Chapter 4: Types of Laws and Their Purposes

Question 1

Common Law

Answer 1

is unwritten law, which is derived from old English common law. It develops from court decisions that tend to reflect the attitudes of the community. The decisions of civil courts establish guidelines that other courts may follow in similar situations.Common law, then, is not a series of statutes passed by a legislature or congress. It is the sum of these court decisions over time. As society changes, court interpretations of events must respond to those changes.

Question 2

Agency law

Answer 2

derives from common law. Therein lies the greater danger in the practice of real estate; no book can be read and no statute researched. Conduct must be acceptable and conform to standards acceptable to society or be subject to potentially severe consequences.
The words or actions of a party can create an agency relationship; no compensation needs to be paid, no written agreement entered into, no formal contract is required. Once created, the law imposes fiduciary duties on the agent. Violation of these duties may have severe consequences

Question 3

Fiduciary Duties

Answer 3

is a legal duty to act in the best interest of another. Parties owing this duty are called fiduciaries. The individuals to whom they owe a duty are called principals. A fiduciary is an individual who has the power and obligation to act for another under circumstances which require total trust, loyalty, good faith, and honesty. A fiduciary also has a duty to avoid any conflicts of interest between themselves and their principals or between their principals and the fiduciary’s other clients.

Question 4

Compensatory and Punitive Damages

Answer 4

Civil courts may impose civil penalties called compensatory damages and, in some cases, impose an additional monetary penalty called punitive damages.
In theory, compensatory damages are those that can be determined from a measurable loss. Punitive damages, are imposed as additional damages to punish the party whose actions gave cause for the suit.

Question 5

Statutory Law

Answer 5

is based on written statutes that have been enacted by an appropriate unit of government. Statutory law is enforced by criminal courts. Criminal courts often impose monetary fines but are most commonly thought of in terms of imprisonment. F.S. 455 and F.S.475 are statutes enacted by the state legislature. As discussed in a later section, criminal fines and imprisonment are potential penalties for violation of these statutes.

Question 6

Administrative Law

Answer 6

statutes can authorize the creation and operation of administrative agencies to administer and enforce certain laws. The department of Business and Professional Regulation (the Department), created by F.S. 455, and the Florida Real Estate Commission (the Commission), created by F.S. 475, are examples of administrative agencies empowered by statutes. Administrative agencies may also have the power to levy monetary fines for rules they have enacted in the furtherance of their legislative duties or violation of laws they administer.

Question 7

Agency Law

Answer 7

is the body of law that addresses the rights, duties, and related obligations arising from a principal-agent relationship. An agent acts on behalf of and represents the interests of another part. Agency relationships are based on trust and confidence and we are similar to that between a husband and wife, doctor and patient, or attorney and client.

Question 8

An Agent’s Employer is the Principal

Answer 8

an agent is entrusted to work on behalf of his or her employer, called a principal, and to represent the principal’s best interests. The principal delegates some authority to the agent that empowers the agent to work on his or her behalf.

Question 9

Agency relationships may be created

Answer 9

by the words and actions of a licensee. No formal agreement or written document is required and no compensation needs to be promised or paid. This relationship can be created accidentally, inadvertently, or may be implied by words or actions. Once this relationship has been created, the law imposes certain duties on the agent, violation of which could result in severe penalties.

Question 10

Types of Agency Relationships

Answer 10

1. Special Agent
2. General Agent
3. Universal Agent

Question 11

Special Agent

Answer 11

authorized under agency law by the employer to perform a single act. The employment contract between the employer and agent establishes the limit of authority granted.

Question 12

Special agent example

Answer 12

a broker employed under a single agency listing for the sale of a property is authorized to locate a purchaser on behalf of the owner. This is a single act. The broker becomes a special agent of the owner, who is the broker’s principal.

Question 13

General Agent

Answer 13

has the principal’s authority under agency law to act for him or her on a continuing basis but with authority limited to a specific trade or business.

Question 14

General Agent example

Answer 14

a broker employed by an investor to manage all of his or her real estate is a general agent of the principal. A sales associate or broker associate is a general agent of his or her broker or owner-developer.

Question 15

Universal Agent

Answer 15

• is authorized under agency law to act for and represent the principal in all matters, without limitation. All agents have limited authority and cannot perform any act on behalf of their principals, which the principal has not authorized. A universal agent is generally authorized by a power of attorney.

Question 16

Universal Agent Example

Answer 16

a licensee cannot sign a contract that obligates his or her principal unless the principal has given the licensee a power of attorney to authorize the act.

Question 17

Subagency

Answer 17

is not a type of agency; it is an extension of another agency. In other works, a subagent is a party who has been granted authority to act on behalf of another agent.
Under agency law, a subagent has the same duties to the principal as the agent who was empowered by the principal. A sales associate is a general agent of the broker and automatically becomes a subagent of all the broker’s principals. As an agent of the broker, a sales associate has the same duties to the broker’s principals, as does the broker.

Question 18

The Brokerage Relationship Disclosure Act

Answer 18

Became effective on october 1, 1997, and has since been amended.

The law details alternative relationships that are allowed when providing brokerage services and specifies appropriate disclosure forms that must be utilized for residential transactions when the broker is operating under each alternative.

Violations of the brokerage relationship duties or disclosure requirements may result in administrative and/or civil penalties.

Question 19

Customer

Answer 19

is a member of the public who is or may be a buyer or seller of real property. The customer may or may not be represented by a real estate licensee in an authorized brokerage relationship. Nothing in Florida law states that a customer must be represented by a licensed real estate agent. Customers may represent themselves, if so desired. Anyone not represented in a single agency relationship is a customer.

Question 20

Single Agent

Answer 20

is a broker who represents, as a fiduciary, either the buyer or seller, but not both in the same transaction.

Question 21

Principal

Answer 21

is the party with whom the real estate licensee has entered into a single agent relationship. A customer becomes the principal once a single agency relationship has been established.

Question 22

Transaction broker

Answer 22

is a broker who provides limited representation to a buyer, a seller, or both, in a real estate transaction, but does not represent either in a fiduciary capacity or as a single agent.

Question 23

Consent to Transition to Transaction Broker

Answer 23

to avoid an illegal dual agency, a broker cannot represent both the buyer and seller as a single agent in the same transaction. To assist both parties in a real estate transaction, the licensee must change from a single agent relationship to a transaction brokerage relationship, with written consent of the principal. This is the only brokerage relationship form that must be signed.

Question 24

What is presumed?

Answer 24

: it is presumed that all licensees are operating as transaction brokers unless a single agent or nonrepresentation (no brokerage relationship) is established, in writing, with a customer.

Question 25

Residential sales

Answer 25

is any one of the following
• The sale of improved residential property of four units or less
• The sale of unimproved property intended for four units or fewer
• The sale of agricultural properties of ten acres or less
• Leases with options to purchase all or a portion of improved property of four or fewer residential units
• Dispositions of business interests involving property of four or fewer residential units.

Question 26

A broker may be employed by a member of the public in one of the following three relationships;

Answer 26

• Transaction broker
• Single agent, or
• Nonrepresentation (no brokerage relationship)

Question 27

Written Disclosure Required

Answer 27

• single agency relationship
• nonrepresentation
• and transition from single agent to transaction broker

Question 28

Written Disclosure NOT required

Answer 28

• Transaction broker relationship

* Nonresidential transaction

Question 29

Disclosure Exemptions

Answer 29

Disclosure requirements do not apply when a licensee knows that a transaction broker or single agent is representing a potential seller or buyer.
Disclosure is not required when an owner is selling new residential construction units built by the developer in which the circumstances or settings should reasonably inform the potential buyer that the licensee is action on behalf of the owner. This may occur when the office location, signage, placards, or name badge would indicate the licensee is acting in such a capacity.

Question 30

The following situations are exempt from the disclosure requirements

Answer 30

• Nonresidential transactions
• The rental or lease of real property, unless an option to purchase all or a portion of the property improved with four or fewer units is given,
• A bona fide open house or model home showing that does not involve eliciting confidential information, the execution of a contractual offer or an agreement for representation, or negotiations concerning price terms, or conditions of a potential sale.
• Unanticipated casual conversations between a licensee and a seller or buyer that do not involve eliciting confidential information, the execution of a contractual offer or agreement for representation, or negotiations concerning price, terms, or conditions of a potential sale.
• Responding to general factual questions from a potential buyer or seller concerning properties that have been advertised for sale.
• Situations in which a licensee’s communications with a potential buyer or seller are limited to providing general factual information, oral or written, about the qualifications, background, and services of the licensee or the licensee’s brokerage firm.
• Auctions
• Appraisals
• Dispositions of any interest in business enterprises or business opportunities except for property with four or fewer residential units.

Question 31

Policy and Procedures Manuak

Answer 31

Each brokerage firm should have one which provides guidance for sales and brokers associates. Not all offices have such a manual.
Brokers are also responsible for training licensees under their employment. Although not required by law, it may relieve a broker from future liability if they disclose rules, laws, and acceptable practices that must be followed by licensees in performing their duties.
A policy and procedures manual is also an effective tool to maintain good relations within an office and may prevent unnecessary disagreements.
An office’s policy that regards representation and relationships with customers should be in writing.

Question 32

Nonrepresentation

Answer 32

a. Dealing honestly and fairly, accounting for all funds, and disclosing all known facts that materially affect the value and are not readily observable

Question 33

Transaction Broker

Answer 33

a. Dealing honestly and fairly, accounting for all funds, and disclosing all known facts that materially affect the value and are not readily observable.
b. Using skill, care and diligence in the transaction, presenting all offers and counter offers in a timely manner
c. Providing limited confidentiality, performing any additional mutually agreed upon duties

Question 34

Single Agent

Answer 34

a. Dealing honestly and fairly, accounting for all funds, and disclosing all known facts that materially affect the value and are not readily observable.
b. Using skill, care and diligence in the transaction, presenting all offers and counter offers in a timely manner
c. Providing full confidentiality, obeying all legal instructions, providing loyalty, providing full disclosure.

Question 35

No brokerage relationship notice

Answer 35

When a customer chooses not to be represented, the broker must provide the customer with a separate written No Brokerage Relationship Notice.
When incorporated into another document, the notice must be of the same type size, or larger, as other provisions of the document; however, the first sentence of the information must be printed in bold uppercase. The notice is not required to be signed or initialed, although licensees should note the time, date, and place in which the disclosure notification to the consumer occurred. A copy of this disclosure form should then be retained in the broker’s transaction file as evidence that it was provided.

Question 36

In-house transaction

Answer 36

a broker can both list and sell a property. The broker, however, cannot be an agent for both parties. Transition from single agent to transaction broker would resolve this conflict.

Question 37

Nonresidential sales- Assets of $1 Million or more

Answer 37

A significant departure is allowed in the law for brokerage offices in nonresidential sales transactions. If both the seller and the buyer have assets of $1 million or more, and both request single agent representation, the broker may, at the request of the parties, designate sales associates to act as single agents for the different customers in the same transaction.

Question 38

Designated Sales Associate

Answer 38

One or more sales associates may be designated to act as agents for the seller, and one or more may be designated to act as agents of the buyer.

Question 39

Dual Agency

Answer 39

Although this is technically a dual agency that would otherwise be illegal, this provision has been incorporated into the law. The broker acts to assist the sales associates and be available to give advice. Any harmful information gained by the sales associates or the broker is considered to be confidential and may not be used to the detriment of either party.

Question 40

Must be disclosed

Answer 40

This relationship must be disclosed in writing to both parties, using specific language provided in the law that describes the duties and obligations of the broker. Both parties must sign the disclosure and confirm that their assets meet the required threshold.

Question 41

Listing

Answer 41

A listing is the broker’s employment contract that states the terms and conditions that the broker must meet to become eligible for compensation. A broker may be employed by an owner to find a purchaser or to effect a sale of the property.

Question 42

Employed to find a purchaser

Answer 42

The broker is entitled to compensation when a ready, willing, and able buyer has met all of the seller’s requirements. This is accomplished when the buyer makes an offer in accordance with the terms of the listing agreement, whether or not a sale is consummated. Florida listing agreements are written as find a purchaser contracts.

Question 43

Employed to Effect a Sale

Answer 43

When employed to effect a sale, the broker is entitled to compensation upon consummation (the closing) of the contract.

Question 44

Buyer’s Employment Contract

Answer 44

A contract with a buyer states the terms of the broker’s employment when employed by a potential buyer. A broker employed by a buyer attempts to find a property that meets the buyer’s criteria. If a broker locates a property that meets the specifications of the employment contract and a contract of sale is concluded, the broker may be entitled to compensation, whether or not the employer closes on the transaction since the broker has performed that which was agreed upon.

Question 45

Payment of Commission

Answer 45

The commission is determined by agreement and is based upon a percentage of the sales price. A broker may collect a commission from both parties in a transaction provided both parties know of and agree to the dual commission. A broker cannot compensate an unlicensed person who is unaffiliated with the transaction for a service of real estate.

Question 46

Earning the right to be compensated

Answer 46

A broker earns the right to compensation by performance. In cases where the amount of the compensation has not been specified by terms of an employment contract, a customary commission rate would be due based on the type of property and fee the broker would normally charge. A broker may lose the right to be compensated by renouncing any right to a commission, by abandoning his or her employment, or by misconduct that results in damage to his or her employer.

Question 47

Filing Liens

Answer 47

A broker cannot file a lien on a residential property in an attempt to collect an unpaid commission unless a judgment for the amount of the commission due from an employer has been rendered by a Florida court, or the lien is permitted by agreement in a listing of other employment contract.

Question 48

Commission Split

Answer 48

brokers involved in a transaction may agree to split or divide a commission if permission of all parties to the transaction has been obtained.

Question 49

Failure to Account

Answer 49

if one of the brokers collects the entire commission and refuses to share with the other broker as agreed, the broker can be charged with failure to account, which is a form of fraud.

Question 50

Procuring cause of sale

Answer 50

If two or more brokers are competing for a sale, the broker who first produces a purchaser who is ready, willing, and able to buy is the procuring cause of sale.
It is not sufficient to be the first broker to show the property to claim to be the procuring cause of sale. The broker must prove that it was his or her effort that interested the buyer in the property.
Procuring cause can be defined as “a continuous and uninterrupted series of events that results in the conclusion of a sale.”

Question 51

Multiple Listing Services

Answer 51

(MLS) is a marketing tool comprised of member-brokers and their associates who share information that pertains to currently listen propertied among other members of the service.

Question 52

Commissions or Split Fees

Answer 52

When a member-broker of the service places a listing in the MLS, he or she may offer a commission split or fee arrangement to other brokers who may have a buyer for the property listed. The fee split or compensation agreement may be the same or different for brokers acting as buyer agents, transaction brokers, or in no brokerage relationships.

A single agency listing contract can authorize the listing broker to offer a subagency to other brokers and their associates. If other brokers and their sales associates accept the offer of a subagency from the listing broker, they share exactly the same agency relationship with the principal as the listing broker.

Should a brokerage firm decline an offer of subagency from a listing broker, it may cooperate in the sale by acting as a single agent for the buyer, as a transaction broker, or may assist the buyer in a no brokerage relationship.

Question 53

Uniform Commission Rates

Answer 53

Antitrust laws make the establishment of uniform commission rates illegal between real estate companies.
The Sherman Antitrust Act and the Clayton Act are federal laws that make it illegal to discuss or establish a uniform price or fee for services in any industry. Therefore, it is illegal for competing brokers to discuss or attempt to fix the rate that is charged for their services.
The fee a broker charges is always, by law, a matter of negotiation. Commissions are negotiated between the broker and the buyer or seller and finalized with a signed agreement.

Question 54

Collecting from both parties without consent

Answer 54

A broker cannot collect a commission from both parties in a transaction without the knowledge and consent of both parties.
The collection of an illegal commission is an act of fraud. The broker would be liable for the return of both commissions, and subject to disciplinary action by the Commission.

Question 55

Overage, Secret Profit, or Unjust Enrichment

Answer 55

A broker cannot manipulate a transaction in a manner so as to profit at the expense of the employer.
It is illegal for a broker to receive more than the agreed upon or customary commission without the knowledge of the employer.
A broker could be sued by both parties and disciplined by the Commission for receiving an overage (also known as an unjust commission). The seller could sure the broker for money lost due to the failure of the broker to submit an offer. The buyer could sue the broker for money lost because the broker marked up the price of the property.

Question 56

Kickbacks

Answer 56

Section 8 of the federal Real Estate Settlement Procedures Act (RESPA) prohibits a broker from giving or accepting a fee, kickback, or anything of value in exchange for the referral of real estate settlement (closing) services in connection with federally related mortgage loans.

Question 57

Referral Fees

Answer 57

The RESPA allows brokers to pay referral fees between real estate agents and brokers without disclosure. A Florida broker may pay a referral fee to, or share a commission with, a broker licensed or registered by another state or foreign contry. The out-of-state or foreign broker may accompany the customer to Florida, but may not participate in the transaction in any manner. If the out-of-state or foregin broker comes into Florida and provides real estate services within the transaction, no referral fee or commission can be paid.
A Florida broker may not pay compensation, fees, or share a commission with unlicensed individuals in exchange for soliciting or referring business. Compensation includes gifts or reimbursement of expenses.

Question 58

Brokerage Office Requirements

Answer 58

Each active broker is required to open and maintain an office, which must be registered with the DBPR.
The office must consist of at least one enclosed room in a building of stationary construction where negotiations and the closing of real estate transactions can be conducted with privacy. The law does not require a broker to have a telephone, desk or checking account.

Question 59

Principal Office Registration is Transferable

Answer 59

To a new location for the remainder of the current registration period.

Question 60

Maintaining Office Records

Answer 60

A broker must maintain books, records and files which pertain to transactions of others in the broker’s office for a period of at least 5 years.

Question 61

Home Office

Answer 61

A broker can have an office or branch office in his or her home, if not in conflict with local zoning ordinances.

Question 62

Branch Office Requirements

Answer 62

If a broker desires to conduct business from more than 1 office, each additional office must be registered individually as a branch office with the appropriate fee paid. If a broker closes a branch office, the registration of the branch office cannot be transferred. Each new branch office location must be registered with the Department, and the appropriate fee must be paid.
If a branch office is closed and then later reopened in the same location during the same two-year license period, a reissue of the license may be requested, without the need to pay an additional fee. If a branch office is moved, a new application for registration and payment of the proper fee are required for the new location.

Question 63

Temporary Shelter

Answer 63

Unless transactions are closed or sales associates are permanently assigned, a temporary shelter used by a broker as protection for sales associates and customers is not considered to be a branch office. The permanence, use of a location, and the character of activities conducted there determine whether registration is required or not.

Question 64

Sales Associates and Broker Associate Locations

Answer 64

May be licensed at the broker’s main office or at a branch office at the option of the broker.

Question 65

Office Signs

Answer 65

A broker is required to have a sign on or about the entrance to the office, and all branch officers, where it can be easily observed and read by persons entering the office. It may be placed on either the exterior or interior of the office.
• Trade name- the sign of a broker operating as a sole proprietorship must contain the broker’s trade name, if any, the name of the broker, and the words “Licensed (of Lic.) Real Estate Broker.”
• Partnership or corporation name- the sign of a brokerage partnership or corporation must contain the name of the partnership or corporation along with the name of at least one broker and the words “Licensed (or Lic.) Real Estate Broker.”

Question 66

Name of Other Brokers

Answer 66

The names of other brokers, as well as those of sales associates and broker associates, may also appear on the broker’s office sign provided they are placed beneath and clearly separated from the required text described. The licensed status of each person must be included.

Question 67

Advertising

Answer 67

All legal advertising must be in the name and under the supervision of the broker. All advertising must be done in a manner so that a reasonable person would know that he or she is dealing with a real estate licensee. All real estate advertisements, including yard signs, newspaper ads, business cards, etc., must include the registered name or trade name of the brokerage firm.

Question 68

Sales Associate or Broker Associate’s Name

Answer 68

May appear in the ad in addition to the registered name of the brokerage. If a licensee includes his or her personal name in the ad, the licensee’s last name must appear exactly as it is registered with the Commission.

Question 69

Broker is Responsible

Answer 69

Anyone may prepare advertising copy; however, the broker is still responsible for its content. A sales associate or broker associate who violates the rules by advertising listed property in his or her name instead of the broker, may only be charged with acting as a broker.

Question 70

What are the 2 forms of advertising?

Answer 70

Institutional Advertising

Specific (or product) Advertising

Question 71

Institutional advertising

Answer 71

• is designed to create an image in the market for a brand or product. Real estate firms and franchising companies use ads that the public will relate to whenever it thinks of real estate. These ads create an image, but are not designed to sell a particular product.

Question 72

Specific (or product) advertising

Answer 72

is designed to sell a particular product or service. An ad that features a particular home for sale is an example of such advertising.

Question 73

Internet Advertising

Answer 73

Is any advertisement that is placed online. Internet ads must conform to the same requirements as printed material. The brokerage firm’s name or trade name must be placed adjacent to, immediately above, or below the point of contact information. The point of contact information includes the broker’s mailing address, phone number, fax number, or e-mail address.

Question 74

Blind Ads

Answer 74

Is any real estate advertisement that does not contain the registered or trade name of the broker, or for which there is doubt that the ad is that of a real estate broker.

Question 75

Licensee’s Name in Ad

Answer 75

If a licensee’s personal name appears in the advertisement, the licensee must use at least his or her last name as registered with the Commission.

Question 76

False Advertising

Answer 76

No real estate advertisement placed or caused to be placed by a licensee can be fraudulent, false, deceptive, or misleading.
A broker cannot use a name or insignia of any organization that relates to real estate unless the broker is currently a member in good standing. A broker would be guilty of false advertising if names or insignia were used in a manner that would lead people to believe the broker is a member of the organization when they are not.

Question 77

Personal Transactions

Answer 77

Brokers, sales associates, and broker associates are entitled to deal in real property for personal benefit. Licensees should make clear that they are dealing on their own account and not acting on behalf of others.
Licensees should make known their status as licensees to members of the public. This disclosure should take place prior to entering into serious negotiations, but is not required to take place in the preliminary stages of a transaction, such as newspaper advertising. The licensee should also ensure that this disclosure is in writing in the Purchase and Sale Contract.

Question 78

Licensee’s Personal Transactions in Advertising

Answer 78

1. The licensee may advertise the property strictly as an individual and may make no mention of real estate licensure, or
2. The licensee may advertise the property through a registered brokerage office and follow the normal advertising requirements.

Question 79

Providing Rental Information for a Fee

Answer 79

If a broker or sales associate attempts to negotiate a rental, or furnishes rental information to a prospective tenant for a fee paid by the tenant, the licensee must provide the prospective tenant with a written contract that reads as follows:
“If the rental information provided under this contract is not current or accurate in any material aspect, you may demand within 30 days of this contract date a return of your full fee paid. If you do not obtain a rental, you are entitled to receive a return of 75% of the fee paid, if you make such a demand within 30 days of this contract date.”
The form of the contract or receipt agreement must be as prescribed by the Commission as shown above. Each rental data company must furnish the Department with a copy of its current contract or receipt agreement within 30 days prior to use.

Question 80

Two Situations for Fee Return

Answer 80

1. The tenant applicant did not like any of the rental properties available. He or she may request a refund of 75% of any fee paid.
2. The tenant applicant was misled or deceived concerning the terms or availability of the property offered. He or she can request a 100% refund of any fee paid.
   In either case, the request must be made within 30 days of the contract date.

Question 81

Rental Information Violations

Answer 81

Are considered to be a misdemeanor of the first degree, punishable by up to one year of imprisonment and/or a fine of up to $1,000. In addition, the license of any broker or sales associate who is found guilty of a rental information violation is subject to disciplinary action by the Commission.

Question 82

What are Escrow Funds?

Answer 82

They are funds held by a third party on behalf of two parties in a transaction. Generally speaking, the escrow funds are held by the third party escrow service until it receives the appropriate instructions for disbursement or until the contracted obligations have been fulfilled. In real estate transactions, the real estate broker may act as the third party service, or funds may be held by another escrow service, such as a title company.

Question 83

Earnest Money Deposit

Answer 83

shows good faith on the part of the buyer usually accompanies an offer. If no contract results, the deposit is returned to the buyer. Should the offer become a contract, the deposit acts to protect the seller in the event the buyer later defaults.

Question 84

Liquidated Damages

Answer 84

default by the buyer usually requires the deposit to be forfeited in favor of the seller to compensate for having removed the property from the market.

Question 85

Form of the Deposit

Answer 85

A deposit may be in the form of money, personal property, real property, or anything of value that is capable of being converted into cash. Typically, the deposit is intended to become a partial payment of the purchase price at closing. Postdated checks are considered to be promissory notes and can be accepted as earnest money with the seller’s approval.

Question 86

Broker Responsibility

Answer 86

A broker is not responsible for the payment of any check or draft accepted as a deposit on real property. A broker who accepts a personal check as an earnest money deposit would not be held responsible if the check is returned due to insufficient funds, as long as the broker deposits the escrowed funds immediately.

Question 87

Deposit with Title Company or Attorney

Answer 87

When a deposit is placed, or is to be placed, with a title company or an attorney, the licensee who prepared or presented the sales contract must indicate on that contract the name, address, and telephone number of the title company or attorney with whom the deposit was placed.

Question 88

Within 10 Business Days after Deposit Due

Answer 88

under the sales contract, the licensee’s broker shall make written request to the title company or attorney to provide written verification of receipt of the deposit.

Question 89

Within 10 Business Days of Request for Verification

Answer 89

the licensee’s broker shall provide the seller’s broker with either a copy of the written verification, or, if no verification is received by licensee’s broker, written notice that the licensee’s broker did not receive verification of the deposit. If the seller is not represented by a broker, then the licensee’s broker shall notify the seller directly in the same manner indicated herein.

Question 90

Broker as the Escrow Agent

Answer 90

A broker is not required to be an escrow agent or to have an escrow account. If a broker is to be an escrow agent, he or she must open and maintain a separate account for such purpose in an authorized depository institution. A broker is ultimately responsible for the funds in the escrow account(s), and must be a signatory on all such accounts. A real estate broker is allowed to deposit escrow funds from sales transactions and rental management in the same trust account. However, the Commission recommends separate escrow accounts for sales and rental transactions to facilitate accounting.

Question 91

Trust Account

Answer 91

An escrow account or trust account may be held in a commercial bank, title company which has trust powers, credit union, or savings and loan association located in the state of Florida.
The escrow account cannot be held in a stock or bond brokerage house.

Question 92

No Commingling

Answer 92

A broker is not allowed to commingle or deposit the personal funds of any person with any funds being held in escrow, trust, or on condition.

Question 93

Personal or Business Funds

Answer 93

A broker is authorized to place and maintain up to $1,000 of personal or business funds in a sales escrow account, and up to $5,000 of personal or business funds in a property management escrow account for the purposes of opening the account, keeping the account open, and paying for ordinary service charges.

Question 94

Conversion

Answer 94

Escrowed funds must be maintained separately from the broker’s business and personal funds. The misuse, commingling or intermingling of, or failure to account for funds or property entrusted to any licensee is known as conversion, which is a form of fraud.

Question 95

Failure to Account

Answer 95

If a broker either cannot or will not produce money or property belonging to another when required, failure to account would occur. This is a form of conversion that would occur if a broker collected a commission, a portion of which was due to a sales associate or another broker, and failed to disburse the other party’s share.

Question 96

Sales Associate Delivery of Deposit to Broker

Answer 96

A sales associate or broker associate who receives and earnest money deposit on behalf of his or her employer must deliver the deposit to the employer no later than the end of the next business day following receipt. Saturdays, Sundays, and legal holidays are not considered business days.

Question 97

Broker Must Deposit “Immediately”

Answer 97

A broker must “immediately” place the earnest money deposit in an escrow or trust account. “Immediately” is defined as “no later than the end of the third business day following receipt.”

Question 98

Conversion of Securities to Cash

Answer 98

If the deposit is in the form of securities that are to be converted into cash, the conversion should be made at the earliest practical time with the proceeds immediately placed into the escrow account. A broker who receives a deposit must keep an accurate account of each escrow deposit transaction.

Question 99

Record Keeping

Answer 99

A broker’s books and records must be preserved for a period of not less than 5 years from the date escrow funds were received by the broker. If any transaction record has been the subject of, or as served as evidence in, litigation, the file must be retained for at least 2 years after conclusion of the litigation.

Question 100

Records Inspection

Answer 100

A broker’s books and account records are subject to inspection by the Department or by an authorized representative at all reasonable times during regular business hours. Upon request, the broker must make available all deposit slips and bank account statements together with all agreements between the parties to the transaction.

Question 101

Monthly Reconciliation

Answer 101

A broker must reconcile escrow accounts by preparing a monthly written statement that compares the broker’s total trust liability with the monthly bank statement and reconciled checkbook balance. The monthly reconciliation must be reviewed, signed, and dated by the broker. No one else is authorized to sign the escrow reconciliation.
If the broker’s trust liability does not agree with the account balances of the bank, the broker’s reconciliation must explain the reason for any differences, and specify any corrective action taken to correct any shortage or overage in the account. A broker will be allowed a reasonable time to correct escrow errors if there is no shortage of funds in the account and the errors pose no significant economic harm to the public.

Question 102

Before a Binding Contract

Answer 102

until a binding contract has been entered into, the funds remain the property of the buyer. The broker has no rights to the escrowed funds until a contract is entered into, signed by both the buyer and seller.

Question 103

Binding Contract

Answer 103

once there is a binding contract, the deposited funds are under the joint control of the buyer and seller and the broker must continue to hold the funds.

Question 104

Buyer Default of Contract

Answer 104

the seller would be entitled to the deposit if the buyer defaulted on the contract, and the broker usually has a right to share of the defaulted deposit. The deposit is typically a portion of the sales price, and the broker is entitled to a commission when the transaction closes.

Question 105

Commission Dispute

Answer 105

should a dispute arise regarding the amount of a commission that is due to a broker, of the time for the payment thereof, a broker may retain the exact amount of the claimed commission in the escrow account until the dispute is settled by either agreement, arbitration, or court order. Any amount above that claimed by the broker must be disbursed.

Question 106

Escrow Disputes and Settlement Procedures

Answer 106

Once there is a binding contract, the escrow funds are under the mutual control of the buyer and seller. A broker holds funds in trust for both the buyer and the seller. The law establishes how escrowed funds are to be handled, and the broker must abide by the law. The buyer and seller must both agree to any disbursement of any funds held by the broker.

Question 107

Escrow Dispute

Answer 107

conflicting requests in which both the buyer and seller demand that the broker release escrowed funds. If a broker receives conflicting demands for escrowed funds, or if the broker has good-faith doubt as to which person is entitled to the escrowed property, the broker must give written notification to the Commission within 15 business days from the date of the last party’s demand. The broker is required to institute an authorized settlement procedure to resolve the dispute within 30 business days from the last party’s demand.

Question 108

Disputed Commission

Answer 108

a dispute between a broker and a party regarding the commission for the transaction is not an escrow dispute. Escrow dispute resolution procedures do not apply in this situation, and a request for an escrow disbursement order from the FREC is not appropriate. The matter must be resolved between the parties or by civil court action.

Question 109

Escrow Dispute Settlement Procedures

Answer 109

Sometimes referred to as escape procedures. If a broker implements one of these settlement procedures within 30 days from the last party’s demand, the broker will not be charged with failure to account for, deliver, or maintain escrowed property.

1. Mediation
2. Arbitration
3. Escrow Disbursement Order (EDO)
4. Litigation

Question 110

Mediation

Answer 110

all parties must consent to mediation given written consent. The parties appoint a third party to assist in reaching an agreement. The mediator has no power to impose a decision on the parties. The process must be successfully completed within 90 days following the date of the last demand for the escrowed funds from the parties, or the broker must promptly employ one of the other authorized resolution procedures.

Question 111

Arbitration

Answer 111

if all parties give written consent, then they agree in advance by contract to abide by the arbitrator’s decision. After a hearing in which both parties have an opportunity to be heard, the arbitrator decides how the funds should be disbursed and issues an award. The award is binding and can be enforced in a civil law suit if the responsible party fails to abide by the decision.

Question 112

Escrow Disbursement Order (EDO)

Answer 112

is a request by the broker to the Commission to determine the party entitled to the escrowed property. The Commission then issues an EDO for the distribution of the funds. If the Commission issues an order, the broker, by law, must follow it or be in violation of the law. The parties are advised of the decision by the Commission. If they disagree, they may file an appeal with the district court. Should the appeal be upheld, the broker could be subject to civil damages for disbursing the funds, even though he or she was legally required by the EDO to do so. This constitutes double jeopardy for the broker. The law recognizes this and makes provision for the broker to be reimbursed for any damage award. If the broker has requested an EDO, and the dispute is subsequently settled or goes to court before the order is issued, the broker shall notify the Commission within 10 business days.

Question 113

Litigation (Court Action)

Answer 113

a suit in court can be used to resolve the escrow dispute. Two methods are available. The one chosen depends on whether or not the broker feels they are entitled to some or all of the funds in dispute.

Question 114

Bill of Interpleader

Answer 114

the broker would file this if he or she does not claim any rights to the deposit under dispute. The escrowed funds would be turned over to the registry of the court, pending a settlement. If this method is selected, the broker may be awarded court costs and attorney’s fees since the broker is making no claim for any of the funds in dispute.

Question 115

Declaratory Decree

Answer 115

would be requested if a broker feels that he or see is entitled to some or all of the deposit in dispute. The deposit would be turned over to the registry of the court, pending a settlement. Since the broker is a claimant to some or all of the money in dispute, the broker must pay his or her own court costs and attorney’s fees when this alternative is selected.

Question 116

Escrow Disbursement Exemptions

Answer 116

1. In the resale of a residential condo where a potential buyer is allowed a 3-day rescission period, the broker is permitted to refund the escrow deposit within the rescission period upon receipt of the buyer’s written notice of intent to withdraw from the contract.
2. When a sales contract is subject to financing, and the broker is acting as an escrow agent, the broker may refund the deposit to the buyer without notification to the Commission if the financing cannot be obtained.
3. If the buyer contracts to purchase a property from HUD, the broker can release the escrow deposit to the buyer as directed in the HUD contract.

Question 117

Sales Associate is an Agent of the Broker

Answer 117

As such, all activities are legally in the name and under the control of the broker or owner-developer.
An agent is not allowed to perform any activity not authorized by the employer. A sales associate may not accept money or property except in the name of the employer. A sales associate must register under their legal name; they may not use a trade name. All listings, contracts, and the like are the property of the employer. A sales associate or broker associate is never an agent of the broker’s principal.

Question 118

Sales Associate Commission

Answer 118

This is determined by agreement with the broker. The Commission has ruled, however, that a broker can give written permission to a closing agent to disburse a commission check directly to a sales associate or broker associate.
A sales associate can be paid any money due after his or her license becomes invalid for services performed while actively licensed.
A sales associate who is not compensated as agreed upon by his or her employer may not file suit against anyone other than the employer.

Question 119

Broker’s Liability

Answer 119

A broker is legally liable for the acts of partners, sales associates and broker associates if the actions are within the scope of their employment.
In a civil suit for damages, a broker is responsible for the actions of partners or employees, regardless of whether the broker knew about the actions.
However, if the Commission wishes to take disciplinary action against the broker for the actions of others, the Commission must prove that the broker had knowledge of, or participated in, the improper act.

Question 120

Accusation of Fraud

Answer 120

Under Florida law, a broker renders a professional service. If a plantiff accuses a broker of fraud, the plaintiff needs to only show that the broker’s statement was relied upon or was material to his or her decision in order to prove the charge of fraud. Fraud can occur inadvertently or accidentally. It is not necessary to have intent for fraud to occur. Restitution is not a defense against a fraud charge.
Laws and rules that concern fraud and other improper activities by brokers apply equally to sales associates and broker associates.

Question 121

Change of Employer of Address

Answer 121

Must report any change to the Commission within ten days.

Question 122

Change from Resident to Nonresident

Answer 122

Must notify the Commission of the change in residency within 60 days and comply with nonresident requirements.