ask for a pet deposit. c. The landlord must allow the animal but can ask for a higher security deposit. d. The landlord must allow the animal and cannot ask for pet deposit or higher security deposit.

6 Agency Review Agency Quiz True False True False True False True False 1. An implied agency relationship is created by the actions or conduct of the parties. 2. An express agreement is created (usually) by a written agreement but can be created by orally expressing intentions to representing a client. 3. In a real estate transaction, the selling agent's client would be the seller. 4. Illinois Law does not include tenants of residential property as clients. True False True False True False True False True False 5. Ministerial Acts needs written disclosure prior to the consumer disclosing any confidential information. 6. Dual Agency does not need disclosure until the licensee is preparing a contract to purchase. 7. Confidential information remains confidential after the termination of the agency relationship unless it is released by the client or becomes public knowledge. 8. Illinois Law allows dual agency on licensees property only with full disclosure. 9. You are the agent of the person who is paying you. True False 10. Although Illinois Law does not require that the buyer sign the Disclosure of Designated Agency form, it is good business practice to obtain their signature or initials.

7 Presumption of Designated Agency: In Illinois, licensees are presumed to be the agent of the person with whom they are working. You are presumed to be doing Designated Agency unless there is a written agreement/disclosure to the contrary. You do not need anything in writing to create this agency relationship, however, all exclusive agreements must be in writing. You must disclose when you first create your agency relationship in writing who the Designated Agent is. Duties to Clients O L D C A R Honesty Accounting Reasonable Skill Reasonable Care & Diligence Confidentiality Obedience Loyalty Material Fact Disclosure Disclosure Responsibilities to Customers H A R M What s the difference? Reasonable Skill v. Reasonable Care & Diligence?

8 Match the statutory duties to the correct example: 1. Reporting of all funds associated with a transaction 2. Verifying zoning restrictions for your client that wishes to buy a property and open a business 3. Informing your client of all pertinent information/facts about a property 4. Calling your seller client 24 hours in advance of any showing, as directed by your client A. Reasonable Care B. Obedience C. Accounting D. Loyalty E. Disclosure F. Not a Duty G. Confidentiality 5. Lasts forever 6. Putting your client s interest above all others, including your own Ministerial Acts: If you are NOT going to be the agent of someone you will be doing Ministerial Acts. Disclosure of that must be done prior to the consumer giving you any confidential information. Illinois law does not allow Ministerial Acts to be done when showing other broker s or brokerage company s listings. Ministerial Acts can only be done when you already represent a client and cannot be a dual agent. There are rare exceptions to this. For example, if you chose to, you could tell the seller on a listing presentation that you were not their agent instruct them to not give you any confidential information since you would then be obligated to give it to a buyer should the seller decide to list with someone else. This is NOT recommended since, arguably, how can you do a listing presentation and pricing for a seller without getting their motivation, how much they owe, etc. Notice of No Agency Form is used when you represent one party but will not be doing Dual Agency. Examples include, but are not limited to: 1. Showing/selling a FSBO 2. Showing/selling your own listing if the Seller said no to dual agency 3. Showing/selling property you own or have an interest in

9 If you are the listing agent, which of the following would be considered a ministerial act that you can perform for a buyer customer? 1. Attending an open house and responding to questions about the property 2. Assisting the buyer to develop the terms of an offer or counteroffer 3. Keeping the buyer s information confidential 4. Filling in the blanks on an offer to purchase or a contract 5. Accompanying an appraiser or home inspector when they visit the property 6. Explaining the costs and closing procedures involved in the purchase 7. Doing a CMA for the buyer and suggesting an offering price 8. Showing the property 9. Presenting the offer to the seller in a timely manner 10. Recommend the buyer obtain legal counsel Duties Owed: The duties and responsibilities you owe to a Client are different from the responsibilities you owe to a customer when doing Ministerial Acts. Dual Agency occurs when a licensee is going to show/sell their own listing. Dual Agency needs informed consent of the clients prior to your acting as a dual agent. Consequently, you should be getting: A Disclosure and Consent to Dual Agency form signed by your seller when you take the listing (it may be in your listing agreement and if it is it needs to be initialed separately from the rest of the agreement) A Disclosure and Consent to Dual Agency form signed by your buyer prior to acting as a dual agent. The showing of the property would constitute acting as a dual agent. Both clients need to confirm their agreement to allow you to be a dual agent prior to or at the time of writing an offer. The Confirmation of Consent to Dual Agency is a part of most association drafted sales contracts and should be the first thing you do with the buyer prior to writing the offer and the first thing you do with the seller prior to presenting it. If either party chooses to NOT allow you to continue to be a dual agent, please consult your broker and/or company policy for further directions. Referring one of the clients to another agent in the office will be required. How that is handled will be a matter of company policy.

10 Which of the following is allowed when acting as a dual agent? 1. Provide pricing information about comparable properties to the buyer and seller (CMA). 2. Disclose known latent defects about the property to the buyer 3. Tell the buyer how much the seller wants to sell their home for 4. Tell the seller how high the buyer is willing to go 5. Disclose the buyer s basic financial qualifications to the seller 6. Assist the buyer by recommending they have a home inspection 7. Assist the buyer by recommending what they ask the seller to repair after the inspection 8. Disclose to the buyer the seller s motivation for selling 9. Disclose to the seller the buyer s motivation for buying (transferred, etc.) 10. Advise the buyer on how much to offer 11. Advise the seller on how much to counter-offer 12. Treat both the buyer and seller honestly Confidential Information: Any information that you obtain from a client that they deem to be confidential or information that could harm them in the negotiating of a contract is considered confidential. You as a licensee will be held to a higher standard regarding recognizing confidential information and its implications than the client. In other words, they do not have to SAY it s confidential for it to BE confidential. If it will harm them in their transaction then it cannot be disclosed. A few facts about confidential information: Confidential information remains confidential after the termination of the agency relationship. Confidential information ceases to be confidential when it is released by the client or when it becomes public knowledge.

11 Breach of Duty Exercise When not doing dual agency IS IS NOT Which of the following IS or IS NOT a breach of duty to a seller client? 1. Disclosing that the property was the site of a murder/suicide 2. Acting as a dual agent with verbal consent 3. Disclosing material facts about the property to buyer 4. Receiving a higher commission by getting a higher sales price 5. Showing more than just the sellers property to a buyer 6. Accepting commission from buyer without telling seller Which of the following IS or IS NOT a breach of duty to a buyer client? 1. Showing the same property to more than one buyer 2. Writing offers from two buyers on the same property 3. Disclosing the buyers financial qualifications 4. Accepting commission from the seller without telling buyer 5. Not showing property because commission is too low 6. Disclosing that the property was the site of a murder/suicide

12 Agency in Action In the following situations, decide which (if any) form is required. Meeting buyer for first time what needs to be disclosed? What needs to be signed? Additionally, what needs to be done if you are going to: show other listings show your own listing seller said yes to dual agency show your own listing seller said no to dual agency show property you own The buyer wants you to show them a For-Sale-By-Owner What needs to be disclosed to buyer? What needs to be disclosed to seller? You meet the buyer at an open house not your listing They show no interest in the property They show interest and begin to ask questions You begin to qualify them A. No disclosure required B. Notice of Designated Agency C. Disclosure & Consent to Dual Agency D. Notice of No Agency E. Notice of Contemporaneous Offers F. Additional Designated Agent You meet the buyer at an open house on your listing They show no interest in the property They show interest and begin to ask questions You begin to qualify them Does whether the seller gave you permission for dual agency change anything? When would you use Notice of Contemporaneous Offers? When is the Additional Designated Agent form used?

13 Escrow Quiz True False 1. License law requires all brokerage firms to hold have escrow accounts. True False 2. License law determines who holds the earnest money. True False 3. In order for a contract to be enforceable, there must be earnest money. True False 4. The escrowee must notify all principals in writing if a buyer fails to tender escrow money or an escrow check bounces. True False 5. If earnest money does not get submitted according to the terms of the contract the contract is automatically null and void. 6. Which of the following is true? a. Earnest money must be deposited within 24 hours of the escrowee s receipt of the money. b. Earnest money must be deposited the next business day following the execution of a contract. True False 7. On a closed transaction, earnest money cannot be disbursed from escrow earlier than the day of closing unless there is written direction of all principals. True False 8. If there is a dispute between parties regarding the escrow money, the escrowee must hold the deposit until all parties have agreed or the court rules on the disbursement. True False 9. On a terminated contract, earnest money must be returned the next business day after receipt of release signed by all parties (provided the check has cleared). True False 10. An escrowee may require signatures of the co-operating brokers prior to releasing earnest money.

14 Negotiating Scenarios Scenario 1 There is an offer on Sam and Sally Sellers property. Which of the following are legitimate reasons for you to refuse to present an offer? A. Seller is negotiating a contract with another buyer B. Seller refused an offer for more money than your buyer s offer C. The offer is written on a contract that is not commonly used in Alice s market D. Seller has accepted a previous contract E. Seller has stated in writing that they do not want to see other offers Scenario 1.1 There are multiple offers on the Sellers property. How should you proceed? A. Disclose to all agents that they are in a multiple offer situation. B. Do not disclose to anyone that they are in a multiple offer situation. C. Follow your company policy on disclosure of multiple offers. D. Follow the Sellers direction on disclosure of multiple offers. When counseling the Sellers on how they should proceed, what information would be valuable to them in their decision making process? A. Whether the buyers are interested in other properties for sale B. How many competing properties are for sale (supply and demand) C. The buyers qualifications D. Whether the buyers are pre-approved or pre-qualified E. The ethnicity of the buyers F. Whether the buyers have children G. Who the buyer agent is and their history and reputation

15 Scenario 1.2 After a lengthy negotiation the sellers have verbally accepted the offer brought in by Larry at ABC Realty. You have notified Larry and he has indicated he will have the signed contract to you by 5:00 that evening. At 3:00 you get another offer. It is a cash offer for considerably more than the first one. What are your seller s options? A. They cannot consider the second offer at all B. Rescind their counter to the first buyer and accept the new offer. C. They could only make the second offer a back-up since they have accepted the first. Scenario 2 Sam and Sally Sellers now have a full price offer on their property brought in by Joe at Titanic Realty. Sam and Sally want to consider the offer but don t like the fact that the buyer is an investor who intends to tear down their house. They direct you to call all the other agents who showed the property and shop the offer. What should you do? A. Refuse to shop the offer it s unethical and illegal. B. Inform the Sellers that have to accept it because it s full price. C. Follow the Sellers instructions What if the Sellers said they wanted you to shop the offer because they didn t want to sell to a family of a certain ethnicity because their neighbors had voiced fear of those people? Scenario 2.1 The transaction didn t go together and (six months later) the Sellers are now listed with Grope and Fumble. Your buyer, Bob, wants to put in an offer and you know that the Sellers are pretty desperate since they had put an offer in on new construction when you had the property listed and will need to be closing in less than a month. What should you do? A. Refer Bob to another agent you have a conflict of interest B. Get the Disclosure and Consent to Dual Agency Form signed by both C. Help Bob all you can but do not disclose the Sellers situation. D. Bob is your client disclose what you know to help him get the best deal

16 Scenario 3 Brenda buyer agent brings in an offer on the Sellers property. The Sellers counter to the buyers $2,000 higher. The buyers do not agree and do not make a counter offer. Which of the following statements to the Sellers would be accurate? A. They can sign the original offer made by the buyer and the contract is valid. B. The buyer is relieved of his offer the buyers are not bound to buy at their original offer If Brenda had given you the buyer s earnest money check what should you do with the check now? A. Give it to the seller B. Deduct the commission and return the balance to the buyer C. Return the check to the buyer D. Wait until the check clears the trust account (escrow account) and then return it. Scenario 3.1 The buyer is unable to get his financing as stipulated in the sales contract. What happens to his earnest money? A. It is forfeited to the seller B. It is used to pay commissions to the brokers C. It is automatically returned to the buyer D. It is returned to the buyer after all parties have signed a request/release of earnest money form. Scenario 3.2 The seller refuses to sign the form to release the earnest money. They want to put their house back on the market. Which of the following is correct? A. They will not be able to sell it to another buyer unless they return the money. B. The return of the earnest money does not hinder the sale to another buyer.

17 License Law Review 1. Which of the following would be grounds for disciplinary action by the Illinois Department of Professional Regulation (IDFPR)? a. Being convicted of a felony. b. Advertising that you hold the CRS or GRI designation when you do not. c. Depositing escrow money into a personal account. d. All of the above. 2. Which of the following is legal and would not create a violation of License Law? a. Advertising without using the sponsoring broker s name. b. Putting up a for-sale sign without the sellers consent. c. Acting as the agent of a tenant. d. Acting as a dual agent when selling your own property. 3. Which of the following would be grounds for disciplinary action? a. Acting as both a broker and a lawyer in the same transaction. b. Acting as a dual agent with permission of all parties. c. Acting as a buyer agent rather than the seller s agent when selling a FSBO. d. All of the above. 4. Managing Broker A s company policy is to take the entire commission back to his office when there is a closing and disburse the selling side after the closing. Which of the following statements is true? a. He cannot do this it must be disbursed at the closing. b. He must disburse within 24 hours of the closing. c. There is no violation and no requirement for disbursement. d. The selling broker can stop the closing if he is not getting paid. 5. In this situation, Managing Broker A finds out that selling Managing Broker B s license had been terminated two months before the sale was made. What should Broker A do? a. Pay the commission to the local Association. b. Broker B cannot be paid because he does not have a license. c. Pay Broker B his commission, he sold the property and it is due him. d. Pay the commission to the Department. 6. Which of the following statements is true regarding electronic advertising? a. License law has no jurisdiction over Internet advertising. b. A website must include company name and geographic location of the property c. A website must include the company name and specific address of the property d. Website information is never accurate and licensees need not worry about it.

18 7. A licensee using the Internet must not: a. Use a URL or domain name that is deceptive or misleading. b. Use information from another brokerage company s site without permission c. Use keywords of other brokerage companies to drive Internet traffic to his site. d. All of the above. 8. When listing property, a licensee should: a. Price the property at what the seller needs b. Price the property to get the most commission for the licensee. c. Price the property at the fair market value derived from the CMA. d. Suggest the seller have an appraisal done prior to pricing the property. 9. When doing a CMA, what should NOT be considered when estimating market value? a. Currently listed properties b. Properties recently sold and closed c. Neighborhood demographics d. Properties that expired and did not sell 10. Agent Alice is planning to leave ABC Realty and go to XYZ Realty. She has three potential sellers who want to list now but she doesn t want to leave ABC until her current transactions close. She takes the listings under XYZ Realty s name with Alice as the Designated Agent of the seller. Which of the following statements is true? a. There is no violation since the Manager of XYZ knew what she was doing. b. Both she and the Manager of XYZ are violating the license law. You cannot represent any company other than the one that sponsors your license.

19 Answers Fair Housing Protected under Federal Fair Housing Laws 1. Race 2. Color 3. Religion 4. Sex 5. Handicap 6. Familial Status 7. Nationality Protected under Illinois Law All Federal Classes - plus: 8. Age 9. Marital Status 10. Military Discharge 11. Sexual Orientation 12. Ancestry Protected in Cook County All State and Federal - plus: 13. Source of Income 14. Parental Status 15. Housing Status 16. Gender Identity Your local municipality All state, federal, county - plus: 17. Possibly: Section 8 Quiz 1. d 2. c 3. c 4. d 5. d 6. b 7. a 8. d 9. a 10. d Agency Quiz 1. T 2. T 3. F 4. F 5. T 6. F 7. T 8. F 9. F 10. T Duties to Clients O Obedience L Loyalty D Disclosure C Confidentiality A Accounting R Reasonable Care & Diligence Responsibilities to Customers H Honesty A Accounting R Reasonable Skill M Material Fact Disclosure Difference: Reasonable Skill: What the law requires Reasonable Care & Diligence: Protect client from foreseeable risks of harm.

20 Agency Duties 1. C 2. A 3. E 4. B 5. G 6. D Ministerial Acts 1. Yes 2. No 3. No 4. Yes 5. Yes 6. Yes 7. No 8. Yes 9. Yes 10. Yes Dual Agency 1. Yes 2. Yes 3. No 4. No 5. Yes 6. Yes 7. No 8. No 9. No 10. No 11. No 12. Yes Breach Seller 1. Is 2. Is 3. Not 4. Not 5. Not 6. Is Breach Buyer 1. Not 2. Not 3. Not 4. Is 5. Is 6. not Meeting buyer for first time what needs to be disclosed? B What needs to be signed? Not required to be signed highly recommended Additionally, what needs to be done if you are going to: A C D D show other listings show your own listing seller said yes to dual agency show your own listing seller said no to dual agency show property you own The buyer wants you to show them a For-Sale-By-Owner A D What needs to be disclosed to buyer? (Assuming Designated Agency done) What needs to be disclosed to seller? (Assuming listing with seller) You meet the buyer at an open house not your listing A B B They show no interest in the property They show interest and begin to ask questions You begin to qualify them You meet the buyer at an open house on your listing A C C They show no interest in the property They show interest and begin to ask questions* You begin to qualify them* Does whether the seller gave you permission for dual agency change anything? Yes if seller said no - D is the correct answer for * When would you use Notice of Contemporaneous Offers? Two buyers for the same property. When is the Additional Designated Agent form used? When managing broker needs to assign a different agent to a buyer or seller. A. No disclosure required B. Notice of Designated Agency C. Disclosure & Consent to Dual Agency D. Notice of No Agency E. Notice of Contemporaneous Offers F. Additional Designated Agent

21 Escrow Quiz 1. F 2. F 3. F 4. T 5. F 6. B 7. T 8. T 9. T 10. F Negotiating Scenario 1 E Scenario 1.1 D; A, B, C, D, G Scenario 1.2 B Scenario 2 C Scenario 2.1 C Scenario 3 B; C Scenario 3.1 D; B License Law Quiz 1. d 2. c 3. a 4. c 5. b 6. b 7. d 8. c 9. c 10. b