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BROKER TOOLKIT YOUR GUIDE TO STARTING AND OPERATING A REAL ESTATE BROKERAGE IN VIRGINIA


VAR’S BROKER TOOLKIT BROUGHT TO YOU BY THE VIRGINIA MANAGERS COUNCIL

TABLE OF CONTENTS SECTION 1: PRELIMINARY CONSIDERATIONS BUSINESS ENTITIES & TAX REQUIREMENTS .......................................................................................... 1 RESPONSIBILITIES OF A BROKER .......................................................................................................... 1 SPECIFICS CONCERNING BROKER SUPERVISION .................................................................................. 2 OPENING THE OFFICE .......................................................................................................................... 3 ORGANIZATION OF THE OFFICE ............................................................................................................. 3 SALES ASSOCIATES .............................................................................................................................. 4 BOOKKEEPING ...................................................................................................................................... 8 BANKING / ESCROW FUNDS ................................................................................................................. 8 OPENING FOR BUSINESS ..................................................................................................................... 9

SECTION 2: RISK MANAGEMENT ISSUES RESPA POLICY....................................................................................................................................... 13 DOS AND DON’T FOR REAL ESTATE BROKERS AND AGENTS ................................................................. 13 ANTITRUST & THE REAL ESTATE BROKERAGE FIRM ............................................................................. 16 FEDERAL ANTITRUST LAW .................................................................................................................... 16 ANTITRUST ISSUES IN REAL ESTATE .................................................................................................... 17 LEAD-BASED PAINT (LBP) DISCLOSURE REQUIREMENTS ...................................................................... 25 ENVIRONMENTAL CONCERNS ............................................................................................................... 28

SECTION 3: ADDITIONAL RESOURCES NAR SOCIAL MEDIA POLICY .................................................................................................................. 29 FAIR HOUSING ..................................................................................................................................... 33 DO NOT CALL ....................................................................................................................................... 33 NON-DISCRIMINATORY / HARASSMENT / SAFETY .................................................................................. 33 PROFESSIONAL COURTESIES ................................................................................................................ 33 BROKER SELF AUDIT FORM (DPOR) ..................................................................................................... WEB PDF

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PRELIMINARY CONSIDERATIONS

BUSINESS ENTITIES & TAX REQUIREMENTS There are several types of business entities recognized in Virginia. There are sole proprietorships, partnerships, limited liability companies, corporations, and professional associations. In addition, there are different types of partnerships and corporations. You should consult an attorney or other professional to determine what is best suited for your business and taxation needs. Also, you should consult an attorney familiar with employment matters, such as required postings from the Virginia Employment Commission Virginia State Corporation Commission (types of entities): http://www.scc.virginia.gov/clk/busdef.aspx Virginia Employment Commission (employee page): http://www.vec.virginia.gov/vecportal/employer/employer_services.cfm

RESPONSIBILITIES OF A BROKER The following is the definition of a Principal Broker taken from the VAR Real Estate Board Regulations. As principal broker, it is your responsibility that your practice, and that of your sales associates and staff, complies with all rules and regulations. The following gives an overview of the major responsibilities associated with the principal broker: Principal Broker - The individual broker who shall be designated by each firm to assure compliance with Chapter 21 (§ 54.1-2100 et seq.) of Title 54.1 of the Code of Virginia, and this chapter, and to receive communications and notices from the board which may affect the firm or any licensee active with the firm. In the case of a sole proprietorship, the licensed broker who is the sole proprietor shall have the responsibilities of the principal broker. 1. Has complete responsibility for everything that happens in the firm. (18 VAC 135-20-10) 2. Responsible to maintain the license of every-one under his authority and make them available to the public. (18 VAC 135-20-160.C) 3. Responsible for the firm’s escrow account. (18 VAC 135-20-180.A.1) 4. Responsible for placing funds in the escrow account, which are designated to be there. (18 VAC 135-20-180.B.1.a) 5. Responsible to report any licensee under their supervision who violates the escrow provision. (18 VAC 135-20-180.C.5) 6. Responsible for maintaining financial records at the place of business. (18 VAC 135-20-185.A) 7. Responsible for having a bookkeeping system, which accurately reflects the financial status of the firm. (18 VAC 135-20-185.B)

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PRELIMINARY CONSIDERATIONS 8. Responsible for keeping copies of all the firm’s records for three years as prescribed by regulation. (18 VAC 135-20-185.C.1) 9. Responsible for all advertising. (18 VAC 135-20-190.B) 10. Responsible for the actions of all licensees under their supervision and if he/she had knowledge, responsible to take action. (18 VAC 135-20-330)

Click the following link for the Real Estate Board Regulations: http://www.dpor.virginia.gov/dporweb/reb_reg.pdf

Broker Self-Audit Requirement As of January 1, 2013, principal and supervising brokers are required to conduct a self-audit at least once during each firm license term (and sole practitioners at least once during each license term) to ensure compliance with Real Estate Board Regulations. The audit must be recorded on the Firm/Sole Proprietor Audit Form which can be found at the Real Estate Board’s website: http://www.dpor.virginia.gov/Boards/Real-Estate/ and in the Additional Resources section of this toolkit. Please note that the Audit Form is a simple checklist to make sure you’re in compliance with Virginia’s laws and regulations governing real estate brokerage. The completed form must be signed by the principal or supervising broker and kept on file at the firm. Also, the responsible broker must certify at renewal of the firm license (or the sole practitioner at license renewal) that the audit has been conducted. IMPORTANT NOTE: The Audit Form does not have to be submitted to the Real Estate Board but must be available if requested by the Board.

SPECIFICS CONCERNING BROKER SUPERVISION The Real Estate Board Regulations clearly identify factors that indicate reasonable and adequate broker supervision. 18 VAC 135-20-160. Place of business. Each place of business and each branch office shall be supervised by a supervising broker. The supervising broker shall exercise reasonable and adequate supervision of the provision of real estate brokerage services by associate brokers and salespersons assigned to the branch office. The supervising broker may designate another broker to assist in administering the provisions of this subsection. The supervising broker does not relinquish overall responsibility for the

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PRELIMINARY CONSIDERATIONS supervision of the acts of all licensees assigned to the branch office. Factors to be considered in determining whether the supervision is reasonable and adequate include, but are not limited to, the following: 1. The availability of the supervising broker to all licensees under the supervision of the broker to review and approve all documents including but not limited to leases, contracts affecting the firm's clients, brokerage agreements and advertising; 2. The availability of training and written procedures and policies which provide, without limitation, clear guidance in the following areas: a. Proper handling of escrow deposits; b. Compliance with federal and state fair housing laws and regulations if the firm engages in residential brokerage, residential leasing, or residential property management; c. Advertising; d. Negotiating and drafting of contracts, leases and brokerage agreements; e. Use of unlicensed individuals; f.

Agency relationships;

g. Distribution of information on new or changed statutory or regulatory requirements; h. Disclosure of matters relating to the condition of the property. i.

Such other matters as necessary to assure the competence of licensees to comply with this chapter and Chapter 21 (ยง54.1-2100 et seq.) of Title 54.1 of the Code of Virginia.

3. The availability of the supervising broker in a timely manner to supervise the management of the brokerage services; 4. The supervising broker ensures the brokerage services are carried out competently and in accordance with the provisions of this chapter and Chapter 21 (ยง54.1-2100 et seq.) of Title 54.1 of the Code of Virginia; 5. The supervising broker undertakes reasonable steps to ensure compliance by all licensees assigned to the branch office; 6. If a supervising broker is located more than 50 miles from the branch office and there are licensees who regularly conduct business assigned to the branch office, the supervising broker must certify in writing on a quarterly basis on a form provided by the board that the supervising broker complied with the requirements in this subsection; and 7. The supervising broker must maintain the records required in this subsection for three years. The records must be furnished to the board's agent upon request.

OPENING THE OFFICE ORGANIZATION OF THE OFFICE LOCATION

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PRELIMINARY CONSIDERATIONS The choice of geographic location depends largely on the goals and objectives in relation to your real estate specialization. You must consider if the market area is growing, what is the turnover rate; does the community attract commerce and industry, what is the per capita target? The general location will depend greatly on the demographics and economic impacts in the service area. The actual site of your office will take into consideration what you think is most important: building exposure, traffic, parking, or, in other words, what will catch the attention and provide the most convenience for your market, tempered by your financial capabilities. It is useful to remember that the first impression to project and establish your identity with the community will be in the presentation of the building exterior. The theme you carry with your building should be consistent with your advertising, logos, letterhead, signs, business cards, etc. The goal is to imprint upon the minds of the community recognition through name, logos, colors, slogans and other promotional materials. PHYSICAL LAYOUT As your exterior is important, your interior design is important as well. Functionality and the projection of a business atmosphere are important to your office layout. Many hard decisions will have to be made due to space allotments, placement of desks, phones, equipment, storage, offices, etc. Space must be used productively. In regards to the number of sales associates, the cost of providing the opportunity of doing business (desk costs) must be calculated. Desk cost = Total Annual Firm Expenses/number of sales associates. For example: $80,000 Total Expenses/10 associates = $8,000. On a 50/50 split, the sales associate would not begin to earn a profit until the gross commission amount of $8,000 per associate is met. Begin by listing the space allocations absolutely needed followed up with a desirable list. Some things to consider before actual arrangement takes place are: • • • • • • • •

Customer or client semiprivate or private consultation areas Foot traffic Sales staff accessibility to managing broker and the public Relaxing atmosphere for clients and customers Lighting Functionality of greeting, consulting, and operational procedures for clients and customers Location of Restrooms ADA Compatibility

Every office is different and much will depend on your specific requirements based on the size of your sales force and other employees, your target audience, personal taste, and the image you want to project to customers and clients.

SALES ASSOCIATES RECRUITING Interviewing potential associates is very subjective. It is very difficult to ascertain whether or not a potential associate will succeed or fail. However, remember to ask open-ended questions rather than “yes”/“no” type questions. This will enable you to hear detail in an answer that you would otherwise not have gotten through closed-ended questioning. Diversity in your sales staff is a good thing and can be very productive. Of course you want all of your associates to be

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PRELIMINARY CONSIDERATIONS producers and to exploit each of their individual strengths to the firm’s advantage. The type of questioning should be formatted to achieve answers to questions on motivation, knowledge, availability, personality, intelligence, compatibility, ambition, ethics, loyalty, team spirit, and reactions to high-pressure situations. Good salesmanship attributes are an ego-drive and empathy. Ego-drive is the pleasure and self-gratification one gets from the act of successful persuasion. Empathy is the perception and awareness of another’s feelings without becoming emotionally involved. These are two key things to look for in an applicant. Be thorough in your determinations. After all, your evaluation and decision will be one you will have to live with in the months and possibly years ahead. Caution! Consider the following example of questionable recruiting: I am in the process of opening my own real estate firm and I let my current company know that I am leaving December 31st. They told me “I better not recruit any of their agents” while I am still affiliated with them or they would pursue legal action. Can they really take action against me, or is this more of a scare tactic? While an agent at the firm, you have a fiduciary duty to the firm to act in its best interest. While it’s common for agents to collaborate on leaving, you shouldn’t urge others to go until you have left the firm. Especially now that you’ve heard from the firm, you should wait to approach other agents.

TRAINING Proper training of associates is needed for a prosperous and productive sales force, and proper supervision is required by the Real Estate Board (See Specifics Concerning Broker Supervision Above). You essentially will become a mentor for all new associates in passing on your knowledge and providing enough training for their survival and livelihood. The sales associates you have hired who have previously worked in the industry bring experience as well as bad habits they may have formed in their previous environment. As the saying goes, “Bad habits are hard to break.” Nevertheless, training is essential for all associates, even the experienced associates. Before unleashing your new associates to the public, you must adequately train them to follow good work habits, increase their profits, manage their time, produce more efficiently, and learn from the mistakes of others as well as their own. By investing time in the training of your associates, you can see a return in boosting your reputation among the community, identifying promising associates as well as not so promising ones, increasing morale, experiencing less turnover, and motivating your associates. In training your associates, you must find out what motivates them. What are their long term goals? Now, help them to set objectives to meet those goals, and in the process, meet your objectives and your company goals. Determine what the threshold of a successful associate is in terms of listings, units of production (closings), and intangibles such as prospecting, on a monthly basis. At the minimum, implement these objectives as each associate’s personal objectives. An additional benefit of training agents is that good training helps you and your associates avoid begin is situations in front of a professional standards panel or a DPOR hearing. Those that do not meet

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PRELIMINARY CONSIDERATIONS your minimum objectives need to be evaluated and possibly have their affiliation terminated if this is a repeated behavior pattern. To achieve objectives, there are many daily practices that can be exercised to keep the momentum going and growing. Some suggestions include: • • • • • • • • • • •

Check unclosed transactions for anything needlessly holding them up Write ads for any new listings Match customers with new listings in the MLS Follow up on renewing listings that may be expiring Inspect any new listings in the MLS Provide handouts and mailings to farm areas with high turnover rates Write promotional ads listing your specialty or specialties Follow up with post-sale inquiries Follow up with former buyers who may be ready to upgrade Contact a prepared list of FSBOs in your market Cold canvas neighborhoods by knocking on doors and asking questions

Discipline in maintaining daily practices can lead to increased productivity. It is essential to keep the fire stoked. In times of economic upturn, some associates may not feel the pressure to maintain such essential and common practices and get lazy. Discipline in this area will prepare you and your associates for times of economic downturn.

EDUCATION Along with training comes education. All associates should be encouraged to continue their education above and beyond the requirements of the Virginia Real Estate Board. The VREB requires continuing education every two years for the retention of licensing as well as additional education for new agents, associate brokers and special training in Virginia agency law. However, professionalism goes way beyond the basics and minimum requirements. There are many designations for specialization status available to REALTORS®. Your local association, as well as state, and national associations, provide the opportunity for your associates to set themselves apart through the earning of certain designations such as ABR, GRI, CRS, CCIM, etc. There are also designations for managing brokers such as CRB, and a broker can set the example for associates as well as gain valuable knowledge. (Some insurance companies even give discounts on E&O insurance for having designations!) Professionalism and prescribing to a higher set of standards than most licensees is what can place your firm and your associates ahead of the competition. Clients and customers recognize the designations of specialty. After all, if you’re looking for a business accountant, you should look for a CPA simply because you’ve identified that he or she is a professional and expert in their field through the designation of CPA. The same is true for real estate professionals. The public looks for these designations. Set yourself apart from your competition and encourage continuing education for the promotion of your associates as well as your firm. Under EDUCATION refer to DPOR Code § 54.1-2105.01.

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PRELIMINARY CONSIDERATIONS POLICIES & PROCEDURES The regulations of the Virginia Real Estate Board require all firms to have written policies and procedures. It is also a prudent tool to provide to your staff for guidance, discipline, equitability, compensation, and standards of practice. VAR and NAR have resources and general information available to assist you in creating and implementing an office policy. http://www.realtor.org/library/library/fg112 or http://www.varealtor.com/brokertoolkit.

USE OF AN UNLICENSED ASSISTANT Most brokers will find that they will not be doing all of the administrative duties themselves and may need assistance, depending on their type of contribution to the firm. Keep in mind the federal and state requirements of employment when hiring staff personnel. Employees cannot perform any duties covered under Virginia real estate license law unless they are licensed real estate agents and doing so can result in a Class I Misdemeanor. Secretarial or Administrative Duties • • • • • • • • • • • • • • • • •

Perform general clerical duties, including answering the phones and reading information shown on the listing. Submit listings and changes to MLS. Follow up on loan commitments after contracts have been negotiated. Have keys made for listings. Compute commission checks. Place signs on properties. Act as a courier service. Schedule appointments. Record and deposit earnest money, security deposits and advance rents. Prepare contract forms for approval of the licensee and supervising broker*. (*administrative task only; presentation of contract remains with licensee) Prepare promotional materials and advertisements for approval of the licensee and supervising broker. Assemble closing documents. Obtain required public information from governmental entities. Monitor license and personnel files. Order routine repairs as directed by licensee. May be compensated for their work at a predetermined rate that is not contingent upon the occurrence of a real estate transaction. Monitor license and personnel files

Don’ts Show property. Give opinions or advice on a listing. Preview, inspect or determine (measure) the square footage of any property unless accompanied by a licensee. • Answer questions on listings, titles, financing or closings, unless to confirm that a property is • • •

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PRELIMINARY CONSIDERATIONS

• • • •

listed, to identify the listing broker or sales agent and to provide such information as would normally appear in a simple, classified newspaper advertisement (location and/or address.) Discuss or explain with anyone outside the firm a contract, listing, lease, agreement, or other real estate documents Attend pre-closing walk-through or real estate closing unless accompanied by a licensee. Negotiate the amount of rent, security deposit, or other lease provisions in connection with a rental property. Represent themselves as being a licensee or as being engaged in the business of buying, selling, exchanging, renting, leasing, managing, auctioning, or dealing with options on any real estate or the improvement thereon for others. Compensate non-licensed staff on the basis of real estate activity, such as percentage of commission, or any amount based on listings, sales, etc.

A good secretary can save you valuable time and headaches. Use the same type of questioning used with associates for selecting a secretary/bookkeeper, modifying the questioning to fit this position.

BOOKKEEPING Because of the possibility of embezzlement, there should be a checks and balance system and auditing process. Some suggestions are as follows: • •

The bookkeeper should not be allowed to sign checks. The bookkeeper should not be the person to reconcile the bank statement.

If you must allow the bookkeeper to reconcile the bank statement, then have the bank statement sent to your home and office.

The assistance of an accounting firm auditing your records on a timely basis may be prudent and can help avoid financial problems. • The principal broker must always maintain control over escrow accounts. •

BANKING/ESCROW FUNDS DPOR requires that operating funds and escrow accounts be kept separate at all times. It is highly recommended that the firm open separate checking accounts for each. It is important that client funds entrusted to the firm are deposited promptly according to DPOR regulations or as directed in writing. DPOR regulations require that escrow funds be deposited within 5 business days of the ratification of the purchase contract, unless otherwise agreed to by the parties in writing. If the principal broker reasonably believes that one of his sales staff has performed outside the 5-day window (or there is any other escrow error), the broker must report the incident to DPOR within three business days. Failure to do so may be construed by DPOR as improper maintenance of escrow funds. See 18VAC135-20-180. Maintenance and management of escrow accounts at http://leg1.state.va.us/cgi-bin/legp504.exe?000+reg+18VAC135-20-180

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PRELIMINARY CONSIDERATIONS RECORD KEEPING There are certain requirements for records maintenance. DPOR regulations list those requirements, summarized below. It is suggested that an accountant be contacted for additional financial accounting requirements. •

Client Files: Broker is required to retain transaction files for a period of three years from the date of the closing or ratification – if the transaction failed to close. Broker should keep a complete and legible copy of each disclosure of a brokerage relationship, and each executed contract, agreement, and closing statement related to the real estate transaction, which in the broker's control or possession, unless prohibited by law. Please note that due to VAR sponsored legislation records can be maintained electronically. VAR also recommends that you retain records for five years due to the statute of limitations on written contracts;

Financial Records: Broker should maintain a complete and accurate record of any receipts and their disbursements. These records shall show, in addition to any other requirements of the regulations, the following information: from whom money was received; the date of receipt; the place of deposit; the date of deposit; and, after the transaction has been completed, the final disposition of the funds.

For the complete DPOR list of requirements, see 18VAC135-20-185. Maintenance and management of financial records. http://leg1.state.va.us/cgi-bin/legp504.exe?000+reg+18VAC135-20-185

OPENING FOR BUSINESS ADVERTISING & PROMOTION Of course you will want to advertise your grand opening. Depending on your advertising budget, generally higher in your first month of business, you should consider different types of media for announcing your grand opening: Internet (Facebook, Twitter, LinkedIn, etc), newspaper, radio, TV, and cable. A grand opening party, “Open for Business”, inviting community, family and friends is a great way of establishing a presence in your select market. Announcements and invitations through your church, local association, chamber of commerce, social clubs, and business contacts including banks, title companies, closing attorneys, accounting firms, mortgage companies, etc., is a great way to establish a network. Know your community beforehand to find the avenues of promotion. The office cannot advertise until it is officially open for business. Once you’re open for business and have established clients, today’s technology offers a multitude of ways to advertise. Make sure you familiarize yourself with the advertising requirements for each medium; online advertising can be particularly tricky. Please review the article below concerning online advertising. NAR recently clarified how a new ethics rule concerning online advertising affects Virginia law. The Virginia Real Estate Board (VREB) Regulations allow a licensee to include his required online advertising disclosures (see below) or a link to those disclosures on the online viewable page. For example, if Firm A advertises online at a local newspaper’s site, it would have to include its firm name, city and state of main office and all jurisdictions in which the firm is

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PRELIMINARY CONSIDERATIONS licensed or a link to those required disclosures on the viewable page of the advertisement. The VREB rule is not dependent on whether there is enough room to put all the required disclosures on the viewable page. However, NAR SOP 12-5 requires the firm name to be displayed in a reasonable and readily apparent way in advertisements and only allows the link to replace the firm name “in electronic displays of limited information (e.g., “thumbnails, text messages, “tweets”, etc.)” Therefore, if Firm A advertises online, and there is ample room to put the firm name, it must at least include the firm name – it could link to the other required disclosures (city and state of main office and all jurisdictions of licensure). If Firm A advertises online using Twitter, where there is no space for the firm name, then just a link to the required disclosures will suffice. Where the Code of Ethics and the law conflict, the Code must give way to the requirements of the law. Where the Code establishes a higher standard than is required by law, REALTORS® are obligated by the Code’s higher standard. In this case, the Code establishes a higher standard. As a reminder, below is a list of disclosures required by the Real Estate Board and the new SOP 12-5. Online ads for a firm must have: • • •

Firm name; City and state of main office; and All jurisdictions (usually states) in which the firm is presently licensed.

Online ads for a licensee (not a firm) must have: • • •

Licensee’s and firm’s name; City and state of the licensee’s office (not necessarily firm’s main office); and Jurisdictions (usually states) in which the licensee holds a license, active or not.

Standard of Practice 12-5 REALTORS® shall not advertise nor permit any person employed by or affiliated with them to advertise real estate services or listed property in any medium (e.g., electronically, print, radio, television, etc.) without disclosing the name of that REALTOR®’s firm in a reasonable and readily apparent manner. This Standard of Practice acknowledges that disclosing the name of the firm may not be practical in electronic displays of limited information (e.g., “thumbnails”, text messages, “tweets”, etc.). Such displays are exempt from the disclosure requirement established in this Standard of Practice, but only when linked to a display that includes all required disclosures. (Adopted 11/86, Amended 1/11) See - 18 VAC 135-20-190. Advertising by licensees at http://leg1.state.va.us/cgibin/legp504.exe?000+reg+18VAC135-20-190 See also: Model Social Media Policy in Appendix

CHECKLIST OF MISCELLANEOUS CONSIDERATIONS Before swinging the doors open for business, you must consider a few things:

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PRELIMINARY CONSIDERATIONS • • • • • • • • • • • • • • • • • •

Place Yellow Page ads in advance or you may find that it will be a year later before you can place an ad Register your new firm in advance with your local association to avoid delaying MLS privileges Remember licensing requirements Display recommended fair housing information Display all required license information Zoning requirements Signed contracts of affiliation and employment Letterhead, business cards, and brochures or any other promotional material Have an Office Policy Manual in effect Establish bank accounts Send out announcements Obtain proper insurance coverage For effective and productive communication, acquire access to the internet and email accounts for all associates Equipment and other technology needs Errors & Omissions Insurance Decision on standard forms usage Relocation issues Property Management Issues

Again, you should consult with an attorney, CPA or other professional to ensure proper business set-up, maintenance and compliance.

BUYING OR SELLING AN EXISTING FIRM There comes a time for brokers when the buying or selling of a firm will take place. In actual transactions of buying or selling a real estate firm, buyer’s reasons include continued expansion, desirable location, a desire to have a business, or to purchase an established firm. Sellers generally sell because of retirement plans, personal or financial reasons, weariness in managing a firm, or actually moving on to another industry. There is no one right way to value a firm. The method and results should account for all the key value factors internal and external to the firm. The method should be understandable as well as believable to all parties and should have the capability of being duplicated by the other party lending to the credibility of the results. Overall, the method should arrive at a range of values that can be used as the starting point in negotiation. Regardless of whether you're selling the firm or buying the firm as an expansion branch office, understanding valuation methodologies is the first step in determining the profitability gained by selling or by investment purchasing. There are many methods for valuing a firm. However, three methodologies of valuing a firm are most common: 1. Asset-based method

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PRELIMINARY CONSIDERATIONS 2. The replacement cash method 3. Cash flow methods The assistance of a certified public accounting firm is invaluable in determining the value of your firm.

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RISK MANAGEMENT ISSUES

RESPA POLICY Brokers are required to comply with the provisions of the federal Real Estate Settlement Procedures Act (RESPA) at all times. Generally, Section 8 of RESPA provides that it is illegal to pay or to receive anything of value pursuant to an agreement that settlement services will be referred (This prohibition applies only if there is an institutional mortgage loan in the deal). Real estate brokerage is a settlement service. However, RESPA contains an exemption in the case of referrals by real estate licensees to each other. Below is a useful guide from NAR outlining important information on RESPA.

THE REAL ESTATE SETTLEMENT PROCEDURES ACT: DOS AND DON’TS FOR REAL ESTATE BROKERS AND AGENTS ENTITIES SUBJECT TO RESPA Services that occur at or prior to the purchase of a home are typically considered settlement services. These services include title insurance, mortgage loans, appraisals, abstracts, and home inspections. Services that occur after closing generally are not considered settlement services. RESPA covers, among others:        

Real Estate Brokers and Agents Mortgage Bankers and Mortgage Brokers Title Companies and Title Agents Home Warranty Companies Hazard Insurance Agents Appraisers Flood and Tax Service Providers Home and Pest Inspectors

RESPA, however, does not apply to:     

Moving Companies Gardeners Painters Decorating Companies Home Improvement Contractors

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RISK MANAGEMENT ISSUES RESPA PROHIBITIONS 

RESPA prohibits a real estate broker or agent from receiving a “thing of value” for referring business to a settlement service provider, or SSP, such as a mortgage banker, mortgage broker, title company, or title agent.

RESPA also prohibits SSPs from splitting fees received for settlement services, unless the fee is for a service actually performed.

EXCEPTIONS TO RESPA PROHIBITIONS Not all referral arrangements fall under RESPA’s referral restriction. In fact, RESPA and its regulation feature a number of exceptions. Three examples are: Promotional and Educational Activities 

 

Settlement service providers, such as mortgage bankers, mortgage brokers, title insurance companies, and title agents, can provide normal promotional and educational activities under RESPA. These activities must not defray the expenses that the real estate broker/agent otherwise would have had to pay. The activity cannot be in exchange for or tied in any way to referrals.

Payments in Return for Goods Provided or Services Performed  

A real estate broker or agent must provide goods, facilities, and services that are actual, necessary, and distinct from what they already provide. The amount paid to a real estate broker or agent must be commensurate with the value of those goods and services. If the payment exceeds market value, the excess will be considered a kickback and violates RESPA. The payments should not be “transactionally based.” A payment for services rendered is transactionally based if the amount of the payment is determined by whether the real estate broker/agent’s services resulted in a successful transaction. Payments may not be tied to the success of the real estate broker/agent’s efforts, but must be a flat fee that represents fair market value.

Affiliated Business Arrangements 

 

Real estate brokers and agents are permitted to own an interest in a settlement service company, such as a mortgage brokerage or title company, so long as the real estate broker/agent: Discloses its relationship with the joint venture company when it refers a customer to the mortgage broker or title company; Does not require the customer to use the joint venture mortgage broker or title company as a condition for the sale or purchase of a home; and

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RISK MANAGEMENT ISSUES 

Does not receive any payments from the joint venture company other than a return on its ownership interest in the company. These payments cannot vary based on the volume of referrals to the joint venture company. The joint venture mortgage broker or title company must be a bona fide, stand-alone business with sufficient capital, employees, and separate office space, and must perform core services associated with that industry.

EXAMPLES OF PERMISSIBLE ACTIVITIES & PAYMENTS 

  

 

A title agent provides a food tray for an open house, posts a sign in a prominent location indicating that the event was sponsored by the title agent, and distributes brochures about its services. A mortgage lender sponsors an educational lunch for real estate agents where employees of the lender are invited to speak. If, however, the mortgage lender subsidizes the costs of continuing legal education credits, this activity may be seen as defraying costs the agent would otherwise incur, and may be characterized as an unallowable referral fee. A title company hosts an event that various individuals, including real estate agents, will attend and posts a sign identifying the title company’s contribution to the event in a prominent location for all attending to see and distributes brochures regarding the title company’s services. A hazard insurance company provides notepads, pens, or other office materials reflecting the hazard insurance company’s name. A mortgage brokerage sponsors the hole-in-one contest at a golf tournament and prominently displays a sign reflecting the brokerage’s name and involvement in the tournament. A real estate agent and mortgage broker jointly advertise their services in a real estate magazine, provided that each individual pays a share of the costs in proportion with his or her prominence in the advertisement. A lender pays a real estate agent fair market value to rent a desk, copy machine, and phone line in the real estate agent’s office for a loan officer to prequalify applicants. A title agent pays for dinner for a real estate agent during which business is discussed, provided that such dinners are not a regular or expected occurrence.

EXAMPLES OF PROHIBITED ACTIVITES & PAYMENTS       

A title company hosts a monthly dinner and reception for real estate agents. A mortgage broker pays for a lock-box without including any information identifying the mortgage broker on the lock-box. A mortgage lender provides lunch at an open house, but does not distribute brochures or display any marketing materials. A hazard insurance company hosts a “happy hour” and dinner outing for real estate agents. A home inspector pays for a real estate agent to go to dinner, but does not attend the dinner. A title company makes a lump-sum payment toward a function hosted by the real estate agent, but does not provide advertising materials or make a presentation at the function. A mortgage broker buys tickets to a sporting event for a real estate agent, or pays for the real estate agent to play a round of golf.

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RISK MANAGEMENT ISSUES  

A title company sponsors a “get away” in a tropical location, during which only an hour or two is dedicated to education and the remainder of the event is directed toward recreation. A mortgage lender only pays a real estate agent for taking the loan application and collecting credit documents if the activity results in a loan.

Before you undertake any activity with a SSP or accept any payments, goods, or services from a SSP, you should speak with an attorney familiar with RESPA and make sure the activity complies with state and local laws. RESPA RESOURCES http://www.hud.gov/offices/hsg/sfh/res/respa_hm.cfm Consumer info & procedures, sample complaint letter, industry statute, proposed rules, Congressional report, etc. http://www.realtor.org/government_affairs/respa/index.html NAR’s take on RESPA – “RESPA Realities,” HUD updates, how to comply, marketing agreements, etc.

ANTITRUST & THE REAL ESTATE BROKERAGE FIRM FROM NAR The antitrust laws are designed and intended to protect competition and prevent monopolies. Awareness of and sensitivity to the antitrust laws is imperative for real estate brokers in today’s marketplace. Real estate and housing issues are a vital concern of government at all levels. This means that the real estate brokerage business may be often under scrutiny, and any anticompetitive conduct is likely to be detected and prosecuted. The nature of real estate practice makes real estate brokers particularly susceptible to antitrust challenges. Brokers vigorously compete to secure property listings to offer for sale, but they also regularly cooperate with one another, as subagents, buyers’ agents or “facilitators,” to identify ready, willing and able buyers for those listings. This dual tradition of competition and cooperation, which exists in few other professions, presents frequent opportunities for antitrust misconduct, whether intentional or inadvertent. In today’s business environment, it is a prerequisite to survival that brokers be conscious of and abide by the requirements of antitrust law.

FEDERAL ANTITRUST LAW Over 100 years ago Congress adopted the Sherman Act as the foundation of federal antitrust law. Virtually all federal antitrust litigation alleges one or more violations of the Sherman Act. Section 1 of the Sherman Act simply states that:

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RISK MANAGEMENT ISSUES Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade…is hereby declared illegal.

The literal language of the Sherman Act sets forth two basic elements of any Section 1 violation: There must be (1) a contract, combination, or conspiracy that (2) restrains trade. The conspiracy element is satisfied whenever two or more persons or entities carry out a common scheme or plan. If adherence to a common scheme or plan can be shown, the only remaining issue is whether or not the effect of the scheme or plan is to restrain trade. Shortly after the Sherman Act was passed the Supreme Court held that the Act did not literally prohibit every contract that restrained participants in the marketplace. If the Act were interpreted in that literal fashion, it would outlaw all commercial contracts since every contract restrains the parties to some extent. Instead, the Supreme Court declared that the Sherman Act prohibits only those contracts or combinations that unreasonably restrain trade. The Supreme Court subsequently also identified certain types of restraints deemed to be so inherently anti-competitive that their anti-competitive effects on trade are presumed without a need for the plaintiff to prove, or even introduce evidence of, the restraint’s impact on the market. Such restraints are called per se offenses. In a case alleging a per se offense the defendant is not permitted to introduce evidence to show the reasonableness of the restraint because its unreasonable anti-competitive nature is presumed and conclusively established. Accordingly, in a per se case, the only issue to be addressed in determining whether a defendant violated the Sherman Act is if he actually participated in the conspiracy. Restraints not characterized as per se violations are analyzed under the “Rule of Reason.” The Rule of Reason is a “balancing test” that weighs the pro-competitive and anti-competitive aspects of a practice that may adversely affect competition in some way. Conduct challenged as unlawfully restraining competition may escape condemnation if the pro-competitive benefits outweigh the anti-competitive implications.

ANTITRUST ISSUES IN REAL ESTATE UNLAWFUL PER SE RESTRAINTS Two per se restraints have particular relevance to real estate brokers:  

conspiracies to fix prices, such as real estate commission rates, or to fix other terms or conditions of the broker-client relationship; group boycotts, or concerted refusals to deal, with another competitor or a supplier.

1. Price/Commission Fixing Antitrust problems most frequently arise out of agreements – conspiracies – among competitors, which have the purpose or effect of eliminating or restricting competition between the parties to the agreement. A common subject of such agreements is the price or fee each competitor charges its customers for its products or services. Real estate brokerage firms are no different,

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RISK MANAGEMENT ISSUES and in the real estate profession, that usually means commission rates. A commission is the charge to a seller for successfully procuring a ready, willing and able buyer for the seller’s property on terms set forth in a listing agreement, or other such terms as the seller is willing to accept. Another form of commission is the charge to the buyer by a buyer’s agent for assisting the buyer in locating and acquiring suitable property. The antitrust prohibition on fixing commission rates means, simply, two or more real estate firms may not agree on the commission rate that each will charge. As noted earlier, price-fixing is a per se violation of the antitrust laws. Brokers must not agree with others on commission rates, and must take care to avoid even implying that they have discussed and/or reached agreement on fees. Salespeople must exercise similar caution to avoid the implication that the firm with which they are affiliated is part of a price-fixing conspiracy. 2. Fixing Commission Splits A per se illegal price fixing conspiracy can involve not only the prices a firm charges customers or clients, but also the fees it pays for goods and services. In particular, listing brokers may not agree on the commission “split” to be paid to compensate cooperating brokers who produce a ready, willing and able buyer for a listed property. Conspiracies among competitors to fix the compensation paid to cooperating brokers may also be deemed per se illegal. For this reason, brokers must determine their cooperative compensation policies in the same unilateral and independent manner that they establish the commission or fees charged to clients. Listing and selling brokers may, of course, have occasion to discuss or negotiate the compensation they will pay to each other in connection with individual transactions. These negotiations, however, generally take place before an offer to purchase has been procured by the cooperating office, and in any event should never include a representative of a third office. 3. Agreements As To Other Listing Terms. Antitrust law also condemns agreements among competitors regarding other terms or conditions of a listing agreement, such as the length of the listing, the type of listing accepted, or the marketing services to be provided by the listing broker, although such agreements may not be treated as per se violations. Any express or “understood” agreements as to the terms and conditions of listing agreements or other broker-client agreements raise serious antitrust concerns. The lawfulness of such agreements will in many cases be analyzed under the Rule of Reason, which balances the pro-competitive effects of the agreement, if any, against the anticompetitive consequences. 4. Boycotts A practice that is in a sense directly at odds with cooperation is group boycotting. Like pricefixing, group boycotting is generally characterized as a per se violation of the antitrust laws, although certain boycott activities may be addressed under the Rule of Reason. A group boycott is a concerted refusal to deal with a particular party, such as when two or more businesses agree to refuse to deal with another competitor in order to force a change in a competitor’s behavior or to attempt to drive the competitor out of business. As with price-fixing agreements, treatment of a group boycott as a per se violation of the antitrust laws results in the alleged conspirators being denied the opportunity to offer pro-competitive or other justifications for the conduct.

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RISK MANAGEMENT ISSUES The typical group boycott allegation in the real estate brokerage business involves a claim that two or more real estate firms have agreed to refuse to cooperate, or to cooperate on less favorable terms, with a third firm. Often the target of the alleged boycott is a broker that employs a “discount,” “ alternative,” or other non-traditional commission/compensation arrangement with clients. In some cases targets of alleged boycotts are real estate firms that offer non-traditional property marketing services. The purpose of the boycott, either explicitly or implicitly, is to eliminate the firm as a competitor in the market, or to cause the firm to abandon the discount or alternative marketing strategies. The antitrust laws are clearly make boycotts such as these per se illegal. Real estate firms or professionals may also be accused of boycotting service providers to the real estate firms. Such a group boycott may target a supplier or purchaser, rather than a competitor, of the brokers alleged to be the conspirators. Concerted refusals to deal will be treated as per se illegal whenever they involve the purposeful elimination or limitation of competition, regardless of the ultimate motive or objective of the alleged conspirators. Real estate brokers may, for instance, agree not to patronize a provider of goods or services necessary or beneficial to the practice of real estate brokerage. For example, an agreement among several real estate firms not to employ the services of a particular printer to produce marketing materials, or to refuse to purchase advertising in a certain publication, may be an unlawful boycott of this type. The most effective and obvious way to avoid antitrust liability for such boycott activities is for each firm to unilaterally and without consulting any other firm determine the service providers it will use and the terms and conditions of using such suppliers. PARTICIPATION IN THE ASSOCIATION OF REALTORS® Association Meetings Trade associations are ripe grounds for antitrust conspiracies. By definition associations consist of groups of competitors gathered together to promote their common business interests. As discussed above competitors occasionally seek to achieve that objective by agreeing, directly or indirectly, to act in a concerted fashion to repel a perceived threat to the success of their firms, such as the innovative business practices of a new competitor. Trade association activities are common venues for hatching such unlawful conspiracies since by definition they involve collective action by the competitors who are members of the organization. A broker who participates in the affairs of an association of REALTORS® must always be alert to discussions at association meetings relating to commission rates, pricing structures, listing policies, or marketing practices of other brokers. A broker who finds himself in the midst of such a discussion should immediately suggest that the topic is changed and, if unsuccessful, he should promptly leave the meeting. If minutes are being taken, he should insist that his departure be noted for the record. Use and abuse of the NAR Code of Ethics The U.S. Supreme Court has held that industry self-regulation through codes of ethics is a legitimate trade association function so long as the code can be shown to promote competition by improving industry performance or efficiency. At the same time, industry codes of ethics can be and have been used to condemn or inhibit the practices of particularly successful or creative competitors in order to resist the competitive threat posed by such competitors. It is quite clear,

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RISK MANAGEMENT ISSUES however, that the antitrust laws forbid use of industry codes of ethics to discourage or eliminate competition in any way. The REALTORS® Code of Ethics is no exception. The Code does not regulate pricing, otherwise lawful listing policies, or truthful advertising, nor may the Code ever be used to regulate or “outlaw” innovative or new business practices that cannot be shown to have legitimate unethical implications. REALTORS® who initiate grievances for the purpose or with the effect of limiting the freedom of other competitors in regard to such practices are misusing the Code of Ethics. Associations that permit the Code to be applied in that way create substantial exposure to antitrust liability for the members, the staff and the associations themselves.

PENALTIES FOR ANTITRUST VIOLATIONS Both civil and criminal penalties may be imposed for antitrust violations. These penalties include in civil cases, liability for three times the plaintiff’s actual damages and payment of the plaintiff’s reasonable attorney fees and costs, and in criminal cases criminal penalties including fines and prison terms and court supervision of the defendant’s business for as long as 10 years;

AVOIDING ANTITRUST PROBLEMS Perception and Reality Real estate professionals can limit their exposure to claims of antitrust violations by avoiding the conduct described above as unlawful. In addition, however, real estate professionals should recognize that the outcome of courtroom trials in general, and antitrust trials in particular, does not necessarily depend upon the actual facts regarding the conduct alleged to violate the law. Rather, the outcome of trials depends entirely upon what the judge or jury believes, based on the evidence presented at trial, to have happened at the relevant time. Moreover, price fixing or other antitrust conspiracies are rarely created or proved by direct evidence of an agreement, such as a document signed by all parties to the conspiracy. Rather, antitrust conspiracies are most commonly proven by inferences drawn from the actions of competitors, such as private discussions about prices and subsequent uniformity of the prices charged by the participants to such discussions. For this reason, antitrust compliance programs are addressed as much to avoiding conduct that creates the appearance of a conspiracy as to avoiding conduct that actually consummates or advances that conspiracy. 1. Price-fixing

To avoid antitrust vulnerability for a price-fixing claim, such as two or more brokers or firms having agreed to charge the same commission rate, real estate firms should:  establish their fees unilaterally without consultation or discussion with persons affiliated with other competing firms;  ensure that when the company’s brokers or salespeople discuss fees with actual or potential clients they use words that indicate to the listener that the services were priced independently, and that they judiciously avoid words suggesting otherwise.

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RISK MANAGEMENT ISSUES In determining its commission or fee structure, real estate firms must recognize and be conscious that antitrust conspiracies have been established without any direct evidence that alleged conspirators actually consulted with each other before making a competitive business decision, such as establishing a fee structure. In one infamous case a court found that an unlawful agreement had been reached when one competitor announced to others his intention to raise his commission rates and the other competitors adopted the same course of action within a short period of time. The court construed the announcement as an invitation to conspire and the subsequent action by the other competitors as acceptance of that invitation. An inference of conspiracy can be drawn even if the other competitors had each already decided independently to implement the particular policy, but had not already done so. It is therefore imperative that brokers never discuss with or reveal to competitors their intentions concerning fees or other competitive business activities. Such actions will “taint” not only the subsequent decisions made by the broker who raised the subject, but also the decisions of all other competitors to whom the discussions or announcements were directed. Not only must brokers avoid any discussions that could imply that commissions or commission splits are the result of agreement or collusion, but they should also take positive steps to establish that their commission rates and splits are determined unilaterally. Such supporting documentation might include:  spread sheets to show business reasons and justification for the amount of the fee or any increase;  a memo to licensees explaining those reasons;  discussions with counsel prior to adoption of any increase in the fees; and  maintenance of correspondence and appointment logs that show that other firms were not consulted in connection with any fee increase(s). Once pricing decisions are made, it is equally essential that the firm’s salespeople present prices to clients in a manner that confirms that the fees were established independently. This means never responding to a question about fees by referring to the pricing policies of other competitors or to a policy of a local association of REALTORS® that supposedly prohibits or discourages price competition. Licensees should never use statements like:   

“This is the rate every firm charges.” “I’d like to lower the commission, but no one else in the MLS will show your house unless the commission is X%” “Commission rates are pretty standard.”

Salespeople who make these statements seriously jeopardize themselves and their firms. Brokers and salespersons must learn to explain and, if necessary, defend their firm’s prices and other competitive business decisions in terms that are consistent with competition, not conspiracy. If the firm cannot or will not reduce its commission upon a client’s request, the firm’s salespeople should be prepared to point out the value of the services the client will receive for the fee charged, as well as how these services will most likely lead to a transaction at a fair price within the shortest period of time. A fast and efficient transaction can often save a client much more than the commission.

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RISK MANAGEMENT ISSUES 2. Boycotts

As with price fixing conspiracies, real estate brokers or salespeople who act as if there is a conspiracy among competitors not to cooperate with another competitor, or to deal with them only on terms established by the conspirators, are as vulnerable to an antitrust lawsuit as those who actually do conspire. Salesperson comments that create such troublesome inferences of boycott conspiracies include:    

“Before you list with XYZ Realty, you should know that nobody works on their listings.” “The MLS will not accept their listings because they charge a flat fee.” “If they were truly professional, they would not allow part-timers to work for them.” “I bet they’d drop their ‘discount’ program if we told them they couldn’t market or sell our listings.”

Brokers whose salespeople make comments such as these to buyers, sellers, or persons affiliated with other firms will find their ability to adjust the terms and conditions upon which they cooperate with other firms severely restricted. Case law clearly establishes that brokers are free to choose unilaterally to lower the compensation offered to one or more particular firms, including “discount” or “alternative service” firms. But if a broker does so only after discussing the “problem,” even casually, with other firms, the inference may be drawn that this action was pursuant to a conspiracy to boycott the other firm. This is especially true if, as is often the case, other firms in the market make similar contemporaneous decisions to lower their compensation offers to the same firm. Licensees asked to compare their firm’s commission split policies with those of other firms should explain that the amount of cooperative compensation is designed to maximize the incentive of cooperating offices to sell the listing. On the other hand, a licensee who works for a firm which offers a lesser amount to cooperating firms than may be “typical” for that market must be prepared to explain why this difference will not detract from the objective of attracting the efforts of cooperating brokers and securing a satisfactory transaction in the shortest period of time. 3. Listing Agreement Policies

A real estate firm must also make sure that its listing agreement policies are established unilaterally, and that salespeople are prepared to explain those policies to clients in terms of how these policies will help the client achieve his real estate goals. If a firm’s policies cannot be justified and explained in these terms, competitive forces may ultimately compel the firm to modify its policies, or, alternatively, drive it out of business. The purpose of antitrust laws is to preserve the efficient operation of these competitive market forces, for the ultimate benefit of consumers and competitors alike. For this reason, care must be taken to avoid implying that the provisions of the listing agreement are not established unilaterally by the broker using the agreement. Under no circumstances should a client be told that the firm’s terms must be accepted because “this is what all brokers do,” or “no one else will cooperate unless you accept the listing on these terms,” or “I’d like to shorten the listing term, but if I do the MLS won’t accept the listing.”

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RISK MANAGEMENT ISSUES 4. Office Antitrust Compliance Program

Another important safeguard against antitrust violations is for a real estate brokerage firm to adopt and rigorously apply a written office-wide antitrust compliance program. This program should be extended to every employee and independent contractor – brokers, salespeople, and administrative staff alike. The firm should set aside time, twice a year, to review with everyone the antitrust compliance program. An antitrust compliance program is a business necessity, because brokers are responsible for conduct of their salespeople and other staff. A brokerage firm cannot avoid antitrust liability because it did not authorize, for example, the price-fixing scheme undertaken by its salespeople. Components of an antitrust compliance program may include the following: Salesperson Education A real estate broker’s ability to keep his firm from violating the antitrust laws is in direct proportion to his ability and willingness to educate his salespeople. This commitment to education is imperative because, like it or not, brokers are and will be held accountable and liable under the law for the actions and statements of their salespeople, whether they are independent contractors or employees. The broker should be sure the salespeople and staff understand how the antitrust laws apply to the real estate industry. A broker should insist that each salesperson attend an antitrust legal education program at least once every two years. This antitrust education program could be offered by the local association, conducted by the broker, the firm’s sales manager, or legal counsel. In addition, all new salespeople should be required to attend a company orientation program that includes a presentation on antitrust compliance. Monitoring Salesperson Performance Brokers should not only alert the salespeople to the dangers of antitrust noncompliance and the consequences that can flow from inaccurate or incriminating statements, but they should also monitor their salespeople’s compliance performance. Salespeople should be instructed to report to their broker any suggestions by salespeople from other firms that could be interpreted as an invitation to fix commissions or boycott another competitor. Salespeople should also be taught, through simulated listing presentations, the proper way to distinguish the services of a competitor or respond to a seller’s request for a lower commission rate. These responses should never take the form of a suggestion that commissions are established by agreement among brokers, or that an individual competitor is the object of a boycott. Communications with Counsel Every real estate firm should have access to competent legal counsel. If the firm’s corporate counsel does not have antitrust expertise, the counsel should be asked to identify other counsel to be consulted when antitrust issues arise. Antitrust legal advice should be sought whenever the firm intends to adjust its commission rates, fees paid to cooperating firms, or whenever the firm plans to implement a business strategy that may adversely affect its competitor In addition, correspondence and records of communications with the firm’s attorney should be kept in a segregated file, and should not be disseminated outside the firm without prior

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RISK MANAGEMENT ISSUES consultation with the attorney. Limited distribution of attorney-related documents is necessary to preserve the attorney-client privilege of confidentiality. Standard Form Contracts Standard form listing contracts should not contain certain information preprinted on the form, including the following:    

commission rates; predetermined listing periods; automatic renewal clauses; predetermined protection periods;

Brokers may also wish to include on the form an affirmative statement that commission rates and cooperative splits are independently established. 5. Responding to an antitrust investigation or complaint

Despite a broker’s efforts to ensure that he and his salespeople are complying with the antitrust laws, he may nevertheless be the object of an antitrust investigation or complaint. Most actions initiated by government antitrust enforcement agencies begin with an investigation of the person or firm that the agency suspects may have violated the law. Brokers should require salespersons to refer all requests for information from a government antitrust enforcement agency to the broker or sales manager. If a representative of an antitrust enforcement agency inquires about the business affairs of a broker or a firm, or if a formal subpoena or complaint is received, the matter should be referred immediately to the firm’s attorney. All subsequent correspondence and communication with the government agency or plaintiff should be through the firm’s attorney. 6. Conclusion

The antitrust laws apply to prohibit collective action by real estate professionals that restraint trade. Real estate practitioners and firms must take care not only to avoid conduct that does violate the law, but also conduct that supports an inference of an unlawful agreement with other real estate professionals in restraint of trade. It is essential that real estate firms conduct training and practice vigilance to insure that their activities and that of their salespeople and staff does imply unlawful activity.

ANTITRUST RESOURCES http://varbuzz.com/terms-and-conditions-of-use/ Includes VAR antitrust policy http://www.justice.gov/atr/ Includes press releases, speeches, cases, compliance assistance, victims’ rights, etc. http://en.wikipedia.org/wiki/Antitrust Basic definition for consumers as provided by the public.

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RISK MANAGEMENT ISSUES http://www.ftc.gov/bc/index.shtml FTC’s Antitrust arm – Bureau of Competition – contact info, speeches, etc.

LEAD-BASED PAINT (LBP) DISCLOSURE REQUIREMENTS It will be imperative for all associates to comply fully with the requirements of the federal lead paint disclosure laws in all transactions where the law requires compliance. Penalties available under the law include triple damages plus attorney fees. Not completing the form completely and accurately can result in significant fines imposed on the broker by representatives of the EPA. http://www.epa.gov/lead/

DISCLOSURE REQUIREMENTS The federal disclosure rules specifically require that sellers and landlords of most residential housing built before 1978 must:  Disclose the presence of known lead based paint (LBP) and LBP hazards  Provide buyers and tenants with any available records or reports about any LBP present in the housing  Provide buyers and tenants with a federally-approved lead hazard information pamphlet Offers to Purchase and leases must contain certain disclosures and acknowledgments. Sellers must also provide buyers with an opportunity to inspect for LBR. Finally, real estate agents must ensure compliance with these requirements. The rules do not require that any testing be conducted for LBP, nor do they require the removal of such paint or hazards. PROPERTIES & TRANSACTIONS SUBJECT TO LBP RULES The EPA/HUD requirements for the disclosure of LBP apply to all transactions to sell or rent target housing, subject to certain exceptions. The following discussion specifies what types of residential properties are covered under the LBP rules and those which are not subject to the rules' requirements.

TARGET HOUSING "Target housing" means any housing constructed prior to 1978, except for housing for the elderly or persons with disabilities (unless any child who is less than 6 years of age lives in or expects to live in such housing), and except for any "0-bedroom" dwellings.

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RISK MANAGEMENT ISSUES TRANSACTION SUBJECT TO LBP RULES Both sales and leases (includes subleases and oral leases) are included. Subleases are included so that the subtenant or sublessee (i.e., the new tenant) receives the LBP disclosures and information. Informal rental agreements not involving a written lease, for example, oral leases are included despite the difficulties in complying with the rules requirements during a process handled verbally without written documentation.

BUYER OPPORTUNITY TO INSPECT FOR LBP The LBP disclosure rules require that sellers provide buyers with a 10-day opportunity to conduct an LBP risk assessment or inspection of the target housing before becoming obligated under the purchase agreement. The length of time may be shortened or lengthened by mutual agreement of the parties. This requirement does not mean that the buyer must be permitted to conduct an LBP inspection before signing a purchase agreement. This requirement may be met by having an LBP inspection contingency in the offer, similar to the home inspection contingencies typically used in residential offers. There is no mandatory language or provision for this purpose, so the contingency may be negotiated by the parties. Thus, the terms and conditions for the conduct and completion of the LBP inspection or evaluation will be reached by mutual agreement and not by federal mandate. A lead-based paint inspection contingency which is included in the LBP disclosure and acknowledgment addendum to the offer is discussed later. Buyers may choose to waive their opportunity to inspect for LBP. The rules do not contain any requirement for providing tenants with the opportunity to conduct an LBP inspection. Sellers may not reject an offer to purchase simply on the basis that it contains a lead inspection/contingency provision. They may, however, attempt to negotiate the terms and conditions of the provision.

TIMING OF LBP DISCLOSURES The rules only identify the latest point at which full disclosure must occur, that is, before the buyer or the tenant becomes obligated under a purchase agreement or lease.

AGENT RESPONSIBILITIES Each agent involved in a sale or lease transaction shall be responsible for ensuring compliance with all the requirements imposed by the rules. To ensure compliance, the agent must:  Inform the seller or landlord of his or her duties to disclose known LBP on the target housing.  Furnish LBP records and reports and the EPA-approved lead hazard information pamphlet to buyers and tenants.  Advise the seller that he or she must permit the buyer to have a 10-day opportunity or inspection contingency to conduct an inspection or evaluation of the premises with respect to LBP.

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RISK MANAGEMENT ISSUES  The seller and landlord must also be told about his or her duty to certify compliance with these obligations and retain a copy of a signed LBP disclosure and acknowledgment addendum.  Certain specifically-prescribed LBP "Warning Language" must be included in sales contracts and leases.  Ensure compliance with all of these requirements. Ensuring compliance can be done by making sure that the seller or the landlord has performed all of these required activities, or by personally performing these activities on behalf of that party. If the agent has informed the client about all of his obligations under the federal LBP disclosure rule, the agent shall not be liable for the failure to disclose LBP to a buyer or tenant if the LBP is known by the seller or landlord but not disclosed to the agent. The LBP disclosure rules require that sellers and landlords disclose to agents the presence of any known LBP as well as any additional information about the basis for the determination that LBP exists on the property, the location of any LBP on the premises, and the condition of painted surfaces. Sellers and landlords must also disclose to agents the existence of any available records or reports pertaining to LBP on the premises. The federal LBP rules provide that each agent shall ensure compliance with all the requirements of the rules. "Agent" is defined as any party who enters into a contract with a seller or landlord for the purpose of selling or leasing target housing. For real estate agents in sales transactions, this means all listing, selling, cooperative, and buyer's agents (except those paid only by the buyer). In rental transactions, this means property managers, and leasing and rental listing agents.

LISTING THE RESIDENTIAL PROPERTIES The following guidelines detail the steps that must be taken by the listing agent to comply with the federal LBP rules.  Determine if the property is target housing.  Advise the seller of his or her obligations under the LBP rules.  Ask the seller if he or she has any knowledge of LBP or LBP hazards on the property.  Obtain copies of any available LBP records pertaining to the property. By the time the offer is accepted, the seller should have made any LBP disclosures, have them signed by the seller, buyer, listing agent and cooperating agent, and incorporated into the offer. In addition, the buyer should have received the LBP information pamphlet.

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RISK MANAGEMENT ISSUES

LBP RESOURCES http://nvar.com/index.php/component/kb/article/check_for_epa_renovation_certification_in_home s_built_prior_to_1978 Northern Virginia Association of REALTORS® information on LBP renovation rules. http://www.realtor.org/LetterLw.nsf/pages/98leadpaintdisclosureregulations?OpenDocument Great information from NAR.

ENVIRONMENTAL CONCERNS Environmental hazards and conditions are of increasing concern in real estate transactions because of the serious impact some environmental problems can have on the health and wellbeing of occupants or users of the property, and the fact that the presence of environmental hazards can substantially affect the value, salability and use of real property. In some cases the cost of correction or removal of environmentally hazardous substances or conditions required by law, safety or prudential considerations may exceed the value of the property. In other cases, the cost of remediation may not be as dramatic, but the risks of failing to discover and resolve an environmental problem may be serious to property occupants or users. To minimize the risk of liability which might arise as a result of the presence of unrecognized environmental defects of real property, and to appropriately fulfill their legal and ethical duties and responsibilities to clients and customers, real estate agents should:  Be aware that environmental problems and issues may affect real estate and result in liability for sellers, brokers and agents.  Learn and know the nature of the most common environmental problems affecting real estate in their area.  Discuss with the seller any indications that an environmental problem may be present, reach an understanding and agreement on a course of action to correct the problem, and disclose material concerns to potential buyers in the course of marketing the property.  Be sure to disclose to potential property purchasers any material environmental problems with a property that are known to be present, or any indications that certain problems may or are likely to be present. This includes sharing any environmental assessments that have been performed.  Be aware of and comply with all duties and obligations imposed on real estate professionals or otherwise related to real estate and real estate transactions under local, state and federal laws, regulations and requirements. Please keep in mind that you are not expected to be an environmental expert, and to discover environmental problems on the property. However, you do have a duty as a listing agent to disclose material adverse facts pertaining to the physical condition of the property of which you are aware.

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ADDITIONAL RESOURCES

NAR SOCIAL MEDIA POLICY MODIFIED FOR VIRGINIA

Use of Social Media in the Real Estate Business The purpose of this document is to provide brokers with a template that may be used when developing a social media policy for the broker’s own firm. The template requires that it be customized to meet the needs of the broker and reflect the business practices of his/her business. The template is not a document which can be adopted and used without that customization. As used in this policy REALTOR® shall refer to the principal broker or a broker standing in the shoes of the principal broker. Agent shall mean a licensed real estate agent employed by or affiliated with the REALTOR®. Users shall mean individuals visiting the social media sites of Agents. Social Media as used in this policy shall apply to both activities at the agent’s web sites (e.g., blogging) and use of third party social media tools (e.g., Facebook, Twitter, LinkedIn, etc.). Because there already exist hundreds of different Social Media tools which may be utilized by agents and more are constantly being created, the provisions of this policy are to be interpreted generally to apply to the types of interaction the agent has with the social media service rather than to specific web sites and providers. Notwithstanding anything in this policy, it remains the responsibility of the Agent to comply with the requirements of local, state and federal law and the Code of Ethics of the National Association of REALTORS®. The scope of this policy shall extend to all uses of social media in connection with the real estate business (use in connection with the real estate business would include any use in which the agent seeks to promote or capture real estate business from consumers or other agents). This policy is not intended to cover the activities of Agents falling completely outside the real estate business; however any conduct which reflects adversely upon broker or the brokerage may be reviewed under the terms of this policy. The Real Estate Board requires certain disclosures for online advertising, and social media can certainly be used for advertising: Online ads for a firm must have:  Firm name;  City and state of main office; and  All jurisdictions in which the firm is presently licensed (usually states) Online ads for a licensee (not a firm) must have:  Licensee’s and firm’s name;  City and state of the licensee’s office (not necessarily firm’s main office); and  Jurisdiction(s) in which licensee holds a license, active or not (usually states).

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ADDITIONAL RESOURCES Blogging Agent shall be responsible for compliance with all laws and regulations governing real estate business including fair housing, antitrust and real estate license laws and regulations. When using a blog to advertise required online disclosures must be used. The Agent shall be responsible for informing the REALTOR® (and obtaining approval) of any blogging site maintained by Agent and shall be provided with information necessary to subscribe to the blog. Terms of Use 1. REALTOR® is responsible for establishing the process for governance of the blog by posting terms of use for the blog. a. Agent shall use the terms of use of the brokerage for blogs; or b. Agent shall create terms of use and allow them to be reviewed by broker prior to launch of the blog. c. Agent shall make the terms of use available to REALTOR® upon request. 2. The terms of use shall include: a. Users shall abide by any legal requirements related to the use of the blog and the site’s terms of use for the blog including specifically its privacy policy. Users shall be responsible for their conduct on site; b. Obtain clear authority from Users to utilize anything the User includes on the site; c. Prohibit the unauthorized use of third party content or the posting of any unlawful or objectionable materials; d. Prohibit the use of the site to harass or stalk anyone; e. Prohibiting the posting of content which infringes on the rights of any third party; f.

Prohibit the posting of content which expresses a preference based upon an individual’s membership in a protected class;

g. . Provide a take-down policy in the event any such materials are posted to the site; h. Disclaim responsibility for any third party sites linked to through the site; i.

Generally disclaim and limit any liability arising from the content of the site whether provided by Agent or a User;

j.

Provide a privacy policy consistent with that used by the brokerage.

3. Agent shall not pay or provide anything of value to another party in consideration of comments placed on the blog. If Agent does allow comments to be posted in return for consideration, the fact that the commenter has received compensation shall be disclosed. 4. Identification

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ADDITIONAL RESOURCES a. Agents shall identify themselves when establishing a blog in such a way that Users of the blog shall know the Agent’s name and other required online advertising disclosures. b. In any posting related to the brokerage, the Agent shall assure that the Agent’s relationship to the brokerage is clear so as to avoid violation of the FTC rules. c. Agents shall not participate in the blog of another party without disclosing their identity and the brokerage with which they are affiliated. 5. Responsibility for Maintenance a. All blogging must be monitored by agent for false / defamatory / demeaning / degrading comments at least once per ______. b. Agent is responsible for removing or clarifying any comment if the agent knows that it is false or misleading. 6. Agent is responsible for assuring that the content and operation of the blog conform to the standards established in the Code of Ethics. 7. REALTOR® must be notified of any offer of compensation to the Agent for real estate related services communicated or established through the blog. Use of Third-Party Social Media Sites (Facebook, YouTube, Twitter, etc.) There are hundreds of providers of social media services in which real estate agents may participate. The purpose of this policy is to provide guidelines intended to provide both agents and the brokerage with legal liability risk management and to protect the brokerage’s reputation and good will in the community. Like with blogging, the scope of this policy is intended to relate to use of social media in connection with the real estate business, but regardless of the social media service being used, when related to the real estate business the Agent should observe these guidelines. Agents are required to read and be familiar with the policies and requirements of any site on which they participate and to comply with the requirements of that site. In particular, Agents should know the privacy practices and policies of the sites. Where options are provided, the Agent shall / may select an option which provides a level of protection to Users of Agent’s social media site consistent with the level of protection afforded by the brokerage at the brokerage’s web site. Agents should remain aware that items posted on social media sites may be forwarded or used for purposes other than originally intended. Agents should be aware of this when making decisions as to what to include on their social media sites. Posting of Professional Contacts/Qualifications (e.g., LinkedIn) 1. Agent is responsible for assuring that any listing of qualifications, credentials or training contained on the site is current, accurate and not misleading. Any changes to the foregoing shall be promptly revised on the site. 2. Agent shall not falsely claim association with any person or group.

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ADDITIONAL RESOURCES 3. Notwithstanding any provision herein, Agent remains responsible for complying with the license laws and regulations governing the conduct of licensees and all applicable local, state and federal laws. 4. Agent is responsible for assuring that the content conforms to the standards established in the Code of Ethics. Posting of text (e.g., Facebook, MySpace, Twitter) 1. All text shall be the Agent’s own and not plagiarized or copied from another party without that party’s permission. This shall not prohibit the use of reasonable quotations from the writings of others or writing for which the Agent has received permission to use or using writings consistent with the practices of the site (e.g., retweeting). No content which infringes the rights of any third party may be used. 2. Agent may/may not write regarding the listings of other licensees within the brokerage 3. Agent may /may not write regarding the listings of other brokerages. 4. Agent shall assure that writings do not contain unauthorized disclosures of confidential information of clients, customers or REALTOR®. 5. Agent is responsible for assuring that the use of the site is consistent with the Code of Ethics, local, state and federal laws and all applicable real estate license laws and regulations, including where necessary identifying Agent. Posting of comments to social media pages of others 1. Any statement regarding the brokerage shall clearly disclose the Agent’s relationship to the brokerage and if advertising include required online disclosures. 2. The Agent shall disclose his/her status as a real estate professional as a part of any real estate related statement. 3. Agent may/may not accept compensation for placing a comment on a site. 4. Agent is responsible for assuring that the use of the site is consistent with the Code of Ethics, local, state and federal laws and all applicable real estate license laws and regulations, including where necessary identifying Agent. Posting of photos (Flickr) 1. Agent is responsible for assuring that Agent is authorized to use any photo posted to the site (to avoid copyright issues) 2. Agent shall secure permission to post for marketing purposes the image of another person on the site 3. If an image has been materially altered in any way by Agent, the fact that the image is altered shall be disclosed 4. Agent is responsible for assuring that the use of the site is consistent with the Code of Ethics, local, state and federal laws and all applicable real estate license laws and regulations, including where necessary identifying Agent. Posting of audio/video (YouTube) 1. Agent is responsible for assuring that that Agent is authorized to use any audio/video posted to the site (to avoid copyright issues) 2. Agent shall secure permission to post for marketing purposes the image of another person on the site

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ADDITIONAL RESOURCES 3. If an image has been altered in any way by Agent, the fact that the image is altered shall be disclosed 4. Agent is responsible for assuring that the use of the site is consistent with the Code of Ethics and all applicable real estate license laws and regulations, including where necessary identifying Agent.

FAIR HOUSING http://www.hud.gov/offices/hsg/sfh/res/respa_hm.cfm Consumer info & procedures, sample complaint letter, industry statute, proposed rules, Congressional report, etc. http://www.realtor.org/government_affairs/respa/index.html NAR’s take on RESPA – “RESPA Realities,” HUD updates, how to comply, marketing agreements, etc. http://www.dpor.virginia.gov/dporweb/fho_index.cfm Virginia’s Fair Housing Office

DO NOT CALL http://www.ftc.gov/donotcall/ Rules, regulations, info on how to sign up, etc. http://www.realtor.org/library/library/fg707 NAR Field Guide to Do-Not-Call http://www.the-dma.org/government/donotcalllists.shtml Where Marketers can get lists of Do Not Call lists – by state. Note: Does not include VA, but has other states listed.

NON-DISCRIMINATORY / HARASSMENT / SAFETY http://www.realtor.org/libweb.nsf/pages/fg201

PROFESSIONAL COURTESIES http://www.realtor.org/mempolweb.nsf/pages/pathways (Another “logged in” resource)

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The Virginia Association of REALTORS速 10231 Telegraph Road Glen Allen, VA 23059 (800) 755-8271 www.VARealtor.com


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